Five myths about Medicare

Because of Medicare’s size and growth, the health-care program has taken center stage on the campaign trail and in Capitol Hill discussions about the federal budget deficit. Medicare covers almost one in six Americans and comprises about 15 percent of the federal budget, but it is often misunderstood. Let’s take a few minutes to separate fact from fiction.

1. Medicare is inefficient and fails to control costs.

The trustees of Medicare last year projected that the program’s share of gross domestic product would increase from the current 3.7 percent to about 5 percent in 2030 and nearly 6 percent by 2050. But since Medicare’s inception in 1965, its spending growth, on a per-person basis, has stayed consistent with or lower than the increase in private health insurance premiums.

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The Congressional Budget Office recently predicted that per capita Medicare spending will grow 1 percent faster than the rate of inflation over the next decade. The CBO attributes the slower projected trend in Medicare spending to the enactment of President Obama’s health-care overhaul, which reduced high payments to Medicare HMOs, and to the anticipated influx of younger, healthier baby boomers, which will lower the average cost per beneficiary. Medicare enrollment is projected to accelerate over the next 25 years, from 47.5 million today to 80 million in 2030.

The addition of baby boomers is the single largest factor in Medicare’s projected spending growth over the next few decades. In the short term, this shouldn’t be a problem, but as that vast generation ages, if systemwide health-care costs don’t come down, it will be.

2. The well-off don’t pay enough for their Medicare benefits.

Many assume that Medicare has uniform requirements for contributing to the program, placing an unfair burden on most participants and not asking enough of upper-income seniors. This is no longer the case. Wealthier people pay more than others.

Medicare Part A — hospital insurance — is financed through a 2.9 percent tax on earnings paid by employers and employees (1.45 percent each). In 1993, Congress lifted the cap on income so that individuals who earn more pay more. This contrasts with Social Security, which caps an individual’s tax exposure at $110,100. For higher-income workers (more than $200,000 for an individual and $250,000 for a couple), the Medicare payroll tax rate will increase from 1.45 percent to 2.35 percent next year.

Premiums now also vary by income. While the standard Medicare premium is $99 per month this year, for beneficiaries who make $85,000 and above (based on the previous year’s tax filing), premiums are scaled so that the more you earn, the more you pay. Similarly, income-related premiums now apply to Medicare prescription-drug coverage. While public opinion may favor asking wealthier seniors to pay more, the truth is, they already do.

3. Medicare benefits are overly generous.

The current Medicare benefits package resembles what was offered when the program started nearly five decades ago. Benefits are less generous than in most private insurance plans, as demonstrated by the fact that the majority of Medicare beneficiaries have supplemental insurance — through a former employer, a private insurer or, if they are low-income, Medicaid.

However, Medicare coverage is still costly; beneficiaries pay relatively high deductibles and co-insurance. For example, the deductible for each hospital visit is $1,156. Many pay full price for medications once they hit Medicare’s limit for prescription-drug coverage.