Medicare Wars

How much difference is there between the Ryan budget and the Obama budget with respect to Medicare? By now most of the health care media has caught on: there is no important difference in Medicare spending — even when the estimates of the president’s budget are made by his own Office of Management and Budget and the Ryan plan is projected by Ryan himself. As Tom Saving and I explained the other day, there are a lot of other similarities as well.

Much has been made of the fact that Paul Ryan would create “vouchers,” allowing seniors to buy private insurance. To hear the critics tell it, this would radically transform Medicare by “privatizing” it. But we already have a voucher program under Medicare. It’s called Medicare Part C, or the Medicare Advantage program. One out of four beneficiaries has taken advantage of it to enroll in the same kind of health insurance plans non-seniors typically have.

President Obama has long favored reducing the payments to these plans and significant cuts are part of the Affordable Care Act (ObamaCare). However, neither the president nor any other prominent Democrat is calling for the abolition of these very popular plans. To the contrary. The administration is busily shoring them up with “bonus payments,” fearful that a significant number of plans leaving the market would anger elderly voters.

Although Paul Ryan clearly favors an expansion of private Medicare plans, his budget implicitly endorses the very same cuts in payments to them that are incorporated in current law. He would replace the current byzantine way of funding these plans with a much more efficient system of “competitive bidding,” but this is unlikely to cause partisan disagreement.

One new idea in the Ryan plan is to eventually increase the age of eligibility from 65 years old to 67 years old. But since the president has signaled a willingness to do the same thing in budget negotiations with Republicans, it’s hard to make too much of this.

In the original Ryan budget, all seniors would have enrolled in private plans. However, in the latest version, everyone will have the option of remaining in the traditional Medicare program, just as they do today. So regardless of how much the private plans are paid, total spending won’t be controlled unless there is a way to control traditional Medicare’s costs. How would Ryan do that?

We know how spending will be curtailed under the president’s approach. Under the 2010 heath reform law, the first line of attack will be demonstration projects and pilot programs that point the way to more efficient ways of delivering care.  Unfortunately, three separate Congressional Budget Office reports have concluded that the demonstration projects are either not working or are producing lackluster results. If efficiencies cannot be found, the fallback mechanism under the law is to limit the growth of payments to providers.

Here’s the problem with that. As the most recent Medicare Trustees’ report points out, Medicare payments to physicians are 80 percent of what private insurers pay and they will fall to 40 percent over the next two decades. Medicare hospital fees are less than 70 percent of the amounts paid by private insurers, and this percentage will also decline over time. The Medicare actuaries predict that one in seven hospitals will not survive these cuts over the next eight years and seniors will have increasing difficulty finding doctors who will see them.

This is where the advantage goes to Ryan. If something in the Democratic approach actually works, Ryan is free to adopt it as part of his approach. But he is not locked into it. In an article in Health Affairs Saving and I proposed a number of ways Medicare spending could be curtailed without squeezing doctors and hospitals. These include allowing seniors to pay the market price for their services at walk-in clinics and other retail health care outlets. We also proposed allowing seniors to manage more of their own health care dollars through Health Savings Accounts.

The Ryan approach at least has the possibility of making the slower growth of Medicare less painful by turning to market-based reforms rather than suppressing provider fees.

Comments (25)

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  1. Nichole says:

    Is raising the age of health care from 65 to 67, really going to make a difference?

  2. Otis says:

    From looking at the numbers, Nichole, it would make some difference, but they would likely have to raise the age again down the road.

  3. David says:

    Good post. Thanks for clarifying this.

  4. Eric says:

    Except Romney is now saying that he’ll eliminate the Medicare cuts, presumably to pander to older voters.

  5. Bob Geist says:

    John, yes the Ryan Medicare plan has many similarities to ObamaCare and especially to the Medicare Advantage program. what ought to be disturbing about the similarities is that people (aka “populations”)are auctioned and that the Medicare Advantage program is one of the most costly forms of medical delivery ever created–some recnet figures were 112% or 114% of the cost of a traditional Medicare paient.
    If Ryan’s plan allows for HSA-like policies (a defined contribution for both the major med and the HSA portions) there is chance that medical inflation can be controlled. Auctioning populations to HMO insurance corporation “delivery systems” (a form of NHS as massive mergers now portend, e.g., Aetna’s acquisitions this week)will only increase our inflation woes–and further destroy patient-centered quality care (its personalization, timeliness, continuity,and trust in referral.
    If freeing up patints to use FFS Walmart and subsidized community clinics is such a good idea, why not allow balance billing for all Medicare patient services in all clinic offices? Does the Ryan or Goodman plan include this possibility.
    As always thanks for your astute analyses. Bob

  6. John Goodman says:

    Bob: Yes we advocate allowing — as a trial run — some doctors to charge more to see if there is a willingness on the part of seniors to pay out of pocket for better service and more timely service. If that works well, I would favor allowing all physicians to charge any fee they like.

