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Unraveling the Myths of Medicare

Medicare is going broke, right? As you might imagine, the facts are somewhat more complicated. The best place to start is to examine the “Top Ten Myths of Medicare.”

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That’s the title of a new and valuable paper by Richard L. Kaplan, a professor at the University of Illinois College of Law. Published in the Elder Law Journal, the research couldn’t come at a better time: With the presidential election now less than three months away, you’re sure to be inundated with claims and counterclaims about Medicare and its future.

“Only if the many myths that surround [Medicare] are debunked,” Kaplan writes, “can the difficult decisions and inevitable policy trade-offs be developed that will maintain the program’s singular importance for older Americans.”

Take the idea of bankruptcy. To start, the Medicare program has several distinct parts, with different ways of financing their costs, Prof. Kaplan notes. For instance, Medicare Parts B and D (which cover physician charges and prescription drugs, respectively) use premiums paid by current-year enrollees and general-tax revenues.

“In other words, Medicare Parts B and D are funded on a current-year basis and as a result cannot ‘go bankrupt’ in any customary sense of that phrase,” Prof. Kaplan writes.

Yes, the program as a whole, he adds, could become a “serious and exploding drain” on the federal government’s budget. But lawmakers have the ability to appropriate funds as they see fit. “If future Congresses prioritize this program over other competing demands, Medicare can continue to pay its bills in full and on time,” he says.

Other prominent “myths” that Prof. Kaplan addresses include:

“Medicare is politically immune to budgetary reduction.” Not so. The program has faced “substantial and repeated budget cuts throughout its existence,” Prof. Kaplan notes.

“Increased longevity will sink Medicare.” Yes, the number of beneficiaries — given the aging of the baby boom generation — will increase substantially. And yes, beneficiaries who live longer than their predecessors typically incur higher cumulative health care costs after age 65 — “but many of those costs are not borne by the Medicare program,” Prof. Kaplan writes.

“Medicare pays for long-term care.” Yes, Medicare pays for some long-term care — but the key word is “some.” The program doesn’t pay for most long-term care — and the coverage it does provide comes with “some rather severe restrictions,” Prof. Kaplan says.

In short, spending a few minutes with this research is well worth your time. It will get you up to speed for the election — and, perhaps more important, help you understand how Medicare works.

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About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.