Medicare’s in Good Health

Will future workers accept higher taxes to buy their grannies insulin? Or will they say, ‘Let her rot’? (I’m betting on the grannies here.)
By Jane Bryant Quinn
Newsweek

May 24 issue – The way the pessimists talk, you’d think that America couldn’t afford the future. Exhibit A is medical care for baby boomers. As they age they’ll supposedly break the bank. By 2050, we may have to pile the old and sick onto ice floes and float them off. Otherwise they’ll devour our treasure (assuming we have any, after all the deficit spending).

advertisementAnyway, that’s how you spin the story if you want Medicare chopped or dropped, as many conservatives do. They’re backing a raft of proposals to make the elderly pay more of their future medical costs.

The optimists, on the other hand, give future Medicare funding a cheerier spin. No need for ice floes, they say. Our standard of living will boom over the next 45 years. GDP will grow, grow, grow. In 2050, today’s Medicare program will indeed take a larger slice of the pie. But the pie is going to be so big that workers will be twice as prosperous as they are today, even if they’re paying a higher Medicare tax.

Before I lay out the competing plans, let me mention some things you might not know:

Boomer retirements are not the driving force behind soaring medical costs. The aging of the population will add only .5 percent a year to costs between 2000 and 2030, says economist Uwe Reinhardt of Princeton University. The true culprits are technology, prescription drugs and our preference for consuming ever more medical care.

Medicare isn’t doomed just because fewer workers will be supporting each beneficiary. By 2030, only 2.4 workers are likely to stand behind each Medicare beneficiary, down from 3.9 today. But new technologies will make those workers far more productive—raising their incomes and their ability to pay.

Medicare won’t go broke. The only trust fund in Medicare covers Part A, which pays your hospital bills. The fund is still growing, thanks to the interest earned on the Treasury securities it holds (6.2 percent last year). It’s supported largely by payroll taxes and, on paper, lasts until 2019. After that… well, I don’t even want to think of the fate of the Congress that quits paying hospital bills for the elderly.

None of the rest of Medicare has a similar trust fund to worry about. Part B, which pays doctor bills, is 25 percent funded by monthly premiums that retirees pay. The rest comes from general tax revenues. Part C covers privately managed Medicare HMOs, which the government subsidizes lavishly. The new drug benefit, Part D, will also be funded by retiree premiums plus the general taxes everyone pays.

On paper, there’s money available to pay full Medicare benefits to future retirees. But they’re competing with many other wants, such as tax cuts, farm subsidies and wars. So what are the priorities? Will future workers accept a higher payroll tax so their grannies can get insulin and hip replacements? Or will they say, “Let Granny rot—I want a tax subsidy to buy my own private rocket”? (I’m betting on the grannies here.)

Even so, Medicare has to trim its sails. For the lefties, a favorite goal is to wring more efficiency out of doctors and hospitals. For example, some states (primarily in the sun belt) spend far more per capita on Medicare patients than do other states (Wisconsin, Minnesota, Oregon). If the sun belt were weaned from its wasteful ways, Medicare would stretch a lot further than it does now. The drug companies will be pushed to cut their costs as well, says Robert Reischauer of the Urban Institute. The lefties also say, “Cut the budget deficit.” By 2030, the interest on today’s deficit will cost more than Social Security and Medicare combined, Reinhardt says.

The righties tackle spending directly, by privatizing Medicare and shifting more of the medical costs to seniors themselves. (In these scenarios, the taxpayers save money but seniors don’t.) Michael Cannon at the Cato Institute, a conservative think tank, likes Medicare personal accounts. Part of your Medicare contribution would go to an investment account to help you pay future medical bills. You’d get less from Medicare, so you’d have to cross your fingers that your personal savings would grow.

Cannon also backs “premium support,” which is basically a voucher plan. The government would pay seniors a fixed amount toward health care every year that they’d use to purchase a private plan. If the voucher isn’t large enough to buy comprehensive care, they’d have to settle for a high-deductible plan, paying the smaller bills themselves. Seniors would have to decide how much health care they could afford.

The irony is that private plans are more expensive and less efficient than traditional Medicare, which remains America’s most popular program. In a study covering the years 1970 to 2000, Marilyn Moon of the American Institutes for Research found that Medicare did a better job of containing costs than private plans did. In fact, private HMOs can’t even compete with Medicare unless they get large government subsidies. (The righties love government handouts, as long as the hands are theirs.)

