Curbing Medicare costs: Are seniors or the government responsible?

Medicare has moved to the center of this year’s presidential campaign for a single overriding reason: shrinking the nation’s long-term government deficit demands dealing with health care costs. No one – left, center or right – disagrees with that analysis.

What they also agree on is that limiting health care’s inexorable growth will require cutting future payments to those who deliver care – the doctors and hospitals, the nursing homes and walk-in clinics and the medical device and drug companies. Each group will have to adapt to a new era when their growth doesn’t automatically exceed the growth in the overall economy.

Health care economists point out that the problem is not just government programs like Medicare and Medicaid. In most years, they grow at rates that are slightly below the privately-insured market.

But the debate is now focused on the government side of the ledger because Republican candidate Mitt Romney chose Rep. Paul Ryan, R-Wis., who has championed Medicare privatization, as his running mate. They are offering voters a stark choice on Medicare from President Obama and the Democrats. It can be distilled down to a single, simple question: Who will be on the hook if the health care delivery system fails to limit health care cost growth – individual seniors or the government?

In the long run failing to curb the costs of the health care system will hurt everyone as tax revenue and future wage increases are siphoned to pay for it. Under the Republican plan, dubbed premium support,  the onus for cutting costs is placed primarily on individuals. Newly retired seniors, sometime early in the next decade, will be offered a fixed voucher to pay for either a private insurance plan or to cover the cost of traditional Medicare, which will remain as a public option to compete with private plans.

The voucher’s value will rise at a rate half a percentage point faster than the gross domestic product or GDP. If the price of those plans grows faster than GDP + 0.5 percent, future seniors will have to pay for the rest of its total cost out of their own pockets. The plan requires well-off seniors to pick up a greater share of that tab, a form of means testing.

Many of these sick, older Americans are in no position to challenge what their physicians order.

The theory backing this approach says that when health care consumers have their own money at risk, they will choose more carefully. Those acts of self-limitation will hold down health care spending.

Critics argue that approach ignores certain realities. Five percent of patients with serious illnesses account for half of all health care spending. The bulk of any individual’s lifetime health care expenditures come during the last year or two of life. Many of these sick, older Americans are in no position to challenge what their physicians order.

Moreover, many may rebel when they discover they have been put in a position where the intersection of costs and individual wherewithal are driving end-of-life decision-making. It also has the potential to be extremely unfair: people of means will be able to pay extra to get Cadillac care; an increasing share of people living only on Social Security — nearly half of all seniors — will go without, an increasingly common situation already.

And it’s not as if people make good choices when they self-ration. Studies have shown that even for the majority of seniors who are in relatively good health, having “more skin in the game” just as often leads to eschewing cost-effective and potentially life-saving measures as it does to eliminating wasteful tests and procedures.

The Obama administration has also targeted limiting the growth of Medicare spending to GDP + 0.5 percent. But under its plan, embodied in the Affordable Care Act, the limits will be enforced by cutting payments to providers like hospitals and physicians and by eliminating the extra payments given to insurance companies under the existing Medicare Advantage program, which is the government’s initial foray into Medicare privatization. That effort, enacted under President George W. Bush, wound up costing more than traditional fee-for-service Medicare.

In his interview with CBS’ “60 Minutes” (in a portion that wasn’t part of the broadcast), Romney said that the president “robbed Medicare $716 billion to pay for a new risky program of his own that we call Obamacare.” Yet according to the Congressional Budget Office, no services will be eliminated to achieve those savings.

Voters subjected to the sound bites of campaign ads will never learn that the dirty little secret of both approaches is that they embody a form of rationing.

Rather, $415 billion comes from “reductions in annual updates to fee-for-service payment rates” and $156 billion comes from reducing Medicare Advantage payment rates. The law also cuts $56 billion from so-called disproportionate share payments to hospitals that serve the uninsured, since it is expected that under the ACA more people will have insurance.

