Expanding Medicare Is a Step Backward

By Goodman, John C.; Cordell, Dorman E. | Consumers' Research Magazine, February 1998 | Go to article overview

Expanding Medicare Is a Step Backward


Goodman, John C., Cordell, Dorman E., Consumers' Research Magazine


With Medicare teetering on the edge of

bankruptcy, President Clinton is proposing

to add more beneficiaries and more

costs. Specifically, all Americans ages 62 to 64

(the Medicare eligibility age is 65) would be able

to join Medicare in exchange for a monthly premium

between $300 and $400. Those ages 55 to

61 who have involuntarily lost their jobs would

have the same option. And employers would face

a new mandate: retirees over age 55 who were

promised and then denied postretirement health

insurance would have the right to buy into their

previous employer's health plan. Are these proposals

a good idea?

Ignoring the Need. About 86% of Americans

between the ages of 55 and 65 currently have

health insurance. Among those who do not, the

average cost of insurance averages about half of

the Medicare buy-in price. Even the White House

estimates that only 10% of those eligible would

take up the offer. Moreover, the Kassebaum-Kennedy

health insurance reform passed in 1996

has assured portability. Those with medical problems

cannot be discriminated against if they wish

to purchase individual insurance after retiring or

losing their jobs.

Encouraging Adverse Selection. Those most likely

to take advantage of the president's proposal are

the sickest and most costly patients. While relatively

healthy people will be loath to pay as much

as $4,800 in premiums each year, those with serious

medical conditions will find such below-cost

health care irresistible. As a result, the government

will surely spend more on additional medical

bills than it will realize in additional

premiums. This will exacerbate the existing Medicare

crisis, whether the new program becomes

formally part of Medicare (as is likely) or is

treated as a separate program (as the President

has proposed).

Subsidizing the Rich. Although the Clinton proposal

sounds humane, it would actually subsidize

the medical bills of higher-income families with

taxes paid by everyone. Even minimum-wage

workers pay the 2.9% Medicare tax. But only people

who can afford $4,800 a year will be able to

reap the benefits of Clinton's proposal. Lower-income

families will get no subsidy. Those currently

on Medicaid also will be excluded. Since

expected health costs will exceed premium payments,

a substantial government subsidy will be

needed. Whether that subsidy is funded from the

Medicare tax or from general revenues, the overall

effect will be regressive.

Encouraging Early Retirement. By the middle of

the next century, we'll have only one and one-half

to two workers for every retiree (compared to 3.3

to 1 today). This is partly due to the elderly living

longer and women having fewer children. But it's

also due to people retiring earlier and becoming

beneficiaries rather than taxpayers. A majority of

workers now retire before age 65, and 79% of

those begin collecting Social Security benefits at

age 62. In recognition of this problem, federal policy

since 1983 has been designed to encourage

later retirement. For example, the Social Security

retirement age is being gradually increased from

65 to 67 beginning in 2003. …

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