[T]he volume of [Medicare] health care services remains unconstrained. As it grows, so do costs. …

The SGR problem is now so large it offers an opportunity for political leverage on the issue of volume. The American Medical Association and other physician groups may want it fixed badly enough that they’ll accept some payment system changes in return. …  As an illustration of the political power of a full SGR fix, the AMA supported health reform on the promise of one.

What should Congress seek in exchange for scrapping the SGR methodology?

To find out, go read the whole thing.

Look, there’s a problem with Medicare funding.  I’ve already talked about this:

Basically, back in the 90’s, Congress tried to slow the rising costs of Medicare by pegging how much they pay doctors to a formula.  Yes, the formula underestimated how quickly medical costs would rise, such that every year, Congress “fixes” the problem by ignoring it and pushing it to next year.  They’ve been doing it so long that if they let the SGR kick in, reimbursement rates to physicians would drop overnight by more than 20%.

That’s me.  Quoting myself.  That’s how bad it’s gotten.

They let the SGR kick in.  Reimbursement rates dropped a ton.  The usual stories appeared about the sky falling.  Docs will rush to leave Medicare.  The system will collapse.  This is why the ACA sucks.  Blah blah blah.

Look.  First of all, the ACA has nothing to do with the SGR.  Actually, it has little to do with Medicare.  Not one more person got Medicare because of the ACA.  So if you think Medicare reimbursement rates are too low, so be it.  It has nothing to do with health care reform.

Further, this is all theater.  There’s no way they will let the SGR kick in permanently.  This is politics.  They will increase the rates.  They always do.  They always will. The politicians don’t have the stomach to actually lower costs.  So everyone can chill.  They will do what you want and spend, spend, spend.  They will even pass it so that docs who were reimbursed at rates lower than they expected can get the money back later.  Sure, it will cost more to file that extra paperwork.  But that’s what you want, right?  More spending!

I’m exasperated because it seems to be the same crowd screaming about the deficit and high spending that’s screaming about the lower reimbursement rates.  You can have lower spending or you can have lower deficits, but you can’t have both.  Pick.  Stop wasting my time.

Let’s break it down.  On the x-axis, you have a measure of how much a country would have to change its spending in order to bring down the debt to a reasonable amount.  I believe for the purposes of their calculations, for a developed country it’s about 60% of GDP.  Countries further to the right have the most cuts to make to spending in order to get the debt under control.

On the y-axis, you have a measure of how much a country can expect its spending to increase because of health and pension increases (think Medicare and Social Security).  Countries closer to the top of the graph will have higher increases in spending because of their projected costs in these areas.

Do you know where you absolutely do not want to be?  The upper right corner.  That’s where a country would be if it both had the most cuts needed and the most anticipated spending in health and an aging population.  It’s a perfect storm.

Can you guess where the US is?

I hear more and more people talking about the size of the debt and the increases in spending.  None of them are talking seriously about Medicare or SSI spending, or how we might cover them.  Wake me when they do.

(h/t The Economist)

Now, many claim that the ACA will “bend the curve” and slow the growth of costs.  But how much?  Well, since the CBO has been doing most of the heavy lifting so far, no reason to let them stop now.  CBO director Doug Elmendorf recently gave a talk to the Annual AAAS Forum on Science and Technology Policy on the economic and budget outlook.  What’s the verdict?  Here are outlays for 2020:

Do you see Medicare there?  It’s almost $900 billion.  We’ll be spending more on Medicare than on Defense.  This doesn’t include Medicaid (another $444 billion).  Together, they will cost more than Social Security.  More than interest on the debt.  more than all discretionary (other) spending total.

You want to balance the budget?  Ain’t gonna happen.  Not while health care costs this much.  And we haven’t even added in private spending on insurance, out-of-pocket costs, or the cost of reform (which is small compared to the big M’s).

We need to seriously get a handle on health care costs.  The sooner everyone starts to accept that, the better we’ll be.

That said, this is another reason things are not going to get better anytime soon:

Of all the people in human history who ever reached the age of 65, half are alive now…

Homo sapiens is ageing fast, and the implications of this may overwhelm all other factors shaping the species over the coming decades – with more wrinklies than pimplies, more walking frames than bike stabilisers, more slippers and pipes than bootees and buggies, and more grey power than student power. The longevity revolution affects every country, every community and almost every household. It promises to restructure the economy, reshape the family, redefine politics and even rearrange the geopolitical order over the coming century.

If that fact doesn’t blow your mind, I hope it at least makes you pause.  The Medicare population is only going to get larger.

(h/t Will)

Heathways SilverSneakers Fitness Program promotes fitness, fun and friends!
Blue Shield of California announced today that it will expand its contract with Healthways, Inc. to offer the SilverSneakers Fitness Program to Blue Shield Medicare Advantage members in San Bernardino County. SilverSneakers, which Blue Shield already offers in Los Angeles and Orange counties, is the nation’s leading exercise program for older adults. Blue Shield members in San Bernardino can join the program at no additional cost as of January 1.

Where to start?

