Today, Medicare and Medicaid both mark their 55th birthdays. But hold the cake. There’s not much to celebrate on this anniversary.
You’d be hard pressed to find two more wasteful, fraud-ridden programs than Medicare and Medicaid. They grow less fiscally sustainable with each passing year. And they routinely deliver subpar care that, in many cases, does little to support patient health.
Take Medicare, the healthcare entitlement for American seniors. According to the latest report from the program’s trustees, Medicare’s hospital insurance trust fund, Medicare Part A, will be exhausted by 2026.
Medicare’s flawed pay-as-you-go funding arrangement is largely to blame. Using payroll taxes from current workers to cover the healthcare costs of Americans 65 and older might have been workable in a time of low life expectancy and a rapidly expanding workforce. Forty years ago, there were about four workers for every Medicare beneficiary.
But seniors are now the fastest-growing age group in the country. Now, there are about three workers per Medicare beneficiary. And within 20 years, that number will decline to two per beneficiary. As a result, the fiscal pressure on Medicare will only grow.
Moreover, the 2026 insolvency projection fails to account for the effects of COVID-19. The pandemic has left millions of Americans jobless. As a result, there’s less payroll tax revenue coming in to fund the program.
This approaching fiscal calamity has been obvious for decades, but lawmakers have failed to do much about it.
Worse still, Medicare has driven up the cost of care for non-enrollees by underpaying providers. In 2017, the program paid hospitals just 87 cents for every dollar they spent providing care to its beneficiaries. In order to recoup these losses, hospitals have had to charge other patients more. According to research from the RAND Corporation, private insurers in 2017 faced prices that were 24% of what Medicare paid.
The program’s low payment rates have prompted some doctors to opt out of the program. According to a 2019 report from the Medicaid and CHIP Payment and Access Commission (MACPAC), only 85% of doctors accept new Medicare patients.
Medicaid’s history is just as ignominious, if not more so. The program was first conceived as a healthcare entitlement for truly needy Americans already receiving federal cash assistance. But it has since ballooned into the single largest health insurer in the United States, covering more than 65 million people—or roughly one in five Americans.
The program’s growth is no accident. Obamacare’s Medicaid expansion, which extended eligibility to people earning up to 138% of the poverty level, recently added more than 15 million patients to the program’s rolls. Thirty-seven states and the District of Columbia have expanded their Medicaid programs under the terms of Obamacare, prodded in part by a promise from the federal government to cover 90% of the cost of expansion. Many of these new enrollees are able-bodied, working-age adults.
All the program’s beneficiaries are competing for scarce appointments. Just seven in 10 doctors accept new Medicaid patients, according to that 2019 MACPAC report.
By extending the entitlement to an ever-growing share of Americans, such reforms have wreaked havoc on state and federal budgets alike. Medicaid’s costs, unlike those of Medicare, are paid in part by states. As of 2018, Medicaid consumed nearly one-third of state budgets, crowding out critical spending on other state priorities, such as public education and infrastructure.
A lot of that money is wasted. According to the Centers for Medicare and Medicaid Services, almost 15% of all Medicaid payments in 2019—more than $57 billion in all—were deemed “improper.”
All that spending doesn’t appear to buy much in the way of better health for the program’s beneficiaries. A landmark study of Oregon’s Medicaid program found that the program “generated no significant improvements in measured physical health outcomes” among people who were randomly enrolled relative to a similarly situated group that had no insurance at all.
The 55th birthday of Medicare and Medicaid should remind us of the long-term damage that ill-conceived healthcare reforms can inflict. Little did President Lyndon Johnson know when he signed the two programs into law in 1965 as part of his “Great Society” program that he’d be setting the country down the path to fiscal dysfunction.
Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is False Premise, False Promise: The Disastrous Reality of Medicare for All, (Encounter 2020). Follow her on Twitter @sallypipes.