The $716 Billion: Why Is this so Hard to Understand?

Excellent point made in the NYT this morning:

Marilyn Moon, vice president and director of the health program at the American Institutes for Research, calculated that restoring the $716 billion in Medicare savings would increase premiums and co-payments for beneficiaries by $342 a year on average over the next decade; in 2022, the average increase would be $577.

Beneficiaries, through their premiums and co-payments, share the cost of Medicare with the government. If Medicare’s costs increase — for instance, by raising payments to health care providers — so, too, do beneficiaries’ contributions.

Medicare isn’t the usual private insurance company. It’s not making a profit, or skimming off the overhead. Whatever it pays out is what it asks taxpayers and seniors to pay in. To make the numbers easy, let’s say that it costs about $10,000 a year to cover the average senior. The government pays 75% of that and seniors pay 25% in premiums. So it’s $7500 to the feds and $2500 to seniors.

Now, the ACA kicks in, and it makes those “scary” Medicare cuts. Instead, Medicare spends $9000 a year. Now, it’s $6750 to the feds and $2250 to seniors. Government pays less, and seniors pay less.

If you declare that you are going to “restore” those cuts to Medicare, those don’t go to seniors’ pockets. They just get spent. Government Medicare spending goes back up, and seniors’ contributions go back up. You will cost seniors out-of-pocket money by making blocking Medicare spending reductions. That’s how it works.

I haven’t even touched on the fact that repealing the ACA would reopen the donut hole, while also taking back free wellness care and preventive checkups. That will cost seniors money, too.

[Cross-posted at The Incidental Economist]