Social Security & Medicare trustees 2021 report

Committee for a Responsible Federal Budget article (link) 

Two graphs show the looming financial crisis for the Medicare Part A Hospital Insurance trust fund and the Social Security Old-Age and Survivors Insurance trust fund. 

"The Medicare Trustees project the Medicare Part A Hospital Insurance (HI) trust fund will run out of reserves in only five years, by 2026. Upon insolvency, Medicare Part A spending must be cut by 9 percent, with those cuts growing to 22 percent by 2045."

"The Social Security Trustees, meanwhile, project the Social Security Old-Age and Survivors Insurance (OASI) trust fund will deplete its reserves by 2033 and the Social Security Disability Insurance (SSDI) trust fund by 2057. The theoretically combined trust funds will exhaust their reserves by 2034 ... Upon insolvency, all beneficiaries will face a 22 percent across-the-board benefit cut, growing to 26 percent by 2095."

The report does not address Medicare Parts B, C, and D. 

The report doesn't say what "insolvency" exactly means. The first quote above strongly suggests it is when the "reserve" is depleted. The "reserve" is an accounting gimmick. It is the result of the fund's dedicated revenues exceeding benefits paid in prior years. The "reserve" is merely IOUs from the U.S. Treasury. The federal government did not save the excesses, but spent them on other government programs. When benefits exceed dedicated revenues after the "reserve" is depleted, the excess will be paid from general revenues (income taxes, etc.) and/or by the federal government incurring more debt (by selling new U.S. Treasury securities).  

The benefit cuts the article describes is based on existing law. Of course, Congress can change the law before then, and Congress could cut benefits by non-uniform percentages. It could cut higher income benefits by greater percentages than lower income benefits.

New Alzheimer drug

The Food and Drug Administration (FDA) recently approved use of a new drug -- Aduhelm or aducanumab developed by Biogen -- for treating Alzheimer’s disease. 

Three medical experts on an FDA advisory panel resigned from the panel after deciding the drug's effectiveness has not been sufficiently shown or that the drug will do more harm than good. Link.

The financial effect of the approval on Medicare and Medicare Advantage programs and beneficiaries will be huge. Only time will tell how huge. Medicare’s long-standing practice is to make coverage determinations without taking cost into consideration.  This article from the Kaiser Foundation puts an expected price tag on the drug of $56,000 per patient per year. Since the drug will be physician-administered, it will be covered by Medicare Part B, for which Medicare covers 80% of the cost and the patient 20% (up to the annual out-of-pocket maximum of $7,550 for in-network care and $11,300 for combined in-network and out-of-network care in 2021).

"[T]he drug’s approval could trigger hundreds of billions of dollars of new government spending, all without a vote in Congress or indeed any public debate over the drug’s value." "If even one-third of the estimated 6 million people with Alzheimer’s in the United States receives the new treatment, health-care spending could swell by $112 billion annually." (The Atlantic).

Social Security, Medicare, and Medicaid are sacred cows to politicians and more than half of federal government spending. 

Medicare Advantage analysis

It's time for a balanced conversation about Medicare Advantage spending

When a person becomes eligible for Medicare, he or she has two main choices. 

1. Original or traditional Medicare with or without supplemental coverage via a prescription drug policy, Medicaid, purchasing a Medicare supplement policy (sometimes called Medigap), or from an employer. The model is fee-for-service.  Medicare pays providers for claims for medical services.

2. Medicare Advantage. The insured person chooses one insurer (not Medicare) among many and various plans the insurer offers.  One policy from a private insurer, which pays providers. The Centers for Medicare & Medicaid Services pays each private insurer on a per capita basis, the rates varying geographically. The model is managed care or HMO or PPO. 

In either case, he or she pays the Medicare Part B premium. 

The author of this article favors Medicare Advantage over original Medicare with or without supplemental coverage. She believes it is more cost effective. I don't have the expertise to opine on the thoroughness of her case, but it seems she presents a good and unbiased case for favoring Medicare Advantage.

