The ACP Advocate Blog

by Bob Doherty

Tuesday, January 4, 2011

New Year begins with a (baby) boom!

On January 1, Kathleen Casey-Kirschling became the first of the baby-boom generation to qualify for Medicare. She’s hardly alone: the baby-boom generation will cause enrollment in Medicare to soar. According to the Kaiser Family Foundation, Medicare enrollment will increase from 47 million today to 64 million in 2020 to 80 million people by 2030. At the same time, the ratio of workers paying into the program to support each Medicare enrollee will drop from 3.4 (2010) to 2.8 (2020) and then to 2.3 workers per beneficiary in 2030, denying the program the tax revenue needed to sustain it.

What happens then? Well, the President and Congress would have a dismal menu of political and policy choices. They could impose huge tax increases, inflicting great harm on working families and the economy, and they probably couldn’t raise enough money anyway from taxes without other changes in the program.

They could slash benefits for everyone enrolled in Medicare, impose means-testing so only low-income elderly would qualify, increase beneficiaries’ out-of-pocket contributions, limit access to beneficial services (rationing, anyone?), cut how much Medicare pays doctors and hospitals, and/or privatize the program (but if you are over 65 and have chronic health conditions, good luck finding affordable private health insurance).

They could try to duck such tough choices by borrowing more money to pay for the program, further driving up the federal deficit and debt, crowding out spending for other national priorities, increasing interest rates, slowing or even reversing economic growth and reducing national and household wealth.

One could imagine such a draconian set of policy choices creating unprecedented intergenerational conflict, as baby-boomers resist giving up the benefits they’ve “earned” and are “entitled” to while their children and grandchildren resist seeing their standards of living cut to pay for their parents and grandparents benefits.

It’s enough to give you a headache, just like recovering the day after a New Year’s Eve binge.

It doesn’t have to be this way, though. There isn’t much that can be done about the demographic fact that there will be more old people (let’s hope not, at least!) and fewer younger ones. There isn’t much to be done about the fact that as people age, they will need health care that costs more than most can afford on their own, so someone else younger and healthier will have to help pay for their care.

But there is a lot that could be done now to put Medicare on a more sustainable path, starting with ending the myth that the amount each of us pays into Medicare over our lifetimes covers the cost of our benefits. It doesn’t: Medicare has, and always will be, an income transfer program from working people to non-working (retired) people receiving benefits. Yet a new poll shows that 60% of us believe that “they paid into the system so they deserve their full benefits -- no cuts” according to the Associated Press. But the same AP story notes that new research by the Urban Institute shows that the cost of the benefits that most receive from Medicare greatly exceeds how much they paid into it: “Consider an average-wage, two-earner couple together earning $89,000 a year. Upon retiring in 2011, they would have paid $114,000 in Medicare payroll taxes during their careers. But they can expect to receive medical services -- from prescriptions to hospital care -- worth $355,000, or about three times what they put in.”

As long as people believe (and are told by politicians) that they “paid” for their own Medicare benefits, they will understandably resist having “their” benefits reduced.

Congress and President Obama could begin changing such perceptions by explaining the demographic facts of life about Medicare. They could also begin proposing ways so that Medicare is restructured more gradually and less painfully, rather than waiting 10 or 20 years when all of the options will be bad ones, politically and substantively. They might even find that the public is willing to listen.

The AP’s poll shows some ideas for changing Medicare could potentially have support if the alternative is to slash benefits: “59% of [boomers] said raise the age and keep the benefits . . 61 percent of [all] Americans favored raising Medicare taxes to avoid a cut in benefits. . . Among adults in their 20s, who'd face a whole career paying higher taxes, 61 percent said they would be willing to pay more to preserve benefits [and] 62 percent . . . said they'd be willing to pay more so that doctors' fees don't have to be cut and more doctors keep accepting Medicare payments.”

