Tag Archives: Medicare
America’s system of health care safety nets is an inadequate, balkanized, inefficient, unfair, unsustainable monstrosity. And that’s on a good day. Its two main components—Medicaid/CHIP for the poor and Medicare for the elderly and disabled—spend nearly a trillion dollars annually to cover 110 million people. And both are growing like topsy. In tandem with the equally doomed employer health insurance system, the safety net feeds an insatiable appetite for overpriced, often-inferior medical care that is bringing the entire system to the brink of insolvency. And the Affordable Care Act (ACA) promises to make it worse by adding yet another 15 million underfunded Medicaid enrollees and by creating a new subsidy entitlement for families making up to $88,000 a year—arguably creating our first-ever middle-class welfare program that, according to James Capretta, brings “middle-class Americans into permanent dependence on the federal government for their health care.”
Correcting the Basic Problem
Employers to the Rescue?
In Part 1, I explained how the only way hospitals have been able to survive their money-losing Medicare and Medicaid patients has been to charge higher rates to private payers. That’s why private insurance now costs $1,788 more per family than it would if the government paid the same provider prices as everyone else. Moreover, health reform’s promised addition of 15 million new Medicaid patients, along with billions of dollars in lower Medicare payments, will drive the demand for private subsidies even higher. Additionally, as the current 27 million individually insured begin transitioning to the insurance exchanges in 2014, their continued ability to pay higher hospital charges is doubtful. Ditto for the 17 million uninsured who are expected to sign up for exchange insurance. Indeed, under health reform, exchange insurers may need their own external financial assistance. That leaves only private, employer-based insurance to pick up the slack by paying ever higher hospital prices. That, too, is unlikely to happen.
MEDICAID, MEDICARE, AND THE INSURANCE EXCHANGES
The new health reform law’s central message to America’s hospitals is a classic good news/bad news story. First, the good news. Hospital exposure to 46 million uninsured Americans showing up in their ERs is about to drop by two-thirds over the next several years. Medicaid alone is predicted to take on 15 million of them, as the states—with temporarily enhanced federal assistance—expand eligibility to cover all non-seniors who fall below 133 percent of the federal poverty level ($24,350 for a family of three). And assuming the individual insurance mandate survives likely court challenges, another 17 million uninsured will be required to buy subsidized private health insurance through new state health insurance exchanges beginning in 2014. This adds up to 32 million people who hospitals will no longer have to treat for free under the federal EMTALA law and their own charity-care policies.
Health-reform bookmakers currently favor the Senate bill over the House version as bicameral, unipartisan, unconference-committee participants conspire in a C-Span-free White House to extrude their secret sausage. One of many unfortunate consequences of the Senate bill—according to a new report from the government’s own Center for Medicare and Medicaid Services (CMS)—is likely to be a significant shrinkage in the ranks of medical providers willing or able to treat Medicare patients. The Senate’s proposal to insure the uninsured would require Medicare benefit cuts of $541 billion to pay the lion’s share of health reform’s $882 billion ten-year cost. CMS projects that fully 20% of doctors and hospitals participating in Medicare’s Part A inpatient benefit program will become unprofitable as a result. According to CMS’ chief actuary Richard Foster, “Providers for whom Medicare constitutes a substantive portion of their business could find it difficult to remain profitable and, absent legislative intervention, might end their participation in the program (possibly jeopardizing access to care for beneficiaries).”
My “Lies, Damned Lies, and Statistics Award—Health Care Division” goes to the Wall Street Journal. Today’s (09/14/09) six-column, page A4 article by Jane Zhang, “Maryland Reins In Hospital Costs By Setting Rates,” is accompanied by a graph labeled “Keeping Costs Down.” It shows one line of data labeled “U.S.” that shows a steep increase from about 20% in 1980 to more than 150% now, and a second line labeled “Maryland” that, over the same period, indicates a far more gradual increase from about 10% to a bit over 20%. The pictorial difference is dramatic and strongly suggests that the state’s bureaucratic controls on hospital rates have been fantastically successful in “Keeping Costs Down.” Actually, they haven’t done any such thing.
“We’ll cut hundreds of billions of dollars in waste and inefficiency in federal health programs like Medicare and Medicaid…” President Barack Obama’s op-ed on health care reform in the New York Times.
Brilliant! Why didn’t Presidents Johnson, Nixon, Ford, Carter, Reagan, Bush I, Clinton, or Bush II think of this?
“(B)y making Medicare more efficient, we’ll be able to ensure that more tax dollars go directly to caring for seniors instead of enriching insurance companies. This will not only help provide today’s seniors with the benefits they’ve been promised; it will also ensure the long-term health of Medicare for tomorrow’s seniors.” President Barack Obama’s op-ed in the 8/16/9 New York Times.
Let’s see, Medicare’s total unfunded liabilities are somewhere around $65 trillion. The amount the President would like to cut in Medicare Advantage payments to those unjustly enriched insurers is about $11 billion per year. At current long-term Treasury interest rates, the savings would handily cover the interest on the interest on the interest on the debt required to make Medicare whole.
It’s a start, I guess.
President Obama has said that his proposed public health insurance plan (let’s call it the “insurance GSE” for a government sponsored enterprise) will be competitive with private insurers because it will “negotiate” “fair” reimbursement rates with America’s doctors and hospitals. The presumption is that these rates will be lower than what private insurers pay.
Why do the President’s advisors believe a government negotiator can jawbone a significantly better deal than the hard-charging commercial insurers backed by the clout of their tens of millions of members? Without something extra on the government’s side, it’s just not a credible argument (remember the $800 toilet seats?).
The widespread fear is that the “something extra” will be health care reform legislation that allows the insurance GSE to cram down rates on providers—perhaps even the same rates Medicare underpays. As an added incentive, it could require doctors to participate in the GSE or lose the ability to treat Medicare patients.
The most contentious issue in the current congressional health reform debate seems to be whether the government should offer a public health insurance plan for the uninsured. It’s a bad idea that will only further destabilize our already unsustainable health care system. Here’s why.
If a public plan’s premiums are set at sufficient levels to allow the plan to be financially self-sustaining, it will be too expensive for most uninsured people to afford. That’s because (1) adverse selection (the tendency of sick people to sign up for individual insurance coverage in greater numbers than healthy ones) will drive rates to unaffordable levels, and (2) the government’s tendency to require unnecessary benefits will drive premiums even higher. The most commonly promoted way to avoid this is by applying direct government subsidies. The resulting below-market premiums will then make government insurance affordable. But it will also make private insurance uncompetitive, creating a rush to the government plan by not just the sick uninsured, but by small employers, people with individual insurance, and even large employers eyeing an opportunity to get out from under their increasingly unaffordable self-insurance programs.
While some critics may applaud this move toward a single-payer system, the fundamental problem remains that such a public program will only worsen out-of-control medical cost inflation—short of outright government rationing of expensive care as done in Canada and Great Britain. The arguments that increased prevention and electronic medical records will lower costs are myths (see my earlier posting “Will Prevention and EMR Save Money?”). Industry insiders have long known that prevention virtually always costs more than it saves, and the adoption of computer technology takes decades to yield savings.
The hard reality is that increased top-down government intervention in American medical care has thus far failed to deliver universally available, affordable care. Exhibit A: Medicare will be bankrupt in eight years. Exhibit B: Medicaid has become a black hole for state and federal budgets. A public health insurer will just as assuredly fail to perform, whether run by the feds or outsourced.
There is an alternative, but it lies in root-and-branch reform of the American insurance system to enable the combination of regulated markets and social safety nets to meet the health care needs of all Americans. Do stay tuned.