POLICY: We need to separate the Medicare discussion

Those of you who get my FierceHealthcare newsletter (and if you don’t you should as it’s free!) will have read plenty from the NY Times last week about how Medicaid is a web of corruption and fraud and from the Washington Post this week about how Medicare is a maze of inefficiency that wastes one dollar in every three. OK; not exactly news to those of us in health care. In fact the very first post on THCB was about how screwed up Medicare was and why. (Hint: the answer is fee-for-service medicine)

This has now degenerated into a blogging argument between those "pro-business" DLC Democrats who think that the party should get in the vanguard of reforming those programs, and the liberal Dems who are scared (rightly) that given who’s in power (i.e. neither of them) any excuse possible will be taken by the current bunch of clowns running the country to eviscerate both programs to the detriment of those they cover.

And worse, TNR’s Jonathan Cohn who is probably quaffing his third latte before setting off to get his kids from soccer practice in his Volvo 4×4 has decided that, as his time is more valuable than mine, I should have to do remedial education for the whole party.

The first point obviously is that in any sensible country the liberal end and the pro-business end of the Democratic party would be two different parties, and the fundamentalist loonies/mercantilist thieves that compromise the Republican party here would still be locked in the attic. But given that that’s not the case, let me try to set out the problem here as simply as possible.

The problem: Government-funded health care programs in the US (and Medicare and Medicaid are by far the two largest programs within that category) do two completely different things

First, these are benefit programs for seniors and the very poorest of the poor. Without them, the elderly would be dying in the streets (just as the uninsured actually are), just as without social security we’d be back to bread lines. That is because (and this is something the American public just cannot get its brain around) health care costs are very uneven –they are concentrated among the old, the sick and the poor far more than other groups — and if we want to help those groups we have to subsidize them. That is what social insurance is, and that’s why we pay taxes. (Or at least that’s a small part of why we pay taxes, and it’s the part that Grover Norquist et al think we shouldn’t be paying for). The good news is that overall the American public believes in that cross-subsidization, whatever Grover and his pals may think.

Now we come to the second part of the story. Medicare and to a smaller effect Medicaid are extremely complex programs that don’t give a direct benefit to their "members" but instead allow an entire industry (in fact many industries) to deliver goods and services to those people with the government picking up the tab. Yup, Medicare is closer to defense spending than anything else, and within it there’s the same level of complexity, fraud and bad behavior as in that sector (and I never mentioned Halliburton once. Dang, just did!). In fact as Medicare sets the tone for almost all health care spending, but there are hundreds of payers rather than just one big one, health care is probably more complex, fraud-ridden, and inhabited by murky characters than defense…but I digress.

More importantly the defense contractors doctors,hospitals, insurers and more recently drug companies were heavily involved in the writing of the original rules of these programs (for more read down in my Hillarycare article from last week). So they made the programs look as much like an open spigot to the US Treasury as possible, and the Federal government has been trying (and failing) to balance between the aggressive demands of those concentrated interests and those of the beleaguered taxpayer ever since. And although Medicare is very popular among its recipients (remember their alternative is dying in the streets), because costs have gone up so much, as a share of income those recipients have greater proportional out of pocket costs than they did back when the program was introduced–even though Medicare is taking care of most of their costs.

Why is this? Well essentially the cost of health care is the services delivered times the price. Those delivering services will always tell you that if you want to reduce costs you must reduce services, and will always explain why the other side of that equation must be fixed (or in fact must ratchet upwards). Of course, that’s been explained many times to be rubbish, but that won’t stop providers putting a bunch of old ladies on the street to protest Medicare cuts….and hence blurring the lines between the two parts of the story.

If they are really interested in getting this debate advanced along, both sides within the Democratic persuasion should agree on two things.

First, that the health care system as a whole will always raise prices and accept losing a few to the uninsured pool as a price effect, rather than seek a different solution because that solution is to put everyone into one pool and, gulp, limit the total dollars going into it. That’s why universal coverage (with some manner of a controlled budget) is in the end the only way to get costs under control–and it’s done that way in every other country, even if they all look very different to each other. If you don’t do that, the system will inevitably keep costing more and more, and Medicare and Medicaid will have to pay their share of it. You see we can always spend more, and would you deny care to a little old lady?

Second, that even without getting to universal coverage, you can reform Medicare and Medicaid in ways that providers may not like without financially or physically hurting patients, and that those reforms may also help reduce the waste and fraud (or at least put it on the tab of a private insurer!). How to do that is a much, much longer conversation, but the important part for this piece is that it is theoretically separable from the need to privatize the funding of the system (via means testing), which will turn Medicare from a benefit program to a welfare program — with the inevitable result of it being marginalized and all the gains of the first part of our story being eroded.

