The release of the Medicare-reform proposal cosponsored by Democratic senator Ron Wyden and GOP House Budget Committee Chairman Paul Ryan is a milestone event in the long-running struggle for sensible entitlement reform.
For starters, as others have already noted, it completely pulls the rug out from under the long-planned “Mediscare” campaign of 2012. As former House Speaker Nancy Pelosi put it, nothing would make the Democratic political machine happier than to have the 2012 election fought on the issue of “Medicare, Medicare, and Medicare.” And by that, Democrats do not mean a balanced debate on the need for modernizing the program. No, what they have in mind is an all-out demonization campaign focused on the supposed intention of the “Ryan plan” — the version of Medicare “premium support” included in the House-passed budget plan from earlier this year — to “end Medicare as we know it.” That particular dose of political snake oil, a world-class whopper even by Washington standards, is going to be a good bit tougher to sell now that a liberal senator has endorsed that very same vision for reform that Ryan advanced in April. In other words, if there really is a concealed and sinister effort underway in Congress, led by Paul Ryan, to deny poor and vulnerable grandmothers everywhere the health care they need by taking away their Medicare coverage, somehow or other that evil plan has now garnered bipartisan support.
The Wyden-Ryan proposal has also brought to the surface an important issue of how “premium support” is designed. The version that Ryan released in April 2011, and which passed the House as part of the GOP’s budget plan, would have given seniors a subsidy each year based on a predetermined government formula. The new version would instead set the government contribution based on bids from the competing plans, including the “public option” of traditional “fee for service” Medicare. Setting aside the public option for a moment, moving toward competitive bidding is actually an improvement over the previous version. Most analysts agree that the potential for cost-cutting in Medicare is immense. With a government-set formula for payments, there is a danger that excessive costs get locked into the payment stream. With competitive bidding, there is much greater potential for deep cost-cutting, as plans that find new ways to deliver more for less can attract enrollment with low premiums.
Regarding the retention of traditional Medicare as an option, the devil is in the details, and the details haven’t been sketched out yet. For this to work well, two things must happen. First, Medicare must be broken up into regional plans that compete fairly with the locally run private options. Among other things, that means each local Medicare plan must have separate accounting and charge premiums sufficient to cover costs. Further, the plans must not be allowed to set artificially low reimbursement rates for services. In a competitive market, the private plans must contract with a network of providers to ensure access to care for their enrollees. They can’t just dictate fees, and neither should Medicare FFS. To prevent cost-shifting and ensure fair competition, Medicare must pay something close to market rates for services.
The Wyden-Ryan reform plan also includes a limit on the growth of the government’s contribution, in the event that the bids coming in from the private plans and the public option do not hold down cost growth sufficiently. Under their plan, the government contribution would be limited to GDP plus one percentage point growth each year — the same growth rate imposed by Obamacare and enforced by the infamous Independent Payment Advisory Board (IPAB). Although the growth rates are similar, the mechanism for enforcement under Wyden-Ryan would be entirely different, with Congress charged with identifying the culprits for cost growth and taking appropriate action.
While it is certainly better than the IPAB, this cap on Medicare growth is nonetheless not a very good idea. There’s no reason to believe Congress would have an easier time in the future than it does today in agreeing on ways to trim Medicare costs, so this cap would likely go unenforced. But that’s not a fatal flaw, because the point of premium support is to unleash the power of the marketplace, not to impose artificial caps.
What’s been most telling about the introduction of the Wyden-Ryan concept has been the reaction of the White House and its Democratic allies. For months, we have heard the argument made that Republicans are hypocritical for opposing what is said to be the “premium support” model of Obamacare while pushing for it in the Medicare context. But, if that’s true, what could possibly explain the president’s instantaneous and adamant opposition to Wyden-Ryan, given that he supposedly pushed the same concept for the rest of the population in Obamacare?
The answer has two parts. First, it should be obvious that what the president is doing here is playing a crass political game. He has no record to run on in 2012, with the economy still sputtering and his signature effort — Obamacare — as unpopular as ever. Therefore, he is planning on running the most negative campaign in memory, in the hope that he can hang on to power by demonizing his adversary. And for that strategy to work, he must be able to paint the GOP as the enemy of Medicare. And so there was no way he would ever do anything but denounce Wyden-Ryan, no matter what it contained.
