Why Medicare Isn’t the Problem, It’s the Solution

Why Medicare Isn’t the Problem, It’s the Solution

200
SHARE

I hope when he tells America how he aims to tame future budget deficits the President doesn’t accept conventional Wasington wisdom that the biggest problem in the federal budget is Medicare (and its poor cousin Medicaid).

Medicare isn’t the problem. It’s the solution.

The real problem is the soaring costs of health care that lie beneath Medicare. They’re costs all of us are bearing in the form of soaring premiums, co-payments, and deductibles.

Americans spend more on health care per person than any other advanced nation and get less for our money. Yearly public and private healthcare spending is $7,538 per person. That’s almost two and a half times the average of other advanced nations.

Yet the typical American lives 77.9 years – less than the average 79.4 years in other advanced nations. And we have the highest rate of infant mortality of all advanced nations.

Medical costs are soaring because our health-care system is totally screwed up. Doctors and hospitals have every incentive to spend on unnecessary tests, drugs, and procedures.

You have lower back pain? Almost 95% of such cases are best relieved through physical therapy. But doctors and hospitals routinely do expensive MRI’s, and then refer patients to orthopedic surgeons who often do even more costly surgery. Why? There’s not much money in physical therapy.

Your diabetes, asthma, or heart condition is acting up? If you go to the hospital, 20 percent of the time you’re back there within a month. You wouldn’t be nearly as likely to return if a nurse visited you at home to make sure you were taking your medications. This is common practice in other advanced countries. So why don’t nurses do home visits to Americans with acute conditions? Hospitals aren’t paid for it.

America spends $30 billion a year fixing medical errors – the worst rate among advanced countries. Why? Among other reasons because we keep patient records on computers that can’t share the data. Patient records are continuously re-written on pieces of paper, and then re-entered into different computers. That spells error.

Meanwhile, administrative costs eat up 15 to 30 percent of all healthcare spending in the United States. That’s twice the rate of most other advanced nations. Where does this money go? Mainly into collecting money: Doctors collect from hospitals and insurers, hospitals collect from insurers, insurers collect from companies or from policy holders.

A major occupational category at most hospitals is “billing clerk.” A third of nursing hours are devoted to documenting what’s happened so insurers have proof.

Trying to slow the rise in Medicare costs doesn’t deal with any of this. It will just limit the amounts seniors can spend, which means less care. As a practical matter it means more political battles, as seniors – whose clout will grow as boomers are added to the ranks – demand the limits be increased. (If you thought the demagoguery over “death panels” was bad, you ain’t seen nothin’ yet.)

Paul Ryan’s plan – to give seniors vouchers they can cash in with private for-profit insurers — would be even worse. It would funnel money into the hands of for-profit insurers, whose administrative costs are far higher than Medicare.

So what’s the answer? For starters, allow anyone at any age to join Medicare. Medicare’s administrative costs are in the range of 3 percent. That’s well below the 5 to 10 percent costs borne by large companies that self-insure. It’s even further below the administrative costs of companies in the small-group market (amounting to 25 to 27 percent of premiums). And it’s way, way lower than the administrative costs of individual insurance (40 percent). It’s even far below the 11 percent costs of private plans under Medicare Advantage, the current private-insurance option under Medicare.

In addition, allow Medicare – and its poor cousin Medicaid – to use their huge bargaining leverage to negotiate lower rates with hospitals, doctors, and pharmaceutical companies. This would help move health care from a fee-for-the-most-costly-service system into one designed to get the highest-quality outcomes most cheaply.

Estimates of how much would be saved by extending Medicare to cover the entire population range from $58 billion to $400 billion a year. More Americans would get quality health care, and the long-term budget crisis would be sharply reduced.

Let me say it again: Medicare isn’t the problem. It’s the solution.

Robert Reich served as the 22nd United States Secretary of Labor under President William Jefferson Clinton from 1992 to 1997.  He blogs regularly at Robert Reich, where this post first appeared.

Leave a Reply

200 Comments on "Why Medicare Isn’t the Problem, It’s the Solution"


Guest
Apr 13, 2011

Thanks for sharing this. Reich is right on. The system needs to start small with the docs, hospitals and other health care professionals. Trying to fix this nationally is going to leave out the ones who need the Medi programs the most. Looking forward to what Obama has to say about the topic later this afternoon. Reich always gives great insight – a follow-up from him would be superb.

