Medicare For All…
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I heard this idea promoted at a luncheon I was at last week — that the best way to fix health care in the U.S. would be to move to a “Medicare For All” system. Needless to say, I find this odd — since I think many of the things people hate most about our existing system — too procedure driven, doesn’t support primary care and prevention, favors technology over face-to-face interaction, doesn’t support multi-disciplinary approaches to care delivery, etc. — derive from the rules of the game set up and enforced by…Medicare!!! Yikes!
But aside from that, the two things I always hear about why it’s a good idea are — Medicare has lower Administrative costs than private health plans and they’re a ”better” payer than the private plans. Hmmm…Let’s take the first one. What I’ve heard before is that Medicare only spends 4% of its money on a per beneficiary basis on administration, while the plans spend 14% per member on administration — a big difference. This is interesting, but misleading. Medicare beneficiaries are over the age of 65. They spend almost three times as much money on health care as a typical private plan member — most of whom are under the age of 65. If the Medicare member typically spends $800 per month on health care, and 4% of that is spent on administration, that’s $32 a month on administration. If the private health plan member typically spends $300 per month on health care, and 14% of that is spent on administration, that’s $42 a month — a much smaller difference. But we’re not done yet. Medicare is part of the federal government, so its capital costs (buildings, IT, etc.) and benefit costs (health insurance for its employees and retirees (!), pension benefits, etc.) are funded somewhere else in the federal budget, not in the Medicare administrative budget. Private plans have to pay for these items themselves. That’s worth about $5-6 per member per month, and needs to come out of the health plan number for a fair comparison. Now we’re almost even. And finally, Medicare doesn’t actually process and pay claims for all of its beneficiaries. It contracts with health plans around the country to do much of this for them. That’s not in their administrative number, either — and it is, needless to say, in the private health plan number.
People push and pull these numbers all the time, and there may be “some” difference between Medicare and the private health plans on administrative spending as a percent of total spending. But it’s not huge, if you try to compare apples to apples.
On the payment issue, the numbers I’ve seen suggest that nationwide, private plans — on average — pay somewhere between 120 and 125 percent of what Medicare pays for hospital and physician services. In other words, private plans pay MORE than Medicare pays, not less! If people want Medicare For All, they need to be prepared to either dramatically raise Medicare rates and payment — and therefore, Medicare costs — by a lot of money — 20 to 25% by this estimate — or kick the bejeebers out of the physician and hospital communities and make them eat the difference.
Medicare For All is not as simple as it seems.
I agree that Medicare for All would not be a good approach for the reasons you state.
However, I would be interested in your assessment of how hospitals might react if they had to accept Medicare rates from all comers and how and to what extent the quality of care might be affected. At Paul Levy’s BIDMC, for example, he says that Medicare currently accounts for about 30% of revenue while their profit margin is 3% of revenue. The Kaiser Family Foundation has estimated that, on a nationwide basis, uncompensated care drives up hospital prices by about 6% from what they would otherwise be. If BIDMC has a comparable uncompensated care cost and receives 125% of Medicare rates from its non-Medicare patients (except Medicaid which pays even less than Medicare), it seems to imply that revenues would fall by 8%-9% if Medicare were the universal single payer. With everything else equal, the hospital would go from a 3% profit margin to a 5%-6% loss margin. What happens then?
If most other hospitals were in the same boat, more or less, would they stop trying to be all things to all people? Would they discontinue services where volume is inadequate? Would they downsize, merge, shrink staffing ratios? I know in NYC, there is considerable excess hospital capacity, but it is very difficult politically to get rid of it. On the other hand, there are a considerable number of hospitals with profit margins in the double digit range which could, at least in theory, absorb the revenue hit that Medicare for All would create.
I would like to have a better understanding of what steps the hospital sector could take to reduce its costs if it had to and/or just how patient care would be adversely affected if the next Congress and a newly elected President attempt to push through a Medicare for All reform bill.
I am baffled by your numbers… I am a 55-yr-old in very good health, buying cheap minimal coverage, and paying over $5,000/yr — why are you using example numbers an order of magnitude less than that?
Great explanation of the smoke and mirrors behind the “lower admin costs and better payment” of Medicare for all argument. Thanks for this!
Having worked on Medicare issues and legislation for many years, I completely agree with your assessment - but for a different reason. As a government system, Medicare can only change how it pays for a service or product by going through lengthy procedures. These procedures are necessary as part of our government’s principles of transparency and public involvement. However, they makes it very unresponsive to innovations in medical care. Some might propose permitting Medicare to operate without going through these procedures, but that would be a very bad idea - public programs should be required to get the public’s input and be held accountable to the public.
I am a Baldrige Examiner in the state of Missouri where the SSM Health System was honored with the first Health Care Sector Malcolm Baldrige National Quality Award in 1999. This system has hospitals and physician practices in several states. Baldrige applications for the health care sector has increased well over 300% since the sector was created.
As an Examiner, I have had the pleasure of reviewing some of these organizations and the most exciting trend that I have encountered is the incoporation of Lean Six Sigma methodologies (from the Manufacturing Industry) into hospital operations. Lean is designed to increase speed in a process. Six Sigma is designed to reduce defects/errors. This improves profit margins and outcomes.