Second, despite the rhetoric, the president is quite clearly not a supporter of market-based health-care reform. His opposition to premium support in Medicare is in fact a reflection of his true colors on this issue. What he wants is a health system dominated by federal regulation and government-administered prices. He has that in Medicare already, and will never willingly give it up. Indeed, President Obama’s real aim is to drag the rest of the health system toward the Medicare model of government micromanagement and regulation. The so-called “exchanges” that are part of Obamacare are not really intended to be functioning marketplaces at all; they are just halfway houses toward a full government takeover.
Medicare is central to the nation’s fiscal challenge, and to the problems in American health care. It is imperative that the country move expeditiously to inject market discipline into the program. The introduction of a credible bipartisan plan to do just that — the Wyden-Ryan plan — is a very welcome sign that we are making progress toward the goal.
One hopes that this step leads to the next, which is to eliminate the real reason for "uncontrolled health care" costs. There will be no competition until market forces are returned to medical care, and this means that the prices charged for medical care are the same for all comers...Medicare, Medicaid, Private insurance, etc.
Under today's system, with the government setting reimbursement for over half of all medical care, the reimbursement for a particular procedure can vary by 50-400% or more, depending on who is paying the bill. It would be as if the price for a gallon of milk varied from 3-100 dollars. The cost of a medical procedure should depend on what it costs, not who the person is insured by.
Reply to this commentLinkReport AbuseWhile I think it would be very helpful to managing costs if people had a more direct connection to payment of their health care providers, services & supplies (as you suggest), I don't think that's the real reason for uncontrolled health care costs generally.
The element that has most directly impacted and inflated our collective health care costs the last 40-years is not our payment scheme. Instead, it's technology. We are able to treat a variety of diseases that would have been otherwise fatal just a few decades ago. That expensive.
We have also developed treatments for conditions that while not life-threatening, do improve quality of life: Hip and knee replacements and antidepressants, just to name a few. Then there's the preventative care therapies like statins; statins alone cost American insurance companies more than $15B annually.
Then, there's the improvements that technology has provided in end of life care, and those improves dovetail nicely to beginning of life care. So-called "Million Dollar Babies" that would have simply perished as recently as the 1970s or even 1980s, are kept alive routinely today. Of course, they're kept alive at TREMENDOUS expense. Someone is picking up that tab: We all are.
Health care costs are never going to come down, at least not until a majority of the Boomers die. Then, because demand will be lessened, economic laws will likely drive marginal costs down a bit. But, so long as technology continues to improve - and it will - we will have robust upward pressure on the costs of American health care, irrespective of what the payment scheme is or isn't.
Reply to this commentLinkReport AbuseWhile all this is true, the question is why technology in the health care sector is oriented toward ever more expensive interventions in end of life care or in other places in the first place. All of the above technologies have been beneficial, but they have not been driven by the marketplace, they have been driven by the current government dominated systems, in which providers know they have a built in market for very expensive procedures.
Everywhere else in the economy (excepting education) you see technology improving quality and driving down costs. Rick Foster, Chief Actuary of CMS, made this point recently -- saying that a premium support model has the best hope of reorienting the research and development community in health care towards developing technologies that both improve quality and reduce costs.
Reply to this commentLinkReport AbuseHow do you square your conclusions here with the fact that health care costs are FAR lower in countries for which there is NO competition in the HC market?
That's a fact which cannot be easily brushed away with mutterings about Capitalism.
Reply to this commentLinkReport AbuseRationing.
People don't wait longer in Canada for an MRI than they do in the US because they want to. They wait because they have to.
That's rationing.
Reply to this commentLinkReport AbuseInvalid point; we have the exact same rationing here in America, as they do in other countries. Ours is simply based on personal wealth. Works out great if you are rich, sucks if you are not.
Regarding your other point, that there's no way to drop the costs of health-care until the Boomers die out, I have to disagree: a switch to a single-payer insurance system would save our country tremendous amounts of money. Another plan that would save money, but in a different way, would be to require insurance companies to operate as non-profits.
Reply to this commentLinkReport Abuse"we have the exact same rationing here in America"
Really? Care to explain the following facts, found in about a five minute google search.
