November 15, 2005
Facing the 900-pound gorilla
Sooner or later we have to do something about Medicare. Why not sooner?
Over the last 20 years, federal spending on Medicare and Medicaid grew 3.1% faster per year than did U.S. GDP, with these programs rising from 9% of federal outlays in 1985 to 20% today. With the aging U.S. population and new prescription drug benefit, one might expect Medicare spending to rise even faster over the next few decades.
It's amusing to extrapolate the 3.1% trend growth into the future. Federal spending on all programs combined has historically been a fairly stable fraction of U.S. GDP, averaging 20% of GDP for the last half century. The graph below illustrates the consequences if federal spending on all programs other than Medicare and Medicaid were to hold steady at 16% of GDP while Medicare and Medicaid continue to grow 3.1% faster than GDP. Under that scenario, the next few years would see the United States start to break away from that 50-year tradition of 20% federal spending, with the share of federal spending in total GDP rising to 32% by 2050.
But hey, let's not stop there. If Medicare and Medicaid spending continue to grow 3.1% faster than GDP, by 2150 the federal government would consume 370% of GDP. Now there's a budget problem needing someone cleverer than me to suggest a solution!
What I conclude from this exercise is not that America's workers are going to shoulder an ever-increasing and eventually mathematically impossible burden. I infer instead that some fundamental changes in the nature of Medicare and Medicaid growth are going to occur sometime within the next generation to eliminate that 3.1% trend.
How might that happen? If the U.S. were to continue to chug merrily up that exponential path for the next 20 years, about the time my generation is eligible for Medicare, I would expect our children to say, "nuts to you old geezers! You ran up all this government debt, used up all the oil, and left us to foot the bill. Well, you enjoyed the benefits of your party when you were young, so now you can pay your own medical expenses!" Terminating Medicare outright in 2025 would be a handy way indeed for the future generation to cope with its burden of accumulated federal debt.
Alternatively, we could decide to put an end to the 3.1% trend right now. Medicare and Medicaid are endearingly described as "mandatory spending" for budgetary purposes, meaning that Congress has specified what is to be covered rather than how much money is to be spent. The most recent curious example is the prescription drug bill, with everyone wondering, and nobody actually sure, how much it is going to cost. Congress is like the rich uncle who says to the voters, "whatever you want, we'll give you."
What happens when you say you absolutely have to buy something, no matter how much it costs? Well, you find yourself with an expenditure path like the one above, growing without bound.
Let me offer a simple proposal. Rather than vote on what benefits they want to cover, let Congress vote each year on how much money to spend. That means Congress exchanging the rich uncle role for one it which it says, "we'll help with what we can afford, but you're responsible for the rest." Let the debates each year be over just how generous a dollar payment Congress is willing to provide, rather than who can come up with the longest list of goodies.
The prescription drug plan seems the ideal place to start. Several senators have recently proposed a two-year delay in the Medicare drug entitlement, which in addition to helping reduce the immediate budget burdens would also allow time to develop a more rational way to implement the goals of that legislation. In establishing the principle that the government is willing to help you, but only so much, it has to be easiest to start with a new program rather than something that's well established.
As for the transition for traditional Medicare spending, in the initial years, I don't mind if the politicians fall all over each other trying to promise the greatest dollar amount by which to increase spending-- "my stingy opponent only wants to increase spending by 5%, but I promise to raise it by 10%!" As long as we can establish the principle that we're spending that dollar amount, whatever it is, but no more, we've surely broken the momentum of that nasty exponential trend.
You think my plan's not politically realistic? Oh, it's plenty realistic-- it's just a matter of when it happens. I'd just rather see it happen now than in 2025.
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After their having been totally unable to do anything about the 90-pound chimpanzee of Social Security for the past 15 years, it seems optimistic to think our politicians are going to do anything to face the 900-pound gorilla of medical entitlements before the bills come due.
That said, the political control on such spending that I'd recommend would simply be requiring that they be funded with the necessary tax increases when enacted.
"my stingy opponent only wants to increase spending by 5% and enact a tax increase today to cover that much, but I promise to raise it by 10% and thus increase your taxes by twice as much!"