    Right now, there is no real market and no market determined fees. So we want to experiment to see if one will develop.

  7. Chuck says:

    Medicare just simply can not keep pace with actual costs.

  8. Kyle says:

    The PCP payment reductions Dr. Goodman referenced, from the trustee’s report, aren’t even factored into the trustfund projections.

  9. Leanne Hoagland-Smith says:

    Would not having private medical health savings funds actually create some competition as paying in cash usually secures a lesser charge because all that billing time is now eliminated along with the payment inflation? This would seem to work for standard doctor’s visits and some diagnostic tests.

    Where is the issue of lawsuits, malpractice addressed? Given the America way now appears to be sue, one must sue all involved and cannot just sue the doctor or the hospital. Legislators who are lawyers have written laws keeping them from being counter sued.

    Finally, where does personal responsibility and accountability come into all of these laws? I thought the purpose of health care reform was to make our country healthier not just economically, but for each citizen to be healthier.

    By only focusing on the financial end, this focus ignores the behaviors. Those behaviors can be directly tied to 70% of the 4 major diseases from the several studies I have read. Until the behaviors are addressed, the law of supply and demand will still be in favor of the demand and reduced supply.

    Leanne Hoagland-Smith

  10. David says:

    Giving everyone optional alternatives to Medicare sounds like the right approach, politically and economically, to weaning us off that program.

    HSA’s are a one great approach(thank you, Dr. Goodman!). Using the Constitution’s Commerce Clause, as it was intended, to knock down virtually all barriers to interstate competition in the sale of health insurance, is another good strategy.

    As long as doctors, hospitals, and patients are free to choose between open-market solutions and Big-Government solutions, we should be ok. Eventually, the BG Medicare-based solutions will atrophy to something much smaller, perhaps to only Medicaid for the very poor.

    Instead of designing new or modified gargantuan programs, our government should remove all the barriers to competition that they can, wherever they can. Those who still prefer Big Government to run their healthcare can do so, and the rest of us can move on …

  11. Corey says:

    “These include allowing seniors to pay the market price for their services at walk-in clinics and other retail health care outlets. We also proposed allowing seniors to manage more of their own health care dollars through Health Savings Accounts.”

    Both of these are an improvement over the status quo, but they neglect those that rely on medicare payments and have little beyond that.

  12. Al says:

    The real problem is the percentage rise in Medicare costs. Raising the age by 2 years might temporarily lower the curve but it doesn’t satisfactorily impact the years where the spiraling unsustainable rise in costs are most prevalent.

    John writes: “if there is a willingness on the part of seniors to pay out of pocket for better service and more timely service. If that works well, I would favor allowing all ”

    Though balance billing is a great idea it doesn’t do anything unless the increase in Medicare payments cease or at least fall to a more sustainable rate.

    Let me state it another way “if there is a willingness” or if there is not a willingness, balanced billing or not, is meaningless. This is cost shifting without any savings to Medicare unless Medicare reimbursements are more carefully managed so that total Medicare payments do not continue to rise in an unsustainable fashion.

