Health overhaul means big Medicare changes

Tom Curry National affairs writer • Profile • E-mail

If you're not a Medicare recipient, your parents probably are, or soon will be. And you yourself will be on Medicare eventually.

That’s a good reason to pay attention as Congress debates an overhaul of America’s health insurance system — because this debate is inevitably a debate over Medicare, the federal government’s biggest health spending program at $500 billion a year.

Medicare is big, and it’s going to get much bigger: Between 2010 and 2030, the number of people on Medicare is projected to rise from 46 million to 78 million, according to the Kaiser Family Foundation.

Over the long term, the program is underfunded. According to the Medicare trustees, it would take an immediate 134 percent increase in the Medicare tax rate, or an immediate 53 percent cut in spending, to bring Medicare’s hospital insurance program into long-term fiscal balance.

The cost savings which President Barack Obama says are urgently needed won’t be possible without cutting Medicare’s outlays, which have kept growing annually at a pace more than two percent faster than the economy.

Cutting payments to hospitals and nursing facilities
Obama has proposed policy changes which his budget director Peter Orszag says will cut more than $200 billion over ten years from Medicare, partly by requiring hospitals, hospices, outpatient clinics, and skilled nursing facilities to become more efficient by meeting certain productivity benchmarks.

“To the extent that we’re trying to find savings within the federal budget to offset the cost of health reform, Medicare is obvious place to go because it is so large,” said economist Paul Van de Water, a health care policy expert at the liberal Center on Budget and Policy Priorities in Washington.

If you look at the health care bill proposed by House Democrats you will see how large a part of the overhaul is focused on Medicare, which accounts for 478 pages — or well more than half — of the 850-page House proposal.

The House Democratic proposal would decrease overpayments to private plans operating under the Medicare and would aim to improve payment accuracy to ensure that doctors and other medical providers were not over paid.

It would also eliminate the gap in Medicare prescription drug coverage by closing the “doughnut hole,” the coverage gap in the drug plan before Medicare recipients reach the threshold for catastrophic coverage.

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In the current debate, which is ostensibly about health insurance, what sometimes goes unmentioned is that Medicare isn’t an insurance program in the classic model of a pooling of risks.

In a traditional insurance system, members of a risk pool pay premiums. The risks of any of them having expensive claims to be paid in any given year are averaged out.

Not a traditional insurance model
But Medicare is an income transfer program that taxes workers to pay for care for 45 million people who are elderly or disabled.

While Medicare beneficiaries do pay premiums for their coverage, most of the program’s cost is borne by people under age 65, who themselves will qualify to become Medicare recipients once they reach age 65.

As policy analyst Juliette Cubanski of the Kaiser Family Foundation pointed out in a panel discussion sponsored by the Alliance for Health Reform, the Medicare population “tends to be sicker and have greater health needs than others. Over one third have three or more chronic conditions and 29 percent have a cognitive or mental impairment.”

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“The uncertainty regarding health care costs among those over age 65 is more a matter of ‘when’ than ‘if,’” said economist Arnold Kling in his book Crisis of Abundance: Rethinking How We Pay for Health Care.

People in Medicare often have a costly medical event or illness such as a stroke or cancer before they die. “If high expenditures on health care before death are nearly inevitable, then real insurance is not possible,” he argued.

But Van de Water said the differences between Medicare and traditional insurance models are less significant than the similarities of federal health spending and private-sector spending.

“Obviously Medicare is a social insurance program which has some similarities and some very important differences from other types of insurance,” Van de Water said. “But people often don’t recognize the similarities” between insurance for younger people and the insurance provided by Medicare.

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