Will ObamaCare Finally Cause American Seniors to Turn Against Government Health Care?

Most Americans are now aware of the disastrous rollout of ObamaCare health-insurance exchanges for privately insured people. However, this has sidelined discussion of the pain that ObamaCare is inflicting on Medicare beneficiaries.

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On November 16, The Wall Street Journal reported that UnitedHealth Group has dropped thousands of doctors in at least ten states from its Medicare Advantage networks. This is a consequence of the federal government’s cutting payments to Medicare Advantage plans ― by $156 billion over ten years ― to fund ObamaCare. Earlier this month, Evan Gahr of the Daily Caller wrote an article describing how plans nationwide are shrinking, and citing a report by consultants at Avalere which projected reduction in Medicare Advantage plans, especially in rural areas.

Traditional Medicare comes in three parts: Part A is the hospital benefit. It is funded by payroll deduction during beneficiaries’ working years. Unfortunately, because the number of working people is shrinking relative to the number of retirees, future payroll deductions will not fully fund hospitalization costs. Part B, which pays for outpatient physician costs is funded 25 percent by premiums deducted from seniors’ Social Security deposits, and three quarters by federal taxpayers. Part D, which pays for prescription drugs, is funded one eighth by premiums and seven eighths by taxpayers.

Unsurprisingly, Medicare is a fantastically popular program amongst the elderly ― just don’t remind them that they are devouring their children’s and grandchildren’s prosperity. This table, prepared by Pamela Villarreal and Devon Herrick of the National Center for Policy Analysis shows that Medicare’s future costs will be $43 trillion dollars more than the amount expected to be collected by the government to pay Medicare benefits.

Medicare Advantage is an option chosen by 27 percent of Medicare beneficiaries. Medicare Advantage bundles the hospital, physician, and prescription drug parts of Medicare together, and allows beneficiaries to have comprehensive health coverage from one health plan.

Medicare’s fiscal crisis is not a problem that Medicare Advantage solves. However, Medicare Advantage does address another problem. Traditional Medicare Parts A and B pays hospitals and doctors according to government-dictated fee schedules. The government’s experts decide what a service is worth.

William Hsiao, the economist who designed the Medicare Prospective Payment System, determined Medicare’s fees as follows: “He put together a large team that interviewed and surveyed thousands of physicians from almost two dozen specialties. They analyzed what was involved in everything from 45 minutes of psychotherapy for a patient with panic attacks to a hysterectomy for a woman with cervical cancer. They determined that the hysterectomy takes about twice as much time as the session of psychotherapy, 3.8 times as much mental effort, 4.47 times as much technical skill and physical effort, and 4.24 times as much risk. The total calculation: 4.99 times as much work. Eventually, Hsiao and his team arrived at a relative value for every single thing doctors do.” (Rick Mayes and Robert A. Berenson, Medicare Prospective Payment and the Shaping of U.S. Health Care, Baltimore: Johns Hopkins University Press, 2006, p. 86.)

Now, that’s what I call central planning! Because Medicare has not dominated the U.S. health system, and because one quarter of Medicare beneficiaries have been able to escape the price fixing, American seniors have not experienced denial of access to care. Surveys show adequate access ― for now.

However, ObamaCare has accelerated Medicare’s crisis. It is increasingly clear that Obamacare needs to be repealed and replace with alternative reforms. The opportunity to reform Medicare alongside it might be an added benefit.

Comments (23)

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  1. Trent says:

    “Traditional Medicare Parts A and B pays hospitals and doctors according to government-dictated fee schedules. The government’s experts decide what a service is worth.”

    I don’t see anything wrong with this, there has to be some sort of baseline or else the prices would just skyrocket uncontrollably

    • Lucas says:

      Someone has to set the standard

    • Tommy says:

      There needs to be an allowance for operating outside of the system. Fee-for-service restricts that privilege.

    • Patrick M says:

      You should read DH’s article on fee-for-service burdens on physician discretion.

    • John R. Graham says:

      Everything is wrong with this!

      It may be reasonable for the government to determine the price of aircraft carriers and fighter jets, but for the government to determine the price of physicians’ services consumed by seniors is absurd.