Guest
nate ogden
Apr 13, 2011

What a bunch of BS, pure partisan BS.

“And we have the highest rate of infant mortality of all advanced nations.”

Might this have ANYTHING to do with the way infant mortaility is measured? The NHS lets them die under 22 weeks, we spend millions to save them. That skews both your per capita spending and infant mortality rate.

How many unhealthy illegal South American immigrants are breaking into these other countries to have babies, again skewing both numbers.

“Yet the typical American lives 77.9 years – less than the average 79.4 years in other advanced nations.”

Why don’t you break down how an asian American life expectancy compares to an Asian, a black to a black and so on? Because when you do the difference disappears.

“It would funnel money into the hands of for-profit insurers, whose administrative costs are far higher than Medicare.”

This has been disproven so many time you have to know your lying when you type this. Medicare is no where close to private insurance on administrative cost, if you had any idea what you where talking about you would know they are considerably higher. Then again this isn’t about facts its about politics.

“Medicare’s administrative costs are in the range of 3 percent. That’s well below the 5 to 10 percent costs borne by large companies that self-insure.”

Do you not understand math or just that dishonest? Robert you’re comparing 3%, which is low, your leaving out half their expenses, of $7000+ to 5% of $3500. Let me help you out there, $210 is more than $175. Even using your bogus numbers you’re wrong. You don’t buy stamp, pay salaries, or office space as a percent of premium so why does the left always compare admin efficiency as a %, because it’s the only way they look close. Incredibly dishonest but effective. Medicare skimps on admin and because of that they have a 10%+ fraud rate, that is $700+ per year, where is that factored in Robert? That alone is 400% of the total cost of private admin. Funny how you always forget that piece of the equation.

“allow Medicare – and its poor cousin Medicaid – to use their huge bargaining leverage to negotiate lower rates with hospitals, doctors,”

??? What country do you live in, Medicare and Medicaid don’t need to negotiate they just tell doctors and hospitals what they will be paid and this is already done. You want to cut Medicaid reimbursements even lower?

“Estimates of how much would be saved by extending Medicare to cover the entire population range from $58 billion to $400 billion a year.”

When done by far left liberal propagandist that don’t know anything about healthcare. When done with even a token effort at accuracy fraud alone increases your cost 10%. Private insurance already delivers Medicare benefits cheaper then Medicare can, that is as true of an apple to apple comparison you can get.

Guest
Apr 13, 2011

Spoken like a true ex-government official…Wasn’t he secy of the treasury or something like that?

Guest
Apr 13, 2011

I somehow don’t believe it’s a good idea to counteract fiction with more wishful thinking.
Yes, Mr. Ryan’s plan is not even remotely attached to reality, but if we are serious about fixing this mess, we first need to understand it.

Medicare, and its poor cousin Medicaid, are indeed not negotiating prices with hospitals and doctors. They are dictating those prices. There could be savings associated with negotiations between Medicare and drug manufacturers, but that’s about it.
As long as hospitals and doctors have a release valve by which to shift their desire to make profits from Medicare to a private insurance market, we will achieve very little other than miserable care for the elderly and the poor by having Medicare, and its poor cousin Medicaid, reduce reimbursements. I don’t even know if any reductions in Medicaid fees are even possible without getting into negative numbers.

Medicare for all, including those currently relegated to its poor cousin Medicaid, may very well be a good suggestion, but it has to be for all, from day one. And that is not going to happen any time soon.

I do agree that there are savings possible from administrative simplifications and reductions in medication prices paid, but in order to reduce what we pay for all other care, which is the bulk of the expenditures, we should first know what the real costs are to deliver that care. And we don’t. We know what we are charged, but we have no idea what the costs are to the provider, excluding embedded profit margins, arboretum constructions, enormous salaries for the few and miscellaneous bloat built in for a rainy day.

Guest
nate ogden
Apr 13, 2011

” we should first know what the real costs are to deliver that care. And we don’t. We know what we are charged,”

Margalit we do some cost plus reimbursement for hospitals now, not nearly as much as I would like but the numbers are known.

