With the Alternative to Medicare Being... What

Bryan R. Lawrence, a family investment fund manager,¹ argues - quite correctly - that Medicare costs are a threat to the long-term financial health of the nation. Alas, while he offers a diagnosis, he comes up short when it comes to prescribing a cure.

Lawrence's first point is that "retired Americans receive high-quality care but have virtually no idea what their Medicare benefits cost". I think we can say that pretty much every American who received high-quality care through insurance has virtually no idea what it costs. If I were getting my car fixed, I could get an up-front estimate and have a pretty good sense that it would be accurate. I could require additional authorization if new repairs were found to be needed, or if costs wee going to exceed an agreed amount. But if I go into the hospital, even if I have a ballpark sense of what the hospital charges for a procedure, I have no similar assurance. And when I get my bill, if I don't have insurance I pay a lot more than an insurance company would pay for exactly the same services. Meanwhile, medical billing can be ridiculously complex and confusing, and bills can be exceptionally difficult for an average patient to decipher. If you have insurance, no kidding you're going to defer to your insurance company to deal with those bills.

We can try to raise awareness of medical costs through copays and coinsurance, but the fact is that once you hit the cap on your contribution any associated incentive to keep costs down evaporates. People with the most expensive health conditions hit those caps quickly. (You also have to be careful, in setting those amounts, not to discourage people from seeking appropriate diagnostic care and follow-up care, assuming that you want patients to get the care they need to avoid higher costs down the line. If you think they're going to drop off of your insurance and onto the public rolls or to become uninsured by the time their health issues reach a crisis point, perhaps you want the cost share to be too high for your average insured.)

Also, what difference does it make to you if you know the cost of health care you need. Nobody is walking by a hospital, seeing a sign that says "50% Off All Organ Transplants" and making an impulse purchase. One patient, if asked, might tell you that a heart transplant costs, "I don't know, $5,000?" Another might say, "About $500,000 for the procedure, probably another $100,000 or so over the subsequent year, and given my health probably $300K per year for follow-up care and medication for the rest of my life, which may involve another heart transplant ten or fifteen years from now." But whether they thing a transplant is cheap or expensive, or believe Medicare is a rip-off or a windfall, both of them are apt to conclude with, "Can I have my heart transplant now, please?"

Further, with Medicare, some of the highest cost care is driven not by the patient, but by the patient's family. A patient can have a living will, and be begging to go to hospice, but family wishes can result in that patient's incurring significant, unpleasant, intrusive, and extremely costly medical treatments that the patient doesn't even want - and may even shorten the patient's life, while worsening its quality - because family members overrule the patient. Or the family may correctly tell the hospital about the patient's wish not to receive heroic care, but be unable to find and provide copies of the patient's advance directive or "do not resuscitate" request.

And let's not forget what happened when Congress proposed that Medicare pay for counseling between a patient and her doctor about end-of-life decisions, the sort of discussion that can help an elderly person receive the end-of-life care that will allow for the best quality of life while potentially avoiding costly medical procedures. Republicans demagogued about "death panels" under the principle that a lie told often becomes the truth, the media as a whole did a poor to abysmal job covering the trumped up controversy, and the funding was cut.

Lawrence observes that Medicare is heavily subsidized by taxpayers, past premiums falling well below the level necessary to support present benefits.

But those Medicare taxes, and interest on the program’s small trust fund, cover just 38 percent of the annual cost of the program’s benefits. Premiums paid by beneficiaries cover an additional 12 percent, but fully half of the program’s $549 billion cost last year was funded by federal income taxes on working Americans.

If you look at the numbers, Medicare does pretty well at self-funding when it coms to hospital care (part A), but not so well when it comes to non-hospital care (Medicare as a traditional health insurance plan) (Part B) or G.W. Bush's unfunded prescription drug benefit (Part D) - you know, the one passed back when deficits didn't matter and running up huge deficits was overt Republican policy. In a sense we're lucky, because the relatively low number of new blockbuster drugs has resulted in Part D being less expensive than initially feared. We should also acknowledge that part of the reason Medicare Part D is as costly as it is, is because the Republican Party chose to prevent Medicare from negotiating for discounts with pharmaceutical companies - something that a private insurer would do as a matter of course - instead passing along an unnecessarily higher cost to the taxpayer.

If you listen to the doctors, Medicare pays ridiculously low amounts to care providers and should find ways to increase payments and allow doctors to spend more time with patients. I don't want to digress into the economics of medical practice - suffice to say, it's difficult to believe we can squeeze down physician costs for Medicare Part B without risking a shortage of participating physicians. (Hence the periodic "doctor fixes".)

