As the approach of the so-called "Fiscal Cliff" nears, many advocates nationwide are making this message clear: Medicare benefit cuts are not an option. In a letter to the president and Congress, AARP states, "As we move forward, it is clear that older Americans want the focus of the debate to be on reducing overall health costs and not simply targeting Medicare and Medicaid for budget cuts." Just days after the election, a collective of the largest and most powerful progressive voices ran a Washington Post advertisement to the president and Congress that included, "No cuts to Medicare, Medicaid, Social Security benefits or shifting costs to beneficiaries or the states," as one of five guiding principles for reducing the federal deficit. Medicare Rights Center joined 146 national organizations in support of this very same message.
No Cuts to Medicare Benefits Means No Cost Shifting
What do we mean by no Medicare benefit cuts? Of course, we mean just that—there should be no cuts to the benefits that people with Medicare need in order to access the health care they need. But we also mean that we should not increase the cost of health care for the 49 million seniors and people with disabilities who rely on Medicare. Many of the most discussed Medicare proposals would create savings for the federal government merely by shifting added health care costs onto people with Medicare and thereby forcing them to pay more for less.
One such proposal would raise the Medicare eligibility age from 65 to 67. One analysis demonstrates that two-thirds (66 percent) of 65- and 66-year-olds would pay more for health coverage if the Medicare eligibility age was increased in this way. Additionally, employers and states would all pay more to cover 65- and 66-year-olds without access to Medicare. In short, raising the Medicare age of eligibility is an across the board benefit cut paid for by people with Medicare, employers and states. Only the federal government saves.
Most people with Medicare are in no position to pay more for their health care. Half of people with Medicare live on annual incomes of $22,000 or less—just under 200% of the federal poverty level. And half have $53,000 or less in personal savings. Health care costs are a significant expense for Medicare beneficiaries, regardless of income. Medicare households spend 15 percent of their total expenses on health care compared to 5 percent among non-Medicare households.
For Oliver, a Medicare beneficiary who called our helpline from Atlanta, Medicare already costs too much. Oliver lives on $1,400 per month or $17,000 per year, almost entirely from Social Security benefits. His heart condition recently worsened and now Oliver's out-of-pocket costs amount to more than $300 per month— over 20 percent of his monthly income. Oliver's income is too high to qualify for public assistance to help with these costs. So, he relies on community programs—like a local transportation service to doctor's appointments—to make ends meet. Some months, Oliver skips his heart medications to pay for other bills, like his rent or electricity.
Oliver is not alone. The average Medicare household spends $4,500 on health care each year. Costs increase with age and health care needs. In the past five years of life, the average person with Medicare spends almost $37,000 on health care—just over two times Oliver's income. Nearly half of Americans die with less than $10,000 in the bank; with little savings to his name, Oliver could be among them.
Eliminate Wasteful Spending and Build on What Works
Instead of shifting more costs to people like Oliver, policymakers should look to solutions designed to lower rising health care costs. Solutions that make the health care system more efficient and eliminate wasteful spending mean big savings for the Medicare program. For example, allowing the federal government to negotiate drug prices with pharmaceutical companies in the Medicare program is one deficit reduction option that would eliminate significant waste in the health care system.
The federal government already negotiates with pharmaceutical companies for drug rebates in the Medicaid program. Up until the creation of Medicare Part D— Medicare prescription drug coverage offered by private plans—these Medicaid rebates applied to those dually eligible for the Medicare and Medicaid program. A 2011 report by the House Committee on Oversight and Government Reform found that the cost of the top 100 drugs for dually eligible beneficiaries was 30 percent higher under Medicare than it would have been were Medicaid rebates still applicable.
If we restore these rebates for dually eligible beneficiaries and other low-income Medicare beneficiaries, the federal government would save up to $135 billion over 10 years. If we allow the federal government to negotiate Medicare drug prices for all 32 million beneficiaries with a Part D drug plan, the government could save up to $156 billion over 10 years.
Eliminating wasteful spending by the federal government on prescription drugs may not solve all of Oliver's problems, but his struggle to afford high health care costs and still make ends meet, a reality shared by millions of other people with Medicare, poses a critical question—so long as the federal government grossly overpays pharmaceutical companies for drugs, what is the justification for balancing the deficit on the backs of people with Medicare? Instead of shifting costs to people with Medicare, we should be talking about cutting wasteful spending so that we can invest in expanding programs that help those with low-incomes afford Medicare. Let's have that conversation, so that Oliver can get the health care he needs.