The Fraying of Medicare

Many Americans assume that once they finally become eligible for Medicare, their worries about skyrocketing health care bills will be over. Unfortunately, that just isn’t the case.    

According to Fidelity Investments a 65-year-old couple retiring this year should assume they will need approximately $240,000 to cover medical expenses in retirement--- even though they have Medicare insurance coverage.   This represents a 6.7 percent jump over Fidelity’s 2008 estimate of $225,000.

Just as in every other sector of our health care system, Medicare has been hit hard by the soaring cost of care. As a result, Medicare beneficiaries are paying more and more out of pocket. Some health care reformers suggest that because Medicare’s administrative costs are very low, the program is inexpensive. That just isn’t true—administrative costs represent a relatively small portion of total health care spending. As I have explained in earlier posts,  overuse of advanced medical technologies bears primary responsibility for pushing medical bills heavenward.

This helps explain why, in just the past seven years,  the amount a retired couple can expect to lay out in the form of co-pays, deductibles, out-of-pocket costs for prescription drugs, as well has certain services not covered by Medicare has jumped 50 percent, from $160,000 to $240,000.

Even if you’re not approaching retirement, it is worth understanding how much Medicare costs beneficiaries because the program is so often held up as a model for universal health insurance.  It is important to recognize that Medicare is not free—far from it. And universal health insurance won’t be free either, even if a public-sector plan is available. 

There will be subsidies for low-income families, but households earning over $70,000 or $80,000 will no doubt be expected to pay most, if not all, of  their own premiums, co-pays and deductibles. Just how much they will have to shell out depends on how successful we are in eliminating unnecessary, ineffective and exorbitantly expensive tests, drugs and treatments from the system. We know that indiscriminate use of new tests, drugs and treatments on patients who don’t benefit is driving health care inflation.

 But the truth is that many Americans are accustomed to being over-medicated, irradiated, sliced wide open and then sewn back up.  Moreover, one man’s over-treatment is another man’s income stream. It won’t be easy to pass legislation that reins in spending, but the alternative is to create a national insurance program that will take an enormous bite out of the typical upper-middle-class family’s budget.
Medicare serves as a warning. It is fast becoming unaffordable for many seniors. Keep in mind that nearly half of all people on Medicare (48%) are making do on incomes below 200% of poverty ($20,800 for a single person and $28,000 for a couple in 2008.) Income includes Social Security as well as dividends, capital gains, salaries from part-time work—in short, every penny that comes into the house.  For many, Medicare has become an enormous  burden. We need to squeeze the waste out of Medicare, and use that more efficient, more effective program as the pattern for national health insurance.

Medicare, Medigap and Medicare Advantage 

Medigap insurance fills some of the holes in Medicare insurance, and helps many seniors, but it, too, can be pricey. Seniors can choose from up to 12 different Medigap policies; the benefits are standardized but premiums and deductibles vary widely.  Moreover, Medigap isn’t a very good value, as Marilyn Moon, a former trustee of the Medicare system tells the Columbia Journallism Review’s Trudy Lieberman in an interview that the Review published last week: “When people buy ‘Medigap’ insurance, on average they may be getting back only seventy-five cents worth of health care for every dollar they spend.

Administrative costs are also high,” warned Moon, who is now vice president of the American Institutes for Research, “But going without such coverage is risky since the basic Medicare package has no catastrophic protection for those with very high expenses. “ (Hat tip to Lieberman for a very informative interview on a subject that often is  ignored. )

Many Americans are shocked to discover that if they are enrolled in traditional Medicare, there is no annual cap on how much they may have to spend out of pocket. The more services the beneficiary uses, the higher his expenses in the form of co-payments for outpatient care (usually 20 percent of the cost) and inpatient care.  A $1,068 deductible covers your first 60 days in the hospital, but if you stay longer, you will be charged $267 a day from day 61 to day 90, and $534 per day from day 90 to 150--plus all costs after 150 days.  Then seniors have to face the spiraling cost of prescription drugs. Even if you have Medicare Part D, the new program which provides coverage for medications, you can spend as much as $4,350 before the second half of Part D kicks in and covers 95 percent of any further drug bills.

Some retirees receive Medicare through a private insurer. But even these “Medicare Advantage” plans may or may not cap out-of pocket spending at $3,000 to $5,000 a year—and  usually only certain services count toward the limit.

Bringing Down the Price of Medicare

In her interview with the Columbia Journalism Review, Moon offers some suggestions for making Medicare more affordable.  First, “if  Medicare is an insurance plan, then it must cap the amount that people spend on their own, just as there is a limit on out-of-pocket spending offered by most good commercial insurance policies,”  Moon observes.

Secondly “Deductibles should be combined. People pay a separate deductible for physician and outpatient care and a very high deductible for hospital services, now over $1,000 a year. Coinsurance amounts are confusing and vary by type of service. Until you simplify the basic structure so that people don’t feel it’s necessary to buy supplemental coverage . . .If people know that they have one deductible, say $350, and modest coinsurance up to a limit of perhaps $4000 they would pay out of pocket, then they can decide whether they want supplemental [Medigap] coverage,” Moon explains. “That would help them decide how much added protection they need, and at what cost.”

