My last post was the beginning of a
primer on Medicare. Medicare covers about 50 million older Americans for
general health care and covers about 75% of covered services or 50% of total
health care costs of these seniors. Medicare, as the largest single insurer,
sets the standard for reimbursement rates across all insurers. It tends to pay
slightly less than costs, leading hospitals and doctors to cost shift or charge
others a higher rate. Medicare costs are increasing at about 4% per year and
will reach $1 trillion by 2022, an unsustainable cost to the government (tax
payer).
There are multiple “parts” to
Medicare. Part A is principally for hospital care; Part B is for largely for
physician costs and Part D is the prescription drug benefit. Part C or Medicare
Advantage is a private insurer managed care alternative to Part A which
incorporates Part B and often Part D into one plan.
Each of us and our employer pays
1.45% (total of 2.9% combined or for a self-employed worker) of earned income
into the Medicare Trust Fund each year for Part A. Beginning in 2013, the tax is
3.8% on earned and unearned (i.e., salary or wages plus interest, dividends and
capital gains excluding interest on municipal bonds) income above $200,000 for
a single person and $250,000 for a married couple. The money paid in is not
invested and set aside for use when the individual reaches 65. Mostly it goes
to pay for the hospitalization costs of today’s
beneficiaries – it is a generation transfer tax. As the population continues to
age and continues to live longer, there will a relatively smaller working
population to pay the annual bills. It is estimated that the current 50 million
enrollees will expand to 80 million by 2030 and the ratio of workers to
enrollees will drop from 3.7/1 to 2.4 /1. So the combination of rising
healthcare costs, more beneficiaries living for longer times and a relative
shrinking of the taxable base means that the Trust Fund will ultimately become
insolvent.
Medicare enrollees tend to have
chronic illnesses; 85% have at least one and 50% have three or more. Aging
brings on chronic impairments (“old parts wear out”) such as impaired vision,
hearing, mobility, dentition, bone strength and cognition. Additionally,
enrollees also suffer from the chronic illnesses largely but not entirely the
result of life styles. These include obesity, hypertension, heart disease,
diabetes, chronic lung disease, cancer and many others. Chronic diseases are inherently difficult to
manage, will last a lifetime (some cancers excepted) and are expensive to
treat. Chronic illness results in over 70-85% of claims paid.
But these chronic illnesses consume
more than they need to for a few very clear reasons. First has been a lack of quality preventive
care and attention to wellness. Second has been the lack of careful care
coordination. These patients need a full multi-disciplinary team of providers
to assure complete care (e.g., the diabetic patient will need an
endocrinologist, nutritionist, exercise physiologist, podiatrist,
ophthalmologist and others over time). But any good team needs a quarterback
and the logical choice, the primary care physician, has been marginalized by
Medicare for years. The result is that PCPs only allot about 15 to 20 minutes
per patient visit (which translates into about 10-12 minutes of actual face
time) – not nearly enough time to deal with multiple chronic issues, multiple
prescriptions let alone take the time to call a specialist to explain the
rationale for a referral and seek a prompt appointment for the patient.
These are the basics of Medicare
and the major reasons for continuing cost escalations. The increasing costs
mean that it makes little sense to promise “Medicare as we know it” to persist
in its current state into the future. Change is mandatory. The question is not
whether there will be change but how to make changes in a manner that protects
the medical and the financial health of the beneficiaries both today and into
the future while keeping the benefits affordable. The Democrats and the
Republicans both agree that change is mandatory but they offer widely divergent
approaches to cost containment.
The next post will evaluate the
actual costs of Medicare for the average retired couple.
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