THCB

Is Medicare A Good Deal?

Think about everything you will pay to support Medicare: the payroll taxes while you are working, the premiums during retirement, and your share of the income taxes that subsidize the system. Then compare that to the benefits of Medicare insurance, say, from age 65 until the day you die.

Are you likely to come out ahead? That depends in part on how old you are. If you are a typical 85-year-old, for example, you can expect about $55,000 of insurance benefits over and above everything you have been paying into the system. If you’re a typical 25-year-old, however, you will pay an extra $111,000 into the system, over and above any benefits you can expect to receive.

By the way, this is not the sort of calculations you want to try at home on a pocket calculator. It’s too complicated. Fortunately the heavy lifting has already been done by Andrew Rettenmaier and Courtney Collins in a report for the National Center for Policy Analysis and summarized in this chart.

In terms of dollars in and dollars out, Medicare breaks down this way:

  • A typical 85-year-old is going to get back $2.69 in benefits for every dollar paid into the system in the form of premiums and taxes—a good deal by any measure.
  • People turning 65 today don’t do nearly as well — they get back $1.25 for every dollar they pay in.
  • The average worker under age 50 loses under the system — with a 45-year-old getting back only 95 cents on the dollar.
  • That’s better than the deal 25-year-olds get, however; they can expect to get back 75 cents for every dollar they contribute.

Why does Medicare favor the old and discriminate against the young? Because like Social Security, Medicare finances work like a chain letter. Although workers have been repeatedly told that their payroll taxes are being securely held in trust funds, they are actually being spent—the very minute, the very hour, the very day they arrive in the Treasury’s bank account.

No money has been saved. No investments have been made. No cash has been stashed away in bank vaults. Today’s payroll tax payments are being spent to pay medical bills for today’s retirees. And if any surplus materializes, it’s spent on other government programs. As a result, when today’s workers reach the eligibility age of 65, they will be able to get benefits only if future taxpayers pay (higher) taxes to support them.

Just as Bernie Madoff was able to offer early investors above-market returns, early retirees got a bonanza from Social Security and Medicare. That’s the way chain-letter finance works. But in the long run, there’s no free lunch. That’s why things look so dismal for young people entering the labor market today.

The return from Medicare has been very much in the news lately because of an Urban Institute finding that seniors are getting a lot more out of Medicare than they put in. This conclusion is being used to justify cuts in Medicare spending favored by both Democrats and Republicans.

There is no question that Medicare needs reforming. But the Urban Institute paints a picture that is too rosy. That report failed to account for income taxes seniors pay to support Medicare, failed to adjust for the full measure of Medicare cuts under health reform (ObamaCare) and treated Medicare promises as though they are as secure as government bonds, even though they clearly are not.

Regardless of who cranks the numbers, the reality remains the same. The generations who will be hit the hardest by Medicare reform are the same people who weren’t going to get a good deal from the system even without reform.

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allen ethanMGNate OgdenKathleen SchwarzRob N Recent comment authors
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allen ethan
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allen ethan

i have never read such a wonderful article.. thank a lot for posting…

http://goo.gl/GFqVu

Barry Carol
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Barry Carol

It would be counterproductive to maintain significant excess hospital capacity to handle an extremely rare (hopefully) mass casualty event for two reasons. First, it would be prohibitively expensive since hospitals are both capital intensive to build and labor intensive to staff. Second, excess beds create an inclination to fill them with patients that don’t really need to be here. For example, admitting a patient for observation who could be safely sent home or performing surgeries on patients who could do just as well with less expensive care like PT for back pain or medication for stable angina. Primary care doctors… Read more »

MG
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MG

I wasn’t arguing that we should maintain significant excess hospital capacity in urban areas for the likelihood of an extremely remote attack that would cause thousands of casualties.

Barry Carol
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Barry Carol

John – Large hospitals and hospital systems are expanding their roster of employed physicians. A lot of those doctors will continue to work where they do now – outside of hospitals. Many hospitals also own outpatient clinics, imaging centers and physician practices already. As more care moves outside of the hospital, investment in hospital physical plant should shrink. The other facilities will grow. Most doctors who practice in hospitals now are not hospital employees but independent contractors with practice privileges. In the future, many more of them will be salaried employees. Also, to the extent that hospitals assume a leadership… Read more »

John Ballard
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@Barry Carol
Thanks for your reply.
I sense a troll coming on.
See ya later.

