The Truth About Medicare

By Stacey J Haseleu

Throughout the course of Wednesday’s Presidential debate, Mitt Romney made it abundantly clear that his talking point for Medicare was a broken-record account of Obama’s $716 billion dollar cut.

In fact, the transcripts of the debate show that Romney mentioned “$716 billion” and “Medicare” in the same sentence 10 times (yes, I counted) throughout the course of the 90-minute debate.  He said, “What I support is no change for current retirees and near-retirees to Medicare and the president supports taking $716 billion out of that program.” (http://www.wnyc.org/npr_articles/2012/oct/03/transcript-first-obama-romney-presidential-debate/)

While it is true that President Obama will cut $716 billion of spending from Medicare over the next 10 years, this figure in and of itself is misleading and does not represent why the money was cut, the implications of the cut, or even what the heck a “cut” actually means.

Mitt Romney insinuated that the $716 billion dollar cut would negatively impact Medicare recipients; however, Factcheck.org’s article entitled “Medicare’s Piggy Bank,” states, “…the opposite is true. These cuts in the future growth of spending prolong the life of the Medicare trust fund, stretching the program’s finances out longer than they would last otherwise.”. (http://www.factcheck.org/2012/08/medicares-piggy-bank/)

To fully understand how the cuts actually benefit Medicare, it’s important to first understand the basics of Medicare.  Medicare has four parts: Part A (hospital insurance), Part B (medical insurance), Part C (Medicare advantage plans), and Part D (prescription drug coverage).  Part A is at no cost to retirees and is what people pay for through their FICA payroll tax.  These payments are placed into a treasury fund. (http://en.wikipedia.org/wiki/Federal_Insurance_Contributions_Act_tax)

While voters believe that the money they contribute through each paycheck is being kept in a “piggy bank” somewhere for them when they retire, they are mistaken.  The Medicare trust fund works on a “pay-as-you-go” system where funding is taken out on an as-needed basis.  Individuals presently in the workforce are actually paying for those currently retired and on Medicare.

With the number of individuals in the workforce disproportionate to the amount of baby boomers on Medicare, there is an extreme financial burden on the Medicare system.  Simply put, there isn’t enough funding in the trust to cover benefits.

In fact, the current Medicare Part A trust fund only has around $244.2 billion. Factcheck.org says, “the Part A trust fund was expected to be exhausted in 2016.”  (http://www.factcheck.org/2012/08/medicares-piggy-bank/)

To make up for the rapid depletion of funding in Medicare, President Obama implemented cuts to spending.  To understand how these cuts affect Medicare more fully, let’s take, for example, a bank account that doesn’t accrue interest.  If you have $1200 in a bank account and you take out $100 every month to spend, the account will be empty after 12 months.  But if you reduce the amount of money you deduct each month to $50, it will take 24 months to drain the account.

You may be saying, that’s fine if you can reduce the amount you deduct from the account each month, but what happens if you aren’t able to pay for everything you need with only $50 a month?   If you need $100 a month and you only take out $50, you have to make a choice.  You can either continue to spend $100 a month and run out of funds in a year, or, you can find ways to reduce your spending and receive $50 a month for 2 years.

Like the bank account, if the spending of Medicare continues on the same track, its funding would be depleted by 2016.  Obama had a choice; he could either continue to spend and let the funds run out in 2016, or he could reduce the amount of spending and extend the longevity of the funds until the year 2024. He chose to cut spending to increase the longevity of the Medicare treasury.

So what type of “spending” did Obama cut to extend the life expectancy of Medicare?  Romney would have you believe the cuts were directly taken from Medicare recipients, but the Congressional Budget Office’s report to Republican House Majority Leader John Boehner indicates that The Affordable Healthcare Act, aka “Obamacare”, diminishes the spending of Medicare Part A through major reductions in payments to hospitals in the amount of $415 billion. (http://www.cbo.gov/sites/default/files/cbofiles/attachments/43471-hr6079.pdf)

With the cuts, the CBO is estimating that Medicare will not exhaust in 2016.  In fact, if the reduction in payments to hospitals continues, Medicare will not exhaust until the year 2024.  This means “Obamacare” has actually extended the life expectancy of Medicare by 8 years.

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One thought on “The Truth About Medicare

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