Privatizing Medicare would be irresponsible

Medicare, which makes medical care affordable and accessible for millions of older or disabled Americans, just celebrated its 50th anniversary — arguably a half century of success. Yet, call for its privatization is one of the hot topics in D.C. right now, at the top of the list on House Speaker Paul Ryan's legislative agenda. This is irresponsible public policy and bad for both seniors and younger generations.

First, some background. The social insurance program is funded by a combination of premiums and taxes that cover both a defined benefit package and expanded benefits via managed care plans and prescription drugs. Currently, Medicare covers about 57 million beneficiaries, including about 11 million people under 65 years of age who qualify because of long-term disabilities.


The Centers for Medicare and Medicaid Services (CMS), which is based in Baltimore, sets rules and regulations for the program and contracts with private insurers to administer it. In addition to setting coverage policy, CMS conducts research on innovative health care delivery models and novel provider reimbursement programs. Total expenditures under Medicare were about $560 billion in 2016 (20 percent of total medical care expenditures) and are expected to grow to about $1.2 trillion in 2026 as the large Baby Boomer population ages. It should also be noted that Medicare funds also provide teaching hospitals financial assistance to support physician residency programs.

The program has its problems, but is largely considered effective by most — except for a vocal group of deficit hawks in Congress and in Washington "think tanks" who state that an unfunded entitlement like Medicare is unsustainable and must be addressed now. They frequently cite an estimate from the Medicare Office of the Actuary study that Medicare will cost $37 trillion over the next 75 years as the major reason that privatization is necessary. They also cite that the Medicare Trust Fund, which pays for hospital care, will become insolvent. The only option, they argue, is to shift responsibility for the program to the private sector that will use market competition to deliver guaranteed benefits. The effort is linked to the repeal of the Affordable Care Act, which for years has been the primary domestic policy agenda of Republicans in Congress.


In effect, however, privatization would end a social contract between generations and place seniors and future beneficiaries at significant risk for financial ruin due to medical bills. (Side note: About two-thirds of personal bankruptcies are due to high medical bills, and this would only increase if Medicare were repealed or privatized). And those 11 million beneficiaries under age 65 who have complex medical conditions and are receiving not only Medicare but also Medicaid, would be unable to afford coverage if Medicare were privatized and if Medicaid was ended as we know it.

To expect that vouchers would be adequate to cover ever-increasing premiums or that insurers would offer a variety of affordable insurance options is disingenuous. The many private insurance companies abandoning health exchanges should be adequate evidence of the unsustainability of this option. Moreover, most health care providers accept Medicare as full payment for services. If this were ended, beneficiaries would be exposed to charges beyond what Medicare would have paid.

The ACA fundamentally improved Medicare's fiscal solvency by reducing the rise in future Medicare spending by cutting planned increases in providers' reimbursement rates, implementing aggressive fraud and abuse provisions, and by increasing Medicare premiums on high-income beneficiaries. In addition to the risks associated with Medicare's privatization, a full repeal of the ACA will also adversely affect Medicare's sustainability.

A social insurance program like Medicare was necessary in the first place because the health insurance industry is inefficient in developing and selling insurance products to individuals. High utilizers of medical care result in losses, premium increases and the eventual discontinuance of affordable insurance policies. Additionally, private insurers' administrative costs are high (about 20 percent of the premium's price), whereas Medicare's is less than 5 percent, meaning more of the premium dollar is spent for services under Medicare. Additionally, CMS' commitment to innovation and cost control is not found in the private sector.

Yes, annual spending for medical care will increase due to a growing senior population, the introduction of new medical technologies including drugs and price increases. CMS has been reasonably successful in slowing the annual expenditure rate and has had better success than private insurers have had in controlling costs. This is no time to privatize Medicare with a system that is doomed to failure.

Robert A. Freeman is a professor and the vice chair for research at the Department of Pharmacy Practice and Administration within the University of Maryland Eastern Shore's School of Pharmacy. His email is