A Better Way to Cut Medicare Spending

Over the next 10 years, the Affordable Care Act (Obamacare) is scheduled to cut Medicare spending by $716 billion, primarily by reducing payments to doctors and hospitals. Further, those cuts in spending will continue indefinitely into the future. By 2060, one-fifth of Medicare will be gone. The Medicare actuaries and others have warned that these cuts will reduce access to care for seniors.

Fortunately, there is a better way ― proposed by Liqun Liu, Andrew J. Rettenmaier, Thomas R. Saving and Zijun Wang in a study for the National Center for Policy Analysis: The reform consists of two changes to current law: (1) raising the Medicare eligibility age to the same age as Social Security (and thereafter indexing it to increases in longevity), and (2) requiring higher-income seniors to pay a greater share of their medical costs (or so-called means testing). This reform ensures that low-income workers receive full benefits (defined as the average benefits retirees would receive if the ACA’s cost-cutting provisions are not realized) upon attaining the new eligibility age. Once seniors reach the new eligibility age:

  • Individuals in the lowest 30 percent of the lifetime income distribution would receive 100 percent of full benefits (net of premiums).
  • Medium income workers (at the 50th percentile of lifetime income) would receive 87 percent of full benefits—significantly higher than the benefits they would receive under the Affordable Care Act.
  • However, individuals in the higher lifetime income groups would be required to pay a greater share of their health care costs and as a result receive a reduction in net benefits under current law.

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For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.

[Cross-posted at Psychology Today and John Goodman’s Health Policy Blog]

John C. Goodman is a Research Fellow at the Independent Institute, President of the Goodman Institute for Public Policy Research, and author of the Independent books Priceless, and A Better Choice.
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