For the country to make any progress on sustaining Medicare, though, both political parties need to set aside ideological and partisan arguments that don’t hold water. For Republicans, this means being willing to accept that some gradual and broad-based tax increases are going to be part of the solution, that government is going to continue to have the principal role in financing health coverage to the elderly because for-profit private insurance has no economic incentive to cover older and sicker people, and by accepting that it makes no fiscal or budget sense to repeal the provisions of the Affordable Care Act that offer the greatest potential of slowing spending on Medicare (like funding on comparative effectiveness research, investments in primary care, and pilot-testing new ways to pay physicians and hospitals). For congressional Democrats and President Obama, it means accepting that reform is going to involve changes in benefits, cost-sharing, and eligibility, and a willingness to be open to Republican ideas for reducing costs, like medical liability reforms to reduce the costs of defensive medicine, health savings accounts, and pilot-testing a voluntary premium support (voucher) alternative to traditional Medicare.

Having such a bipartisan discussion about the future of Medicare seems unlikely, but wouldn’t it be a terrific new year’s resolution for the politicians to give it a try?

Today’s question: Do you think that the country is ready for a bipartisan (or better yet, non-partisan) discussion over how to sustain Medicare for the baby-boomers, and their children and grand-children?

8 Comments :

Blogger C said...

What does the evidence say about opening Medicare to all Americans? (i.e. making Medicare a 'public option')

What would this do for Medicare's finances (apart from the necessary steps that need to be taken on cost-control)?

This is pure conjecture but would an added Medicare premium for non-retirees provide a significant revenue boost (assuming high-uptake because of satisfaction with Medicare among users), whilst limiting outlay on the new and generally healthier participants?

January 4, 2011 at 12:44 PM  
Blogger Steve Lucas said...

I do believe there is a new mind set in Congress and the winds of change have shaken some politicians to the core of their liberal souls. Borrow from the Chinese and tax the rich to make the interest payments is not a long term solutions to our social problems.

The French are lecturing us about sovereign debt and bloated social programs. The Canadians have lower corporate tax rates then the US. Germany has a lower unemployment rate and is a power house of economic growth.

Our politicians must learn to work together and quit this bickering that is on a day by day basis costing us money we cannot afford.

At 56, my personal belief is that Medicare will become yet another welfare program with the corresponding low reimbursement rates for doctors and hospitals. The tax rates needed to sustain the program in its present form are unsustainable.

As noted, all of this can be mitigated if action is taken now by our politicians to both inform the public about the true nature of the program, and make the necessary changes regarding age and tax basis, to keep the program solvent.

Politicians alone cannot change this mind set. We have an existing set of retirees who feel entitled. I know a 93 year old woman who is livid she cannot go to a private nursing home that accepts no government reimbursement or patients. She feels the government should force this home to accept her regardless of her ability to pay. The fact that all of the residents pay out of pocket for their care is of no interest to her.

This will be a monumental task to change the mind set of a large number of Americans who not only feel entitled, but also everything is both the governments fault and responsibility.


Steve Lucas

January 4, 2011 at 2:40 PM  
Blogger PCP said...

The problem as I see it is that there is no political will to do what is right, and the limited will is further corrupted by the special interests who push this horrendously costly and inflated system of ours. Tell me why it is that an MRI scan in the same Seimens machine in other parts of the world costs 5% of what it does here in the USA? What of a Hospitalization? Drugs?
I suspect the only thing people are prepared to tolerate as a first world cost is the human talent of their work force, but surely that does not account for a 20 fold difference.


Unless we are seriously prepared to end this massively corrupt system and bring some market reform to the system we are destined to implode.

Also tell me how you can justify a system where CHCs/FQHCs/RHCs etc just by virtue of their federal Stamp get reimbursed at cost based levels, whereas physician offices are reimbursed by gov't set price controlled system, which then creates the shortages which need to be then filled by the above said CHCs/FQHCs/RHCs etc. Tell me why a Physician who works there has the loyalty of the patient base and then moves across the street to open his/her shop will then get reimbursed at a small fraction of this Federally designated/Stamped/Sealed/Authorised rip off?
I always thought the objective of these programs was to get care to the underserved populations. Perhaps I was mistaken.

