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Saturday, January 7, 2017

Medicare premium rises faster than inflation despite 'single payer' method

Below is my reply to two letters to the editor of my local newspaper: one by Robert Hatela, "So, where's the increase?" Gazette-Times, Dec. 30, 2016, p. A6 and the other by Mike Huntington, M.D., "Why Single payer makes sense," Gazette-Times, Dec. 30, 2016, p. A6

Every Social Security beneficiary should have received a long letter in December from the Social Security Administration detailing the calculation of their monthly benefit check, which should answer Robert Hatela's Dec. 30 letter, "So, Where's the Increase?"

In my specific case, my monthly check in 2017 will actually be 40 cents less per month, despite the 0.3 percent cost-of-living-adjustment, because the "Original Medicare" health insurance premium went up 7 percent from $104.90 per month to $112, plus the 40 cents per month increase in a private Medicare Part D drug plan that is also automatically deducted.

Last year, this was not a problem because legislation supported by Democrats stopped any increases in Medicare premiums because the Consumer Price Index showed zero inflation and therefore no cost-of-living adjustment was added to Social Security checks.

Ironically, Hatela's letter was printed on the same page as a letter by Dr. Mike Huntington, M.D. that advocates a "single payer" solution to lower health insurance costs.

However, Medicare is a "single payer" system and it is experiencing premium increases that are many times the overall rate of inflation, primarily due to inelastic demand for heroic end-of-life medical care that is costing more than a million dollars per person according to a "Bloomberg BusinessWeek" article.

"Single payer" is a politically correct and polite euphemism for "rationing," which is the only fair economic solution to the inelastic demand for healthcare.

(Quoted from Thomas Kraemer, "Letter: Why my check will be less," Gazette-Times, Jan. 10, 2017, p.A6, posted Jan. 5, 2017)

Also, see the previous letter by Mike Huntington, M.D.,"Letter: Health care system is flawed," posted Sep. 9, 2016 who is a local doctor that has written a series of opinion pieces supporting a "single payer" system as a solution to health care costs.

Health Savings Accounts are another proposal by some Republicans, probably because HSAs help those who can save money in a tax-deferred account. (See previous post Oregon Obamacare final rates and Republican's Health Savings Accounts proposal is not insurance (12/19/16))

When I wrote the letter above, I debated whether to mention the legislation supported by Democrats that prevents the Medicare premium increase being greater than the Social Security cost of living increase, but I am glad I said it because a notoriously anti-Democrat letter writer blamed this situation on "what happens when you elect Democrats. The Government giveth, the Government taketh away. Blessed be the name of the Government." The letter writer also refers to the 0.3 percent Social Security cost of living increase and says, ". . . the government is raising your Part B premium by that entire amount. In your case, that's about $4.00 per month, in mine, roughly $6.00. . ." (Quoted from John Brenan, "Letter: Where the increase went," posted Jan. 5, 2017)

My increase in the Medicare Part D premium was 40 cents and the Medicare monthly premium was $7.10, instead of the $6.00 and $4.00 per month increases mentioned in the other two letters to the editor. This made me curious and I have been unable to find out directly from the Social Security Administration what is the theoretical maximum amount that the Medicare premiums and Part D premiums could be raised this year and if any of these annual increases will accumulate to be later deducted in future years, assuming there is a large enough increase in a person's check due to the cost-of-living adjustment. Clearly, the calculation of what had been a simple number has become very complicated and I bet it could lead to some unexpected corner cases.

When I wrote the letter, I knew that the calculation of deductions from the monthly cost-of-living adjustment included multiple lines, including voluntary withholding deductions, but I had not yet calculated that the cost of living adjustment stated in the letter as being 0.3 percent was actually 0.3097866 (as calculated to 7 digits of precision on an HP-12C calculator) and if the Social security Administration's computer programs used the typical floating-point arithmetic software, then I believe it would be unlikely the numbers were calculated to more than 7 digits of accuracy, which given the small increases, it could mean that the rounding algorithm they used could be significant and if these errors accumulate as deferred increases, then I wonder how SSA will calculate it in the future so that there are no unintended consequences.

