So it’s done. The Medicare bill passed the Senate this morning 54-44 with the votes of enough conservative Democrats to ensure an easy passage. My suspicion is that there’s a lot less here than meets the eye. However, Tom Daschle (who’s continued tenure as Minority leader in the Senate is already in doubt) was the first to notice that 

"This is not the final vote. This is the beginning of the end; it is not the end. We will see many many more votes. I predict that we will be back within the next 12 months. Seniors will demand that we respond to the many deficiencies of this bill, and they will not rest until we address them.”

I don’t think it’s necessarily 12 months, but there’ll certainly be many more attempts to amend Medicare in the next 1-6 years. We won’t see the program left alone as we have for the last 6 years. However as several of the cooler heads in the health care blogsphere have been commenting, the drug benefit is relatively limited, the competition and premium support aspects are minor tinkering (for the moment!), and the boost to the program in terms of budget will eventually need cuts elsewhere or new funding sources. The important questions are:

1. While this is an immediate win for the Republicans, as the news filters out about what’s actually in the program, who wins politically out of this in the next 12 months? My suspicion is that this bill is net bad for enough seniors that the Democrats do. Of course given Iraq et al it may not matter.
2. How much does the pharma and PBM industry benefit? Again this depends on the details of the implementation. Particularly how over time who aggressive will the government force the PBMs to be with the pharmas on price? Volume will clearly go up.  Will prices come down to match or not much?
3. Will employers maintain their drug benefits for their retirees? That’s the question that both matters most politically and also determines to some extent how popular and therefore how expensive the drug benefit will be.

Well, the bill is going to make it.  The dissidents in the Senate led by Kennedy could only muster 29 votes in favor of a filibuster (they need 40).  So the bill will pass tonight. Drug stocks and PBM stocks rallied yet further on the news–here’s Caremark’s performance–note the bump in price and volume around 2pm EST.

So I was wrong about this one.  I thought that it would get past the House easily and die in the Senate.  But in fact it was (almost) the other way around.

This is immediate very good news for a smallish subset of poor sick seniors, rural hospitals, pharma companies and (probably) PBMs.  It’s good-ish news for doctors who got a 1.5% hike as opposed to a 4% cut in Medicare payments for their support, and employers who will now start to get subsidized for something they were doing anyway. It’s not such  good news for Medicare recipients who already have drug coverage and now will probably be pushed by employers into the Medicare system. And, as for the taxpayer, as the conservative Republicans who voted against it claimed, we’re witnessing the birth of another, potentially out-of-control, Federal spending program.

The longer term implications for Medicare depend on the details of the bills that will amend this bill in years to come–and there will be several.  The shorter term implications are about how this will play out for seniors in next year’s elections. Is it "Drug coverage" or "The end of Medicare"?

As I go to bed late, late Sunday night it looks like the Medicare bill is going to avoid a filibuster and get through the Senate.  Go see Don Johnson at The Business Word for the latest news. Meanwhile here’s a chart showing how much impact the bill will have on seniors’ drug costs.  As I remark in some comments over at the Bloviator, it really only helps those poor seniors who are currently paying $2-4,000 a year and are literally deciding between food or drugs–and those with drug costs over $5,000 for whom it is a good catastrophic drug insurance policy.  For the larger majority  of seniors paying less for drugs or those with higher incomes, this bill doesn’t do too much.  It also looks like it’ll reduce employers’ support for Medigap policies. I suspect that the politically unpopularity of that feature of the Bill will come to bite the Republicans in the 2004 election. In any event watch for more vicious politicization of Medicare’s future in its representation to seniors in the coming days and weeks.

And in a rare Saturday posting . . .

After some real hard core arm-twisting, (plus leaving the voting open for 3 hours), at 6am this morning the House passed the Medicare Bill 220-215. It looked like it was going down 218-216 for over 2 hours when finally the Republican leadership got 2 of their holdouts to cave (and then a couple more committed).  I suspect what they say about watching sausage and watching legislation being made applies here!

We should know about the Senate by Monday. My suspicion is that it has the straight up and down votes to win, so it’s a question of the filibuster being used.  Just as it was in the Energy Bill.

