Mediscare and Medicare’s Real Future

By Ross Schriftman, RHU, LUTCF, ACBC, MSAA

Horsham, PA

Tel. 215-682-7075

Rfs270@aol.com

There has been much misinformation about what Congressman Paul Ryan’s plan does to try and save Medicare.  According to the Medicare Trustees Report the program is in deep financial trouble and is not sustainable for the long term.  Ryan has proposed that Americans under 55 today would receive premium support payments into private insurance plans approved by the government starting 10 years from now.  When the first 54 year old reaches Medicare age, those payments would actually be 50% higher than the current cost of Medicare for each beneficiary.  No current Medicare beneficiary and no one age 55 and older today would be affected.

I don’t know if his plan will work to save Medicare or not.  However, it is clear that if nothing is done the program will be in worse shape down the road.  I once heard a speaker use this simple formula for financial planning.  Problem multiplied by time equals a bigger problem.  Time is certainly against us.  It was in 1993 that President Bill Clinton held an “Entitlement Conference” designed to address the financial problems of Medicare, Medicaid and Social Security.  No action was taken after this conference. Now our Federal debt is over $14 trillion and the boomers are just starting to reach Medicare age this year.  The Tsunami is now coming ashore.

So what is the alternative proposal to Ryan’s idea?  I have heard nothing and read nothing from my Democratic leaders about what their proposal to save Medicare is.  If we continue to follow the same path we have been following and we all go over a cliff.  The result is higher Medicare premiums and higher deductibles and co pays with the imminent collapse of the program anyway.  It is disingenuous to criticize Ryan’s plan by saying seniors will have more out of pocket in the future under his proposal.  That is exactly what is occurring with the program now.

Look back 10 years and compare the out of pocket in the program to today.  In 2001, the Medicare Part B premium was $50 per month.  Today it is $115.40 per month or a 235% increase in government premiums and much greater than that for higher income beneficiaries starting at $80,000 of modified adjusted gross income.  The Part B annual deductible was flat at $100 until a few years ago.  Now it is $162.  The hospital deductible under Part A of Medicare was $792 in 2001.  Today it is $1,132 for each hospital stay/benefit period.  The Skilled Nursing co pay for days 21 through 100 was $99 in 2001.  Today it is $141.50.

Projecting the Medicare numbers out for 2021 using the last 10 years, seniors will face Part B premiums of $180 or much higher for many more people because there is no adjustment for the higher income surcharge.  In 2021 the Part B deductible would be $180 and each time a beneficiary stays in the hospital they would have to pay $1,472.  The skilled nursing co pay would be $184 for days 21 through 100.  Is this not taking money away from seniors?

Ten years ago, buying a Medicare Supplement was a choice that people made.  Today it is a necessity.  The irony is that you need to buy a private insurance plan to cover all of the out of pocket costs of the government plan which you already paid for your whole working life in income taxes and payroll taxes.  Still the government program is going broke.  Then any politician who tries to address the problem is crucified as demonstrated by the recent disgusting TV advertisement by the Agenda Project showing Paul Ryan pushing a grandmother off a cliff.

So what has the current administration done?  They got Obamacare passed which projects a $500 billion reduction in payments to health care providers within Medicare and diverts those funds to pay for expansion of Medicaid, government subsidies, regulations and enforcement under the so-called Affordable Care Act.  The weight of all of this will continue to stagnate the economy reducing revenue for payroll taxes that go to Medicare Part A which has constituently run deficits the last several years.  It is President Obama and his supporters in Congress that passed a law that drives a stake through the heart of Medicare at the very time the program is running out of gas.

We need to change course.  Paul Ryan and Clinton Advisor and former Congressional Budget Office Director Alice Rivlin came up with one idea to address the Medicare solvency problem.  The backlash against the proposal will diminish the chances of others coming forward with other solutions that may work to save Medicare.  Look out baby boomers; the politicians are interested in their own future, their re-elections, privileges and sanctimonious rantings.  They certainly don’t have our backs.

