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Jill on Money: What would Medicare for All mean?

With all the campaign talk about Medicare for All, it may be worthwhile to review the existing Medicare program, which was enacted more than 50 years ago, in July 1965.

Medicare is the government's health care plan for those over age 65 and for those who are permanently disabled; in 2018, it covered 60 million people and cost $583 billion in net spending. There are four different parts of the program: Part A (hospital services and skilled nursing), Part B (doctor visits/outpatient services/lab work/preventive services), Part C (Medicare Advantage Plans or private insurance alternatives to Original Medicare Plans) and Part D (prescription drugs).

The combination of an aging population and rising health care costs has put Medicare under significant financial pressure. The program is financed by a combination of general revenue (43 percent), payroll tax contributions (36 percent), beneficiary premiums (15 percent), and other sources, like taxation of Social Security benefits, payments from states, and interest (6 percent).

The portion of the financing that garners the most attention is FICA payroll deductions, because American workers feel that one directly. Every employee (and employer) pays a 6.2 percent tax on earnings up to a limit, which is currently $132,900 to fund Social Security retirement benefits. On top of that, employees and employers pay a Medicare tax rate of 1.45 percent each, for a total of 2.9 percent — and there is no limit to the wages subject to the Medicare tax.

Employee wages paid in excess of $200,000 ($250,000 for married couples) are subject to an extra 0.9 percent Medicare tax; employers do not pay the extra tax.

While all of that sounds like a lot, it is not enough to pay future benefits. According to the 2019 annual report of the Social Security and Medicare programs, "Notwithstanding the assumption of a substantial slowdown of per capita health expenditure growth, the projections indicate that Medicare still faces a substantial financial shortfall that will need to be addressed with further legislation."

This trustee statement has been relatively consistent over the past two decades and has led to a number of potential solutions that often get lumped into one headline reform plan called Medicare for All.

That said, the various ideas are all over the map: from the introduction of a single national, government-run plan that would cover every American and eliminate private coverage; to an overhaul of Medicare that would allow those under age 65 to buy in to the plan or continue to buy private insurance, if they chose to do so; to a new public plan option that would be offered to individuals through the Affordable Care Act marketplace.

To compare the proposals, The Kaiser Family Foundation has grouped them into five general categories, which may be useful, especially considering Kaiser's recent poll about major features of the Medicare for All proposals.

The findings were not surprising, given the complexity of the topic: A majority "of Americans are unaware of the kind of dramatic changes that the plans would bring to the nation's health care system." While 78 percent correctly understand that the various Medicare for All proposals would increase taxes, 69 percent incorrectly believe that they would continue to pay deductibles and copays when they use health care services, and 54 percent erroneously think that they would continue to pay health insurance premiums.

As you hear about health care reform, you may be inclined to tune out, but that would be a big mistake. There's a reason that the trustees "recommend that lawmakers take action sooner rather than later," because the clock is ticking on the ability of the country to manage this huge and important program.

Jill Schlesinger, CFP, is a CBS News business analyst. She welcomes comments and questions at askjill@jillonmoney.com.

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