Millions of seniors are dependent on the Medicare system every year. According to 2008 stats from Medscape Today, nearly 45 million seniors ages 65 and older are enrolled in Medicare programs. However, since this number is expected increase significantly with the millions of Baby Boomers set to reach retirement age by 2030 - and the system is running out of money - it becomes anything but a secret that today's Medicare system is indeed troubled, if not dying.
Medicare's Financial Woes
Medicare has been running into financial troubles over the past years, partially due to the rising costs of health care (see recent data on the estimated growth of health care spending from 2008 to 2018). In essence, the plan is running out of money - and fast. In fact, Treasury Secretary Timothy Geithner has projected that Medicare Part A (the original Medicare program), which is funded by payroll taxes, will be drained of funds by 2017. And while the other programs are mostly funded by beneficiary premiums, they are partially funded by government general revenue, which has suffered since the economic crisis.
The cost to pay for each Medicare enrollee is astronomical. On average, $10,000 is spent on each enrollee in the Medicare system per year, which totals $500 billion annually. Of course, it doesn't help that Medicare fraud is on the rise. In late Oct. 2009, CBS' 60 Minutes discovered that nearly $60 billion a year is lost in Medicare fraud. While officials are cracking down on fraud for both Medicare and Medicaid, doing so isn't likely to save the systems single-handedly.
But the problems get bigger.
According to a 2008 report released by the Institute of Medicine, by the year 2030, all of the Baby Boomers will have reached retirement age - all 78 million of them - which is nearly double the current number of seniors over 65. Clearly, this increased number contributes to the bankruptcy predicted to take place 13 years prior.
Problems for Medicare Beneficiaries
Unfortunately, the problems in Medicare don't stop with financial troubles within the system. Beneficiaries have also suffered from what they once thought was a low-cost alternative to private insurance and instead discovered it was a costly plan requiring thousands in out-of-pocket costs for co-pays, deductibles, prescriptions and more each year.
Recent data distributed by Fidelity Investments revealed that the average 65-year-old should expect to pay $6,631 annually in health care expenses with their Medicare. The Part D program alone can require seniors to pay nearly $3,500 while in the "donut hole." With so many beneficiaries surviving on extremely low incomes (nearly half of all people on Medicare are have incomes 200% below poverty - $20,800 for individuals and $28,000 for couples), dangerous behaviors like splitting pills and forgoing medication have become commonplace.
But Part D isn't the only problematic Medicare program. Recently, nearly 660,000 Medicare Advantage Private Fee for Service (PFFS) recipients were dropped by their insurance companies due to new, stricter federal requirements (see story: Medicare Plans are Being Dropped).
Medicare Isn't a Bad Program
From what you're reading, you may wonder why people enroll in Medicare at all. The fact is, the system has been around for many years and has been successful in fulfilling senior health care needs, including allowing them to visit doctors, receive hospital care and obtain much-needed prescription drugs at a 75% or more discount. For those who are enrolled in Medicare Advantage, there's an even greater benefit of being able to work with chosen HMOs, PPOs or private fee-for-service plans to receive necessary care.
Overall, costs associated with Medicare are much lower than what would be spent either with a private insurer, or out-of-pocket by using retirement savings. But according to research from the Employee Benefit Research Institute, a new retire in 2016 will need more than $200,000 to cover their retirement medical costs with Medicare. So with many seniors struggling to make their Social Security checks work for them, and health care costs growing 2.5% faster than the economy, what was intended to be a great program is only barely keeping up with the aging population.
Keeping the Program Going
Ways to keep Medicare afloat is an ongoing discussion among experts. While there is no consensus as to what will help the most, here is a roundup of a few solutions:
- Spread the costs: Medicare has already shifted some expenses to capable beneficiaries by adding a premium-adjusted means test to Medicare Part B premiums. This test requires those making over a certain amount ($85,000 for individuals, $170,000 for couples in 2009) to pay more than the $96.40 monthly premium.
- Crack down on fraud: As mentioned previously, nearly $60 billion in the Medicare system is lost to fraud each year. Until this issue is resolved, fraud may continue to be a problem.
- Cut payments: President Obama has recently proposed cutting payments to Medicare Advantage insurers and reducing reimbursements to hospitals to keep the program alive. However, many experts still suggest that the system will need new money to survive and thrive.
- Decrease utilization: Some have suggested decreasing the number of seniors qualified to enroll in Medicare, for instance, by changing the eligibility age to 70 instead of 65.
Decreasing benefits has also been suggested to save money; however, this idea, along with changing the eligibility age, is likely to be opposed strongly by retiree advocates.
What You Can Do in the Meantime
For those seniors already in the Medicare system, it seems that playing the "waiting game" as the government comes up with solutions is priority number one. However, those who have yet to reach retirement age are encouraged to participate in a health savings account (HSA) that functions like a 401k plans for health care costs.
These accounts were created by the Medicare bill signed by President Bush in 2003 and help individuals save for their future qualified medical and retiree health expenses on a tax-free basis. What's great about these accounts is that if you discover you don't need the funds down the line, you could use them like an ordinary retirement account. Also, HSAs are easy to open at your local bank.
Nowadays, dependence on government assistance like Medicare can unpredictable, which is why learning how it could affect you in the future is a good idea. By getting a grip on what to expect, you can begin making the right decisions for your future because the last thing you want is to have your health deteriorate as you wait for changes to be made to a system that may in fact be deteriorating as well.
