MM: Almost no one is. But when health reform discussions begin about what a basic benefit package would look like for younger families, it will become obvious that Medicare is lagging behind, and politicians will take notice.
TL: How is Medicare in trouble financially?
MM: The program actuaries projected that the hospital trust fund, which pays for hospital benefits, will be out of money by 2019. With the downturn in the economy, that date is likely to move up by several years when new projections are issued this spring. Payroll taxes, which now fund those benefits, will be too low to pay for all the care people will need, causing a shortfall. To keep hospital benefits people have now, the trust fund needs new revenue. The other trust fund that pays for doctor visits, lab tests, and outpatient care is required by law to be adequately funded. It is financed by general tax revenues and premiums paid by beneficiaries, which automatically increase to keep the trust fund solvent.
TL: What’s causing the money shortfall in the hospital trust fund?
MM: On the outgo side, the aging of the population contributes to the problem, but less so than the fact that health care spending has risen much faster than the general growth of the economy. This high rate of spending growth has been going on for some time. On the revenue side, there has been no adjustment in the payroll tax rate since the 1980s. The weak economy will make this problem even worse for the next few years.
TL: What fixes are being talked about to solve this problem?
MM: The talk has mostly been about cutting payments to Medicare Advantage plans and reducing payments to hospitals.
TL: Will that be enough?
MM: No. The system will still need new money. Over the long run, you need to change the way health care is delivered, and it will be quite a while before spending slows, even if some of the “fixes” people discuss are successful. Until we pump additional revenues into Medicare and find a way to dramatically slow the growth of spending, this problem will not go away. We just delay fixing it.
MM: There are no easy solutions. Either taxpayers or beneficiaries pay more, or providers of care get paid less or do less. Most groups hate at least one of the options, so there’s really no consensus.
TL: Why hasn’t Medicare been able to control rising health care costs?
MM: No one has really solved the cost containment problem in this country, but Medicare has done as well as any other effort. Rising costs are not a Medicare problem but a health system problem. We have not been willing to make sure we are getting value for the dollars we spend. We have not been spending money wisely. Until everyone—providers, patients, and others who have a stake in manufacturing drugs, devices, new treatments—becomes realistic in what the system will bear, we are not going to see any reduction in the growth of health care spending.
TL: Are administrative costs of Medicare part of the problem?
MM: Medicare’s administrative expenses run about 2 percent, compared to 10 to 25 percent for private insurance companies.
TL: Is paying providers based on the quality of care they deliver likely to solve the financial distress?
MM: That can only work in a large institution like a hospital, and even there it will take time. It’s difficult to do at the physician level. We don’t have good measures of good quality of physician visits, and if we did, trying to apply them might not go over so well with patients. No one wants to think they are going to a below-average doctor.
TL: So how will giving more money to better hospitals reduce costs?
MM: Better hospitals tend to do a very high volume of services. If they are very good at a particular surgery, for example, they may create fewer complications that ultimately raise costs. This means that we would steer people away from their local hospital to “centers of excellence,” and these have not always been a big hit with patients.
TL: What about the docs?
MM: We pay very little for primary care, and that leads those doctors to spend very little time with patients. Their response is to give a prescription, run a test, or send someone to a specialist because they don’t have time to figure out what you need. We have created perverse incentives. We may actually need to pay some of them more.
TL: How will making wealthier beneficiaries pay more for Part D, the drug benefit, help the program?