Medicare Insurance: It is Not Cheap-Part 1

Stanley Feld M.D.,FACP,MACE

The Democratic Presidential candidates have promised the country affordable healthcare insurance for all. With the structure of our present healthcare system it would be difficult to have effective universal healthcare for all.

The common impression is Medicare is excellent healthcare insurance coverage for the elderly. It is advertised as affordable healthcare insurance for everyone.

In reality Medicare is not affordable for all. Many contend providing affordable healthcare coverage for the elderly is the reason Medicare is expected to be bankrupt in the next ten years. Medicare is an entitlement program that is unaffordable for both government and many of its elderly recipients.

Advocates of single party payer universal healthcare system refer to Medicare as the ideal healthcare insurance model. One claim is Medicare is extremely efficient. Its overhead is only 2% of the insurance dollar. Private healthcare carriers’ administrative overhead consumes 20% of the healthcare dollar. Another publicized myth is in the last 30 days of life patients spend 50% of their total lifetime medical expenses.

Medicare outsources its administrative services to private insurers. On Medicare’s books it only spends 2% for administration. Private healthcare insurance carriers such as Aetna and Blue Cross are the administrator service providers for Medicare. The overhead of administrative services for Medicare is buried in the fees charged to Medicare.

The Medicare has stated that 90% of the healthcare dollar is spent on the complications of chronic disease and not the last 30 days of life.

What does Medicare healthcare insurance coverage cost a 65 year old husband and wife? Basic Medicare cost is $93.50 per month per person or $187 per couple per month and $2,244 per year. This insurance covers 80% of Medicare’s allowable fee.

If an allowable office visit fee is $100, Medicare will pay $80 and the patient will be responsible for the $20 co-pay. Medicare also pays 80% of allowable hospital fees after the $992 deductible is met by the patient. A $20,000 allowable hospitalization bill will cost the Medicare recipient $4999. The retail price on that hospitalization might be $40,000. Hospitals are committed to take the allowable fee as adequate reimbursement for services rendered. Many of you know it is very easy to incur a $40,000 hospital bill in a couple of hospital days.

Medicare has recently imposed an added assessment to the basic Medicare premium. It is called the Modified Adjusted Income Calculation. The IRS supplies Medicare with a senior’s previous year income tax returns. Capital gains, dividends, tax free dividends, and salaries are including in the Modified Adjusted Income calculation.

A married couple with a joint return and income from all sources are going to have an additional assessment of between $51.60 and $284 dollars per person per month depending on their Modified Adjusted Income calculation assessment. The assessment starts at $160,000 and ends at $410,000 per year. The husband and wife pay the assessment of between $25.80 and $142 per month or $619.12 to $3408 per year.

A widow with dividends, capital gains, an annuity and rental income of $164,000 per year is assessed and additional $103.30 per month or $1239.60 per year.

This assessment is paid with pre tax dollars. It gets deducted from the Social Security payment. If a person has earned income in addition to passive income the person is also paying additional tax on his Social Security check.

The deductible of 20% of the allowable fee and the initial $992.00 deductible for a hospital admission becomes expensive quickly.

In order for the Medicare recipient to have full coverage for the deductibles they have to buy Medigap insurance. There are seven Medigap insurance policies. The best and most complete is the Medigap Part F. Several private healthcare insurance sell this coverage. For persons under 70 years the cost of the policy is $140 dollars per person per month in after tax dollars. The effective cost per month is $200 per person or $400 per couple. The yearly after tax dollar cost is $4800 per year.

If you add Medicare Part D for prescription drug coverage, it adds another $24 per person or $34.28 dollars in after tax dollars per month per person or $822 dollars per couple per year. This cost does not consider the extra cost of the infamous doughnut hole.

The total premium for adequate Medicare insurance is $2244 plus $4800 plus $822 or $7866 per year. This calculation excludes the modified adjusted gross income. The modified adjusted income can add $619.20 to $3408 per couple per year to the premium. The MAGI creates a means adjusted premium. The maximum means adjusted premium is $11,274. per year per couple.

I believe in the concept of a maximum means adjusted premium for those who can afford to pay higher premiums.. However, I have two problems with the claim that Medicare is affordable insurance and universal. It order to be fully covered a Medicare couple would have to spend at least $7866 per year. Let us assume a couples’ only income is Social Security. They collect a maximum of $30,000 per year. It would be difficult to afford healthcare insurance of $7866 per year. It would be foolhardy not to have it. The couple would not qualify for a government subsidy.

The government, on the other hand, is subsidizing the insurance premium because the inefficiencies in the healthcare system. This is leading to a bankrupt system.

Visualize the premium necessary for an entitlement program for everyone. The government could not afford it unless services were severely curtailed. The only viable solution is to create a transparent, competitive market place for an informed consumer. It is essential that patients manage own healthcare dollar. If not, the government will be stuck with an entitlement for the benefit of the private healthcare insurance carrier with unaffordable coverage and an inefficient system.

We only have to look at the Massachusetts experience for confirmation. The cost of a high deductible ideal medical saving account with appropriate incentives for consumers would reduce the cost of healthcare.

It is time the Democratic Party stopped believing that universal healthcare with a single party payer would fix the healthcare system. It will simply generate shortages of physicians’ and hospital services’ while generating higher costs in an unaffordable system.

The opinions expressed in the blog “Repairing The Healthcare System” are, mine and mine alone.

Comments

[Bryan@Insurance]

Well, affordable Insurance is still out of reach.

[Stanley Feld M.D.,FACP,MACE]

Mr. Schneider read the ideal medical savings account.
http://www.lijit.com/search?uri=http%3A%2F%2Fwww.lijit.com%2Fusers%2Fstanleyfeld&start_time=&p=g&blog_uri=http%3A%2F%2Fstanleyfeldmdmace.typepad.com%2F&blog_platform=&view_id=&link_id=7386&flavor=&q=ideal+medical+savings+account&x=0&y=0

[Barry Schneider]

Thank you for the detailed information on monthly and annual price of medicare. I did not know seniors had to spend so much.

I was disappointed because you failed provide examples of "incentives".

I am skeptical of a rational market for healthcare. The consumer does not care the price of being kept alive or maintaining quality of life. Especially when most of the cost is being paid by someone else.

The market would be more rational if their was no insurance and people were forced to pay cash on delivery.

In my mind lowering healthcare spending is pretty straight forward, either reduce the price and/or reduce the volume. If people would use less healthcare, spending would go down. Now how do we get people to use less? If you can figure that one out, then maybe you have a solution.

[Herb1949]

What is left out of this equation is the amount that is deducted from the wages of every worker, every paycheck. The actual cost is a LOT higher than claimed.

[Mike]

"universal healthcare... will generate shortages of physicians’ and hospital services’" why so? Is that because poor people who do not now have health care would compete for services. Whereas the current system is rationed only to people who can afford the high cost?

I believe that if all Americans would be subject to the same health care plan, we would all be incented to direct our elected officials to make the system work.

The problem with "appropriate incentives for consumers would reduce the cost of healthcare" is that we do need skilled professionals to guide our decisions. If it were a toaster or shoes, then consequences for a wrong decision are low.

But, if it is a health care decision for my daughter - the stakes are raised and I want professional help.