The Elderly Cannot Be Informed Consumers of their Most Expensive Care

I am not sure how I came to the page, but in going through the proliferation of articles I had opened in my browser with the intention of "getting to this later", I found "Saving Medicare from Itself" written in mid-2011 by Avik Roy of the Manhattan Institute. For the most part the article simply rehashes the conventional wisdom about Medicare - if costs continue to significantly outstrip inflation, the program cannot be sustained.

Given that Roy started out by, in effect, preaching to the choir, he had what should have been a relatively simple task. Use the available facts and data to point to possible solutions to the problem of healthcare inflation. I know that some argue that the problem of healthcare inflation is going to cure itself - that the changes that led to the rise in costs reflect the significant evolution of the industry and, as we exit the era of new blockbuster drugs and improvements in medical technology become more incremental, inflation will tame itself. But history is a better teacher than wishful thinking - or as Burgess Meredith put it... - we have to plan as if healthcare inflation will continue to rise. And you know what? If we find ways to make healthcare significantly more affordable without compromising quality, even if the cost curve cures itself we'll be much better off as a society.

If Roy believes his own thesis, then one of his arguments should be, "We should look at how other industrialized nations are able to offer a comparable quality of care, with comparable outcomes, at a much lower cost, and at least think about doing what they're doing." Alas, Roy is not so much interested in advancing good policy as he is in advancing the agenda of reducing the scope of Medicare.

Roy argues,

The largest driver of Medicare cost inflation is the fact that retirees bear little of the expense for their own care. As a result, seniors have no incentive to avoid unnecessary or overpriced treatments. Rettenmaier and Saving have shown that, between 1960 and 1985, growth in health expenditures was highest in those categories of spending in which consumer cost-sharing was lowest (such as hospital care), and lowest where consumers were most responsible for their own expenses (like prescription drugs, which were not covered by Medicare during that period).

If that actually were the cost, you should see a different rate of medical inflation for non-elderly populations. You should see yet another, much lower rate of medical inflation for procedures that normally fall outside of insurance coverage. And you should see a much higher rate of inflation in industrialized nations that offer universal or near-universal healthcare coverage. But... you don't.

Roy overlooks the fact that people are inevitably going to be poor consumers of healthcare services. They like their doctor, so they keep going back to their doctor - and while the relationship will benefit many patients, others will keep going back to a doctor who is providing substandard care or who is opportunistically ordering unnecessary tests and procedures, perhaps through self-referral, in order to maximize his revenues. How does Roy suggest that the average elderly person determine whether the doctor she trusts is providing sufficient care, or if a different doctor might offer equivalent care at a lower price or better care at a higher price that nonetheless results in a net savings?

But more than that, where does Roy imagine that the savings will come from? If we're talking about seniors with chronic health conditions, they are going to need diabetes supplies, oxygen, catheters and the like. No way around it. Does Roy believe that individuals can get better pricing on care, supplies and services than an insurance company or government agency that can negotiate a discount? If so, I would like to see him connect that theory to the reality in this country, where the uninsured pay the highest prices for their medical care. If I were to be less charitable, I might ask whether Roy's intention is that the elderly have to choose the care, medication and equipment they need, versus paying their bills, buying food....

One has to ask if Roy's goal is to bend the cost curve, or if it's simply to shift medical costs from Medicare onto elderly individuals. If we presuppose that the elderly can afford the care that they require, it remains fair to observe that a cost shift does not actually address either the cost of the healthcare system or healthcare inflation. It simply means that instead of the money coming from Medicare, it will come from a senior's savings. Or their children's savings. Because unless the goal is deprivation, the money has to come from somewhere.

The problem with Roy's argument actually goes much deeper, when you consider the times when the elderly can easily run up five and six figure medical bills. A senior falls and fractures her hip. A senior has a heart attack or stroke. A senior collapses and is diagnosed with acute kidney failure. They can be in a hospital with a five figure medical bill before they're even able to consider whether they're in the most appropriate care center with the most appropriate doctor and most appropriate treatment plan. When you suffer a catastrophic health issue, odds are you are going to have to rely upon some combination of serendipity and the good intentions of others to get you to a point of medical stability - Roy's conceit that it is possible to address this type of issue by giving seniors an incentive to shop around for the best deal isn't realistic.

Roy complains that the same general problem holds true across the board:

The same holds true for all consumers of health care — not just the elderly. Medicaid and the system of employer-based health insurance both provide a great deal of first-dollar insurance coverage, meaning that consumers do not pay directly for services they receive and therefore have no clear sense of relative costs and values. In 1960, individuals paid directly for 52% of national health expenditures, but by 2008 that share had declined to just 12%. Americans are shielded from the real costs of their health care; as a result, it costs too much.

Except here's the thing: Insurance companies have been experimenting with copayments and deductibles to try to save money. And that cost-shifting has been relatively successful. However, on the whole, the net cost to the consumer has gone up. Why? Because when you have comprehensive insurance and your doctor says, "You need a CT scan", somebody from the medical center calls up your insurance company to see if it's covered. If the answer is "No," the patient is likely to receive a less expensive test that is covered by insurance. On the other hand, if the patient does not have that invisible intermediary, there's nobody to come back with, "Why not start with an ultrasound (or other test that might either confirm or refute a potential diagnosis) and we can see if the CT remains necessary once we have the results." They simply hear their doctor saying, "You need this," and so they pay for it.