After all, if we expect private businesses to fund their promised benefits (and get outraged when they don't) why do we hold government to such a lower standard?
Posted by: Jim Glass at November 15, 2005 05:59 PM
National Health care. Stop the tinkering. Do something that is actually economical for a change. Everyone pays into the system. Everyone gets the benefits.
Start by looking honestly at how other countries do it.
Try looking at Canada, for example. (And be careful in how you respond to this suggestion: Am permanent citizen of Canada, but a U.S. citizen. I know up front and personal both systems.)
Posted by: Stormy at November 15, 2005 08:32 PM
Human nature is such that we all,as a collective mass,want to get our goodies now and pay for them later. The politician who makes the most credible case to voters that they will receive goodies now and pay later is the one who gets elected,or re-elected.
There are a number of interesting approaches to addressing the U.S. healthcare situation,but they all require financial pain. Because we voters prefer to avoid pain, we will not elect or re-elect a politician who advocates pain. We as a society are responsible for the mess.
Same with Social Security and the energy problem.
Most major changes in American social,political or economic policy have only occurred in response to major crises like a war,the Great Depression,etc. We need a huge crisis to force a resolution of the healthcare and Social Security problems. We ain't there yet. It needs to get a lot worse first.
Posted by: jim miller at November 16, 2005 05:26 AM
Down here in Florida i am in the medically needy program (the same program that Terri Shaivo was in) and we have been fighting every year to keep the program funded. Medically needy covers catastrophic medical expenses by enrolling me in Medicaid; even though my income is more than what qualifies me for Medicaid. This year it looks good for us ( I say that with reservation), Jeb has been busy trying to privatize Medicaid with some "success" but I agree something needs to be done and soon with regard to our health care. I frequent Walgreen's and see/hear the insurance mess that persons go through and wonder when the public will FINALLY demand a better system!
Posted by: kuros at November 16, 2005 05:53 AM
Jim Miller hit it completely on the head. There is no fortitude for tackling big problems that will require sacrifice while getting re-elected is priority #1. Term limits are necessary, and beyond that, limits to how long any individual can serve at the public's expense.
Posted by: Rick at November 16, 2005 06:31 AM
What about a National Preventive Health Care System? Overweight, alcoholism, smoking, adult diabetes, cholesterol are very expensive to treat but inexpensive to prevent. Also depression can be prevented and treated early. More screening for these and common cancers would help.
In a greying society preventive health care is important. "Grey" people can be healthy and able to work and so ease labor force problems.
And yes, a national health system is fine, not only in Canada but where I live here in Europe.
Posted by: TI at November 16, 2005 07:05 AM
The Canadian health system works like the Canadian defense system. As long as the US is viable, they don't have to worry about it. The US pays for all of the R&D, and when a wealthy Canadian needs bypass surgery, they can always get it in Florida (Canada's most southern state?)
The US pharma industry attracts Europe's (and the rest of the world's) most brilliant researchers because we pay for the research. We can decide that this is to expensive, but the cost is an end to most R&D.
Maslov's heirarchy of human motivation places survival as the base for human action. Look at the parade forming to fund defenses against the Avian Flu, an ailment that has yet to be passed from human to human.
Congress of course has no mandate to be logical, and how can we expect an individual that will spend $10 million to get elected is not suffering from economic schizophrenia. However, this problem is not the fault of Congress. Rather it is a simple exhibition that the electorate will vote for their own survival.
Maybe we will throw Congress out. Not so long as the Baby Boomers are able to vote.
If you want to reduce medical cost in the US, the action that must be taken is to make the rest of the world carry a reasonable share of the R&D cost. The World Trade Organization should spend a lot less time on whether Parmesan Cheese must be made in Parm, and a lot more time on removing effective price controls on pharmaceuticals.
(And for those who wonder, I do have a significant economic interest in the pharma industry.)
Posted by: Bill Ellis at November 16, 2005 07:09 AM
Come on Bill, everyone should know that it isn't the pharma industry at all that pays for initial research, it is the taxpayer who pays for it through the National Institutes of Health. And the research that pharma does actually do is the clinical end stage testing which it is turning out more and more that they are lying and cheating on to bring things to market. The other big part of their research is into making copycat designs of expiring patents so that they can keep bilking our health systems out of tons of money with brand name prices.
