5 Reasons to Repeal Medicare


  1. Medicare is Insolvent


President Lyndon B. Johnson signed the Social Security Amendments of 1965 as a part of his “Great Society,” establishing the Center for Medicare and Medicaid Services (CMS). Since its creation, the CMS has been running deficits, which is causing an insolvency problem.

According the Congressional Research Service’s (Library of Congress) Board of Trustees, the Medicare Part A trust fund current insolvency date is 2028. The report states: Almost from its inception, the [Hospital Insurance] Trust Fund has faced a projected shortfall. The insolvency date has been postponed a number of times, primarily due to legislative changes that have had the effect of restraining growth in program spending. The 2016 Medicare trustees’ report projects that, under intermediate assumptions, the HI Trust Fund will become insolvent in 2028, two years earlier than estimated in the prior year’s report.

Of course, the government has accounting tricks to finance its own deficit: If, in a given year, the HI Trust Fund spends more than it receives in [payroll taxes], the fund has a cashflow deficit. In deficit years, Medicare can redeem any securities accumulated in previous years (including interest). When the securities are redeemed, the government needs to raise the resources necessary to pay for the securities and the monies are transferred from the Treasury’s General Fund to the HI Trust Fund. When the assets credited to the trust fund reach zero, the fund is deemed insolvent.

However, the U.S. Treasury assets are merely IOU’s issued to the HI trust fund. Securities and interest are actually just unfunded liabilities, meaning the taxpayer will be on the hook to cover the shortfalls. According to the 2009 CMS report, the projected expenditures over the 75 years needed to fill the holes of all parts of Medicare is $45.8 trillion. The federal government can keep financing the deficit, but the debt will increase inevitably.


  1. Medicare is a Ponzi Scheme


Benefits for Medicare recipients are collected through payroll taxes by the IRS. If you think that the money collected from your payroll taxes is saved for you until retirement, then you’re badly mistaken. This money is immediately spent on current retirees, instead of investing into stocks, bonds, and other assets the way a young person might do with his or her earnings. The government promises seniors that they will receive medical benefits when they retire, making the Medicare system dependent on younger working people to pay for it. Since workers have their earnings taken away and squandered on current retirees, less of their money could be invested and in the future they will be more dependent on another generation of workers to provide for them. The situation becomes more problematic when demographics are considered.

A large wave of baby boomers are beginning to retire at the same time fertility rates are declining and life expectancy is increasing. Thus, the ratio of workers to beneficiaries have declined too. According to the Social Security Administration, in 1965 this ratio was 4:1 and in 2015 was 2.7:1. By 2050 this ratio is expected to drop to 2.1:1. If health care finance were left up to the private sector, then every individual would take an interest in saving for their own retirement including medical expenses and demographics would not matter.


  1. Fraud


Another flaw of Medicare is unaccountable billing practices that allow physicians, nurses and other health care providers to swindle the system. In 2014 the CMS estimated that nearly $60 billion in taxes was lost to fraud, waste, abuse and improper payments under Medicare alone. Much of the fraud is done by billing for services using fake addresses from random businesses, some of which don’t even exist. Even with new authority given by the passage of the Affordable Care Act allowing the government to make unannounced searches and finger printing of providers, only a fraction of this fraud – about $2.4 billion, has been recovered. The largest bust of 2016 occurred in Miami, Florida by a local hospital in connection with a network of assisted-living facilities in the area, accused of $1 billion in kickbacks as well as money laundering. Patients were being billed for services that never occurred and concealed the transactions as payments for travel and hotel expenses, and escort services. On the other hand, in a market economy payment for medical services is more transparent, because private health insurance companies or individuals have direct interest in protecting themselves from scams. They invest in software and technology that allows them to spot fraud more quickly than the government. Private insurers lose 1% to 1.5% of their revenue compared Medicaid and Medicare, which squander approximately 10% to 15% of taxes.


  1. Bloated End of Life Expenses


End of life care due to serious illness are predictably expensive, as CMS reports that in a typical year 25 percent of total Medicare payments go to roughly 5 percent of beneficiaries who die in the same year. In 2006, Medicare spent an average of $38,975 per recipient that passed away that year, compared to an average of $5,993 for recipients that survived. The reason these numbers are so lopsided is that Medicare covers the majority of hospital expenses, leaving little financial responsibility to the person receiving care or the surviving family. This is not to infer that resources shouldn’t be devoted in attempt to extend someone’s life. The real question is at what point are additional resources to extend life another month or two worth it? Personal financial responsibility can determine the appropriate balance between cost and benefit of end-of-life cases. In a hypothetical free market scenario, every individual saving for retirement, including health expenses must consider how much money is worth the extension of their lives versus how much money they want to leave for inheritance. Few people would choose to spend $30,000 to live 80 years and 4 months instead of 80 years and 3 months.


  1. Moral Hazard


When the government makes a promise to provide an entitlement, it undermines risk and creates faulty incentives, or a moral hazard. In the case of health insurance for the elderly, the incentive to live a healthy lifestyle is reduced when the government guarantees a subsidy. As long as you pay your payroll tax throughout your working career, your premium will be artificially low and Medicare will cover 80% of your health expenses after an artificially low deductible is met. Individuals will be more likely to engage in adverse lifestyle habits such as poor diet, smoking, alcohol abuse, and lack of exercise or sedentary habits. The consequence of such behavior is an increased risk and early onset of chronic diseases like cardiovascular disease, obesity, cancer, COPD, diabetes, and dementia that require frequent medical treatment.