When I signed in for my yearly mammogram the receptionist announced with a wry smile, "No co-pay this time, it's free!" We both knew that it really wasn't free.
To understand whether free means free, let's look at Medicare as an example. Medicare has four parts. Part A ("hospital") covers hospital admissions, post-hospitalization short-term skilled nursing, and hospice. Part B ("medical") covers outpatient medical services such as physician visits, lab tests, and outpatient surgery. Parts A and B are called traditional Medicare. Part C ("Medicare Advantage") is private HMOs. Part D is prescription drug coverage. Technically, all parts are optional.
Medicare is costly before and after we enroll. We pay for Part A through a 2.9 percent tax on earnings, half of which is paid by employers. Thus, an average worker earning $43,500 per year generates $105 every month for the promise of hospital insurance benefits beginning up to 45 years in the future.
Importantly, Part A is mandatory for those eligible for Medicare who receive Social Security payments. If beneficiaries want to opt out of Part A, they must forfeit all of their Social Security payments.
Those ineligible for premium-free Part A because they did not pay the Medicare tax during their working years may purchase it (at a cost of $426/month in 2014), but if they do not do so immediately, they are penalized. Their monthly premium can increase 10 percent and they must pay the higher premium for twice the number of years they could have had Part A, but did not enroll.
Just as with most private insurance, Medicare Part A has out-of-pocket expenses. The 2014 Medicare Part A inpatient hospital deductible is $1,216 per hospitalization and the co-pay for hospitalizations over 60 days is $304 per day. There is no out-of-pocket limit.
General tax revenues finance 72 percent of Part B; beneficiary premiums finance the remainder. The government deducts a minimum of $104.90 for Medicare Part B from the monthly Social Security payments of everyone enrolled in either Part B or Medicare Advantage. High-income earners (greater than $85,000/individuals, $170,000/couples yearly) pay progressively higher Part B premiums up to $335.70 per month. Part B has an annual deductible of $147.00 and co-pays of 20 percent, and a lifetime penalty for late enrollment. There is no out-of-pocket limit.
Part C Advantage plans, started in 1997 as "Medicare+Choice", are sold by private insurance companies and have at least the same Part A and B coverage as traditional Medicare. Their advantage is that the monthly private insurance premium covers prescription drugs and more services than traditional Medicare (e.g., optometry, hearing tests, dental plan options), with low or no co-pays. They also have limits on out-of-pocket expenses. With traditional Medicare, to avoid unlimited out-of-pocket expenses, beneficiaries must purchase a private government-approved supplemental insurance ("Medi-gap") policy with an estimated annual cost of $6,200.
Part D is largely (74 percent) financed through general revenues. Beneficiary premiums and state payments through Medicaid make up the remainder. High-earning beneficiaries pay a larger share of the cost of Part D coverage.
The Affordable Care Act cut $156 billion from Medicare Advantage. My 2014 Advantage plan's out-of-pocket maximum rose from $3,400 to $5,900. Lab and X-ray costs rose from $30 to $45. Was this to pay for the "free" tests for traditional Medicare?
The next time someone rails about evil insurers and the health exchanges' surprisingly high premiums and co-pays, concluding that "Medicare for all" is the solution, enlighten them with facts. Traditional Medicare covers only 64 percent of healthcare expenses for noninstitutionalized beneficiaries, according to the MedPAC Data Book, 2013. Medicare pays hospitals an average of 10 percent below their costs of caring for patients, states the American Hospital Association in its Underpayment by Medicare and Medicaid Fact Sheet, December 2010. If a physician accepts out-of-pocket payment from Medicare patients who want to pay, for example, for extra time with their doctor during a Medicare-covered visit, the physician is forced from the Medicare program for two years. Explain that Obamacare's individual mandate-tax is trivial compared to the government's holding Social Security benefits hostage to participation in socialized medicine.
Free is never free. Medicare is a transfer system from younger generations' incomes to older generations' healthcare. "Medicare for all" would force our youth into the same costly and bankrupt system that is already denying care.