Why Medicare is the solution to the soaring costs of health care

Not only is Social Security on the chopping block in order to respond to Republican extortion. So is Medicare.

But Medicare isn’t the nation’s budgetary problems. It’s the solution. The real problem is the soaring costs of health care that lie beneath Medicare. They’re costs all of us are bearing in the form of soaring premiums, co-payments, and deductibles.

Medicare offers a means of reducing these costs — if Washington would let it.

Let me explain.

Americans spend more on health care per person than any other advanced nation and get less for our money. Yearly public and private healthcare spending is $7,538 per person. That’s almost two and a half times the average of other advanced nations.

Yet the typical American lives 77.9 years – less than the average 79.4 years in other advanced nations. And we have the highest rate of infant mortality of all advanced nations.

Medical costs are soaring because our health-care system is totally screwed up. Doctors and hospitals have every incentive to spend on unnecessary tests, drugs, and procedures.

You have lower back pain? Almost 95% of such cases are best relieved through physical therapy. But doctors and hospitals routinely do expensive MRI’s, and then refer patients to orthopedic surgeons who often do even more costly surgery. Why? There’s not much money in physical therapy.

Your diabetes, asthma, or heart condition is acting up? If you go to the hospital, 20 percent of the time you’re back there within a month. You wouldn’t be nearly as likely to return if a nurse visited you at home to make sure you were taking your medications. This is common practice in other advanced countries. So why don’t nurses do home visits to Americans with acute conditions? Hospitals aren’t paid for it.

America spends $30 billion a year fixing medical errors – the worst rate among advanced countries. Why? Among other reasons because we keep patient records on computers that can’t share the data. Patient records are continuously re-written on pieces of paper, and then re-entered into different computers. That spells error.

Meanwhile, administrative costs eat up 15 to 30 percent of all healthcare spending in the United States. That’s twice the rate of most other advanced nations. Where does this money go? Mainly into collecting money: Doctors collect from hospitals and insurers, hospitals collect from insurers, insurers collect from companies or from policy holders.

A major occupational category at most hospitals is “billing clerk.” A third of nursing hours are devoted to documenting what’s happened so insurers have proof.

Trying to slow the rise in Medicare costs doesn’t deal with any of this. It will just limit the amounts seniors can spend, which means less care. As a practical matter it means more political battles, as seniors – whose clout will grow as boomers are added to the ranks – demand the limits be increased. (If you thought the demagoguery over “death panels” was bad, you ain’t seen nothin’ yet.)

Paul Ryan’s plan – to give seniors vouchers they can cash in with private for-profit insurers — would be even worse. It would funnel money into the hands of for-profit insurers, whose administrative costs are far higher than Medicare.

So what’s the answer? For starters, allow anyone at any age to join Medicare. Medicare’s administrative costs are in the range of 3 percent. That’s well below the 5 to 10 percent costs borne by large companies that self-insure. It’s even further below the administrative costs of companies in the small-group market (amounting to 25 to 27 percent of premiums). And it’s way, way lower than the administrative costs of individual insurance (40 percent). It’s even far below the 11 percent costs of private plans under Medicare Advantage, the current private-insurance option under Medicare.

In addition, allow Medicare – and its poor cousin Medicaid – to use their huge bargaining leverage to negotiate lower rates with hospitals, doctors, and pharmaceutical companies. This would help move health care from a fee-for-the-most-costly-service system into one designed to get the highest-quality outcomes most cheaply.

Estimates of how much would be saved by extending Medicare to cover the entire population range from $58 billion to $400 billion a year. More Americans would get quality health care, and the long-term budget crisis would be sharply reduced.

Let me say it again: Medicare isn’t the problem. It’s the solution.

Robert Reich is Chancellor’s Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton.  He is the author of Aftershock and blogs at his self-titled site, Robert Reich.

Submit a guest post and be heard on social media’s leading physician voice.

Comments are moderated before they are published. Please read the comment policy.