Lawrence correctly points out that Medicare results in a massive transfer of wealth, from young to old:

An American man retiring in 2011 could expect to receive Medicare benefits worth $170,000 (in 2011 dollars). If he had worked from age 22 at the average U.S. wage each year, he would have paid Medicare taxes (plus interest) worth $60,000 (also in 2011 dollars). So the average male worker retiring in 2011 will receive benefits worth almost three times what he paid in. And the transfer to that retiree will be $110,000 from younger Americans, perhaps including his grandchildren.

If that average worker had a wife who didn’t work, she would receive $188,000 worth of benefits, despite having paid nothing in. So the couple’s benefits are six times what was paid in, or a $298,000 transfer from younger generations.

If we're going to look at it in those terms, though, is it not fair to respond that the average worker has paid property taxes, as well as various other state and federal taxes, throughout his life, contributing to the support of the schools from which the current generation of taxpayers graduated? If the average K-12 education costs $120,000, a wealth transfer from the older and more established to the young, there's a lot more balance to the picture than Lawrence suggests. Also, what about the taxes that person contributed to services he never used - should we regard them as a complete loss to him? And who is Lawrence to suggest that stay-at-home moms don't work - is he paying no attention to Republican demagoguery? Seriously - if we as a society are going to take the position that it's good, even advisable, for women to stay at home to raise their children instead of entering the workplace, it's not reasonable to turn around and accuse them of leeching off of the rest of us.

I'm not arguing that we should ignore the economics of Medicare, or that we don't need to find a way to reduce healthcare inflation and stabilize funding - I'm stating that you shouldn't segregate a single government benefit, divorced from the greater tax and societal context, and use it to argue that a given individual or class of taxpayers is receiving a windfall - the issues and economics are more complex.

The closest thing Lawrence offers to a solution is his apparent belief that, if informed of the cost of their care versus the amount of their direct contribution to Medicare, they will use fewer services. I suspect that, to the contrary, they will conclude, "Wow, I got a really good deal," and continue on as if nothing has changed.

Lawrence also argues,

Other countries spend far less on health care and have better health outcomes. Reform of our health-care system would dramatically reduce the cost of future Medicare benefits and reduce the tax burden on future generations.

True, but only relevant if we're willing to examine and emulate their cost-savings models. To date, we're not willing to do that. And while neither party is even close to innocent, Republican demagoguery on the issue is especially irresponsible. The Republicans expressly reject every solution that has helped suppress health costs in other developed nations, and argue that the present reform effort - an approach that protects private health insurers, originated in a right-wing think tank, was suggested by the Republicans as a possible alternative to President Clinton's unsuccessful reform effort, which was enacted by a Republican governor in Massachusetts, and which pretty much ignores what has worked in the rest of the world in favor of trying to spackle over and preserve the status quo - is "socialist". Yes, the Democrats smothered the "public option" in its crib, but at least they were willing to discuss such an option.

Lawrence continues,

But Americans are angry with their elected leaders, and they lack the information critical to understanding the need for change.

Whose fault is that? Leaving aside the "Keep your government hands off my Medicare" crowd, and those who get ginned up over lies about "death panels", where would the majority of Americans turn to learn about solutions that may work to keep costs down, particularly in relation to care for the elderly? When the relatively modest and eminently sensible Independent Payment Advisory Board was created, Republicans demagogued against it as a "rationing board" and "having government bureaucrats tell your doctors what care you can get." If Republicans successfully lie and gin up massive popular opposition to sensible baby steps, and a pliant or partisan media goes along with the lies, we have no chance of implementing meaningful reforms prior to our reaching a crisis point. We could make sensible spending decisions, but thanks largely to the Republican Party what we get instead is insanity.

It's not so much that I think the Democrats want an honest discussion of the issues - the deals made in advance of the healthcare reform debate suggest that they prefer the illusion of a debate to an honest discussion of the most effective and economically prudent reforms - but you can't blame the impasse on voter anger without acknowledging that the anger largely results from Republican mendacity, and you can't blame the rest of the problem on lack of information if the Republican Party chooses to be a constant fount of misinformation. The angriest voters on the left want an honest debate and feel let down by the President. The angriest voters on the right appear to be reacting to partisan fabrications and demagoguery, and appear to be largely ignorant of the facts.

You want to talk about misinformation? Partisan politics? Special interests buying the system? Dubious government accounting? Short-term thinking? Tell me something I don't already know. Like... how to get past any of that and actually address the nation's problems. Sorry, but providing additional personalized information to Medicare recipients is going to accomplish absolutely nothing.
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1. To clarify, that's a fund that manages the wealth of his family and its business partners. I have no problem with that - we should all be so lucky - but want to clarify that the editorial is not written from the standpoint of somebody who is advising average families how to plan for their future financial and medical needs.