I agree that the rest of the world should be footing more of the bill for R&D but you have to admit that it is our pharma industry throwing up the most roadblocks to that end.
Don't even get me started on the amount of money spent on ADVERTISING vs. R&D by big pharma...
[edited by JDH for tone]
Posted by: sampo at November 16, 2005 09:30 AM
I have to agree, private pharma is geared to producing small benefit drugs for chronic conditions that can be marketed and sold for high prices than ones that seriously impact the public health. That is capitalism, but why should the government be paying for it?
Posted by: Lord at November 16, 2005 09:46 AM
Why are Medicare costs (and health care costs, generally) rising so fast? I've seen lots of claims that it's because of overuse and directed to studies that show (duh) if people have less money to spend on health care that they spend less (which doesn't demonstrate overuse). To demonstrate overuse I would think that you'd have to relate reduced spending to outcomes.
Medicare currently pays out a roughly $80,000 subsidy to every single medical resident in the coutnry. This isn't just a subsidy to healthcare for old people or medical education. It's a massive subsidy to physician salaries and hospital revenues. And all consumers of healthcare services. I.e. all of us.
I also note in passing that physician salaries and hospital revenues have risen faster than inflation and faster than other professions since 1965.
What's needed IMO is for economists to propose some solutions that actually could develop political legs. Abolishing Medicare and Medicaid doesn't fit that bill.
Posted by: Dave Schuler at November 16, 2005 09:56 AM
Who advocated abolishing Medicare or Medicaid, Dave?
My point was that pressures for more drastic remedies will grow the longer this is put off.
Proposing that Medicare should be limited by a budget (as I have done) is different from proposing that it should be eliminated.
Posted by: JDH at November 16, 2005 11:14 AM
To what extent does this growth mirror genral price increases in health care? I think it's fairly close.
One obvious goal is to get administrive costs for the total system from of above 30% to the world average of below 20%. This in itself would save 2% or more of GNP.
It does not require a public system, but advocates of the current system can't defend current "markets." They are not, else our system would be more efficient.
I think the problem is "systematic," meaning lots of tweaks. For example there is evidence that flu can be dramatically reduced by innoculating children, they are a major vector of transmission and unlike the elderly they have a very high rate of immunity in response to the innoculation.
If true this would mean a relatuively cheap government program would dramatically reduce hospitalization of the elderly, it would also rduce sick days in the work force.
Or why not a system were doctors and other providers list rates? Individuals in various plans would be given standard payments for treatments and they could chose better plans or personal payment for more expensive doctors or in some cases could get a refund for chosing cheaper.
Combine this with a "reputations" systems for doctors and other providers.
And (this can apply to Medicaid and Medicare as pioneers) instead of cross checking and verifying various procedures and drugs why not indepth audits of specific doctors. Right now it seems to be all the attention is focused on individual items, dramatically adding to paperwork. But a periodic examaition of choices could review the doctors overall pattern and also lead to practical suggestions for cheaper more effective medicine.
There is no doubt that government medical entitlement programs are a danger, but I think they reflect the system as a whole. I think most useful tweaks and reforms will involve both private and public systems.
I do not think that public insurance programs can be significantly reduced unless the general improvements in efficiency occur.
One thing that has to be recognized is that our current system is often not competitive, but consists of protected niches and that in other cases where competition does occur it is focused on short term, not long term costs.
I would say that there is one area where significant cuts to Medicare and Medicaid (where 2/3rds of the dollars go to the elderly or disabled) occurs is to dramatically cut the life extendng measures near lifes end. But this is a real hot potato.
Paradoxically conservatives that want to cut the huge cash flows and indirectly force such a thing oppose more conscious and admitted efforts. And while they often talk about pragmatic policies does cutting the limited number of programs keeping children and workers healthy benefit society more or less than cutting those who are no longer economically productive?
We do have a probem, our total expences are about 18% of GNP compared t around 12% for other industrial nations. This is a 6% surcharge on our products, heavier energy usage is another 2 or 3%.