Also tell me how you can justify a system where CHCs/FQHCs/RHCs etc just by virtue of their federal Stamp get reimbursed at cost based levels, whereas physician offices are reimbursed by gov't set price controlled system, which then creates the shortages which need to be then filled by the above said CHCs/FQHCs/RHCs etc. Tell me why a Physician who works there has the loyalty of the patient base and then moves across the street to open his/her shop will then get reimbursed at a small fraction of this Federally designated/Stamped/Sealed/Authorised rip off?
I always thought the objective of these programs was to get care to the underserved populations. Perhaps I was mistaken.


With all this non sense going on, Doctors fees schedules were the only thing which were subjected to the SGR. Why? Was out lobby the weakest? What do you expect but an implosion when you run a system like that? How can you expect the public to trust? Do they believe we are blind or dumb?

January 5, 2011 at 12:52 AM  
Blogger PCP said...

Certainly interesting times ahead.
We are on a collision course but unfortunately fighting amongst ourselves whilst the doomsday arrives. I have no confidence that we will resolve these issues in time, quite simply because the ideological divisions are so deep. When resources were freely available and we were a younger and healthier nation, and when medical technology and know how was less developed and less profitable, the ideological divide could be masked by dollars. Now we are at an inflection point with no other choice but to resolve our differences or implode. Implosion is the likely outcome, our politics is more poisonous than ever, but that is not to minimise the ideological differences within the populace.
A year after Obamacare was passed into law, there remains a simmering resentment in a large segment of the populace. It drove a sufficiently large number of the electorate to the ballot box and will likely continue to do so in 2012.

The facts are as follows. The Baby boomer generation did not have as many children compared to their parents. The social changes in the 60s have brought with them certain effects which we are seeing the impact of today. When you quote the 2.3 workers per beneficiary in 2030, it is a function of this dynamic as well as increased longevity. The legacy of this generation will be to leave us with a broken dollar, contrasted with the fact that their parents left us with the worlds reserve currency.

When you speak about means testing for benefits Bob, I want you to understand that you are proposing the exclusion of the very group of individuals that contributed the most(and probably more disproportionately than the benefits they will be receiving) during their working lifetimes. In other words what you are proposing is that Medicare and Social Security are really safety net taxes instead of contributions. Then you have to consider the obscenity of the effective marginal tax rates to come, when you add federal/state/Social safety net taxes/property/sales and all other taxes. We would then be Europe with a borderline confiscatory taxation regime and a means tested benefits system, I don't believe even they are there yet.

The facts are that the public will never accept a Gov't level rationing of their care, no matter how it is packaged. A quick way to focus the public's mind on exactly how much they contributed is to exactly allow them to put that in an independent savings account, but the Democrats will never have that.
I feel that what the American public deserves is not a system where they and their doctor listen to some rationing board or insurance company, it is one where they sit together in the exam room with the patient and ration the care themselves. For this to happen we need to have a system of Flexible spending accounts. We also have to put a premium on the Doctors time such that the visit where the decision on what test/medication etc. to use is paid handsomely as it is high stakes stuff, but where that test itself is heavily commoditized and hence cheap. We should have $400 dollar hour long doctor visits and $200 MRI scans rather than 5-10 minute $45 dollar visits and $6000 scans. You get the idea.
That way the time and decision making is at a premium and the tests are affordable when needed and and ordered/requested only when necessary. That will allow the patient and doctor to ration care on their mutually agreed terms and might be acceptable to patients. Let me assure you that is how it happens all over the world without insurance. Patients come to you with a budget within which you try to help them within their means.

Cont'd

January 5, 2011 at 12:53 AM  
Blogger PCP said...

