OP-ED

Three Formulas

During the last election campaign, Tea Party-backed Republicans across the country rode to power on a tidal wave of advertising attacking health care reform as a cut in Medicare.  It is. If efficiency programs like the accountable care organizations being formed across the country don’t hold down spending by about $500 billion over the next decade, an Independent Payments Advisory Board would make recommendations for holding growth in Medicare spending to the growth in the domestic economy (GDP) plus one percentage point.

In most years when the economy is humming along, that would be about 4 percent. Over the past decade, health care spending for seniors grew at about 6 to 7 percent — the same as health care spending for the rest of the population. So if the Medicare delivery system reforms don’t work, Congress will either have to adopt the IPAB’s recommendations or institute cuts of its own to ratchet down spending.

This week, President Obama upped the ante to meet his budget deficit reduction targets over the next decade. Medicare spending would be held to GDP plus 0.5 percent, another approximately $300 billion in cuts. About $50 billion would come from eliminating unnecessary errors and hospital re-admissions. The rest was unexplained.

Rep. Paul Ryan’s budget plan, which House Republicans will approve today, does nothing to hold down Medicare spending over the next decade (for anyone 55 or older), and it would repeal health care reform. However, it still counts the projected savings in “Obamacare” since its projected savings are on top of the Congressional Budget Office’s baseline budget, which is based on current law. This is just one of many reasons why Ryan’s proposal has been widely castigated by mainstream economists as flim-flammery (see this report from Macroeconomic Advisers, as mainstream a bunch of economists as you can find. In a note to clients this week, they called the Ryan plan “flawed and contrived.”)

So how do Republicans plan to dramatically reduce Medicare spending in the following decade (the 2020s) for people who are now under 55? He would turn the program over to the insurance industry and give seniors a voucher to buy their plans. The value of the voucher would increase by a rate calculated as the consumer price index plus one percentage point. Since the Federal Reserve Board’s target for inflation is 2 percent, that means Ryan would place the program in a straitjacket of about 3 percent a year — cutting the current medical spending growth rate by more than half. No wonder the CBO projected that within a few years, seniors would be picking up two-thirds of the cost of health care out of their own pockets.

Let’s be honest. This is never going to happen. Republicans, once they’re in power, have no qualms about increasing deficits. We’re in the fix we’re in because they repeatedly cut taxes instead of saving for the future. If the nation simply let the Bush era tax cuts expire at the end of next year, it would eliminate $4 trillion in projected deficits — more than either the president’s or Republican’s plan.

So why do I say the Medicare formula in Ryan’s plan will never happen? Half of seniors live only on their Social Security checks. Their outside wealth is minimal. Given an ever-shrinking voucher, they would wind up buying skimpy catastrophic care plans from the insurance industry and eschew routine coverage, which would have to be picked up entirely out of pocket. It would result in self-rationing based on price — with poorer seniors simply forgoing necessary care. Moreover, there’s no way these catastrophic plans would not start lopping off most expensive end-of-life interventions, where most Medicare spending takes place. Those $100,000-a-year cancer drugs that add two months to life, like Provenge? Fugeddaboudit.

So one wonders. Where’s the “we have to have high prices to fund innovation” crowd — also known as the drug, biotech and medical device industries? You’d think they would be raising holy hell about the Republican plan. Yet I’ve yet to hear a word. Have you?

And that’s why it’s so difficult to take Republicans seriously, and why the deep cynicism that average, caring Americans have about the goings on in the nation’s capital is so justified. Everyone knows the cost control side of the Republican’s Medicare reform will never be implemented. They are eager to turn the program over to the insurance industry, period. But a decade hence, there is simply no way they would allow a CPI+1 formula to go into effect. It would simply be too draconian.

As everyone knows, competition among insurers has failed miserably in holding down costs, witness Medicare Advantage. So the truth about the Ryan plan is that it is privatization, pure and simple. It will lead to rising health care budgets, which benefits key Republican constituencies like the drug and device industries and well-off specialists, as far as the eye can see.

Merrill Goozner has been writing about economics and health care for many years. The former chief economics correspondent for the Chicago Tribune, Merrill has written for a long list of publications including the New York Times, Financial Times, The American Prospect and The Washington Post. You can read more pieces by Merrill at  GoozNews, where this post first appeared.