OK, first of all, what you’re seeing here is a Medicare Advantage program offering its subscribers free membership in a fitness/program.  This isn’t something that people in regular old Medicare can get.  It’s a perk for people who choose to go with this Medicare Advantage option.  They don’t pay anything extra.  We do.  Through taxes.  Remember, we are paying a 14% premium to Blue Shield of California for them to provide insurance services to the elderly.

Now I suppose you could make the argument that it’s a good thing for people to go exercise.  I agree.  But should taxpayers pay for it?  Is this what Medicare is for?  Gym memberships?

First of all, it’s not worth the money.  We’re paying 14% more to Medicare Advantage programs so seniors can join the gym?  That’s not worth the money.  Gyms don’t cost that much.  Moreover, it’s not what Medicare is for.  As we complain about deficits, how can we justify these types of expenses?  We can’t.  Medicare Advantage is a waste.

Second, it’s not fair.  If we believe gym memberships are something that taxes should pay for, then all seniors should get them.  Why just those who choose Medicare Advantage?  Why do they get more robust plans just because we “chose” to give private insurance companies more money?

Third, it’s a perfect example of how insurance companies shift the risk pool.  Which seniors would be attracted to gym memberships?  Health ones.  You can be sure bedridden and truly ill seniors won’t care about SilverSneakers.  So by offering something like this (on our dime), Blue Shield preferentially attracts a better risk pool for themselves.

They get more healthy people.  It costs them less money to insure them.  And they get extra money from us to do it.

Is this something we really want to avoid cutting?

Markos Moulitsas takes a look at Massachusetts and concludes that the individual mandate isn’t working well, because Massachusetts’s costs have merely improved from “the worst in the nation to merely one of the worst in the nation.”

The Massachusetts bill (as I’ve argued often about this bill) is not about cost.  It was meant to improve coverage.  And it did.  It’s not how I would have done it, it wasn’t the most efficient way to do it, but it did increase coverage.  Not only that, but Massachusetts seems to have improved its standing in terms of cost, even if it’s a small amount:

But they are, in their own way, working. The prudential purchasing has brought costs down in the individual and small group markets where it exists. The individual mandate has forced a focus on cost control far beyond anything operating in any other state. A commission created to control costs recently recommended that the state begin to end fee-for-service medicine — which is far beyond anything that any other state, or the country, has explicitly begun doing. As most in Massachusetts agreed, there would never have been the impetus to do cost control if the universal plan and the mandate hadn’t deposited the problem squarely in the legislature’s lap.

Massachusetts is now in crisis and will likely have to introduce much more comprehensive reform (such as ending fee-for-service) in order to lower costs.  It’s worth watching what happens.

Ezra also believes that the bill currently under debate has cost controls that Massachusetts lacks:

If you go back to my post on the five cost controls in health-care reform, you’ll see that Massachusetts didn’t have three of them. There was no bundling, no excise tax, no Medicare Commission. And of the dozens of small cost projects, from the Payment Innovation experiments to the creation of a comparative effectiveness process, Massachusetts had none of them. Most of the pages of the health-care reform bill are dedicated to experiments and mechanisms trying to change things that happen in hospitals. Massachusetts was about changing the workings of the insurance market. And though those reforms were effective at creating a better insurance market and cutting the number of uninsured, they were not sufficient.

If you’ve been reading this blog, you know I’m less impressed by these than Ezra.  The Medicare Commission applies only to Medicare and not to private insurance.  Same with many other projects.  I don’t disagree with the implications of the excise tax, but I don’t know how much impact it will have on overall costs.

If many of these work, they will work on Medicare only.  And – here’s where I will acknowledge politics – I don’t think the government will be able to squeeze Medicare if private insurance doesn’t come along for the ride.  I can just imagine the headlines about preferentially killing the elderly.  I think those screams will come from whichever party is in the minority at the time, so it’s not partisan based.

I think we need cost controls for the entire system.  It’s one of the reasons I think a single payer (at least a basic one) would have more power to try and lower costs.  It asks for shared sacrifice.

But people like me who thought more radical reform was necessary were told it just wasn’t possible.  Only incremental reform could be accomplished.  And incremental reform required a mandate, it required less potential for cost control, it meant keeping private insurance around, and it necessitated accepting less than 100% coverage as “universal”.

If you were OK with that, then so be it.  You weren’t alone.

But here’s the deal – that meant you were OK with a mandate, you were OK with less cost control, you were OK with private insurance, and you were OK with less than 100% covered.  In other words, you were OK with Massachusetts.

I’m frustrated this week because many of the same people who shrugged off my concerns about the downsides of Massachusetts-style incremental reform when we started this process are now using those same arguments to “kill the bill”.  That strikes me as a bit… political.

Over the last week, there’s been a surprising amount of debate in the Senate over an amendment to allow us to import cheaper drugs from Canada.  Although many oppose it, there are a fair number of Republicans who don’t.

One of the reasons drugs cost so much in the US is that we can’t collectively bargain to reduce prices.  In Canada, the country can negotiate as one huge purchaser, and can therefore get a good deal.  In the US, on the other hand, Medicare is expressly forbidden by law from doing so.  That was part of the deal when Medicare Part D was passed.  So no bargaining.

