Medicare And Medicaid's Midlife Crisis Should Be A Wake-Up Call For Reform

Sunday, July 30, marks the 58th anniversary of the creation of Medicare and Medicaid. They came into being in 1965 under President Lyndon Johnson and his “Great Society” program.

Unfortunately, the programs are finishing out their sixth decade in a state of crisis. They’ve ballooned into enormously costly entitlements that deliver substandard care. And they’ll only become more unsustainable without serious reform.

Take Medicare, which covers Americans 65 and older and certain people with disabilities. It cost taxpayers $10 billion in its first year. In 2022, the program spent nearly $750 billion—equivalent to about one-fifth of U.S. health expenditures.

In 2031—when one in five Americans will be over 65—Medicare’s tab is projected to reach $1.8 trillion.

Medicaid spending has reached similarly dizzying heights—especially in recent years, when Obamacare added 21 million more people to the rolls. While initially established as a safety net for people in severe poverty, Medicaid covered over 90 million Americans as of this past March and is the nation’s single largest source of health coverage. Taxpayers spend nearly $730 billion each year on an entitlement that cost under $1 billion at its inception.

Costs aren’t just skyrocketing due to soaring enrollment. These programs also lose a significant amount of money to waste, fraud, and abuse. Last year, Medicaid dolled out more than $80 billion in improper payments. That’s an improper payment rate of over 15%.

The huge sums that taxpayers funnel to these entitlement programs don’t always result in affordable or quality care for enrollees.

Medicare is far from free for its beneficiaries. The average Medicare recipient currently spends over $6,500 on premiums, supplemental insurance, and other out-of-pocket costs—an 8% increase from last year. And that doesn’t always buy them access to care. More than one in ten doctors are not accepting new Medicare patients, according to a 2021 report from the Medicaid and CHIP Payment and Access Commission, or MACPAC.

People on Medicaid may also struggle to find a doctor who will see them. The same MACPAC report found that less than three-quarters of doctors were accepting new Medicaid patients.

More than 96% were accepting new patients with private insurance.

Doctors are less enthused about seeing Medicare and Medicaid beneficiaries because the programs pay them less than private insurance does. As enrollment has ballooned in both public plans, competition for scarce appointments will only grow more fierce.

Medicare and Medicaid can’t continue growing on their current trajectory. The money just isn’t there. If the two programs are to survive into their sixties and beyond, major changes will need to be made.

Raising Medicare’s eligibility age is one simple way to ease the fiscal pressure on the program. Men who make it to age 65 today can expect to log another 16.9 years; for 65-year-old women, life expectancy is another 19.6 years. That’s four years longer for men and 3.3 years longer for women than in 1965, when Medicare was created.

Life expectancy at birth for men back in 1965 was just 66.8. That’s almost seven years less than today. The discrepancy for women is similar. With Americans living longer, it makes sense to delay eligibility for Medicare.

The federal government should also consider switching to a premium support model, whereby seniors receive a fixed sum they can use to purchase a privately administered plan or traditional Medicare. Under this model, plans would have to compete for seniors’ business. That competition would yield lower overall costs and better-quality benefits. Former Congressional Budget Office director Douglas Holtz-Eakin estimates that moving to premium support would save Medicare enrollees $333 billion and taxpayers $1.8 trillion over the next decade.

Lawmakers can salvage Medicaid by refocusing it on its original intended beneficiaries—the destitute and the disabled. Requiring able-bodied adults to work in exchange for Medicaid benefits would, over time, help nudge people from public dependence to private health insurance.

Finally, federal Medicaid spending could be reined in by allocating funding to states in the form of block grants. This would give states more control of their Medicaid programs—and thereby enable them to tailor their benefits to the unique needs of their residents.

This year, Medicare and Medicaid need an intervention—not a celebration. Without reform, these healthcare programs will soon reach a breaking point.

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