Jul 28, 2022 06:26AM ET
U.S. seniors tell pollsters that high inflation is one of their top worries - and that makes sense. Aside from Social Security, which is adjusted annually to reflect consumer prices, retiree income is fixed.
Policymakers have talked over the years about making the Social Security cost-of-living (COLA) formula more generous, but that would just be a tweak. If we really want to help seniors cope with inflation, we need to tackle the rising cost of healthcare, which historically has increased more quickly than general inflation.
In the Medicare program, overall out-of-pocket costs now consume 19% of the average Social Security benefit, up from 15% in 2002, according to the Kaiser Family Foundation (KFF). The increase is split roughly in half between premiums and deductibles, KFF found.
Those figures point to the need for structural reforms to Medicare. It is time to examine the dramatic privatization of Medicare that has occurred in recent decades, and ask whether our current marketplace-driven structures make sense. Mounting evidence suggests that we could save billions of dollars for retirees and taxpayers alike by making changes to the current system.
Sometime in the next few years, Medicare Advantage - the managed care alternative to traditional Medicare offered by private health insurance companies - will account for half of all Medicare enrollment. Insurance companies own the Part D prescription drug business lock, stock, and barrel - if you want coverage, you will buy it from a private insurer.
Advocates of privatization argue that marketplace competition has kept costs down and encouraged innovation. But Medicare spending actually is higher - and growing more quickly per person for beneficiaries in Medicare Advantage than in traditional Medicare. In 2019, the higher spending added $7 billion in costs to the Medicare program that would not have been there if Advantage participants had instead been enrolled in Original Medicare.
Earlier this year, a federal investigation found “widespread and persistent problems related to inappropriate denials of services and payment” by Advantage plans. The Office of Inspector General in the U.S. Department of Health and Human Services found evidence.
In the Part D prescription drug marketplace, drug plan premiums have remained relatively flat in recent years. But focusing on premiums alone misses the bigger picture of total out-of-pocket costs. Part D does not have a cap on the total out-of-pocket costs for prescription drugs, and beneficiaries who take high-cost specialty drugs can face very high costs.