Don’t weaken Medicare – strengthen it and expand it to all

By Margaret Flowers, M.D.

The following article summarizes a Congressional Briefing held on Sept. 23, 2010, titled “An analysis of proposed changes to Medicare before the Deficit Commission and a better alternative: Improved Medicare for all.”

Presenters and honorary hosts:

Tsung-Mei Cheng, distinguished health economist and expert on comparative health systems at Princeton University. Professor Cheng writes and lectures internationally on such topics as single-payer systems, health care quality, financing, pay-for-performance and technology assessment. She also hosts Princeton’s television program, “International Forum.”

Olveen Carrasquillo, M.D., nationally recognized authority on health disparities, minority health, health services research, health policy, access to care and national health insurance. He is presently chief of the Division of General Internal Medicine in the Department of Medicine at the Miller School of the University of Miami and a member of Physicians for a National Health Program.

Michele Evermore, a legislative advocate for National Nurses United.  Formerly served as senior legislative officer in the Office of Congressional and Intergovernmental Affairs at the Department of Labor and for 10 years as a congressional staffer for Sen. Tom Harkin in his personal office and on the Health, Education, Labor and Pensions Committee and for then-Ranking-Member George Miller on the House Education and Labor Committee.

The Honorable Raúl M. Grijalva (Honorary Host), Co-chair Congressional Progressive Caucus

The Honorable Lynn Woolsey (Honorary Host), Co-chair Congressional Progressive Caucus

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The Deficit Commission has marked Medicare and Medicaid as potential targets for lowering the federal deficit. They are reportedly considering at least three possibilities:

• Shifting more seniors into Medicare Advantage
• Shifting more of the cost onto the individual through higher co-pays and deductibles
• Switching to a voucher program for the purchase of private insurance.

These approaches would be misguided, ineffective and harmful.

Attributing the deficit to Medicare and Medicaid is misguided because these necessary social insurance programs are not the causes of our soaring health care costs, but are rather the result of the lack of a rational health care system.

• Medicare, which currently covers 43.4 million people, accounts for 13 percent of total federal outlays (FY 2010) and Medicaid accounts for 8 percent.
• Medicare and Medicaid together account for a much smaller proportion of our GDP (< 5 percent) than do our other health care costs and they are rising at a slower rate.

The most effective way to control rising health care costs would be to address the underlying causes which are the large administrative costs of a multi-payer health care financing model and the lack of monopsonistic bargaining power to negotiate fair prices for goods and services.

The changes proposed by the deficit commission will not have a positive effect.

• Shifting more seniors into Medicare Advantage will increase federal spending because these are for-profit plans with higher administrative costs, currently 14 percent more expensive than traditional Medicare.
• Shifting more of the cost of health care onto individual Medicare beneficiaries through increased co-pays and deductibles or by changing to a voucher system will reduce federal spending. However, the deleterious economic effect on seniors and total health care spending is likely to be significant.
• Increasing co-pays and deductibles will place increased financial strain on seniors already burdened with high out-of-pocket costs. According to the Kaiser Family Foundation’s analysis of the CMS Medicare Beneficiary Survey Cost and Use File for 2005, seniors earning less than 200 percent of Federal Poverty Level (FPL) spend 22 percent of their income on health care. Those with incomes between 200 and 400 percent of FPL spend an average of 15 percent of their income on health care.
• A recent article published in the New England Journal of Medicine documents that raising Medicare HMO co-pays and deductibles results in fewer outpatient visits and more hospital admissions and days in the hospital. It is reasonable to expect that the savings may be offset by greater hospital costs and will certainly lead to poorer health outcomes for seniors.
• Converting Medicare from a defined benefit program to a defined contribution program in which seniors are given vouchers to purchase insurance also seeks to shift more of federal health care spending onto the individual. This will likely increase total health care spending as it further dilutes market power on the demand side by further fragmenting the Medicare population.

Of course, single-payer supporters already know that the best way to preserve and protect our American legacy, Medicare, is to improve it and expand it to everyone: Everybody in, nobody out.

And now let us examine why expanding and improving Medicare to everyone will control total health care costs while protecting individual patients from financial ruin, improving the health of our population and stimulating the economy.

First it is important to understand that health care costs per capita in the United States are the highest in the world. These high costs are due in large part to the use of a fragmented multi-payer (multiple insurance plans) model with associated high administrative costs.

• One third of our health care dollars are used for administration rather than direct patient care.
• Administrative costs include developing and marketing plans, determining eligibility for the various plans and then processing the claims for the various plans which each have different rules.
• Contrast this with the relatively streamlined administrative cost of Medicare which is less than 3 percent.
• There are significant costs to providers (both clinicians and health facilities) in terms of both time and money to interact with the various plans. According to Jim Kahn of the University of California San Francisco Philip R. Lee Institute for Health Policy Studies, every full-time physician spends over $85,000 on billing and insurance functions.