  • http://www.facebook.com/profile.php?id=622370366 Katie Sweigert Jabbar

    Hmm, interesting that this article doesn’t mention that Medicare reimbursements to physicians are significantly lower (typically 30% lower) than private insurance gives.  Practices who do accept Medicare end up charging privately insured patients more to make up for the Medicare rate.  Good luck finding many doctors who will accept Medicare if it were expanded.  They could not possibly treat such a great increase in Medicare patients.

    • Anonymous

      So, where’s the point that malpractice threats are also driving up costs?  Just as the author made up some terrible allegations, I must assume he has family members who are lawyers.
      Also, if I had to accept Medicare rates as payment for all patients, my income would drop by 40-50%, so maybe I would take up another career.
      Patients have to accept more responsibility, not only in their health habits, but also in financial risk.  So Medicare won’t pay enough–let physicians be able to charge the difference between what Medicare pays and what the cost is of keeping the doors open.

  • http://EasyOpinions.blogspot.com/ Andrew_M_Garland

    Mr. Reich presents many interesting points. Unfortunately, despite being an “expert”, he provides no links or sources so that we can check his work. This is the age of the internet. Mr. Reich is not limited to a brief op-ed.

    Consider the following criticism of some of Mr. Reich’s statements.

    Overall life expectancy is repeatedly cited to claim that the expense of US healthcare is wasted, and that only governments deliver inexpensive, quality care. This is supported by an intentionally biased interpretation of the statistics.

    USA Healthcare is First – Infant Mortality is Low

    John Stossel reviews this well. “Why the U.S. Ranks Low on WHO’s Health-Care Study” (at the above link) analyzes that life expectancy is a bad measure of a country’s health-care system. The US has far more fatal transportation accidents than other countries. Our homicide rate is 10 times greater than in the U.K., eight times greater than in France, and five times greater than in Canada.

    When you adjust for these fatal injury rates, U.S. life expectancy is actually higher than in nearly every other industrialized nation. That doesn’t show a healthcare problem.

    The infant mortality statistics are also carefully biased. The US counts every live birth, however premature, toward its statistics, even if the infant lives only a few hours. European countries may only count infants that live at least a day or which meet other health criteria. So, they claim fewer infant deaths, which dramatically changes the statistics for infant mortality and average life expectancy.

    Critics claim that the US is spending too much compared to the numbers reported by foreign national health systems. I don’t believe that those systems are including all of their costs. Government programs do not accurately report what they spend, and they leave out required expenses of other departments not usually considered as part of healthcare.

    How is this for bias? The WHO (the U.N. World Health Organization) ranks the U.S. first in specific quality of care (many factors of patient satisfaction), then lowers the U.S. rank to 37th for “overall quality” because that care is more expensive, and is not being provided as a government service (!). Then, critics cite the lower rank to claim that U.S. healthcare delivers less, despite spending more. This is ironic and fraudulent.

  • http://www.facebook.com/profile.php?id=604263667 Bram Dolcourt

    A remarkable and amazingly out of touch article by what should be a knowledgable individual. 

    Mr Reich’s first major error is in assuming that there is some sort of collaboration between doctors and hospitals. While some doctors are hospital employees, the vast majority are not. Most make their money through physician fees. Primary care doctors see none of the money from the MRI and nothing from referring the patient to a spine surgeon for back pain. In fact, getting any money out of that would violate antikickback laws. So why do patients get an MRI for back pain? After conservative measures have failed or if the patient has any neurologic symptoms, then the legal risk of missing a surgical cause of back pain becomes too high. Blame the lawyers. Oh, and as a note, most primary care doctors send their patients to PT before doing an MRI.


    How Mr. Reich could even write this with a straight face is astounding! Few hospitals run home health care. However their are lots of home health agencies. Here is a more likely reason: MEDICARE WON’T PAY FOR IT! Medicare/Medicaid won’t cover a nurse checking on a patient and verifying they are taking their medications correctly. Nor will it cover a nurse dropping by to make sure a patient is doing well. They must perform care that can only be administered by nurse. A single payer, especially if it is Medicare/Medicaid won’t fix this.


