Extending Medicare: Medical and National Suicide

Medicare and social welfare are heading for insolvency more rapidly than previously forecast. The $50 trillion plus of their unfunded liabilities (according to the government’s “Financial Report of the United States” is beginning to appear over the horizon. At the same time, the U.S. Congress is discussing extending Medicare to those not covered.

But maybe that’s OK because the industry has said it is going to get costs under control and save literally trillions.

Alas, closer inspection shows the idea of extending Medicare to be suicidal and the trillions in savings do not exist, based on the government’s own figures.

First, basic common sense would tell us that if facing a funding problem so huge it can destroy the economy, it would be best to make sure it is brought back under control before adding fuel to the fire. Congressional records are full of ideas for reining in and rebalancing the Medicare budget, but none have worked yet. Managers of a business facing such a record but plunging ahead to increase exposure would be culpable in law.

Second, this time is not different. Set aside your disbelief that the health industry is going to reign in costs (and would you want to bet the farm on that?). Look at what’s promised: the industry says they can shave off 1.5 percentage points a year from a growth rate otherwise projected to average 6.2% annually through the next 10 years. That would bring it down to 4.7%. Sounds good if obtainable. But wait. Based on past experience, the supervisors of Medicare forecast excess cost growth for Medicare of 2.0% to 2019 and then a declining trend. So, that’s 2 percentage points above inflation. What is the inflation forecast? The government trustees of social welfare etc are using for their “intermediate" (i.e. middle) scenario an inflation rate of 2.8% - roughly in line with the 2.6% average CPI of 1997-2007. So: 2.0% plus 2.8% gives us 4.8% as the implied government expectation for annual medical inflation up to 2019.

That figure or something close to it lies behind the latest glum forecasts for Medicare. So, the industry is gallantly promising to reduce medical inflation to 4.7% and the government is already assuming 4.8%. In other words, there are no trillions of savings to save Medicare. In fact there are none at all. The industry’s proposed “savings” do no more than bring it into line with existing government assumptions about medical costs. If the industry did run at its pre savings figure of 6.2% it would bankrupt Medicare (and the country) even sooner than forecast.

If anything, the 6.2% figure that the industry has used as its base is a warning of just how out of control medical costs are and how lucky the U.S. will be to see a figure of anything like 4.8% for medical inflation. The industry’s position shows that the risk is that government’s Medicare forecasts are too optimistic.

Third, some of the proposals for extending Medicare are largely “user pays” and thus self funding. There is delusion here. To think this is a good idea you have to believe that (a) government can do a better job of running a self funding insurance scheme that private industry can; and (b) that it can resist all attempts to obtain a federal subsidy. This is otherwise known as magic.

That the U.S. government would even contemplate extending Medicare at this time demonstrates a frightening ignorance or disdain for the financial facts of life.

Disclosure: No positions

Comments

[Tom E.:]

We need a universal health care system like in Canada. It works and people seem satisfied. We don't need to reinvent the wheel, just look around the world, see what works and implement it here.

Everyone should have basic health care protection as a public service, just like defense, police and fire protection. If the rich want more service, they should be able to pay for it.

May 15 08:08 AM

[adenovir:]

Simon Says "First, basic common sense would tell us that if facing a funding problem so huge it can destroy the economy, it would be best to make sure it is brought back under control before adding fuel to the fire."

Do you think that all the "charity care" currently being provided by hospitals and doctors to the uninsured/underinsured is free? Who do you think is paying for that?

We are all paying for it indirectly through higher fees when we seek care. Wonder why it costs a quarter of million for a hip replacement? You are paying for your hip and the hip of someone else who is uninsured.

We need mandatory basic coverage for all Americans. Let's get the hidden costs of charity care on the table. That's the only way we're going to control health care costs.

We already do the same thing with auto insurance. Why should health care be any different. If someone "saves" money by not getting health insurance, they are stealing your money when they go the ER for care and don't pay.

May 15 08:27 AM

[seffieandcoco:]

In addition providers, including doctors and all others, should be on salary. Pay for procedure combined with increasing numbers of medical doctors, osteopathic doctors, podiatrists, and chiropractors is economic suicide.

May 15 08:47 AM

[EEB:]

The author wrote:

"Managers of a business facing such a record but plunging ahead to increase exposure would be culpable in law."

Like the managers at Bear Stearns, Lehman Brothers, AIG, etc.? Give me a break. These analogies between corporations and the government are tiresome and misleading.