Mr. Kahn states that “Overall, for health care funded through the private insurance system, fully 38 cents of each dollar goes to administration and profits, leaving only 62 cents for clinical care. 20 cents is avoidable administration – which would mainly disappear with single payer.”

• Simplifying administration by switching to a national single public fund to collect and pay out our health care dollars will save about 15 percent of total health care spending (over $400 billion per year).

Health care costs in the United States are also very high because the prices we pay for medical goods and services are among the highest in the world. This is a result of a profit-driven model and the lack of a single system with which to negotiate for fair prices.

There has been a temptation to blame over-utilization of health care services and goods for soaring health care costs.

• Americans have fewer physician visits and fewer days in the hospital than people in other industrialized nations.
• Except for some very expensive, highly technical procedures, people in the U.S. use less health care services per capita than people in other nations.

The growth of health care costs has occurred more slowly for Medicare than it has for the private i
nsurance sector. According to the Kaiser Family Foundation, per capita health care costs rose 6.8 percent for Medicare and 7.1 percent for private insurance during the period from 1998 to 2008. This is impressive considering that Medicare is responsible for a population with greater health care needs: those 65 years of age and older and members of the disability community.

We can preserve and protect our American legacy, Medicare, with its lower administrative costs and slower growth in total costs, by

• expanding it to the entire population
• placing everyone in a single risk pool
• using a streamlined payment mechanism
• financing the program with progressive taxation that will typically amount to less than what people are paying now for premiums and out-of-pocket medical expenses.

There will be adequate funds to pay for health care for each person when he or she needs it without fear of losing coverage or going bankrupt.

In addition, improving and expanding Medicare to the entire population will create a health system with proven cost controls:

• global budgeting for medical institutions
• negotiation of fair prices for goods and services.

It is true that Medicare has weaknesses. We can improve Medicare by making it more comprehensive, removing financial barriers to care such as co-pays and deductibles and improving reimbursement rates.

The most recent nation to adopt a single-payer health system is Taiwan in 1995. We look to their experience to see the impact of changing from multiple private payers and a high number of uninsured to a universal single-payer system.

Prior to having a national health insurance system, only 59 percent of people in Taiwan had health care coverage and health care costs were rising by nearly 14 percent each year.

When the new system in Taiwan began, after a planning period, the remaining 41 percent of people had access to coverage overnight. By the end of the first year, 90 percent of people were enrolled. Within nine years, more than 99 percent of people were enrolled and this percentage has remained steady. The current satisfaction rate with the system is 83 percent (similar to the satisfaction rate for Medicare in the U.S.).

The single-payer system in Taiwan has effectively controlled the rise of health care costs.

• There was an expected bump the first year of implementation as total health care costs rose 18 percent (compared to almost 14 percent per year prior to the new system).
• Within 10 years, the rise of health care costs had fallen to a more manageable 3.5 percent to 4.5 percent per year, despite the fact that there is high use of the system (average of 15 visits/patient/year).
• Administrative costs for the system are a low 1.4 percent.

The proven strengths of the Taiwanese system are

• the ability to control national health expenditures
• the simplicity of uniform rates and fees
• a uniform information technology system
• a single standard of care for all people
• increased choice: patients are able to choose their health provider freely and the system covers some alternative therapies such as Chinese medicine
• as it is in the US under traditional Medicare, physicians are able to use their best clinical judgment without interference from either insurance or government administrators
• the important physician-patient relationship is not compromised as it is under the current multiple-insurance based model used in the US.

There are important advantages of creating a national single-payer health system in the U.S. A big plus is that it will virtually eliminate bankruptcies due to medical debt.

• A study published in June, 2009 found that 62 percent of personal bankruptcies in the U.S. were due to medical costs.
• Nearly 80 percent of those who became bankrupt due to medical costs had health insurance.
• In a single-payer system, all medically necessary care is covered throughout the life of the patient.
• People pay into the system based on their ability to pay.
• There is an end to the loss of coverage with the loss of employment.
• There is an end to higher charges based on age, gender or medical condition.

A national single-payer health system will create conditions that will stimulate our economy. In some ways, single payer is a jobs bill.

• For small businesses, single payer means relief from the increasing burden of providing health benefits to employees.
• Single payer ends job-lock, providing greater security for those who may choose to open their own business.
• Single payer enables those who are staying in jobs until they are eligible for Medicare to retire early, which opens jobs for those who are younger.
• By controlling rising health care costs, single payer will allow large businesses to be more competitive in the global market.

The changes to Medicare that are being considered by the Deficit Commission are misguided and harmful. Rather than cutting our important social insurance programs, Congress could address both our health care crisis and our federal deficit woes by improving and expanding Medicare to all people in our nation.