Critics of the Obama approach say that the government will never enforce those limitations, just as it has never enforced the physician pay cuts enacted more than a decade ago. They have little faith that pilot projects like medical homes, accountable care organizations and bundled payments will miraculously transform the majority of providers into deliverers of higher quality and more cost-effective care.

Voters subjected to the sound bites of campaign ads will never learn that the dirty little secret of both approaches is that they embody a form of rationing. Alan Cohen, executive director of the Boston University Health Policy Institute, differentiated the two approaches in a recent article by describing the Republican approach as “first-dollar rationing.”

“Both public and private payers limit access to basic services and primary care – either by denying coverage or by imposing high deductibles and coinsurance – even as they pay for more expensive tertiary care, often at the end of life,” he wrote. “First-dollar rationing makes little sense if we want to obtain the highest value for a long-term investment in health care. First-dollar coverage of primary care and evidence-based preventive services should be norm.”

However, the ACA will lead to more “last-dollar rationing,” he suggested. In his view, that “makes more sense because of diminishing marginal returns on expensive tertiary care, especially in end-of- life situations.” But as the president and his congressional allies learned to their great regret in 2010, it also leads to more placards decrying “death panels” and the absurd admonishment that Obama “keep the government’s hands off my Medicare.”

Merrill Goozner is the senior correspondent for The Fiscal Times who blogs at Gooznews on Health.

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  • http://www.facebook.com/profile.php?id=100003605034567 Mindy Blue

    Seniors are not always in a good state of mind to make rational cost conscious decisions on their own.

    • James deMaine

      So true. A friend recently was taken by medics to a local hospital with chest pain. He had an angiogram and was out in 18 hours without stents or surgery. The bill – $40,000. So it’s silly to think we can expect the patient to bargain for price and service!

      • meyati

        I’m having a lesion removed soon. My co-pay with my senior care HMO is either $50 or $375-they’re changing fees and installed new soft ware. So they really can’t tell me. Then it depends on how the surgeon’s office bills it and a clerk reads the bill. This is a national hospital system. My dentist gives me a discount because I self pay, and he doesn’t have to deal with insurance. He offered the discount. Not only is a patient unable to negotiate prices- the billing depends on how someone fills out the paperwork. A clerk got mad at me for some reason-she didn’t fill in my insurance number- I kept giving her the card. I received a bill for about $2,000. I had already filed a complaint about this. So it wasn’t too hard to get the paperwork redone and make a normal co-pay. You don’t have to be old to have problems in the fees you are charged-either you are sick or you are not sick. If you feel like your arm is broken, you have to pay the fees. It doesn’t make any difference if you’re 27 or 77.

  • http://drpauldorio.com Paul Dorio

    Good insight. But what’s your solution?

  • http://www.facebook.com/people/John-Wickenden/729562456 John Wickenden

    Here’s the solution Paul. It’s all laid out on a plate and pre-tested. Don’t apply free market economics to a system that by it’s nature is not free (examples: limited medical graduations, oligopic and lobbying pharma, emergency care not giving time for choice) Instead just copy the so-derided Europe. Their better outcomes and much better costs are there for the taking. Amazingly despite their far better costs the OECD has found solutions to knocking costs down another 2%.
    Are u aware with it’s single payer bargaining power the average UK monthly prescription for statins costs £1.30? THat’s $2! Are you aware how much better and more inventive the French ambulance system is?
    Just put your ridiculous pricing where it belongs. $40,000 for an angiogram plus is a very sick joke.
    Do something.

    • http://www.facebook.com/valarie.murphy Valarie Murphy

      The survival rate for common cancers in socialized medical systems is quite a bit lower than American survival rates. America leads the world in medical innovation. None of that is cheap. A single payer system means NO CHOICE.