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Medicare vs. Private Admin Costs: Let the facts stand

By Ralph Weber CFP®, ChFC®, CLU®, REBC®, and Dave Racer, M.Litt*

Many health care reformers cite Medicare’s administrative cost as a reason to drop private insurance and move to a government-managed health care system. Depending on who makes the claim, Medicare’s administrative cost estimates range from 1.5% to 12%. In much the same breath, these reformers claim that private insurance companies spend 10% to 50% on administration.

The real administrative cost of Medicare and private health insurance relies on how one defines administrative expense. The estimated cost of administering Medicare, for instance, often excludes overhead items that are not only common to private health insurers, but to all businesses. These different ways of accounting confuse an honest evaluation of the government’s Medicare administrative cost.

So what constitutes an administrative expense? Where can one find real, honest numbers with which to make an intelligent comparison?

Governments across the country have turned to HMOs and managed care to resolve health system problems. Yet, do the most common administrative cost measurements include the high cost of administering managed care, compounded by CPT codes and other billing codes, the cost of billing a host of different insurance companies, and all the other normal business accounting practice cost? These additional – and unnecessary – costs add tens of billions of dollars to the health care bill; a sorry waste of money when there is a less costly, workable solution available (and it is not Medicare).

The best way to measure administrative cost is also the simplest: Take the total dollars spent on health care and subtract how much actually gets to the providers (doctors, hospitals, etc.). The difference is administrative cost.

The health care spending “bible” is the endless set of statistics from the Centers for Medicare and Medicaid (CMS). CMS tables provide a detailed, line item description of how each dollar is spent.

One spending line item on the CMS tables is tiled “Government, Administration and Net Cost of Private Health Insurance.” This is the line item so often quoted out of context when proponents of government medicine are trying to understate the costs of government administration. For private insurers, this line item includes the cost of administration, marketing, research, premium taxes, facilities, equipment, insurance and reinsurance losses, as well as profit.

The CMS data for government spending include additional line items that fall below the “Administration” line: “Government Public Health Activities, Research, and Structures and Equipment” (see Table 1). If CMS separated these same costs for private insurers in the same manner as it does for government plans, it would be a fairer way to compare the two; but it does not, and that fact goes ignored.

Table 1

      Private Insurance Government

Healthcare

 
Non Patient Care costs        
  Government Administration and Net Cost of Private Health Insurance   x x
  Government Public Health Activities   x
Investment  
  Research   x
  Structures and Equipment   x

 

To shed light on real administrative cost of public versus private health care requires computing the actual per capita cost in absolute dollars. Table 2 shows such a comparison.

Table 2

Costs as percentage of expenses   Private Insurance Medicare Medicaid   Government Grand Total
Number of enrollees   201,991 41,375 39,554   91,884 299,106
Total cost in millions   775 431 329   1,036 2,241
  Cost per Capita   3,837 10,422 8,328   11,272 7,493
Patient care costs   680 410 304   851 1,878
  Medical Loss Ratio   87.79% 94.99% 92.29%   88.32% 86.67%
Non Patient Care costs   12.21% 5.01% 7.71%   11.68% 13.33%
  Government Administration and Net              
  Cost of Private Health Insurance   12.21% 5.01% 7.71%   5.74% 6.95%
  Government Public Health Activities           6.19% 2.86%
Investment              
  Research           3.68% 1.89%
  Structures and Equipment           2.26% 4.49%

 

If one assumed from Table 2 that Medicare administrative cost is just 5.01%, compared to 12.21% for private insurance, it might seem that Medicare is administered at a significantly lower rate. However, comparing the percentage of cost for activities not directly related to patient care paints a far different and truer picture: Private insurers’ non-patient care costs are 12.21% compared to 11.68% public healthcare. Yet, this still leaves out vital data.