May 15 08:59 AM

[Ferdinand E...:]

I don't remember the other presidential candidate saying anything about an how an increase in medicare - or something like that - couldn't work. The American medical set-up isn't as bad as many foreigners think, but obviously it should and could be better. And that's the point, isn't it?

May 15 09:08 AM

[Prudent Man...:]

I suggest that anyone who wants National Health-care visit those in England and Canada and ask their physicians and patients what they think of their care. But, then you can go to your local Veterans Administration hospital. You will quickly realize that a profession is not a profession if it doesn't have incentives and is run by bureaucrats.

While your doing your visiting ask your friendly trial lawyer what he thinks about not be able to sue for malpractice. Chances is are he isn't even aware of that fact.

For most of the ignorant Socialism is a great concept. Fortunately for those of free spirit it doesn't work except to suffocate incentive and innovation.

May 15 09:45 AM

[youngolf:]

The bottom line is we are 'selling' healthcare 'choice' in a capitalistic system with 'free market competition', that isn't working, and allowing profits that are massive. Every health insurer has multi-Billions stashed away in 'reserves for unpaid claim liability'-that so-called depts of insurance allow them to stash.......(just check out many local BCBS plans financial info).....not to mention, United Healthcare, Humana, Wellpoint, etc........and the little guy gets an outlandish bill for a common procedure. And everyone I meet is 'going into nursing' or some other medical field because thats 'where the jobs are.' Wait til we have to 'feed' all these new workers.

The system is severly broken, great amounts of money are changing hands, enriching many......and the little guy faces bankruptcy for costs that he can't afford to buy coverage to fend off.

Our politicians meanwhile, are fully covered in the Fed Employee Plan..........that you and I fund for them..........that we cannot participate in.

I want to be a politician now.

May 15 09:46 AM

[Trane250:]

A recent survey of medical school students reported that only 5% planned on going into primary care. The kind of medicos that we really need will be in critically short supply. We don't need more specialists to drive up the cost of care.

Our whole medical care industry needs to be studied in depth by a select committee and their recommendations need to be fully debated. But Obama and his liberal allies believe that only they have the wisdom to tackle this problem.

May 15 10:07 AM

[ThirtyNineW...:]

> We need a universal health care system like in Canada. It works and
> people seem satisfied.

Yeah, that would be "great"! Remember that actress who died a day after a skiing accident in Canada? They were doing their job for the taxpayers and didn't have one of them newfangled, expensive CAT scanners. They didn't have a helicopter for evacuating. They were keeping costs down. 23 years ago a friend of mine had a bike accident that caused similar damage. Too bad our health care system was so broken and expensive. They even did a CAT scan on him and did brain surgery to save his life. He, and his employer, and his health insurer all had to pay money for him.

What a joke!! Please! Spare me from "free" health care that is worth every penny!

May 15 11:29 AM

[Leftfield:]

Obama has presented us with the $800 trillion DC pork plan, proposed carbon caps and this health plan. While keeping the banksters well-supplied. Medicare and SS have a reality check approaching sooner than expected. We're down to quantitative easing for financing our otherworldly deficits. Somehow, when the roof is caving in financially I don't see the sanity in taking on more obligations and expenses. But wait, the stock market went up the last few months and some see green shoots. All is well.

May 15 12:04 PM

[envirodoc:]

I can echo the the negative comments on the National Health care in England. In !956 I was mis-diagnosed and lost a perfectly healthy appendix. After emigrating to Canada I had a recurrance of my symptoms and was diagnosed with a "spastic colon" after two weeks in hospital! Finally, ended up in a Pittsburgh Hospital in 1965 where they removed a stone, below my right kidney, ending years of misery.
On reaching 65 I qualified for Medicare and joined Oschner Healhcare. Service was less than impressive. I had prostate surgery which resulted in nerve damage in the lower abdomen and they failed to diagnose diabetes! In 2002 Oschner discontinued serving my area, north of New Orleans.
Fortunately, I was able to join Peoples Health, a Tenet company.
They immediate diagnosed diabetes and placed me on treatment.
In the past six years and have guided me thru a srtoke, colon cancer, an aorta stent and now, onset of alzheimers.
At 81 and disabled, Ihave to thank Peoples Health and Medicare for keeping me alive and healthy. Now for some suggestions on improving Medicare coverage for the elderly.
The President and Congress need to allow medicare to negociate the drug prices they are paying, in line with those enjoyed by the Veterans Administration.
Another change would help the elderly who have lost most of their investments in the current economic crisis. Doubling the medicare coverage, before folks enter the dreaded medicare gap, would go a long way to compensate for the huge escallation in drug charges over the past three years. I reached the medicare gap in December 2008 and had to get get free samples from my doctor to avoid sttopping the drugs for diabetes, high blood pressure and alzheimers.This year I will reach the medicare gap in July!!! - Help.
Matthew and Pamela Gould (retired Chemist and Microbiologist)
[e-mail]