But it isn't only govt programs.
Posted by: alice at November 16, 2005 11:53 AM
My college was in engineering, but I went on to become a family practice doc. I've been failthfully following Dr. Hamilton's log for the past 6 months, and have learned a bit about economics and peak oil (and oil futures) in the process. Here's my $0.02 (which may be a bit lengthy--sorry).
Medicare costs continue to skyrocket. Docs take a big discount to see Medicare patients. In some areas of the country with high liability costs, docs lose money seeing Medicare, and some opt out of seeing Medicare all together. As costs continue to soar, an easy way to save medicare money is to cut docs' reimbursement. Over the next 5 years, Medicare is on pace to cut docs' reimbursement 3-5% per year. I am eyeing the development closely. Should this happen, expect to see increasing numbers of docs refuse to see Medicare patients. As it is, Docs already pay twice, once with declining reimbursement, and twice when taxes are raised in the future to pay for this.
Buy healthcare plan stocks now. They tie their contracted reimbursement rates with docs to Medicare (i.e. they typically pay 130% of Medicare rates). Following this logic, their costs will continue to decrease over the next 5 years. Notice how all of the major health insurance companies (Aetna, United Healthcare, etc) have quadrupled their share price in the past 3 years? As Medicare cuts reimbursement to docs, the insurance companys' profit margin fattens. You will also notice that despite increasing profits, the annual policy premium only continues to go up. None of it seems to be passed on to the consumer policy holder.
Medicare reimbursement is supposed to be tied to GDP growth. Even if there is no economic disruption through tight oil supplies, reimbursement is expected to decline. By my own estimations, I anticipate the bleep to hit the fan around 2012-2015 when seeing patients becomes economically untenable. I am currently 34 years old, and will drop out of the profession when this occurs.
The problem with Medicare (and universal healthcare) is that of a supply/demand mismatch. Just read the paper daily to hear about the next generation of life prolonging medical enhancements (i.e. better chemotherapy, better artifical hearts, etc). As a person lives through what used to be a fatal illness, they survive to experience a gradual (and costly) health decline that needs to be paid for. For example, where 20 years ago, a person would likely die of lymphoma in their 30's, it has a very high survivability rate now. However, people who survive are more prone to developing a second new cancer 20 years later (because chemotherapy is carcinogenic). Also, they have much higher rates of depression, arthritis, heart disease, etc. In other words, they don't survive the major problem and go on to live problem-free. Rather, they go on to live a more medical problem-filled (i.e. medically costly) life.
As a practioner in the field, I can promise you that the full burden of disease in America is currently undetermined. In other words, most folks have several issues that they haven't bothered to have looked into because healthcare is costly. They just "deal" with it. The older a person gets, the more there are. Should healthcare become "free", more people would go see a doc than ever before. As Dr. Hamilton stated, you can ration by price, or you can ration by quantity, but you can't have it both ways. In national healthcare, what you can get will be cheaper, but yhe flip side will be heavily increased waits for MRI's, surgeries, etc, just as you see in England. Did you know that England is experimenting with offering "free-market" reforms and also with "exporting" routine surgeries like gallbladder removals to India because the wait time is so long?
This is a huge problem. Expect to see rationing when you are Medicare eligible (i.e. no chemo after 75). National healthcare recasts (but doesn't fix) the problem. I'd be happy to expand on any point with more clarity if anyone so wishes.
Posted by: doc at November 16, 2005 11:55 AM
Aetna = http://money.cnn.com/quote/quote.html?shownav=true&pg=qu&sid=403348&symb=AET&shownav=true%2C&time=5yr&uf=0
United Healthcare = http://money.cnn.com/quote/quote.html?shownav=true&pg=qu&sid=175454&symb=UNH&shownav=true&time=5yr&uf=0
Medicare cuts = http://capwiz.com/ama/mail/oneclick_compose/?alertid=8104801
Posted by: doc at November 16, 2005 12:22 PM
I lived with a national healthcare system in Australia for 11 years, and doing without it has been one of my biggest adjustments in coming back to the Old Country.
