Wednesday, May 25 , 2016, 9:59 am | Partly Cloudy 62º

Harris Sherline: Bleeding Cash, Can Medicare Survive?

By Harris Sherline, Noozhawk Columnist |

Perhaps the question shouldn’t be “Can Medicare Survive?” but “How Much Longer Can Medicare Survive?”

Like all government programs, Medicare has evolved over the years and morphed into something that was never envisioned at the time it was created. And, it’s clear to any informed observer that it’s guaranteed to go broke before long. Estimates vary, but they range from just a few years to 20 to 30 years. But they all agree: It will soon no longer be able to pay for the unlimited health care of seniors, which is pretty much what we have now.

Politicians on both sides of the aisle have been blaming one another for the fact that Medicare must be changed or it soon will reach the point of going broke and no longer being able to pay for the health care of seniors. Finger pointing has been over-the-top, with both parties charging that the plans of the other side will bankrupt the system.

What they don’t tell us, however, is that Medicare is already broke.

By way of disclosure, I’m one of the beneficiaries of Medicare, coupled with private insurance, and I almost never have to pay anything for my health care. A somewhat extreme example of this is the care I have been receiving at the UCLA Medical Center for liver cancer. The bills are extremely high, generally in the range of $40,000 for every trip I make to Los Angeles for treatment, and I am required to pay only a few dollars, generally under $100, for each invoice.

Furthermore, so far there have been no limitations on the type of treatment I receive, in spite of the fact that the hospital bills generally run upward of $40,000 for every trip that I make to the medical center. Having run a hospital at one point in my career, I thought I should be able to determine what the basis is for such gigantic bills. I am generally required to pay less than $100. I have carefully examined the various charges but have no clue how or why the bills are so huge.

However, I have the same problem when I go to our local hospital for some procedure or exam.

Something just about everyone knows, but no one wants to talk about, is Medicare’s cash position. The reality is Medicare is bleeding cash, which has been disguised by “creative accounting.”

According to the release of the 2012 Medicare Trustees Report, in 2010 Medicare took in $273.9 billion in payroll taxes and beneficiary premiums, but spent $568.3 billion in medical services, which means that last year Medicare had a $294.3 billion cash shortfall.

And 2012 wasn’t the exception, it’s the rule. Since President Lyndon B. Johnson proposed the Medicare legislation in 1965, the program has run cash deficits every year except 1966 and 1974.

According to the Peter G. Peterson Foundation, “In 2011, Medicare provided benefits to more than 16 percent of the population, or nearly 49 million people — more than 40 million seniors and more than 8 million persons with disabilities. The program plays a vital role in the country’s health-care system, paying for nearly one-fourth of all personal health-care expenditures (including about 45 percent of the country’s home health bills).”

In an article titled “The Medicare Crisis is Here,” Jeff Emanuel asks the question, “Not sure that the Medicare crisis is really here? Let’s run through a few numbers.

“At its inception in 1966, Medicare carried an annual price tag of $3 billion. Its congressional founders predicted that cost would rise to $12 billion a year by 1990 — a figure that accounted for inflation, and therefore was expected to be an accurate representation of costs at that point.

“Thanks to the inefficiency of the government-run program, that estimate missed the mark by orders of magnitude. In 1990, rather than costing American taxpayers $12 billion, Medicare cost $107 billion — an increase of 800 percent over the government’s best guess at the program’s cost 23 years before.

“That cost has increased exponentially as the years have passed since 1990. In 2009, $484 billion was spent on mandatory Medicare outlays; by 2018, that number will be $885 billion, according to the Congressional Budget Office. According to the 2011 Trustees report, the total amount owed Medicare beneficiaries (American workers who are at least 22 years old and who have paid into the system, meaning they are due Medicare coverage upon retirement) is $24.6 trillion (down from a projected $32.3 trillion two years ago, in part due to phantom savings claimed under Obamacare) — an amount nearly twice America’s GDP, and nearly five times the publicized national debt.

“Those are the numbers: Our nation’s health-care program for seniors is currently $25 trillion in the hole. In other words, unless we find a couple more American economies between the couch cushions that we can dedicate solely to paying Medicare costs, the program will utterly collapse under its own weight, resulting in nobody receiving the health care they need — an outcome that all should be able to agree is unacceptable, for a variety of reasons.”

— Harris Sherline is a retired CPA and former chairman and CEO of Santa Ynez Valley Hospital. Click here to read previous columns. The opinions expressed are his own.

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