Health Care Reform in 2 Short Sentences

Foes of the Patient Protection and Affordable Care Act (PPACA) made a big point of complaining about the length of the bill. Personally, I think that criticism is unfair, because the law deals with a complex industry that’s almost one-fifth of the economy.

But today I read a brilliant two-sentence proposal in the letters section of the Wall Street Journal from David J. Gross, a Florida dermatologist. He was reacting to an article about the extensive cardiac care received by former vice president Dick Cheney.

Before any of Dick Cheney’s heirs get a nickel from his estate, Medicare should be reimbursed for the difference between what it paid out versus what he paid in all these years. This same paradigm should apply to all of us.

(Actually the essence is expressed in just one sentence.)

If we actually implemented that solution it would have significant salutary effects:

* Make Medicare financially viable for the long run
* Improve inter-generational equity
* Instill cost consciousness in Medicare beneficiaries, thus keeping a lid on expenses
* Reduce the need for an estate tax

Of course this proposal would have drawbacks and unintended effects:

* It would cause Medicare recipients to spend down or gift their estate. This phenomenon is well known among patients trying to qualify for Medicaid payment for nursing homes
* It would penalize those who are sickest
* It might cause people to avoid needed care, harming health and ultimately driving up costs
* In some families, it might lead to tensions among the generations
* The rules to actually implement such a system would be lengthy in any case, so a simple solution would turn into a complex one

On balance I think this proposal deserves some serious consideration. Maybe a modified version, e.g., a 10 percent repayment could be tried at first.

David E. Williams is co-founder of MedPharma Partners LLC, strategy consultant in technology enabled health care services, pharma,  biotech, and medical devices. Formerly with BCG and LEK. He writes regularly at Health Business Blog, where this post first appeared.

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25 replies »

  1. Given that health care affects and/or controls 1/6th of the economy, how can one bill manage that without more input from the public. Utter balderdash, and misses the point.

  2. I think until we can actually get the US debt process under control we should leave Medicare alone. I realize the drain on the budget that Medicare currently takes but until we get true leadership and less politics this will never get solved…. How many years have we been talking about fixing Medicare???

  3. “But, if some very wealthy Americans who undergo many very expensive procedures actually take out more from Medicare than they put it, it seems to me fair that their estate should make up for the difference.”

    Maggie –

    I don’t think it would be practical and I don’t think it would raise much money either. First, to calculate how much one paid in, we need to, I think, give credit for the employer’s contributions as well as the employee’s plus a modest invest return (ten year Treasury interest rate) on the combined contributions. Second, where do you set the cutoff to determine at what level of assets one becomes liable for reimbursing taxpayers for “excess” healthcare costs? Perhaps an estate value above the current estate tax exemption ($5 million) might be appropriate. Third, you can’t subject an estate above the cutoff to the entire liability and exempt an estate valued at just $1.00 below the cutoff so there would need to be a phased approach like $5 of liability for every $100 of assets above the cutoff amount. Finally, given the relatively small number of estates currently subject to estate taxes, it wouldn’t raise enough money to make it worth the expenditure of political capital to try to enact it. David suggested that the paradigm should apply to all of us including the middle class but I don’t think you support that based on your quote above.

    As for Dick Cheney specifically, his healthcare costs incurred after age 65 are probably not all that high (yet) despite his LVAD procedure relative to the taxes he and his employer(s) paid in over the years. Remember that he made millions as CEO of Halliburton and he and his employer paid Medicare taxes not only on his salary and bonus but on the value of his exercised stock options above the strike price as well as on any restricted stock awards he received. Even if I were a liberal politician, I would probably tell anyone who proposed this idea that we have bigger fish to fry and political capital is a finite resource. In short, it’s not worth the effort. I would rather raise the capital gains tax back to the 28% level (from 15% currently) that prevailed after passage of the 1986 Tax Reform Act.

  4. David–

    You write: “Before any of Dick Cheney’s heirs get a nickel from his estate, Medicare should be reimbursed for the difference between what it paid out versus what he paid in all these years. This same paradigm should apply to all of us.”

    I totally agree.

    I don’t think that we should “means-test Medicare” because that would undermine support for Medicare among wealthier Americans.

    But, if some very wealthy Americans who undergo many very expensive procedures actually take out more from Medicare than they put it, it seems to me fair that their estate should make up for the difference.

    This would in no way “ration care” (Unless greedy children actually tried to cut the care that their parents received in order to protect “their” inheritance.
    Ideally doctors using evidence-based guidelines—not relatives–would decide which treatments partients should receive.