May 15 12:15 PM

[GeminiAtlas:]

The medical costs will not be reined in any time soon. What do you think is going to happen in the next 20 years when the baby boomer generation retires? The number of folks 65 or older will double in the next 20 years. And they use the most medical ( I read somewhere a full quarter of a person's lifetime medical costs come in the last 6 months of life) survices. That is the demand-side outlook. What about the supply-side outlook? The amount of new doctors and medical personnel will not keep pace with demand, so prices will go up, necessarily. Also, the supply of medical labor isn't exaclty elastic. Production of new doctors etc. doesn't turn on a dime. There are significant barriers to entry such as the schooling, but also, the malpractice insurance doctors have to pay (or shall I say, pass onto the consumer).
On another point, if the US goes to a nationalized health system which rations out health-care, who will be the innovator of health-care technology (prescription, medical imaging, surgical techniques, etc)? That will almost certainly go away as the payoff to innovate new medical tech would not be worth the cost or risk involved. That capital will go elsewhere. We can't have that. Where would other countries with socialized medicine get their new prescription drugs from? Or their new fMRI machines from? Their medical systems will become even worse without the US capitalist evil presciption-drug, biotech companies' help. :)

May 15 01:46 PM

[pokeyhare:]

Amazing to me that people will spend thousands with hardly a wimper on their dogs and cats in veterinary bills, but these same people complain bitterly when they pay a co-pay for medical procedures for themselves and their (human) loved ones.

May 15 01:52 PM

[honestdoc:]

As a physician who has worked in a large spectrum of health care settings as well as an investor I decdided to join in on this for the first time. I would estimate from my discussions with them that 90% of physicians I know are for a national health plan covering all US residents. Almost all of these physicians make slightly under the medium salary in their specialty. The other 10 percent who are against it make double the median income. All of this additional money comes from owning CTscanners, xray,echo, lab tests. These tests are vastly over ordered purely for the profit of the ordering physican who own the ancillary facility. Not bad people or physicians- it is just human nature.
Everything in medicine is driven by the profit motive in this country not the improved health of the patient. Check out what happened at Redding, CA Tenet hospital where 100s of people underwent unnecessary cardiac surgery.
I was recently looking at a new type of drug administration equipment being developed. Drugs that I can dose with a syringe for 4 dollars would cost 500 dollars if packaged in the new administration device. It is being pitched as a cost saver with all sorts of baloney graphs. Coming soon to a hospital bill near you.
Yes, it will cost the taxpayers in more taxes, but no one will have a bill for annual medical insurance. Anyone pitching any other system has their own financial self intrest at heart. Yes, there will be quality and access issues that will be difficult but not imposible to address. Contrary to what you hear in the media most physicians are for this, it is only the ten percent in it for profit only. Most of these physicians are heavily involved on HMO or hospital managment or are making a windfall fortune off of these arrangements. Everytime I see one of these physicians practicing their methods and techniques allways look bizarre (frequently borderline assaultive care) until you see how they maximize the bill.
I felt so strongly about this that I made my first internet post.

May 15 06:38 PM

[Blackeyebart:]

It is amazing how the smell of money can cause people to abandon all common sense. All over the world civilised nations assist people when they fall ill, where they can. Most of these schemes have an element of rationing in them, just as the American schemes do.
The US system is the most chaotic and counter intuitive system one could contemplate. It fails every measure of good management. It is neither effective, efficient, fair, or sensible.
Leaving millions uncovered does not reduce the cost significantly, it just makes that cost fall disproportionately on the sick, and the health providers who do not always get paid. The latter crank their fees to compensate. It works like privatised taxation except is is not nearly so efficient.
The US spends more than any other country on health and get less "health" than many poorer nations.
But don't hold your breath for reform, because many Americans like the fact that they are covered while others are not. This gives them a ego boost and entitles them speak ill of the poor or ill prepared. It might not make sense but it feels good.

May 15 11:00 PM

[mountain view:]

Prudent Man:

I have lived in Canada for over 30 years. RIght now, I pay about $50 a month for my medical coverage in British Columbia. I have never paid a cent out of pocket for medical treatment, nor have I ever felt care in Canada was sub-standard. Yes, one may wait longer for elective surgery here. But people do not have to sell their home to pay for a child's extended hospital stay.