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Sac LancelBob HertzsteveBarry CarolDerek M. Guirand, MD Recent comment authors
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Sac Lancel
Guest

A Fréjus (Var) où le FN est arrivé nettement en tête dimanche, le candidat UMP Philippe Mougin est sur la ligne “ni, ni”. Il a déposé mardi sa liste pour le second tour des municipales et rejeté des alliances « politiciennes » avec une candidate socialiste et l’ex-maire DVD. Arrivé dimanche en 2e position avec 18,85% des votes, le candidat UMP n’est pas « partisan d’alliances contre nature entre les deux tours ». « Ces petites combines politiciennes sont une manière d’enclencher une machine à perdre. Je reste sur mes valeurs avec mon équipe », a-t-il commenté. Il a appelé l’ex-maire DVD Elie Brun (arrivé 3e… Read more »

bob hertz
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bob hertz

End of life care usually involves an ICU. I guess that if one could tease out what Medicare spends on ICU’s, one would have a start on answering your question. I think that the amount for the last year of life would be $24 billion, but that is a guess. ICU spending may or may not include late life surgeries. To my knowledge, doctors have eased up on doing bypasses for 90 year olds, et al (unless the 90 year old is Gerald Ford.) Dialysis is still done on 90 year olds, I believe. Going back to end of life… Read more »

Barry Carol
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Barry Carol

Bob Hertz —

Do you have an estimate of how much of that Medicare spending relates to end of life care? Just curious. What about defensive medicine?

Peter
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Peter

“However, I believe that the fiscal future of health insurance is driven by the ways we pay hospitals, not doctors.”

Doctors work in hospitals and drive their billings/income/bonuses.

“Our first priority should be a national fee schedule for hospitals, that is livable for them and for Medicare.”

Agreed, but that would be a national/state single-pay system.

Bob Hertz
Guest

The struggles between doctors and insurance companies are important to document, as in the posts above. and in critiques of ObamaCare’s Medicare price commissions. However, I believe that the fiscal future of health insurance is driven by the ways we pay hospitals, not doctors. When I dig into Medicare claims data, I come up with over $300 billion out of $468 billion either being paid directly to hospitals, or being paid to drug companies, equipment companies, surgeons, et al for things that go on inside hospitals. It appears that Obama promised to essentially leave hospitals alone, in order to get… Read more »

Gary Lampman
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Gary Lampman

What I’m trying to say from a Providers positon should not have to commit fraud to receive the exact amount they are owed. Instead of charging $125.00 to receive $20.00. If the differance is $20.00 after co-pay ,You charge only that amount. It looks like smoke and mirrors,But patients know they are being shafted. Even Doctors roll their eyes over the ridulous high pricing to get a Crumbs from Insurance. Often times Insurance skips out of Paying Providers all together. Simply because they can and if the provider says anything ; they are black balled. These Global Rate charges are… Read more »

Barry Carol
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Barry Carol

“So either those who currently apply to medical school adjust their expectations down to more reasonable numbers, or they take their immense talents into other fields, where I guarantee that most will end up making much less money over an entire carrier.” Actually Margalit, many of them would probably do very well financially in the so-called FIRE sector – finance, insurance and real estate assuming they have decent numbers and analytical skills. Of course, these jobs also come with far less job security than doctors enjoy. When downturns occur, many people find themselves laid off from six and even seven… Read more »

nate ogden
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nate ogden

its not the assignment of benefits that prohibits balance billing it is the PPO contract, and even that doesn’t carte blanch prohibit balance billing. If the payor/group doesn’t comply with terms of the PPO access agreement, i.e. payment in 30 days, the provider contract usually allows for balance billing by the provider. Assignment of benefits is just the employee giving their right to reimbursement to the provider subject to terms and limitations of the plan. If people demanded a copy of their bill they could get one, for so long people never cared it just isn’t pratice to provide it.… Read more »

Margalit Gur-Arie
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Kaiser is different, Nate. There is one price billed and the same price paid. For non-integrated systems, the price billed does not resemble the price actually paid, so what is the point of giving the patient an inflated bill at the point of service?
Surely you don’t expect the patient to pay that and then get a refund from the provider once the insurer paid its contracted price.