Whatever we do about Medicare, we know this for sure: health-care costs won’t go away. Who will look Granny in the eye and say she’ll have to pay or do without? Especially as she approaches the voting booth.

Reporting Associate: Temma Ehrenfeld

Seeking insurance solutions
David Lazarus Friday, May 14, 2004

This is Cover the Uninsured Week, and it’s been an especially good week for the insurance industry.

Republican and Democratic lawmakers have come out with competing plans intended to provide health insurance for at least a portion of the roughly 44 million Americans — 16 percent of the population — now lacking coverage.

The plans tinker with the existing system and would cost taxpayers a bundle, but critics say they do little to address underlying problems that result in runaway health care costs for consumers and businesses.

They would, however, provide millions of new customers for a politically powerful, $300 billion industry that is deeply opposed to fundamental change in how Americans receive health care.

“The only winner here is the status quo,” said Ida Hellander, executive director of Physicians for a National Health Program, a Chicago advocacy group with more than 10,000 members nationwide. “These plans are simply subsidizing a sick system. They don’t solve the most serious problems.”

On Tuesday, Senate Republicans unveiled their plan for using tax credits and federal funds to help low-income workers purchase insurance. It also includes government-negotiated discounts for purchases of prescription drugs.

On Wednesday, House Democrats trundled out their plan. It, too, relies heavily on tax credits, as well as spending billions to expand coverage to parents of low-income kids.

While both plans would likely help many people obtain at least rudimentary health insurance, neither achieves the goal of universal coverage.

Similarly, they wouldn’t put a halt to insurance premiums that are climbing by about 12 percent a year. Nor would they address the estimated $400 billion spent annually on administrative costs to process a vast number of insurance forms — a quarter of the $1.6 trillion in total health care spending last year.

Taxpayers foot the bill

Then there’s the sticky question of who pays for reforms comprised largely of tax breaks and subsidies. The unspoken answer, of course, is that you’ll be footing the bill — you and all other taxpayers.

“Businesses complain that they can’t keep up with rising health care costs,” Hellander said. “They should be worried about any solution that doesn’t get at the systemic reasons costs keep going up.”

But Cover the Uninsured Week isn’t about finding such solutions. The event — this is its second year — is backed by a broad array of business and labor groups eager to raise awareness about the seriousness of the health care situation. Former Presidents Jimmy Carter and Gerald Ford are the honorary co-chairs.

“We do not advocate a solution,” said Stuart Schear, organizer of Cover the Uninsured Week and spokesman for the Robert Wood Johnson Foundation, the largest U.S. philanthropic organization devoted exclusively to health care. “What we want is to place this issue at the top of the domestic agenda.”

Sen. John Kerry, the likely Democratic nominee for president, spent much of the week discussing health care at campaign rallies. But his words were drowned out by the furor over increasingly ugly events in Iraq.

President Bush’s health care platform largely mirrors the GOP proposals put forward in the Senate.

In an independent analysis of the two candidates’ approaches released last week, Emory University economist Kenneth Thorpe determined that Bush’s plan would cost taxpayers $90 billion over the next decade but provide coverage to only about 2.5 million uninsured Americans.

Kerry’s plan, meanwhile, would reach 27 million people but would cost more than $650 billion.

How plans differ

A key difference between the two platforms, Thorpe found, is that Bush’s plan would primarily affect people who already have some insurance, whereas Kerry’s plan is intended for workers with no coverage.

Karen Ignagni, president of America’s Health Insurance Plans, the leading trade group for the insurance industry, praised lawmakers for seeking this week to make health coverage more affordable.

“We’re finally seeing momentum to address this serious problem,” she said.

But Ignagni rejected any suggestion that lawmakers look not at fiddling with the existing system but instead explore a so-called single-payer system that would guarantee coverage to all citizens, similar to Canada’s state- backed insurance network.

“In Canada, you have doctors who can’t admit patients for surgery without making them wait for months,” she said. “That’s not the system we want to replicate in the United States.”

No, it’s not. Nor is it precisely the system they have up north either. Hellander at Physicians for a National Health Program noted that weeks or months of waiting for treatment in Canada is only for elective surgery for non- life-threatening conditions.

“If you have a life-threatening condition, of course you’ll be treated immediately,” she said.

Refining the system

In any case, the Canadian system is far from perfect. The United States would need to bring its own refinements to the equation to ensure both quality of care and cost controls.

