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How Much Would “Free” Medicare Cost?


Last week we discussed misconceptions regarding funding the Social Security System. This week we shift to Medicare, where even more financial misconceptions may be found. Being the political season, some Presidential hopefuls are consistently misleading potential voters by making impossible promises. Among the most egregious is, “free healthcare for all,” which is touted in various boastful campaign promises. Others specify, “Medicare for everyone,” without mentioning the individual and/or public costs involved.

In order to understand the financial irresponsibility of providing Medicare for all, we must understand what Medicare currently costs, both to the enrollee and to the government. Most current enrollees do not have a clear picture of what they are paying personally for basic Medicare coverage. Even fewer understand the total annual cost to government. Total Medicare costs were $750.2 Billion (9 zeros) in 2018 alone. Here is the breakdown of funding sources for Medicare:

•    Payroll Taxes – 36% ($270.1 Billion, 9 zeros)

•    Federal Government General Fund – 43% ($322.6 Billion, 9 zeros)

•    Medicare Premiums – 15% ($112.5 Billion, 9 zeros)

•    State and Local Government, plus Taxes on Medicare Benefits – 6% ($45 Billion, 9 zeros)

In that same year, 17.8% of Americans were enrolled in Medicare. Covering everyone would therefore cost about 5.6 times more, or $4.2 Trillion (12 zeros). Extending “free” Medicare coverage to people who have not yet qualified for enrollment would raise spending numbers beyond imagination. Medicare costs are estimated to increase at an annual rate of 7.4% for the next 10 years, assuming we continue to cover only qualified participants.

Every current Medicare enrollee pays monthly premiums, but most have never stopped to figure exactly how much they pay. This is largely because monthly premiums are blindly deducted from their Social Security benefit payments. Does this mean that everyone who is proposed to be added to Medicare prior to becoming age-qualified will get a bill for their monthly premiums? Recent political promises fail to mention this possibility, implying that “free Medicare for all” means the public would pay. Do you believe it?

As to benefits, consider the cost of actual healthcare services. Medicare doesn’t pay 100% of medical expenses. Every recipient has an annual out-of-pocket deductible and a co-pay (generally 20% after reaching the deductible) on service costs. Further, many services are not covered by Medicare, and others are covered at a low rate. Will “free Medicare” eliminate deductibles and co-pays? If so, how could we afford the costs?

In real life, nothing is free. Someone will have to pay, and you can rest assured that if you are reading this blog, that “someone” will likely include you. If it sounds too good to be true…….. (complete the sentence).

Van Wie Financial is fee-only. For a reason.