Medicare option, or Medicare for All?

Donald Trump: "Nobody knew health care could be so complicated."

Actually, almost everyone knew, especially practitioners in the health care delivery system.

Today we will hear from one.

Democratic presidential candidates know there is a problem. Americans pay more for health care than do people in other countries, have worse outcomes, and some people fall through the cracks and aren't served.

Candidates are jostling with each other about how to assure everyone has access to health care. "Medicare for All" is popular and easy to understand--until people are asked if they want to give up their current private insurance. Then it becomes unpopular. People happy with the status quo see change as a threat, not a benefit.

There is also the problem of costs and who will pay them. Taxes are visible and disliked, while health care costs imbedded in ones employment compensation are largely invisible. That creates a political hurdle. 

The health care industry is pushing back. Medicare patients and their payments to health care providers provide scale and cover most of the overhead, but are generally far less than adequate to cover the actual costs. Patients with employer-paid health insurance pay more and subsidize the Medicare and Medicaid patients. Hospitals don't want to lose that income.

And, of course, drug companies resist cost controls and health insurers resist being put out of business. They have billions of dollars to spend on lobbyists, on campaign contributions to legislators, and on political advertising.

William Rosenberg knows full well healthcare is complicated.  He is a healthcare advisor with a 40-year career in senior positions guiding public, private, and not-for-profit health systems. He was a Director at PricewaterhouseCoopers specializing in health care and employee benefit strategy, design, development and implementation. He was a college classmate who furthered his education at the University of Michigan’s School of Public Health. He is retired now, does a little consulting on the side.

He offers something too complex for a political speech, but the kind of information candidates and the people who advise them need to know. Voters, too.

Rosenberg

Guest Post by William Rosenberg

     "When all is said and done, I think "Medicare for All who Want it" is the way to go."

I spent about 40 years trying to help "manage" health care costs and failed completely (but was reasonably well rewarded nonetheless). I ran a Certificate
 Of Need (CON) program in Rhode Island, was an officer in a large group health insurance company, and consulted with insurers. There are some important facts that are often omitted from the discussions about CON and administrative costs.

On administrative costs: There is no question that Medicare administrative costs are lower than those for "private insurance," but comparing Medicare to "private insurance" is not apples to apples and there are factors that would cause the comparison to be skewed both ways, e.g.:

1. About 15% of the total Medicare population of 60 million are eligible due to disability, while most private plans are employment based, and therefore the disabled enrollment is small and the comparisons of cost are not directly comparable.

2. About 36% of the Medicare population are in Medicare Advantage plans, which are essentially private HMOs and, to a lesser extent, PPOs. The Medicare agency, CMS, contracts with them and typically pays more than the average per capita cost of traditional Medicare, and in some cases 15% more. A good chunk of this is administrative costs.

3. The amount CMS pays private Medicare Advantage plans can include bonuses of "high quality" or "efficiency" based on measures to which plans can manage, but which may not be valid.

4. "Traditional" Medicare, which has about 38 million enrollees, and the benefit plan design of Medicare allows beneficiaries to get care from any participating doctor or hospital, and almost all doctors and hospitals are participating providers in Medicare. Medicare Advantage plans, however, typically have a much more limited network of participating providers.

5. On the question of benefit plan design, Traditional Medicare is one plan with one set of rules. One of my clients, for whom I managed a large chunk of Affordable Care Act compliance, had over 50,000 different plan designees that they administered. The variability and complexity of private insurance plans not only frustrates and adds to the administrative costs of doctors and hospitals (at additional administrative expense), but also fragments the purchasing power of those plans. There are probably over 100,000 different private health insurance plans out there for 150 million employees with coverage, or 1,500 "lives" per plan, vs. the 36 million for Traditional Medicare. A typical hospital cannot survive without Medicare revenues (40-50% of their total revenue) but often can survive without a typical private insurer plan.  As a result, Medicare pays about 50% less than does private insurance.

Regarding the Certificate of Need, as a method for controlling costs:

As a reformed regulator, I am skeptical of Certificate Of Need's effectiveness for the following reasons:

1. The determination of what is "needed" is inherently political, and in only a few states is it connected to what is "affordable." Some states, like RI, MA, MD, had hospital budgeting processes and disputes would ensue over what was budgeted for and needed. Think of public utility regulation and ask yourself if that would do the job.

2. Regulations always have unintended consequences. In the early years of CON, hospitals seeking capital expansion approval would cite their lower than average length of stay in the hospital This was a response to assertions then that many patient days in the hospital were unnecessary. So the average length of state in US hospitals declined during the years (1974-1984) when CON was very active. Since the most expensive days in the hospital usually are the first few days (tests, surgeries, recovery rooms), the effect of shortening length of stay was to increase dramatically the average cost per day and to make room for more admissions. The result was an acceleration of total expenditures on hospitals.

3. Another unintended consequence of CON, helped by safer anesthesia, was the growth of stand-alone ambulatory surgery and imaging centers owned by physicians. Then unregulated, they took the "easy" patients away from hospitals and left the high fixed costs of 24/7 hospital coverage, with fewer patients over which to amortize the cost of high cost equipment, e.g. the MRI machine.

My conclusion: when all is said and done, I think "Medicare for All who Want it" is the way to go.  

The 150 million people in private insurance are used to having plan option choices and, with its price and administrative cost advantages, Medicare should be an attractive option that the 150 million will select over time. Simultaneously, Medicare can continue to work on better ways to control costs, while providing broad access and reasonable quality.

One way to mitigate the effect of transition to Medicare price levels would be to calibrate the new populations' provider payment rates as a percentage of Medicare, based on market share.  I'm assuming that most Americans would accept the idea that "volume discounts" are as American as apple pie, so, the "New" Medicare enrollees' rates might not reach parity with Medicare rates until their proportion of the market is equal to that of the Traditional Medicare enrollees. If this were based on revenues, the market share based on head count would have to be much higher than the Medicare percentage of population, because Medicare enrollees account for a much higher amount of revenues per enrollee.

Something could be negotiated.