Moon acknowledges that, today, “almost no one” is talking about these reforms. “But when health reform discussions begin about what a basic benefit package would look like for younger families, it will become obvious that Medicare is lagging behind, and politicians will take notice.”

At that point, Medicare will probably put a lid out-of-pocket spending. But how will the program pay for the change? Medicare is running out of money: “The program actuaries projected that the hospital trust fund, which pays for hospital benefits, will be out of money by 2019. With the downturn in the economy,” Moon notes, “that date is likely to move up by several years when new projections are issued this spring. Payroll taxes, which now fund those benefits, will be too low to pay for all the care people will need, causing a shortfall. To keep hospital benefits people have now, the trust fund needs new revenue.”
President Obama has proposed cutting payments to Medicare Advantage insurers and reducing reimbursements to hospitals, based on outcomes.  But that won’t save enough to make Medicare sustainable, says Moon. “The system will still need new money. Over the long run, you need to change the way health care is delivered, and it will be quite a while before spending slows, even if some of the ‘fixes’ people discuss are successful. Until we . . . find a way to dramatically slow the growth of spending, this problem will not go away. We just delay fixing it.

Solutions involve making hard choices. Moon is blunt: “Either taxpayers or beneficiaries pay more, or providers of care get paid less or do less. Most groups hate at least one of the options, so there’s really no consensus.”

“Rising costs are not a Medicare problem but a health system problem,” she adds. “We have not been willing to make sure we are getting value for the dollars we spend. We have not been spending money wisely. Until everyone—providers, patients, and others who have a stake in manufacturing drugs, devices, new treatments—becomes realistic in what the system will bear, we are not going to see any reduction in the growth of health care spending.”

When Lieberman asks  whether “paying providers based on the quality of care they deliver is likely to solve the financial distress?”  Moon replies: “That can only work in a large institution like a hospital, and even there it will take time” As I have argued in the past on Health Beat, “It’s difficult to do at the physician level. We don’t have good measures of good quality of physician visits . . .”

By contrast, steering patients  away from their  local hospital and toward “Centers of Excellence”  that tend to do a very high volume of a particular procedure could reap significant savings. “If they are very good at a particular surgery, for example, they may create fewer complications that ultimately raise costs,” Moon explains. Though she admits, the idea of having to travel away to a Center of Excellence has “not always been a big hit with patients.”  Patients need to learn more about the rate of errors and infections in the average hospital; this might make them more willing to leave home.

Finally, some have suggested that Medicare should raise funds making wealthier beneficiaries pay more for Part D, the Medicare drug benefit. But Moon disagrees: “This is another step that unnecessarily complicates the program, and making wealthier beneficiaries pay more will not raise that much money. This is similar to the provision that requires individuals with incomes over $80,000 (families over $160,000) to pay more for Part B benefits—those that cover doctor services. If there’s a similar income cut-off, it will not affect that many people, since there are just not a large number of high-income seniors.”

At the same time, it could weaken Medicare. “If we make the premiums high enough,” Moon points out, “some wealthy beneficiaries will opt out of Medicare, and go elsewhere for insurance.”  This would undermine national support for Medicare—ultimately, it would be likely to become a poor program for the poor and the middle-class—much like Medicaid.

If people age fifty-five to sixty-four were allowed to buy into Medicare, that could raise some money. But there is a real danger that most 50-somethings would stick with the private insurance they have now—and only turn to Medicare when they became very sick. If that happened, the cost to Medicare could sky-rocket.  “That could mean higher payroll taxes, which many people believe are unnecessary,” Moon observes.

Finally, there is the question of removing fraud and waste from the Medicare program. “We know that there is fraud on the part of doctors and hospitals that game the system, ” Moon acknowledges “and that should be aggressively handled. The issues of waste and abuse are more subtle. Was a particular treatment or test necessary, or was it wasted money? Sometimes we can judge that only after the fact. One person’s waste is another’s valued benefit. We need to know much more about what works and what doesn’t. “

As I’ve discussed on Health Beat in the past, while we have some good comparative research, it will require what Moon calls “an investment in research and communication,” to change the system. “It will take time,”   she says. Patients need to be educated.  American hate to be told “No.”  But “the public needs to realize that refusing to insure certain tests and treatments that do not work is a good approach, not a bad one.”

In the end, Moon stresses the connection between Medicare and national health insurance. Journalists interested in health reform should take a hard “look at the lessons of Medicare—both the good and the bad,” says Moon. “Health reformers can learn from Medicare as they craft a health reform proposal.”
My guess is that serious Medicare reform will begin this year: everyone should pay attention because it will provide important clues as to where national heath insurance is headed.

Comments

[Agelita]

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