CHAMPAIGN, Ill. — The pillars of most Americans’ retirement plans both celebrated milestones over the summer, with Social Security turning 80 years old and Medicare turning 50.
Medicare’s 50th anniversary provides an occasion for a serious checkup of one of the federal government’s most popular programs – one that is pivotal to the retirement security of older Americans, but also is showing its age. According to a University of Illinois retirement expert, updating Medicare to make it more “consonant” with modern health care and the needs of today’s seniors is long overdue.
Even after the enactment of the Affordable Care Act in 2010, paying for health care in retirement is confusing and costly because the fundamental structure of Medicare is essentially unchanged from its mid-1960s origins, argues Richard L. Kaplan, the Peer and Sarah Pedersen Professor of Law at Illinois, in a recently published paper.
“When Medicare began in 1965, the government basically copied the major medical insurance plans that private employers of the day provided,” said Kaplan, a nationally recognized expert on U.S. elder law and retirement issues. “Typically, those plans covered hospital stays and short-term recuperation in a nursing home. That was part A, which is funded by the payroll tax.”
Eventually, policymakers recognized that other costs, like doctors’ fees, were driving up retirees’ medical expenses. So, the alphabet soup of additional Medicare parts was added.
“As a result, people who are new to Medicare are confused by the convoluted nature of the program,” Kaplan said. “Medicare looks very different from employer-provided health insurance or even the typical Affordable Care Act insurance policy.”
Apart from Medicare’s byzantine array of coverage options, the program doesn’t limit out-of-pocket expenses – a potentially serious financial pitfall for retirees, Kaplan said.
“No one would buy an off-the-shelf health insurance policy with that kind of cost exposure, which is why private Medigap supplemental insurance policies have flourished,” he said. “We’re now enjoying the benefits of longer lifespans, but one of the consequences is that people are developing more chronic diseases. Those ailments usually entail ongoing expenses that seniors end up paying for themselves.”
Kaplan’s paper makes two general recommendations to update Medicare: transform it into a comprehensive, single-source program like the policies that dominate the private health-insurance market, and cover long-term care for chronic illnesses or disabilities.
“The separation of important medical expenses into distinct programs while ignoring the reality that people are living longer than they did in 1965 and developing age-related dementias is an accident of history that should no longer define Medicare’s future,” he said.
Medicare also should acknowledge the changes in nursing homes that have taken place over the past half-century and cover expenses in those facilities comparable to its coverage of hospitalization costs, Kaplan said.
“Take a smoker who develops emphysema versus someone who suffers from Alzheimer’s disease. Medicare pays almost all of the smoker’s health care costs and virtually none of the care expenses for the Alzheimer’s patient,” he said. “It defies logic for Medicare to discriminate on the basis of disease and to further discriminate in favor of the disease that might have been prevented by different lifestyle choices.”
But any changes to Medicare would likely encounter serious political resistance because many retirees are familiar with Medicare’s odd structure and have accommodated themselves to its peculiarities, Kaplan said.
“Nevertheless, Medicare is enormously important not only to older Americans, who are its direct beneficiaries, but also to younger people who anticipate becoming beneficiaries in the future or appreciate its coverage of their older relatives’ medical expenses,” he said. “It both needs and deserves a serious update.”
The paper was published in The Elder Law Journal.
Editor’s notes: To contact Richard L. Kaplan, call 217-333-2499; email rkaplan@illinois.edu.
The paper, titled “Reflections on Medicare at 50: Breaking the Chains of Path Dependency for a New Era,” is available online.
