Today, fearmongers are trying to start
a generational war. Their goal is to persuade younger Americans that we cannot
afford Medicare. I have always
been candid about the waste in our healthcare system. U.S.medicine is inordinately and unnecessarily
expensive; we must put a brake on healthcare inflation. But conservatives such
as billionaire Wall Street baron Pete Peterson wildly exaggerate the numbers when
they suggest that spending on aging boomers will bankrupt the nation.
Pete Peterson is, I am sorry
to say, simply a cranky old man in a pinstriped suit. In a word, he’s a crank
–i.e. “an unbalanced person who is overzealous in
the advocacy of a private cause.”
It’s Not a Medicare Problem—It’s a
Let’s ignore the rhetoric and
take at look at the bald facts. Below, a
chart that shows the growth in how much Medicare spends
on health care each year (red line) and the growth in how much
private insurers pay out (blue line). (Hat tip to reader Robert Feinman for sending
me a series of charts from the Wonk Room.)
For example, in 2000, reimbursements
from private insurers grew by about 11 percent; this was the year when they stopped trying to
“manage care” and began saying “yes” to many procedures that they had refused
to cover in the past. But even after paying out so much more in
2000, the amount that private insurers spent on health care continued to rise,
by 9 percent to 10 percent a year. (These numbers come from the Congressional
Budget Office.) This explains why your insurance premiums have spiraled.
Over the same span, Medicare
also struggled to control spending. From 2000 to 2006, the amount
that it paid for healthcare grew by 6 percent to 9 percent each and every year.
This is why Medicare premiums, deductibles and co-pays have been rising. Between
2000 and 2007 Medicare beneficiaries faced average annual increases in the Part
B premium of nearly 11 percent.” And
this year, the Part A hospital insurance deductible climbed by $44 to $1,068. That covers up to 60 days of
hospital care; after that Medicare beneficiaries who have not bought supplemental
(Medigap) insurance must pay daily coinsurance of $267 a day for days 61-90 and
$534 per day after 90 days. For outpatient care, beneficiaries are asked to cover
the first $135; after meeting that deductible they must pay 20 percent of the
Medicare-approved cost of outpatient services.
Some single-payer advocates
would lead you to believe that under Medicare, healthcare is free. This
just isn’t true. Even if we had
single-payer system, the amount that you have to pay out-of-pocket would
continue to climb unless we learn to control health care inflation.
Why is the cost of
healthcare in the U.S. soaring both under Medicare and under private insurance? For two reasons: First, because we pay more for every pill and
procedure—and secondly, each year we take more pills and undergo more tests and treatments .
As blogger Merrill Goozner has
pointed out, in our wasteful system, volume is as much a problem as price: In 2007, “the Congressional Research Service has
published a sobering comparison of U.S. health care spending patterns to the other 29 nations in the Organization for Economic Cooperation and Development (OECD). Did you know that our physicians order 587 coronary artery bypass graft surgeries per 100,000 population compared to an OECD average of 352? Did you know that we have 32 CT scanning machines and 27 MRI machines per one million population compared to an OECD average of 18.8 and 8.8, respectively?”
Recently, I quoted
Harvard’s Dr. Atul Gawande on the explosion in surgeries: “In 1996,
Americans underwent some 60 million surgeries. In 2008, that number rose to
100 million. Does that mean that Americans are healthier?” he asked. Or
does it simply mean that we are paying for more unnecessary surgeries?
“No one knows,” said Gawande, “because we never measure how well
our healthcare system is performing .”
Administrative costs also are high,
both at the insurers’ end and at the provider’s end, in large part because our system
is so fragmented. Eighty-percent of U.S. doctors practice in groups of four or less, and each of those offices is filling out paperwork to be reimbursed by dozens of different insurers. The insurers add
another fat layer of administrative costs, as do the employers who purchase policies. In countries where all physicians work, on salary, for the government, and hospitals are all owned by the government much ofthe paperwork is eliminated. But it is very unlikely that the we are going to nationalize our healthcare system; so we are always going to stuck with more paperwork than some other countries. Still, if our system were organized so that physicians worked in very large medical centers, and insurance benefits were standardized, we could reap significant savings.