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16 replies »

  1. I’m still wondering if health care costs are playing a significant role in University tuition/fee inflation. If so, wouldn’t universal health care take a bite out of the $140,000 debt?

  2. I’m still wondering if health care costs are playing a significant role in University tuition/fee inflation. If so, wouldn’t universal health care take a bite out of the $140,000 debt?

  3. Matt- I am willing to stipulate that the OECD models limit overall costs and that perhaps (b) is true, but (c)’s “more or less” is true in the US as well. All sides in this debate can supply data supporting their point of view (although I wish when Dr. Woolhandler publishes an article it contains the disclaimer of her role in PHNP- it is a bias- no different than disclosing industry ties).
    Government largesse to big business (ie insurers and pharmaceutical industry) occurs in both parties– the national program that single payer advocates promotes either has to have a massive expansion of government employment or be administered privately. No government- incuding ours- has a good track record on that front.
    Medicare is one of the most restrictive large government programs- once in, never out- and restricts patient choice and freedom. Expanding medicare to everyone– the “simplest” concept of single payer would not necessarily reign in costs (show me a large government program that has lived up to its funding estimates over time- certainly not medicare) and would give us a system that the Canadian courts just struck down as restricting personal rights.
    Plus- American society has not/ will not tolerate the increased waits. Also, remember that further limiting physician income potential by government fiat without addressing student debt (avg $140,000 currently and growing) and tort reform (medical liability costs much lower in OECD countries due to suit restrictions- conveniently left out of single payer plans), you will have a progressive erosion of the central tenet of so-called universal healthcare- Access to a well-trained doctor.
    PS- Greg is no relation.

  4. Eric — the concept of getting everyone on a level insurance playing field and injecting market mechanisms within that is noble. But no present American insurance company would recognize it as insurance, and their record pretty clearly demonstrates their skill in pricing their products to exclude sick people. Even if it did a) pass Congress and b) work, I doubt that medical care can be sold like soda pop, and I think that Enthoven was right when he said that some other entity would have to decide what was done, hard though that is to do. But on principle I’m not opposed to it so long as there is a fair insurance market.
    However, I can point to 12 national examples of where the central budget plus social insurance model works to a) limit overall costs, b) ensure no individual suffers from excessive medical costs and c) means that more or less everyone who gets the care they need. You cannot point to one running your system.
    BTW, Greg Novack is the CEO of Harris Interactive, who I used to work for ages ago!

  5. //government reinsurance in exchange for meeting certain healthy lifestyle goals- smoking, weight-loss, nutrition//
    This smacks to me a little of a bad character argument: all those smoking, fat, unhealthy people are just lazy, stubborn, excuse-making, sporting a bad attitude, and refusing to do better. This fails to acknowledge the vast complexities that may be feeding into the stigmatized status.
    Poor people often can’t afford optimally nutritious food. Routinized jobs sap energy, which decrease the inclination for exercise. Depression also decreases exercise, and the conditions of poverty enhance depression. Lack of exercise lowers metabolism, which saps the will to exercise – vicious cycle. Health problems from poor diet and lack of exercise can make an effective regimen all but impossible. Social stigma from weight gain can add to depression, thus increasing weight and reducing exercise. Anti-depressants themselves may cause significant weight gain. Poor people who don’t have insurance may not be able to have relatively simple medical conditions addressed (such as high blood pressure) that exacerbates medical conditions that discourage exercise: for instance, many kinds of exercise can be excruciating for me because of claudication (and this is from a genetic disorder, not lifestyle choice). Claudication + poverty = depression = weight problem = more depression = lower metablolism, etc.
    You say “lazy excuse!” to me, and I give you my body for a day so you can see how it feels for a vice to clamp down on your legs if you exceed medium speed or what it’s like to know you could actually give yourself a heart attack while you’re getting your pulse rate up, not to mention go blind if you happen to burst some blood vessels in your eyes. Condescending self-righteous folk suck muchly.
    Let’s luck at smoking. I don’t smoke or drink (does that mean I’d get half a credit for good behavior, or would the depression/poverty/genetic disorder cancel out the good drinking/smoking behavior?). Anyway, I’m sure we all agree life is rather miserable for poor, overweight people with chronic health problems. This is a clue as to why people smoke. Beyond giving something for people to hold at parties, smoking is a stimulant that self-medicates for depression. Moreover, smoking reduces hunger and keeps people thin. Smokers (and meth addicts!) are making the choice to avoid the stigma of being overweight. The price is later stigma: early wrinkles, social rifts with people who don’t like breathing smoke, and, possibly, lung cancer. But this is a deferred price (sort of like the national debt – people just pretend they will never have to pay it while they enjoy the benefits of instant gratification). Hey, if smoking makes you skinny, you can get a better job while your younger (an investment that multiplies exponentially if you lay a foundation for a good career), you attact a mate, and, hey, you might get on TV and become an Image for all the inadequate normal people. All this strong motive to smoke before we even get into the issue that it’s addictive. I’d be willing to bet it’s more addictive for people with fatigue-inducing health disorders or depression, too.
    My point is there a lot of complex factors that go into an unhealthy status (I’m uncomfortable with calling it a “behavior” because a hormonal disorder could make a person obsese). A lot of those factors are social, and when they aren’t addressed as social issues, then people are saying collectively that they aren’t willing to do the work to create an environment that promotes health. If people aren’t willing to address the social factors, why should they expext a miserable, fat poor person to starve in the name of saving all the people who are treating them badly in the first place a few bucks? That’s just utterly wrong. Being overweight is health risk and decreases the quality of life in many ways: if that’s not enough “incentive” to lose weight, then it’s doubtful some tax break will do it. Slow suicide vs. tax break – hmmmm. On the otherhand, withholding a new “incentive” can amount to punishment on a person who: a) may not deserve to be punished since their health status may not relate to their “behavior” – or their “behavior” is reasonable, and b) heaps misery on people who are already disadvantaged, miserable, and stigmatized.
    Then again, misery and anger foment revolution. Poor fat people with pitchforks charging the castle of condescending, self-righteous rich and thin people – woo hoo!

