Medicare's maths problem

[Gob]

At age 78, Milton Jones feel like he's earned his Medicare benefits. "I imagine so," he says. "I paid taxes all my life." Today, Jones is retired. He volunteers and calls bingo once a week at his local community center. But for 30 years, he worked in Pittsburgh's steel mills. "I'd mostly run a 983-Caterpillar," he says, "and I'd clean up the molten slag after the the ladle ran over."

It was hard, hot work. And Jones — like many seniors his age — says because he's paid in, he's earned the benefits Medicare pays out. In Seattle, 68-year-old retired librarian Diane Rosolowsky qualified for Medicare shortly after a traumatic brain injury. She was grateful for the benefits she received. Years earlier, when she helped run her husband's veterinary clinic, she told employees who scoffed at Medicare tax deductions on their paycheck, "'That's your prepaid medical care for when you are a senior citizen!' "

And in Brookline, Mass., 86-year-old Elane Shapiro says she didn't have to struggle with medical bills after her husband died and she was diagnosed with cancer. "I was taken care of. I've always paid my taxes." she says. "I think most people feel the way I do. If anyone talks about changing Medicare, we get very nervous."

Some seniors get more than nervous, as U.S. Rep. Paul Ryan learned in a town hall meeting in his home state of Wisconsin this past week. "Hey, c'mon!" Ryan told an increasingly hostile crowd. "If you're yelling, I just want to ask you to leave." Ryan is the Republican point person for budget reform in the House. And Democrats are painting his plan as as an attack on Medicare, even as some Senate Democrats support a bipartisan plan that includes cuts similar to Ryan's. There's a reason system current system is unsustainable, says Eugene Steuerle, a former Treasury Department official and senior fellow at Washington's Urban Institute. He boils it down to two simple numbers.

"An average couple retiring today has paid just a little over $100,000 in Medicare taxes" over the course of their working lives, Steuerle tells Guy Raz, host of weekends on All Things Considered.

And what do they receive?

"About $300,000 in benefits" — even after adjusting for inflation.

I caught this NPR report on the radio on the way into work. fascinating dilema. Your thoughts?

[Scooter]

Doesn't tell the whole story. Employers also contribute a matching share of FICA. There are also premiums, deductibles, and copays that are paid post-retirement. And without seeing the assumptions that go into crunching those numbers...let's just say I'm more than a bit dubious.

[Gob]

There was something about that on the program, even factoring in employers contributions, there's still a huge shortfall.

That is not on the web report, you may get it by listening to the audio report. It's linked to at the webpage, (11 mins long.)

[BoSoxGal]

I listened to the whole piece - it's very good and worth hearing. A fairly extensive analysis of the issue, Scoot.

[dgs49]

By no honest calculation can a typical 80 year old claim to have "paid for" his or her Medicare benefits. That steel worker probably retired at age 55 (based on averages), so has benefitted royally from his company-paid insurance and the Medicare system.

Rep Ryan's approach is simply to consider that the current system rewards hospitals, clinics and doctors for the number of procedures and visits performed. They "profit" from - shall we say - being as "thorough" as they dare. While our Physicians may in general be the most saintly people that God ever deigned to place on this earth, it is nevertheless unwise in the extreme to pay them for being wasteful, which is what we have now.

The only mechanism in our society and culture that "works" is the competitive marketplace. Give people the money, free-up the insurance companies to compete across state lines, and watch competition to go work.

[Long Run]

The combined Medicare tax is 2.9% of payroll. Thus, a person making $50,000 per year pays $1,450 per year (that is his and his employer's tax payment). If I am doing the maths correctly, to pay $100,000 in, would take almost 69 years. Most people work for about 40-45 years, and the average wage over the course of a lifetime is less than $50,000 (since median household income, including two and three earner households, is less than $50,000). I would estimate that on a time value of money basis, if Medicare actually had a trust fund that invested a person's contributions and earned 6%, that the lifetime contribution at $1,450 per year would exceed $200,000. (But of course there is no real trust fund and no pre-funding of anyone's retirement benefits).

So, the average person doesn't come close to paying for their own benefit. However, everyone pays in, and like most taxes, the well off pay a lot more in to subsidize the lower earners. That really isn't the problem.