But high administrative costs are only a part
of the problem. Under Medicare, administrative costs are much lower—yet, as you can see, government spending on healthcare continues to levitate as the cost of
drugs, devices, tests and treatments soars. So a single-payer system (or
Medicare for all) would not solve healthcare inflation. With costs rising by 7% a year, your
health care bill would double in a little over 10 years.
Even though many doctors’
fees have remained relatively flat in recent years, doctors are doing more-performing more surgeries, prescribing more tests and more treatments. As a result, the total amount that we as a nation has spent o n physicians’ services has continued to rise—up 6.2 percent in 2000, up 8.3 percent in 2003,
up 7.3 percent in 2004, up 7.4 percent in 2005, and gaining another 5.9 percent
in 2006. Meanwhile, some doctors remain underpaid.
Going all the way back to 1970, you can see
that healthcare inflation has remained high, with the amount that both private
insurers and Medicare pay out growing far faster than the average worker’s
wages. (According to the Congressional Budget Office, even if you add in the
value of the health care benefits that employees receive from their employers,
America’s statistical middle class –the 20 percent clinging to the third rung
of a 5-rung income ladder—has seen its income rise only 15 percent over the
past 25 year—or less than 1 percent a year. )
This is why healthcare has
become unaffordable for so many Americans.
Sometimes Medicare has done a
better job of keeping a lid on inflation; sometimes private insurers have been
more successful. For instance, in 1994, Medicare spending grew by only about 3
percent. In 1998, reimbursements from private insurers rose by just 4
But by and large, both
Medicare and private insurers failed to contain health care inflation. As the
“Wonk Room” points out the problem is systemic. Medicare’s costs are rising, not because greedy geezers are gaming the system, but because, in a for-profit health care system where everyone is selling something—and selling hard—we are buying care that we don’t need in the form of ineffective, often unproven, sometimes unwanted and generally overpriced products and treatments. As I have discussed in earlier posts, more than two decades of work done by medical researchers at Dartmouth shows one out
of three of our health care dollars is squandered on care that provides no
benefit to the patient. But the problem is not unsurmountable.
We Just Need to Trim 4%-6% from Medicare Spending
As the chart above demonstrates,
in recent years, Medicare spending has been growing by 6% to 8% a year. If we
trimmed spending by just 4% to 6%– bringing health care inflation back to 2% a
year, the cost of health care would be growing at about the same rate as the
economy (assuming relatively slow economic growth in coming years.) This is doable.
We could continue to spend
the $2.6 trillion that we are now spending—plus 2 percent a year—and U.S. healthcare would be affordable.
What about covering the 47
million Americans who are underinsured, and the millions who are underinsured? By redistributing how we spend that $2.6
trillion—spending more on preventive care, public health and chronic
disease management—and less on inordinately expensive aggressive that provides
little or no benefit to the patient, we could cover everyone.
Admittedly, as I have said
in the past, we will need “seed money” to restructure the system and make it more
efficient. There are various ways to raise that money: eliminating
the windfall bonus that we are now paying Medicare Advantage insurers; letting
Medicare negotiate with drug-makers for discounts on the drugs that Medicare
and Medicaid buy; raising inheritance taxes on assets over a certain amount; erasing President Bush’s capital gain tax cut;
raising income taxes on the wealthiest 15 percent. . . .
These are just a few
examples of ways to fund the comparative effectiveness research, electronic
medical records and important changes in the way we deliver care that could give
us much better value for our health care dollars. Keep in mind that restructuring the
system would be a one-time expense
(stretched out over a period of years). In the long run, the savings would more
than cover the initial outlays.
Yes, our population is
aging, but that does not mean that health care costs must soar. Sweden has the oldest population in the EU, yet over the last 15 years, while the population has been graying, health care spending has stayed level at about
9 percent of GDP.
How has Sweden managed the buck the trend?
For one, 95 percent of the country’s hospitals and doctors use electronic
medical records which guarantee many fewer errors, and much greater efficiency.
Moreover, in Sweden preventive care is free. So no one is
tempted to skip a needed Pap Smear. Diabetics go for their eye check-ups. If
the Swedish can learn how to get good value for their healthcare dollars, we
beware of anyone who tries to use scare tactics to persuade you we,
unlike every other developed country in the world, simply cannot afford
to provide high quality healthcare for all. Those who must use fear as a weapon
do so because they don’t have facts.