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A spectators' section at the Democratic National Convention in 1964 in support of Lyndon Johnson’s drive to establish Medicare. (AP Photo)

For Medicare, 'modernization' means 'destruction'

COMMENTARY | March 10, 2008

The critical question, writes attorney Judith Stein, is: 'Will we keep giving away public money to private industry rather than toward necessary health care for older and disabled people?'

By Judith Stein

The Medicare Modernization Act of 2003 (MMA), best known for creating the Medicare Prescription Drug program, or Part D, included a little discussed provision that could dramatically alter the entire Medicare program.  Referred to colloquially as "the 45% Trigger," the provision declares that if the Medicare Trustees' find, for two years in a row, that Medicare spending from general revenues (as contrasted with payroll taxes and premiums) is projected to exceed 45% of total Medicare spending for the current or following six years, it shall be treated as a "funding warning." Such a finding triggers a statutory requirement that the President must submit legislation to Congress to address the funding situation.

The conditions established by the 2003 law have now occurred, and the President has sent proposed legislation to Congress. The law dictates elaborate special procedures for Congressional consideration of such legislation. Under the procedures, the President's proposal, or an alternative proposed by a member of Congress to address the same issues, is likely to be considered with a very short turnaround.

Little has been written in the mainstream media about the 45% trigger – or, for that matter, about the Administration’s persistent, remarkably successful effort to privatize Medicare. Maybe reporters and editors don’t understand the wide-ranging importance of this story. Maybe it seems too complicated, or only of interest to a narrow, aging readership. Think again. In simple terms, here are two reasons this story should be reported:  

Reason No. 1: Traditional Medicare is almost universally cherished by Americans of all ages, on a level with Social Security. When Medicare was enacted in 1965, 50 percent of all Americans 65 or older had no insurance. Now Medicare provides health insurance for more than 95 percent of older people as well as for people with disabilities. It has also dramatically reduced poverty for older people and their families. For decades polls have shown that the public is overwhelmingly opposed to Medicare cuts. Thus, the ongoing privatization and intentional destruction of Medicare, if brought out of the closet and explained to the public, is a story people will care deeply about.

Reason No. 2: The 2003 Medicare “Modernization” law was a major step toward the destruction of traditional Medicare, little noticed by the public or the media in the wake of all the hoopla about the Medicare prescription drug benefit that was included in the law. This was just as planned. The 2003 law created an exclusively private prescription drug program, dramatically expanded the role of private Medicare plans, and authorized hundreds of billions of dollars to implement this move toward privatizing Medicare. Implementing the 45% Trigger as President Bush proposes would be one more nail in Medicare’s coffin.

This is a big election year. Reporters, editors and editorial boards should be asking Presidential and Congressional candidates about the 45% Trigger in particular, as well as the larger move to privatize and destroy Medicare on a continuing basis. It’s a vital issue.

As anticipated, the President's Medicare trigger proposals would weaken benefits and other beneficiary protections. The proposals are on top of the President's Fiscal Year 2009 budget proposals that include $183 billion in cuts from Medicare over a five-year period. Specifically, proposals offered by the President would:

   1. Introduce principles of "value-based purchasing" of health care into the Medicare program (see a February 2007 Center for Medicare Advocacy Weekly Alert).

   2. Increase the use of income-based premiums for Medicare Part D (as already mandated for Medicare Part B by the MMA)(see Center for Medicare Advocacy Weekly Alert of Feb. 8, 2008.

   3. Restrict patient access to courts to bring medical malpractice claims.   

The 45% Trigger is entirely arbitrary; no such limit exists for any other governmental activity. It forces Medicare to rely primarily on payroll taxes and premiums rather than on the income taxes that produce general revenues, placing a greater burden on lower-income individuals than on middle- and upper-income individuals. Spending from general revenues for Medicare is no different from similar spending for education, housing, defense, or veterans' programs. All of these areas are 100 percent financed with general revenues. 

We have reached the Medicare 45% Trigger in large part because the prescription drug benefit was funded only by general revenues (except for premiums for Part D plans). That means that the billions of dollars in new expenses that fund Medicare Part D are applied toward the 45% limit. Generally, payroll taxes that go into a trust fund pay for Part A Medicare services, such as hospitalization and skilled nursing care. With respect to physician visits, medical equipment, and prescription drugs provided under Parts B and D, premiums pay for about 25 percent of the costs while general revenues pay for about 75 cent. ((Click here for a Kaiser Family Foundation Medicare primer. (PDF))

Over time, Congress has shifted Medicare usage from Part A services to services under Parts B and D. For example, hospital and skilled nursing facility services, paid for mostly from the Medicare Trust Fund dollars, accounted for 53 percent of Medicare costs in 1993, 45 percent of costs in 2003 and 34 percent of costs in 2006.(For details, click here and here.)  Prescription drug costs, not shown as a separate category in either 1993 or 2003, accounted for a full 12 percent of all Medicare spending in 2006, the first year of prescription drug coverage under Part D.

Another reason we have reached the 45% Trigger is that Medicare costs, like private healthcare costs, have risen in recent years at a rate that is significantly higher than the consumer price index. Wages do not rise as quickly as health care costs, so that payroll tax revenues, which fund the Part A Trust Fund, do not rise as much as overall program costs. While the Medicare payroll tax was adjusted annually for years to meet the increase in healthcare costs and new benefits, it has not been increased in over 18 years.

The President's proposed legislation does nothing to address the dramatic cost of Medicare’s payments to private "Medicare Advantage" plans, which exceed payments for similar beneficiaries in traditional Medicare by an average of 13 percent, and as much as 19 percent, and which cost every Medicare beneficiary an extra $2 per month in Part B premiums. The overpayments are estimated to cost over $150 billion over 10 years. This puts an undue burden on both trust fund and general revenue spending.

The issue of Medicare costs needs to be addressed by Congress and the President in ways that recognize that Medicare operates in the context of a larger healthcare system throughout which spending is rising as a percentage of Gross Domestic Product. Some Medicare experts believe that part of the solution will involve increased taxes to generate needed revenues. The 45% Trigger, however, dictates that needed revenues cannot come from the federal income tax that distributes the tax burden more fairly between rich and poor than other kinds of taxes. Instead, the Trigger requires that Medicare revenues come from increased payroll taxes or premiums—both of which place a greater burden on lower income people—from increased beneficiary cost-sharing, or from reductions or other savings in payments to providers. 

The real issues concerning Medicare's future are how much healthcare costs will increase and how the Medicare program is designed. The latter issue will be largely determined by the political will of Congress and the American people. In other words, whether health insurance for older people and people with disabilities through Medicare is viewed as a priority by Americans, and, if so, how it should be delivered.

The 45% Trigger creates significant obstacles to an array of options to improve and stabilize Medicare. This seems to be exactly what was intended by those who wrote the 2003 law, and who seek to whittle away at Medicare. The key question regarding Medicare's future is will we keep giving away public money to private industry rather than toward necessary health care for older and disabled people.  It’s a critical question that deserves being asked and that demands serious answers.

[Click here for an earlier Nieman Watchdog article by Judith Stein on the privatization of Medicare.]

Posted by William Jones
03/08/2011, 07:39 AM

This article mentions 50% of citizens age 65 had no insurance when medicare began.Did they really need it? Pay out of pocket was easy back then as a visit to a Dr.was only $4. Didn"t Medicare simply open the doors for medical cost inflation since the federal government moving forward would now pay the bill and not the individual.

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