Guest
Apr 13, 2011

We do?
What is the audited, direct cost incurred by, say, Mass General for a hip replacement, itemized for technical component, professional component and facility, with no margins built in?

Guest
nate ogden
Apr 13, 2011

you have to go to the CMS data and look it up. First thing you need is the bill broken down by revenue codes

Guest
nate ogden
Apr 13, 2011

maybe I shouldn’t have used we in such a general sense.

people that do insurance for a living and work with this stuff day in and day out instead of writing and pontificating about it know the cost.

Guest
nate ogden
Apr 13, 2011

All the more reason to not listen to Labor Secrataries and journlist and listen to people that actually work in the field and know what they are talking about.

Guest
nate ogden
Apr 13, 2011

Another difference in life expectancy relates to race/ethnicity. For example, in the United States, the expectation of life at birth for whites is six years higher than for African Americans. However, the difference in life expectancy at age sixty-five is less than two years.

Read more: Life Expectancy – world, body, cause, time, human, The Measurement of Life Expectancy, Life Expectancy at Birth, Circa 2001 http://www.deathreference.com/Ke-Ma/Life-Expectancy.html#ixzz1JQ5x024q

Ethnic diversity causes lower life expectancy
European countries have longer average life expectancy than the United States, but comparing nearly all-white Europeans to the United States which has a substantial black minority, a race known for its lower life expectancy, then you are comparing apples to a mixture of apples and oranges. It’s a meaningless comparision.

Guest
bboydflynn
Apr 13, 2011

I have to call out nate for his admittedly relevant, but spectacularly racist dismissal of the issue of health disparities in the US.

Another way to say what he’s saying is, “sure, if you look at the whole population we’re not taking care of them, but the only ones who COUNT are the white folks, and they’re just fine.”

Seriously, you can write that blacks are “a race known for its lower life expectancy” without comment? Yes, there are many many social determinants of health that impact non-whites in this country disproportionately and thus impact life expectancy, but that’s PART OF THE PROBLEM, not an exception to be dismissed. This post makes me sick to my stomach.

Guest
nate ogden
Apr 13, 2011

This one needed its own post so Robert doesn’t miss it;

http://www.nytimes.com/2009/09/22/science/22tier.html?adxnnl=1&adxnnlx=1302710847-rbuCAF2H0dKLCY/sz3xtKA

But a prominent researcher, Samuel H. Preston, has taken a closer look at the growing body of international data, and he finds no evidence that America’s health care system is to blame for the longevity gap between it and other industrialized countries. In fact, he concludes, the American system in many ways provides superior treatment even when uninsured Americans are included in the analysis.

Americans pay more for health care partly because they get more thorough treatment for some diseases, and partly because they get sick more often than people in Europe and other industrialized countries.

An American’s life expectancy at birth is about 78 years, which is lower than in most other affluent countries. Life expectancy is about 80 in the United Kingdom, 81 in Canada and France, and 83 in Japan, according to the World Health Organization.

This longevity gap, Dr. Preston says, is primarily due to the relatively high rates of sickness and death among middle-aged Americans, chiefly from heart disease and cancer. Many of those deaths have been attributed to the health care system, an especially convenient target for those who favor a European alternative.

But there are many more differences between Europe and the United States than just the health care system. Americans are more ethnically diverse. They eat different food. They are fatter. Perhaps most important, they used to be exceptionally heavy smokers. For four decades, until the mid-1980s, per-capita cigarette consumption was higher in the United States (particularly among women) than anywhere else in the developed world. Dr. Preston and other researchers have calculated that if deaths due to smoking were excluded, the United States would rise to the top half of the longevity rankings for developed countries.

Like the say read the whole article, as it completly tears apart your argument. When I have time I’ll educate you on your other numerous errors. In the mean time could you explain where in your 3% admin cost for Medicare the budget of CMS is included. Also staff time of Congress when working on healthcare related bills. printing and research. Medicare cost is spread all throughout the federal budget, the 3% refers to a minute portion directly linked to Medicare but leaves out all oversight and management, expenses that are included in the private insurance numbers.

