Health care in America: great medical care, poor payment system

(Third in a seven-part series: Medicare for All – Quality and Accessible Care for None)

Those touting the “Medicare for All” plan are using the phrase to entice those with just a surface awareness of what Medicare actually is into blindly jumping on board the bandwagon. In fact, the phrase is extremely disingenuous (albeit politically brilliant), designed to intentionally mislead the an public. (It is not so dissimilar from the deceptively named “Patient Protection and Affordable Care Act.”)

The goal is to seduce a mostly uninformed citizenry into supporting a concept that sounds like they’ll (1) never again have to pay anything for medical care; (2) such care will always be readily available when they want it and (3) medical care in the United States will remain top notch.

What Sen. Bernie Sanders and his supporters say they really want is a Canadian-style, government-, state- or bureaucratically-run health care system and not a plan similar to Medicare here in the U.S.

Medicare

It’s impossible to have clear grasp of what “Medicare for All” intends to achieve without having a decent understanding of what plain old Medicare is, how much it costs and how it functions.

Let’s start with the fact that Medicare is not free and actually quite complicated for its elderly beneficiaries to understand precisely what it covers and what they have to pay for out-of-pocket.

Medicare is the federal health insurance program for Americans 65 and older along with certain younger people who have specific ailments or disabilities. On July 30, 1965 President Lyndon Johnson made Medicare a reality under Title XVIII of the Social Security Act. Today, about 59 million people are on Medicare.

Core Medicare includes Part A (strictly-enforced hospital services), Part B (doctors’ charges and some outpatient services) and Part D (inpatient prescription drugs). All of the above carry major co-payments and deductibles.

The Centers for Medicare and Medicaid Services (CMS) charges seniors monthly premiums for Parts B and D and even Part A for some recipients who have not paid into the Medicare system for a minimum of 30 quarters (the monthly premium is a considerable $437/month). Part B for 2019 has a $135.50/month premium and an annual deductible of $185.00 (for annual incomes below $170K).

According to CMS, Medicare’s Part A deductible for most recipients for 2019 is $1,364. Medicare almost entirely pays the hospital costs for the first 60 days but after that the co-payments to the patients rise considerably.

Most seniors who can afford it, purchase a Medigap or Medicare Advantage plan from a private insurer. Medicare Advantage plans work similar to most managed care plans about which most working-age people are familiar.

It should be clear that given the considerable premiums, deductibles and co-payments existing in Medicare, it is not nearly “free” to its participants. So the phrase, “Medicare for All,” is a political marketing ploy and not an accurate description of its intended function.

Many of the Medicare for All supporters also have the misconception that Medicare (CMS) denies fewer claims than do most private insurers. The opposite is true. As a percentage of total claims Medicare denies about twice as many claims submitted than the average of the next six highest health insurers. Many of these denials are do to an already slow-moving bureaucracy that also can’t keep up with new and more effective medical treatments. As such, appeals take nearly two years on average to process.

Sen. Sanders’ Medicare for All would ban private insurers for nearly all primary medical categories other than something highly elective like cosmetic surgery. This will of course eliminate Medigap and Medicare Advantage plan options for seniors [Sec. 104 (a)].  The point is “Medicare for All” is nothing like Medicare at all..

If no major co-pays or deductibles are required, and this single-payer plan picks up these current out-of-pocket expenses, then any simple extrapolation of the current federal cost per Medicare recipient to the entire population is considerably underestimated.

Medicare already is not financially solid. According to the latest trustees’ report, Medicare Part A, which covers the medical services provided by hospitals will be depleted in 11 years.

Medicaid

Between 2008 and 2016, Medicaid enrollees swelled from 47.2 million to nearly 75 million (with another 5 million on Children’s Health Insurance Program [CHIP]). The total number on Medicaid (without a Medicare for All law) is expected to hit 87 million within 10 years.

This means that about one in four Americans is currently either enrolled in Medicaid or CHIP. So what the Sanders’ plan more closely resembles is Medicaid for All, but he didn’t name it that. Why? Because Medicaid has a welfare-like, negative political connotation to it. Medicare just sounds better even though it has greater out-of-pocket costs than Medicaid to its recipients. Most states charge nominal Medicaid co-pays, if they charge any at all.

The actual medical cost per enrollee of those on Medicaid is more than twice as high as those with private insurance even though CMS reimburses hospitals about 40% less than does private insurance. This means that for those on Medicaid, finding a doctor to treat them can be a challenge.

Why? Because Medicaid’s low payment rates along with the bureaucratic paperwork make it quite cost ineffective for providers. Nationally about 69% of physicians accept patients on Medicaid but this varies tremendously by state. For example, New Jersey has the lowest national acceptance rate: just 40% of the state’s doctors accept new patients on Medicaid.

