On 1965 President Lyndon B. Johnson emphatically stated that he did not want his signature legislative achievement, the 1965 passage of the Medicare program to be a means-tested (income dependent) welfare program. When Medicare was first proposed in 1965, the actuarial projection of health care costs was estimated to be $9 Billion by 1990. In 1990, the cost of Medicare was $66 Billion. Based on these projected versus actual costs it is evident that health care costs not only exceed projections but will continue to do so based on underlying demographics as well as the continuing increase of longevity rates over time. Today those turning 65 were born in 1953 while the peak of the baby boom was not born until 1957, which will not be realized until 2022. At the same time, we hear the drumbeats of “Medicare for All.” Since Medicare is the single-payer system for seniors, the belief is that it should be expanded to cover all Americans. To Lyndon B. Johnson’s posthumous horror Medicare’s dirty little secret is that it is now means-tested based on income as a result of the 2003 Medicare Modernization Act and the 2011 Affordable Care Act (ACA) also known as Obamacare. The reason for the expansion of means-testing lies in need to increase the sustainability of this program for our seniors and the 10,000 baby boomers a day who are turning 65.
In July 2011, AARP Senior Vice President Joyce Rogers released this statement after then President Obama indicated he might be willing to consider expanding means testing in Medicare. “Medicare is not a welfare program. Seniors pay into Medicare their entire working lives based on the promise that they’ll have secure health coverage when they retire. Applying a means test for their earned benefits would erode the popular support that has sustained these programs for years and made them so effective in helping older Americans.” Despite these concerns expressed by Joyce Rogers and others, the Congressional Budget Office (CBO) estimated that the proposed changes to Medicare means testing based on income would save the Federal Government more than $34.3 Billion between 2018 and 2025, but that just means it costs seniors about that much.
The reason for this ongoing and aggressive expansion of Medicare means testing resides in the fact that the Congressional Budget Office (CBO) estimates an $84 Trillion dollar deficit over the next 30 years, responsible in large part due to the ongoing increase in Medicare’s cost structure. Below are the 2018 Medicare Part B and Part D Means Tested amounts. As of 2018, the Standard Premium for Part B is $134 per month per person.
With various Medicare For All proposals being discussed by various individuals in government, the question that needs to be asked is what would the implications of such a drastic policy change be regarding its long-term cost. Charles Blahous from The Mercatus Center of George Mason University who was also a senior economic adviser to former President George W. Bush and a Public Trustee of Social Security and Medicare during the Obama Administration wrote and released a working paper in 2018 entitled “The Cost of a National Single-Payer Healthcare System.”
The paper’s abstract contends a Medicare For All bill “would, under conservative estimates increase Federal Budget commitments by approximately $32.6 Trillion dollars during the first ten years of full implementation.” Also, the paper’s abstract stipulates that even doubling all “currently projected Federal Individual and Corporate Income Tax collections would be insufficient to finance the added Federal costs of the plan.”
Blahous wrote, “It is likely that the actual cost of Medicare For All would be substantially greater than these estimates, which assume significant administrative and drug costs savings under the plan and also assume that healthcare providers operating under Medicare For All will be reimbursed at rates more than forty percent lower than those currently paid by private health insurance.”
Further Charles Blahous stated in July 2018, “It is not precisely predictable how hospitals, physicians, and other healthcare providers would respond to a dramatic reduction in their reimbursements under Medicare For All. Well below their costs of care for all categories of patients combined. The Centers for Medicare and Medicaid Services (CMS) Office of the Actuary has projected that even upholding current-law reimbursement rates for treating Medicare beneficiaries alone would cause nearly half of all hospitals to have negative total facility margins by 2040. The same study found that by 2019, over 80 percent of hospitals will lose money treating Medicare patients – a situation Medicare For All would extend, to a first approximation, to all US patients. Perhaps some facilities and physicians would be able to generate heretofore unachieved cost savings that would enable their continued functioning without significant disruptions. However, at least some undoubtedly would not, thereby reducing the supply of healthcare services at the same time Medicare For All sharply increases healthcare demand. It is impossible to say precisely how much the confluence of these factors would reduce individuals’ timely access to health care services, but some such access problems almost certainly must arise. Anticipating these difficulties, some other studies have assumed that Medicare For All payment rates must exceed current-law Medicare payment rates to avoid sending facilities into deficit on average or avoid triggering unacceptable reductions in the provision and quality of healthcare services. These alternative payment rate assumptions substantially increase the total projected costs of Medicare For All.”
