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The Problem With Medicare Isn’t Medicare

Medicare, The AMA & Paul Ryan…Oh My!

Medicare imageMedicare has always been a political football – and Rep. Paul Ryan (R-WI) kept it alive as such yesterday. His latest budget proposal includes (surprise!) unravelling Obamacare and instituting the Medicare vouchers that voters rejected in last fall’s presidential election.

This is designed to perpetuate the political controversy around Obamacare and the Republican approach to curbing the growth in Medicare and other government “entitlement programs” that will face financial insolvency without some changes made.

But Medicare vouchers are also the official position of the American Medical Association (see “Why Is The AMA Trying To Kill Medicare?“).

Both echo former presidential candidate Romney’s pledge to replace the “inefficiencies” of Medicare with supposedly more efficient private health insurance by offering future Medicare beneficiaries the choice of staying with traditional Medicare or choosing a private health insurance plan that bids for their business.

Wrong Premise, Wrong Solution

The main failing of this approach is that its premise is not only wrong, but backwards. Medicare has repeatedly proven to be far more cost-effective than private health insurance – and by a wide margin. If this is true – and it is – then what’s the benefit in offering enrollees a choice of more costly options?

The benefit is only to the government, because it won’t be footing the bill for these inefficiencies – future beneficiaries who choose these plans will. And the benefit, of course, would also accrue to the private insurance companies that would profit handsomely from this expanded market opportunity of high-risk, higher-premium customers.

Who won’t benefit are future beneficiaries. This includes both those who choose private plans and those who remain with traditional Medicare. That’s because Medicare would be diluted with fewer beneficiaries and it would therefore cost more for what’s currently covered under Medicare. Many suspect that causing Medicare to default is the ultimate goal of a Republican Party that’s opposed the program from the outset.

One of the key differences between Obamacare and the Ryan/AMA plan is that Obamacare attempts to achieve savings for Medicare by lowering future payments to Medicare Advantage private insurers and non-physician providers. The Ryan/AMA plan is focused on transferring costs to patients rather than achieving any savings in the actual delivery of care.

The Big Lie

Contrary to allegations by some of its opponents, Obamacare doesn’t reduce any benefits to Medicare beneficiaries. In fact, it adds benefits in the form of lower medication costs for those caught in the infamous Part D “doughnut hole” and with free annual wellness visits and preventive screening exams.

Even though physician payments aren’t targeted by Obamacare, many physicians feel threatened by it anyway. That’s because fee-for-service payments that constitute the lion’s share of current Medicare payments are likely to be phased out faster with Obamacare (see Our Healthcare Sucks for details of the conflicts-of-interest that fee-for-servcie payments create in our healthcare system).

Here’s what one prominent physician – Dr. Marc Siegel of NYU Langone Medical Center, who favored a Romney-backed “free-market” solution that included Medicare vouchers – had to say about why doctors have come to like Medicare’s fee-for-service formula:

“The advantage of Medicare for practicing doctors like me has always been that we can order the tests and treatments we need without excessive restrictions or denials…

“This may seem like a waste of the government’s money, but it is the only way we are able to work with an insurance program that covers patients with more medical problems because of their age, yet pays us less to see them than we are paid with private insurance that covers younger patients with fewer problems.”

That’s as close to a public defense of medical overtreatment as you’re likely to find – and it’s predicated on doctors’ financial expectations rather than patients’ actual needs.

His premise is that Medicare pays too little rather than private insurers pay too much. Yet the net effect is that medical specialists in America earn twice what their equally well-trained counterparts earn in other developed countries (who produce better results, in part, because they do less to their patients).

It’s the opposite of serving unmet medical needs – and represents the kind of medical excess Obamacare targets with its Medicare savings.

Medicare Vouchers Transfer

These Risks to Patients

In short, the Ryan/AMA premium support voucher plan for future Medicare recipients would transfer the financial risk to patients for future healthcare increases above a formula tied to GDP growth rather than to healthcare costs that grow at a rate well above GDP growth..

For an idea of how this risk might affect these future beneficiaries’ finances, here’s a look at how private health insurance outpaces Medicare costs – those affected by this proposed change would pay the difference in the future:

It Ain’t Broke

Medicare vs private insurance costs

           Source: – Adapted

As indicated by the blue line, Medicare spending growth has trailed well behind private insurers – reflecting Medicare’s greater efficiency rather than the lesser efficiency required for the Ryan/AMA plan to make sense. Why would anyone want to buy into private insurers whose costs – indicated by the red line in the above graph – are growing so much faster than Medicare’s?

And this trend is projected to continue. According to a report in The New England Journal of Medicine, the CBO projects that Medicare costs – incorporating the savings included in Obamacare – will increase on a per enrollee basis by an average of 3.1% per year from 2012 to 2022, while private insurers’ costs will increase by an average of 5% a year. Over ten years time, this translates into a 76% greater increase for private insurers than for Medicare. Add a few more years and it’ll be double Medicare’s growth in costs.

The problem with Medicare isn’t Medicare, but bloated healthcare costs and baby boomer demographics that threaten to increase the number of Medicare enrollees to the point that the aggregate costs for Medicare are unsustainable.

The Ryan/AMA Plan Would Accelerate Healthcare Spending

To be continued…Read Part 2

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