    • Interesting argument. We should not allow wealthy people to opt out of Medicare and pay 100% of their personal cost and spend no Medicare money, but if after forcing them to be in Medicare they should spend more then they contributed we should collect the difference from them.

      And its fair to force people to pay for insurance they don’t want and if they use pay the difference so it was never really insurance.

  5. In any given year, 5% of Medicare beneficiaries account for about 50% of the program’s costs or a bit less. The healthiest 50% of beneficiaries account for only 3%-4% of costs which implies that the 24 million people in this group accounted for only about $15-$20 billion of spending in the most recent year or well under $1,000 each. Plenty of people die within a few years of becoming eligible for the program while millions of others live to a normal lifespan in pretty good health. Only Medicare Part A was designed to be financed by a dedicated payroll tax while Part B and, more recently, Part D are financed 75% from general federal revenue and 25% from beneficiary premiums.

    In my own case, according to my most recent annual statement from the Social Security Administration, I and my employer(s) combined contributed slightly less than $200,000 in Medicare taxes to date since 1968 excluding investment income that could have been earned had the early surpluses been invested in real assets instead of spent for other government programs. The bottom line is that it’s wrong to suggest that every Medicare beneficiary consumes more in healthcare costs than their combined employer and employee contributions over their working lifetimes. Far from it.

  6. Mr. Williams’ repeating this recommendation is astonishing. Does he not believe that Medicare should be insurance? Or, to put in another way, should Aetna or Cigna or UnitedHealth or Blue Shield or whichever insurer(s) covered Mr. Cheney when he was in the private sector also be reimbursed by Mr. Cheney’s estate after he passes?

    Also, pretty much every Medicare beneficiary claims more benefits than he pays into the system – by a multiple (see Eugene Steuerle’s research). So, everybody’s estate should be clawed back.

    Finally, because there is no cap on earnings subject to the Medicare payroll tax, I’m not so sure Mr. Cheney’s ratio of benefits claimed to premiums paid is as high as the author thinks. Mr. Cheney earned millions in the private sector, thereby paying much more payroll taxes than most Americans.

    • “Does he not believe that Medicare should be insurance?”

      “pretty much every Medicare beneficiary claims more benefits than he pays into the system”

      If every policy holder receives more in benefits then its not insurance John. There is no risk tranfer thus no insurance.

  7. Spending down assets is used in the Medicaid system to be eligible. It drives people into poverty….Spending down assets creates untimely disposition of assets at a much lower value than market values. There needs to be a reasonable t hreshold in the spend down…not to zero. The devil is in the details.

  8. This is sincerely meant as a time saver.

    This premise: “If everyone would be reasonable / fair / like me / etc. we could ____ , and there’s a simple solution to ________. ”

    is a political tautology. If everyone were reasonable, we’d not need government.

  9. One thing I think Medicare could do which would cost little or nothing is to include on each explanation of benefits form (EOB) a line that shows how much Medicare has spent cumulatively on the patient’s behalf since he or she joined the program. I don’t think most people have a clue about how much of society’s resources they’ve consumed and they might be somewhat more sensitive to it if they did. Some private insurers do this now.

    Medicare Parts B and D are already subject to modified means testing which started in 2007 for Part B. Singles that make over $85,000 per year in gross income from all sources and couples who make over $170,000 pay more than the standard premium that everyone else pays. For those with income above $428,000, they pay a maximum of 80% of the actuarial value of the insurance. The problem with outright means testing where eligibility would be denied completely above a certain income threshold is that would erode political support for the program and it would take on more of a welfare tint.

    • That’s a great idea to put the cumulative amount spent on the EOB. Certainly private insurers should do the same. People have no idea what the cost of medical care is.

      Means testing is certainly a discussion we could be having, but the main thing people must come to understand that health insurance – public or private – is a means to pool risks and costs. That means you don’t try to get your money’s worth of care for every year’s premium because this year somebody else needs it, and someday you might.

      So it clearly is in all our interests to spend less overall, on care that makes the most difference.

