Healthcare Reforms

Abstract

The big three entitlement programs Social Security, Medicare, and Medicaid, have been the subject of much intense debate. The major point of contention is how necessary these programs are in light of how costly they have proven to be. Even among those who contend that the programs are necessary, there is growing concern about the sustainability of such programs. Their contribution to ever increasing budget deficits puts their sustainability to the question, despite empirical evidence of their presence. These programs, having been found to be necessary, the issue becomes how to ensure their continued support and budgetary allocation without derailing the economy. Through restructuring each of the entitlement programs, their continued sustainability is assured. Special interest groups can continue to benefit from these programs.

Literature Review

Most participants of the ongoing debate on the viability of entitlement programs contend that there are two main sides. Two positions on the sustainability of Medicare, Medicaid and Social Security programs are advanced. The three biggest entitlement programs were instituted with the aim of alleviating the strain placed on special interest groups. The popularity of entitlement programs lied in the number of families it helped. According to Oberlander, due to this popularity, politicians were more likely to think in terms of improving it rather that restructuring it[1]. The other entitlement programs also had similar fates, and it was this reluctance to restructure the programs that led to their unsustainability and their continued causation of federal budget deficits[2]. While initially these programs enjoyed wide support, their contribution to budget deficits and impact on national debt has resulted in two main views about them. The first who advocate its continued operation, national debt notwithstanding, and the second who submit entitlement programs should be scrapped. This paper shows that through restructuring, the concerns of both groups will be addressed.

Introduction

Entitlement programs are the biggest factor driving the increase in federal budget deficits, leading to long-term national debt. While these accounted for 2.5% of gross domestic product (GDP) in 1965, by 2012 the figures had grown to 9.7% of GDP[3]. The Congressional Budget Office projects that, if the current trend continues, entitlements will be 18% of GDP in 2035[4]. A 2011 Pew Research Poll suggests that 80% or more citizens are of the opinion that Social Security, Medicare, and Medicaid is good for the country. Further, more than 60% of those polled did not want benefits to be reduced even with continued federal deficits[5].

Popular opinion calls for the continuity of the programs. The opinion might as well be, but we cannot discount the fact that the sustainability of entitlement programs is seriously brought into question by current economic figures. Two-thirds (66%) of the budget went to entitlement programs in 2014[6]. More than one-half of the respondents in the Pew Research interview believed major changes in the programs are necessary for their continued sustainability[7]. While a large number support tax increases to support the programs, the general expectation is the taxes will be paid by parties other than themselves. The average American desires the derived benefits of entitlement programs but is unwilling to pay for them. This leads to a dilemma for policy makers on how to continue these popular programs without adding to the budget deficits. The restructuring of entitlement programs assures the continued enjoyment of their derived benefits, without negatively impacting the economy.

Position

Social Security could be altered to make it more in tune with budgetary concerns and aid in decreasing budget deficits. Some measures can be adopted to ensure that the said changes have the desired effect, that of reducing deficits and assuring the millions of Americans on the sustainability of Social Security. As a simple measure to ensure the sustainability of social security, a gradual rise of wages subject to payroll taxes, which currently stands at $106,800, should be implemented over the next few years. The target is that the amount of wages subject to payroll taxes reach the 1977 target of covering 90 percent of all wages. Moreover, a change in the calculation of annual cost-of-living adjustments (COLAs) should be done[8], so it more accurately reflects inflation. A slight reduction in the growth in benefits compared to current law for approximately the top 25 percent of beneficiaries could be implemented as well.

The formula for increases in life expectancy should be indexed without altering either the full retirement or early retirement age of those currently covered by the law. Social Security Administration should also ensure that those who opt for early retirement understand that they will receive lower monthly benefits. Further, the minimum benefit for long-term, lower-wage earners should be increased while providing a modest benefits increase for the elderly, who are most vulnerable[9]. Also, newly hired state and local government workers should receive cover under the Social Security system to increase the universality of the program and improve on sustainability.

The Medicare System could also derive some benefits from restructuring to make it more sustainable. The number of alternative measures to ensure the sustainability of the Medicare system abound, and some common considerations are outlined below. The Medicare system could be privatized via a voucher system that would allow beneficiaries to receive fixed subsidies that they could then use to purchase insurance on the private market[10]. Alternatively, the overall revenue derived from the Medicare system could be increased by raising the payroll tax percentage due from employees and their employers, raising premiums, contributions, and deductibles paid by the insured so as to strengthen the link between use and cost. Other major considerations that could impact the sustainability of Medicare would involve increasing the eligibility age of Medicare to age 67 or later, and reducing the payments made to physicians, healthcare facilities. Furthermore, the Government could negotiate program discounts directly with drug manufacturers to reduce the costs attributed to pharmaceuticals[11].

Medicare would benefit from eliminating fraud and abuse as there are inadequate safeguards to ensure only those who are an eligible benefit, and even then, that they are submitting genuine costs. In addition to this, outcome payment systems should replace existing reimbursement methodologies while a standardized treatment methods should be adopted and experimental treatments and technologies eliminated. Another option worth serious consideration, but which draws heated debate is rationing care. Recent statistics indicates that 12% of Medicare patients account for 69% of all Medicare expenses[12], and most of these patients are usually in the last six months of life. Rationing care at this stage would result in considerable cost reduction and go a long way towards ensuring the sustainability of Medicare.

