Medicare “as we know it” is doomed. It never had a chance. What was originally intended as a vital safety net for seniors has become a massive boondoggle that is collapsing under its own weight.

In 1965, Medicare started as a medical savings program for retirees. The government would take a small amount out of your paycheck each month for forty years. This would be placed in a virtual lockbox with your name on it, and would grow at some nominal but safe rate, say three percent. At retirement, the average American would have well over $100,000 in today’s dollars in a virtual individual Health Savings Account to cover old age medical costs.

Things did not work out that way at all. Here is why the Medicare program was and is doomed.

Doomed by Congress at the outset

Soon after Medicare started, the government was collecting billions. Congress saw a great opportunity and took it. They broke open all those lockboxes, took the cash, put it in the General Account, and replaced your money with government-issued I.O.U.s. The government is good for it, right? Anyway, what’s the difference?

There are two huge differences. First, hard cash can be invested and grow: I.O.U.s cannot and do not. Second, your Medicare savings were supposed to be spent on your personal medical expenses. In the General Account, Congress could spend that money on any pork project, for political payback, or whatever crony capitalism scheme they liked. In short, the money Medicare needs to pay for your care isn’t there, by Congressional action.

Doomed by simple economics

What happens when you pour water into a barrel with a hole in the bottom, and someone keeps enlarging the hole? Answer: soon the barrel is empty and stays that way. That is Medicare financing -- the water is money and the hole is Medicare spending.

Any economic system with unlimited demand and limited supply is doomed. It cannot survive because you cannot satisfy increasing demand with decreasing supply.

The president promises that he will save “Medicare as we know it.” He plans to cut $716 billion in Medicare reimbursements to doctors and to reduce spending through the Independent Payment Advisory Board, Sarah Palin’s infamous “Death Panel” component of ObamaCare. The former will drastically reduce the services available and the latter is strict medical rationing. What will be “saved” is not the Medicare we want, have expected ever since 1965, and deserve.

Doomed by politics

In 2014, the Congressional Budget Office reported that Medicare solvency had improved and that ObamaCare had produced “substantial savings.” If you mean spending less on the doctor because you can’t get in to see one or you can’t get the care you need, then yes, less money was spent. Not exactly the way we want to save money.

Much more ominous is how the CBO tallied the Medicare Trust Fund. It counted as dollars saved the spending cuts mandated by the Sustained Growth Ratio. It assumed that these spending cuts actually took place, when in fact they had been stopped by Congress’ own DocFix. Instead of applying proper accounting procedures, the CBO, under pressure from the White House, used what one might call creative accounting, also known as cooking the books.

Doomed by Ponzi

Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi is famous for inventing the “Ponzi” pyramid scheme in the early 20th century. For years, Washington has been emulating Ponzi to prop up a moribund Medicare program.

When Medicare started, each person’s individual savings was supposed to pay for medical costs after retirement. As demand kept rising and bureaucratic costs exploded, spending quickly outstripped revenue. Washington resorted to cuts in doctor payments, accounting tricks, printing money, and Ponzi methodology in order to make Medicare appear healthy when it was dying.

Doomed by complexity

Fraud and abuse cost us billions of dollars that should go to healthcare service and goods. For instance, federal watchdogs proudly reported that for 2014, they recovered $3.3 billion from alleged healthcare fraud, from all government programs. The massively and unnecessarily complex government-supported insurance billing structure is easy pickings for people who want to profit at others’ expense.  

When Medicare Collapses

When the Medicare Trust Fund becomes insolvent, it will be unable to pay doctor or hospital bills for seniors. Healthcare providers cannot work for nothing. They have their own bills to pay. So when Medicare collapses, seniors simply won’t be able to get the medical care they need. You know what happens then: the same thing that has been happening to our veterans at VA hospitals -- dying avoidably.  

The Medicare Program is doomed, not by Republican vouchers, but by what Washington has done to it over the years. You cannot keep Medicare “as we know it” because that Medicare does not exist and never did. While we can’t save a terminal Medicare program, we can save Medicare patients.

Direct-Pay USA

Medicare enrollees are people who paid forty years’ worth of hard-earned dollars to the government. The government owes them that money and should give it back to them. Put the money, their money, into HSAs and allow them to pay for their own care and their own health insurance. Call this plan Direct-Pay USA.

With this plan, Washington will pay each Medicare enrollee the amount they paid into the program. Assume that is $100,000. The government would put $10,000 per year for the next ten years into separate HSAs for each of the 49 million Medicare enrollees. That would cost $4.9 trillion. The current projection for Medicare spending over the next ten years is $6.6 trillion.

By implementing Direct-Pay USA, we can save the patients and save our country $1.5 trillion at the same time. If we tinker with, modify, or adjust the current Medicare program in the hopes of saving it, we are throwing good money after bad. The Medicare Trust is doomed. Absent Direct-Pay USA, senior American citizens will find themselves doomed as well.  

Dr. Deane Waldman MD MBA is author of award-winning The Cancer In Healthcare; Professor Emeritus of Pediatrics, Pathology and Decision Science; and Adjunct Scholar (Healthcare) for the Rio Grande Foundation, a public policy think tank. Dr. Deane also sits on the Board of Directors of the New Mexico Health Insurance Exchange, as Consumer Advocate. Opinions expressed here are solely his and do not necessarily reflect the opinions of the Board.