  13. Madeleine Tector says:

    Are we suppose to believe someone , Obama, who stole700 billion dollars from our Social security ? Are we suppose to believe soemone who has been pushing this crap since last year with no takers? Its a rotten plan and seniors are having trouble now trying to figure out whats the best plan and what they can afford etc. we made a deal, we have kept our part of the bargian unlike our august Government. I will not vote for my party this time around because I would rather stick a needle in my eye than vote for Ryan. He is an opportunist and not a very bright one, he is obvious. the only thing this will get him is a long vacation wondering what happened to his job. He is also going ot “fix’ Social security, the only way to fix it is to stop taking money from it, you didn’t work for that money, we did, where I come from they call it stealing. Riding around campaigning for this with his mother was the cherry on the cake, I doubt if she has to worry about medicare , if her son becomes vice President he won’t have to worry about health care or anything else, neither will his mother. that is pure disgusting unethical trashy campaigning. Mexicans and Africans and anyone who has come here in the last 25 years , the vietnamese, anyone, always were handed a medicaid card, Americans paid, they were also given SS disability cards, thats right, and their old mothers got them too, then you wonder why you have no money for American coverage. It was all given to immigrants legal or illegal and it still is, a lot of it was payment for the vote. Bill Clinton was the king of that scam. Now we are being robbed by a usurper, His Birth certificate is in the British archives, Hillary saw it in 20008, guess she forgot to mention it. This man is a thief and he is being aided and abetted by everyone in Government and now you want to short change us? I don’t think so, let him try it this time, all I hear every day is threats to my life from fema camps ot drones, if anyone needs medicare its us.You know, we paid into that, we didn’t ask fo rit, we had insurance, but when my husband retired his insurance wound up paying 20% of ou rbill and the meidicare paid 80%, we couldn’t figure out why they would do that until they started handing it out to every immigrant that came down the pike.My husband has congestive heart failure, we now have a hjole in our insurance from Obasma robbing that 500 billion, what so I do now? can we come live with you? Romney is not even eligible ot run, he hss not been vetted, his parents were born in Mexico, huh Oh, now what?

  14. Dr. Bob Kramer says:

    and probably all the others are wrong too. You cannot use an economic model when dealing with health care. It can only succeed if a medical model is used which requires honesty among the players, avoiding unnecessary procedures, not being able to take the time to listen to the patients, which if given in a timely fashion could reduce the cost of healthcare by 50-60% by employing only those tests and procedures that are clearly indicated.

    Dr. Bob Kramer

  15. Bob Hertz says:

    1. Given that American hospitals have been building new towers, buying super-expensive equipment, and raising wages dramatically over the past 20 years, I am not troubled if some of them may have to close due to Medicare cuts.

    The cost of hospitals has soared, even as they have become less needed in health care due to innovations in surgical technique and better drugs.

    There are many cities where hospitals have sustained the construction industry and the local labor market all by themselves.

    This is a bubble that is eventually going to pop. It will not be pretty economically I admit.

    2. The benefit structure in Medicare is not included in the Ten Commandments.

    It is pretty hard to abandon Part A for hospital care, since seniors are going to slip and fall and get pneumonia forever. That is what being old is all about.

    But many changes can be made to Plan B for office visits, diagnostic tests, etc.

    HSA’s are one option here.

    I would be more radical myself. For example, Medicare could stop paying hospitals more to do outpatient procedures than it pays free standing clinics.
    Yes, hospitals do have a higher cost structure. Well that is their fault, quit rewarding it.

    Also, Medicare could stop paying for any diagnostic tests over age 80. My father had many tests in his last years of life, and all the tests showed one thing — he was old, and his body was frail.

    We could even drop Part B altogether, and give each senior a voucher for $1500 to see doctors. They could see a doctor ten times a year and not owe anything out of pocket. There would be no fee schedule, no claims, no regulations on doctors, etc.

    Of course, as Robert Samuelson pointed out recently in the Wash Post, both of our political parties are afraid of offending seniors even in tiny ways. The changes that I would impose will not be easy to bring on.

  16. DoctorSH says:

    Even Ryan’s plan does not truly open the free market to the consumer , if the consumer, the patient, still has no idea what a medical service costs, and if the consumer is not responsible for the cost.
    Ryan’s plan may open up a market for insurance, but so what?

    I disagree partly on allowing docs to charge more for Medicare patients if they want.
    Because if docs can collect from Medicare patient directly, instead of having to go through billing and administrative bs, docs may actually charge less!

    I know of one doc who does this.
    He opted out of Medicare and charges his lower income patients well less than Medicare.

    That doc happens to be me!

    In any plan, we need patients to pay the doc up front. How the patient gets the money for that, whether in insurance premium savings, hsa, govt contributions, etc, is up for debate.
    But having patients pay directly for their care, other than catastrophic should not be!

