CMA Weekly Alert – May 3, 2007
STACKING THE DECK
AGAINST TRADITIONAL MEDICARE
Traditional Medicare works. Before Medicare existed, only about 50% of people 65 or
older had health insurance. By 1970, four years after Medicare went into effect, 97% of
those 65 and older had health insurance. Access to health insurance coverage meant that
more older people received needed medical care. Access to health insurance also meant
that Medicare beneficiaries and their families no longer had to bear the full cost of their
care, helping to reduce poverty among older people and their families.1
Yet this program, one of the most successful social programs in the history of our nation, is
in danger of being destroyed. Blame lays in large part with the Medicare Prescription
Drug, Improvement and Modernization Act of 2003 (MMA). Nobody can argue that a
Prescription Drug benefit in Medicare was a good idea, but the structure of the benefit that
was railroaded through Congress has been the subject of much debate. Unfortunately, that
debate has actually distracted the public from a tiny, dangerous piece of this legislation.
Every year, a group of people appointed to assess Medicare’s financial status – called the
Medicare Trustees – issue a report. In this report, the Trustees look at Medicare’s three
significant funding sources – beneficiary premiums, payroll taxes, and general revenues.
Now, this little known provision of the MMA established a new rule. This new rule says
that if two consecutive Medicare Trustees’ Reports estimate that more than 45% of
Medicare’s budget within the next six years will come from general revenues, the President
must propose legislation to lower the cost to less than 45%.2 This 45% limit is an entirely
arbitrary benchmark. No such benchmark exists for defense spending, education budgets,
or, to our knowledge, any other areas of the federal budget. Unfortunately, this year, for
the second year in a row, the Trustees’ report estimated that the arbitrary 45% mark would
be reached by 2013.
This happened in large part because the prescription drug benefit that got added by this
same legislation was allowed to be funded only by general revenues. That’s billions of
dollars in new expenses that are applied toward the entirely arbitrary 45% limit. And the
same legislation forbade the government from negotiating drug prices, and mandated extra
“incentive” payments to private companies to sponsor the prescription drug plan, rather
than allowing the plan to exist in the effective and efficient traditional Medicare program.
Further, it happened because the MMA authorizes billions of dollars for private Medicare
Advantage plans, dollars that would not be needed to cover the same people in the
traditional Medicare program.
Now, thanks in large part to the billions funneled to private plans, traditional Medicare is
in danger of being gutted. The President is required to propose policies designed to reduce
general revenues as a share of Medicare costs below 45%. Congress has to consider these
proposals. And, given the restriction on general revenues, it is very likely that the
proposals won’t include an increase in the employer and employee payroll taxes that help
fund Medicare coverage for needed healthcare services, although these payroll taxes have
not been increased for over a dozen years.
Unfortunately, the only things that could be proposed are “reductions in benefits under Part
B and Part D, increases in Part B and D premiums, or, ultimately, a cap on the amount the
government will pay per beneficiary, regardless of that person’s health care needs.”3 In
addition, given the recent pattern of so-called “Medicare reform”, it is likely that proposals
will include more responsibility for the program being handed over to private industry –
the very source of the current financial situation.
The stable, reliable, and effective traditional Medicare program will be subject to
draconian cuts and more privatization. This is a terrible irony, since traditional Medicare
was enacted precisely because private insurance failed our nation’s older people.
For more information contact attorney Judith Stein (jstein@medicareadvocacy.org)
in the Center for Medicare Advocacy’s Connecticut office at (860) 456-7790
or attorney Vicki Gottlich (vgottlich@medicareadvocacy.org) in the Center’s
Washington, DC office at (202) 216-0028.
1
Marilyn Moon, Medicare: A Policy Primer (Urban Institute Press 2006).
http://www.urban.org/publications/900957.html
2
CMA Weekly Alert, October 19, 2006.
http://www.medicareadvocacy.org/Reform_06_10.19.PrivatizationHasBegun.htm
3
“Medicare '45 Percent Rule' Attacked by Families USA Before Annual Trustees Report”,
SeniorJournal.com, March 29, 2007. http://www.seniorjournal.com/NEWS/Medicare/2007/7-03-29-
Medicare45.htm