Sunday, April 04, 2004

Talk of Medicare going bankrupt is once again dominating the news. The pattern is utterly familiar.

Program trustees issue a report forecasting that Medicare revenues are insufficient to keep pace with future spending obligations and that the trust fund for hospital insurance consequently will become insolvent (last month’s report moved up the projected date of insolvency to 2019). Media accounts warn in hyperbolic tones that Medicare is “going bankrupt.” And politicians declare that “hard choices” must be made if Medicare is to be saved.

Unfortunately, most Americans do not realize that a program like Medicare cannot, like a private trust, go bankrupt.

Medicare has survived four decades of such warnings without any disruption of services to its elderly and disabled enrollees. Despite repeated earlier forecasts of insolvency, Medicare has never gone bankrupt — and it’s not going bankrupt this time around either.

Intended as prudent warning, the forecasting of Medicare’s future finances — and the alarmist language accompanying media reports — instead frightens and misleads the public, and opens the door to imprudent policy debates.

The intermingling of the vocabularies of trust funds, solvency and fiscal prudence has been a central (and ambiguous) feature of social insurance politics in America since the New Deal. Clarifying the language is a precondition to understanding the fiscal realities of a program like Medicare.

In the first place, no precise analogue to private bankruptcy exists in public programs like Medicare. The program’s hospital “trust fund” refers to an accounting term, a conventional way to describe earmarked revenue and spending. The very notion of a public “trust fund” emphasizes the “trust” that earmarked financing (such as the Medicare and Social Security payroll taxes) was originally meant to symbolize.

Since the mid-1930s, the federal government has used the language of trust funds to underscore the solidity of commitment to finance promised benefits in social insurance programs. Other agencies of government came to use this same device to describe specially favored (and protected) objects of governmental support. By the late 20th century, Americans had grown so used to such accounting conventions that the fundamental differences in private and public trust funds have become indistinct.

In private firms or households, a trust fund without funds is literally insolvent, unable to finance any activity. Private trusts cannot tax and their other options are highly constrained. It makes sense to think of private “trustees” making sure the projected income from the trust fund’s “investments” are financially realistic; there is no place else to turn if the invested capital is lost or the income sharply reduced.

Congress, on the other hand, has a radically different relation to the financing and spending decisions affecting trust fund programs like Medicare. It can, for example, change the hospital payroll tax rate for Medicare and immediately eliminate any shortfall, if it has the political will to do so. Likewise, the Congress can alter the benefits and reimbursement provisions of the program’s hospital or medical coverage. Or it can do some of both, as it has in different proportions over Medicare’s operational history since 1966.

Thinking that the trust fund is the crucial fiscal variable is analogous to thinking that a thermometer’s reading constitutes a heat wave or a freeze. Fiscal strain and political stress — that language accurately describes Medicare’s budget circumstances at some times and not at others. News accounts sometimes treat Medicare’s bankruptcy as a predetermined fact. Nothing could be further from the truth; the notion of bankruptcy as destiny distracts from Medicare’s capacity to alter its own future.

The trustees’ reports always stress that the projected date of insolvency assumes no corrective federal action or policy changes. But history shows that Medicare always has taken action to solidify its finances. In the 1980s, Medicare reformed its payment system for hospital and physicians, slowing down growth in program spending and pushing back the estimated date of trust fund exhaustion. More recently, the 1997 Balanced Budget Act included a series of Medicare reforms that dramatically controlled spending.

The result: While in 1997, Medicare’s hospital insurance trust fund was projected to become insolvent by 2001, by 2000 the trust fund was not predicted to be insolvent until 2025, the most optimistic fiscal forecast for Medicare in a quarter-century.

The lesson here is straightforward. Forecasts are simply possible futures, not predicted ones. Understood that way, the story worth telling is that attention now should focus on the problems and disappointments the recent Medicare legislation has generated, not handwringing about 2019. There will be plenty of time to worry about then; now is what is at issue.

(Theodore Marmor, a professor at the Yale School of Management, is the author of “The Politics of Medicare” (theodore.marmor@yale.edu ). Jonathan Oberlander, an associate professor of social medicine at the University of North Carolina-Chapel Hill, is the author of “The Political Life of Medicare” (oberland@med.unc.edu ).)

Click here to view the article at Post-Gazette.com.

PRO: Dr. John C. Nelson, AMA
CON: Dr. Don McCanne, Physicians for a National Health Program

Dr. John C. Nelson is president-elect of the American Medical Association.

Providing health insurance to the swelling ranks of the uninsured has become one of America’s most pressing health care issues.