That system isn't "free" -- I paid 1.5% of my taxable income each year for it. While doc's point about over-consumption of health care services in such cases is a good one, in practice the rationing needn't occur. I had the choice of going to a public clinic & taking my chances with the line of people (but paying nothing out-of-pocket), or seeing my personal GP, paying the consultation fee up front & getting a check from Medicare (the nat'l program) later. Routine visits ran about $25 net.
Also, such a system can (and does) co-exist with private health insurance -- I had both. Waiting times for elective procedures for Medicare patients could indeed be long, but not for emergencies. Alternatively one could use the private system and get through much more quickly.
Another advantage of universal (national) health care is that it emphasizes preventive measures as opposed to curative ones (not exclusively of course).
Final point in favor of the Aussie system -- the "Pharmaceutical Benefits Scheme" (PBS), in which the Federal gov't subsidizes most common prescription drugs, acting as a bulk buyer with the pharma companies. (The folks in DC weren't too happy about this during the free trade negotiations...)
Posted by: Peter Summers at November 16, 2005 12:34 PM
The problem with simple models of markets is that they don't necessarily effect the behavior of the "real" market.
For example higher deductables would seem to reduce demand, but most demand in the medical system is not the same as demand for nice consumer items. People tend not to seek treatment until they or their doctor feel their is a real need. Things which reduce this may delay serious problems until later with serious consequences for society.
The same is true for cost cuts in government programs. They may eliminate coverage with some of these people heading into emergency rooms. They may lower the quality of care for those still covered leading to more expensive problems.
Another example where "obvious" market conditions don't apply is in supply and demand of doctors. Studies have shown that in areas with more specialists of a certain type, the more special procedures for similar populations. These people find ways to get normal compensation. There are also informal systems of referrals. If you or someone you know is in the hospital with good insurance, a number of specialists will typically attach themselves to the case. Less truer and more likely based on need for those with less lucrative or no plans.
This kind of thing is nice when you can get it, but it's size adds to cost.
And while the tort system is probably not as terrible as doctors believe it to be, their fear of it does create a great deal of defensive medicine. It also discourages a system that documents mistakes and corrects them. Of course this adds to the size of tort rewards since only a fraction of those known to be victims of error claim anything when those people and their relatives do wind up on juries they often take revenge.
It should also be noted that one reason for the increases in malpractice insurance in recent years has been the lousy returns in various markets. This probably also explains some recent increases in the cost of health insurance.
A lot of things are interrelated.
As for those who oppose a "government" system at least 40% of expences are currently covered by government. So it does have interests. In addition a large proprtion of the people would accept a more basic system that costs them significantly less.
I believe only purist egaltarians oppose private systems that exist independantly from public systems, but for individuals to lecture on about the evils of socialism without providing plausible alternatives is to argue against competition. Right now we have a system using 18% as opposed to 12% of GNP with higher rates of infant mortality and lower life expectancies.
I personally fear a centralized system, but when the current system can not do things like agree in standaridized identifiers for commonly used drugs leading to increased costs in processing and increased confusion in billing, it's claims that it is making serious attempts to deal with the problems are questionable.
And we do know many things that do work such as hooking up chromically ill patients with nurses to answer their questions by phone and even visit, we do not apply these systemically ptreferring an adhoc system that evolved from doctors old style and which has been distorted by their primitive views of management. Unfortunatly the big companies are not better.
Society is also confused in it's goals and demands. We have tried to cover this up by saying that people demand more and better health care and demand emerges with each technology which has some truth, but administrative costs are too high and there are just too many distortions from the system we want.
Current markets do not reward drug companies for producing the increasingly needed next generations of antibiotics, so they don't. They spend several times as much on marketing as research and one of things to be cut this year is research.
To some extent this reflects a tendency of US companies to focus on short term goals, to another degree it refects the incentive of the market we have developed. Given the ratio of government expenditure in this market and the fact that the other large chunk, provate insurance, is not really directed by those who pay for it, public intervention is justified.
So now the question is defining the nature of this intervention. I would like one which simplifies and is built of tweaks and increases rather than decreases alternatives. The most commonly proposed solution suggests replacing existing bureacracy with one which standardizes. Since there are obviously potential advantages to dealing with one payer rather than dozens, of standardized forms and programs shared by doctors and hospitals and one overall management rather than numerous replications by providers and insurance companies; this method has obvious promise.