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One of the key reasons cited by many supporters of Medicare for All is the explosion in the cost of most private health insurance premiums. Though the primary explanation for these increases is in fact Obamacare (ACA), Medicare for All proponents say that not only is the ACA not the culprit, an exponentially expanded ACA is the solution to this untenable situation.

It’s important to note that the architects of the ACA knew that the law would raise private insurance premiums substantially so to make it politically palatable to many low- to middle-income earners they included massive federal subsidies.

As high as the private health insurance premium increases have been, they have been outpaced by the amount of subsidies paid by the federal government (Section 1401 of the ACA). Because of this taxpayer support, many recipients/voters have essentially been bribed to politically support the next generation of the ACA, which of course is Medicare for All.

Subsidy-recipients like the way the ACA functions. Subsidy-recipients don’t care their premiums have risen so rapidly because to a large degree they’ve been paid for by the American taxpayer. Subsidy-recipients have decided they love the federal government’s involvement in their health care life.

Perhaps with this exception: Many enrollees not only lost their old policy, they discovered their family doctor (in many cases now an employee of the large local hospital system) no longer even accepted their insurance. These private enrollees were often furious at their insurance company and/or their employer for what amounted to a substantial reduction in the value of their coverage. What they have not done though is blame the real cause – the ACA.

Here’s the crux of the problem: Socialists believe the state is smarter and functions more efficiently than the private sector. They may truly believe an unaccountable bureaucratic health care system, will produce high quality, readily accessible and cheaper medical care.  Decades of evidence say this belief is deluded.

The opposite is true. Medicare and Medicaid only add to the cost burden of national medical care. They raise costs through red tape – incredibly complex administrative paperwork. Medical innovation and change is routinely resisted.
Government never lower medical costs, it just lowers payments to medical providers.

Although the Medicare for All advocates deny it, Medicare’s per-beneficiary administrative costs are actually higher than the administrative costs of private insurers.

[A true administrative cost comparison must be based on the number of persons covered, not the amount paid for them. Medicare’s administrative costs per beneficiary appear lower as a percentage of the total amount not because Medicare administrators are more efficient but because their (elderly) patients cost more.]

Medicare also imposes regulatory obligations that it doesn’t factor into its costs because it shifts the burden to others (providers and their staffs) to perform this administrative work.

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A recent study by George Mason University’s Mercatus Center calculated that the Sanders’ plan would cost U.S. taxpayers $32.6 trillion in just its first 10 years. Costs would increase annually from there on. This calculation is in line with the amount determined by liberal Urban Institute.

Emory University health policy professor, Kenneth Thorpe, who was a senior health policy advisor in Bill Clinton’s administration, backs up the George Mason University study. He said, “…the tax increases are going to be enormous. There are going to be a lot of people who’ll pay more in taxes than they save on premiums.”

This not only doubles the size of the federal budget but raising individual and corporate taxes by 100% (double today’s revenue) would not be enough to pay for Medicare for All.

The author of the George Mason University study, Dr. Charles Blahous, even used improbable assumptions to get this cost down to only $32.6 trillion. The most unrealistic assumption is that all payments to doctors and hospitals would approximate Medicare/Medicaid levels of payments for services. This assumption is completely unrealistic. Reducing about half of their revenue by 40% would either put most hospitals out of business or cause them to dramatically reduce staffing to quality-destroying levels. (Details on this in Part 4 of this series.)

How would Sen. Sanders pay for his bill? He proposes a 7.5% payroll tax on employers. This is deceptive as well. Payroll taxes are actually paid by the employee in the sense that he or she receives lower compensation in salary or wages. The employer simply collects these tax dollars and pays them to the feds before the employee sees or takes possession of them. Another less politically onerous form of taxation.

Sen. Sanders also wants a 4% “‘income-based premium” tax on all taxpayers and a few other new taxes on what he calls, the wealthy. Specifics haven’t been forthcoming.

Ironically it is young people who flock to Sen. Sanders’ speaking events and are a strong constituency for his plan. But he must know that his 7.5% payroll tax proposal will be the worst deal for them of all age groups. They’re working, they’re young, and they don’t use much medical care. Yet if employers don’t increase their total compensation package, the young will find they have less disposable income for very little benefit. If the plan is enacted it will also have a substantial national economic cost outside of the health care industry.

Even with insurance coverage mandates and federal subsidies, insurance companies have been opting out of the health insurance market every year since the ACA’s enactment. Those that remain seem to have a philosophy that as long as they stay in the health insurance business, they might as well make sure they’re not committing financial suicide by not having prices keep pace with costs.

By originally supporting the ACA, private insurance companies foolishly made a pact with the devil and it has come back to haunt them. Many of their former defenders are now furious enough with the seemingly perpetual double-digit increases that they are now appear receptive to Medicare for All-type system.

