March 29, 2011
Some of us are old enough to remember when Robert Heinlein popularized the saying “There ain’t no such thing as a free lunch” in his novel The Moon is a Harsh Mistress. A new report out today from the Kaiser Family Foundation proves the old adage still holds true. According to the report, if the Medicare age were raised to 67 as many deficit-reducing proposals suggest, the federal government would save $7.6 billion. Good news, right? Unfortunately, such a change would cause costs to individuals for out-of-pocket expenses, employers for retiree health care benefits, and state governments for Medicaid, to increase by about $10 billion.
The fact is, in spite of massive fraud and sometimes inefficient care delivery, Medicare is the most cost-effective way to deliver medical care to seniors. Medicare’s Medical Loss Ratio (MLR) is about 3% – that is, 97% of the money spent on Medicare goes to cover medical expenses, not administrative functions. Compare that to private insurers, whose MLR varies but is seldom under 15%.
So here’s the question: does the federal deficit reduction that might result from raising the Medicare age bring benefits that are worth the costs it will charge to individuals, employers, and state governments? Doesn’t seem like such a great trade-off to us – but we’d like to hear your take on it.