The facts are that the public will never accept a Gov't level rationing of their care, no matter how it is packaged. A quick way to focus the public's mind on exactly how much they contributed is to exactly allow them to put that in an independent savings account, but the Democrats will never have that.
I feel that what the American public deserves is not a system where they and their doctor listen to some rationing board or insurance company, it is one where they sit together in the exam room with the patient and ration the care themselves. For this to happen we need to have a system of Flexible spending accounts. We also have to put a premium on the Doctors time such that the visit where the decision on what test/medication etc. to use is paid handsomely as it is high stakes stuff, but where that test itself is heavily commoditized and hence cheap. We should have $400 dollar hour long doctor visits and $200 MRI scans rather than 5-10 minute $45 dollar visits and $6000 scans. You get the idea.
That way the time and decision making is at a premium and the tests are affordable when needed and and ordered/requested only when necessary. That will allow the patient and doctor to ration care on their mutually agreed terms and might be acceptable to patients. Let me assure you that is how it happens all over the world without insurance. Patients come to you with a budget within which you try to help them within their means.

Cont'd

January 5, 2011 at 12:55 AM  
Blogger Harrison said...

First things first.
We're all gonna read the constitution aloud.

And then we're gonna see how much we can get for those who are just now alarmed that the debt has risen to over $14 Trillion, (which is so much worse than the $12 Trillion it used to be) before we agree to raise the debt ceiling just before allowing world financial markets to collapse.

And through it all we're gonna try to blame all those people who feel entitled to benefits, and especially those who had the audacity to be born all together in a handful of years


No
We will not have a bipartisan agreement on anything for the next two years.

Harrison

January 5, 2011 at 1:14 PM  
Blogger PCP said...

Harrison,
Sorry about the jumbles posts above, it was too long and my cut and paste plan did not work as expected!

Harrison,

The issue is not the audacity to be born within a few years, or a blame of that subset.

The fact is that America is a far different place today compared to the pre-1960s era. The boomer generation has profoundly changed America.

The impact of their collective choices takes a generation to play out. It was never over in the 60s.

January 5, 2011 at 8:39 PM  
Blogger Harrison said...

PCP
I agree that the world has changed since Medicare was enacted.
The 3 wealthiest men in the world have a combined wealth greater than the combined GDP of the poorest 50 countries.
In the U.S. we have more wealth than ever before concentrated in the hands of the lowest percentage of people.

The majority of the baby boomers coming towards retirement age and Medicare age are not wealthy.
Many continued working not so much to accumulate wealth but instead to have health insurance up until the time that they could rely on the Medicare program.

And the Medicare program they will find will require of them out of pockets costs that are similar to those that patients incurred in the pre-Medicare era.

Yet it will be better for patients than the private health insurance market.

For doctors Medicare is not as good as the private health insurance market, except in those markets that have become heavily capitated.
I'm in one of those markets.
Our practice is more than 50% or maybe even 60% capitated.
Even many of our Medicare patients are in pre-paid capitated plans.

So the SGR doesn't hit us directly. It hits us in an anticipatory way. The controlling private insurance entities set capitation rates based on what they expect. They prepare for the 21% cut. And if it doesn't happen they generously (?) share some of that back with us at the end of the year.
The cut in Medicare Advantage plan money will cause an impact to us through those capitation rates.

And so, the ACA, which I support, found some of its funding through me.
That's okay.
We've kind of been figuring out for a long time how to order fewer tests and rely less on specialist consultations.
And balance that with good practice and with relationships with patients that keep them talking to us and not to lawyers when outcomes are less than perfect.

It isn't easy and there are no guarantees.

But, I can promise you I will not applaud as the new Congress reads aloud the constitution and sets out on a course of repealing the health care reform measures that are there and not work on the SGR or on the Medicare reforms that would help -- or on improving the ACA.

The only way I would be happy with the constitution reading is if we get to give our representatives a test, and send them for remedial classes if they fail.

Harrison

January 6, 2011 at 1:09 PM  

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About the Author

Bob Doherty is Senior Vice President, American College of Physicians Government Affairs and Public Policy; Author of the ACP Advocate Blog

Email Bob Doherty: TheACPAdvocateblog@acponline.org.

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