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Medicare -- How it came about, How we got here, How we can save it

Quickly, and without added value or analysis, because I still have to go grocery shopping and take the dog out for a run and get back in time for the live-blogging...

Johnathan Cohn writes at The American Prospect on What Really Ails Medicare and I c&p big chunks of it here --

Notwithstanding the fiscal projections that make the evening newscasts, Medicare has been wildly successful. It delivered on LBJ's promise to bring the elderly into the mainstream of American medicine, virtually eliminating severe economic hardship as a consequence of the costs of illness among elderly. The program is also hugely popular with the people who use it. Polls have shown that, relative to working families with private insurance, the elderly on Medicare are more satisfied with their coverage. And why wouldn't they be? The program covers virtually any service they might need. It's available to everybody 65 years or older, regardless of pre-existing conditions. And nobody can take the coverage away. This universality also explains the program's efficiency -- no money wasted on marketing or on middlemen profits.

Still, Medicare was a product of political compromises, some of which raised costs. In order to blunt opposition from organized medicine, health-care reform's most traditional foe, Medicare's promoters promised doctors that they could continue to charge their "usual and customary" fees. To win support from hospitals, which were struggling to cope with impoverished elderly patients but remained wary of too much government interference, Medicare promoters allowed Blue Cross to administer the actual payments, further inflating costs. (Nobody expected Blue Cross to scrutinize hospital billing too heavily.) All too predictably, Medicare's expenses skyrocketed.

Eventually, the government increased the program's bargaining leverage with doctors and hospitals. In 1983, Congress changed the way Medicare paid hospitals, providing reimbursements based on diagnoses, in the hope that hospitals would be rewarded for providing the most cost-effective treatments. In 1989, the system implemented an explicit fee schedule that effectively set the prices doctors could charge their Medicare patients.


In the 1990s, prodded by the insurance industry, Medicare introduced more private insurance options through an initiative called "Medicare plus choice." By that point, private managed care plans had shown themselves capable of holding down medical costs for the working-age population by bargaining harder on prices, limiting payments to physicians, scrutinizing medical treatments, and shifting some out-of-pocket costs to consumers. Medicare-plus-choice sought to make the same sorts of managed care plans available to seniors, as an alternative to the traditional government program, in the hopes it would have a similarly salutary effect.

For a little while, the experiment seemed to work. The plans, some of which offered hard-to-get prescription drug benefits, proved affordable and popular. But soon it turned out the plans were offering more benefits largely because the government was paying them too much money. And their key to profitability was skimming off relatively healthy seniors with selective marketing. When the government cut back on the unnecessary subsidies, plans started dropping out -- creating chaos and leaving recipients scrambling for replacement coverage. It turned out that, given a population of beneficiaries overwhelmingly likely to get sick, private carriers couldn't perform as well as they could with the relatively healthier working-age population.

It was a sobering lesson, but one that President Bush and the Republican Congress chose to ignore a few years later. Under intense political pressure to create that much-needed prescription-drug benefit, Bush and his allies (including some Democrats) complied -- but the twist was that the coverage would come only through private plans, which the government would be subsidizing. The result? Even more overpayments, making the program far more costly than the obvious alternative -- the addition of a drug benefit to conventional, public Medicare. For example, every time a senior citizen opts out of traditional Medicare and enrolls in one of the new "Medicare Advantage" plans (which offer not just drug coverage but a full-blown private alternative to regular Medicare), the federal government has to spend 12 percent more than it would have if the patient had stayed on Medicare.

Cohn goes on to talk about the negotiating power of the government to control costs, but I disagree with him when he starts in on the it's not the old people who are expensive, it's all the new technology and the demand to use it shtick.

Um, no. Old people cost us a lot -- depending on who you ask, about $13,000 per year in medical expenses. I'm not begrudging them this at all, because, as any actuary can tell you, the way you offset the costs of the few expensive people in an insurance pool is to fill up that pool with as many healthy, inexpensive people as you can get. This is exactly what the for-profit insurance companies are doing now, only they're going one step further and avoiding, or outright dumping, as many of the expensive people as they possibly can.

Want to hear from the other side of the equation on Medicare Advantage? Here ya go, from Bloomberg, UnitedHealth Profit Rises on Government Medical Plans --

Of more than 150 companies that sell Medicare Advantage plans, which provide extra benefits such as lower out-of-pocket expenses and health-club memberships, UnitedHealth is the leader, with about 1.3 million members. Medicare will spend $76.3 billion this fiscal year to provide Advantage benefits to 8.6 million senior citizens.

In the second quarter the company extended its collaboration with the advocacy group AARP to expand marketing of Advantage plans to people 65 or older through 2014.

Medicare Advantage was a ``bright spot'' for UnitedHealth in the quarter, said Carl McDonald, an analyst with CIBC World Markets in New York, in a note to clients today.

``This is likely a function of the benefit changes UnitedHealth made to its Medicare Advantage product this year, as it raised premiums, cut benefits and exited unprofitable counties,'' McDonald said.

Step 1. Remove the private insurance companies from Medicare. They're not only costing us money, they're cutting benefits.

Step 2. Extend Medicare to put all 305,000,000 of us into one pool.

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amberglow's picture
Submitted by amberglow on

when they did Plus and Advantage--intentionally? They started hollowing out what Medicare covered, and now that private companies are part of it they'll never give that up?

that Part D/ "donut hole", for instance? --from 06-- Medicare Donut Hole Widening --

"...changes to the plan will affect seniors in the so-called "doughnut hole" -- the coverage gap that Congress designed to make the Medicare Part D program less expensive.

That gap refers to the cutoff in Medicare drug coverage that occurs when a participant's total drug costs reach $2,250. The coverage picks back up again after costs exceed $5,100.

In 13 states next year, there will be no drug plans that offer coverage in the so-called "doughnut hole," the big drug coverage gap in the Medicare Part D prescription drug program, for the top medicines prescribed to seniors, according to the report.
... seniors without access to such doughnut hole coverage will increase from 375,000 to 6.6 million in 2007 - an 18-fold increase.

In the 37 states and the District of Columbia in which plans will continue to offer such doughnut hole coverage, the report says premiums for the lowest-priced Part D plans will increase by 87.4 percent, ..."

Submitted by hipparchia on

i didn't realize the doughnut hole situation had gotten worse. not that that surprises me. and yes, part d and medicare advantage were certainly designed to be camels' noses.

i'm not quite ready to give up, not yet, but it sure looks like we're headed for insuring the health of wellpoint and aetna and so forth, over insuring the health of real people.