One can see clear possibilities of price reductions.
And since the existing system strikes most as alreadyy incomphrensible and messy, the fear factor may not work.
So opponents need to offer alternatives. So far the big two are higher deductables and moving low risk insurance buyers to low costs systems while high risk buyers are similarly pooled.
Posted by: alice at November 16, 2005 01:38 PM
"Proposing that Medicare should be limited by a budget (as I have done) is different from proposing that it should be eliminated."
Could you explain a bit more how this would work? Is utilization unconstrained early in the year, and then physicians and patients run increasing risk of Medicare default as the year progresses? Doesn't this provide a terrible overuse incentive early in the year ... just in *case* you might need the procedure later, you better get it done now.
Not to mention the seasonal burden this will put on the fully insured private population (it could be quite difficult to get into a physician early in the fiscal year).
I would suspect that your rationing system would only increase the attractiveness for physicians to opt-out of Medicare altogether, not to mention the political catastrophe that would happen when someone with needs care chose to wait, and suffered a heart attack in the meantime ...
I suspect that the net result is that you are pushing toward the cost control experience of Canada ...
Ultimately, I think the only way out is through means testing. You can't have the gov't rationing care; Americans won't put up with it. Therefore, more money has to get pulled into the system from someone, and the only people it can come from are those who are better off. Of course, means-testing Medicare won't happen until our advanced medical system in this country fails Ted Kennedy. Irony.
Posted by: Victor at November 16, 2005 02:05 PM
The conclusion: we can't really face medicare without facing healthcare. Solve the latter and the former will take care of itself.
Posted by: Lord at November 16, 2005 02:13 PM
"Ultimately, I think the only way out is through means testing. You can't have the gov't rationing care; Americans won't put up with it. Therefore, more money has to get pulled into the system from someone, and the only people it can come from are those who are better off."
Seeing as how most of the income tax is paid by those "who are better off", it seems that the current system achieves your objective.
Posted by: Bill Ellis at November 16, 2005 02:25 PM
"Proposing that Medicare should be limited by a budget (as I have done) is different from proposing that it should be eliminated."Is it? If the budget is increased from year to year, there's no change from the status quo. If the budget is not increased from year to year, eventually the system is de facto abolished.
Posted by: Dave Schuler at November 16, 2005 02:28 PM
I think JDH has provided the answer for what politicians need to do.
1. Tell oldies (I mean those who receive and will receive aid in next 10yrs) that they will suffer or may not get it at all if they don't accept the changes.
2. Tell younger ones that they have dark days ahead if they don't let it happen. This will answer the "claim of spending $10 instead of $5".
Talk through the lies of candidates. But, I guess we do not have economically rational people contesting or they are not as good a teacher as JDH is. But, then while candidates pay for campaign managers to do this right for them. We need to infuse this rationality in politicians with a hope of re-election. It is a certainity for them. If they show that other person is dealing in lies which are causing pain to everyone. Everybody will fall in line to accept the correction now which surely can be done smoothly instead of jitters.
Posted by: Pankaj at November 16, 2005 02:43 PM
Victor, the main change that I am suggesting is that Congress vote each year on the number of dollars to spend rather than vote periodically on which items to cover. I feel that the latter system is inherently likely to lead to a spending explosion.
This means changing from a philosophy that the government is the residual payer to a philosophy that the government is assisting to the degree it can.
One way this could work is for Medicare reimbursements to be sent out at the end of each month on pro-rated basis-- out-of-pocket expenses for allowable items are reimbursed at a fraction x, where x is such that the sum of the dollars thereby expended each month is exactly equal to the sum of the dollars Congress has authorized to spend that month.
In such a system, risks across individuals (I get sick and you don't) are partially insured, but aggregate risks (everybody gets sick this month and therefore x is low) are not insured.
Posted by: JDH at November 16, 2005 02:51 PM
Dave, this is exactly the question. Maybe you're right that if Congress voted dollars each year rather than programs that marched along on their own, they'd make exactly the same determination of how much to spend. My contention is that they would not.