    …because Medicare rules require tedious documentation. The rules are sufficiently complex that most physicians would be foolish to try and generate a bill on their own. The risk of accidentally committing fraud is too high. 5-10% of collections go to billing and coding. Most insurers have adopted Medicare’s rules. A single payer won’t fix this, especially if it is Medicare won’t fix this and will likely make it worse.


    HIPAA has such remarkable, large, criminal penalties that no one is willing to risk sharing. Penalties start at $100 per violation (each patient is one violation) and goes up. It doesn’t take much of a breach to rack up 100′s of thousands or millions of dollars in penalties. One hospital system paid 1 million dollars for a privacy violation on 192 patients. Again, going to an all Medicare system won’t fix this.


    This is becoming less and less common. Hospitals and individual doctors are increasingly moving to all digital systems. However, why would moving to Medicare as a single payer fix this? Unless Medicare/Medicaid plans to buy systems for those who can’t afford it, it sure won’t. All digital medical offices are expense. Rule making will only make it so that poorer offices, such as those who are willing to see the underserved, will be forced out of business.  


    This is exactly what is needed. At some point we have to either say, “No, you can’t have that” or we need to pass some of the costs on to those who are consuming it. So long as it is “free,” people will consume as much healthcare as they want. Once they have to pay for it, people start making choices and may decide that they don’t really want that MRI for their low risk back pain. This is Econ 101. 


    Ha! Medicare has created a substantial part of the problem. While it is great that it has the lowest administration fees, it has created the problem of arduous documentation and disconnected the consumer of health care with its cost, while being subsidized by other issuers that pay more. Medicare in its current form is definitely not the solution. 

    • http://pulse.yahoo.com/_MQOK6UL2J6CZOFIU27AGST4DZM Kilgore

      “…….A remarkable and amazingly out of touch article by what should be a knowledgeable individual……”

      Indeed. I will quibble only with the premise that he’s “knowledgeable”. Personally, I feel sorry for his students.

  • http://twitter.com/USMCShrink Kevin Nasky

    “You wouldn’t be nearly as likely to return if a nurse visited you at home to make sure you were taking your medications.”

    Because U.S. patients are friggin CHILDREN we need to have nurse-moms visit each patient to ensure they’re taking their meds? Really? This is the direction you want to go, because American patients aren’t coddled and enabled *enough* we need to become exponentially more ppaternalistic and treat adult patient like little kids… (in sing-songly voice) “Did you take your pilly pills today, Mrs. Smith? Oh come on now…open wide? Mr. Pill is going to take a little trip into your tummy, Mrs Smith!)

    Seriously. Give me a friggin break. Too much, already, is expected of U.S. health care. Where does patient responsibility enter the picture?  All this hand holding isn’t the answer.

    Google “Pygmalion effect” and think long and hard about this.

  • http://www.facebook.com/jonathan.marcus.ca Jonathan Marcus

    I’m a Canadian doctor.  One of the greatest problems with our system is that it limits diversity and choice and rations care.  In the short run costs are less.  But without the true freedom to innovate, things have become fairly stagnant.  As a physician, I sometimes wonder if my primary client is the government (who pays me) and not the patient.  The solution to the fiscal mess, which is medicine in the 21st century, is to promote open competition.  This will drive down prices and increase quality.  Also we need to empower patients as not only patients but as healthcare consumers.  It’s not an easy road but it sure beats centralization/ collectivization.  It didn’t work for communism and it won’t work for healthcare.

  • Anonymous

    “allow Medicare to negotiate lower rates” – What planet are you from? Medicare has been unilaterally dictating lower rates for decades! …causing all other insurers to carry the burden…which results in higher premiums for everyone!

    • http://pulse.yahoo.com/_MQOK6UL2J6CZOFIU27AGST4DZM Kilgore


  • Anonymous

    Robert Reich makes some interesting points but I simply
    cannot agree that Medicare is the path to lower health care costs. True, it has
    lower administrative expenses than other insurers. And true, it has or could
    have enormous negotiating power with drug and device manufacturers. But the
    simple fact is that Medicare has been a major reason that costs have soared
    over the years. And, unlike his assertion, it is not only because of fee for
    service payments to doctors and hospitals.


