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Medicare Cuts on the Table

Congress fights over budget

CNNMoney reports that as the United States Congress begins the long debate over how to cut the exorbitant deficit and structure our budget Medicare reform is back up for discussion. Most lawmakers agree that real deficit reform conversation cannot begin in earnest until real cuts or updates to the Medicare program are made.

Currently, Medicare, which is the Government health insurance program for seniors and the disabled, is one of the leading drivers for deficit growth. Medicare spending, according to estimates, is expected to total $492 billion in 2012. Maybe that doesn’t sound too bad but given the rising number of Baby Boomers expected to retire in the coming years it’s estimated that by 2022 the total for Medicare could hit a high of $895 billion (numbers provided by the Congressional Budget Office).

This growth rate might have been sustainable under ideal conditions, but the number of couples having children, and therefore able to eventually enter the workforce and pay into the Medicare system, has been in decline for many years.

Medicare spending is not all funded by payroll taxes; in fact, the Federal Government also uses general tax revenues and senior’s premiums to pay for doctor’s visits and prescription medication. Right now the Federal Government is covering approximately 42% of total Medicare spending and seniors are paying only 13%, a percentage that may have to be eventually increased, especially for wealthy seniors.

Right now a plan has been put forth by the Heritage Foundation which suggests that couples with an income more than $110,000 and singles with an income of more than $55,000 could cover a greater share of Medicare costs. Others with even higher incomes would be required to pay the full amount, generating an estimated $204 billion over the next five years.

The suggestion of higher premiums for wealthier seniors was also suggested by Timothy Geithner, the United States Treasury Secretary.

Another option that has gained some traction is raising the eligibility age for Medicare. Right now seniors can enroll at age 65, but most seniors have to wait until they are age 66 until they get their full retirement benefits. This plan is difficult for many seniors to accept because it may mean seniors many would retire from their jobs and have to wait before receiving medical coverage, potentially leaving them uninsured for a period of time. Heritage Foundation estimates that if the age of eligibility was raised it could save an estimated $53 billion.

President Obama and leading Democrats argue some of the best budget savings could come by making Medicare more efficient. Not only has the President created a board to “keep costs under control” but his Affordable Care Act has also made billions of dollars of cuts to insurance companies that are currently participating in the Medicare Advantage program. Republicans doubt that the Government, which is notoriously inefficient, can ever keep costs under control.

What is clear is that Democrats and Republicans cannot currently agree on a budget solution. Many Congressman realize that cutting Medicare benefits is likely to frustrate a large, powerful group of their constituents, and with many lawmakers facing re-election, there’s no incentive for anyone to find a solution right now.