Posted by: JDH at November 16, 2005 02:56 PM
"The US pharma industry attracts Europe's (and the rest of the world's) most brilliant researchers because we pay for the research[...]
If you want to reduce medical cost in the US, the action that must be taken is to make the rest of the world carry a reasonable share of the R&D cost."
Ha! only when the US pays for the education of those brilliant researchers which have been funded by the governments of other countries.
The US economy is fuelled by human resources created in other countries. Do you also think that foreign government should be compensated by US companies when they lure their human capital?
You pay for the research we pay for the researchers I think that's a reasonable share.
Posted by: Ben at November 16, 2005 04:58 PM
Require every person to set up a Health Savings Account. Congress can then decide each year how much money to put into these HSAs.
Posted by: GRL at November 16, 2005 11:22 PM
JDH -- interesting.
As you note, the idea does shift quite a bit of risk to providers and/or Medicare recipients (depending on how you deal with possible balance billing in periods of low reimbursement). The gov't, by its sheer size and design, can surely absorbe the risk more efficiently than the individual physician. Therefore, I'm not sure that this proposal is an optimal solution (although one with admitted appeal politically since it leads to cost containment in an accounting sense).
Regardless, getting physician and hospital buy-in would be the big hurdles. Without a big demand-side effect through balance-billing (which may be politically unsaleable), this boils down to a different way to reduce reimbursement. A lower-bound on this reimbursement does exist, and many believe Medicare has been close to it for a few years now (this is why they have boosted reimbursement in recent years; physician exit has become credible).
Although the political football that our medical care has now become does admittedly make your proposal attractive on the surface, I'm not sure it will effectively change the fundamental dynamics.
Posted by: Victor at November 17, 2005 06:55 AM
Those are valid concerns, Victor. Would you agree that the idea is at least worth trying for the new prescription drug benefit?
Posted by: JDH at November 17, 2005 07:54 AM
I expect that the healthcare system is going to break down (too many uninsureds) before Medicare and Medicaid become completely unaffordable.
If we restrict the amount spent on those programs, the system will simply break faster--even more uninsureds.
There is nothing that is going to stop an increasing percentage of GDP being spent on healthcare as society gets richer--what do people prefer to health? I think the question is how to get the best health care for the money that is spent, and that will require reform of the entire system.
Posted by: matt wilbert at November 17, 2005 07:57 AM
Most Medicare payments do not come from the general fund. Instead the bulk of money comes from a flat tax applied to all workers. So your comment on income taxes is irrelevant.
You are correct that there are pressures to increase health care spending, but our system does not necessarily deliver health, we have the lowest life expectancy and highest infant mortality and obesity rates in the industrial world. And quite simply a six percent surcharge on every product we try to sell is one of the things that may keep us from getting more prosperous. This is the difference between our products and those of other industrial nations with at least adequete health care systems. Quite simply the rate of growth can not continue, this applies to all healthcare not medicare.
But I think yoiu are correct, the system will start to crash. The idea that we could reform medicare when we couldn't even stop this farce of a drug bill that angers everyone...
Posted by: alice at November 17, 2005 10:06 AM
I’ve followed some of your posts. Clearly you feel strongly about this issue, but some of what you say is patently false. Consider the following statement…
“If you or someone you know is in the hospital with good insurance, a number of specialists will typically attach themselves to the case.”
I have practiced in huge university settings and small towns, and have never, ever had a specialist see one of my patients without me requesting his/her input. Medicare has specific guidelines for consultations. Insurance info isn’t readily available in the bedside chart. Patients would surely squawk if a random doc came into their room and started questioning them without the patient knowing who and why they were there.
