Medicare has moved to the center of this year’s presidential campaign for a single overriding reason: Shrinking the nation’s long-term government deficit demands dealing with health care costs.
No one—left, center or right—disagrees with that analysis.
What they also agree on is that limiting health care’s inexorable growth will require cutting future payments to those who deliver care—the doctors and hospitals, the nursing homes and walk-in clinics and the medical device and drug companies.
Each group will have to adapt to a new era when their growth doesn’t automatically exceed the growth in the overall economy.
Health care economists point out that the problem is not just government programs like Medicare and Medicaid. In most years, they grow at rates that are slightly below the privately-insured market.
But the debate is now focused on the government side of the ledger because Republican candidate Mitt Romney chose Rep. Paul Ryan, R-Wis., who has championed Medicare privatization, as his running mate. They are offering voters a stark choice on Medicare from President Obama and the Democrats. It can be distilled down to a single, simple question: Who will be on the hook if the health care delivery system fails to limit health care cost growth—individual seniors or the government?
In the long run failing to curb the costs of the health care system will hurt everyone as tax revenue and future wage increases are siphoned to pay for it. Under the Republican plan, dubbed premium support, the onus for cutting costs is placed primarily on individuals. Newly retired seniors, sometime early in the next decade, will be offered a fixed voucher to pay for either a private insurance plan or to cover the cost of traditional Medicare, which will remain as a public option to compete with private plans.
The voucher’s value will rise at a rate half a percentage point faster than the gross domestic product or GDP. If the price of those plans grows faster than GDP + 0.5 percent, future seniors will have to pay for the rest of its total cost out of their own pockets. The plan requires well-off seniors to pick up a greater share of that tab, a form of means testing.
The theory backing this approach says that when health care consumers have their own money at risk, they will choose more carefully. Those acts of self-limitation will hold down health care spending.
Critics argue that approach ignores certain realities. Five percent of patients with serious illnesses account for half of all health care spending. The bulk of any individual’s lifetime health care expenditures come during the last year or two of life. Many of these sick, older Americans are in no position to challenge what their physicians order.
Moreover, many may rebel when they discover they have been put in a position where the intersection of costs and individual wherewithal are driving end-of-life decision-making. Studies have shown that even for the majority of seniors who are in relatively good health, having “more skin in the game” just as often leads to eschewing cost-effective and potentially life-saving measures as it does to eliminating wasteful tests and procedures.
The Obama administration has also targeted limiting the growth of Medicare spending to GDP + 0.5 percent. But under its plan, embodied in the Affordable Care Act, the limits will be enforced by cutting payments to providers like hospitals and physicians and by eliminating the extra payments given to insurance companies under the existing Medicare Advantage program, which is the government’s initial foray into Medicare privatization. That effort, enacted under President George W. Bush, wound up costing more than traditional fee-for-service Medicare. The danger here is that more doctors drop out of Medicare altogether, which has been a trend for years.
In his interview with CBS’ “60 Minutes” on Sunday (in a portion that wasn’t part of the broadcast), Romney said that the president “robbed Medicare $716 billion to pay for a new risky program of his own that we call Obamacare.” Yet according to the Congressional Budget Office, no services will be eliminated to achieve those savings.
Rather, $415 billion comes from “reductions in annual updates to fee-for-service payment rates” and $156 billion comes from reducing Medicare Advantage payment rates. The law also cuts $56 billion from so-called disproportionate share payments to hospitals that serve the uninsured, since it is expected that under the ACA more people will have insurance.
Critics of the Obama approach say that the government will never enforce those limitations, just as it has never enforced the physician pay cuts enacted more than a decade ago. They have little faith that pilot projects like medical homes, accountable care organizations and bundled payments will miraculously transform the majority of providers into deliverers of higher quality and more cost-effective care.
Voters subjected to the sound bites of campaign ads will never learn that the dirty little secret of both approaches is that they embody a form of rationing. Alan Cohen, executive director of the Boston University Health Policy Institute, differentiated the two approaches in a recent article by describing the Republican approach as “first-dollar rationing.”
“Both public and private payers limit access to basic services and primary care—either by denying coverage or by imposing high deductibles and coinsurance—even as they pay for more expensive tertiary care, often at the end of life,” he wrote. “First-dollar rationing makes little sense if we want to obtain the highest value for a long-term investment in health care. First-dollar coverage of primary care and evidence-based preventive services should be norm.”
However, the ACA will lead to more “last-dollar rationing,” he suggested. In his view, that “makes more sense because of diminishing marginal returns on expensive tertiary care, especially in end-of- life situations.” But as the president and his congressional allies learned to their great regret in 2010, it also leads to more placards decrying “death panels” and the absurd admonishment that Obama “keep the government’s hands off my Medicare."