Much More Reform Needed for Medicare?

This week’s startlingly gloomy annual report from the Trustees of the Medicare Trust Funds lent new urgency to the need for further Medicare expenditure reforms. Whether Washington DC politicians will respond with more than sound bites is less likely.

The Trustees’ report shows a dramatic deterioration—even based on the most optimistic assumptions— in the financial position of the Part A Trust Fund, along with expectations of continued faster-than-GDP growth for Parts B and D.

Compared with the prior year’s Trustees’ report, which forecast that the Part A Fund would run out of money in 2029, the latest report estimates that the fund will dry up in 2024—five years sooner. The reasons for the sudden acceleration of financial disaster include a significant drop in revenues from taxes on workers’ earnings due to the ongoing recession, and new forecasts of longer life spans for beneficiaries.

The report also includes new forecasts for Medicare Part B and Part D, which operate on a pay-as-you-go basis using mixes of beneficiary premiums and general federal monies. While Parts B and D will not exhaust their respective trust funds, they will have increasing impacts on the deficit as their federal subsidies are forced to increase. Medicare B costs are projected to grow at a 4.7 percent annual rate (based on current law), and Medicare D at a 9.7 percent rate through 2020, compared with forecasts of 5.2 percent annual GDP growth.

Unfortunately, the preceding estimates are optimistic ones, and assume both the imposition of the physician rate cuts required by the 1997 Balanced Budget Act, and the implementation of all cost controls included in the Affordable Care Act.

No-one, and obviously not the Medicare Trustees, believes that Congress will allow the impending 30 percent slashing of physician fees to take place. Far more probable is that Congress will—as it has every year since 2003—choose to duck what would otherwise be a draconian reduction, one that would lead to a wholesale exodus of doctors from Medicare. Assuming that Congressional behavior does not suddenly change, Part B cost increases will jump to a 7.5 percent annual rate, not the wildly optimistic 4.7 percent.

Almost as unlikely is that the Part A cost controls included in the Affordable Care Act will all be implemented. The primary mechanism—the Independent Payment Advisory Board—is already under fierce political fire from Republicans. Even if the IPAB survives, both its appointees and its recommendations depend on approvals by a Congress that has shown no willingness to make difficult cost-cutting decisions.

And that’s the problem. House Budget Committee Chair Paul Ryan’s proposal for shifting much more of Medicare’s costs to beneficiaries has been disowned by his Republican colleagues—and given Democrats a huge political gift. The IPAB is under fire and could be dumped. Earlier, more nuanced proposals, like those from the co-chairs of the 1999 Bipartisan Medicare Commission, have died for lack of political support. With an election beginning to loom, and both parties looking to the senior vote, the chances of responsible bipartisan solutions seem far, far, away. Meanwhile, Part A and the federal deficit are rushing towards their respective precipices. It’s political bankruptcy in every sense.

Roger Collier was formerly CEO of a national health care consulting firm. His experience includes the design and implementation of innovative health care programs for HMOs, health insurers, and state and federal agencies.  He is editor of Health Care REFORM UPDATE.

13 replies »

  1. My comment from last Friday may be showing normal to others but it still reads “Your comment is awaiting moderation” when I link.
    If it’s in moderation purgatory either publish or delete it. And if it’s published already someone needs to get a bug out of the system.

  2. Note to self: No more hot links in comments here after 4:30 PM Fridays. Spam filter makes moderation automatic and the blog apparently goes on automatic pilot while the office is off for the weekend. Mon-Fri only for links in comments.
    (No big problem since comments threads are the bottom of the food chain and rarely get read by many even on a good day.)

  3. Nate thanks for the response! My understanding of insurance is to share risk and in the case of health care the risk pool we are supporting is everyone in society or at least that is what politicians want Americans to believe. We can all get health care if no where else at the local emergency room!! Unfortunately our health care costs much more and provides much less than any other developed country. The rest of the economically advanced world has trouble with health care costs as well as we do but does not have bread lines and does have better statistics. They even have some insurance companies but the executives do not make multiple million dollar salaries and their chief goal is to provide health care not maximize shareholders stock values. Of course there must be overhead but I hope it would go to increasing transparency and determining where the money is going and why our costs are so high. There needs to be much more oversight into who is doing what and why. That is why I advocate the cost per provider per patient per unit time be published on the internet. At least for all public monies, my taxes. The Wall Street Journal has asked for this and exposed some possible excesses which I believe and you seem to suggest is just the tip of the iceberg. The diabetic patient we sent home from the Emergency Room who is supporting his family on $20,000 a year did not have the money to get his medicine, his tests done, his office visits or at least he did not chose to do so and came back two weeks later in the same uncontrolled state and ran up another $1500 charge in the ER. Now if you support letting him suffer for his irresponsibility or lie on the street with his heart attack because he has no funds many would support you. However even Switzerland and Taiwan have found it more economical to provide health care for all their citizens without enriching just a few corporations and shareholders.

  4. I strongly agree with your point about the national level. The entire reason our republic was so successful is we allowed for 58 states to do their own thing. Its when we started dictating from the federal level that things start to fall apart.

  5. bjceffola,

    Medicaid is/was single payor and while it controls cost due to the requirement it not incur debt in the traditional sense it has been a complete failure for quality. It is also heavily subsidized by private insurance.

    You don’t need single payor to have a pact that providers get paid. Private insurance pays providers, the problem is the burdens placed on it by failed Medicare and Medicaid and terrible legislation from politicians that have no idea what they are doing.

    “the terms and conditions subject to public negotiation.”

    Are you familiar with the history of Medicare? This is how they got providers to agree to it, the original bill required public negotiation, 5 years later when cost were out of control and all competition was killed off they rewrote that part of the law and providers now have compensation dictated to them. Luckily they still have 70% of the market in private insurance to make their living off of. What happens when they don’t have any other option? We get Canada, where doctors are now fighting for the right to open private pratice and bill patients direct.

