If you're not a Medicare recipient, your parents probably are, or soon will be. And you yourself will be on Medicare eventually.
That’s a good reason to pay attention as Congress debates an overhaul of America’s health insurance system — because this debate is inevitably a debate over Medicare, the federal government’s biggest health spending program at $500 billion a year.
Medicare is big, and it’s going to get much bigger: Between 2010 and 2030, the number of people on Medicare is projected to rise from 46 million to 78 million, according to the Kaiser Family Foundation.
Over the long term, the program is underfunded. According to the Medicare trustees, it would take an immediate 134 percent increase in the Medicare tax rate, or an immediate 53 percent cut in spending, to bring Medicare’s hospital insurance program into long-term fiscal balance.
The cost savings which President Barack Obama says are urgently needed won’t be possible without cutting Medicare’s outlays, which have kept growing annually at a pace more than two percent faster than the economy.
Cutting payments to hospitals and nursing facilities
Obama has proposed policy changes which his budget director Peter Orszag says will cut more than $200 billion over ten years from Medicare, partly by requiring hospitals, hospices, outpatient clinics, and skilled nursing facilities to become more efficient by meeting certain productivity benchmarks.
“To the extent that we’re trying to find savings within the federal budget to offset the cost of health reform, Medicare is obvious place to go because it is so large,” said economist Paul Van de Water, a health care policy expert at the liberal Center on Budget and Policy Priorities in Washington.
If you look at the health care bill proposed by House Democrats you will see how large a part of the overhaul is focused on Medicare, which accounts for 478 pages — or well more than half — of the 850-page House proposal.
The House Democratic proposal would decrease overpayments to private plans operating under the Medicare and would aim to improve payment accuracy to ensure that doctors and other medical providers were not over paid.
It would also eliminate the gap in Medicare prescription drug coverage by closing the “doughnut hole,” the coverage gap in the drug plan before Medicare recipients reach the threshold for catastrophic coverage.
In the current debate, which is ostensibly about health insurance, what sometimes goes unmentioned is that Medicare isn’t an insurance program in the classic model of a pooling of risks.
In a traditional insurance system, members of a risk pool pay premiums. The risks of any of them having expensive claims to be paid in any given year are averaged out.
Not a traditional insurance model
But Medicare is an income transfer program that taxes workers to pay for care for 45 million people who are elderly or disabled.
While Medicare beneficiaries do pay premiums for their coverage, most of the program’s cost is borne by people under age 65, who themselves will qualify to become Medicare recipients once they reach age 65.
As policy analyst Juliette Cubanski of the Kaiser Family Foundation pointed out in a panel discussion sponsored by the Alliance for Health Reform, the Medicare population “tends to be sicker and have greater health needs than others. Over one third have three or more chronic conditions and 29 percent have a cognitive or mental impairment.”
“The uncertainty regarding health care costs among those over age 65 is more a matter of ‘when’ than ‘if,’” said economist Arnold Kling in his book Crisis of Abundance: Rethinking How We Pay for Health Care.
People in Medicare often have a costly medical event or illness such as a stroke or cancer before they die. “If high expenditures on health care before death are nearly inevitable, then real insurance is not possible,” he argued.
But Van de Water said the differences between Medicare and traditional insurance models are less significant than the similarities of federal health spending and private-sector spending.
“Obviously Medicare is a social insurance program which has some similarities and some very important differences from other types of insurance,” Van de Water said. “But people often don’t recognize the similarities” between insurance for younger people and the insurance provided by Medicare.
“For example, the trends in Medicare spending have been exactly the same as those for the rest of the health sector,” Van de Water said. For the past 30 years, both in government and in private-sector health care, spending has been increasing annually 2.8 percent faster, on average, than the rest of the economy.
Medicare recipients not that different
And the reason for the similar spending patterns, said Van de Water, is that “doctors basically practice one kind of medicine. Even if older people have more health problems, and have certain problems that younger people don’t have, a lot of them are the same problems; they don’t just all of sudden appear at age 65.”
Opinion polls already reveal an anxiety among older people that the Democrat’s proposed changes may hurt their Medicare coverage.
A June 19-22 survey of 1,000 voters by the Democratic-aligned polling firm Greenberg Quinlan Rosner found that when the Democrats’ insurance reform plan was described to respondents under age 65, 54 percent of them supported the proposal. But 54 percent of seniors in the Greenberg Quinlan sample opposed the Democratic plan.
A survey this month of 1,205 adults by the Kaiser Family Foundation showed similar jitters among older Americans.
The survey asked whether — as one way to help pay for health care reform — respondents would favor limiting increases in Medicare payments to doctors and hospitals.
A majority, 56 percent, of those under age 65 supported such limits on payments, while 35 percent opposed them.
But people over age 65 were opposed to such payment limits, 48 percent to 40 percent.
How to reassure older voters
In its advice to Democrats on how to persuade skeptical seniors, Greenberg Quinlan Rosner said older people needed to hear “not only that their Medicare coverage will not be undermined but that the plan also provides them with some tangible new benefits” such as expanding prescription drug coverage by closing the Medicare “doughnut hole.”
Van de Water said filling the doughnut hole is “not the best policy in the world, but it may be the best politics.”
He said, “The doughnut hole is not a good benefit design, but filling it costs money and it’s not clear that further expanding the drug benefit is the top problem system-wide. But it is important to Medicare beneficiaries who see the potential of being made at least modestly worse off in some respects” by proposed reforms.
“Right now not that many details have filtered down to the average person answering a poll,” said the Kaiser Family Foundation's Cubanski in an interview with msnbc.com Tuesday. “What people might be hearing is ‘we’re going to make cuts in Medicare’ — without knowing any of the specifics about what those cuts really are and what they would mean for beneficiaries.”
She added, “Some of the proposed reforms — such as bundling payments to hospitals and other providers — are potential ways to bring greater efficiency to the way Medicare benefits are paid for. I don’t think it’s clear at this point what the effect on beneficiaries would be with some of these changes. Beneficiaries might not actually see much in the way of a tangible change in their benefits or a change in which doctor they see.”
On the other hand, when the CBO last year analyzed the type of cuts in payments to hospitals and skilled nursing facilities that Orszag has proposed, it warned that such cuts “might cause some providers to lower the quality of care they provided or to stop serving Medicare beneficiaries altogether.”
The key word here is might.
How skillful Democratic leaders are in reassuring seniors about such uncertainties may determine whether they get the support they need to push an insurance overhaul to final enactment.