The United States has the highest rate of new treatment for ESRD among reporting registries worldwide. The United States accepts twice as many patients than Europe (320 per million population in 1998), 40 percent more than Canada and 36 percent more than Japan.
The rate of knee replacement in the US is 213 per 100,000. The average of all OECD countries is 118 (and of course that average is driving up by the US rate)
Rates of coronary angioplasty - US 377 OECD countries as a whole: 188
See the trend - Utilization in the US is twice that of Europe. Part of this is over utilization in the US, but some significant part is rationing in Europe. (I doubt there is much over utilization in ESRD, considering what the patient has to go through)
Reply to this commentLinkReport AbuseYou don't suppose that part of the higher incidence rates for angioplasty and knee replacements is due to the gross obesity of Americans, as compared to other OECD countries? More than double the average rate of these countries, IIRC.
There are a variety of factors that explain your contention other than rationing; so, I'm afraid I can't accept that as a valid rebuttal of the point I was making.
Perhaps it does indeed take more than 5 minutes of research on Google to build a strong case for your argument? However, I do appreciate your fact-based and interesting responses, they are a welcome change from the norm around here.
Reply to this commentLinkReport AbuseSure, that's a factor, but its not the determining one. As I've said elsewhere, I spent my entire career (well, at least the professional part) in health care. During that time I read a lot about utilization rates and how they compare within the US and across countries. Generally, the studies were risk-adjusted and after making that adjustment you still get a lot more healthcare in the US than elsewhere.
Perhaps I should have cited the significantly better cancer survival rates here. Even if other factors influence the incidence of cancer, I hope you'd agree that once you've got the disease it's the availability of treatment that influences the survival rate.
Reply to this commentLinkReport Abuse"Perhaps I should have cited the significantly better cancer survival rates here. Even if other factors influence the incidence of cancer, I hope you'd agree that once you've got the disease it's the availability of treatment that influences the survival rate."
Sure, but once again, this is heavily rationed in America by wealth. If you work at Wal-Mart and have no or very poor health insurance, your rates of survival are considerably lower than if you have access to the types of care that wealthier people have.
Reply to this commentLinkReport AbuseI'll try one last time.
You're correct, there are differential treatment rates for various demographic rates but I doubt as much as you assume. That's why our survival rates for uninsured patients are typically higher than the average overall rates in europe.
Look, you said we have 'the exact same rationing' here in the US as in single payer countries. If you think that the ENTIRE difference in the incidence of health care reflected in the examples I gave are attributable to every factor in the world other than a difference in rationing, I doubt there's anything I can say to change your mind.
Reply to this commentLinkReport AbuseThat is because he doesn't wish to listen.It was a good effort though.
Reply to this commentLinkReport AbuseI don't believe your comment is in fact reflective of the conversation that we have been having.
Reply to this commentLinkReport Abuse"That's why our survival rates for uninsured patients are typically higher than the average overall rates in europe."
Um. I would really have to see some statistics on this before I was prepared to accept that as a fact. I also wonder how much this is skewed by those who don't require insurance due to their own personal wealth.
I didn't make the argument that the ENTIRE - as you put it - difference in incidence rates is due to other factors than rationing, so I'm not sure why you would state that. Rather, I believe that we are discussing - as I'm sure you know - a complex situation, in which there are many factors and reasons why we see different levels of both incidence of HC utilization and rates of death, lifespan etc.. Such a situation can't be easily explained away by pointing to a single factor - and it cannot be solved by focusing on a single factor.
I do appreciate the reasoned disagreement. Too often, different opinions are met with scorn and derision, and that leads to no greater understanding on the part of either participant. I don't have the years of experience you do in the HC market, so I feel that your opinion on this matter, while different than mine, is an important one to be considered.
Reply to this commentLinkReport AbuseProfits of health insurers amount to about 0.5% of the country's entire health-care tab, about $13 billion/year.
So, regarding this proposal for saving big heaps of money: Go fish!
Reply to this commentLinkReport Abuse"Invalid point; we have the exact same rationing here in America, as they do in other countries. "
No, we don't. In this country markets and insurance companies in those markets act as the rationing agent. In other countries, it's bureaucrats that are the rationing agents. I can change insurance providers if I don't like the coverage I'm paying. And, I can choose to pay for a more premium insurance if I don't think the coverage I'm receiving is satisfactory.
