Retirement Revised: At age 50, let's weigh the future of Medicare

Medicare is having a midlife identity crisis. Our most important health insurance program celebrated its 50th birthday in July, 2015, and two political and policy visions for Medicare's future are competing for supremacy in Washington. The winning direction will have important consequences for retirees in the decades ahead. 

The question on the table is how to best pay for health care for our aging population. In 2050, the 65-and-older population will reach 83.7 million - almost double what it was in 2012, according to the U.S. Census Bureau. 

Total Medicare spending is projected to rise from $649 billion in 2015 to $1.2 trillion in 2024. Much of that increase stems from our aging population, but per capita spending also is expected to quicken - the pace will be 4.1 percent from 2014 through 2024 compared with 1 percent from 2010 to 2014. 

The forecast has prompted an array of proposals for change. Conservatives have proposed higher eligibility ages and a shift away from the current defined-benefit structure to a defined-contribution approach - better known as vouchers. Former Republican presidential contender Jeb Bush told an audience that we should "phase out" Medicare in favor of something like a voucher plan. 

Meanwhile, liberals advocate controlling Medicare's costs through reform of care delivery systems, cutting the cost of prescription drugs, emphasizing prevention and eliminating waste in programs like Medicare Advantage. 

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My perspective: We have a health-care-spending problem, not a Medicare problem. Medicare costs simply reflect the overall cost of our healthcare system - and the system is inefficient. 

The United States spent 16.9 percent of its gross domestic product on health care in 2012, according to the Organization for Economic Cooperation and Development (OECD). That was far ahead of the 9.3 percent average for all OECD member nations. What's more, we get inferior results for our higher spending - our longevity is rising more slowly than in other major OECD nations. American life expectancy was 78.7 years in 2011, OECD reports, a bit behind the OECD average of 80.1 and well behind leaders like Switzerland (82.8), Japan (82.7), and Italy (82.4). 

Clearly, there is a great deal of inefficiency that can be wrung out of the health-care system. That's why restructuring benefits and shifting more costs to seniors isn't the first place to go with Medicare reform, although that's been one of the clear trends. 

A case in point: passage in 2015 of the so-called "doc-fix" legislation, which resolved a long-standing problem with rates used to reimburse physicians for care. The legislation was expensive, and one way that it raises money is by increasing the high-income surcharges that some seniors already pay for Part B (outpatient services) and Part D (prescription drugs) if their modified adjusted gross income (MAGI) exceeds certain levels. These surcharges were first levied in 2007 as a result of reforms passed in 2003, and they were increased to help pay for the Affordable Care Act. 

The doc fix is just the tip of the cost-shifting iceberg. Republicans in Congress have tried repeatedly to advance a new premium-support model for Medicare that would replace the current set of defined benefits with a set amount of cash that beneficiaries could use to shop for private health insurance or a variation on traditional fee-for-service Medicare. 

These Medicare vouchers would raise premiums for seniors in traditional Medicare by 50 percent in 2020 over current projections, according to the Congressional Budget Office. Other proposals have called for raising Medicare's eligibility age from 65 to 67. Again, more cost-shifting - either to employer health plans when workers delay retirement, Affordable Care Act exchanges, or to Medicaid in the case of low-income seniors. 

Smarter approaches are available. The Affordable Care Act made a good start at reforming care delivery, aiming to improve coordination among providers, patients, and caregivers. Those initiatives should be accelerated. There are also big savings to be had by restoring the federal government's ability to negotiate lower drug prices for beneficiaries who are dually eligible for Medicare and Medicaid - somewhere between $134 billion to $141 billion over 10 years, according to the Medicare Rights Center. 

Better preventive care also could save Medicare billions. Just 10 percent of the Medicare population - the sickest enrollees - account for 58 percent of spending, according to the Kaiser Family Foundation. Those numbers could be changed dramatically by making sure Americans receive good preventive care in the years leading up to Medicare eligibility, argues Dr. Linda Fried, dean of the Mailman School of Public Health at Columbia University in New York. 

Fried is a gerontologist who specializes in healthy aging. In a new article focused on Medicare's next 50 years, she argues that we should actually reduce the age of eligibility for Medicare's preventive health services. Her argument: Age 50 to 65 is the period of greatest risk of disability due to cancer, heart disease and stroke, obesity and diabetes - and with better preventive health care, much of it could be avoided.

Mark Miller is a journalist and author who focuses on retirement and aging. He is the author of "The Hard Times Guide to Retirement Security: Practical Strategies for Money, Work and Living." Mark also edits and publishes RetirementRevised.com.

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