Costs and Problems of Medicare and Medicaid

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  • 0:35 The Basics
  • 2:08 Cost Increases
  • 3:52 Solutions & Alternatives
  • 5:38 Lesson Summary
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Lesson Transcript
Instructor: Christine Serva

Christine has an M.A. in American Studies, the study of American history/society/culture. She is an instructional designer, educator, and writer.

In this lesson, you will tackle the question of why Medicare and Medicaid programs can be expensive and what solutions have been proposed to address this. We will consider the benefits provided by these services and the costs involved.

Not-So-Free Health Care

'Finally! Free health care, here I come!,' Judy says as she applies for Medicare coverage a few months before her 65th birthday. She's been paying for private health insurance premiums and copays for most of her life, and she's ready for this new plan provided by the government. Judy hasn't learned yet about the costs of Medicare that she will still have to pay out of her pocket or the price tag to the nation for this care.

This lesson looks at the costs and problems of the Medicare and Medicaid programs, along with some of the potential solutions that have been proposed.

The Basics of Medicare of Medicaid

But first, we look at the basics of these two programs, established by the Johnson Administration in 1965, the year that Judy turned 16 years old and rocked out to 'Stop! In the Name of Love,' by the Supremes.

The Medicare program provides health coverage for aging citizens and permanent residents of the United States age 65 and older. Judy qualifies because she is about to turn 65. The program was groundbreaking in its ability to ease the concern of older adults for how to afford their own care and has had a lasting legacy. It provides support in parts, from Part A to Part D, to cover the costs of a range of services, such as hospital stays, typical medical visits, durable medical equipment, and prescriptions.

However, Medicare does not cover all of a person's health care costs. Some costs are passed on to the patient, and unless a person qualifies for a subsidy, they must pay a monthly premium. Medigap coverage is private insurance that can be purchased to help pay for what Medicare does not.

For those who have very few resources, the Medicaid program may help. Medicaid is a state-run program that provides hospital and medical coverage to those with low income. Each state has its own rules for who qualifies. Typically, only those who have significant need are eligible. Some individuals will qualify for both Medicare and Medicaid.

Both programs are funded by the public and their employers through payroll taxes. So everyone working is contributing to these programs with each paycheck.

Cost Increases

According to the Congressional Budget Office of the government, health care spending is the single most important factor for the long-term financial health of the country. Since the time they were developed, the Medicaid and Medicare programs have become more expensive, typically requiring more funding over time. Although the past few years have seen more steady numbers than predicted in 2008, why has the cost climbed in past years, and why is it expected to rise?

Many Americans believe that fraud and mismanagement are major reasons behind the cost increases, but these are only part of the story. A more significant reason for higher costs is that the medical field has developed over time and gained new technologies and techniques. Medicine can provide a great deal more service to someone who experiences health problems than ever before. More possibilities for care can sometimes mean more expensive care. Better care can be good for the patient, like Judy, and yet there are costs involved that must be paid.

Many of us never see the real cost of the services we receive. We mainly care about whether our insurance covers the cost but don't think too much about the rest. For instance, the average Medicare payment to provide a major cardiac procedure to one individual was over $20,000 in 2012. These costs can easily add up for the government programs providing for the care of older adults, who tend to have the most health problems.

Another issue is that the percentage of older adults is on the rise. This means that during this period of history, the portion of the population that is over 65 is growing, and so the overall cost for Medicare will be greater.

Solutions and Alternatives

Judy worries that reducing costs will mean that Medicare will no longer exist or that doctors will allow patients to go without needed treatment. However, the government would not want patients to see reduced health outcomes. Instead, to help address the rising costs of Medicare, one idea is to focus on the effectiveness of treatments so the government and the public can get the most bang for their buck.

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