Meanwhile, funding for a single-payer system is certainly within reach. Researchers at Harvard Medical School have determined that slashing administrative costs under a single-payer system would be sufficient to provide coverage for every uninsured American.

Hellander’s group advocates a payroll tax of about 7 percent to replace all other employer expenses for medical costs, and an income tax of about 2 percent to replace employees’ current insurance premiums, co-pays, deductibles and other out-of-pocket expenses.

Cover the Uninsured Week is a fine idea. This is indeed an issue that requires greater public scrutiny. But if we’re serious about solving this problem, we have to be serious about genuine solutions.

That’s not what we saw this week.

David Lazarus’ column appears Wednesdays, Fridays and Sundays. He also can be seen regularly on KTVU’s “Mornings on 2.” Send tips or feedback to dlazarus@sfchronicle.com.

In a number of ways, the United Kingdom’s National Health Service (NHS) is a unique experiment, springing from the fusion at the end of World War II of a number of synergistic elements: a powerful desire for social change; a determination on the part of the populace not to repeat the experience of the broken promises after World War I; the presence on the table in 1945 of a plan for social service reform, including health care, a plan made, remarkably, in the middle of the war; and the arrival on the scene of a single-minded, charismatic politician who saw the establishment of a national health service as his mission.

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15 Reasons Why the 2003 Medicare Law Fails Seniors

Alliance for Retired Americans, April 2004, www.retiredamericans.org

It is more about dismantling the Medicare program than providing a prescription drug benefit.
Background: The addition of a prescription drug benefit to Medicare accounts for 181 pages of the legislation; the remaining 500 pages of the law includes the measures to reform Medicare.

It is not part of any other insurance plan and creates a gap in benefit coverage.
Background: Beneficiaries will pay a monthly premium of $35 as well as a $250 deductible. The benefit will cover 75 percent of drug costs up to $2,250. While continuing to pay premiums, beneficiaries will pay 100 percent of drug costs between $2,250 and $5,100, after which the plan will kick in again and cover 95 percent of costs. Nearly one-half of Medicare beneficiaries will fall into the coverage gap or “donut hole” and will not have any assistance with their drug costs for at least part of the year.

The prescription drug benefit will be unaffordable for most seniors, particularly in future years.
Background: The Congressional Budget Office projects that after one year, the $250 deductible and the $2,250-5,100 gap both will jump 10 percent. By 2013, the eighth year of the program, the deductible and gap are projected to grow by 78 percent; seniors will pay a $445 deductible and those with the largest drug bills will be entirely responsible for more than $5,000 in drug costs.

The law does not provide the drug choices beneficiaries want.
Background: The expanded “choice” in the law will result in a great deal of confusion. For example, beneficiaries who use several medications will have to
research and compare drug plans to find the one that will cover most of their medications. Each plan will have its own list of drugs, or formulary, which is approved for use or payment. Plans are required to have two drugs per class
but not all drugs in that class, are free to design restrictive preferred drugs lists and may change these lists after a beneficiary has enrolled.

The complexity and lack of information place beneficiaries at a severe disadvantage in choosing a plan.
Background: Beneficiaries will need to research extensively to determine which plan is best for them. Nearly a quarter of Medicare beneficiaries have health problems such as hearing or cognitive impairments that make it difficult for them to make decisions. Yet the law does not allow beneficiaries to access the preferred drugs lists of the competing prescription drug plans before
enrollment. Also, the law does not provide additional monies for independent resources such as the State Health Insurance Programs (SHIPs) to provide information on the new law.

The law provides greater benefits to providers, private insurers and drug companies than it does to beneficiaries.
Background: Most health legislation usually includes increased
payments for providers such as doctors and hospitals. Remarkably, this legislation contains sizeable financial gains for private insurers and pharmaceutical companies. It is estimated that pharmaceutical companies will reap additional profits estimated at $139 billion over 10 years. In contrast, the typical Medicare beneficiary will receive approximately an $800 a year drug benefit. The law substantially increases subsidies to managed care plans. Starting in 2004, two years before the prescription drug benefit begin, managed care plans will receive $20 billion in subsidies. By 2006, the plans will be paid as much as 25 percent more than the traditional fee-for-service Medicare pays for each enrollee.