Table 3 shows the cost of care in dollars per capita and leads to the truth. Considering “Government Administration and Net Cost of Private Health Insurance” in isolation, the net cost of administering Medicare is 11% greater than that of private insurers on a per capita basis. Including all non-patient care cost indicates that public healthcare administration is 281% greater than that of private insurance administration. This assessment still does not include the cost of collecting taxes, nor does it include the providers’ cost of complying with insurance billing and collection requirements.

Table 3

Per capita in absolute dollars   Private Insurance Medicare Medicaid   Government Grand Total
Number of enrollees   201,991 41,375 39,554   91,884 299,106
Total cost in millions   775 431 329   1,036 2,241
  Cost per Capita   3,837 10,422 8,328   11,272 7,493
Patient care costs   3,368 9,900 7,683   9,257 6,280
Non Patient Care costs   468 522 642   1,317 999
                 
  Government Administration and Net            
  Cost of Private Health Insurance   468 522 642   648 521
  Government Public Health Activities     698 214
Investment    
  Research     415 142
  Structures and Equipment     255 337

 

Americans have always been mistrustful of the concept of “government efficiencies” (the ultimate oxymoron). The idea that government can manage health care more effectively and more efficiently is counter-intuitive, and for good reason: The facts show it is not true.

Let the facts stand, and in so doing, let us quit considering the nonsense of a government-run health system. Instead, let us move toward the kind of reforms that will unlock the power of American consumers, and watch effectiveness and efficiencies fall into place.

About the authors

Ralph Weber is a Canadian expatriate, now a Tennessee-based health insurance design consultant, and CEO of Route Three Benefits, Inc. Also the founder and CEO of MediBid Inc., A free market online medical shopping portal for transparency in pricing.

Dave Racer is a speaker, writer, publisher and co-author of Your Health Matters: What you need to know about US health care (Alethos Press LLC, 2006), FACTS: Not Fiction – What really ails US health care (Alethos Press LLC, 2007), and Why health care costs so much: The solution – Consumers (Alethos Press, 2009).  See Alethos Press.

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Notes:

CMS expenditure data taken from Table 4, and table 6, National Health Expenditures, by source of funds and type of expenditure: Calendar year 2007. Last accesses January 18, 2009

Enrollment data taken from CPS Annual Demographic Survey Table HI01. Health Insurance Coverage Status and Type of Coverage by Selected Characteristics: 2007. Last Accessed January 18, 2009,

 

The New End-of-Life Counseling Benefit

By Greg Scandlen

The New York Times article by Robert Pear (who, by the way, is the best health care writer in the nation, notwithstanding his employer) that alerted the world to the latest sneaky Obama deal, said the following —

“Advance care planning improves end-of-life care and patient and family satisfaction and reduces stress, anxiety and depression in surviving relatives,” the administration said in the preamble to the Medicare regulation, quoting research published this year in the British Medical Journal.

Well, let’s take a look at that research. As the Times reports, it was published in the British Medical Journal. It is all of one – ONE – study conducted in Australia at one – ONE – location and involved patients that were aged 80 or older. Twenty-nine patients (that is – 29) got the intervention and another 27 were a control group (no intervention), and all 56 patients died within six months. The people who got the intervention and their families were more satisfied with the care and had their wishes followed better than the control group.

But that isn’t saying much. These folks got more attention in the last six months of life, so of course they were more satisfied. And they were asked what their wishes were, so of course those preferences were more likely to be followed. Decent research would have tested the particular intervention against a “placebo,” not against no intervention at all.

That is how drug trials are conducted. One group gets the drug being tested and the other group gets a placebo. The placebo group usually does better, too, but not as well as the test group. Honest research would have given each group the same amount of attention, but provided a particular set of interventions to one but not the other.

This research in no way supports providing everyone on Medicare with annual “advance planning counseling.” Most people on Medicare are relatively healthy and their wishes at age 65 may be far different than at six months before their death.