It’s impossible in a brief post to capture the full essence of the current Medicare bill. (Although Jeanne Scott’s latest newsletter tries very hard)! In a few days we’ll know whether it has the votes to make it in the House, and whether it’ll survive a potential Kennedy-led filibuster in the Senate.  And of course this doesn’t happen in a vacuum–there’s the small matter of the $25bn barrel of pork known as the Energy Bill that also has to go through the vagaries of the Senate.  However, leading aside the lack of price controls or caps in the pharma section of the bill, it’s worth looking briefly at the two of the most contentious issues. 

Competition: The Republicans want to put Medicare into competition with private plans. This has though been tried before, and after a promising start, it began to die a death. A report from the Commonwealth Fund, suggests that there were many problems with the 1997 attempt to introduce private plans into Medicare, known as Medicare+Choice.  The two most important are that the private sector’s participation is not stable, and that the private plans don’t cost any less than traditional Medicare.  Due to plans pulling out, participation has gone down from 15% of enrollees to only 11%. Realistically it’s impossible to say what the environment will be for the competition slated to be introduced in 2010 in 6 cities.  But there’s no guarantee that it will kill off Medicare as we know it or even that it’ll work.

Cost Containment: Also  buried in the bill is an overall cost containment strategy.  The Bill provides $400 bn over 10 years in increased spending. Via a complex formula, if this limit is broken and if more than 45% of Medicare  funding comes out of the general fund (because Part A via the payroll tax and Part B via premiums are not bringing in enough revenue), then Congress has to either cut Medicare spending or increase taxes. (I hope I got that right, but you can be sure it’ll be changed by the time it happens). The only certainty is that estimates like this will be wrong–original estimates for Medicare spending back in 1965 were something like $4bn a year and very soon they were off by a factor of 10, I believe! However, I’ve seen estimates that the spending cap will hit in 2008-20016, so again this is putting off the real issue into some future never-never land.  But I did notice this report from Health Affairs which suggested that hospital spending will rise 75% by 2012.  I’m unsure as to whether that will get included in the overall spending that triggers the cut, but as hospital spending is what Medicare Part A is for, I assume so. In any event there’ll be a big issue with hospital spending somewhere out past 2010.

Of course the politicos who are voting on this bill will mostly be out of the picture by then, and the bill doesn’t take effect at all until 2006. Its most important political implication–the impact on the senior vote in Florida and Pennsylvania in 2004–will not actually have anything to do with what actually happens, but will hinge on what the perception of the bill’s effect will be. And of course the votes in the next few days will be based on guesstimates of what that perception will be whether the bill passes or not.

For much more go see Don Johnson’s almost minute by minute blogging at The Business Word

I’ve been engaging in some comments over at DB’s Medrants on some articles by the Hoover Institution’s Thomas Sowell in which he has been essentially defending the status quo (albeit in what I think is an intellectually weak manner that ignores economic reality and lies about other countries’ systems). So it’s good to have an innovative solution to our health care crisis proposed by America’s greatest health economist–and it’s a bonus that he used to practice right around the corner from Sowell at Stanford’s economics department. In an article called The Universal Cure, Vic Fuchs and Harvard medical ethicist Ezekiel Emanuel propose a way to get to universal health insurance while maintaining the pluralism and innovation in the current system.

On a personal note, I had my first health economics class with Victor Fuchs (a bit like having Tiger Woods give you your first golf lesson) and I was actually at a presentation of the first version of this proposal, which he gave some ten years ago. He has been advocating common sense in health economics for ever, but had been loathe to develop a systemic solution–after all he saw his friend Alain Enthoven having to defend his managed competition theory for his whole career. Finally around the time of the Clinton plan, Fuchs did come up with a policy solution. The way he talked about it was that America held two values:

1) Everyone deserved a basic health insurance plan.
2) You should be free to buy what you want.

His solution was what he called the Ford Taurus plan.  He asked the crowd if anyone had bought a Ford Taurus recently. Someone had.  "How much was the basic model?" $15,000 was the answer. "How much did you pay?" $19,000. "What was the most you could have paid with all the extras, the new stereo and the biggest engine?" Perhaps $24,000. Fuch’s conclusion then? Have a dedicated (sales)-tax that gave everyone a voucher for the health insurance equivalent of a Ford Taurus, and let those who wanted more services pay up with after-tax dollars. (Here’s a brief interview he gave about it at the time)

That’s essentially the same as the plan proposed in this article. Employer-based insurance would end. Instead all under-65 year olds would get a voucher and then choose a health plan.  If you want more services you pay up out of pocket. In a nod to the political process, Fuchs & Emanuel argue for phasing out Medicare very slowly by keeping those who "age-in" with the voucher system. They would also force all plans to offer the same basic insurance package for the price of the voucher, and would have a national board certifying that no games were played over risk-selection.