  17. Charlie Bond says:

    Hi John,
    Two points give me hope this morning (Sept 7), The IM’s report estimating medical waste (unnecessary treatment etc) at 30% and the announcement that the Tufts medical group is creating a PATIENT-OWNED insurance plan. The government is funding that plan to the tune of $88M in start-up costs, but if doctors and hospitals become directly accountable to consumers for pricing and for utilization, perhaps there would be a chance for a free-market solution. When we started the Patient-Physician Alliance, we dreamed of building a critical mass of providers and public members to become a market player. Now all we need is the gov’t’s $88M.
    Charlie Bond

  18. Ginny Giardini says:

    I’m with Madeleine! I don’t remember ever agreeing to lending the government money from Social Security or Medicare — and yet they “borrowed” it anyway. Here’s a solution — bring the soldiers home and stop being the world’s policeman — all that money saved in one day could be put back into SS and Medicare and what do you know the problem would be solved! The United States has to stop worrying about everyone else in the world and start to worry about the legal citizens right here in the good ole USA!

  19. Mary says:

    In all of the senarios above, it does not seem to be considered that most seniors have much lower income. Most all have paid into Medicare for 25+ years. With lower income and having invested in Medicare with the expectation of lower out of pocket medical costs as seniors, the above explanations don’t seem to really address the needs of most seniors. I am not understanding.

  20. Peggy Vargas says:

    One issue I haven’t seen addressed anywhere is the mandatory nature of Medicare. For those of us working or planning to work past 65 with employer-provided or self-provided insurance, the private insurance is either dropped or becomes secondary to Medicare. If I decide not to sign up for Medicare (assuming I’m not automatically dropped by my private insurance), I am penalized if I sign up at a later date. I don’t want Medicare, but I am being forced in that direction!

  21. Val says:

    Something that is constantly missed is that most insurance contracts require providers to charge the same price to both the insurance company and the individual. Then, both Medicare and insurance companies pay only a fraction of the bill. If the individual is paying his/her own bill, he/she pays the entire billed amount. We need antitrust legislation and a prohibition of cost discrimination. No one has a clue what anything costs.

    If Medicare recipients could buy high-deductible, catastrophic insurance and pay their own first-dollar bills out of an HSA, you’d see prices drop like rocks. Getting insurance companies involved from the first dollar adds a lot to the cost of health care service.

  22. Peggy Vargas says:

    @Val. I’m a little leery about antitrust legislation and adding more regulation where too much regulation is already part of the problem (ie mandated coverage for this and that). But I have an HSA, “for as long as it’s offered” by my insurance company (a new wrinkle since Obamacare) and I highly recommend them! Especially for younger people. I started late since they were not legal in Washington State until passed into national law under GW Bush, but it’s part of my plan to avoid Medicare as long as possible.

  23. Delane Chapman says:

    The one thing everyone seems to be overlooking is the fact that seniors now pay a deductable much larger than the younger market. If they want Medicare to pay 100% of their medical needs, they must pay not only about $125 a month to the government for their Medicare like all Medicare recipients (even though thy have already paid for it all their lives), then about $250 to $350 a month to an insurance company for a Medicare Supplement plan. That’s almost $400-500 a month just for Hospitalization. And the government is griping about that? I’d say THEY ARE GETTING OFF CHEAP.

  24. Val says:

    @Peggy, antitrust legislation would stop the costly, secretive contracts between insurance companies and providers. Those secret contracts serve merely to corner the market and delude consumers.

    Do not count on having your HSA past age 65. Unless you are a federal government employee, you will have no choice but Medicare – government health care. You’ll be able to use what you have built up in the HSA, but you won’t be able to deposit more into it. If Obamacare sticks, anyone over 30 will not be able to get a high-deductible policy.

    @Delane, your numbers and what is covered by each part of Medicare are a bit off. Best check your facts.

  25. Darlene King says:

    Having worked in various types of medical facilities over the years, it concerns me that there is no question about billing practices. Have you ever checked an itemized hospital bill? The prices for procedures alone will astound you. If you do not pay close attention, they will have you paying for medication and/or lab work you didn’t have. Then you have the doctors that bill you for your entire stay in a room when they may have seen you but once. They also call in all their doctor buddies for consults that are neither wanted or needed. My mother has recently had some UTI problems for which she has been referred by her primary doctor to 3 other doctors. They have all done the same test(s) and sent her back to her primary for treatment. So far she has received no diagnosis or treatment from any of them. This is all such a racket, and it is going on all over the country. Why isn’t someone looking into the fraud that is being perpetrated by doctors hospitals and medical clinics against Medicare, Medicaid and Private Insurers? It would be far easier to control spending on health care if they would look into controlling the billing of health care. Use some of that government waste (excess employees) to monitor and/or control medicare/medicaid claims.