August 2, 2014

The Forgotten Numbers in the Medicare Debate

Facing Facts Alert 5

FACING FACTS The Truth about Entitlements and the Budget A Fax Alert from The Concord Coalition FAX ALERT (Number 5, August 6, 1995) THE FORGOTTEN NUMBERS IN THE MEDICARE DEBATE According to opponents, Congress' proposed Medicare cuts are "unprecedented" and would "devastate" Medicare's mostly poor and near-poor beneficiaries. Correction: Most beneficiaries are not poor or near-poor. Nor are the cuts proposed by Congress unprecedented: The President's 1993 Health Security Act specified Medicare cuts that were essentially as large. Who Gets Medicare Let's start with incomes. A misleading factoid is surfacing everywhereufrom congressional hearings to President Clinton's weekly radio address: No less than 75 percent (some say 83 percent) of Medicare outlays go to beneficiaries with incomes below $25,000; only 5 percent (some say 3 percent) go to those with incomes over $50,000. All of these numbers greatly understate the incomes of beneficiaries. The more skewed numbers, mentioned in parentheses, refer to utilization of health-care services. But measuring the income of Medicare beneficiaries by looking at utilization is like measuring the home equity of people with fire insurance by looking at those whose houses have burned down. A better measure is the income of everyone insured by Medicare, not the income of those who happen to be reimbursed. The less skewed numbers look at all beneficiaries, but they too mislead by using self-reported surveys which are known to under-report asset and benefit income. Curiously, no one cites CBO's data on the income of Medicare beneficiaries. According to these numbers, which measure the insurance value of Medicare benefits and correct for the under-reporting problem, over half of Medicare benefits went to households with incomes over $20,000 in 1990; one-third went to households with incomes over $30,000; and 15 percent went to households with incomes over $50,000uthree-to-five times the share cited by opponents of Medicare cuts. Even these numbers understate beneficiary incomes. They are for 1990; since then, median elderly household income is up nearly 10 percent. The measure of income used is a restricted one that doesn't even include the value of the Medicare benefit itself. Incomes are calculated per household, and so don't reflect the fact that beneficiary families are small (1.6 members on average, much smaller than the average for nonbeneficiary families). And incomes are calculated on a before-tax basis, which means they don't reflect the fact that most beneficiary income is tax-advantaged. Yes, Medicare beneficiaries spend more out-of-pocket on health than younger households. But then again, younger households have higher out-of-pocket expenses for everything from home mortgages to education. A Bipartisan Consensus The public understands that to get a handle on out- of-control Medicare spending we have to begin by scaling-back payments to affluent households whom safety nets like Medicare were never designed to target. According to a recent Concord poll, three-quarters of the electorate favors means-testing Medicare benefits. When not playing partisan politics, both parties also understand that we must control costs. Today it may be the Republicans who are "messing with Medicare" and the Democrats who are playing the senior card. But not long ago, it was the other way around. For those who have forgotten about the large Medicare cuts proposed in the administration's 1993 Health Security Act, here are the numbers. The Health Security Act called for $183 billion in programmatic Medicare cuts from 1996 to 2000umore than the $137 billion in savings Congress is now proposing. To be sure, these cuts were to be offset by a new prescription drug benefit. But even if you factor in this benefit, that still leaves $111 billion in net savings. Moreover, you have to consider cost-shifting. Being "comprehensive," the President's plan was predicated on eliminating any current cost-shifts to private payersuwhich effectively meant that (totally aside from the plan's proposed dollar savings) Medicare would have had to cut back sizably on real services provided to stay within any given dollar budget. Medicare is patently unsustainable in its current form. To preserve it, we must reform it. And to do that sensibly, we'll have to get the numbers straight.

FACING FACTS AUTHORS: Neil Howe and Richard Jackson CONCORD COALITION EXECUTIVE DIRECTOR: Martha Phillips