Medicare is not in the cards for Millennials
As we celebrate Medicare’s 50th anniversary this July 30th, millennials will need to ponder if the Medicare entitlement program will still be in place when they start turning sixty-five.
When President Lyndon B. Johnson signed Medicare into law on July 30, 1965, he couldn’t have imagined it becoming insolvent by the year 2030. But that’s exactly the path Medicare will be taking if Congress doesn’t find additional funding solutions for Medicare Part A and Part B.
Medicare Part A is paid through a trust fund held by the United States Treasury and is primarily funded through payroll taxes. You’ve heard of FICA, right? FICA stands for the Federal Insurance Contributions Act. In the late 1930s, Title VIII was taken out of the Social Security Act and moved into the Internal Revenue Code. Instead of calling the Act “Title VIII” as it was in the Social Security Act, they renamed it the Federal Insurance Contributions Act since Title VIII deals with taxing provisions.
Currently, 2.9% is the total amount of payroll tax paid to the Medicare fund. Your income is taxed at 1.45%, and your employer matches the 1.45% tax. Together, those contributions amount to the 2.9% total. If you are self-employed, you pay the entire 2.9% tax on your own.
Part A is also funded by interest earned on trust funds, income taxes paid on Social Security benefits, and Part A premiums, which are paid by people who did not qualify for premium-free Part A. You qualify for premium-free Part A of Medicare by working ten consecutive years paying into FICA or by working forty quarters and paying into FICA. People with spouses who earned work credits are also eligible for premium-free Part A of Medicare.
When Medicare started back in 1965, roughly four persons were paying into FICA for every one person receiving Medicare benefits. Today, roughly two persons are paying into FICA compared to one person receiving Medicare benefits. To exacerbate the problem, ten thousand people will turn 65 every day for approximately the next fifteen years. You don’t have to be a Nobel Peace Prize winner in mathematics to see what’s coming down the road. If Congress doesn’t find additional solutions to funding Medicare Part A, the way it is currently funded will eventually cause Part A to become insolvent.
Part A Services
What is provided by Medicare Part A? Inpatient services, that’s what. Think of Part A as being “accommodations” for when you are ill or injured. If you had a heart attack and went to the emergency room, you would be admitted to the hospital as an inpatient. The hospital would be your accommodations until you recovered and were discharged. If you had hip replacement surgery, you would be admitted to the hospital as an inpatient. After three days as an inpatient in the hospital, and you are stable, you would be transferred to a skilled nursing facility for twenty-four-hour medical care and rehabilitation. The skilled nursing facility would be your accommodations until you were discharged. A person who is terminally ill may wish to be transferred to a hospice facility. The hospice facility would represent that person’s accommodations until the day he passed away.
Treatment or care as an inpatient in an accommodation is covered under Part A of Medicare.
What other services are covered under Part A? I want you to read this sentence – “I was supplied with 1,060 electrical cords while staying in my accommodations.” If you repeated that sentence every day for a week, and spoke out loud what the sentence represented, you would remember what services are covered under Part A of Medicare. I want you to visualize being supplied with 1,060 electrical cords. See yourself wrapping those electrical cords all around you in a circle. All 1,060 of them!
Now, let’s break the sentence down. “I was supplied.” Supplies are what you are treated with while staying in your accommodation. For example, you are admitted to the hospital with a broken leg after a car accident. A cast is applied to your leg while you are an inpatient. The cast is something that was necessary to treat your illness or injury, so the cast is considered a “supply.”
In roman numerals, 1,060 is written this way – MLX. The “M” stands for Meals. When you are an inpatient in a skilled nursing facility, you need to eat. You’re fed meals. I’m not saying the meals are good, but you will be provided with nourishment. We’ll leave it at that. The “L” stands for labs. When you are an inpatient in a hospital, they usually draw blood to see what blood type you are. Blood work is taken to the lab to be tested. The “X” stands for x-rays. To determine if you have a broken leg, you need an x-ray. X-rays and labs are services covered under Part A.
The next part of the sentence is electrical cords. The majority of services covered under Part A fall under the acronym C.O.R.D.S.
C = Care Unit (Critical Care Unit, Cardiology Care Unit)
O= Operating Room & Recovery Room
R= Rehabilitation (ie: Physical Therapy, Speech, or Occupational Therapy)
S = Semi-Private Room
You can see how important the services under Part A are. When you are ill or injured, and you are admitted to the hospital as an inpatient, you need the coverage of Part A services to recuperate. Medicare benefits under Part A cover a substantial amount of the medically necessary bill. Without them, your cost as an inpatient would be astronomical. The cost could potentially bankrupt you.
Medicare Part B
Now let’s look at Medicare Part B and how it is funded.
Medicare Part B is primarily funded by premiums that individuals pay to be enrolled in Medicare Part B. Currently, if a person makes less than $85,000.00 in annual income, he will pay a premium of $104.90 a month. Funds authorized by Congress as well as interest paid on trust fund investments help fund Part B.
Currently, there are over 50 million individuals on Medicare. If each person was enrolled in Part B and paid a premium of $104.90 a month, you can see that Medicare Part B would be nicely funded each month. Taking into account interest on trust funds and Congress-authorized funds, Medicare Part B maintains a healthy stream of income. With roughly ten thousand people a day turning 65 for about the next fifteen years, that’s more money being added to the Part B fund.
Part B Services
Part B is considered “outpatient services.” Think about all the services you receive to treat an illness or injury. If it doesn’t require being admitted to an accommodation as an inpatient, it will most likely be covered under Part B, as long as it is medically necessary.
