Questioning Medicare’s Sustainability

by Evan Blauser

Medicare's History and Background

At the height of the President Lyndon B. Johnson's "War on Poverty" and "Great Society", the idea of paying in advance for senior's medical costs was presented and passed by the 89^th Congress in 1965, and Medicare came into fruition. Since their inception, Medicare, Medicaid, and Social Security have combined to become a larger and larger portion of the United States' Mandatory Spending Budget. Medicare alone has grown so cumbersome to the economy, that the expenditures from Medicare as a share of gross domestic product (GDP) has increased six-fold since the 1960's. It is estimated that Medicare will cost the United States $679 billion in fiscal year 2020.

We spend roughly six times more than we previously did on Medicare, and that number is expected to increase dramatically. John F. Early at the Cato Institute stipulates that, "forecasts for the next 75 years show that almost $1 out of every $5 of GDP could be spent on Medicare." Mr. Early's concerns echo those of a plethora of economists from both ends of the political spectrum. The reason being is GDP represents the growing capacity of an economy, and, in a more literal sense, GDP is reflexive of the profits of all American companies in a business quarter.

You can imagine how scary it would be if the United States essentially spent $1 out of every $5 that we earned on medical benefits for elderly Americans. I want to make it abundantly clear that the problem we are facing is not one of humanity, everyone wants to provide the best quality of healthcare to every senior in America. It is also not a problem of personnel, doctors, nurses, or medical technology. The problem is one of numbers. Although you will find that it is more complex, the simple problem is that Americans are living too long, the disability criteria has been expanded too much, and we are consuming more medical benefits than ever before.

I share the belief of the Cato Institute that with a few fixes, Medicare can become more affordable in the long term. In order to maintain readability, I have divided the several key issues facing Medicare into three main items: 1. Increased Longevity, 2. Weaker disability criteria, and 3. Overconsumption of benefits. Along with these three issues are the proposed solutions offered by Cato Institute, which range from tweaking the disability criteria to increasing the eligibility age for Medicare recipients. These ideas, while not exactly novel, have the transformative ability to make Medicare more sustainable and efficient for the next 50 years, unless we come up with a better idea to fund elderly medical expenses. This article attempts to discuss the issues facing Medicare from a longevity perspective. Subsequent articles will investigate the issues of weaker disability criteria and the overconsumption of Medicare benefits.

Increased Longevity Among Americans

The theory in 1965 goes like this: if we know that the majority of Americans retire around 65 and live to be 72, then we can accurately calculate what their medical expenses could be, and we can plan as a nation to cover said expenses. However, this theory only holds clout as long as the average American's lifespan doesn't increase dramatically. If that were the case, then the government would either be forced to abandon the program or increase the eligibility age in order to compensate for American's increasing lifespan. Surely the government would not be able to get away with doing neither once Americans started to live longer.

As medical technology progressed and Americans stopped smoking, a biproduct of our healthier lifestyles was that more and more pressure was put on Social Security and Medicare. In 1960, the average American could expect to live 69.77 years. By 2016, the average life expectancy had increased by almost ten years to 78.69 years. To put this into perspective, the average Medicare recipient in 1965 could expect to live an additional 14.8 years after they started receiving benefits. Now, the average recipient receives benefits for 19.3 years. That is 4.5 more years of Medicare benefits per recipient, meaning that the average Medicare recipient is using about 3 times as many benefits than they would if they lived in 1965.

Keep in mind that this is the result of medical innovations between 1965 and the present, so imagine how our longevity will be affected by modern medicine, yoga, healthier diets, and the bafflingly low rates of teenage cigarette smoking. It is estimated that only about 10.4% of young adults continue to smoke cigarettes, which is a dramatic decline from just 2011, when 18.9% of young adults consumed cigarettes. That is a 45% decrease in the smoking rate amongst young people, which demonstrates how the public perception has changed on the issue of smoking and public health in general.

Add to this the number of public health initiatives that increased our lifespans, such as requiring seatbelts in cars, removing lead-based paints from the market, and prohibiting drinking and driving, and it is clear how the average American could expect to live longer the further away from 1965 we got.

What are our options?

Now the question is what should we do to address the growing longevity of Americans? There are several options at our disposal that would ultimately save the Centers for Medicaid and Medicare (CMS) and the American taxpayers millions of dollars in the long run. First, there is the option of keeping the eligibility age of Medicare on pace with that of Social Security, thereby tying the two benefits programs together. It makes sense because both of the programs were birthed to address financial needs of seniors. If we are already increasing the age of Social Security eligibility, then why would we keep Medicare eligibility at the same age? In my view, the two benefits should be awarded in tandem after you reach the age of retirement.

Another option is that we could increase the age of eligibility on a continuing basis to keep the overall life expectancy after collecting benefits the same as it previously was. That means that CMS would continually adjust the age of eligibility so that the average Medicare recipient could use their benefits for about 15 years. Of course, the downside to this approach is that the age of eligibility could potentially continue to increase as our longevity increases. Ultimately, this is a trade-off that could damage the economic stability of the program, and thereby threaten the financial viability of the United States.

Finally, there is the option that makes the most sense in the short term, and that is to adopt a fixed eligibility age of 70 years old. The drawbacks to this adjustment would be that it is not entirely reflexive of American's increasing longevity, and it kicks the can down the road until we have to raise the age limit in the future.

According to the report distributed by the Cato Institute, the most dramatic alteration to the age of eligibility (the option that allows recipients to enjoy benefits for about 15 years) would potentially reduce Medicare's share of GDP by 25.55% at the high end and 18.65% at the low end projections. This should concern every economist worth their salt. In the most basic of terms, that means that almost a quarter of America's earning potential would be spent exclusively on Medicare funding. The implications for our economy would be both widespread and catastrophic. Keep in mind that we are currently staring down the barrel of $22 trillion of debt, with Medicare alone accounting for $1.16 trillion of that debt.

Assessing our options

All of the options discussed would represent a compromise between entities who would want to expand public programs and those who want to see Medicare abolished entirely. I am not willing to endorse either stance, and would instead recommend a gradual scaling back of benefits to seniors, accomplished primarily by increasing the eligibility age. By relying on a gradual rollback of benefits, we can allow generations of Americans to slowly ween themselves off of government support. Enabling seniors to explore private options over a long period of time would give them and their families the opportunity to prepare for their expenses down the road.

Any alternative solution to the Medicare problem risks either contributing to the growth of the federal government or leaving our seniors without options for medical coverage. Inaction on the part of our elected representatives constitutes neglect for our financial wellbeing, in addition to the potential risk it presents for America's seniors. It is no secret that Wyoming has a large proportion of elderly individuals who depend on Medicare and Social Security to help with their expenses. If you would like to talk to your elected representative about issues facing Medicare and Social Security, please feel free to reach out to them using this link.