Which brings to mind another contributing factor: the doctor may not have any idea what the tests, procedures, and medications he orders cost. In fact, there's a large, lucrative industry built around trying to convince doctors to prescribe expensive, patented medications, or to use new medical technologies, implants and devices. Perhaps that would be mitigated in part if more patients were overtly cost conscious, but I doubt it - it's not realistic for doctors to keep track of the relative cost of myriad treatment options, and to try to guide patients through their choices - particularly at those times when the most expensive care decisions are being made. Even if we assume that the information is available, accurate and that the patient is capable of understanding the financial information. It's simply not realistic.

Note that Roy also assumes that the fact that "In 1960, individuals paid directly for 52% of national health expenditures" while now "but by 2008 that share had declined to just 12%" means that people are choosing to obtain care that the don't actually require. A big part of the difference comes directly from Medicare - a program that was created in no small part because the elderly were being underserved by the health insurance market. We also now diagnose and treat a wide range of chronic health issues that were barely on the radar screen, or even unknown to medicine, back in 1960. We also offer a wide range of medical treatments that significantly improve the quality of life that were in their infancy or largely unavailable in 1960. A big part of the difference comes from the fact that, as a society, we have decided that certain medical care should be provided to people even when they cannot afford to pay a cent toward that care - hence programs like Medicaid and laws like EMTALA.

Roy makes little effort to advance his position that healthcare costs would decline if consumers were required to pay for a greater percentage of their care, and as I noted the data suggests that costs could actually increase. Roy does not attempt to document that the care is unnecessary, or the mercenary argument that if we apply a cost-benefit analysis we as a society will be better off even if we deny people access to necessary medical care.

At the end of his article, Roy reveals himself to be little but a foot soldier for the Romney/Ryan "reform" plan - not a policy analyst, but a political advocate. His first recommendation is right out of the political coward's playbook - "Don't change anything for anybody aged 55 or older." That's not about making good policy or protecting people - it's about votes. If in fact his second proposal, cost sharing (i.e., increasing what people have to pay for the care they receive) leads people to "make sensible decisions about whether to pursue treatment", it will do so for somebody who is presently 55 or older. If in fact his third proposal, means testing, is a reasonable measure, there's no reason to exempt the present generation of wealthy Medicare recipients from that standard. Worse, cost-sharing is unlikely to work, and means testing is not likely to produce appreciable savings.

Roy's next proposal is to "index the Medicare retirement age to life expectancy", that is, to make people wait longer to qualify for Medicare. Never mind that a significant population of seniors already postpone medical treatment until they qualify for Medicare. Never mind that the cost of postponed treatment can mean that the overall cost of Medicare goes up, or that more people will end up either on Medicaid, or become eligible for Medicare through SSDI instead of through reaching the retirement age. If there is a valid argument that actual savings could be realized, Roy hasn't tried to make it, relying instead upon supposition.

Roy's first meaningful proposal is to work harder to eliminate fraud from Medicare. Except everybody wants to eliminate fraud. Doctors and clinics get sued and prosecuted for Medicare fraud. Roy's solution? To privatize administration of Medicare. He may as well argue that we should wave a magic wand. There is no reason to believe that privatized administration will reduce fraud, and every reason to anticipate that it will increase costs.

Roy's ultimate proposal is that we implement a Ryan-style voucher plan for Medicare, while allowing seniors to buy insurance through a health insurance exchange. You know, the sort of exchange that's "the end of the world" as part of the PPACA, but for some reason is the height of market efficiency for a post-Medicare voucher program for the elderly.

Roy closes by attempting to put Medicare "in context":

Addressing this problem would require reforming and integrating Medicare, Medicaid, the employer-sponsored system, and the individual market (and would therefore require replacing Obamacare with a very different set of health-care reforms well beyond Medicare). It would involve addressing the runaway costs of defensive medicine and medical-malpractice litigation. Such changes would of course be extremely difficult to undertake, as the heated ongoing health-care debate amply demonstrates.

Roy wants to "integrat[e] Medicare, Medicaid, the employer-sponsored system, and the individual market"? That sounds a lot like what would be accomplished through "single payer". So no, that's actually not what Roy wants. Were Roy and his brand of analyst serious about reform they would be looking around the world at how other industrialized nations have responded to the same issues and proposing that we emulate their success. Instead they urge us to ignore our lying eyes, drink the Kool-Aid, and double down on our history of failed market-based (non-)solutions.

Note also Roy's introduction of the canards that "defensive medicine" and medical malpractice play a significant role in the current problem, and his prevarication that they are "runaway costs". They weren't important enough to address in his plan to save Medicare, but how can you close out a political argument like this without dropping them in for good measure? A serious analyst would put the prevention of malpractice and maloccurrence on the agenda, while recognizing that any effort to push the "runaway malpractice costs" like would reveal him as a dilettante. The current system compensated a very small percentage of malpractice victims, and is very accurate at weeding out unsupported claims. There's no indication that so-called "defensive medicine" could be eliminated even if doctors enjoyed absolute immunity - and if you look at the facts even the most sweeping "tort reform" measures, such as the laws in Texas that come close to giving doctors immunity, do not affect the manner in which doctors order tests and procedures. What changes things? The sort of salaried arrangement used by facilities like the Mayo Clinic and the Cleveland Clinic. Go figure.

Strip away the window dressing and the argument boils down to, "Medical care costs too much and costs are rising too quickly. I have no solutions, so I propose eliminating any form of group health insurance, giving poor people vouchers that they can use to pay for individual insurance policies, and calling it a day."