Medicare Funding

The fund Medicare uses to pay hospitals will run out in the next 15 years, and experts say there are no easy answers to solve it.

Certainly not politically easy answers, and that does matter. However, the practical answer is quite simple, if expensive in the transition.

Keep everyone 55 and older in the current Medicare system, with the individual option to leave that system in favor of the one I’ve proposed many times and summarize here. It’s important to note also that the “experts” are referring only to Medicare Part A, the hospitalization part. My reform is broader and applies to Medicare Parts B, payments to physicians, and D, drug coverage.

Rescind the payroll taxes from both the employer and younger-than-55 employee, while requiring the employee to put his payroll tax equivalent into what would be essentially a Health Savings Account. This New Model HSA would contain investment vehicles of the account owner’s choosing—including stocks, bonds, mutual funds for the same, bank savings accounts, etc—and be held for the benefit of the account holder. Unlike the Old Model HSA, with its shameful limits, the NMHSA would have no income limits on contributions, no annual limits on contributions, no requirement to have a High Deductible Health Coverage Policy, none of those government-mandated limits.

Of course, this can’t happen in a vacuum. In conjunction with this, the bankrupt* Social Security system needs to be similarly privatized, also, and the overly expensive Medicare system blocked granted, on a declining-to-zero schedule, to the States. These need to be done, too, with significant tax rate reductions and Federal spending cuts (and not just one-time gimmicks or reductions in spending growth).

Most, if not all of the cost of the transition can be covered by that spending and taxing reform.


*Bankrupt: not strictly so because in a few short years, while the Social Security Trust Fund will be emptied of money, current payroll taxes still will be available to make the payouts, requiring the payouts to drop to 75% of their presently scheduled values.

Update: Corrected an empty reference to Part C to the correct reference to Part D.

2 thoughts on “Medicare Funding

  1. So how does this work for someone making, say, $50,000 a year and who is 53 now. They contribute 3.4% of their income over 12 years, or about 20k, maybe 25k with some raises thrown in. And maybe they toss in another 10k on their own. Toss in some investment growth and they have 50k in the account at age 65.

    If we assume that the cost of medicare-like health insurance will cost about as much as Medicare spends per enrollee, our hypothetical retiree has enough cash on hand to pay for 5 years of Medicare.

    What happens in year 6?

    • Medicare-like health insurance doesn’t exist now; they’re Federally mandated health welfare plans. There aren’t any risk-based premiums charged, no serious risk transfers, and there haven’t been since Obamacare mandated the coverages and limited the charges allowed.

      There wasn’t much of that before Obamacare, either. There were, instead, 50 separate satrapies controlling the premium bands being allowed, true risk-based transfers for a fee didn’t exist.

      What will happen with privatized Medicare–i.e., with the disappearance of Medicare (and with the recission of Obamacare, an unspoken assumption, sorry about that) is that freer markets for health actual insurance and for medical services and people being responsible for their own costs will drive those prices down, not maintain them at current levels. We’d still need to do something about those 50 satrapies, but that’s straightforward, too, if not so much politically: make health insurance readily marketable across state lines (and such fillips as eliminating the special tax treatment of employer-offered health plans, letting the individual take his plan with him, and so on–all parts of a general tax code overhaul that takes the code out of the social engineering business).

      We see the impact of competition and personal responsibility in lasik surgery, for instance. The price of that has fallen sharply–and now is within the reach of our man making $50k per year, whether he wants it for cosmetic reasons or because he has a serious need for the correction.

      With actual free market competition, we’d even see insurance plans for pre-existing conditions coming down in price, if remaining relatively expensive. After all, not everyone is going to have their heart attacks (for instance) at the same time; there’s still risk to be transferred and able to be amortized by the transferee–the risk is spread across time.

      Eric Hines

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