Another Myth that Refuses to Die: As Medicare Goes, So Goes the Nation

Medicare is a big deal in U.S. healthcare: no doubt.

It’s the $683 billion federal program that provides insurance coverage to 59 million Americans, up 3 million from 2015. It covers 16% of the population and accounts for 20% of total health spending today. By 2020, it will cover 64 million and 81 million by 2030.

Its beneficiaries are a complex population: One in six is disabled, two of three have at least 2 chronic ailments, half have an income less than two-times the federal poverty level ($26,200 in 2016), one in four has less than $15,000 in savings or retirement accounts, and the average enrollee pays 17% of their total income on out of pocket health costs (30% for those above 85 years of age).

It’s a complicated program: Medicare Part A covers hospital visits and skilled nursing facilities, Part B covers preventative services including doctor visits and diagnostic testing and Part D covers prescription drugs.

So, Medicare is the federal government’s most expensive health program. It gets lots of attention from politicians who vow to protect it, hospitals and physicians who complain its reimbursement stifles innovation and seniors who guard it jealously with their votes. But policymakers and many in the industry might be paying too much attention to it. After all, 84% of the U.S. population and 80% of our total spending falls outside its span of coverage and responsibility.

Four groups in particular seem to be looking beyond Medicare:

Employers: The January announcement that Amazon, Berkshire Hathaway and JPMorgan would combine efforts to develop a fresh approach to health costs on behalf of the 1.1 million they employ was an attention-getter. The reality is that employers are NOT fixated on Medicare or the next version of health reform to fix the health system. Employers instigated bundled payments, price transparency and accountable care models before Medicare tested these waters. They believe health costs are unnecessarily high due to waste, administrative inefficiency and over-priced physician services, drugs and hospital stays. They were years ahead of Medicare in alternative payment models and they’re not waiting for Medicare to make their next moves. Employers are not following the lead of Medicare; they’re pushing for better care, lower costs, and greater value by making their own rules.

Millennials: The popularity of Medicare has been constant since its passage in1965. Per the American Society on Aging, “since 1996, roughly 7 in 10 Americans have expressed a favorable view of the program.” And that finding holds true across every age group. But there’s a major difference between the views of Millennials (those born in the ‘80s and ‘90s) and Seniors: Seniors care about Medicare’s sustainability but push back from changes that might increase their premiums or limit their access to the physicians they use. By contrast, Millennials place higher value on convenience, affordability, digital connectivity and good service.  They trust but avoid doctors, use apps to pursue their wellness aims, compare notes with their peers via social media and want to know their estimated costs before they begin treatment for their problems. They seek out providers who treat them respectfully, use technologies to maintain connectivity with their patients and are accessible online. Unlike Medicare enrollees, they define health beyond the absence of sickness: for the 92 million in this generation, health is about wellbeing, lifestyle and happiness.  And they’re seeking out providers, facilities and programs that accommodate their needs and preferences.

Investors: The U.S. health industry is capital intense. We borrow, we invest and we operate foundations to secure funding through philanthropy. In the past, much of that capital was used to build facilities and services for the elderly and sickest aka Medicare. Today, capital is being deployed in ventures to manage healthiness and improve efficiency. Solutions featuring artificial intelligence, machine learning, genetics, precision therapies, digital health and facilities more akin to retailing are replacing our predisposition to construct bricks and sticks. And private equity is focused on scale: creating larger organizations via vertical integration resulting in organizations whose scale is national, scope is wide, and value proposition clear. The sources of capital to healthcare do not wait in suspense for Medicare to set a course; they actively surveil opportunities across our industry and make their bets. They’re not waiting on Medicare for direction.

Policymakers: Medicare is 20% of federal spending. Under current law, annual NHE is projected to grow at an average rate of 5.5% per year for 2017-26 to $5.7 trillion in 2026 reaching 19.7% of our GDP. And in this timeframe, Medicare spending will increase 7.4% annually as 10,000 enroll daily in the program. Its outflow is increasing faster than its income from employer payroll taxes (40%) and enrollee premiums (60%). Something’s gotta’ give: lawmakers know Medicare is popular so major changes are unlikely. So, their attention is elsewhere—on bigger Medicaid cuts, intensified pursuit of waste, fraud and abuse, drug pricing reduction and strategies to tackle chronic conditions to avert hospitalizations. Lawmakers opine to the importance of Medicare but look elsewhere for laws that could enhance the efficiency and effectiveness of our system. Medicare is hands-off for politicians. But improving healthcare is on their agenda because it matters to voters.

My take:

There’s substantial opportunity to improve the performance of the U.S. healthcare system. Medicare can be improved, but it’s not the only program that deserves attention.

Many organizations, especially hospitals, physicians, post-acute providers and others, frame their strategies too narrowly waiting for CMS to make changes in Medicare. They develop clinical programs, facilities and services suited for the Medicare population and pay scant attention to others where opportunities are significant.

Medicare is a highly politicized program so changes in this program are incremental. As we have seen for 53 years since the program began, its costs are high and special interests supporting the status quo are strong.

It’s a myth that the future of healthcare in the U.S. is tied primarily to Medicare. Medicare is important, but the future of the U.S. health system will be defined by innovators and disruptors who do not look to the federal government for their opportunities.

