Medicare and Medicaid: A Tale of Two Scams

by Charles Katebi

Medicare and Medicaid are the two largest government-run health insurance programs in the United States, and arguably the world. Combined, they cover an estimated 120 million Americans and spend a quarter of the federal government's budget. And without major reforms, these entitlements threaten to bankrupt taxpayers and hang patients out to dry.

President Lyndon Johnson established both programs in the Social Security Act of 1965. Medicare is a federally administered health insurance program available to everyone 65 and over. It initially only paid for inpatient care (Medicare Part A) and outpatient services (Medicare Part B). But over the years it expanded to cover private insurance (Medicare Part C or Medicare Advantage) and prescriptions drugs (Medicare Part D).

Medicaid, on the other hand, is financed and run jointly by the federal government and all fifty states and primarily covers low-income individuals. Medicaid's eligibility varies widely depending on the state that's administering it. Some states like Wyoming cover only poor children, pregnant women and the disabled. Other states like Colorado cover everyone, including able-bodied and childless adults. States are also largely free to decide what services Medicaid will pay for; including respiratory care, nursing facilities and prescription drugs.

Although one out of every three Americans now rely on these entitlements to pay for their healthcare, both programs are careening towards bankruptcy. As the Baby Boom generation retires, 11,000 individuals per day will turn 65 and enroll in Medicare over the next 15 years. By 2030, 81 million Americans will rely on Medicare to pay for their health care needs, according to the Congressional Budget Office.

There are simply too many retirees riding in the cart (receiving benefits) and too few taxpayers pulling the cart (paying in). When Medicare began in 1965, 4.5 workers were paying into the program for every retiree taking out. But today there are only 3.3 paying per retiree. And in 15 years there will be just 2.3 workers to pay for every retiree. As a result, Medicare now owes $48 trillion in future promises it has no way of paying for.

Medicaid's finances are similarly on an unsustainable path. Since 1990, state and federal spending on Medicaid grew from $72 billion to $401 billion in 2010. Although the program was initially designed to serve specific categories of low-income individuals, states steadily opened the program to able-bodied adults. By 2010, 55 million individuals were relying on Medicaid for their health insurance needs.

But it wasn't until 2010 when Congress passed the Patient Protection and Affordable Care Act (aka Obamacare) that Medicaid's spending skyrocketed. Under Obamacare, 31 states expanded Medicaid to everyone earning up to 138 percent of the Federal Poverty Line (roughly $16,000 per year). In five short years, 15 million new individuals enrolled in Medicaid. Obama's healthcare law effectively transformed Medicaid from a targeted welfare program for the truly destitute to an open-ended single-payer system for all comers.

In order to control Medicaid's ballooning costs, states slashed physician and hospital compensation. According to a report by the Urban Institute, states cut Medicaid's fees for primary care, obstetrics, and other services (including surgery, radiology, and laboratory tests) by 13 percent after adjusting for inflation, between 2003 and 2008. Today, Medicaid on average only reimburses physicians 56 percent of what private insurers pay.

As part of Obamacare, the federal Center for Medicare and Medicaid Services (or CMS) cut Medicare's funding for a variety of programs by $716 billion, including hospital services, skilled nurses, and home health.

As a result of Medicare and Medicaid's low provider payments, more and more physicians refuse to treat enrollees. A recent study by the Centers for Disease Control found just 68 percent of physicians accept new Medicaid patients and only 83 percent accept new Medicare patients. With fewer doctors available, these patients must wait longer for care while their health deteriorates.

Medicare and Medicaid are, in every sense of the word, unsustainable. Unless both programs are fundamentally reformed, they'll sink America's fiscal ship and send millions down with them. Americans need an exit strategy and quick.