In order to control the costs of Medicaid, several policies could be adopted. In the short term, the removal of state enforced barriers to provision benefits to those that are “dual eligible”, that is those eligible for both Medicare and Medicaid, through managed care plans. Eliminating these restrictions would ensure Medicaid becomes more cost effective, as, unlike Social Security and Medicare, it is directly funded by the state and federal governments. In the long term, such measures as to increase the sustainability of Medicaid include a discontinuation of the shared financing arrangement between the state and federal governments. The current system of the state government matching federal payments is susceptible to manipulation as states have and do in fact take the incentive to run up higher health care costs[13]. The practice is in the hopes of getting more in matched federal payments. Allocating program responsibilities between state and the federal government in a budget neutral manner should solve this issue. For example, the federal government could fully finance and administer its assigned components of the Medicaid program, while delegating others to the state. As a result, the future rate of growth of Medicaid will reduce.

Moreover, states could be allowed a greater deal of control in the design and structuring of their programs, whether through block grants, with the maintenance of effort requirements, or through waivers placed on the existing program. Once these state-run alternative care programs are fully operational, Medicaid beneficiaries could be ported over to the new system. Further, the current tax code excludes health insurance benefits provided by employers from taxable income. Capping the exclusion of employer-provided health benefits, and then phase it out over the course of the next few years would prove advantageous. The consensus among health care economists on the issue is that this will incentivize employees and their employers to select more gainful health plans. Also, since this is the largest tax spending in the federal budget, eliminating it reduces the budget deficit appreciably each year. Also, this will serve to strengthen Social Security by increasing the amounts deposited into the Social Security Trust Funds

Conclusion

To conclude, entitlement programs are exceedingly popular with the population despite the toll they take on the federal budget. In order to continue enjoying the derived benefits of these programs, an effective restructuring program is essential in orde so that r to ensure that their growth is within the budget, and, as a result, sustainable. Social security could be made sustainable by increasing a number of taxable wages and changing how the annual cost-of-living adjustments are calculated. Medicare sustainability could be pegged on increasing the eligibility age for Medicare to 67 or later, reducing the payments made to physicians and healthcare facilities, negotiation of program discounts directly with drug manufacturers to reduce the costs of drugs. Medicaid system sustainability is dependent on discontinuation of the shared financing arrangement between the state and federal governments since this is susceptible to manipulation. In all, through these and other associated practices, sustainability and continuation of entitlement programs is all but assured.

Bibliography

Congressional Budget Office,. Long Term Budget Outlook. Ebook. 1st ed. Washington: CBO, 2012. Accessed October 16, 2015. http://www.cbo.gov/sites/default/files/cbofiles/attachments/06-05-Long-Term_Budget_Outlook_2.pdf.

Engen, Eric M, and R. Glenn Hubbard. Federal Government Debt And Interest Rates. Cambridge, MA: National Bureau of Economic Research, 2004.

Heritage Foundation,. ‘Two-Thirds Of All Federal Spending Went To Entitlement Programs In 2014’. Heritage.Org. Last modified 2015. Accessed October 16, 2015. http://www.heritage.org/federalbudget/budget-entitlement-programs.

Hudson, Robert B. Boomer Bust?. Westport, Conn.: Praeger, 2009.

Oberlander, Jonathan. The Political Life Of Medicare. Chicago: University of Chicago Press, 2003.

Pew Research,. ‘Public Wants Changes In Entitlements, Not Changes In Benefits’. Pew Research Center For The People And The Press. Last modified 2011. Accessed October 16, 2015. http://www.people-press.org/2011/07/07/public-wants-changes-in-entitlements-not-change-in-benefits/.

Seidman, Saul William. Trillion Dollar Scam. Boca Raton: Universal Publishers, 2008.

Walberg, Mark P. A Patient-Perspective Approach To Medicare Part D Prescription Drug Plan Costs. Stockton, California, 2009.

---

[1] Jonathan Oberlander, The Political Life Of Medicare (Chicago: University of Chicago Press, 2003).

[2] Oberlander, The Political Life, 8.

[3] Congressional Budget Office, Long Term Budget Outlook, e-book, 1st ed. (Washington: CBO, 2012), accessed October 16, 2015, http://www.cbo.gov/sites/default/files/cbofiles/attachments/06-05-Long-Term_Budget_Outlook_2.pdf.

[4] Congressional Budget Office, Long Term Budget.

[5] Pew Research, ‘Public Wants Changes In Entitlements, Not Changes In Benefits’, Pew Research Center For The People And The Press, last modified 2011, accessed October 16, 2015, http://www.people-press.org/2011/07/07/public-wants-changes-in-entitlements-not-change-in-benefits/.

[6] Heritage Foundation, ‘Two-Thirds Of All Federal Spending Went To Entitlement Programs In 2014’, Heritage.Org, last modified 2015, accessed October 16, 2015, http://www.heritage.org/federalbudget/budget-entitlement-programs.

[7] Pew Research, ‘Public Wants Changes’.

[8] Eric M Engen and R. Glenn Hubbard, Federal Government Debt And Interest Rates (Cambridge, MA: National Bureau of Economic Research, 2004).

[9] Robert B Hudson, Boomer Bust? (Westport, Conn.: Praeger, 2009).

[10] Engen et al., Federal Government Debt, 24.

[11] Mark P. Walberg, A Patient-Perspective Approach To Medicare Part D Prescription Drug Plan Costs (Stockton, California, 2009).

[12] Walberg, A Patient-Perspective.

[13] Saul William Seidman, Trillion Dollar Scam (Boca Raton: Universal Publishers, 2008).