What’s Medicare, and why is it in Trouble?

As discussed in the last article, social security is like a giant pension plan. The US government takes a chunk out of each paycheck and eventually returns it in the form of monthly paychecks after a certain age. With more, longer-living citizens, benefits must either be scaled down, which hurts seniors already struggling with current benefits, or the SS tax must be increased, which hurts current workers who pay into the system. Unfortunately, Medicare faces the same problem.

    But first, what is Medicare? As the name suggests, it’s health insurance. Less obvious is the fact that it’s exclusively for older people, funded the same way Social Security is(thankfully, the tax is 4x lower). Medicare’s services are split up into four parts, labeled A-D. Part A comprises of hospital stays, Part B deals with medical insurance, part C provides for with private insurance, and Part D exclusively covers prescription drugs.

Part A covers hospital stays for up to 90 days; Medicare will pay the hospital for a patient’s stay. The first 60 days cost $1288 provided that the patient has worked for at least ten years(location and hours per week don’t matter), and thus paid for their fair share in the program with taxes. If the patient hasn’t worked for at least ten years, they’ll have to pay a couple hundred dollars per day, still a far cheaper cost than an uninsured stay. Days 61-90 cost $322 per day, but if the patient still isn’t well enough to leave by then, he/she can dip into a supply of “lifetime reserve days”. These cost $644 per day to use, and a patient only has 60 to use over their lifetime. Medicare also heavily fines hospitals that try to save money by kicking out patients prematurely and then readmitting them once their condition worsens again. With this safeguarded and relatively cheap option, Medicare recipients seem to be getting a good deal for Part A.

Part B pays for other, more common services, such as x-rays, diagnostic tests, vaccinations, and so on. This section is a little more interesting: patients pay a monthly premium($120-$400 depending on annual income), a yearly fee/deductible($166), and 20% of approved medical costs. While this part covers a large portion of healthcare, as well as some preventive care, it does cost thousands a year, which may be problematic. Depending on a recipient’s general health and financial status, Part B can also be a very viable option.

Part C, known as Medical Advantage, is not health coverage like Parts A and B. Rather, it’s a way for some recipients to get their benefits from private companies for an additional premium. These private companies have more flexibility when it comes to benefits, offering different rules, costs, and restrictions, like the ones described in Part A. While Advantage plans have to offer the same/greater benefits than Parts A and B, they will often include Part D benefits as well, which will be covered in the next paragraph. Despite additional premiums, Medicare Advantage Plans and their tailored benefits are definitely a good fit for the right buyers.

Finally, Part D covers prescription drugs. It’s optional, and can be obtained from a Medicare Advantage Plan or stand-alone plan as a supplement to Parts A and B. Buyers of this plan can choose the types and strengths of drugs they need; available drug coverage is very flexible, so premiums will vary from plan to plan. Like Part C, D offers a flexible plan that ensures buyers will be able to access any necessary drugs.

Medicare seems to be an attractive way to be medically insured, especially since recipients have already paid for it through their taxes. Unfortunately, this is all changing. With more and more senior citizens on Medicare, it’s becoming very expensive to provide such discounted insurance for all of them. In fact, hospitals often refuse Medicare coverage, claiming that taking too many of these patients will lead to bankruptcy. Although the Medicare tax hasn’t increased this year, staying consistent at 1.45%, certain premiums and deductibles are gradually becoming more expensive. Next year, the Part B monthly premiums will increase for about a third of Medicare recipients(the rest are safe because Medicare premiums aren’t allowed to rise more than social security payments). These ~30% of recipients are people who haven’t received social security payments yet, and therefore are forced to pay enough to make up for the other recipients.

Although Medicare is a fairly good deal for its customers, it faces the same problems as Social Security: it’s becoming harder to maintain, and is on the track to inevitable bankruptcy. For now, Congress will keep kicking the can along, raising Medicare tax and costs of premiums to keep Medicare running. Until someone discovers a way to fix the system, there isn’t much else that can be done.

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