On the subject of quality and specialists, people really have no one to blame but themselves. Let me clarify this with a recent patient…
Mrs Jones, a pleasant 88yo lady, recently presented to the ER with symptoms of a stroke essentially paralyzing her the left side of her body. Knowing what I know, the most cost effective course of action is to start a blood thinner like an aspirin ($0.25/day), and move her directly into a nursing home ($100/day) for long term care for the remainder of her days. You (the general population) don’t allow that in most circumstances. Her grandson, a lawyer, isn’t satisfied with an admission to the general medical floor ($800/day). He wants her to be admitted to the intensive care unit ($3000/day) so she could be monitored more closely “in case she stops breathing”. Of course, family wants her to be put on a ventilator ($500/day) if that would happen. Her living will simply stated no heroic measures, but never stated just what heroic measures are. In the ICU, her heart monitor ($150/day) occasionally beeps out of rhythm (as would be expected given her age and poor health), but this prompts family to know when the cardiologist ($500 initial consult, $100 per followup visits) will see her. Since its not their money, they also request a neurologist ($500 initial consult, $100 per followup) consult to determine optimum management of a stroke. (Of course, Medicare only allows the neurologist and cardiologist to charge $70 for consult and $30 for followup, but that’s another matter). The cardiologist notes that, surprise, surprise, her heart is 88 years old, and most old hearts don’t quite beat regularly any more, but has to do something, so starts an antiarrythmic medicine ($300/month)which may help, a little bit, at a cost of $300/month. The neurologist, after discussing her case with her lawyer grandson, orders a MRI of her brain ($2000) and neck arteries ($1500) which confirm that 1) her brain is that of a 90 year old with significant atrophy and 2) plaques line her arteries making her at risk for future strokes. Instead of an aspirin, he orders plavix ($110/month) which works perhaps 10% better than aspirin at 1000% more cost. While a nursing home placement is again brought up, the family demands rehabilitation. (For the average American’s perception of how they think that therapy will fix a permenantly damaged brain, turn your eyes to any of the headlines about the Terri Schialvo case last year.) Therefore, the physiatrist ($500 initial consult, $100 per followup) examines her, noting her lawyer grandson’s request, moves her to the rehab floor ($400/day). Each day, the therapists try to get Mrs. Jones to move her paralyzed left side, but to no avail. After demonstrating minimal (if any progress) over the next month, they declare that she’s reached maximum rehab potential. Unfortunately, she is still paralyzed on the left side, and can’t feed/dress/bathe herself, and is then moved to the nursing home ($100/day). Of course, she is now on cholesterol lowering medicine ($90/month), three bloodpressure medicines ($total of $130/month), bloodthinner ($110/month) and antiarrhythmic ($300/month) to prevent further problems.
While you, the reader, don’t see yourself in this scenario, let me guarentee that you very much are. Because families can demand services without bearing the costs, the system will continue to spin out of control. While my inclination would be to start aspirin and directly admit to the nursing home, families see that as a complete lack of “caring”, and need to see lots of tests done to feel that “everything has been done” for mom.
Keep this in mind as you are formulating your theories about healthcare solutions. They need to include an economic cost for the family doing the "demanding" of the medical services.
Posted by: doc at November 17, 2005 11:19 AM
Do you really believe there is a lock box that contains only meidcare money.
Reality is that a coffee can will hold both all of the medicare money and social security money that has been collected over all of these years.
And, if a tax based on wages is not an income tax, what would you call it?
Posted by: Bill Ellis at November 17, 2005 01:20 PM
Just to make sure that we do not have too much nonsense repeated here, there is no social security problem. As long as the economy grows at something like its current rate, and immigration continues at a reasonable rate, the SSA will run a surplus forever, no kidding, it is all in their trustees report. They just used a ridiculously pessimistic set of assumptions for their "medium" forecast, which, unfortunately is the one that all kinds of morons trumpet as a "fact." Social security is really a zero pound spider monkey.
Medicare is quite another business. For one thing, its trust fund is running a deficit right now. Something will have to give at some point somehow, one way or another. Curious that Bush was so hot on doing something about a non-crisis, while his only actions in regard to medicare have made the situation worse.
Posted by: Barkley Rosser at November 17, 2005 01:37 PM
The reason Congress was concentrating on Social Security was that they didn't want to even think about Medicare.
The Congressional motto is "When faced with a tough problem, Dodge."
Posted by: Bill Ellis at November 17, 2005 02:06 PM
> On the subject of quality and specialists,
> people really have no one to blame but
> themselves. Let me clarify this with a recent > patient…
Posted by: Fred Hapgood at November 18, 2005 11:16 AM