The problem is that when wage/tax increases average about 3% increases per year, and medical inflation average between 10 and 20% per year, the system is unsustainable when large portions of the previously tax paying folks retire and start drawing the more costly benefits. To double the problem, the demographics are working against the system since a larger percentage of the workforce is going onto Medicare than are being replaced by new workers coming into the system.

[oldr_n_wsr]

a larger percentage of the workforce is going onto Medicare than are being replaced by new workers coming into the system.

Damn baby boomers. I heard/read somewhere that 10,000 people a day in the USA are turning 65 and entering the "system".

[dgs49]

There are two "problems" with geriatric health care costs:

(1) The pharmaceutical industry has (God bless them) created scores of very expensive, patented drugs that, when taken daily for the remainder of one's life, can greatly improve the quality of life. I blush to say that I have been taking two such drugs myself for more than ten years and I can't imagine how different my life would be without them.

(2) When we humans are in extremis, the medical world has an infinite variety of procedures, devices, drugs, and treatments, that can keep us alive for a few more days, weeks, or even months. As a result, almost 25% of total medical spending is spent on Old Farts in their last 90 days of life. MOST of this is, from an economic standpoint and a moral standpoint and a humanitarian standpoint a complete waste. We have all seen our parents and elders, ready to die, wanting to die, but kept alive by extraordinary, unGodly expensive procedures - and it's mainly because those procedures are PAID FOR BY THE UNITED STATES TAXPAYERS IN THE FORM OF MEDICARE REIMBURSEMENTS.

Not sure what the solution is. Death panels?

[Sue U]

The "problem" with Medicare is that it is a program that provides virtually the only medical insurance available for the elderly and disabled -- precisely those who have the greatest need for medical care and who are uninsurable under private plans. However, if you look at healthcare costs over the entire population, there is enough money available to fund coverage for everybody if costs were distributed fairly and the obscene profits of private health insurers were curtailed (the five largest insurers posted over $15 billion in profits for 2010, which was a 22% increase over 2009; IIRC, United Healthcare paid its CEO more than $100 million as a "bonus"). The fact is that annual healthcare expenditures in the U.S. are about $3,000 a person, with half the population actually spending nothing and 5 percent of the population spending nearly half of the total. The greatest share of expenditures is not for end-of-life care (although a quarter of Medicare outlays are for the last YEAR of life -- not the last 90 days, as dgs incorrectly supposes), but for treatment of chronic diseases such as diabetes, heart disease, COPD, cancer, etc. If all citizens were brought into a single not-for-profit pool with their insurance premiums and healthcare taxes aggregated, the healthcare funding "crisis" would disappear overnight. Actual cost controls and reforms to the payment system (so as to disincentivize referrals to physician-owned diagnostic and surgical centers and "per service" billing) would ensure solvency of the system for the foreseeable future.

[Gob]

I was wondering, as, if every person pays into medicare, yet it cannot afford to pay out for the elderly alone, then something is drastically wrong. In most countries everyone pays into the 'medicare' system, and it shells out for everyone too.

[Sue U]

Again, you're speaking of the civilized world. Some blessed day we may reach that status.

[Long Run]

As noted, the reason for Medicare in the first place was that the elderly could not get medical insurance at any reasonable price, even back in the 60's. Working people could get coverage through employment or on their own. It was a heck of a lot more affordable then. If someone didn't have coverage, it could be a problem, but the costs were so much less than today that it could be covered by the paying system and what the patient could come up with. With relentless medical inflation, year after year, the system began to strain for both the retired and working folk. It is not like the system was dumb from the beginning, as it worked well for quite some time. However, changes to the system have not kept up with pressure caused by ever increasing costs.

[dgs49]

Amazingly, I believe that SueU and I are fundamentally on approximately the same page on this. If it were feasible, I would be in favor of socialized medicine for the U.S., that is, the entire medical system would be under federal control, from medical schools through direct care, and including distribution of drugs, hospitals, clinics, elder care - the works. The only private involvement would be private production of pharma and medical devices. Doctors and nurses would be employees of regional government agencies. Medical schools would be run like the military service academies, paid for with public funds and with pure competitive enrollment.

The entire system would be funded ABSOLUTELY and TOTALLY by a separate payroll tax, with no kick-in from the General Fund. End of life decisions, expensive procedures for the elderly and very sick, and other decisions involving extraordinary costs (e.g., extreme premies) would be according to principles established by regional boards of governors, and each regional establishment would be compelled to live within a known budget - no "infinite" funding.

