• Home Page
•  »  Blog
•  » Sounding the Alarm on Social Security and Medicare...Again

Sounding the Alarm on Social Security and Medicare...Again

By Roger Marvel
Associate Director of Medicare Supplement

Yes, that ringing you hear means the panic alarm has sounded once again for Social Security and Medicare. This time it’s in response to the latest report from the Social Security and Medicare Trustees that reveals the damage the recession has done to the already ailing entitlements.

According to the report, Social Security will run out of assets in 2037, four years sooner than previously forecast, and Medicare’s hospital fund will be exhausted by 2017, two years earlier than predicted a year ago. The alarm bells are ringing, but haven’t we heard this song before? Don’t get me wrong—the news about the entitlement programs is bad, but it’s hardly a surprise. As Paul Harvey once said, “In times like these, it is helpful to remember that there have always been times like these.”

Lawmakers have known for years that the entitlement programs are in trouble. All the recent recession has done is simply exacerbate an existing problem by reducing the number of people who are working and paying the taxes that fuel these programs. When the baby boomers start retiring, the problem will only get worse. The latest report on the uncertain condition of Medicare and Social Security is simply confirmation that Washington can't continue to keep patching the same leaking tire.

Of the two programs, Medicare is deflating faster. More and more Medicare has the look of a good program that was doomed from the beginning by mismanagement. Its designers predicted the program’s future needs badly…a little like the brilliant mathematical models that got us into this recession.

Medicare Mismanagement

• 25 years after Medicare was passed, the Government Accountability Office (GAO) compared the projected costs to the actual costs. The program cost 800% more than predicted. In essence, we were putting in $1,000 per year and expecting to take out $500,000 25 years later. (25 Years x $1,000 = $25,000).
• The Medicare Trust was intended to be a separate Trust Account in order to ensure total transparency with how the money was handled. However, like Social Security, it was rolled into the General Fund and transparency vanished. The money is now used for whatever the Federal Government wants. So how do we know we are in trouble?
• HMO plans were established in 1976 and Medicare Part C+Choice (today’s Medicare Advantage) was established in 1998. Now, 33 years after the introduction of health maintenance organizations (HMOs) as an alternative to fee-for-service Medicare, the promise of these private plans—that competition among them would lead to improvements in the quality and efficiency of health care delivery—remains largely unfulfilled. These plans cost the government more per person than Original Medicare, and they’ve increased risk-adjusted payment amounts by increasing the number and severity of the diagnoses that they report.
  

It is difficult to construct a convincing rationale for paying private plans more than would be paid by Original Medicare with the same patients. So it’s little wonder why the Obama administration has addressed the cost disparity by reducing the MA payment rates and no longer allowing the increased risk assessment to receive more in payment.

What are we to make of this?

Yes, times are changing and the insurance industry never stands still, but it is important to have the mindset that when others are sounding the alarm bells of panic, you see beyond the problems at hand to the opportunities on the other end.

More than 400,000 Private Fee for Service clients will be out on the street January 1, 2010. Again, nothing new. Private companies dumped thousands of beneficiaries over the years after deciding the Medicare reimbursements weren’t enough to sustain marginal profits with the HMOs. Medicare Supplement was there to provide benefits to these people, and it’s still there today. Plus, we have more companies offering Medicare Advantage today, so that will be an option as well.

As the alarm bells ring, be prepared for two things: 1) Your pocketbook and your children’s pocketbook will be used to kick the can down the road once more, and 2) Through all these changes there will be opportunity for the insurance agent. It might not be what you are doing today, but it will be profitable for you. Call a Medicare Expert at 1-866-888-9996, for advice on how you can take advantage of this opportunity. Yes the bells will ring, but that bell tolls for you.