Barry Carol
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Barry Carol

Peter – There is no question that some hospitals are paid more than others for similar work and some safety net hospitals serve more low income people as a percentage of their total patient mix than hospitals located in wealthier areas. However, there has also long been excess inpatient capacity in the market. When occupancy rates are consistently below the industry average, revenue is insufficient to cover the inherently high fixed costs of operating a hospital even if the payer mix is pretty good. Also, as I’ve noted before, there is a long term secular trend toward more care being… Read more »

John Ballard
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I have a question.
If the number of hospital beds is declining (as well as number of hospitals, I suppose) where are all those salaried doctors going to work that were talked about in that other post? I thought they were joining hospital staffs but that must not be the case.

It’s reassuring and sensible, by the way, to read that the number of patients opting for palliative care is growing. That’s a biggie when it comes to bending the overall cost curve of health care.

MG
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MG

John/Barry – I would disagree that there is a lot more roon to strip out additional inpatient beds/capacity. Already a bunch has been stripped out since the introduction of DRGs via Medicare. It is pretty much been stable the past few years according to AHA statistics. Where you might see some diminished numbers as critical care access hospitals and certain urban hospitals close in the next few years due to economics/trends in healthcare but that it won’t have a big impact on the overall number of inpatient hospital beds.

Nate Ogden
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Nate Ogden

fewer beds also comes with considerable risk. I forget which European country had greatly reduced the number of beds then had some health crisis like H1N1 or heat wave and didn’t have any place to put them.

Number of beds is not the issue, the cost of maintaining an empty room isn’t that great, its filling beds for the sake of filling beds.

NY would be an interesting study with all the hospitals they have lost, what if we had another 9/11 or worse, what is their excess capicity on any given day to handle mass trama

MG
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MG

The short answer is a resounding ‘no’ because the attention has been to focus on a WMD attack such as by a biological agent that would be slower-developing. There is essentially little/no surge capacity in most ED to treat a large number of casualties simultaneously. http://jama.ama-assn.org/content/302/5/565.full “In spring 2008, the House Committee on Oversight and Government Reform conducted a point-in-time survey of level I trauma centers in 7 US cities considered at high risk of terrorist attack.9 On the date of the survey, responding hospitals were so overcrowded with patients, it is unlikely that they could handle an incident of… Read more »

Nate Ogden
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Nate Ogden

guess that leads to a need for a cost benefit analysis of maintaining excess beds, and the potential for overuse, versus the quality of our field hospitals. With all of our recent wars I would think we would excel at those.

Peter
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Peter

Barry, what type of clientele did those hospitals serve? Appears on research that they shouldered too many non-paying patients and ER to inpatient ratios were too high as well.

“Officials blamed a high rate of poor and uninsured patients as well as cuts in Medicare and Medicaid and the hospital’s inability to negotiate favorable contracts with health insurance companies, claiming their fees were 30 percent below the market rate.”

Barry Carol
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Barry Carol

Peter – Plenty of hospitals have closed in recent years, at least in NY and NJ, and more will close in the future. The most recent high profile example in NYC was the closing of St. Vincent’s after about 140 years in business. As for more cost-effective referrals, greater use of capitation, shared savings and shared risk will drive this. BCBSMA’s alternative quality contracts are an example. While the contracts have been criticized for offering global payment rates that are too high, a leader from one of the large physician groups, Atrius, commented that it will give them a chance… Read more »

Peter
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Peter

“Hopefully, the less efficient and more hospitals will gradually shrink their operations or close altogether over time leaving both hospital bed supply and demand smaller and in better balance than now.” Are you holding your breath over this one? These hospitals will just be purchased by another facility or merge – they won’t go away. “This, of course, is another reason why we need good price and quality transparency tools to help referring doctors and patients to choose the most cost-effective providers.” Why would a referring doctor care about the price of another doctor, they don’t even know their own… Read more »

Barry Carol
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Barry Carol

“common sense tells me that the only hospitals that will go under will be those who have no market power to extract high reimbursements from payers.” Margalit – The marketplace is starting to change as tiered networks and narrow networks gain traction with employers. I think more and more of the powerful hospitals are going to wind up out-of-network over the next few years and employers and insurers will do a better job of informing employees that care provided by these hospitals is, for the most part, no better than what’s available at more cost-effective competitors. For the relatively few… Read more »

Margalit Gur-Arie
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“Hopefully, the less efficient and more hospitals will gradually shrink their operations or close altogether”

Barry, common sense tells me that the only hospitals that will go under will be those who have no market power to extract high reimbursements from payers. These small hospitals may be some of the most efficient ones, which will also drive their revenues down, helping nail the coffin shut.
So the largest, most powerful and most expensive will survive. Same for outpatient.