The ACA caused many small employers to drop paid health insurance coverage for their employees and instead provide higher wage or salary income and direct the employees to the exchanges to buy individual policies on their own. This was easily predictable since there was a tremendous cost savings to a small employer who chose to pay the minimal fine and drop his or her expensive monthly health insurance premiums. Workers with health insurance provided by small employers have declined substantially during the life of the ACA. Since 2010, small business coverage has dwindled from 50% of workers insured to about 33%.

Those small employers that initially kept coverage later found they couldn’t afford the annual double-digit premium increases so they began to opt for cheaper plans. Many workers who retained employer-sponsored coverage, have seen their plans gutted over the years and are now facing much larger co-pays and deductibles. For these employers, this strategy has restrained costs and allowed them to avoid federal fines but also made increasing numbers of employees loathe their private insurance policy/company.

Virtually all covered by private insurance now feel their plans seemingly “cover” nearly everything but pay for almost nothing.

To sum this all up bluntly: Our medical care is great but the way we pay for it sucks.

This article is not to be construed as a defense of the current payment structure. It is not. Ours is a convoluted, hybrid payment system that few can even understand. It contains some elements of a free market but is highly contaminated by the regulatory authority of federal and state governments.

Though most medical providers have learned to survive in this environment, others have not: many doctors have retired, sold their practices or taken administrative positions; many hospitals have merged or closed.

As we’ll see in part four of this six-part series, Medicare and Medicaid’s growth — now comprising the insurance for over 4 in 10 Americans — places a considerable burden on the other 60% who not only pay for their own insurance, but unknowingly subsidize the other 40%. This means that because the federal government generally pays less than 90% of the actual cost of medical treatments, those with private insurance pay about 10% more as a hidden tax than they would pay if the feds reimbursed the true cost of such care to providers. (This does not include the covert surcharges of those who pay their medical bills needed to pay for those without insurance who can’t pay their bill or those who simply don’t pay their bill.)

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As Barack Obama said in 2003, Barack Obama said to an AFL-CIO convention: “I happen to be a proponent of the single-payer universal health care system. … A single-payer health care plan. Universal health care plan. That’s what I’d like to see. But as all of you know, we may not get there immediately…”

President Obama’s gameplan to arrive at government-paid for health care might have had a pathway that looked like this:

• Pass a law (ACA) that forces private insurance companies to only offer plans that includes coverage for many medical conditions that the insured doesn’t want, that results in …
• private insurance companies having to raise their prices, that results in …
• political pressure to have the government help pay or defray the cost of these expensive plans, that results in …
• more potential voters receiving subsidies from the federal government (includes subsidies for premium payments [10.6 million] and also subsidies to reduce the impact of out-of-pocket costs due to deductibles and co-pays [5.6 million]), that results in …
• more voters now addicted to the government’s help to pay for health insurance who are easily persuaded to say “yes” to what they are told is totally “free” health care.

Or this was equally predictable pathway:

• Pass a law (ACA) that requires private insurers to offer only “Mercedes-like” plans that cover virtually every condition (even many the insured does not want) making them exceedingly expensive, that results in …
• a dramatic rise in the cost of premiums, annual changes in policies and physician networks so even though the law was the true culprit for these losses, the insurance company absorbs the blame that results in …
• more people dropping private insurance coverage or looking to be subsidized by government, that results in more anti-private insurance voters.

Or maybe this pathway:

• Pass a law (ACA) that says the federal government will pick up the entire tab for new Medicaid enrollees through 2016 that enticed the individual states to expand their Medicaid populations, that results in …
• millions more (remember that Medicaid expanded from 47.2 million to nearly 75 million between 2008 and 2016) getting their health insurance from the government, that results in …
• more patients paid by the government which pay hospitals and doctors less than the cost of the care they provide (albeit more than if the patient didn’t pay anything), that results in …
• doctors and hospitals demanding that private insurance companies pay them even more to cover this shortfall, that results in …
• private insurance companies in turn raising their premiums considerably more because doctors and hospitals now have to charge them more, that results in …
• more enrollees in private insurance screaming about the high cost of premiums who are now receptive to a “Medicare for All” type plan.

And on and on.

Our payment system clearly needs overhaul. It’s highly inefficient. Nationally, federal and state governments already pays about half the medical bills and most people covered by private insurance in the other half until recently haven’t cared about what they’ve been charged as roughly 80% of their bills are paid by their insurance company. Such patients never really consider “shopping” for the best medical value. Until recently, as out-of-pocket deductibles and co-payments have soared, most of these “consumers” didn’t have any idea about the actual cost of what they’re consuming.

Our system isn’t yet a government-run or single-payer one but it doesn’t come close to being a free market one either.

(Next up: PART 4: America’s Hospitals)

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