That was a pretty bad deal as agreements go.  We committed massive federal funds to purchase drugs from pharmaceutical companies and then also barred the government from trying to get a good rate.  Not only has that significantly increased the deficit, but it seems bizarre from an economic standpoint.  Are there other industries where it’s illegal for the government to try and negotiate for a good deal?

It’s crazy, though, to support those same bans and then support importing from countries with no such bans.  Huh?  Either you like collective bargaining or you don’t.  It seems very inefficient not to bargain with our very large Medicare system and then pay Canada overhead to allow them to do lesser bargaining for us.  Why not just let our government get better prices?  Why go to other countries instead?  Why is that logically consistent?

I’m not kidding.  Someone please explain it to me!

On Wednesday, The Energy and Commerce Subcommittee released a report on Medicare Advantage.  Let’s just get right into the findings:

From 2005 through 2008, the average Medicare Advantage insurer spent over 15% of premium revenue on profits, marketing, and other corporate expenses. Two-thirds of the Medicare Advantage insurers surveyed by the Committee had a medical loss ratio below 85% during at least one of the four years examined. Six of the insurers had medical loss ratios below 75% in one or more years. In comparison, traditional Medicare spends less than 1.5% on administrative expenses and over 98% on health care. In the aggregate, the Medicare Advantage insurers spent $1,450 per beneficiary in 2008 on profits, marketing, and other corporate expenses, nearly ten times as much as traditional Medicare spent on administrative expenses per beneficiary.

Saying that you have a medical loss ratio of 85% means that only about $0.85 of each dollar goes to actual care.  Compare that to traditional Medicare, where more than $0.98 of each dollar went to care.  Remember that the next time someone tells you how much more efficient private insurance companies are than government run insurance.

Requiring all Medicare Advantage insurers to have a medical loss ratio of 85% would provide billions of dollars in additional medical services to seniors. The total amount spent on profits, marketing, and other expenses by Medicare Advantage insurers over the last four years was $27 billion. The House health care reform bill requires Medicare Advantage plans to spend at least 85% of their total premium revenues on medical claims. If this threshold had been in effect from 2005 through 2008, the Medicare Advantage insurers would have spent an additional $3 billion on their beneficiaries’ medical care, enough to eliminate all copays for preventive care for all Medicare beneficiaries for ten years.

Some Medicare Advantage were so “inefficient” that merely requiring them to raise their ratio to 85% (still way below traditional Medicare) would raise enough money to eliminate any copays for preventive care for everyone in Medicare for a decade?  Imagine if they were all as efficient as government run traditional Medicare.

In 2007 and 2008, Medicare Advantage insurers with medical loss ratios lower than 85% paid their executives over $1.2 billion. In 2007, a company that had a medical loss ratio of 79% paid an executive over $35 million. The same company paid 16 more executives salaries and bonuses worth $1 million or more. Another company with a medical loss ratio of 79% paid more than $210 million in compensation to 260 executives.

No comment.  None needed.

Remember, the proposed cuts to Medicare are just to Medicare Advantage.  Not only has Medicare Advantage been spending much, much more on non-medical costs, they have also been taking about 114% of what we pay per traditional Medicare enrollee just to function.  If the government were requiring 114% of what private companies were to provide a service, and then had nearly ten times the overhead to do it, we would all be losing our minds.  It’s not good economic sense.

Read the whole report if you like.

I am 55, and disabled. Although I am eligible for Medicare (disabled for 24+ mth.), I chose to stay on my wife’s medical plan until I could take enough time to understand my options and costs. Today I received the information that although we pay >$7000 / year – JUST FOR MY PORTION OF HER PLAN! – it will still cost more than that amount for me to switch over to either a) Part”B” + Medigap + Part”D”, or b) Part”B” + Medicare Advantage.

Why? Primarily, it is because of the quantity, and types, of medication that I take for my condition, (Diffuse Systemic Scleroderma). When my local senior assistance program plugged my info into thee Medicare calculator, it spit out that I will required to pay more than the $7000 – primarily because of the “doughnut hole”.

My question is this – do any of the plans being discussed, by The House and/or Senate, address this issue?

I wish everyone who says that a public plan or Medicare is “free” would read your question.

First of all, let’s explain to everyone what the doughnut hole is:

Medicare mavens and readers of a certain age will already be familiar with the hole — the gap in coverage that leaves beneficiaries on the hook for the cost of prescription drugs when the cost of their prescription drugs passes $2,700 in a year. Coverage kicks back in when a beneficiary’s annual drug cost passes $6,154 in a year, according to the WSJ’s story on the deal.

So once you go over a certain amount (which isn’t hard) you have to shell out thousands of dollars before any coverage kicks back in.

The good news is that reform (so far) does have provisions to close this up, at least a bit.  It was part of the big deal the White House made with pharma.  Until the bill is passed, we won’t know for sure, but I suspect things will get better in terms of your out-of-pocket costs for drugs.