P.S. Sellers of Medicare Advantage policies often advertise "$0 premium." While this is true regarding the amount of premium the insured person pays to the insurer, it is at least misleading since the insured person must pay the Medicare Part B premium. Rarely does "$0 premium" advertising include this caveat, or it is in fine print (which on tv can appear too briefly to read).

Bernie Sanders' Medicare for All #2

The executive summary linked in my previous post was for Sanders' Medicare for All Act of 2017. Its only mention of long-term care is: "Long-term care for seniors and people with disabilities will continue as it is currently covered under Medicaid." It says nothing about limiting co-pays for prescription drugs.

This story (April 10) reports that Sanders has since added to his wish list. "In this latest version, Sanders added coverage for long-term care." "Brand name prescription drugs would be subject to copays totaling no more than $200 annually."

Of course, he omits saying what all this will cost. To him cost doesn't matter. In his view health care is a "moral right" and a license to coerce others to pay or provide whatever he or the government commands. However, a "right" to coerce others to pay or provide for this alleged "right" cannot be a legitimate right, because it violates the rights of those coerced. He also wishes his audience and supporters to believe (1) it will cost them little or nothing, (2) "the rich" will pay for all or most of the cost, and (3) there will be no bad consequences such as hospitals closing and cutting staff.

Per the story White House press secretary Sarah Sanders said in a statement that his plan would entail “a total government takeover of health care that ... (would) cripple our economy and future generations with unprecedented debt.”  True and true.

The last paragraph of the story says: "Earlier this year, a poll from the nonpartisan Kaiser Family Foundation found that Americans like the idea of Medicare for All but that support flips to disapproval if it would result in higher taxes or longer waits for care."

I found the poll results here. In other words, the majority of Americans approve of Medicare for All, if they don't have to pay more for it. But see slide 11. The majority oppose it if it requires most Americans pay more taxes, results in delays in treatment, or eliminates private health insurance.

What a surprise. Sure, I'd like a $10 million mansion and a couple of brand new Lamborghinis if somebody else is willing to pay for them. On the other hand, I won't spend my own money on anything near that extravagant.

Addenda: Alexandria Ocasio-Cortez, who worked as an organizer for Bernie Sanders' 2016 presidential campaign, said the following according to FoxNews:

"In an interview with Jorge Ramos last week, Ocasio-Cortez was asked how she would pay for the multibillion-dollar health care plan promoted by liberal lawmakers like Sens. Bernie Sanders, I-Vt., and Kamala Harris, D-Calif. Ramos noted critics say the program would be "more expensive" than the current system, to which she answered that people would "just pay for it."

“People often say, like, how are you going to pay for it and I find the question so puzzling because ‘How do you pay for something that’s more affordable? How do you pay for cheaper rent?’ You just pay for it,” she said."  Gibberish.

Bernie Sanders' Medicare for All

The USA's population is becoming more and more enamored with Medicare for All. Bernie Sanders touts it often as the cure to health insurance and health care. There are different versions of it, but Sanders' version is a massive government takeover of health insurance. This post will focus on health insurance, not health care.

The basics of his proposal is given in this story. He wants to eliminate private insurance in favor of government-run universal coverage. That includes eliminating health insurance now provided by employers. Almost half the US population has it. Everybody goes on Medicare. So whatever is being paid by employers now (I believe it's around $1 trillion per year) would be shifted to being paid for by increasing taxes, payroll or income. Of course, Bernie refrains from honestly saying how much.

Per here, federal, state, and local governments will spend $1.7 trillion for health care in fiscal year 2019 ($1.25 trillion federal). So the increase in taxes would be huge.