I have spent many hours dealing with the INSANE LAYERS of the American medical insurance system, as I try to look after my American parents down south. Canadian bureaucrats are doing a damn sight better than greedy insurance companies and the A.M.A. at looking after the citizens of their nation.

Your platitudes about socialism are ignorant and based on faulty programming. Your touted "incentive and innovation" may be at the root of some of what is good in the U.S., but they have all but collapsed the American financial system, and the medical system is hot on its heels. If you believe it is working better than systems in Western Europe, Scandinavia, and in Canada, let's hope your insurance covers psychiatric treatment for delusion.


On May 15 09:45 AM Prudent Man CFA wrote:

> I suggest that anyone who wants National Health-care visit those
> in England and Canada and ask their physicians and patients what
> they think of their care. But, then you can go to your local Veterans
> Administration hospital. You will quickly realize that a profession
> is not a profession if it doesn't have incentives and is run by bureaucrats.
>
>
> While your doing your visiting ask your friendly trial lawyer what
> he thinks about not be able to sue for malpractice. Chances is are
> he isn't even aware of that fact.
>
> For most of the ignorant Socialism is a great concept. Fortunately
> for those of free spirit it doesn't work except to suffocate incentive
> and innovation.

May 15 11:31 PM

[mountain view:]

ThirtyNineWinks:

My God, do you think we live in igloos too? Injured skiers, hikers, etc. are evacuated BY HELICOPTER daily in Canada to well-equipped medical facilities. Concussions turning rapidly for the worse is unfortunately very common. It IS possible that woman was first taken to a local hospital that did not have a CT Scanner. If that is the case, I am sure there are such hospitals in the U.S. You have people dying because they cannot AFFORD coverage. We don't.


On May 15 11:29 AM ThirtyNineWinks wrote:

>

May 15 11:44 PM

[a. palmer jr.:]

Naturally Medicare, Social Security, and other things will go bankrupt if not handled correctly...Medicare and Social Security both need to quit letting people draw from them that haven't payed into the system. I feel sorry for people who have it rough in other countries, but they still shouldn't be allowed to come here and draw Social Security unless they pay into it. Illegals should never be allowed to use Social Security or Medicare, or Medicaid, they should be given a one-way ticket back to where they came from. Congress and the President shouldn't be allowed to dip into the funds to feed their pet projects either!

May 16 12:58 AM

[Simon Smelt:]

To cut through the various claims about the terrors of British or Canadian healthcare and keen-ness for a universal system:
1) International studies show the U.S. to spend an above average % of GDP on healthcare and get below average results for an advanced country. By contrast, France gets value for her Euro - a good place to be sick provided you speak French.
2) Extending the benefits of Medicare just builds on a crappy and broke system which the U.S. already cannot afford.
3) Phoney balloney claims to save trillions illustrate that the U.S. health care industry and politicians have no intention of tackling the deep seated problems.

All governments are struggling with managing health care costs but some do better than others. The Israeli approach of universal compulsory contributions (rising with income) to one of a small number of competing insurers and with government top ups seems to me a sensible one.

May 17 03:25 AM

[ExZonie:]

My nephew doesn't have car insurance. Of course, he is only one year old.

My daughter's sons don't have car insurance. They don't need it; they don't drive.

What are the exemptions that allow me to get out of buying health insurance? I have ERSD and can't get private health insurance except through employment. This bill will make it very difficult to get insurance, which I need continuously until I die.

Your ideas are bs. Our healthcare is the best in the world. Leave it alone, please. In Britain, people my age don't get dialysis. What do they do? Let me know when you find out.


On May 15 08:27 AM adenovir wrote:

> Simon Says "First, basic common sense would tell us that if facing
> a funding problem so huge it can destroy the economy, it would be
> best to make sure it is brought back under control before adding
> fuel to the fire."
>
> Do you think that all the "charity care" currently being provided
> by hospitals and doctors to the uninsured/underinsured is free? Who
> do you think is paying for that?
>
> We are all paying for it indirectly through higher fees when we seek
> care. Wonder why it costs a quarter of million for a hip replacement?
> You are paying for your hip and the hip of someone else who is uninsured.
>
>
> We need mandatory basic coverage for all Americans. Let's get the
> hidden costs of charity care on the table. That's the only way we're
> going to control health care costs.
>
> We already do the same thing with auto insurance. Why should health
> care be any different. If someone "saves" money by not getting health
> insurance, they are stealing your money when they go the ER for care
> and don't pay.

Nov 13 01:36 AM