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.