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May 6, 1997
This document was created by the Consumers Union Washington D.C. office.
Seniors' health care costs differ radically. Medicare paid an average of $4,020 per beneficiary in 1993. However, the healthiest 90 percent of seniors cost Medicare just $1,340 in 1993. In contrast, the sickest 10 percent of beneficiaries cost Medicare $28,120 on average. In 1993, Medicare covered 35.5 million people.
MSAs will lead to the division of senior citizens into separate pools of the sick and the healthy. As shown on the graph, the overwhelming majority of seniors cost Medicare far less than the average cost per beneficiary. The Medicare program saves money because of the general good health of the majority of program participants. Individuals, however, don't reap a financial benefit from escaping illness. MSAs change this by transforming Medicare from an entitlement to health care to an entitlement to money regardless of health. With Medicare MSAs, everyone is allotted the same amount of money (with minor adjustments based on age, welfare status, and whether a senior is in a nursing home). This means that a fit 65 year-old man will get the same payment as a 65 year-old man with diabetes, regardless of the need for medical services. This turns MSAs into the antithesis of what health insurance is meant to be -- financial protection for the sick.
Consider a simple example:
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10% of sickest cost Medicare per beneficiary: |
$28,000 |
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90% of healthiest cost Medicare per beneficiary: |
$ 1,300 |
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Cost of average Medicare enrollee: |
$ 4,000 |
What happens if the 90 percent of healthiest seniors -- whose actual health care costs are far lower than the average costs Medicare pays per beneficiary -- enroll in MSAs? Before the introduction of MSAs, the healthiest 90 percent of seniors cost the program $1,300 on average. Under MSAs, they would each have payments made to them that total $4,000 (to pay for catastrophic insurance and an MSA). The increased cost to Medicare for the coverage for a healthy beneficiary would be $2,700, more than double the present cost. Medicare MSAs would drain funds meant to pay for the sick and would provide a windfall to the healthy.
In reality, enrollment into Medicare MSAs would be gradual. Each year, a small percent of Medicare recipients would enroll in the MSA program. MSA enrollees are likely to be relatively healthy. Payments to MSA enrollees will divert funds from traditional Medicare, and leave behind higher costs for Medicare enrollees. To meet budget targets, this will lead to cuts in provider payments and possible benefit cuts. The next year, the cycle will continue. Relatively healthy seniors left in Medicare will then select MSAs. Again, those remaining in traditional Medicare will face reduced access to physicians because fewer physicians will take the low reimbursement rates offered by Medicare. The reduced access to physicians creates stronger incentives to switch to MSAs. The cycle will continue to drive relatively healthy seniors into MSAs, drive up traditional Medicare costs, cut provider payments in traditional Medicare, and drive doctors away from serving patients enrolled in traditional Medicare. This could ultimately lead to the demise of the Medicare program.
For more information, please contact Gail Shearer or Carri Ziegler at 202/462-6262.
