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DECEMBER 12, 2008, 6:30 AM
Why Does U.S. Health Care Cost So Much? (Part IV: A Primer on Medicare)
By UWE E. REINHARDT
Uwe E. Reinhardt is an economist at Princeton. For previous posts in his series on why America pays so much for health care, click here, here and here.
Medicare, the federal health-insurance program for America’s elderly, plays a major and highly controversial role in our health-care system. To many Americans it is a blessing. Others view it as a source of all that’s wrong with American health care. I propose to explore these views in this and the next two posts to this blog.
Medicare was established by Congress in 1965, when close to 40 percent of America’s elderly lived at or below the federal poverty line. They simply could not afford the ever more sophisticated and expensive health care then starting to come on line.
The program now covers 45 million Americans aged 65 or older, as well as younger people with permanent disabilities, among them patients afflicted with End Stage Renal Disease (ESRD). About half of Medicare beneficiaries live at or below 200 percent of the federal poverty line (i.e., $20,800 annual income for a single person and $28,000 for a couple). Over a third of the beneficiaries are afflicted with three or more chronic conditions.
In 2009, Medicare is expected to cost the federal government about $480 billion. That represents over a fifth of total national health spending on personal health care, 13 percent of the federal budget and close to 3.5 percent of the country’s gross domestic product. These outlays are financed with a combination of payroll taxes (41 percent), general tax revenues (39 percent), premiums paid by the elderly (12 percent) and sundry other sources, including interest earned on a trust fund established for the program.
Because Medicare’s benefit package traditionally has been less generous than traditional employment-based private insurance for younger Americans – it has covered prescription drugs only since 2006 — many beneficiaries have sought supplemental, wrap-around coverage from their former employers (about 33 percent) or from a purchase of a private Medigap policy (about 20 percent).
The federal-state Medicaid program for the poor provides such gap coverage for some 7 million (or 15.5 percent) of Medicare beneficiaries, called “dual eligibles.”
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This sentiment is not surprising, because, from both the patient’s and the provider’s perspective, claims processing under Medicare is relatively simple in comparison with the complexity of private health insurance, although Medicare is much more administratively complex than are similar government-run, single-payer health insurance systems in other countries (e.g., Taiwan or Canada).
Furthermore, in surveys of Americans aged 50 and over respondents expressed greater trust in Medicare as a source of health insurance, possibly still remembering the late 1990s, when many private plans terminated their coverage of Medicare patients.
In the next post, I shall assess the often-made claim that Medicare is not much longer “sustainable.” Thereafter I shall explore whether Medicare in its current form should be sustained, even if it were affordable in that form. In the meantime, readers who wish more detail on the program than could be offered here may wish to consult the excellent primer on Medicare found at the Henry J. Kaiser Family Foundation’s Web site.
(entire column available at above URL)
He makes some good points,thanks for the post. A problem I don't know the answer to is one a JHU exec. brought up;that poor health care costs Medicare more than good care! Because an accurate diagnosis and good treatment reduces the time and procedures poor care causes.