The Surprising Pros and Cons of Medicare

Medicare is a big concern in some circles.

What is the true status of Medicare? Is it good, bad, or somewhere in between? What would happen if Medicare was eliminated?

HealthMarkets discusses some pros and cons of Medicare.

Pros of Medicare

Medicare Provides Coverage to Those Who Wouldn’t Have Coverage.

In many senses, Medicare does “work.” Thanks to the program, millions of aging adults have been able to receive coverage when they otherwise wouldn’t be able to afford it. Prior to 1965, when Medicare was created, around 9 million older adults didn’t have health coverage. That number is significantly higher than the 508,000 seniors who were uninsured in 2018. Medicare also covers many younger Americans with disabilities who, otherwise, would not have healthcare.

Consider the implications if Medicare didn’t exist. Older Americans, who typically need the most medical treatment, would find themselves paying exorbitant medical costs directly out of pocket. The total paid every year would be staggering, most likely exceeding their annual income.

Individuals with disabilities would be totally dependent on their caretakers, who may or may not be able to afford medical care.

Medicare is useful because it covers so many people.

Medicare Costs Very Little Every Month

Generally, Medicare enrollees qualify for free Part A but must pay a small, out-of-pocket amount every month for Part B. This number is estimated to cost around $135.50 per month. When you compare this to the out-of-pocket cost of operations, prescriptions, and other associated costs, the savings are huge.

Medicare Advantage Plans Offer Additional Coverage

More and more Americans enroll in Medicare Advantage plans each year, and enrollment is expected to keep growing in the future. If fact, enrollment was at 22 million in 2019, quadrupling from 5.3 million in 2004. Part C enrollees made up 34% of the 64 million Medicare recipients as of 2019.

MA plans offer beneficiaries an alternative way to get Medicare benefits through plans sold by private insurance companies that contract with the Centers for Medicare & Medicaid Services (CMS).

You get all the Medicare program benefits of Part A hospital insurance and Part B medical insurance, together known as Original Medicare*, when you enroll in Part C (Medicare Advantage). Plus, Medicare Advantage plans may provide additional benefits (dental, vision, etc.) at a minimal cost.

These services are essential to older Americans who would suffer otherwise.

Medicare Has Led to Prescription Innovations

The inception of Medicare created a massive market for drug companies. Suddenly, millions of Americans had access to prescriptions they wouldn’t have had otherwise. When pharmaceutical companies saw the untapped potential in the Medicare market, they began investing billions of dollars in the development of drugs tailored specifically for seniors.

As John Holohan, a fellow at the Health Policy Center at the Urban Institute, notes, “A market began for drug companies and medical device manufacturers; when you have a market willing to pay for [products], it’s worth making the investment.”

The addition of Medicare Part D Prescription Drug Plans and Medicare Advantage Prescription Drug Plans—both sold through private insurance companies—also gave Americans wider access to prescription medicines.

Medicare beneficiaries have had access to these plans since 2006, and enrollments have increased every year since. In 2006, 22.5 million (52%) people on Medicare were enrolled in Part D compared to 43 million (72%) in 2018, according to the Kaiser Family Foundation. With millions of Americans receiving Medicare prescription drug benefits, this may have given pharmaceutical companies more opportunities to develop drugs for this market.

Medicare Has Resulted in Increased Medical Standards

With the creation of Medicaid and Medicare, Congress created a set of standards for hospital enrollment in the programs. As time went on, the government became more involved in overseeing these standards and now requires public reporting on things such as hospital infection rates and readmissions.

This public accountability forces hospitals to perform due diligence in ways they might not otherwise. As Karen Davis, director of the Roger C. Lipitz Center for Integrated Health Care at the Johns Hopkins Bloomberg School of Public Health, notes, “When hospitals find out they aren’t as good as other hospitals, they get serious about improving. When they find out it’s possible to have lower rates of infections, for instance, they try to find out what good practices are and follow them to get good results.”

Cons of Medicare

Medicare Costs a Huge Amount to Administrate

In 2018, Medicare spending totaled $731 billion. Currently, that’s approximately 15% of the overall federal budget. That number isn’t expected to get smaller, with many estimating that the percentage will go up to around 18% over the next decade.

When you consider that this staggering amount could be spent on other valuable programs, such as education, eliminating poverty, mental illness cures, and social justice, it at least causes you to question the overall efficiency of the program.

Poor Health Can Actually Cost More

The Kaiser Family Foundation says that those who reported themselves to be in poor health and on Medicare had out-of-pocket costs 2.5 times higher than the healthier beneficiaries. It’s somewhat hard to evaluate what this statistic means given that self-reporting isn’t always reliable, but it does raise questions.

Granted, Medicare does offer a significant number of free preventive programs to enrollees that can cut down on health problems. Many of the individuals on Medicare suffer from preventive conditions (particularly before the implementation of ACA).

Hospital Stays Still Cost a Lot

Even for those enrolled in Medicare, hospitals stays can still be extraordinarily expensive, easily running into the thousands. This highlights several issues.

As noted, many of those on Medicare suffer from preventable conditions and are hospitalized for those conditions. This places an increased burden on hospitals, which can then drive up the prices across the board for all patients. Additionally, because many Medicare enrollees are in a low-income bracket, they can’t afford these stays, placing a crushing burden on them and putting the hospital in a difficult spot.

While Medicare certainly helps those who are struggling medically, it also creates a significant strain on the overall healthcare system in the United States.

Older Enrollees See Costs Skyrocket

“Medicare enrollees 85 and older spend three times more on healthcare than those aged 65 to 74,” according to a Kaiser Family Foundation report. In some ways, this should be expected because more medical issues arise as a person gets older.

However, it also reveals that Medicare doesn’t adapt well for the oldest adults. A truly efficient system would take the increased costs into account and spread those across all enrollees.

Medicare Attracts Fraudulent Doctors

In 2017, the United States charged 412 doctors with medical fraud, amounting to $1.3 billion. Unfortunately, much of this fraud was connected directly to the opioid epidemic currently happening in the country. As the New York Times reported, “Nearly one-third of the 412 charged were accused of opioid-related crimes. The health care providers, about 50 of them doctors, billed Medicare and Medicaid for drugs that were never purchased; collected money for false rehabilitation treatments and tests; and gave out prescriptions for cash, according to prosecutors.”

In addition to the Medicare funds lost through fraud, the government must also employ a significant task force to investigate potential crimes, adding yet more expenses to the Medicare program.

Medicare Costs Taxpayers a Huge Amount

In 2018, an astonishing 36% of Medicare funds came from payroll taxes. With the current Medicare tax rate set at 2.9% (split between employers and employees) — and an additional 0.9% for those making more than $200,000 — this represents a significant amount of money coming out of each paycheck.

While it’s certainly understandable that Medicare funding must come from somewhere, it raises the issue of whether private insurance companies could be more efficient in terms of funding their programs.

Conclusion

The Medicare debate isn’t going anywhere anytime soon. It’s been part of the landscape for over 50 years and will probably continue to be around in one form or another for many years to come.

When enrolling in a Medicare plan, your best bet is to do plenty of research. Find out what’s available and what benefits are offered. You may be able to get a better, equally affordable plan through a private insurance company.