It would have a lot of inefficiencies and a lot of shortcomings, and we would have waiting lists for elective procedures, but it would be less costly than what we have now.

Never confuse "health insurance" with "health care." They are NOT the same. Fuck health insurance.

But in the world in which we live, none of this is feasible.

[Sue U]

Amazingly, I believe that SueU and I are fundamentally on approximately the same page on this.

Surely the end is nigh.

If it were feasible, I would be in favor of socialized medicine for the U.S., that is, the entire medical system would be under federal control, from medical schools through direct care, and including distribution of drugs, hospitals, clinics, elder care - the works. The only private involvement would be private production of pharma and medical devices. Doctors and nurses would be employees of regional government agencies. Medical schools would be run like the military service academies, paid for with public funds and with pure competitive enrollment.

***
But in the world in which we live, none of this is feasible.

It is not feasible because the insurance industry, the for-profit healthcare industry and the AMA, aided and abetted by the US Chamber of Commerce, have terrified the public with the Socialism boogeyman and the myths of the "best healthcare system in the world" being subjected to a "government take-over" and other nonsense. Even so, I see no immediate need to go as far as your proposal (which really would be a full-scale government take-over). Starting with the dopey premise of employment-based health insurance that we currently have, I have long advocated for the following reforms, which I can't see as being particularly objectionable:

1. Consolidate Medicare and Medicaid into a single public program that provides a uniform package of basic benefits to anyone not otherwise covered by private insurance. Provide for additional benefits upon enrollment and payment for supplemental coverage.

2. Require all employers of 20 or more to offer a private health plan to employees that includes as a minimum the same basic benefits offered by the public program. Private plans can compete with the public program by offering additional services and/or lower costs

3. For each employee not enrolled in the employer's private plan and not covered by other insurance, the employer would pay into the public plan. For each employee that is enrolled in the employer's private plan, the employer would receive a tax credit. Each employee who enrolls his/her family members in the employer's private plan would receive a tax credit.

4. Require that private health insurers be organized as mutual insurance companies or not-for-profits (this alone would put nearly $20 billion back into the system).

Per capita healthcare expenditures in every other industrialized country -- all of which provide universal healthcare -- are roughly half that of the US, so there's obviously plenty we could do in terms of cost containment. One of the cheapest fixes is in preventative care and education, which will avoid or curtail the severity of diseases that result in hospitalization. Reducing the rate of Type II diabetes and keeping those with the condition otherwise healthy, for example, can avoid a lot of expensive complications, including blindness, heart disease and lower limb amputations. Reductions in smoking will avoid later COPD, heart disease, stroke and oral/respiratory cancers. Routine detection and treatment of hypertension and atherosclerosis can avoid or lower the incidence of heart attack and stroke.

Another major driver of healthcare costs is technology: Every podunk facility is immediately stocking up on the newest and best of every technological advancement in an effort to attract medical staff and compete with other regional centers. It is simply unnecesary for every hospital to buy every new piece of equipment so as to offer every medical service. A rational plan for regional allocation of resources, with "specialty hospitals" for certain types of care, would both cut costs and improve the overall quality of care. We are already seeing a trend toward this in both cooperation agreements for regional trauma centers and in the marketing of certain facilities as "heart centers" or "transplant specialists," etc.

Another cost driver is the per-service method of physician charges on which their reimbursement (i.e. pay) is based: the more individual services/procedures billed, the greater the payout from the insurer (or uninsured patient). Similarly, physicians who also have ownership stakes in diagnostic or surgical centers have a financial incentive to refer their patients to these facilities regardless of need or cost efficiency.

Likewise, using governmental position as a bulk purchaser of drugs, equipment and services to negotiate volume cost reductions would help lower expenditures.

Another simple cost-reduction method is improvement of hospital patient care -- avoiding nosocomial infection and iatrogenic injury -- that will reduce the treatment needed and shorten the length of stay.

These are just a few ideas that seem obvious to me from my interactions with various aspects of the system; I'm sure those working directly within the healthcare system have plenty more ideas for lowering costs, expanding access and improving care.

[Big RR]

Require that private health insurers be organized as mutual insurance companies or not-for-profits (this alone would put nearly $20 billion back into the system).

somehow I doubt that; I'd bet it would put $20 billion more into top management salaries and bonuses t balance the books and be sure a profit is not declared; that's just what a lot of "non profits" do.