  6. “make it be what ever level of health care America wishes to support.”

    What America wishes to support or what the bottom 50%+1 wishes to take from the remaining 49%? How many communist bread lines do we need to see before people learn this doesn’t work? If people are getting it for free they are always going to want more.

    Hu do you know what insurance is? The purpose of insurance is financing and risk management. Saying we should have 100% loss ratio is as stupid as saying there should be no cost to tax collection. Get rid of the insurance company, now how do you pay for medical care? Who’s going to collect those taxes are they going to do it for free? Is 100% of taxes going to go to heathcare, none of it will be redirected for other pet projects? No one is going to avoid their taxes? 20% overhead would be cheap compared to tax funding. What’s our current tax avoidance rate?

    Here is some reading for you Hu;

    “More than 90 percent of all U.S. corporations have assets of $1 million or les s and, therefore, bear tremendous relative compliance burdens. In 1991, as a group, these small corporations had to pay at a minimum $382 in compliance costs for every $100 they paid in income tax. They bore about $14 billion in compliance costs for $3.7 billion in income taxes. (That represents about 4 percent of corporate income taxes paid and about 90 percent of the minimum measure of the corporate income tax compliance cost.)

    Clearly, that is a poor cost-benefit ratio from a public policy viewpoint. In fact, a reasonable cost-benefit ratio applies only t o corporations with $250 million or more in assets, the minute fraction that pays three-quarters of the income taxes. These big corporations pay about $3 in compliance costs for each $100 of income tax liability. This 3 percent ratio is comparable to what research has found in the United Kingdom and Australia. In 1991, if a cost-benefit rule had existed to hold compliance costs to 3 percent o f income taxes paid, corporations could have saved at least $42 billion on their income tax compliance costs; businesses overall could have saved about $78 billion.”

    To save 20% in insurance overhead you want to add 76% in tax compliance cost, brillant.

  7. Nate, I think the key element in single payer reform is explicit and public cost control. It is essentially a pact between the public and care providers: providers provide care and people will pay for it, the terms and conditions subject to public negotiation. The funding is of secondary importance, so much so in the case of Vermont it wasn’t included in H202.

    I think this approach is wise, you can make health care more affordable by regulating price and delivery regardless of funding mechanism, and without cost control health care won’t be affordable no matter the funding mechanism.

    The problems of Medicare reflect scale, I don’t think a single payer plan can be done at the national level. The fact that the federal government doesn’t have to balance it’s budget (unlike states) makes it too tempting to blow off honest pricing. On that score Sanders is off, better to offer states support in building their own systems then to impose one national system across the board.

  8. Absolutely bring in a value added tax to cover universal health care and make it be what ever level of health care America wishes to support. It might help to first make transparent where we are spending the money by publishing on the internet the total payment per patient per year of all providers who are dipping into public payments such as Medicare and Medicaid and tax subsidized private insurance. Then decide if we really want to pay 20% to insurance companies and management that provide no medical services. Why not have the “Medical Loss Ratio” money spent for actual healthcare be as close to 100% as possible?

  9. I agree that as long as the costs of medical care continue to rise faster than the rates of inflation and/or GDP Medicare is “unsustainable” as we know it today.

    I do not agree, however, that it is now “insolvent” (with an “e”) because it IS currently paying out what it is supposed to. It is true that if nothing is done to control either benefits or charges being submitted for payment the trust fund will be depleted in a short time, but even then the word insolvent is not accurate. Worst case scenarios project the program will pay out 75% of costs about 2036 and that percentage will steadily rise to about 90% as the baby boom dies off. Poor expectations to be sure, but hardly in the category of “insolvent.” which means completely unable to pay anything. at all.

    Clearly there is a problem, but scrapping the system without first making a few tough adjustments is both risky and .short-sighted. Besides, the challenge is not how the bills are paid (Medicare, single-payer, MSA’s, vouchers, private insurance or some hybrid thereof). The real problem is the continuing surge of costs being submitted for procedures, referrals, tests, drugs, durable medical equipment, home health care, therapies of endless types and the list goes on and on.

    Here is a link to a great overview of what has happened to medical care during the last fifty years. Read it and weep.


    My personal remedy (politically unrealistic) is derived from a couple of ideas advanced by Andrew Sullivan and Ezra Klein. Sullivan mused that “If everyone aged 40 or over simply made sure we appointed someone to be our power-of-attorney and instructed that person not to prolong our lives by extraordinary measures if we lost consciousness in a long, fatal illness or simply old age, then we’d immediately make a dent in some way on future healthcare costs.”

    Ezra Klein noticed what Sullivan said and added “What if, to be eligible for Medicare, you had to give someone power of attorney and sign a living will?”

    I go them both one better.
    I say find a way to reward any beneficiary who voluntarily executes advance directives for health care and appoints at least three agents with POA to make medical decisions in the event of incapacity.
    This isn’t a complicated problem It is, however, very much like substance abuse with a vast number of people in denial.

    Here is a link to an excellent example of advance directives for Georgia but I’m sure other states have equally good arrangements.


    It’s time to quit all this carping about how we pay bills and find a way to stop having so many. And the biggest financial hemorrhage is at the last months of life. I came across a grim joke that the reason coffins have nails is to keep out the oncologists. Anyone who has done their homework knows, the biggest expense we face is the delusional idea that dying is optional. It ain’t. And that, my friend, is an incontrovertible fact.

  10. you can’t have difference of opion about facts. You can’t honestly advocate Medicare for all as a solution while knowing it is unsustainable and insolvant.

  11. How is it we have a post like this right below Sanders calling for Medicare for all. How can people be that detached from reality?