Numberscruncher: The Magic of Medicare

The debate about health care reform has more irony than a vintage issue of Might magazine. To start, notice how no one is talking about dismantling or privatizing Medicare? That’s because Medicare is way too popular to mess with.

My parents love Medicare; my father was the executive director of a regional trade organization and had a hard time securing health insurance at a reasonable price because there were so few employees and because my mother survived cancer. No matter what doctors or medical researchers say, insurance companies do not believe that it is possible for someone to be cured of cancer. Premiums for a cancer survivor are high, and many insurance companies refuse to write individual or small group plans if a cancer survivor is in the group. My mother’s 65^th birthday was a huge relief to my parents, because she could finally get health insurance.

My husband loves Medicare, too. He handles affairs for one of his grandmothers, and the health insurance part is easy. She sees a doctor, the bill gets paid, and my husband receives a notice. As opposed to health care for our healthy 11-year-old child, insurance for an elderly woman with diabetes is handled with no patient explanations that our coverage is through Blue Cross of California’s out-of-state plan, not Blue Cross Blue Shield of Illinois, and the information is on the card, so please check your files and resubmit the bill; no fights over whether the vaccine falls under the pharmaceutical benefit or an office procedure and thus whether it is covered by the co-charged against the deductible; no worries about whether the doctor is in-network at the city location and the suburban location or just at the city one. Under Medicare, the very little paperwork moves from place to place and culminates in a check for the doctor. Hurray!

Which brings us to the second irony: although Medicare recipients almost universally love their coverage, at least some of those opposed to any sort of reform of health care are Medicare beneficiaries. They write their congressional representatives and go to town hall meetings and demand that government health care not mess with their Medicare. Why is that? It’s because Franklin Roosevelt was a political genius, that’s why.

When Social Security was set up in 1935, it was promoted as an insurance plan via the Federal Insurance Contribution Act, which is why the box on your paycheck says “FICA.” Roosevelt wanted to stress that this was nothing new, something that the Social Security Administration seems to stick to. It wasn’t the dole, it was a pension insurance plan that everyone would pay into, and everyone would receive benefits from it. People would make contributions or pay premiums, not pay at tax. It was for working people, not deadbeats, which is why half of the premium would be paid for by employers.

Likewise, when Lyndon Johnson added Medicare to Social Security, he was clear to call it insurance. The share of your FICA payment that funds it is called your hospitalization insurance premium. Hence, people tend to view it as insurance that they paid for, not some government plan that some other anonymous taxpayers contributed to.

Medicare has a few different parts. Part A is hospitalization coverage, and that goes to anyone who paid FICA. Part B covers physician services, and there is a monthly charge for it that varies with income. In 2009, a married person with a family income below $170,000 would pay $96.40 per month, and it is deducted automatically from Social Security payments. Even though $96.40 is possible only because of generous subsidy from the government, it reinforces the idea that this is insurance. Then, the Social Security Administration has contracted the administration of the bill payment out to private insurance companies, mostly regional Blue Cross or Blue Shield organizations. Finally, many Medicare beneficiaries buy additional (subsidized) coverage known as Medigap, which is offered through private insurance companies. Hence, the system doesn’t look like Britain’s National Health Service.

Instead, many Medicare beneficiaries believe that they are paying their premiums to get insurance through Blue Cross. They believe that anyone who wants to can get similar insurance through Blue Cross.

Clearly, these are not people who wracked their brains trying to remember just how many times their now-healthy 11-year-old child saw a doctor for ear infections 10 years ago, with the knowledge that putting too much information on the form might lead to rejection but too little could lead to charges of fraud should the family actually need to use the insurance.

Johnson did something else sneaky. He started including Social Security revenues in the annual budget. First, this is intellectually consistent, because FICA is not insurance in any private-market sense. Second, the government is on the hook for any shortfalls. Social Security and Medicare are overfunded right now, but that is likely to change as the Baby Boom works through retirement. After all, my income tax does not include a contribution for environmental protection and one for highway maintenance and one for embassy operations. Likewise, I’m not paying into a special government retirement plan. It’s all revenue, and it’s all expense.

But FDR knew that as long as people thought they were getting something special, they’d be happier about paying their taxes. Smart, huh?