Nate Ogden
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Nate Ogden

Margalit this assumes insurers are forced to continue to have contracts with hospitals. Tomorrow we could return to scheduled benefit plans and say we pay inpatient hospital days at $x, that is the benefit of the plan, if the hospital wants to charge more they need to justify it to the patient. Problem solved.

Barry Carol
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Barry Carol

Peter – I think tort reform would curb a lot of excess utilization that’s driven by doctors’ fear of litigation. Given the power of the trail lawyer lobby, though, I’m not holding my breath until that happens. At the same time, there is a trend toward more doctors leaving private practice and going to work for hospitals on a salaried basis plus, sometimes, bonus opportunity. Since there is still excess hospital inpatient capacity in many markets, they are going to try to use every tool at their disposal to drive revenue. Among those tools is to use revenue generation as… Read more »

Peter
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Peter

“I’m not sure how to effectively rein in this practice by hospitals hungry for revenue to pay their bills and service their debt while large multi-specialty physician groups are sometimes guilty of a similar practice.”

I thought tort reform was going to curb unnecessary utilization? :>)

Barry Carol
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Barry Carol

rbaer – Conceptually, I really like your description of how to pay all physicians from PCP’s to surgeons by time spent treating patients coupled with a payment rate multiplier to reflect surgeon’s extra training, skill and the complexity of care. I also agree that surgeons doing lots of unnecessary back operations and interventional cardiologists inserting unneeded stents need to be curbed. Those who do too much unneeded care should be identified by payers through utilization review, if necessary, so both referring doctors and patients can avoid them. As it happens, a relative of one of my colleagues is a salaried… Read more »

Kathleen Schwarz
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Kathleen Schwarz

A national health insurance plan for everyone, eg. Medicare for all, would bring real meaning to these conversations about returns on our “investment” into the fund, sensible reimbursement for primary care vs. specialized care, controlling overall expenditures based on societal values, while saving all of us about 25-30% of our health care dollar, eg. that percentage which is pouring into insurance companies, managed care companies and the administrative/collection arms of hospitals and providers. There is excellent information available on sensible care delivery in other nations which spend a much smaller % of their GDP on acheiving better outcomes, with 2-5%… Read more »

Nate Ogden
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Nate Ogden

kathleen go back and read the last two years of comments to disprove all the trash you just wrote. Where have you been to pop up in 2011 making 2008 arguments?

Margalit Gur-Arie
Guest

“Let’s say the PCP deals with low complexity work (ankle sprain) and the surgeon with a complex, multimorbid patient.”

rbaer, shouldn’t this be the other way around?

rbaer
Guest
rbaer

Margalit, That was just meant to be an example. But I would venture to say that most FP docs are neither trained nor willing nor appropriately reimbursed to take care of complex (i.e. really sick) patients, and where I work, most FP do the colds, the sprains, the well child visits and routine checks, the birth control, etc., and the rest is distributed to the specialists (I am not at all saying that’s all easy if done right – it is already a challenge to do the referrals right if you don’t send everyone everywhere as some FPs do). IMHO… Read more »

rbaer
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rbaer

“I wonder how you would propose to set the reimbursement rate for orthopedic surgery, brain surgery, or cardiothoracic surgery vs. a standard primary care” To say it simple, it’s all a question of ratios. Let’s say the PCP has the least training (med school + FP residency, 3 years) and the surgeon the very highest level (say 5 years residency plus fellowship). Let’s say the PCP deals with low complexity work (ankle sprain) and the surgeon with a complex, multimorbid patient. The surgeon would maybe paid 1.5 to 2.5 per time unit than the PCP during the surgery (as a… Read more »