Ten Miles Square


August 22, 2012 12:11 PM The $716 Billion: Why Is this so Hard to Understand?

By Aaron Carroll

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]

Aaron Carroll ,MD, is an associate professor of Pediatrics and the associate director of Children’s Health Services Research at Indiana University School of Medicine.


  • boatboy_srq on August 22, 2012 1:18 PM:

    If you declare that you are going to “restore” those cuts to Medicare, those don’t go to seniors’ pockets. They just get spent.

    This is by design. It allows gubmint dollahs to go to the "job creators" (here, private Medicare Advantage insurers and healthcare providers) and not to those other people. The funds still go to the not-you in this equation, but they end up where Multiple Position Mitt (and the rest of the 1%) want(s) them to go.

  • Todd G on August 25, 2012 9:37 PM:

    Really Dr. Carroll, you should know better. The unwritten assumption in your explanation is that services won't decrease. Using your example, are you going to accept 10% less in fees for your services?