Current estimates to accommodate Medicare For All would take the costs from $32.6 Trillion to between $57 Trillion to $59 Trillion. At stake are increased taxation, and the potential marriage of higher taxation and further increased Medicare means testing based on income.
Although there are many, who do not believe that such a dramatic legislative change to our healthcare system could occur there remains a possibility that such a change could happen in the future. What remains at this time is the current situation as it pertains to Medicare and the continued escalating costs of the program.
Statistics reveal that in 2017 121,965,000 individuals are on Government Health Insurance; 52.2% of those are with incomes under $75,000 and 47.2% of those were with incomes under $100,000. In total, these individuals represented 37.7% of the overall population. The breakdown of these individuals revealed that 62,492,000 of the people were on Medicaid, 55,623,000 were on Medicare, and 3,850,000 were in military health care plans.
As more and more baby boomers turn 65 and older and enter the Medicare system the related expenses associated with this program will continue to increase as well as the current Part B and Part D Medicare Means Tested amounts to offset this increasing expense. Currently, the Standard Premium ($134.00 per month, per person) is for those who are single with an income of $85,000 or less and for those who are Married Filing Jointly with incomes of $170,000 or less. There is a very real possibility based on current statistics of those who are currently on Medicare that these income brackets will be dramatically reduced potentially to $75,000 and under for the Standard Premium to compensate for the sheer number of those entering the Medicare program. As such, additional income brackets and associated Part B and Part D means tested, amounts will be added. Lyndon B. Johnson’s greatest concern of Medicare being a Means Tested Welfare program is now a reality that few can ignore.
Regardless of the unfunded liabilities as it pertains Medicare as well as the potential for dramatic legislative changes that may unfold it is important that individuals and couples start planning now for higher health care costs and higher potential taxation in retirement. It is essential to seek out an advisor who is trained in health care regulations, the associated inflation rates as it pertains to Medicare and the planning strategies that need to be utilized to restore the purchasing power of retirement assets and Social Security throughout retirement. Understanding these strategies preserves the economic health and well-being of every family in America.
Theresa J. Yarosh, CFP®, CLU®, ChFC® is the Founder and President of Macro Wealth Management, LLC. She has been in the financial services industry for over 20 years. She has worked closely with Dan McGrath of Jester Financial Technologies over the last three years as it pertains to understanding the Impact of Healthcare Costs in Retirement. She is considered to be on the leading edge of financial planning as it pertains to the impact of healthcare costs in retirement. This specialization has given her the focus to identify what financial products in a retirement plan result in higher health care costs versus what financial products do not and by doing so allows for a plan that seeks to contain and reduce ongoing health care costs to restore the purchasing power of retirement assets.
She is also the Founder and President of Main Street Medigap, LLC. Main Street Medigap, LLC provides Medicare Supplement Insurance policies to seniors ages 65 and over. Also, Main Street Medigap, LLC also consults Attorneys. Banks, CPAs and other Financial Advisors on Medicare and its related cost structure.
She can be reached at [email protected]
Representatives are registered through, and Securities are sold through Nationwide Planning Associates, Inc., Member FINRA/SIPC, located at 115 West Century Road, Suite 360, Paramus, NJ 07652. Investment Advisory Services are offered through NPA Asset Management, LLC. Nationwide Planning Associates, Inc. and Macro Wealth Management, LLC are non-affiliated entities.