"Medicare Health Accounts"
Medicare Health Accounts: A New Policy Option to Help Adults Save for Health Care Expenses Not Covered by Medicare Findings from the Commonwealth Fund Survey of Older Adults
By Sara R. Collins, Karen Davis, Sabrina K. H. How, and Alyssa L. Holmgren
The Commonwealth Fund
June 30, 2005
While Medicare was designed to protect people over age 65 from health costs and facilitate access to needed services, the program has substantial cost-sharing requirements and does not cover such high-cost services as long-term care. Medicare beneficiaries spend 22 percent of their incomes on premiums and out-of-pocket medical expenses—a figure that is projected to increase to 30 percent by 2025.
New strategies are needed to encourage people to save more for their retirement. The Commonwealth Fund Survey of Older Adults, a nationally representative sample of 2,007 adults ages 50 to 70 conducted in late 2004, asked respondents about their interest in new savings accounts that could be created within the Medicare program. Such accounts would allow people to automatically save for health costs that are not currently covered by Medicare. With Medicare Health Accounts, up to 1 percent of earnings could be deducted automatically from people’s paychecks and placed in an account in the Medicare program. The savings could then be used by people in their retirement to cover costs of long-term care, home health, and other costs not covered by Medicare.
Among older adults in households in which at least one member was working, nearly seven of 10 (69%) said they would be interested in having a Medicare Health Account.
http://www.cmwf.org/usr_doc/842_collins_olderadults_fs_06-30-2005.pdf
Comment: Medicare covers less than 50% of health care costs of Medicare beneficiaries. As costs increase both health security and financial security are declining for seniors, and everyone else.
In this survey of seniors on the declining affordability of health care, Medicare beneficiaries were asked if they supported the option of reducing the financial risk of health care: placing 1% of their paychecks in a segregated Medicare Health Account to be used when the need arises.
Without a discussion of the implications of segregated accounts nor a discussion of other options, Medicare Health Accounts, at first blush, would seem like a good idea. The strong positive response is really not surprising.
But there is a great variability in health care needs amongst Medicare beneficiaries. Some remain healthy and drop dead suddenly of a cardiac arrest. The financial burden is negligible for them. Others have very protracted and expensive end-of-life disorders and yet others have high-cost long-term care needs.
The Medicare Health Accounts would be superfluous for those with few needs, but, as described, they would likely be inadequate to provide financial security for those with greater needs.
The lesson is obvious. For insurance to work, risk must be pooled. Medicare Health Accounts segregate risk, defeating the very purpose of insurance.
Although it is suspected that these accounts have been proposed as a solution that might appease conservatives, this is very unlikely. First, conservatives want to reduce public funding of Medicare. These accounts are add-ons and do nothing to reduce the Medicare tax burden. Second, conservatives want to reduce health care spending by requiring individuals to be sensitive to more of the costs. An account dedicated exclusively to out-of-pocket expenses under Medicare largely insulates patients from the costs and defeats the strategy of the conservatives.
Once again, we come to the bottom line. Insurance should be funded by modest contributions from everyone to ensure that health care is affordable and accessible by all. Medicare segregates a high-cost sector into a separate risk pool. Employer-sponsored plans segregate a low-cost sector into a separate quasi-pool, but one that is rife with inefficiencies, inequities, and egregious waste.
Medicare beneficiaries would benefit by being placed in a low-cost pool that covers everyone. Healthy, employed individuals are already funding Medicare anyway, so they wouldn’t suffer by being included in the Medicare pool, and they would also benefit by being included in a program that reduces administrative waste and inefficiencies, and would ensure equitable access in time of need.
Incremental measures result from an effort to appease all parties, but they end up increasing costs without net improvements in coverage and affordability. All parameters are getting worse, not better. We know how to fix the system. We just need to finally decide that it’s time to do it.