Conservatives often argue that it just isn’t fair to force private health insurers to compete against a government plan because . . .
Well, to be perfectly candid, they know that most for-profit insurers would lose. They don’t put it that way, of course. They argue that the government plan would enjoy “unfair advantages.” It wouldn’t’ have to pay profits to shareholders, for instance, and it wouldn’t have to pay seven-figure salaries to its secretaries. It also wouldn’t have lay out hundreds of millions to advertise –or to lobby Congress.
But have the private insurers’ apologists considered the possibility that private insurers pay their executives too much? Maybe you don’t have to ante up $11 million to attract a good man. (I know you can get a good woman for less.) Perhaps for-profit insurers squander money on needlessly lavish advertising. Maybe these companies shouldn’t be spending quite so much trying to grease the palms of our elected officials.
As for profits for shareholders, certainly those who invest in a business have a right to expect dividends and/or capital gains. But one could argue that it’s up to the private sector company to produce those profits by being more efficient than government. Conservatives themselves often argue this position.
It makes sense to give for-profit insurers a chance to prove that they can add value to the system, if only because many employees who have private insurance today do not want to give it up until they see how health care reform is working out. But, if over time, for-profit insurers fail, and more Americans find that they can get better coverage for less from Medicare-for-all—or from not-for-profits in the private sector–they should have that choice. Taxpayers cannot afford to bail out another industry that can’t figure out how to do its job without short-changing its customers.
This isn’t to say that Medicare-for-all is a sure-fire winner. Today’s Medicare is a deeply flawed system. It needs fixing.
We Must Begin to Make Medicare More Efficient
Ultimately I disagree with the Institute’s report on just one major issue: the assertion that public-sector insurance plans always do a better job of containing costs than private insurers.
Berkeley political scientist Jacob Hacker makes the argument in “The Case For Public Plan Choice In National Health Reform ,” . where he argues that “Although you would not know it from the debate over Medicare’s finances, Medicare has become increasingly effective at restraining the ‘excess growth’ of spending.
Hacker, who wrote the paper for the Institute for America’s Future, uses the chart below to compare the growth in Medicare spending to the growth in private insurers’ reimbursements: “As Figure 2 shows, private plans’ spending per enrollee has grown substantially faster than Medicare spending per enrollee, especially in the last decade or so. Private insurance outlays per enrollee grew an average of 7.6 percent a year between 1983 and 2006, compared with 5.9 percent growth in per enrollee spending under Medicare—a 22 percent difference. (1983 was the year in which Medicare’s prospective payment system for hospitals was implemented; 2006 is the last currently available data year.)
“The gap is even bigger in recent years,” Hacker adds. “Between 1997 (when the Balanced Budget Act of 1997 further constrained Medicare spending) and 2006, private health insurance spending per enrollee grew at an annual rate of 7.3 percent, compared with an annual growth rate of 4.6 percent under Medicare—a full 37 percent difference.”
But, of course, when you make a chart, everything depends on the beginning and ending points that you choose. The chart above appears to have been cut from the chart below —which offers a more continuous, year-by-year overview of Medicare spending versus spending by private insurers, all the way back to 1970.
Hacker is right when he points out that from 1997 to 2006 Medicare has brought health care inflation down significantly. But as the legend reveals, this was largely due to the fact that Medicare reimbursements grew by only 1.2 percent a year for just two years–from 1997 to 1999 .
And this was not, as Hacker suggests, because “Medicare had become increasingly effective at restraining excess” spending. Rather, it was because the Balanced Budget Act (BBA) of 1997 slashed Medicare reimbursements to hospitals, physicians, home health agencies, and skilled nursing facilities, with planned net spending reductions of $116.4 billion from 1998 to 2002 .
Meanwhile, the American Hospital Association complained of "service closures and cutbacks as hospitals and other health care facilities attempt[ed] to wrestle with the BBA's dramatic reductions ."
Many thought the across –the- board cuts were crude. It is difficult to assess whether they lowered the quality of hospital care, but according to a 2006 article published in Health Services Research, “hospital financial health deteriorated over the time period, calling into question the sustainability of quality patient care in the face of further reimbursement cuts. As cuts continue, it will be an ongoing challenge for hospitals to continue to provide high-quality care using fewer resources .”
Congress listened, and “as a result of significant protests from the American Hospital Association, Congress passed the Balanced Budget Refinement Act in 1999 to restore $8.4 billion and subsequently passed the Benefits and Improvement Protection Act in 2000 to restore a further $11.5 billion of the original $116 billion reductions.”
Meanwhile private insurers had been cowed by complaints about “managed care” and they, too were becoming more generous. Thus, Medicare spending resumed its climb, rising by more than 5.5 percent a year from 1999 to 2006.
Private insurers had enjoyed their day in the sun a few years earlier when their spending slowed.. From 1993-1997 their reimbursements creeped up by only 2.8 percent a year. (Hacker does not include these four years in his snapshot of “recent years.”) This was the heyday of “managed care,” when HMOs began saying “no” to many procedures. Then came he backlash, and as HMOs lost market share at the end of the 1990s, they began saying “yes” more often. After they threw in the towel, their reimbursements climbed by well over 8 percent a year.
Over the same period as Hacker notes, Medicare spending grew by “only” about 5.5 percent a year. Medicare managed this feat largely by holding virtually all doctors’ fees flat even while their overhead climbed. (This was another crude solution.) But now the jig is up: physicians are rebelling. Many primary care doctors are no longer taking new Medicare patients. The Medicare Payment Advisory Commission has recommended that Medicare begin raising fees at the bottom of the physicians income ladder while cutting for some services at the top.
In sum, neither Medicare nor private insurers have been successful in putting a lid on costs for more than a few years at a time. And when they have tried, critics insist that they are threatening patients’ health .
Step back, look at the larger chart, and you find that over time (1970 to 2006) Medicare payments soared by an average of 8.7 percent a year, while private insurers have been laying an addition 9.7 percent a year. The one point difference just doesn’t suggest that a public sector plan is intrinsically better suited to holding down costs. (Even in recent years (from 1999 to 2006) Medicare spending has continued to grow at roughly 5.5% a year, hardly a sign of progress.)
In the end, what the chart reveals is that whether Medicare or private insurers are paying, health care costs have been levitating to a point that U.S. healthcare has become unaffordable. We cannot sustain 8.7 annual healthcare inflation or 9.7 percent growth—not unless wages and GDP are spiraling at the same rate. And we know that they won’t.
Before we roll out Medicare- for- all, we need to face the face the facts: Medicare is a spectacularly wasteful system. Research suggests that one out of three Medicare dollars are spent on unnecessary, unproven, redundant and over-priced tests, treatments and products that are no better than the older treatments that they are trying to replace . We can no longer afford to put a match to health care dollars. White House budget director Peter Ortszag has made the numbers crystal clear: Medicare spending is not sustainable. As Archer acknowledged in Tuesday’s conference call: “ Medicare will have to get tougher. I believe it will.”
Medicare needs structural changes, both in term of what it covers, and how it delivers care. This is why Medicare reform will be key to national health reform: we need a far more efficient model for a public-sector plan. It will not be easy—and it can’t be done by simply hacking away at what Medicare covers, or how much it pays healthcare providers, indiscriminately. Cuts need to be made judiciously, with a scalpel, not an axe.
Again, we can learn from Massachusetts: “It’s not like the fat sits out here easily identified and you just slice it off, Jon M. Kingsdale, executive director of the agency that administers Massachusetts Commonwealth Care told the New York Times. “It’s marbled throughout the meat”