As an (amateur) economist, I like the dedicated tax idea, because it puts a visible real cost on health care for everyone, and allows us to have a rational debate about how much that tax should be. I also like the concept of keeping innovation and dynamism in the system by keeping health plans and providers competing. It’s also worth mentioning that a private system with multiple actors would be very hard to defraud as opposed to having a straight single payer like Medicare.

Most importantly Fuchs and Ezekeil believe it might actually work politically, as with some touching faith they point out:

Vouchers hold the promise of securing wide support. Democrats have long favored the notion of universality, while Republicans instinctively favor voucher plans and have longed for the demise of Medicare and Medicaid. Businesses want to stop providing health insurance, and Americans want guaranteed health coverage with choice.

Unfortunately I can’t share their confidence.  The same arguments that the Democrats are using about turning Medicare into welfare might be true under this system, as over time the value of the voucher might fall to the extent that only the very poor got the "basic" plan. Meanwhile the inside health-care business Republican lobby would dislike the notion of having so much of their income based on a tax that was visible and, in the end, controlled by the public–even though in other countries the electorate has often voted to increase the level of government spending on health care. And of course, the getting "to" vouchers "from" employment-based insurance would be a huge bun-fight.

But what Fuchs does present is a rational solution for overcoming the objections to universal health care, without extending Medicare to everyone. As such it deserves to become part of the debate–much more so than Sowell’s ramblings.  But such a solution will be bogged down in details if it’s proposed by a politician. So sadly, I think we’ll see this great idea sink without trace.

The AARP’s endorsement is supposed to have sealed the Medicare Bill–but just take a look at this message board which spews vitriol towards AARP from its own members! Hundreds of messages here are all opposed to the Bill. I picked this one at random:

Who can we turn to for help when AARP stabs us in the back?  How can you support a proposal that enriches only private insurance and pharmaceutical companies, leaving seniors with a broken Medicare program?  Shame on you.

Meanwhile, despite a down day on the stock market the drug stocks and the PBM stocks held steady, consolidating their gains of last week.  So Wall Street is convinced that the bill will get by.  To be fair, the "non-controversial" part of the bill–the new drug benefit–is fabulously loaded towards pharma companies and PBMs, for now.  And as a separate package that would pass on its own.

So while the news says that the bill is out of conference on Friday and has enough backing to get through, Ted Kennedy basically said  on Sunday that the Medicare bill wasn’t going to make it past him in the Senate. Frist and Hastert meanwhile are trying to broker a bill, without upsetting their conservative wing who (correctly) believe that this bill is a recipe for more cost-unconscious spending in Medicare.  On the other hand as explained at length already here and here, the liberal Democrats and some liberal Republicans like Olympia Snowe are opposed to (or at the least very wary of) the introduction of cost controls or competition/premium support. Jeanne Scott has written a full newsletter this weekend about Medicare (and if you haven’t subscribed yet….). What does she make of all this?

Just Between You Me. Never ever step on Bill Thomas’ toes!  The sometimes curmudgeonly, but always very powerful, Ways and Means Chair, is reported to believe that the proposal does not do enough to make Medicare fiscally sustainable. And he definitely was not happy that a deal had been cut over his head. Walking with his feet, Thomas left the conference room, threatening to fly home to California rather than accept the imposed deal. Later he was reported meeting with House Energy and Commerce Committee Chaircritter W.J. "Billy" Tauzin (R-La.), hoping to draw up an alternative to the Frist and Hastert’s proposal. The Republican criticism raises the possibility that, if Mr. Frist can’t hold his own party together for the deal, that it won’t survive a yes-or-no vote in the Senate, let alone a filibuster situation demanding 60 votes to cut off debate. Don’t hold your breath on passage by this coming Friday.

So Where are We After All of This? Conservatives say the cost containment and market components of the bill do not go far enough to hold down spending as baby boomers strain the program’s spending. Liberals say the reforms threaten the very existence of Medicare and constitute the first step toward privatizing one of the most popular government social programs. Don’t hold your breath, but there may be life in the old gal yet.

