A stop-gap measure

on July 08, 2009 at 1:00 PM, updated July 08, 2009 at 1:01 PM

If you work at all, 2.9% of your gross income is paid into the Medicare system (if you aren't self-employed, that percentage is split between you and your employer). That works out to just over sixty hours per year of your pay going to provide insurance for someone else. This includes the elderly, but also the severely disabled. We can always quibble over the details, but most Americans agree that these populations should have this kind of coverage.

There are several problems with this arrangement, though. First of all, it means that a lot of people are working to pay for someone else to have insurance, but have no such protection themselves. In 2005, it was estimated that some 20 million Americans exist in that category. About twenty percent of that group say that their health is either fair or poor - which I would take as an indication that they could really use coverage. It seems really unfair, no matter how you slice it, that these people foot the bill for someone else, but can't afford to see a doctor themselves.

The second problem is that Medicare is going broke. 2.9% of all earned income in the country isn't enough to pay for the oldest and sickest among us to have healthcare. But therein lies the problem - Medicare only covers the oldest and sickest among us - those who are guaranteed to have large healthcare expenses (and increasing over time). This is the opposite of the problem of "cherry picking" that private insurers are sometimes accused of doing - and it is a guarantee that the system will always be teetering on the edge of the abyss of default.

There are other problems with Medicare, but these two problems contain a seed of a solution for each other. The answer to the second problem is to get more people to pay for healthcare, and to pay more into the system than they are taking out. The answer for the first is to allow more people to be covered by the system. If twenty percent of the working uninsured need healthcare, then that still leaves another eighty percent who would - or could - pay into the system to maintain its solvency. And, if they needed it, it would be there for them to utilize. All that is needed is a law that will allow people to buy into Medicare simply because they pay taxes to support it - which seems kind of fair to me.

It's important to know which part of Medicare we are talking about - and your Medicare taxes go into a trust fund to pay for Medicare Part A. That covers basic hospitalization expenses and inpatient care. If you or your spouse paid into the system for ten years, then you get this coverage for free. If you paid for less than ten years, but more than seven and a half, you pay a monthly premium of $244. If you paid into the system less than seven and a half years, or not at all, then you can qualify to pay a premium of $437. The premiums are adjusted annually to deal with the increasing cost of healthcare.

At the full premium price, Part A beneficiaries pay $5,244 into the system per year. But the HI (Hospital Insurance) Trust Fund carries with it a future shortfall of approximately $12.4 trillion over the next seventy-five years. That is slightly less than three times the expected shortfall for the Social Security Trust Fund, if you're interested.

A person making $7 per hour will pay $422.24 into the fund over the course of a year. If that is subtracted from the full premium price, then there is a balance of $4,821.76 - or roughly $401.81 per month or $92.73 per week. That's a lot of money for someone who grosses $280 per week, but if the cost is split between employer and employee, that brings it down to $46.37 per week coming out of a person's paycheck. So for just a little more than a dollar per hour, a working person could have hospitalization insurance.

Note: I understand that the extra dollar per hour would be a burden on employers. I also understand that they would have to pass it along to their customers. But we already pay for charity care for those who have no insurance, so we either pay to purchase goods or we pay higher taxes to cover charity care. It seems to me, if all other things are equal, this is a better option.

I think it is important to focus on Medicare Part A because it covers the expenses that are potentially most devastating for a family. Most people don't file bankruptcy because of pharmacy bills or charges from seeing their local doctor. But one trip to the hospital - even if it is just overnight for observation - can bring in thousands of dollars worth of expenses that simply cannot be paid. Or, to be more precise, they are picked up by charity care and passed along to everyone else.

The same principle applies to Part B, which covers outpatient services. The current monthly premium for Part B is $96.40 for qualified beneficiaries - but that price reflects a 75% subsidy from the government's general revenue funds. This puts the full cost of Part B at $4,627 per year. Using the same formula as I state above, the cost split to employer and employee alike would be $44.98 per week. That means the total cost for both Part A and Part B would be around $90.

Of course, that's a lot of money for someone on minimum wage, or barely above it. I won't even try to deny that. But the point is that they will at least have an option to showing up at the emergency room with no insurance and no money in the bank. Even if no one in America took advantage of the opportunity, it would still provide a mechanism to make people more responsible for their healthcare.

But what about those people who chose not to pay premiums, but then turn up at the doctor's or hospital's doorstep? Well, since most of the qualifications would fall by the wayside, enrolling someone would be fairly simple - name, address, etc. In those cases, I would advocate holding someone in the system for some specified amount of time so they cannot show up one month, claim benefits, and then drop the coverage and starve the system of cash flow. Yes, I would advocate forcing them to pay their Medicare premiums to pay back the healthcare they had received - including withholding at least a portion of their income tax returns. If the guiding principle is fairness, then it is unfair to get benefits from the system yet pay nothing into it. Again, it's better than having no coverage at all.

Let's not forget, not all uninsured workers are minimum wage workers. Twenty-five percent of all self-employed persons have no healthcare - and some of them have pretty nice incomes. For those who already have insurance, but want a bit more protection, the same avenue should be available to them. And the premiums should qualify for a fully refundable tax credit to help offset the extra cost to individuals. The net result, I believe, is that we would have more people enrolled in Medicare and more money flowing into the Medicare trust funds.

This, in turn, would have a couple of benefits. First, it would ensure the solvency of the Medicare trust funds. Second, it could actually reduce the cost to all beneficiaries. Part B premiums, for example, are already adjusted annually to remain revenue neutral, by law. So if more people pay into it, the actual premiums would go down. Since some people who get Part A don't pay premiums, the largest benefit would be the continuation of the program on sound footing without raising payroll taxes. This would benefit every working person in America.

It isn't a perfect plan. I'm sure various sides of the issue would find a lot to hate about every point. But I think it would be better than the system we currently have. A real cure for the healthcare system is going to take years, maybe decades, to figure out. But this is a system that is already in place and would just need a bit of tweaking to get it up and running. Sure, there would be waste, fraud, and abuse - there always is (and that's why penalties should be severe). But this plan could actually help a few people while we figure out the best way to fix things.

All in all, better off is not a bad plan.