The protections and benefits for low-income individuals will likely be less than they currently have.
Background: For those who fall below 100 to 135 percent of the Federal Poverty Level (FPL), Medicare will pay the premiums and deductibles. These low-income beneficiaries will be responsible for co-payments between $1-2 for generics and $3-5 for brand drugs. However, co-pay amounts are projected to increase by about 10 percent per year, according the Congressional Budget Office (CBO).
In contrast, CBO projects Social Security checks will increase about 2.5 percent per year. The law also includes a restrictive assets test of $6,000 for individuals and $9,000 for couples. The assets test excludes a house and car but could include savings and personal property. It is estimated that the assets tests will eliminate 2.8 million low-income individuals from assistance.

Low-income individuals who are currently covered under both Medicare and Medicaid (called “dual eligibles”) will likely have to pay more for their drugs or lose access to coverage for drugs they need. The law prohibits Medicaid from supplementing (“wrapping around”) the Medicare drug benefit. Medicaid generally covers all drugs that a beneficiary receives. Under the new law, plans will be able to limit coverage to two drugs per therapeutic class.

Consequently, low-income individuals who typically live on very fixed incomes will find that the co-pays will increase at a pace that will become increasingly unaffordable and those who currently have Medicaid coverage will have less assistance than they have now. Overall, 6.4 million low-income seniors will be harmed by the Medicare Act.

The law does nothing to control prescription drug price inflation.
Background: The legislation explicitly prohibits the federal government from using its purchasing power on behalf of 40 million beneficiaries to bargain with drug companies. Drug companies lobbied for this because they prefer to deal with dozens of small plans than a single federal agency. Thus, Medicare must pay whatever drug companies want to charge. The pharmaceutical industry
consistently collects after-tax median profits from revenues at a percentage higher than any other industry and five times the profit level for the other fortune
500 companies combined.

The law would also continue the ban on reimporting safe, affordable drugs from countries such as Canada by requiring safety certification from the Secretary of Health and Human Services, which HHS has refused to do.

The federal government is prohibited from negotiating for lower prices under the new law.
Background: (same as background above – #*8)
Medicare beneficiaries will be penalized for each year they do not join a private plan.

Background: The Act imposes an unfair penalty on beneficiaries who do not sign up for the drug benefit by increasing the premium amount one percent per month for each month an individual without coverage delays enrollment. Thus, if individuals with low drug costs decide they don’t want to pay the premium for a service they won’t use and then two years later have high drug costs and join, the premiums will be 24 percent higher for the rest of their lives. This penalty is especially unfair because there will likely be a great deal of confusion during the early years of the new program.

Beneficiaries will no longer be able to buy Medigap policies that provide prescription drug benefits.
Background: Most beneficiaries enroll in Medigap plans because they need prescription drug coverage. The law prohibits the sale of any Medigap policy that would help pay for drug co-payments and deductibles when the new drug benefit becomes available.

It undermines Medicares universality by requiring wealthier beneficiaries to pay more for the first time in Medicares history.
Background: Medicare has been a successful program because of its universality. Individuals with incomes above $80,000 and couples with incomes above $160,000 will pay more of their Medicare Part B premiums. If upper income individuals have to pay more for Part B, they may choose not to participate, and Medicare may become a program for lower and middle income seniors only. Additionally, there is no guarantee that the upper income limit will not be brought down in future years when Medicare needs additional monies.

Millions of retirees with employer-provided health coverage will likely lose their coverage.
Background: The Congressional Budget Office projects that 2.7 million retirees will lose the drug coverage they currently receive through former employers who will drop such coverage when the drug benefit becomes available, even with employer subsidies.

There is no guarantee the interim drug discount card will deliver the promised savings.
Background: The drug discount cards, which will become available in May or June 2004, will cost $30 a year. It is estimated that savings will be only about 10-15 percent, approximately the same or even less than discount cards currently in use. Some low-income beneficiaries will have credit for $600 worth of drugs but will still pay 5-10 percent of the costs of each drug they buy.

Medicaid beneficiaries will not receive the $600 subsidy. Medicare beneficiaries can use only one of the discount cards at a time and must use the card they select for at least one year. The law does not set any rules about the base prices from which these discounts will occur.

Beneficiaries in rural areas will have limited options with higher costs.
Background: The law provides fallback Medicare coverage, only if there is less than two prescription drug plans available in a region. Beneficiaries, particularly in rural areas, are likely to have a choice between one high-priced, drug-only plan and one preferred provider organization, which restricts choice of doctor and imposes high costs for out-of-network care.