Categories: Uncategorized

8 replies »

  1. Very well-written. Today it is a shift from fee-for-service billing to the CCM fee procedures and Chronic Care Management software can more effectively manage Medicare reimbursements. The solution will help physicians to have an increased revenue and at the same time provide quality care for their patients and see better patient outcomes.

  2. The contents of this blog are really very nice. When it comes to Medicare it is always a confusion to me. A myth that I had was the contribution of the policymaker. I thought it must be 30% but it is clear now. I was about to ask this to my insurer https://www.thehealthexchangeagency.com/ but it is already clear.

  3. Don’t you think employers would wholeheartedly embrace Medicare for all? Don’t you think the real “disruptor” would be Medicare for all with all prices pegged at Medicare rates and then all drugs pegged at VA rates.

    Then and only then will the health care industry be forced to run efficiently and we can get our health costs down to about 10%.

  4. Paul is right about the “Medicare is not the center of the Universe” thing. It is an irritating habit of the Washington policy community and their colleagues in the “intelligentsia” to assume that the 20% of the health system they follow most closely is the “whole thing”. However, there is broad based paralysis in the corporate benefits world that has a contributing inertial effect.

    Completely agree also with Paul’s observation about how much room for improvement there is out there. But not sure how much disruption is actually going to happen when the smoke clears . . .As someone who has participated actively in the private equity and venture world as an investor, advisor and board member for more than two decades, the investment community’s track record in health “disruption” so far has been pretty hapless.

  5. A growing consensus views the disruptive processes that determines a person’s Unstable HEALTH as attributable to Social Determinants 40%, Health Behaviors 30%, Healthcare Deficiencies 20%, and Physical Environment 10%. In 1960, national “health spending” represented 6.0% of the national economy (aka Gross Domestic Produce). In 2016, it was 18.0%. The increase in “health spending” during the 56 years has two major attributes. First, there has been a small relative decrease in the “health spending” for 50% of our citizens who use collectively 5% of total “health spending.” And, there has been a very large increase in the level of “health spending” for 20% of the population who collectively require 70% of total “health spending.” It represents a perfect Power Law Distribution Curve. If plotted on a logarithmic graph for both the x and y axis, it would represent a straight line for Health Spending on the x axis and population groups on the y axis.
    This means that there are other realms of KNOWLEDGE, unrecognized to date, who understand the Power Law Distribution dynamics of complex systems. Its possible that there is verified data to demonstrate the benefit of structural changes in the healthcare for very low users of healthcare, that would eventually affect their needs for extremely high levels of “health spending.” Assuming this is true, it is likely that a community by community focus on the Social Determinants, unique to each community will be required to reduce the health spending needs of the group of citizens (20%) who currently use 70% of our nation’s “health spending.”
    see https://nationalhealthusa.net/summary/
    The increasing level of “health spending” and the portion paid by the Federal government is currently on a path to achieve a national debt that represents 200% of the national economy. At that point, the Federal government would be unable to afford the interest requirements for further indebtedness. It would be a state of affairs that Greece has encountered in the last 5 years.

    Universal Health Insurance is definitely a national priority. But, it is basically impossible until we confidently fix the rising level of annual per-citizen, “health spending” to a level that is at least 0.05% less than economic growth, ANNUALLY, for 10 years. By that time, “health spending would reach 13% of the GDP. This change would have represented a decrease of Federal Spending for healthcare by $400 Billion in 2017 alone…the equivalent of fighting 4 Iraqi/Afghanistan Wars in 2005, SIMULTANEOUSLY.

  6. I dont think employers pay enough attention to it. If you watch where the insurers are going, it is definitely in a direction to position themselves to expand their Medicare Advantage business in anticipation of Boomers retiring who are
    much more comfortable with MCOs expanded coverage and rules vs unmanaged fee for service. Medicare cost shifts to the Commercial Insurance sector at an alarming rate as does Medicaid. The expansion of Medicaid under Obamacare at 70M Americans and Medicare at 50M suggests that 120M are already covered under a national health plan.

    A public option offering Medicare under age 65 is likely to be a reality if House and Senate swing and WH goes Dem in 2020. The notion that the private market will self correct or somehow slay the affordability and quality dragon is just not happening. Employers secretly want out. PBMs are raping American business and CMS under Bush decided to trade away our ability to negotiate drug purchasing. A National non profit PBM through Medicare which private employers could access could make Medicare exceptionally relevant.

    The majority of healthcare stakeholders are public for profit firms who make money when healthcare costs rise. How can you possibly suggest the market will solve for this when shareholders require prices to increase to make margins increase. Solving the problems means shrinking the pie. The commercial side can’t sustain subsidizing Medicare and Medicaid and is likely ready to vote for a public option of the CAGR of health costs continue to rise at their current rate and abuses in RX continue.

    As goes Medicare today does not determine healthcare’s basic biometrics in the US today but most assuredly, the Medicare of tomorrow is likely to be the foundation for healthcare in the US. Any provider will tell you that to survive long term, you better find a way to live of Medicare rates of reimbursement – which by the way, are more generous for primary care than many commercial plans. Medicare may not be the “be all” but it could be the “end all”.