      (Please note that when I write “government” I am referring to a lengthy bureaucratic process that is mostly carried out by physicians delegated power by the government. For those who wish to read more, please Google “RUC” or “RVS UPdate Committee”.)

      Elsewhere, I proposed a mock Social Security reform whereby the government cancels seniors’ Social Security deposits and gives the money to the Secretary of Housing and Urban Development, Secretary of Agriculture, and Secretary of Transportation. These three officers then negotiate rents for seniors’ homes, prices for their groceries, and purchases of gasoline for their cars.

      The primary reason that Social Security is in relatively better shape than Medicare is that this does not occur. Instead, seniors get the money and decide how to spend it. That is what keeps costs down. (Please do not interpret this as support for pay-as-you-go Social Security. I only mean relative to Medicare.)

    • Chris Conover says:

      According to this logic, government should set prices for food since it pays for food stamps. What keeps prices down in normal markets is competition (look how prices for Lasik surgery plummeted even as quality rose over the past 2 decades). Anyone who thinks Medicare price controls are a good idea needs to read this account by someone with literally decades of experience in this area: http://www.american.com/archive/2010/october/confessions-of-a-price-controller

  2. Devon Herrick says:

    People will accept goods and services they deem inferior when the price is perceived as free. That partially explains why residents of Britain and Canada mostly support their respective health care systems despite the overt rationing. I’m afraid support for Medicare is similar, which makes reform all the more difficult.

  3. Connor says:

    “On November 16, The Wall Street Journal reported that UnitedHealth Group has dropped thousands of doctors in at least ten states from its Medicare Advantage networks.”

    So many broken promises. Those poor people’s families.

  4. Wally says:

    “Because Medicare has not dominated the U.S. health system, and because one quarter of Medicare beneficiaries have been able to escape the price fixing, American seniors have not experienced denial of access to care. Surveys show adequate access ― for now.”

    Wishful thinking would keep it this way, realistically there is about to be a mass denial sweep.

    • Trent says:

      Yeah, more people will be dropped in the coming months. At least the website isn’t crashing constantly

  5. Lucas says:

    “The co-pay for a three-month supply of one of his medications increases next year from $7.50 to $54.00.”

    This man will lose $648 a year, if he lives to 85, nearly $6500. On a restricted budget, seniors can’t afford to spend much more on anything.

    • Trent says:

      Imagine the amount of groceries he could have bought in that time period. Or even a vacation that he has waited his whole life to enjoy

    • John R. Graham says:

      I’m actually much less concerned with that than with the narrowing of the networks in an opaque way. Although I do believe there is evidence that low co-pays increase adherence to meds and can reduce overall health costs, I don’t think there is a general theory supporting this.

      Without knowing more about the meds in question and his condition, I can’t state whether this change will reduce appropriate adherence. (Actually, I would never state that, because I am neither a physician nor pharmacist.)

      Nevertheless, I don’t think that $54 per three months is very much: It divides to about 60 cents a day.

  6. perry says:

    This is the problem when benefits are controlled by an entity such as the government. It can tell you what you can and cannot get.

  7. Jimbino says:

    The pressure valve for seniors is the option of seeking good and cheap health care overseas, where it costs at least 2/3 less and sometimes 8/9 less.

    Those seniors who have retired to Costa Rica or Guadalajara, not to mention Thailand or New Zealand, aren’t getting Medicare benefits where they live anyway.

  8. Hoads says:

    The Socialists have been biding their time with Medicare (a program that was sold as self sustaining with only payroll deductions but now eats into more and more taxpayer dollars- but try telling seniors they are getting benefits they have not paid for). The Left has always pushed for a universal socialized healthcare system since at least FDR and the elderly were initially targeted as the sympathetic group with which to secure eventual public support for a socialized healthcare program. Medicare was always meant to be the foot in the door.

    Incrementalism is their m.o. and the Left is nothing but patient so even as CMS actuaries have been sounding the horn of the unsustainability of Medicare for the last 15-20 years, no real reforms that substantially bend the cost curve have been implemented because the socialists need to keep the biggest consumers of government healthcare happy and satisfied–costs be damned- until they can consume the entire healthcare system via single payer. Only then can the socialists drop the ax to rein in costs because to do so before would threaten public support for single payer.