    I would suggest that one of the most important reasons that
    costs have risen is because Medicare (with other insurers following suit) have
    paid far too little to primary care physicians. This has forced them to see
    more and more patients for less and less time. Which means less time for real
    preventive care. And little or no time to help coordinate the care of those with
    chronic illnesses. We know that chronic illnesses account for 70+% of
    healthcare costs. These are patients with complex needs. When the time for
    orchestrating these needs is not there, the patient all too often gets shunted
    to multiple specialists, gets added tests, more imaging, more procedures – all of
    which rack up the expenditures.


    In response to their own frustration, many PCPs are avoiding
    Medicare (and sometimes other insurers as well) and simply charging an
    appropriate fee per visit. Others have opted for retainer based practices
    where, in return for an annual fee, they limit their practice to about 500
    patients and commit to prompt appointments with visits appropriate to the need,
    email access and 24/7 cell phone access. This means more time for preventive
    care and real time to orchestrate the complex needs of the patient with chronic
    illness. Quality goes up and costs come down.


    Medicare would need to make major changes in its policies
    and procedures to allow PCPs to once again be able to give the care they want
    to give which would substantially reduce costs for all of medicine. Reich’s
    claim that Medicare will bring down the costs of care will never be accurate
    unless Medicare changes dramatically. Right now it is the problem, not the

  • http://pulse.yahoo.com/_MQOK6UL2J6CZOFIU27AGST4DZM Kilgore

    “You have lower back pain? Almost 95% of such cases are best relieved through physical therapy. But doctors and hospitals routinely do expensive MRI’s, and then refer patients to orthopedic surgeons who often do even more costly surgery. Why? There’s not much money in physical therapy.”

    Spoken like a true academic. As the referring physician, I get no money for the MRI, I get no money for the orthopaedic referral, nor the surgery, nor the physical therapy. Cheap shot, and so very typical of Reich.

    As a physician who also does IME’s for disability, auto accidents, Worker’s Comp, the usual mix, in addition to my primary care practice, I get to see billing statements all the time. Physical therapy bills can be staggering. Not individually, but they add up. Look up medicare total spending for outpatient physical therapy and for advanced imaging, you’d be impressed, it’s pretty close.

    Gee, how about Health Savings Accounts, where the patient has personal investment in pursuing the course more likely to succees (physical therapy)?

    No……that would be a “risky scheme”.

    • Anonymous

      It is still shocking to find people that not only refuse to acknowledge
      that Medicare was doomed from its inception, but that some would
      actually wish to expand it! I suppose that these are the same
      individuals who believe that one can spend their way out of debt…

  • Anonymous

    To suggest that doctors refer people to orthopedic surgeons to increase their profit is ludicrous, like suggesting the holocoust never happened or man never landed on the moon.  The healthcare system is busted and needs fixing. Pumping more money into Medicare without fixing it is a waste.  Primary or preventive medicine needs to be improved, perhaps linking incentives for people to drop weight or quit smoking or drug use.  Insurance companies need to severed from their relationship with employers and made responsible to the people they insure.
    As for all the current cost-saving benefits quoted for Medicare, those facts are very misleading.  Medicare pays doctors and clinics at such a lower rate that many doctors refuse Medicare patients because they can’t afford to take them.  If you’re suggesting that we should fatten Medicare and screw the doctors, I believe your solution is shortsighted.

