4 Reasons Why a Business Leader Needs to Know About Medicare

Here are 4 reasons why as the leader of a business, you need to know about Medicare.

1. You and each of your employees and your company pay into the Medicare Trust Fund with each paycheck.

2. Some of your employees may be over 65 and therefore on Medicare.

3. You will get there someday yourself.

4. Perhaps most important to you as a business leader, Medicare has to change in order to remain solvent; you and your leadership colleagues across the country need to make your voices heard so as to effect the best possible outcome. 

Let’s begin by considering this question. Will “Medicare As We Know It” Persist Or Will It Change?

The simple answer is that it has to change. To understand the dialogue in Washington requires an understanding of Medicare, how it works, where the money comes from, how it is spent and why there is such concern for its future costs. Here is an overview in a few bite sized pieces spread over a few posts.

Medicare was designed in 1965 to serve as “major medical” insurance to cover the unexpected large expenses of, say, surgery or hospitalization. Individuals paid out of pocket for routine care. Medicare has morphed over the years; it now covers preventive care, screening, annual exams and most routine care. This broadening of coverage, the relentless rise of healthcare costs and huge enrollee additions by baby boomers will continue to increase Medicare expenditures.

Medicare pays about 75% of covered services and about half of the total costs of health care for older Americans, i.e., it pays for only certain specified medical services or “covered” costs. The remaining 25% of covered is paid for either via a private Medigap policy, by a retiree’s pension plan and/or out of pocket by the beneficiary. Since 2004, prescription drugs have also been covered.

Interestingly, Medicare is not true catastrophic insurance. For example, it pays in full for the first 60 days of hospitalization but then there is a co-pay of just under $300 for each of the next 30 days. There is no coverage after 90 days although each person is allotted a lifetime reserve of 60 days, each with a co-pay currently of just under $600 per day.

Medicare is such a large part of the health care insurance market that it establishes 2 critical parameters for all of health care reimbursement.

1. It sets the standard level for reimbursement which all other insurers ultimately follow.

2. Medicare does not pay its full share of the costs it covers.

Basically it pays some percentage below actual costs leading the providers – hospitals, doctors, or other  – to cost shift, i.e., charge their other patients who have commercial insurance a higher amount than costs to make up for what they did not receive from Medicare.

What this means for the young person who has either a company-sponsored health insurance plan or buys it directly in the individual market, is that he or she paying a “Medicare tax” over what the insurance would have otherwise cost. This means that your company’s health insurance plan costs more than it would otherwise. This is on top of the Medicare Trust Fund tax of 2.9%.

Government estimates are that Medicare will increase its expenditures over the coming decade at a rate of about 4% per annum. This is greater than both inflation and the GDP rate of growth. Medicare which now accounts for about 15% of the federal budget will rise from almost $600 billion per year now to about $1 trillion per year by 2022 – levels that will severely strain the capability of the system. Indeed, it a growth rate that is just not sustainable; it will eventually bankrupt the federal treasury.

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