Per page 10 here 217 million people, 67% of the population, have private health insurance coverage that Bernie Sanders wants to eliminate, i.e. take away those people's health insurance, and put them on Medicare. Medicare in 2017 covered 55.6 million people. It's much closer to 60 million now. He doesn't want to eliminate employer-provided insurance instantly. He's willing to phase in the elimination over 4 years. But him wanting to eliminate it is clear in his executive summary -- "there would be one insurance plan for the American people with one single payer", Medicare.

His executive summary does not mention Medicare Supplemental (Medigap) or Medicare Advantage. However, these are private insurance, so lets take his elimination talk seriously. People buy Medicare Supplemental coverage, paying a premium, so that the policy pays for a lot of what Medicare does not. Replacing Medicare Supplement coverage will be in addition to the added cost of Medicare covering more people.

Medicare Advantage is a government-approved alternative to Medicare. The federal government pays a lot of money to the private insurer for each person covered. With a wholesale government takeover, the extra cost to the government would be the premiums Medicare Advantage insureds pay. These premiums on average aren't as much as for Medigap, but there would be some amount.

If you believe I'm exaggerating Bernie's proposal, think again. UnitedHealth Group -- often called UnitedHealthcare -- is the largest healthcare company in the world by revenue with $226.2 billion in 2018. Per this story Sanders tweeted to the CEO of UnitedHealthcare: “Our message to Steve Nelson and UnitedHealthcare is simple: When we are in the White House your greed is going to end. We will end the disgrace of millions of people being denied health care while a single company earns $226 billion and its CEO makes $7.5 million in compensation.” He says "end the greed", but his wanting to eliminate private insurance and single payer imply destroying UnitedHealthcare.

If employers will no longer provide health insurance for their employees, where will their cost savings go? You can bet that Bernie wants to confiscate it. And I'd like to see Bernie tell a huge crowd of federal and state government employees that he wants to eliminate their employer-provided health insurance.

Medicare Advantage finance

Some people with Medicare Advantage coverage wonder why they must pay Medicare Part B premiums when they aren't covered by Medicare. They show their Medicare Advantage card to medical providers and pharmacists and don't need to show their Medicare cards. A few of these even pay Part A premiums, which are higher than the Part B premium for most such people, when neither they nor their spouse has 40 or more quarters of Social Security coverage.

Why must they pay said premiums when they do not have Medicare coverage? Medicare Advantage insurers relieve Medicare of paying claims on behalf of those who choose a Medicare Advantage plan. Medicare -- more specifically the Center for Medicare and Medicaid Services (CMS) -- pays Medicare Advantage insurers for each person who enrolls in a Medicare Advantage plan. Indeed, CMS pays them a lot of money -- called capitation payments -- currently on average about $11,000 per year per person enrolled in a Medicare Advantage plan. So in effect, the Part B premium (plus any Part A premium) paid by the Medicare Advantage insured is an indirect payment to the insured's Medicare Advantage insurer. For most the Part B premium of $1,626 (=12*$135.50) for 2019 is about 15% of the $11,000.

The capitation rates vary by county and are higher for higher risk insureds. Receiving said capitation money is how some insurers can offer and advertise a Medicare Advantage plan with $0 premium.

"$0 premium" does not mean the insured person pays nothing. In addition to the Medicare Part B premium, and for a few the Medicare Part A premium, the insured persons pay deductibles, coinsurance, and co-pays when they utilize the services covered by the Medicare Advantage plan. This page gives more detail.

In 2018, 34% of Medicare beneficiaries – 20.4 million people – were enrolled in a Medicare Advantage plan (link). So about 66% have original Medicare. They may also have a Medicare supplement plan (also called Medigap) and a Part D prescription drug plan. In 2016,  81% of original Medicare beneficiaries had some type of supplemental insurance, including employer-sponsored insurance (30%), Medigap (29%), and Medicaid (22%). Link.

The major sources of revenue for all of Medicare in 2018 were general revenues 43.2%, payroll taxes 36.2%, and premiums 15.3% (source: Medicare Trustees Report).