Guest
Barry Carol
Apr 13, 2011

Nate –

To add to your comments about Medicare’s administrative costs, when people first apply for Medicare, they do so through the Social Security Administration, not CMS. CMS only has about 4,600 employees while SSA has more than 60,000. The revenue to fund CMS is collected or borrowed by the Department of the Treasury. Office rent, I believe, is part of the General Services Administration budget. The list goes on. If you factor in all the costs associated with running Medicare that are handled by other government agencies, Medicare’s fully allocated administrative costs are more like 7%-8% of spending than 3%. Add in the fraud rate which you peg at 10% and you’re up to at least 17% for administration and fraud. Throw in below cost payment rates for many services, tests and procedures which get shifted to a still viable private insurance market and overall costs growing faster than GDP, and it doesn’t look like a sustainable model to me.

As many times as you and others point out the flaws in the analysis around life expectancy and infant mortality in the U.S. vs. other countries, we still hear the same BS over and over. The correct analysis, as you suggest, would compare Asians in the U.S. with Asians in Asia, Scandinavians in the U.S. with those in Scandinavia, Germans in the U.S. vs. Germans in Germany. The fact is that a given person’s health status is determined 40% by personal behavior, 30% by genetics, 20% by socioeconomic status and environmental factors, and only 10% by the quality of healthcare than one can access.

Guest
Apr 13, 2011

“The correct analysis, as you suggest, would compare Asians in the U.S. with Asians in Asia, Scandinavians in the U.S. with those in Scandinavia, Germans in the U.S. vs. Germans in Germany.”

So, Barry, Americans of African descent ought to see whatever life expectancy they have in the US as a major success for our health care system, when compared to life expectancy in Africa?
Not to mention that we don’t really have American Germans or American Scandinavians anymore.

I do agree that the health care system is not the sole reason, and perhaps not even the main reason, for the US life expectancy, or infant mortality numbers.
I suggest factoring in the large disparities in American society as opposed to, say, European societies (US Gini is in high 40s and Europe is around 30).
So the problem is, was, and will continue to be, poverty (whichever color you want). Fix that and you fixed health care.

Guest
MD as HELL
Apr 13, 2011

Government is the problem. It terrorizes people into believing survival is impossible without the government.

Government is the problem.

Guest
Mike
Apr 13, 2011

Medicare might be more efficient, or maybe it is even no better than private insurance, as an insurance company.

But I do know this – when I reach eligibility it can’t turn me away. Meanwhile some 50 million people in the US are SOOL if they need care.

Reich makes some economic arguments for Medicare, but he never really states the most important one, the ethical argument.

You can argue the economics of insurance systems all day long, but the bottom line is if you defend a system that allows 50 million people (or one person) to remain shut out of the system you have crossed a moral and ethical line and elected to wage class warfare.

There is a war being waged against the lower half of US society, and the insurance system is one component of that war.

We get a glimpse in these comments of the minds of good soldiers and bureaucrats in the war against the lower and middle classes. We see people who no doubt sleep well at night in the tight security of their circular arguments, oblivious to the death and misery that they cause, or justify, every day.

To read the comments here is to witness the banality of evil.

Former Secretary of Labor Robert Reich is hardly a flaming leftist, but he was as left as was allowed to be part of the Clinton administration, and compared to the right wing Obama administration, he is a breath of fresh air and public ethics.

Guest
rbar
Apr 13, 2011

There is no doubt that the current “system” produces a large, confusing bureaucracy that is rather counterproductive to patient care. Just go into any US hospital and look at the amount of paperwork and, yes, billing clerks. Canada has proven that one can do private delivery of healthcare with a single payor.

I am not sure whether Barry Carrols analysis is correct, but adjustments to improve medicare could be easily made if there is enough political traction to work against interest groups and “death panel” demagogues (i.e. consevatives incl. , by his own admission, Nate). In particular, the fee schedule need to be looked at. There are studies indicating that certain complex surgeries are overused because they are better paid (including medicare, which is not such a bad payor gor hospital care). but it will not happen with a pseudoliberal centrist and corporate interest peddler in the white house, and republicans who, as a whole, moved towards market libertarianism (without any social libertarianism) and now barely hide their reverse Robin Hood schemes.