However, once government takes over, I'm stuck. I can change insurance providers but I can't change my government.
Reply to this commentLinkReport AbuseTechnology is always being blamed for increased costs. Not true.
To take but one example, it was not uncommon to take out 8 normal appendixes for 2 abnormal ones. Imagine the cost today if 8 out of 10 exploratory surgeries were performed for appendicitis. Instead, using CT and ultrasound, about 8 out of 10 of these patients can be treated non-operatively.
Single payer is always being proposed as the solution because of the costs of billing,etc. But the complex billing costs are a symptom of the problem, not the cause. To go back to the appendix example, if you are 25 and have no insurance, you will likely be charged the maximum rate, which hospitals like to list as their chargemaster price. Depending on insurance, and the deal a particular insurance company makes, you might pay less. If you are Medicare you pay even less. Ditto for medicaid.
Single payer doesn't solve this problem, because the solution is to fix reimbursement across the board and still cater to various political constituencies. Quality suffers, bureaucratic interference in delivery of care occurs including rationing, etc.
So...the actual costs of doing the appendectomy...equipment, physician time, support personnel, lab, xray, drugs, etc...are all the same, but the reimbursement will vary sometimes by a factor of 4. There is no way to talk about cost control when this is the case.
Reply to this commentLinkReport AbuseAs people who've read my other comments might be beginning to notice, this topic pushes a very large button for me.
I want to address the 'single payer will save boatloads of money' thought.
When I joined a consulting firm out of school in 1972, one of the first things I did was prepare a Medicare cost report for a hospital. The hospital wanted several versions prepared of course, to see which of several allowable cost accounting approaches maximized reimbursement. This was before personal computers, so it took me a week. The hospital was charged a pretty penny.
I didn't tell that story to impress you with my experience, but to illustrate something -- the money the hospital spent isn't considered when people quote Medicare's 5% overhead rate. Nor are the many other costs (over and above the ordinary cost of billing) hospitals and other providers incur in dealing with Medicare.
But that's not the biggest problem I have with the issue. First, the 5% figure is denominated by the total amount of reimbursement Medicare incurs. In my view, that's not an appropriate way to measure overhead costs across payers, because a payer's overhead is almost entirely a function of the number of beneficiaries involved. In other words, it should be measured on a per capita basis. Since the reimbursement for Medicare beneficiaries runs 4 to 5 times the rest of the population, you'd arrive 20+% by making that adjustment - essentially the same as private insurance companies.
Finally, and most importantly, the desire for a single payer system ignores the tremendous differential in over utilization and out and out fraud that will invariably come with it. Search on CBO and Medicare fraud. Anecdotally, I can't tell you how many times during my career as a hospital CFO we were approached by some sleaze-ball outfit that wanted to 'joint venture' with us in order to apply our good name to some Medicare mill they wanted to set up. Somehow, never happened with Blue Cross.
I strongly believe our only hope with Medicare is the introduction of market forces. If you're not already bored, and you didn't see it earlier, you can read about my experience in that realm in the comment I posted here:
External Link
Once again, thanks for letting me blow off steam.
Reply to this commentLinkReport AbuseWhile the Ryan-Widener plan has appeal, it would lead to an explosion of plans and add significantly to the cost and hassle of running a medical practice. For example, a physician would have to spend more time filling out the same information over and over with the different insurance providers wasting time and money. This already is a problem with Medicare Advantage HMOs. The better alternative is for the government to sit down with the four major insurance players Blue Cross/Blue Shield, Aetna, Cigna and United and negotiate a fixed premuim to cover all potential healthcare expenses including prescriptions. Such premium would increase annually based on the CPI. Each of the four would have to offer what Medicare offers now (a minimum set of benefits including drugs). And each could offer more if it so chooses based on its cost analysis. Thus, the Government would be out of the business paying day to day expenses of health care which is where it loses each year because of the unpredictable nature of individual illness. The relationship would be similar to a large corporation contracting with the one of the four major players for coverage of its employees. And the government would know each year what it would be spending on Medicare. Government cost would continue to rise but at a much slower pace than currently.
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