The other big dog in the federal “mandatory spending” budget
is Medicare, on which the government spends a bit more than $632 billion per
year, or about 15% of the federal budget, to help cover the medical costs of
about 55 million Americans 65 or older
or on disability.
About 38% of Medicare costs are covered by a 2.9% payroll
tax (1.45% each from employee and employer, except for incomes above $200,000,
which pay a 2.35% employee tax) on workers.
Another 13% of Medicare costs are covered by the small premium ($134)
each beneficiary pays each year for part (again slightly higher for higher
income people). So roughly half of the
Medicare costs are paid for employees, employers, and beneficiaries, with some
minor 1-2% contributions from other sources like states.
So what Medicare really costs the taxpayers over and above
any payroll taxes or premiums (ie – what comes from “general revenue” and
borrowing), is in the neighborhood of $309 billion per year, or about half of
what we put into the world’s most expensive military.
Of course the US health care system is a shambles, and so we
all pay too much for health care.
Average US per capita health care costs are just over $9000, about
double the average for other developed countries. The next highest in 2016 was Switzerland, at
$6,787 per person. Yet several different organizations rank the US last in
health care quality among the top 10 developed countries. Part of this is due
to our pay-for-service model, which encourages doctors and hospitals to
maximize the chargeable services they prescribe. Part of it is due to the
skyrocketing cost of malpractice insurance, driven by the ambulance-chasing law
firms that encourage people to sue at the slightest problem. And part of it is
due to the incentive structure of Medicare which provides little incentive for
users to shop around for better prices, and so little incentive for doctors and
hospitals to restrain costs.
Congress, as usual, hasn’t helped. Wealthy pharmaceutical
corporations and insurance companies have bought favorable legislation with
their campaign donations, so that insurance plans can’t be sold across state
lines, Medicare is prohibited from negotiating lower drug prices, and US
citizens are supposedly forbidden from ordering drugs from other countries,
where the same drug from the same company may be priced at 20-25% of the price
charged in the US.
We could of course charge higher premiums and increase the
Medicare deductible to reduce the cost, but that really doesn’t address the
underlying problem – the completely dysfunctional US health care market. Medicare keeps threatening to reduce what
they pay doctors, but (a) we already have a shortage of doctors in this
country, so reducing what they make isn’t the right incentive, and (b) many
doctors are simply opting out of serving Medicare patients because the Medicare
payments already don’t cover their costs. My neighbor, who is a GP, tells me
that Medicare has structured their pricing so that he would have to see 5 Medicare
patients an hour (12 minutes a patient) just to cover his office costs and
staff. As he says, what doctor can give good medical care at 12 minutes a
patient?
So unlike Social Security, there really isn’t an easy fix
for Medicare, and the problem will grow steady worse, and the costs will grow
steadily higher as the population ages. The only thing that would work is a
complete realignment of the health care system, and that will be hard because
there are so many vested interests in the system the way it runs now.
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