    • Dorothygreen

      The ACA is a start. A start to understand the mess that has been created since the beginning of Medicare. Not because it was a government program but because so much was given to physicians and hospitals to buy in. Many have not stopped milking the system while some believe single payer is the way to go.
      No other country has market driven insurance for basic care whether single payer or Switzerland who has only non-profit insurance companies with administrative costs of 6%. No employee sponsored insurance. The companies can make more profit through supplemental insurance.
      Why can’t the US do it? Again, the ACA is a start. With loans to non profit insurance and exchanges, accountability of physicians, hospitals (infection rates), models (Mayo clinic, others). It takes time, it takes everyone. Even seniors. I heard from the analyists that while I pay $150,000 over my life time into Medicare, I use $450,000. Not so for me personally, this is average. But it really upsets me. I take care of myself and have no chronic diseases caused by diet, smoking, alcohol abuse. So what if I some dread disease really does attack me but there is a good chance, greater than 50% that I survive? The cost lets say is $200,000. So, I use $50,000 more than I pay in. A voucher will never work -I would not be able to pay. So much for insurnace.
      Think about this. 70% of Americans are overweight inclusive of 34% obese. This is now the biggest drive of health care costs 2/3 all costs for chronic preventable diseases – the stuff doctor deal with most of the time. Costs in pharmaceuticals (statins (the biggest money maker and B/P medicines – 5 classifications each with over 10 brands). These are far more popular than healthy dark chocolate. It costs more in surgery – it takes more time to cut through a lot of adipose tissue and deal with the complications caused by this excess that has been accumulating for years and secreting damaging factors causing diabetes, heart disease and other co-morbidities.
      This is a primarily failure of many seniors to eat well and exercise. Why should they? Cruises, senior events, tasty cheap food. Everybody I know takes medicines – it’s our genes, the way it is when you get old – you slow down. What do you mean I should cut down on my sodium and sugar? It’s hard to do? Ever attend a senior event? You don’t see many vegetables.
      The end-of-life costs for Medicare folks are huge. It’s the patient, its the doc, its the hospital policy, its the family – its the money mostly.
      Nursing homes? please no – recycle me. That is why I won’t even use the $150,000 I paid. into Medicare.
      So, who’s to blame? Look at ourselves first eating the SAD – Standard American Diet. Then the misguided nutrition recommendations, the corn, wheat and sugar subsidies,Big food lobbies, the free market insuance, the specialists who own their own MRIs and do unnecessary care, the physicians with pharmacies in their practice – charging more to insurance companies and those who don’t talk to each other about a patient’s care. There are hospitals who cut staffing, to pay their CEO salaries and investors.
      I have read much of the ACA. I am impressed with the number of hits on abuses, the progress with fraud, the attempts by ACOs to make a difference, the individual mandate whatever you call it – it is to decrease the freeloads. Know any? I do. Know anyone who is really healthy person who has to pay extraordinary premiums because of a congential defect. I do.
      the ACA is 2700 pages of double space legalese If you divi by 50 years is 54 pages a year. It it were a book, single spaced, full page – it would be half the pages of Atlas Shrugged and provides a lot more solutions to what ails this country.
      But even with the ACA if we do not reform our eating culture we will never get out of the National debt.

      • http://www.facebook.com/people/John-Wickenden/729562456 John Wickenden

        Great post Dorothy
        I admire your actually reading the ACA rare among those who comment on it so liberally. As a resident of Thailand I won’t go that far but I have great concern about this matter. To downward adjust US healthcare and military to those of countries not controlled by lobbies and myths could bring your budget to workable levels.
        If this is not done you have potential for truly great strife in America where the far Right Wing with the help of the Christian Right could radically endanger the stability of your country as you know it. ….and thus the world!