Also, it was never my intention to brag about the size of my Social Security check, which the original amount was determined by a complicated formula incorporating how much I actually paid in Social Security taxes over decades -- generally, the more you make the more you pay and therefore the more you will get in Social Security payments, but this is true only up to a certain capped level -- and then the Social Security check amount is increased each year by the cost-of-living adjustment determined by the Consumer Price Index. Given all of these variables, I was not worried that anyone would be able to back calculate my monthly benefit amount, which I think is still true given rounding errors and the many optional deductions one can make from the check. However, after I wrote the letter, it occurred to me that my Medicare premium increase of $7.10 can be back calculated from figures in my letter, and this is an indication that my cost-of-living adjustment was greater than the other two letter writers who therefore must have a smaller check. After realizing this possibility, I was relieved to still be unable to back calculate the actual amount, even when using 12 digits of precision, due to the dynamic range of the numbers involved and other deduction factors that couldn't be deduced from my letter.

What I find more interesting is that these letters confirm that many Social Security recipients are now having a different amount being deducted for the Original Medicare premiums, which wasn't the case just a few years ago -- the premium amount was a fixed dollar amount and easily available because it was printed in the book mailed to recipients annually and it was also posted online. This change must have really complicated the Social Security's computer programs, which is probably what is limiting how much they can easily say in a letter or explain to people over the phone. Republicans are clearly exploiting this situation by blaming Democrats, who have failed to symmetrically use it as agitprop against Republicans who are using it to agitate people so that they will be willing to cut Social Security benefits as Republicans want to do.

Some links of interest:

My local newspaper ran another article on health care costs by Tony Pugh, McClatchy Washington Bureua (TNS), "Helath care spending up 5.8% to $10K per person," Albany Democrat Herald / Corvallis Gazette-Times, Sun. Dec. 4, 2016, p. B11 online as "Obama's health care law is behind 2nd straight year of faster rise in medical spending," posted Dec. 2, 2106, which says, "Public and private spending for U.S. health care increased to $3.2 trillion in 2015 or nearly $10,000 per person, according to a government report released Friday. . . The 5.8 percent spending increase last year is up from a 5.3-percent hike in 2014. Both increases followed five straight years of historically slower growth from 2009 to 2013. . ."

After reading this article nearly a month ago, I noted that during 2015 I paid monthly Medicare premiums of $104.90 for Part B and $30 for an optional Part D drug plan, and nothing for Part A, as do most retirees entitled to the premium-free "Original Medicare Plan."

However, the actual cost of Medicare is much more because the total Medicare spending was $11,900 per recipient during 2015 (as calculated from information in the above Dec. 4 G-T article, "Health care spending up 5.8% to $10K per person." -- Medicare spending for 2015 of $646.2 billion divided by 54.3 million enrolled in Medicare.)

Prior to Obamacare the actual cost of Medicare, for people who must pay the full premium amount, was disclosed in the annual notice mailed to Medicare recipients, but I couldn't find more recent numbers with any online search. If I recall correctly, ten years ago it was at least $400 per month, and I am sure it is much more than that now.

For comparison purposes, I showed these annual health care costs, of at least $10K per person, to my 60-years-old spouse who faces an annual health insurance premium of at least $6,204 next year because the insurance provider left the Oregon market and my retirement income is too much to receive any Obamacare subsidy on our joint tax return.

No matter which way you cut it, health care costs are rapidly reaching the point where most people will be unwilling or unable to pay for it. This is the "death spiral of Obamacare" that Republicans say is going to happen, and Democrats say won't happen because the Affordable Care Act has a carrot (government subsidies will keep most people's costs low) and a stick (uninsured will be forced pay for healthcare of others). In fact, the way the ACA is written, when the cost of health insurance is more than 8.13 percent of your income, you will be exempt from this "Shared Responsibility Payment." Neither Party may be right in how this hakes out!