  • http://www.facebook.com/people/Stephen-Hill/100000650351082 Stephen Hill

    Where is patient responsibility brought into this dialogue?  Never, that’s where!  But that doesn’t stop us from popping out the same old liberal dribble.  Healthcare in America is sky high expensive because Americans have poor eating and exercise habits.  Period!  Biggest contributor to the cost problem.  As much as I hate not awarding trial lawyers and defensive medicine the top spot, isn’t clear to everybody that Americans are eating their way into a pandemic of obesity?  Healthcare in America is sky high expensive because Americans thrive on stress, and that stress brings a host of maladies.  (… that wouldn’t affect us as much if only we exercised)  Healthcare in America is sky high expensive because patients think that because they have insurance that means they can demand whatever health services and medications they want and they shouldn’t have to pay anything for it.  Healthcare in America is sky high expensive for the same reasons that Viagra and Cialis are such hugh revenue generators.  I have met the enemy in this war, and it is US.  It isn’t your family doctor or your orthopaedist or neurosurgeon. 

  • Anonymous

    Medicare and most insurance companies make a lot of money by delaying or making errors in claims adjustment. They keep the “float” which is the interest/investment they get for keeping the money from the physicians and hospitals. This encourages them to hire incompetents and make it a difficult as possible to understand and get mistakes corrected. All of the float money should go back to the consumer. Gald that I do not live in California.

  • Anonymous

    “You have lower back pain? Almost 95% of such cases are best relieved
    through physical therapy. But doctors and hospitals routinely do
    expensive MRI’s, and then refer patients to orthopedic surgeons who
    often do even more costly surgery. Why? There’s not much money in
    physical therapy.”

    Yes, but there is a lot of money in medical malpractice law. I “routinely” do MRI’s on back pain patients (and CT scans on headaches, and stress tests on probable indigestion) not because I get paid (as the referring doctor, I do not), but because if I miss the 1 in 1,000 spinal cord tumor, brain mass or coronary obstruction, I will get my a** sued due to our ridiculously archaic medicolegal system. How interesting that the same liberals who love to sing the praises of healthcare in every other country in the world conveniently omit those same countries’ legal systems, immigration policies, product liability laws, and nearly every other aspect that allows their doctors to practice true patient-centered and evidence based (instead of defensive) medicine.

  • Anonymous

    It is obvious that Mr. Reich has never worked a day in his life in healthcare. The reason that physicians order so many tests (and let’s be clear – it is the PHYSICIAN who orders the test, not the hospital) is to prevent lawsuits. Do you want to see this practice stop? Then we must enact tort reform. OB/Gyns and orthopedic surgeons have outrageously high malpractice insurance because of the gaping hole in the system that allows the most frivolous of lawsuits to move forward. I know this for a fact because I have been a risk manager and a hospital.

    I also agree with Stephen Hill that the patient must be responsible for his/her own health and start following the orders given to him/her by the clinician. Hospitals are struggling mightily to find a way to reduce readmissions – they won’t be paid for them soon – but unless you have a 24/7 home care aid in the home, that’s not going to happen. Home care is the responsibility of home care agencies, not hospitals. Home care is not in their purview.

    Wake up, Mr. Reich. You have been in academia too long!

  • Anonymous

    A serious issue is all the people not in the health care system for lack of affordable health insurance. Many of the self-employed in the U.S. would love the opportunity to sue for medical malpractice but first you must have health insurance before you can have your diseases diagnosed and treated.

    So many of the comments are from the sanctified brethen. It is easy to be smug and pass judgement on solutions when you have your health insurance. Go a couple of years without health insurance and see how your perspective changes.

  • http://www.facebook.com/people/Tom-Halloran/100001453479725 Tom Halloran

    Medicare and Medicaid “negotiate”?  As in: “Here’s what we pay, take it or leave it”.  Negotiation implies give and take.  By far and away the biggest burden of “documentation” at the hospital where I work is satisfying Medicare and Medicaid requirements.  There is a full-time nurse per hospital floor spending all day every day making sure that all diagnoses and procedures are “fully documented” to satisfy government payers.  Private insurers and private patients pay more, as is willfully designed into the system, to subsidize the chronic and severe underpayment in governmental programs, especially for cognitive services in primary care.  If medicare and medicaid are the “answer”, primary physician numbers will dwindle sharply from their already severely strained ranks.  I wonder if Robert Reich has ever listened to a primary care doctor? 

Most Popular