  6. Matt- I would counter with the idea that “universal tax credits” to fund healthcare accounts would be a better option. By giving everyone a set amount (using all of the current funds–medicaid, medicare, business tax credits) to fund health accounts. From this, insurance could be bought on the market. Note that this is not the same as HSAs currently which are tied to insurance- as insurers are smart enough to set prices at exactly just above what the government will pay.
    The overwhelming majority of Americans are healthy and utilize few resources– they will over time grow their accounts from the yearly credits +/- contributions. If an injury or illness occurs- these funds would be used first to a certain amount before the “insurance” component kicked in.
    For the “uninsurable”– government reinsurance in exchange for meeting certain healthy lifestyle goals- smoking, weight-loss, nutrition (the patient side of pay for performance).
    Physicians set fees that are not inflated to combat government regulators and patients– the market could decide what Novack or Holt is worth.
    Since outcomes can be very difficult to assign responsibility- credit or blame- pay for performance on the doctor side ought to be process related and market based (eg JD Power or Consumer Reports).
    Remember JAMA from earlier this month- 1/3 of major studies approx 1990- 2003 had their findings refuted or seriously questioned by subsequent studies. Rational health services research is not necessarily an easily definable entity.
    Just a quick comment on P4P resistance from doctors– insurance companies appear more interested in reducing payments than increasing quality- just check out the failed P4P concepts of insurers over the last several years. Also, the P4P data currently is “claims based”- meaning if a code was not assigned or payment not made, it did not happen. “claims-based” data is notoriously inaccurate, given the number of possible sources of information- pharmacy, multiple MDs, etc and the number of possible codes- >10,000.

  7. Eric — I am so sorry about dissapointing your mother. I must know a Greg Novak form somewhere who is cursing me somehow to fget your name wrong….
    Meanwhile in my ideal world….the health minister or (in a universal system based on vouchers or some other financing mechanism that is visible the plan sponsor) should be dedicating a fixed amont of money, and out of that medical professionals, health service researchers (including groups like the NICE) and patients should be figuring out the best way to spend that money. I do agree with you that neither Medicare nor the private sector is a true “free market” nor is it an allocation of resources based on rational health services research.

  8. Matt- I do not mind being called Greg, but my Mother would be disappointed.
    The unbelievable hoops that I must go through to provide care in the managed care environment developed, in part, because the government created thousands of pages of regulations and private industry just expanded on them. You get no argument here that the current environment is bad– it has the bad features of government control and the bad features of the marketplace.
    Proponents of nationalized healthcare always say that the current system is bad- so nationalized is better. The assumption is that the current system is an open market. Proponents of a free-market system also say the current system is bad– because it is not an open market– nearly 50% of the healthcare dollars are from the government and when you include all those with private insurance contracts with payments tied to medicare– nearly all of the healthcare dollars have government ties.
    It is not impossible to convince me– I just need more than a health minister and his/her debating with the cabinet whether someone’s cold medicine or valium or diapers ought to be included in the next year’s budget.