What’s not medically necessary? Requesting to have surgery to decrease the size of your nose for vanity reasons is not “medically necessary.” That type of surgery would be considered cosmetic. Medicare does not pay for cosmetic surgery.
Part B of Medicare has two categories: medically needed services and preventative services.
Medically needed services are those necessary to treat your illness or injury. For example, you have a fever and a bad cough. You go to see your primary doctor. That doctor visit is covered under Part B. Your doctor sends you to the lab for bloodwork, or you go to the radiology center to have an x-ray for a possible broken wrist. Both services are covered under Part B.
Preventative services help detect illness at an early stage. Preventative services also help to prevent a disease from afflicting you. When you have a colonoscopy, the doctor is looking for polyps or tumors inside your colon. Finding a malignant tumor at an early stage is critical in the treatment for colon cancer. When you receive the influenza vaccine, you are building up antibodies in your bloodstream to detect and fight influenza. The vaccine helps to prevent you from being afflicted with influenza.
There are many services provided under Part B. You can go to the Medicare website to view all of the Part B services covered. Go to www.medicare.gov
If you’re a Millennial (1980-1995), the possibility of Medicare Part A becoming insolvent is a clear and present danger. Think of this scenario – you’re thirty years old, and you work long and hard hours. You’ve been paying into FICA for the past ten years, and you will continue paying into FICA until you decide to stop working. You are paying outrageous healthcare premiums, and you look forward to the day when you will be entitled to participate in Medicare. Fifteen years from now, at forty-five years of age, Medicare Part A becomes insolvent. The inpatient, “accommodation” part of Medicare just went belly up. Now what? Are you going to wait and see what Congress decides to do? Not worry about it for another twenty years until you turn 65? Begin an aggressive strategy to save money to fund your own Part A services?
That’s a position no one wants to be in.
Millennials and everyone already enrolled in Medicare must pay particular attention to where Medicare Part A is heading.
According to the American Academy of Actuaries’ July 2014 Issue Brief, titled “Medicare’s Financial Condition: Beyond Actuarial Balance,” Medicare is in financial trouble.
Here are the key points of the Issue Brief:
- The HI (Health Insurance) trust fund will be depleted in 2030. (This is also known as Medicare Part A.)
- Total Medicare expenditures will make up an increasing share of federal outlays and the gross domestic product (GDP), threatening the program’s long-term sustainability.
- Changes are needed to improve Medicare’s long-term solvency and sustainability. The sooner such corrective measures are enacted, the more flexible the approach and the more gradual the implementation can be.
The Issue Brief also explains how implementations from the Affordable Care Act, which was enacted into law in 2010, provide provisions designed to reduce Medicare costs, develop new delivery systems in health care, increase revenues for Medicare, and reduce waste and fraud.
The Issue Brief lists the following major provisions:
- Reductions to provider payment updates.
The annual updates for fee-for-service provider payment rates are adjusted downward to reflect productivity improvements.
- Basing Medicare Advantage plan payments on fee-for-service rates.
Medicare Advantage plan payments are being gradually reduced relative to fee-for-service costs.
- Health care payment and delivery system improvements.
Pilot programs, demonstration projects, and other reforms are being implemented to increase the focus on delivering high quality and cost-effective care. These include initiatives on bundled payments and accountable-care organizations.
- Increases in Medicare revenues.
Provisions to increase Medicare revenues include increasing the HI payroll tax for earnings above an unindexed threshold, temporarily freezing the income thresholds for Part B income-related premiums, and increasing Part D premiums for higher-income beneficiaries.
- Creation of the Independent Payment Advisory Board (IPAB).
Beginning in 2014, the board will submit recommendations to make changes to provider payments if Medicare spending exceeds a target per capita growth rate. Unless legislative action overrides the recommendations, they will be implemented automatically.
The American Academy of Actuaries’ Medicare Steering Committee has significant concerns about Medicare’s financing problems, and the committee recommends that policymakers implement changes to improve Medicare’s financial outlook.
It doesn’t take a rocket scientist to understand if Medicare expenditures outgrow Medicare revenues, Medicare Part A will become insolvent. With the increase of baby boomers enrolling daily in the Medicare program, it is essential for Congress to implement changes now.
What can you do to help reduce expenditures in the Medicare program?
- Contact your local Congressional representative and tell him or her to implement changes to improve Medicare financially. Don’t know who your local representative is? Go to http://www.contactingthecongress.org to find out.
- Have an annual wellness exam with your primary doctor. The primary purpose of a wellness visit is to set up a preventative care plan with your doctor. Among other things, you and your doctor will discuss family history, review your medications, make a list of specialists you see, and create a plan for preventative screening exams or tests. Communicating properly with your primary doctor will help eliminate unnecessary diagnostic tests.
- Closely monitor your Explanation of Benefits (EOB) and Medicare claims statements. Your EOB lists information about insurance claims from health care providers (doctor or hospital) and tells you when they were paid on your behalf. Prescription drugs filled at a pharmacy are also listed on an EOB. You should review your notice for any mistakes. If you find a mistake, contact your plan. You will be credited for charges issued to you in error. Disputed claims can also lead to the discovery of alleged fraud. Fraud costs Medicare millions of dollars a year.
These are three simple ways you can help reduce wasteful expenditures for Medicare. If we all stepped up and took these actions, we would help keep the Medicare program on the right path. By righting the ship, Medicare will be available not only to Millennials but future generations as well.
Diane Daniels is the owner of Senior Advisors For Medicare & Medicaid (SAMM).She is the Author of The Medicare Survival Guide, which is available on amazon.com and authorhouse.com. Ms. Daniels can be reached for speaking engagements and questions at 855-855-7266 or by visiting her website at www.callsamm.com.