The Australian research was also notable for all of the things it left out. No one asked the patients if they had a will, for instance. There was no mention of assigning a durable power of attorney to anyone. In fact, there were no legal or estate issues involved whatsoever.

Even more shocking is that there was no mention of clergy involvement and the patients were not even asked about their religious affiliation. There were no hospital chaplains involved, no prayers, no last rites for Catholics, no discussion of funeral arrangements.

How can you have end-of-life counseling without dealing with these critical issues?

More importantly, how can Obama’s little Czars and Czarinas use the experience of 56 patients at a single hospital in Australia as a justification for a new benefit for 45 million Americans? And a benefit that has already been considered and rejected by the Congress of the United States?

If this is what is considered “evidence-based decision making” by this administration, we are in deeper trouble than I realized.

Chronic Failure

By Greg Scandlen

Every federal initiative that I can think of in health care has been a failure. Maybe you can think of some that have worked as promised. I can’t.

This is not an ideological critique, but a practical one. Most Americans are practical people. We like to do what works and avoid repeating our mistakes. This country is famous for “second acts” and “second chances.” We don’t condemn people for making mistakes, but we expect them to learn from the error and do better the next time. But that assumes that the second act is not an exact repeat of the first one.

Unfortunately, today we are repeating all of the things that have been proven failures in the past. Managed Care was soundly rejected by most of the public, so now we are doing it all over again with a new name – “Accountable Care Organizations.” Much like today, we tried to lower health care costs by reducing the supply of health care services with the massive federal Health Planning Act in the 1970s. It had the exact opposite effect. Hospital rate setting was tried by 30 states in the 1980s and repealed in all but one (Maryland.) But today there is new talk of a new round of hospital rate setting. Community Rating and Guaranteed Issue have been tried with horrendous results, but today it is national policy with one small twist – everyone will be required to buy whether they want to or not.

Even the much-touted Medicare program is a failure by any standard. Yes, it is popular and defended by the elderly. Of course it is. The “beneficiaries” pay a mere fraction of what the program costs. Of course they like it. And there no longer exists any alternative in the market. Of course they defend it. That does not make it a success.

As John Goodman writes in Forbes, Medicare’s unfunded liabilities are $89 trillion on top of any expected premiums and dedicated taxes. Or, he adds, if we froze the program today and just looked at what is owed to today’s worker’s and retirees the unfunded amount would equal $33 trillion. That is – 33,000 billion dollars, or about $100,000 for every man, woman, and child alive in the United States today.

More recently, writing on the From Forum, Bruce Bartlett looked at an obscure federal report, “The Financial Report of the U.S. Government,” that takes an accrual approach to obligations, rather than the cash flow approach of the federal budget. Every private corporation in the United States is required to use accrual accounting in its financial statements, says Bartlett.  He reports that Medicare liabilities over the next 75 years were $38 trillion at the end of 2009, but were cut by $15 trillion in 2010 because of the health reform law. Of course, that $15 trillion “cut” was just being transferred from Medicare to the other programs within ObamaCare, so it isn’t really saving money at all.

So, the program is massively insolvent. But it is also a lousy insurance program. You would not be able to sell this program as a private benefit plan. It has a bewildering array of deductibles, coinsurance, and limits on covered benefits. In fact there is absolutely no limit on the out-of-pocket liability for beneficiaries, so that most people on the program also have to buy an expensive supplemental policy to cover all the coverage gaps.

The list of failures is so long it would take a book (which I am currently writing) to list them all. The SCHIP program was supposed to ensure that all low-income children would have insurance coverage. It didn’t. Hillary Clinton’s federal vaccine program was supposed to ensure that all kids could be vaccinated at low cost. The doses rotted in warehouses.

It is not the opponents of these programs that are ideological, but the supporters. In most cases the skeptics were willing to give the ideas a chance to succeed even while doubting that they would. But the supporters are unwilling to ever admit failure and keep pushing the same ideas in spite of all the empirical evidence.