The past year’s health discussion has been remarkable for the narrow range of ideas and opinions that have floated down to the man on the street. Journalists have sought out the same organizations and sources for their stories, offering up what has become the conventional wisdom for reform. To bring more voices into the conversation, our series, Excluded Voices, will intermittently feature health care experts who aren’t on the media’s A-list of sources. (The entire series is archived here.) We want to offer journalists more options for their stories and encourage a deeper conversation. To that end, we’ve asked the experts featured in each post to respond to questions from Campaign Desk readers.
Too hot to touch during the campaign, too complicated to explain in space-limited news stories, Medicare has long been a verboten subject among the pols and press. When budget director Peter Orszag told The Washington Post that “Health care reform is entitlement reform,” Medicare suddenly got a bit more respect—but only in the context of stories about Medicare Advantage plans, those controversial policies whose sellers receive excess payments from the government.
Yet there are many stories that touch the more than forty million Americans now on Medicare, and the millions more who will join the program in the next few years. Increasing medical costs threaten the program’s long-range solvency, and seniors themselves are being asked to bear more of their health care expenses. In its annual survey of retiree costs, Fidelity Investments found that medical costs for this group have risen 50 percent in the past seven years. Medicare now pays for just a little more than half of the medical expenses for beneficiaries.
Campaign Desk talked to Medicare expert Marilyn Moon, vice president of the American Institutes for Research, and a former trustee of the Medicare system, to help journalists and the public understand the short-term and long-term issues facing the program—and some of the proposed fixes.
Trudy Lieberman: What’s the biggest problem facing Medicare?
Marilyn Moon: It’s the misconception that Medicare is too generous for its beneficiaries. People who say Medicare is not sustainable and must be part of entitlement reform implicitly accept the argument that there is excess coverage there. It means that anyone who wants to talk about improving Medicare is instantly on the defensive.
TL: What is the biggest risk faced by people now on Medicare?
MM: The gaps in Medicare’s benefit package mean that anyone who can afford to will seek supplemental coverage. That coverage is expensive and often not a very good deal. When people buy what’s called “Medigap” insurance, on average they may be getting back only seventy-five cents worth of health care for every dollar they spend. Administrative costs are also high. But going without such coverage is risky since the basic Medicare package has no catastrophic protection for those with very high expenses.
TL: What is the biggest risk faced by people who will be on the program in the next several years?
MM: In addition to the high costs of supplemental coverage for those who must buy it on their own, more employers have stopped providing the retiree insurance that is now available to about one-third of all Medicare beneficiaries. Also, the costs of health care continue to grow faster than retiree incomes. This affects the costs of Medicare and puts extra burdens on people who must pay more for their Medicare benefits and supplemental coverage.
TL: How much do individual beneficiaries typically spend out of pocket?
MM: The average is about $3,000 a year, but it can be much higher.
TL: What improvements would help?
MM: I’d give beneficiaries protection against huge out-of-pocket costs which keep increasing. If Medicare is an insurance plan, then it must cap the amount that people spend on their own, just as there is a limit on out-of-pocket spending offered by most good commercial insurance policies.
TL: Medicare is so complicated. How should it be simplified?
MM: Deductibles should be combined. People pay a separate deductible for physician and outpatient care and a very high deductible for hospital services, now over $1,000 a year. Coinsurance amounts are confusing and vary by type of service. Until you simplify the basic structure so that people don’t feel it’s necessary to buy supplemental coverage, Medicare will continue to place a financial burden on beneficiaries and their families.
TL: How will that make the system more understandable?
MM: If people know that they have one deductible, say $350, and modest coinsurance up to a limit of perhaps $4000 they would pay out of pocket, then they can decide whether they want supplemental coverage. That would help them decide how much added protection they need, and at what cost.
TL: Is anyone talking about those kinds of reforms?
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?
MM: This is another step that unnecessarily complicates the program, and making wealthier beneficiaries pay more will not raise that much money. This is similar to the provision that requires individuals with incomes over $80,000 (families over $160,000) to pay more for Part B benefits—those that cover doctor services. If there’s a similar income cut-off, it will not affect that many people, since there are just not a large number of high-income seniors.
TL: Does this hasten privatization?
MM: It could if more people opt out of the system. For example, if we make the premiums high enough, some beneficiaries will go elsewhere for the insurance.
TL: Can you describe the Republicans’ budget proposals to turn Medicare into a voucher plan?
MM: The idea behind a voucher system is to give people a set amount per year with which to buy an insurance plan of their choosing—usually a private health plan. The premium would be adjusted for their health status to prevent sicker patients from having a harder time finding insurance. The only way to save money over time is to limit the increase in the voucher amount each year. But if health care continues to rise faster than the voucher amount, the individual must make up the difference between what the voucher buys and what a policy costs in the marketplace. Success depends on private plans holding down the growth of health care spending—something they have never been able to do.
TL: Is this a serious attempt at privatization?
MM: Supporters claim that limiting the amount of the voucher would cause plans to become serious about saving costs, and they would compete with each other to do the best job. At this point, this is a theoretical argument, not one based on any evidence. It’s the health care equivalent of the Hail Mary pass.
TL: What’s the most important story journalists can write now about Medicare?
MM: Reporters should look at the lessons of Medicare—both the good and the bad—and what health reformers can learn from them. They are instructive for crafting a health reform proposal.
TL: What are the pluses and minuses of letting people age fifty-five to sixty-four buy into Medicare?
MM: Letting them buy in at an earlier age would smooth their transition to Medicare. Because Medicare has to take all comers, people would no longer have to worry about preexisting conditions and being rejected by insurers in the individual market at an age when health conditions start to surface. But that creates other challenges. If all the healthy people continue to buy insurance from private plans and only turn to Medicare when they get sick, the costs to Medicare would be very high. This unlevel playing field would lead policy makers to tough choices: Should Medicare be subsidized to keep costs low? If so, who should pay for that? That could mean higher payroll taxes which many people believe are necessary. Others are vehemently opposed to higher taxes.
TL: How serious is Medicare’s so-called waste, fraud, and abuse problem?
MM: We know that there is fraud on the part of doctors and hospitals that game the system, and that should be aggressively handled. The issues of waste and abuse are more subtle. Was a particular treatment or test necessary, or was it wasted money? Sometimes we can judge that only after the fact. One person’s waste is another’s valued benefit. We need to know much more about what works and what doesn’t. This will require investment in research and communication, and it will take time to change the system. The public also needs to realize that refusing to insure certain tests and treatments that do not work is a good approach, not a bad one as some critics have charged.