Want to Protect Medicare? Reduce Deficits in a Balanced Way

July 27, 2012 at 11:46 am

Thanks to Medicare, which turns 47 next Monday, seniors are the one group of Americans with nearly universal health coverage.  Almost all Americans (see slide 19 of this recent Kaiser tracking poll) think that Medicare is important, and few support radically changing it to reduce deficits.  But, without a balanced deficit-reduction package that includes significant revenue increases, that could easily happen.

Budget analysts generally agree that we must reduce deficits by roughly $3 trillion over the next decade to stabilize the debt as a share of the economy.  That’s in addition to the $1.6 trillion in spending cuts over the next decade that policymakers enacted in 2011.

Medicare should certainly contribute to further deficit reduction, just as it has contributed to every major deficit-reduction effort in recent decades.  Policymakers, however, must design changes to Medicare carefully in order to avoid undermining its ability to protect vulnerable seniors and persons with disabilities against high health care costs.

Few Medicare beneficiaries live on Easy Street.  Half have incomes below $25,000, and only 15 percent have incomes above $50,000 (see figure).  Furthermore, they spend much more of their budgets on out-of-pocket health care costs than other Americans — 15 percent, on average, compared to 5 percent for everyone else.

Reducing deficits almost entirely by cutting programs, with little or no new revenues, would likely require deep and harmful cuts in Medicare.  The House-passed budget plan from Budget Committee Chairman Paul Ryan (R-WI) illustrates the danger.

The Ryan budget would replace Medicare’s guarantee of coverage with a voucher that beneficiaries would use to buy coverage in the private market.  It would also raise Medicare’s eligibility age from 65 to 67 and reopen the “doughnut hole” in Medicare’s coverage of prescription drugs, which the health reform law is gradually closing.  Together, these changes would shift substantial costs to Medicare beneficiaries.

At the same time, the Ryan budget includes big cuts in other programs, especially those for low-income Americans, and stunning new tax cuts for the wealthy.

Medicare supporters thus need to pay careful attention to the ongoing budget debates.  Medicare beneficiaries with modest incomes should not have to pay the price of tax cuts for those at the top.

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More About Paul N. Van de Water

Paul N. Van de Water

Paul N. Van de Water is a Senior Fellow at the Center on Budget and Policy Priorities, where he specializes in Medicare, Social Security, and health coverage issues.

Full bio | Blog Archive | Research archive at CBPP.org

3 Comments Add Yours ↓

Comments are listed in reverse chronological order.

  1. Matt #

    It seems that the numbers showing the distribution of income of Medicare beneficiaries is misleading. Aren’t a lot of beneficiaries retired and thus have a low income? Wouldn’t it make more accurate to measure income based on income before retirement rather than during? Because of this, that number doesn’t take into account retirement savings.

    • Paul Van de Water #

      The chart shows income, which doesn’t include savings. Most elderly have modest retirement savings, however. Assets are much more unequally distributed than income. According to the Federal Reserve’s Survey of Consumer Finances for 2010, the median elderly family has about $45,000 in financial assets. This would create an annual income stream of only about $2,500 if converted into a joint life annuity at age 65.

  2. foosion #

    >>Medicare should certainly contribute to further deficit reduction>>
    Medicare is less expensive than private insurance (mainly due to its buying power and lower overhead). We could reduce healthcare spending by moving more people to Medicare.

    If we spend less on Medicare, we will most likely increase spending by individuals by more than the savings to the federal government. Why would that possibly be considered sensible policy?

    The problem is healthcare costs, not Medicare.

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