Saving Medicare

The Budget Control Act passed in August of 2011 stipulates that failure of the “supercommittee” and Congress to act on further future deficit reduction will trigger across-the-board cuts of $1.2 trillion dollars starting in 2013. Most Medicare spending would be reduced by 2 percent a year1. Regardless of how the 2 percent a year reduction is accomplished, Medicare will not continue on in its current status if existing law is enforced.

After the 2012 election, the new Congress and Administration have the power to change the current law. If the Democrats gain control of both chambers of Congress and the Administration, it is possible that Medicare will not be cut as much as current law stipulates at the expense of deeper military spending cuts. If the Republicans gain control of both chambers of Congress and the Administration, it is possible that Medicare will become privatized and no longer exist in its current form to avoid deep military cuts. If one chamber of Congress is Republican and the other Democrat, it is likely that any reductions of future deficits would be minimal due to gridlock caused by political extremism such as now exists.

Since our current path of projected deficits is unsustainable and would lead to the economic ruin of our nation, none of the above options are satisfactory. The solution is that we the people elect strong moderate leaders who develop sound strategies and will work with other elected politicians to resolve the nation’s serious fiscal problems, as well as other important concerns.

My suggestion for saving Medicare involves a balance between cost savings and tax increases.

The cost savings would be achieved by adopting all of the seven specific recommendations pertaining to Medicare that were proposed by The National Commission on Fiscal Responsibility and Reform in their publication entitled “A Moment of Truth” dated December 2010. The seven recommendations will be described briefly later in this paper.

The total estimated Medicare savings between the years 2012 and 2020 from adopting the commission’s recommendations is approximately $400 billion dollars2.

Total additional revenues of approximately $400 billion dollars between 2012 and 2020 would be realized by raising the Medicare payroll tax of an employee and his/her employer by .45% from 1.45% each to 1.9% each.

The seven Commission recommendations regarding Medicare and their estimated savings through 2020 are as follows:

Item Recommendation Cost (in billions)
3.3.1 Reduce Medicare fraud. $9
3.3.2 Establish a $550 annual deductible for Medicare Part A and Part B combined.
Require patients to pay 20% of expenses above the deductible up to $5500 a year.
Require patients to pay 5% of expenses above $5500 to a maximum amount of $7500 a year
$110
3.3.3 Prohibit Medigap plans from covering the first $500 of medical costs.
Limit Medigap plan coverage to 50% of the next $5000 of costs.
$38
3.3.4 Extend Medicaid drug company rebates to drug purchases by Medicaid beneficiaries who are also eligible for Medicare Part D. $49
3.3.5 Reduce excessive payments to hospitals for medical education. $60
3.3.6 Discontinue Medicare payments to providers for unpaid deductibles and copays owed by beneficiaries. $23
3.3.7 Accelerate policy changes regarding reimbursements for home health providers that are in the Affordable Care Act. $9

Of the above recommendations, items 3.3.2 and 3.3.3, which relate to patient copays, are likely to be the least well received. The copays recommended are typical of copays required by health insurance companies of working Americans. The United States can no longer afford to provide people on Medicare with better health coverage than working Americans receive.

In 2012, after the first $1156 dollars of each benefit period is met, Medicare pays 100% of Part A costs up to a 60 day hospital stay3. If patients had to pay a small amount of the hospital charges for services provided during the 60 day period as recommended by the commission, they would be more likely to question excessive, irrelevant, or unnecessary test procedures4. Consequently, the proposed increases would probably result in much greater savings than the $110 billion dollars estimated.

The current Medicare payroll tax of 1.45% paid by each worker and matched by his/her employer brings in less than $200 billion dollars per year total. Medicare expenses are in excess of $500 billion dollars annually5. We need to bring these two numbers more closely into focus with each other in order to save Medicare. An approach which involves a combination of cost savings as recommended by The National Commission on Fiscal Responsibility and Reform, and a Medicare payroll tax increase of .45% on workers and employers represents a reasonable compromise in that direction.

It is not easy to resolve serious problems. Solutions that are to the equal dissatisfaction of all parties are better than lopsided solutions or worse yet, no solutions at all.


1 — “A glance at automatic spending cuts”, Arkansas Democrat Gazette, 11/22/2011.

2 — THE NATIONAL COMMISSION ON FISCAL RESPONSIBILITY AND REFORM, “The Moment of Truth”, December 2010, pg. 37

3 — “2012 Medicare Costs”, Medicare.Gov – The Official U.S. Government Site for Medicare, http://www.medicare.gov/cost

4 — Vaida, Bara, “Expert Advice on Finding Savings”, AARP Bulletin, October 2011, pg. 12

5 — “2010 Federal Budget”, Source: Congressional Budget Office, Arkansas Democrat Gazette, 05/12/2011, pg. 2A