HA: No. It’s projected to be exhausted in 2024. But action will be needed before then to avoid that outcome. But there is a bit of a Perils of Pauline character to watching the Hospital Trust Fund. In the past, projections have indicated that it would be exhausted in as little as two years. Each time, Congress has stepped in to make changes that prevent that outcome.
TL: What has Congress done to make sure that doesn’t happen?
HA: It has injected revenues from taxation of Social Security benefits. It has reformed payments. It has shifted costs from the Hospital Trust Fund to other parts of Medicare. It has increased payroll taxes, and tightened enforcement to avoid fraud.
TL: What is the long-term solution?
HA: I think it takes a lot of things. It takes more enforcement dollars, as there is still a lot of fraud. It takes administrative dollars, so that Medicare can make sure that physicians and hospitals follow established guidelines for delivery of care. It takes more payments, in premiums or cost sharing, by those who can afford them. It takes reform of the supplemental coverage that most people have so that this coverage does not shift costs to Medicare. And even after all of those measures, it will also take higher taxes.
Current payroll tax revenues, which fund hospital care, cannot possibly pay for the flood of Baby Boomer beneficiaries. There’s no way to provide standard benefits for the tens of millions who will become eligible for benefits in the next few years without raising payroll taxes and general revenues for Part B (medical benefits). Just now, few are willing to acknowledge that we are going to have to raise taxes or that we should actually spend more on administration.
TL: Will more means testing in the program—that is, making those with more income pay more for their Part B and Part D benefits—make much of a dent?
HA: Well, technically speaking, we don’t have means testing, which means denying benefits to people with more than a certain amount of income or assets. But those with comparatively high incomes have to pay extra for benefits. And there is somewhat more room for such charges. But not a lot, since only a small proportion of the elderly and disabled can pay much more than they do now for health care without suffering genuine hardship.
TL: How about raising the Medicare eligibility age?
HA: Most people now go on Social Security well before they become eligible for Medicare at age sixty-five. Right now, many have no health insurance between when they leave work and become eligible for Medicare. That gap is a problem. Raising the age of eligibility for Medicare would make it worse. If and when the Affordable Care Act is enforced and operating smoothly, it would be much less of a problem. Currently there is an additional problem with raising the age of eligibility. It would actually increase total health care spending because the private plans into which people would move are more costly than Medicare is, and it saves less for the federal budget than one might suppose, because of the added payments that cutting people out of Medicare generates in such programs as Medicaid. This change needs to remain on the table, however, as part of a long-term effort to encourage people to remain economically active to a later age than they do now. That trend is already underway.
TL: Medicare has low administrative expenses, about 3 percent of outlays compared to private insurance carriers. You’ve said they might be too low. What do you mean by that?
HA: Medicare collects several dollars for each dollar it now spends on enforcement. It should spend more to find cheats. Medicare has too little money and staff to make sure, when it approves a drug or a procedure for a particular condition but not for others, that payments are made only in the approved cases. Medicare now mostly pays bills, but it should also be collecting data to support comparative effectiveness research. Spending more on administration would lower total program costs and improve quality.
TL: How well has the press covered Medicare?