  9. “TNR’s Jonathan Cohn who is probably quaffing his third latte before setting off to get his kids from soccer practice in his Volvo 4×4 has decided that, as his time is more valuable than mine, I should have to do remedial education for the whole party …”
    Was there supposed to be a link for this bit?
    Or are you just speculating about Johnathan’s likely latte-drinking/volvo-driving/soccer-match-attending ways? He seems more like a Green Tea Chai Frappachino. sipper if you ask me.

  10. The reason Medicare can’t be fixed is that the U.S. public would rather pay more and foot the bill for waste and fraud than allow for direct benefits. If there’s not a ton of bureaucracy to make things unpleasant and difficult, then your nextdoor neighbor might be getting a freebie at your expense. I have a friend who is severely disabled, and we’ve talked about this psychological climate in relation to disability benefits a lot. One example is transportation benefits which enable disabled people to get out of the house and work, as well as participate in society in general. In many States it would be cheaper to give disabled people a direct grant and allow them to arrange for their own transportation. Instead the State forces them to use hugely overpriced transportation services that are often off schedule (which may cause the disabled person to lose the job that the transportation is supposed to enable).
    I also suspect this goes back to the population problem. People in the U.S. prefer “natural” population control: i.e., killing people off and discouraging people from reproducing by inflicting miserable lives on them. For the people who don’t live in poverty, this situation is preferable to the “unfreedom” of positive population control. From the perspective of the poor, this is tremendously inhumane.
    Now if we just lived in a country of a generous disposition, concerned to share resources and preserve human rights, everyone would actually be saving money. Now the public is paying steeply for their mean and grasping mindset.

  11. Greg — on the 3% being a myth because of the costs it forces onto the providers. Think about that for a second. Of course Medicare puts costs on the providers, but no way are those costs greater than those forced on them by private sector health plans — you’re in practice & you can’t possibly believe that medicare admin is more work for your staff than the average managed care plans. Yet those plans take 15-20% of the $ for admin before the cash gets to you! So apples to apples medicare is more efficient.
    The difference between public and private is that if the private system gets defrauded (which it does) theoretically the private plan is holding the bag and therefore has agreater incentive to try to stop that behavior.
    Meanwhile I look forward to you going onto radio 960 “The Patriot” and telling the audience that we should cut wasteful defense spending like missile defense and occupying Iraq!!

  12. Ezra is politically correct, but I dont have to be political, and anyway with the current system the providers (widest sense) will continue to protect their own interests which will limit the Republican loonies somewhat.
    Greg, I think that a global fixed budget (call it capitation if you will — how it gets distributed doesnt really matter) in which health care has to compete with other interests of society is the only way to rationally limit spending. If the health minister has to have a showdown with the rest of the cabinet and explain why his spending should go up while education, defense etc goes down, or tell the PM/Prez that taxes must go up, there is a built in limit. If on the other hand, Congress can add programs willy-nilly and no-one cares about the overall costs, AND you can just leave people out of the system if things get too expensive, then you’ll never have built in cost containment or a rational discussion about how much we should be spending.

  13. Ezra- what would you do for the short and medium term, if, let’s say, the Republicans continue to be in the majority for the next 8-10 years?

  14. I should probably be clear on this: I do think Medicare needs reform, but I think it’s insane for Democrats to talk about that now. If we create a constituency for reform but don’t have the power to craft or pass the bills, what comes out the other end is DeLay’s reform…

  15. Matt- I cannot agree more that government control over healthcare in the form of medicare and medicaid has some real parallels to defense spending. To understand the origins of medicare, I refer everyone to the excellent book, ” Medicare’s Midlife Crisis”, by Sue Blevins.
    All parties are to blame for the “please everyone” approach to getting the original medicare legislation passed 40 years ago.
    Fraud and waste can occur in both the government and private sector– government always is inefficient and wasteful. Free markets with oversight promote efficiency, and encourage responsibility on both ends (seller {doctor/hospital} and buyer {patient}). The myth of efficiency of medicare (so called 3% overhead) does not account for the cost of compliance for doctors and hospitals (or the tens of thousands of pages of regulations.
    By blaming fee-for-service medicine, are you saying that a capitated system is the solution? I am just trying to understand how a new, expanded government program is suddenly going to be better- more efficient, less fraud, less waste- than any other program? How does the one size fits all policy that the government will provide serve the often disparate issues of citizens? We tax cigarettes, in part, because they contribute siginificantly to health care costs. Should the person with bad health habits- smoker, obese, bad nutrition- who is much more likely to utilize healthcare, have no responsibility to bear a greater portion of those costs?
    Government control means that every year, interest groups will use time, resources and, to borrow from above “a bunch of old ladies” with a given problem lobbying and/or litigating for coverage of a certain drug or treatment.

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