  10. I have worked in the health care system for several years and now even though I developed a terminal illness, I can’t qualify for disability and I really need it. The reason I first had to quit work was not my terminal illness and I could not get a diagnosis for my first illness for eight years so I was told no disability since I could not prove I was disabled in the first three years after I could not work.
    Anyway on the subject of Medicare, my parents and many of their friends are on Medicare. These people are upper middle class and they use their Medicare benefit as extra money for whatever. But, I reviewed Medicare and Medicaid patient’s records for 10 years and I know many people need it. So America being how it is and all the political power of the NAACP (my parents use all the discounts they can get from them also) It seems like they and their friends think they are entitled to it. Whereas I remember my grandfather refused to take it because he did not think he had paid enough for it.
    I can’t imagine a system where people would have to qualify for Medicare according to their income unless the country goes into a major depression.
    But, I do see a way to save a lot of money so that maybe Medicare benefits will be able to last longer.
    Stop funding all these governental bureaucratic agencies that have uncontrolled spending.
    The Department of Education does little to improve Education
    The EPA, we need to be able to drill oil in our own country and all these restrictions are ridiculous
    Airtraffic Administration-total collision and disaster
    DEA- War on Drugs will never be won and is causing more prisons, cops, lawyers to spend too much time on people who take and sell drugs. I do not have the answer but drug cartels, more guns, gangs all happen because people know that they can make alot of money on illegal drugs. It has the same flaw as alcohol prohibition. Also most people do not know but I know because I have a pain disorder that the DEA and FDA are interfering in physician’s practices so much they are afraid to give narcotics to people who need them. These agencies can’t understand the obvious that if you keep doctors from prescribing drugs, those who abuse them will just get them from an illegal source. They are not stopping anything.
    There are many more bureaucracys out there but I can’t think of them right now.
    If whoever is in charge of all of them (The President) of course not this one would slash all their budgets and get rid of many, costs of running the government would drop dramatically and perhaps we could extend Medicaare also. Also, I can tell you from my experience working on a federal contract and dealing with Medicare and Medicaid there is way too much bureaucracy in those systems. The fat of the administrations needs a big slice. They require physicians and hospitals to do huge amounts of duplication to CYA.
    I do not hear anyone in Washington suggesting these ideas.

  11. That is incorrect Margalit. It is in fact illegal for me to accept payment from the patient for a medicare covered service other than their co-pay or deductible. If I later find out that they have medicare, I must refund them their money and bill Medicare. That’s the law.

      • If the provider opts out of Medicare then they can ask the patient to sign a waiver that allows the provider to bill the patient directly. But the provider then cannot bill medicare for anyone. So the patient can pay cash only by going to providers who are not signed up with Medicare or who have opted out. Not very useful for hospitalization, lab, xray, specialty care, etc. as it is very very rare to find such entities who have opted out.

        • I wonder how Mayo finagled things so they can accept Medicare for everything but office visits….. Perhaps the PCPs were set up as a separate tax ID that is non par and the ancillaries under another tax ID that is participating… Very creative stuff.

    • If you’re non-participating, you can accept the non-par fee in full at the time of service. Medicare will then send the check to the patient. That’s what we do in our office, and it works great for us and the patients.

      What you can’t do, if registered with Medicare, is take payment of more than the non-par fee.

      The docs at the Arizona Mayo Clinic must have severed all ties with Medicare, meaning that the patient will not receive any reimbursement from Medicare to help cover their charges in that office.

      Up till now, Medicare registration was a requirement of hospital privileges, and participation in many private insurance plans (I think Massachusetts requires it as a condition of licensure). Mayo must have made some sort of exception for these docs.

  12. I don’t think it’s illegal for a person over 65 to see a doctor and pay cash instead of producing a Medicare card. Mixing the two is illegal. Allowing balance billing is equivalent to providing vouchers for medical services with no control over the cost to seniors.
    How many seniors that cannot pay the “balance’ will you agree to see? How is this even going to work? Are you going to bill them the “customary” charges like you bill private payers (two or three times the allowable) and then have a bargaining session with each senior?

    Means testing, which is much more realistic than a postmortem Medicare settlement, will strengthen the Medicare fund and increase available resources for all beneficiaries. Balance billing will accomplish no such thing, unless of course it is accompanied by severe cuts in reimbursement rates which will effectively put all seniors on Medicaid and simultaneously provide excellent incentives for doctors and hospitals to not accept them as patients.

  13. Allowing balance billing (collecting that which Medicare does not presently pay or allow the doctor to bill and collect) would have a less destabilizing effect.

  14. I think it would be important to add the provision that it would no longer be illegal for a Medicare patient to pay for some of their care out of pocket. Paying cash and receiving a cash discount would both save the taxpayers money and preserve more wealth for the patient’s heirs.

  15. Nonsense comment although I wouldn’t mind seeing some level of means-testing for Medicare but good luck getting that past in this environment where the Boomers & Elderly control the ballot box.

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