        • meyati

          There’s a part of Texas where I’m considered a murderer. A dear aunt had several pacemakers and multiple knee and hip replacements and was scheduled for more. She told me about her agony, and she wished that she could refuse extreme medical care without going to hell. I asked her if she believed that god was calling her home or were the doctors playing god by keeping her in this life. I explained the living will, and that it was legal.She didn’t even know that there was such a thing. She went to her doctor and filled out the do not resuscitate order. After I left, she tried to explain this to the family. She died 3 weeks after I returned home. The family called me and made death threats, because I murdered her. The American medical community has to accept responsibility with this focus on end of life care. I’m having trouble getting an order. I can’t walk into an office and get a living will that will let me pass when god calls me, as I have to get one from my doctor. He doesn’t believe in them, so he doesn’t have the paperwork for me to fill out. They don’t seem to have any in a clinic with 20 doctors. He’s a really good doctor in other ways. I have RSD, severe IBS, GERD, and tendon damage and other problems from statin poisoning. I’m ready to leave here. I’m not suicidal-but it would be a relief to take the next step. I spent all winter in PT because of the statins. Now I can walk around the house.

          • http://www.facebook.com/people/John-Wickenden/729562456 John Wickenden

            Hello Meyati
            just a thought……
            I sympathise with your situation. Seems to me as one ages it’s not a matter of if you have something wrong it’s a matter of which combination of things!
            A thought occurred to me. IBS is often associated with depressive/anxiety states where the glass will be half empty. Is this the case with you I wonder?
            Whilst fully endorsing your right to do as you wish and not thinking you in the least bit crazy for being ready to die when it comes, I would ask if the IBS…..or the melange of causes or co-factors of IBS……may be affecting your judgement in a way that without it you might think otherwise.
            As it is difficult to judge one’s own mental state it may be worth scoring yourself or being scored on a formal scale. If you would wish I could ask a great friend more qualified in this area than me which exact one he’d recommend….or you can Google it. I think it would be useful knowledge for you. In any case I would suggest absorbing the Stoic cornerstones, say Seneca or Marcus Aurelius, as an excellent prophylactic against negative mental states.
            IBS can take a little time to go, but I for one got better and I hope you bear this in mind, and warmest good wishes to you.

  • http://www.facebook.com/people/John-Wickenden/729562456 John Wickenden

    Hi Valerie
    I have no doubt the US does well in specific areas of medical treatment and innovation. However if you measure all the things which are important as a bundle, as the OECD has done, I’m afraid you come way down the list behind other advanced countries and broadly including Europe. All this despite spending an amount which is simply unsustainable and, if you merely copied others (hopefully copying their outcomes at the same time) could be remedied.
    BTW when you say Europe has no choice check out this paper:
    http://www.oecd.org/economy/productivityandlongtermgrowth/46508904.pdf

    Forgetting about the horrible chart in fig1 which shows the USA uniquely, as an outlier in fact, where it doesn’t want to be, ie worse mortality at double the cost, take a look at fig3. My interpretation is that out of 29 countries 24 have “ample user choice” because of the way they’re structured (or “limited or no gatekeeping” which means the same thing), whilst 5 have “limited user choice.” The UK is one of those but in fact if you are not happy with your treatment or delay you can ask to be dealt with on the Continent…..which is an hour’s flight!
    Things may not be as the myth so repeatedly says! Your demand for CHOICE presumes BTW that laymen MAKE good choices in areas of specific expertise like financial and medical…..this is blatantly not so.
    As for James’s friend who got charged $40,000 for angiogram etc my sister DID receive stents in the UK. It was done in a timely manner and was a model of efficiency and she was out within 24 hours. The bill of course didn’t come into the equation no worries for anyone when they don’t need them. and 15 years later she is very well indeed in fact fell running for a bus last week at the age of 78! The ambulance with a highly trained crew was there within minutes for a nasty laceration. The only op I’ve had in the UK was a hernia. It was also a model of efficiency, I was done in a batch of four and out same evening. Anecdotes do not an argument make but hey an n of 3 is better than an n of 0.
    As an ex resident of the UK and other European countries I can tell how much nicer life is to not have the burden of healthcare worries constantly niggling…..because that’s what I see in all my American friends except those fortunate enough to have Cadillac insurance….and they pay through the nose another way. In Europe people really don’t even think about it, and physicians seem very happy running on something like the Mayo salaried model.
    Don’t allow insurance companies with all their associated financial and timewasting “friction” where they don’t belong!
    Cheeryble