Gary Lampman
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Gary Lampman

Thanks Nate, I always paid as i went along.

nate ogden
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nate ogden

Assignment of benefits is not between you and the insurance company, its between you and the doctor. When you go to the doctor or hospital you owe them for services rendered. Instead of paying them right then they will accept assignment of your insurance proceeds. If you don’t sign over your insurance benefits then you would pay them at the time of service and submit the claim yourself to insurance and you would b reimbursed by the insurance carrier. It wasn’t until the 80s that assignment became common, even into the 90s many policies were reimbursement. Undoing assignment of benefits… Read more »

Gary Lampman
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Gary Lampman

A million out of 50 million didn’t care about the Details of their Loans. Please do not group myself in with those million people who trusted their agent to give them a square deal. Unlike those million , I know that people and business’s cannot be trusted;when it comes to profits. The latest recession had proven it. Regarding your comment about health insurance and I’m speaking of Group health Insurance. The option is to accept or decline Health Insurance. I have never seen and /or had that option that my employer had agreed to fund. Interesting though, Could it be… Read more »

nate ogden
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nate ogden

” For example, although it’s not common, some of the more restrictive health plans may prohibit physicians who terminate their contracts from seeing their members for a certain period of time.” not common but in a very rare circumstance a doctor who terminates a contract instead of waiting for it to expire, wow Peter lets argue about the 1 in 100 million case, wouldn’t want that to happen. We owned a PPO, that is the contract that would prohibit a provider from seeing patients if one ever really did that. ” The truth is No reasonable person would buy a… Read more »

Gary Lampman
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Gary Lampman

Its not that patients want to control the prices and I think they realized how bloated and artificial that Charges made by the Doctor; nets far less returns because insurance has been able to low ball or to skirt compensation all together.The Provider has no recourse because of their contracts; except to have the patient file against Insurance. When it takes $125.00 charge just to collect $20.00 from a patient visit .Each insurer pays differant prices and even the doctors are clueless how the system works. However, it would be my guess that most of them don’t care as long… Read more »

Gary Lampman
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Gary Lampman

As nate says there are no secrets except you have to have the procedure to find what the EOB says it contract agreement . The truth is No reasonable person would buy a car or Home without learning the the details of the purchase prior to closing. Thus I will maintain that prices are secret. This position of providing services and billing latter is counter to what a reasonable person would expect before any purchase and /or service. Now I suspect that Nate would say that subscribers do not need to be concerned or have knowledge of these contractual agreements.… Read more »

Peter
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Peter

“You sure about that? I’m looking at my contracts and I don’t see any such language.” Not sure about “your” contracts since I doubt they are the same ones doctors see from insurance companies. My information came from a doctor who attempted to go into a cash pay practice. He had to take a sabbatical in order to see his prior insurance patients, or start from scratch in establishing a new practice. “A careful review of health plan contracts is essential to determining whether a cash-only practice could work for you. A cash-only practice, particularly one that serves patients with… Read more »

nate ogden
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nate ogden

“You’d be hard pressed to develop a list of insurance payments from EOBs,”

Ya not like there is some common interface where mllions of people could all go to post information right? If only there was a place that aggregated data from millions of people then displayed it for all to see, if only technology would advance and provide for us right Peter?

Margalit Gur-Arie
Guest

Why? Why should millions of people have to go to a website and post their EOPs for thousands of different providers, per hundreds of payers in dozens of states?

Insurers know by and large what other insurers pay providers. Why can’t providers have the same information, and why on earth can’t people have that information in an open and orderly fashion, without having to pool their receipts in some makeshift website?

Who benefits from this absurd semi-secrecy?

nate ogden
Guest
nate ogden

The grocery store knows what other grocery stores charge, why should I have to go store to store and compare? Why do they make me clip coupons to get the items at a fair price, if they are willing to sell it to me for $1 off they should just sell it to everyone at the lower price.

A car dealer knows the bottom price it will accept why doesn’t it just charge me that amount. Why can’t I know all the price options for everything I buy?

Margalit Gur-Arie
Guest

You’ve got to be kidding, Nate.

The parallel to a grocery store would be that when you walked in, there are no prices posted on any product and you only find out what your cart is going to cost after you get home and cook and eat the food, when the grocer will be sending you a bill.
To combat this, grocery store shoppers would need to start a website and upload their bills, so other folks would know what the cereal box costs before they put it in the cart.
Does this sound like a workable solution to you?