As physicians, we know that when our patients don’t have insurance, their health is in jeopardy. In fact, uninsured women are twice as likely as women with insurance to die if they have breast cancer. While many states and the federal government are working to cover the uninsured, much more needs to be done to provide the majority of uninsured Americans with stable health care coverage.

To most effectively increase health care coverage, we need a national solution that builds on the strengths of our current system. The American Medical Association has long held that properly structured tax credits are the best approach to covering the uninsured.

The existing tax exclusion for employer spending on health insurance should be transitioned to a system of tax credits for individuals and families to obtain health insurance. Currently, the government provides a $100 billion subsidy for health insurance to employees who receive employer-sponsored health insurance every year. The result: Two-thirds of the tax subsidy goes to the wealthiest one-third of American families.

Tax credits should be inversely related to income and generous enough to put health insurance within everyone’s reach. They should be refundable, and advanceable, so that families who owe little or no income tax still receive the tax credit, and those who cannot afford monthly out-of-pocket premium payments can purchase coverage without waiting for a year-end tax credit.

Just as strong as the AMA’s support for tax credits is our opposition to the single-payer health system proposal. Long waits for health care services, delays in adopting new technologies and maintaining facilities, and development of a large bureaucracy that can cause a decline in the authority of patients and their physicians over clinical decision-making are all hallmarks of the single-payer system.

We need a plan that will work, and tax credits are an idea whose time has come. In 2002, tax credits for displaced workers gained bipartisan support and became available through federal legislation, and President Bush recently reaffirmed his support for tax credits with his proposal to establish refundable tax credits to help low-income workers buy health insurance coverage. In addition, the major Democratic presidential candidates have embraced tax credits as part of their health care plans.

Currently, there is little choice in health insurance plans. Most Americans have health insurance through their employers, and more than 90% of employers offer only one plan. Through tax credits, individuals and families would be able to select any plan of their choosing, and insurers would be more responsive to patient demand for access, quality, and affordability. This shift in choice and ownership would spur insurers to innovate new plans and new forms of coverage, including a wider range of affordable coverage options.

Let’s act now to better the health of our nation’s uninsured men, women, and children by working together to promote a solution that works for individual and family tax credits to purchase health insurance.

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Dr. Don McCanne is immediate past president of Physicians for a National Health Program.

Tax credits are not the best way to cover the uninsured. The goal of reform should be to provide comprehensive, but affordable, coverage for everyone. Tax credits fall short on these goals.

Tax credit proposals are designed to provide financial assistance for the purchase of private health plans that are becoming less and less affordable. The problem is that private plans are an expensive, inequitable, and administratively inefficient method of funding health care. They waste resources on their own administrative excesses and especially through the tremendous administrative burden that they place on the health care delivery system. And since tax credits do not cover the entire premium, many people still will be left without coverage simply because they cannot fund their portion.

Studies have shown that tax credits for individual plans would have only a very minimal impact on the numbers of the uninsured since uptake of the plans would be mostly offset by the incentives for employers to drop coverage for their employees. As the amount of the credit increases, the rate of termination of employer-sponsored plans also increases. Shifting employees to the individual market is a problem because premiums are higher for comparable coverage, benefits are lower, and cost sharing is greater. Those with the greatest need for coverage may be excluded from the individual market because of preexisting disorders.

Other studies have demonstrated that using tax policies to assist with the purchase of group plans is the most expensive method of expanding coverage. Large employers and government purchasers such as the Federal Employees Health Benefit Program have failed to control escalating costs. Middleman health plans were able to slow cost increases through provider contracting. But that sponge was wrung dry, and they no longer are able to further slow the growth in costs. Providing more federal funding would only add fuel to this health care cost explosion.

There is a way to provide affordable, comprehensive coverage for everyone. Replacing our fragmented, wasteful system of private plans, public programs, and no programs at all with a single, publicly funded and publicly administered universal insurance program would provide enough administrative savings to pay for comprehensive care for everyone, with no increase in our current level of health care spending. This has been demonstrated not only by microsimulation models, but also by the actual experience in other nations. And the United States has the unique advantage that the $1.79 trillion that we are already spending is more than enough to ensure a capacity that would prevent excessive queues, and to continue to provide adequate incentives for future technologic innovation.

Instead of pouring more tax dollars into a wasteful, flawed, and inefficient system of funding care, let’s adopt a much more equitable and affordable system. Our current private and public health care delivery system would function much more effectively under a publicly funded and administratively efficient system of insurance that truly covers everyone.

Copyright © 2004 by International Medical News Group, an Elsevier company.