My sense is that Medicare remains unreformable given the parity in the Congress and the huge political gulf between the Conservative House Republicans and the old style Liberals in the Senate.  But given that the election next year is going to be about Iraq and the economy, I’m not sure that Bush is willing to over-ride his fiscal conservative allies on the fiscal issue in order to get a bill through at any cost. Meanwhile, the bill’s lack of popularity with many seniors is probably enough to sustain a filibuster, so that Ted Kennedy can claim that he saved Medicare.

My guess is that nothing gets by this week. And thus I’m now officially short one of the PBM stocks (in a tiny and cautious way!).

Update The Business Word has another take on this, and I’m glad to say that Donald Johnson over there has been blogging much more regularly of late.  But he too believes that the bill may not happen.  I’m sure we both agree that it’s disapointing that what is a necessary reform for Medicare (adding drug coverage) has been so politicized.  However, AARP’s endorsement may not be such a great thing, especially given the questionable popularity of the bill amongst middle income seniors.  Here’s Jeanne Scott on AARP’s last intervention in Medicare drug coverage:

A while back the Bloviator and I had some discussions parsing out the 2002 uninsurance numbers. There was some controversy (that the two of us settled to our satisfaction, at least) about those numbers from the census bureau to do with how many of the 43 million it counted as uninsured were uninsured for the whole year. Now Health Affairs has published a Commonwealth Fund-sponsored article by Pamela Short and Deborah Grefe at Penn State that examines in great detail uninsurance between 1996 and 1999. While this data is of necessity a little old, you must remember that we were in an employment boom then–so things were as good as they were ever going to get for employment-based insurance in the modern economy–and also that things are worse now.  Still, onto the highlights.

The authors looked at large slice of the non-Medicare under-65 population which had approximately 225 million adults.  (It excluded immigrants, newborns and some others). Out of that 225 million number 84 million (37%) were uninsured at some time in the 4 years. Of those 84 million roughly 15 million (or 6% of the total) were more or less uninsured the whole time. As for the rest, the authors use a fairly complicated 6 way breakdown which I will grossly over-simplify into the fact that 50 million were uninsured for 5 months or more during that four year period. Roughly 32 million of that sub-group (64%) were uninsured for at least a year or more. If you are counting along at home that leaves another 20 million who had one or more short breaks in their coverage of less than 5 months.

So in my assessment, what’s new about this research? 

1) Well it’s usually assumed that at any one time 20 odd million are uninsured for a whole year (a little less than half the 43 odd million uninsured at any one time).  But if you take this rolling view rather than the snapshot, you have 15 million hard-core uninsured essentially for ever and another 32 million who’ve had a year or more uninsured in a four year period.  So rather than the 43 million oft-quoted snapshot number, some 57 million have been uninsured for more than a year in a four year period. These are the hard core uninsured and they measure nearly 25% of adults. And incidentally that is more people than voted for any one candidate in the 2000 election.

2) Counting this crudely, and making some assumptions, there seem to be three groups; one that is nowhere near getting insurance, One that is swinging between government programs like Medicaid, some employer based insurance and no insurance, and a smaller group that is cobbling together a patchwork of employer insurance, individually-bought insurance and uninsurance. The first two groups are the lower income ones.

The authors conclusions are that separate policy solutions are needed for each group–unless we have universal coverage.  That’s true in so far as it goes, but the authors know and (restrained by the terms of this data study) don’t state that the peverse dynamics of the individual insurance "market", the cost of COBRA coverage, and the difficulty of maintaining Medicaid coverage, all combine to make viable policy solutions targeted to sub-groups of the uninsured almost impossible to create.  The only actual options for universal insurance are :
a)some kind of employer-mandate, or
b)some kind of individual-mandate, both backed-up by government schemes either in terms of premium support for the poor or guaranteed insurance (e.g. Medicaid expansion). Or
c) of course single payer, Medicare for all.

There is clearly no political will for any of these reforms now. But perhaps if word gets out that not only is one in seven people uninsured now, but over one in three of us might be in this jam sometime in the next four years, that political will might become more apparent. One thing we do know: voluntary universal insurance is a fiction.

Well I must be sniffing the air correctly.  Today’s WSJ online has, other than its headline, a very fair piece on Canada and how hospitals direct traffic to high-tech procedures.  It may be very unAmerican, but it seems to work pretty well in terms of allocating medical resources efficiently.  If you don’t have a subscription to the WSJ Online, I can email you a copy if you email me.

UPDATE: The article is now freely available here.