    Once they achieve single payer, only the bureaucracy it engenders will matter. The inevitable race to the bottom that will ensue in medical care will be suppressed with glowing reports from the NIH, academia and media. Healthcare will then be another feather in their cap of growing government at the expense of the private sector in the Left’s march to social engineer their world.

    We can only hope that the calamity of Obamacare will shake some sense into the majority of people but I’m not optimistic.

  9. Dennis Byron says:

    This post — at a minimum — is an overly simplistic view of how Medicare works, shows very little knowledge concerning what seniors — see Note 1 — think of Medicare, provides a superficial view of the contribution those of us just now reaching Medicare have made to the trust funds, and overall provides a good example of why readers should trust neither left-wing propagandists in the Obama camp or right wing propagandists like this guy. This post shows how both left and right are willing to roll granny off the cliff for their own political ends.

    First, public Part C Medicare Advantage health plans do much more than “bundle” Parts A, B and D. They typically provide benefits available no where else in Medicare — see Note 2 — and at a minimum provide an annual out of pocket (OOP) spending limit (which is not the same as but basically the same as catastrophic coverage). Original (not traditional) Medicare has lifetime limits and does not provide an annual OOP maximum.

    Second, it is impossible to analyze what seniors think about Medicare if you only talk about Original Medicare. Over 97% of people with Original Medicare have a supplement that makes up for the bad benefits and high cost sharing of Original Medicare. Almost a third have Part C as noted. A little more than a third have private retiree insurance from a former employer. About 20% are on private personally purchased Medigap insurance with another almost 20% on Medicaid — see Note 3. When someone on Medicare is asked about Medicare, their answer (“unsurprisingly… popular”) covers whatever combination of the above they have, and are paying dearly for in retirement, not just Original Medicare.

    Finally, before claiming that seniors are stealing from their children, the author or his or her sources need to do age-cohort analysis. People who have turned 65 in the last few years and people who will be turning 65 in the next few years have fully funded their Medicare needs (and overfunded their Social Security) unless they live past 90. The government in 1965 made a conscious decision at the time to give the greatest generation a great deal. Now is the time for all you forty somethings to figure out what you’re going to do without stealing from us.

    NOTE 1: Around 15% of the people on Medicare are not seniors.
    NOTE 2: Alternatively to providing more benefits, some Part C plans provide exactly the same benefits as Original Medicare — plus the annual OOP limit — at no cost, even rebating all or some of the subscribers’ Part B premium.
    NOTE 3: Adds up to more than 100% because some have more than one supplement

    • John R. Graham says:

      The non-senior Medicare population, i.e., the disabled and those with renal failure, is another topic for another day.

      The most important function of Medicare Advantage is to escape the government price fixing. I am less excited about some of the extra benefits, e.g. free health-club memberships, because they suggest risk selection.

      The co-ordination of health services provided by Medicare Advantage plans is beneficial, but it’s not clear how free health-club memberships are. (No, I don’t believe that they keep seniors healthy who otherwise would be at home watching TV. They subsidize seniors who would have joined a health club anyway.)

      As for the notion that today’s seniors have “fully funded” your Social Security and Part A Medicare benefits, this is a fallacy that has been debunked innumerable times over many decades. Obviously, we need to take one more stab at it.

      Steurle & Quackenbush of the Urban Institute have shown that the senior retiring today will claim about three times more Medicare benefits than the present value of his Medicare payroll taxes. On the other hand, he or she overpaid Social Security payroll taxes by a little bit. Overall, total Social Security and Medicare will be about about 25 percent greater than the taxes collected. However, my post was only about Medicare, so the 3:1 ratio is relevant.

      However, the error goes deeper. It does not matter how much you paid in payroll taxes for Social Security or Medicare. The amount you paid to fund your own benefits is exactly the same as it is for every one else: “ZERO”.

      Not one penny of your payroll taxes went to fund your Social Security or Medicare. It all went to fund people who were already retired when you were working, and other parts of the U.S. government. (That is, it went to food stamps and aircraft carriers and whatever else the government buys with borrowed money).

      If the government had allowed you to put those payroll deductions into a personal account which you controlled, and could have invested in a diversified portfolio, there would be some validity in your claim, but that is not the case.