Monday, February 23, 2009

Entitlement Reform: It's all about the numbers, or is it?

Today, President Obama convenes a bipartisan "summit" on "fiscal responsibility," which is expected to initiate a dialogue on ways to rein in spending on the big three federal entitlements - Medicare, Medicaid, and Social Security.

Entitlements is a term used to describe programs where the government is obligated, by law, to pay benefits to qualified participants (beneficiaries). They differ from discretionary programs, where the amount of spending is determined on an annual basis, based on a recommendation by Congress's appropriations committees.

Think of spending on an entitlement program as an airplane on automatic pilot. The airplane (Medicare) will continue to burn fuel (taxpayer dollars) at an unsustainable rate unless the pilot (Congress) takes it off automatic pilot and orders a change in course. Except this airplane keeps adding passengers, continually is re-fueled in flight, and the cost of fuel per passenger keeps rising, with no end in sight.

How President Obama decides to tackle entitlement spending will have huge implications for doctors and patients. And, as Al Froomkin blogged yesterday in the Washington Post, the White House is trying to navigate between the views of fiscally conservative Democrats active in the "entitlement reform movement" which is "currently focused on establishing a blue-ribbon commission that would present Congress with a finished proposal - presumably calling for steep cuts in the nation's bedrock social safety programs - for an up-or-down vote," and liberals who are concerned that this would lead to unacceptable cuts in Medicare benefits and eligibility.

As I see it, here are the options available to President Obama:

1. He can embrace the views of the entitlement reform movement, which views spending on Medicare as essentially a numbers problem that can be solved by internal restructuring of the program. The numbers problem can be boiled down as follows: Medicare isn't sustainable because the number of beneficiaries in the program will continue to grow from 40 million in 2000 to 47 million in 2010 to 79 million by 2030. The number and costs of services per beneficiary will increase at a much greater rate than overall inflation. Yet the number of workers who pay into the program will decrease from four workers per beneficiary in 2000 to 2.4 workers per beneficiary in 2030. Viewed this way, the way to make Medicare "sustainable" is to do some combination of the following: make fewer people eligible for the program, such as by pushing back the age of eligibility or implementing "means-testing" so wealthier beneficiaries either get reduced or no benefits; reduce benefits guaranteed by the program (i.e. by putting explicit limits on coverage); raise taxes; make beneficiaries pay more out-of-pocket; or reduce the costs of services, principally by cutting payments to "providers."

2. Or he can adopt the views of those who see Medicare as the tail being wagged by the dog of overall health care costs. That is, rather than viewing Medicare as a numbers problem to be solved principally by restructuring eligibility and benefits and raising taxes, this camp sees Medicare's woes as being driven principally by the overall increase in health care expenditures, which are then passed on to Medicare. The answer then is to adopt comprehensive reforms to make health care more efficient, which would then lead to lower Medicare costs per beneficiary. Under this approach, some restructuring of Medicare benefits and eligibility will still be required, but likely would be less draconian than if Medicare is viewed as a problem to be solved unto itself.

Right now, it appears that President Obama's views are more in the second camp: fix the health care cost problem, and you can fix Medicare without requiring unacceptable cuts in benefits and eligibility. But instead of Medicare being the tail being wagged by the dog of health care costs, he and his advisers see an opportunity to have Medicare lead the way to a more efficient and effective health care system.

The political problem for the president is that fixing the overall health care system so it is less expensive will take time, and enormous political capital. Will fiscally conservative Democrats be willing to wait for overall health care reform to do its magic before demanding an "up or down" vote on restructuring Medicare benefits, eligibility and taxes?

Today's question: How do you think President Obama should tackle reform of Medicare entitlements?


Jay Larson MD said...

Politically and financially the best option would be to work on health care reform to lower health care costs. A 10% reduction of health care spending in the U.S. would be $230 Billion per year. Of course the main issue would be where would the savings come from. This will be an up hill battle as most factions in health care will reply with a resounding "NOT ME".

Health care reform will happen. The main question lurking in everyone's mind is when will it happen and what will it look like. Using Medicare as a hammer to mold the system would be effective, but senior citizens have to be protected from the shrapnel (ie lack of access to physicians deciding not to participate in Medicare).

The Happy Hospitalist said...

Insurance in its current form isn't the solution. It's the problem. Health care is growing exponentially in cost because we let it. As long as you keep the industry highly regulated, the cost structure will never deflate and the expense of delivering the care will never deflate.

If you want to follow camp #1, keep the current delivery highly regulated, and decrease access.

If you want to follow camp #2, you will have to deregulate the incredible inefficiencies built into the delivery model in its current form.

A 20 billion dollar EMR won't make me anymore efficient in my delivery of patient care. It will only make it computerized.

The more you regulate, the more expensive it will be. And camp #2 will fall flat on their face with failure.