Medicare, the federal health insurance program for our nation’s seniors has been in a financial pickle for a long time. As health care costs have continued to rise, the number of seniors has ballooned, and the number of working age citizens has failed to keep pace, there has been a lot of talk about Medicare going bankrupt. To those who may be approaching the eligibility age of 65 or who already depend on Medicare for their health insurance coverage, it’s a scary prospect. To those of us who hear that we are paying into a program from which we will never receive any benefits, it’s downright maddening. The thing is, that’s not quite how it works.
Medicare is financed using a combination of income taxes, payroll taxes, and individual premiums (for parts B,C, and D). I’m not going to give you the overview of the various parts of Medicare, but this factsheet from the Kaiser Family Foundation will walk you through it and explain the financing in more detail, too. The money for the hospital insurance (Part A) goes into one trust fund and the money for the other parts of Medicare have their own separate trust funds. It is important to note that these latter trust funds will never go bankrupt, because the federal government simply passes the cost on to the consumer in the form of higher premiums. It is the Part A trust fund that people worry about, because if it becomes insolvent, the government won’t be able to pay all Medicare claims in full. Uh-Oh.
It was looking like that was going to happen sometime around 2017. If you’re thinking “Gosh, that’s practically right around the corner!”, you’re right, and you might begin to grasp why health reform was so desperately needed. Fortunately, it passed, and with some relatively small, but significant, changes to Medicare financing law, the Part A trust fund is expected to remain solvent until 2029. Now, that does absolutely nothing for me, but if you were born between 1952 and 1964, let me be the first to say to you: “Congratulations! It looks like you’ll still be getting Medicare coverage for at least a little while after you turn 65!”
On a different note, it should be highlighted that the federal government would never completely drop the ball on Medicare. After all, doing so would be tantamount to political suicide. It just means that more changes are inevitable to keep the program afloat. This is likely not a problem that can be solved, but a perennial tension that we must learn to manage. (Thanks to Andy Stanley for pointing out that such “problems” exist, that they shouldn’t be solved, and that our attempts to solve them will merely create new problems.)