As a whole, the health care system is cumbersome, disparate and inefficient. It would be helpful if we, the health care executives, would implement best practices.
The auto industry and the Malcolm Baldrige National Quality Award Health Care Sector honorees would be a good place to start looking.
So in an alternate universe, where every American is covered by Medicare, what role do the private insurers play? They could not realistically be expected to accept a diminished or disappearing role, or a reconfiguring to have them act as contracted Medicare administrators. I would guess that a large market would develop for ‘supplemental’ health insurance in this reality. Of course, what would stop the wealthier among us, then, from purchasing these policies and making available to themselves healthcare not available to those ‘only’ covered through the universal Medicare plan? What would stop these policies from offering enhanced coverage (at a price, of course) of Medicare-covered services, and marketing them as to make them attractive to a consumer the same way brand name medications market themselves against generics? Finally, what would stop these policies from reimbursing at a higher rate than Medicare, making them more attractive to hospitals and other providers? This is beginning to sound familiar… We would be talking about a whole lot of regulation here, and would anyone really benefit from that?
And Barry, I think that any President or sitting Congress would have a very difficult time passing any universal healthcare bill that did not first meet the basic criteria of saving middle class citizens money up front. More and more, as healthcare develops into a retail, consumer driven market, it will be difficult to convince people to ‘invest’ in their healthcare. Currently, that seems to be all that’s on the table when it comes to Universal Medicare.
Health Seeker - our average cost for coverage - across our entire block of under 65 business - is about $3,600-$4,000 per person per year - or about $300-$350 per person per month. Now remember, the average age of our under 65 coverage is about 40 - which is quite a bit younger than you - and the rates move up pretty quickly once you cross the age of 40 - because people use a lot more health care when they’re over 40 than they do when they’re under 40. The average expense for the over 65 population is more like $9,500 to $10,000 - or almost twice what you’re paying for your premium. Again, this is an average expense across our entire Medicare population, using an average Medicare plan design, which should be more expensive than your plan costs. Unless I’m missing something, this sounds about right to me.
Great blog. People throw around numbers and percentages to back there point of view. I enjoy having the numbers put into perspective.
Charlie - Thanks for the explanation of Medicare’s administrative costs that is so frequently used to promote the Medicare for All agenda. I saw yesterday that Medicare is proposing a 10% fee reduction for physicians in 2008. I realize proposed Medicare fee cuts have been reversed by Congress in prior years but this goes to show a huge problem with Medicare if they run over budget. To fix their cost structure they can either raise taxes (or Medicare premiums), limit services or cut provider reimbursements. That’s really about all they can do and if you were covering every American under Medicare this problem could become enormous. Sure we have problems here in the US but I think there has to be a free market solution driven by the type of cost and quality transparency that you so often talk about. Further, I agree with Michael Porter that hospitals should not be all things to all patients and should innovate and specialize in specific areas to help them compete in this brutal market. Maybe have a core group of services offered to a community and a specific specialty on top of this to supplement their volume and revenue. The tertiary facilities should be doing the high end care and not the everday normal deliveries and basic medical and surgical cases that get reimbursed at two to three times the level of a community hospital delivering the same care. I still think you need to offer a product that limits patients to community hospital IPAs if the care is available there (and hold the line on people going out of the community IPA by not paying unless pre-authorized for care not available locally)…. the premium drop of such a plan would really go a long way to show members how expensive the downtown facilites are and how they drive up the premium cost to every member of the plan.
One thing I’m not seeing in this discussion on Medicare that’s of concern to me — I live in the Memphis area where we have some of the best medical facilities in the nation. Yet physicians around here are increasingly refusing to accept Medicare patients. Clearly this says something about Medicare vs private insurers. The problem I see is that while we may not want a “Medicare for All” stystem, eventually we all become Medicare patients — that’s the system we live in. If we can’t see physicians then we are doomed to sub-standard medical care, even though as working citizens we have all paid or dues for this, or so we thought.
[...] a little late, but Charlie Baker’s 6/26/07 posting on “Medicare For All” is must-reading and worthy of discussion. Like many folks, we have [...]
sg & Carl both focus on a point that’s not as well understood as the one about administrative expense - namely, that Medicare’s decisions about payment affect provider participation in the program, and health care spending overall. Medicare used to be the “standard” for provider rates of payment, but as the cost crunch has come to Medicare, its willingness to fund the cost of care provided to its beneficiaries has deterioriated. As a result, it pays less and less of the full cost of care provided to its beneficiaries, fewer providers are participating in the program (although the vast majority of providers still do), and private payors are picking up the slack - paying rates far in excess of 100% of Medicare to keep their provider partners financially viable.
Charlie I thing your posting is misleading. When discussing administrative costs you note that Medicare spends almost three times as much money on health care as a typical private plan. But what you don’t say is that Medicare also has more activity and more administrative work. Unless you are arguing that private plans have more activity per member than Medicare, or the same for that matter. If you could provide the activity the Harvard does per member can compare that with activity per Medicare member then we can make a adequate determination of administrative costs. I think we all understand that is the reason why percentage of administrative costs are the more accurate figures and why, this posting on the other hand has significant issues. I look forward to any details that you could provide everyone since you put it up for discussion.