Moon Over Medicare

, Daniel Allen, Leave a comment

When the Social Security Act of 1965 was signed into law, Medicare was born, providing health insurance coverage to those 65 or older. To many, the program can be counted a success, despite the difficulties expected of a massive program dealing with the diverse health concerns of millions of weakening seniors. As the Obama administration draws up plans for a new health care system, experts in the field have taken the opportunity to offer some tips learned through Medicare that may help current health care reform efforts.

“While Medicare provides an example of a universal, public health insurance program, health care reform will likely take the form of a system offering the choice of multiple private—and perhaps a public—health insurance plans,” begins a report prepared by Marilyn Moon, vice president and director of the Health Program at the American Institutes for Research (AIR).

As the biggest health care undertaking to date, Medicare offers some important lessons, both positive and negative. One key point to remember in developing the next health care system is that “complexity undermines effectiveness.” The experts who develop President Obama’s proposed plan will understand the complexities of the health care system far better than the average beneficiary. They should be sure to simplify and condense the applicable information and ensure that each beneficiary knows what is expected of him or her, and what they can expect from their coverage in return.

Similarly, the ability of customers to access information must be improved. Too many beneficiaries are not receiving their full entitlement simply because they have not been told about it. Costumer service on the Medicare hotline is unhelpful, and each choice a health care recipient makes is accompanied by varying restrictions and benefits.

Another lesson of Medicare is that “management by politicians can create problems.” Moon writes, “Congress must find a reasonable balance between oversight and interference with Medicare, and for any universal system of reform that might be introduced.” It is hard to imagine a health care system not being heavily regulated by Congress, especially a plan as comprehensive and invasive as the one being conceived.

Marilyn Moon also writes that one thing we have learned from our experience with Medicare is that it is possible to have a universal coverage plan that allows “supplementation of the benefit package, giving individuals or their (former) employers the option to have more coverage, or ‘wrap around’ the basic benefits.”

However, when this occurs, it places a massive burden on the health care system, essentially requiring Medicare and the beneficiary to juggle two different sets of rules and procedures, making costs increase and effectiveness decrease. The obvious solution would seem to be allowing beneficiaries to choose a private health insurance program to handle his or her needs.

But Ms. Moon would prefer, rather than replacing moderate control with choice, to move it toward complete control. She writes, “Expanding coverage enough so that some beneficiaries could choose to forego supplemental coverage would improve upon the already successful program.”

Ms. Moon expanded her disapproval of health coverage choice throughout her report. In particular, she feels that the advantages of choice do not outweigh the inconveniences they represent in administration:

“The hope is that competition and choice can foster innovation and greater efficiency in care over time, reduce the role of government in health care, and minimize micromanagement from politicians. But these advantages must be weighed against the problems and challenges that choice can create, including undesirable types of competition such as risk selection and fraudulent claims, and higher administrative costs.”

That has been the hope of Medicare’s proponents for more than four decades. Those aspirations have been unfulfilled, like the health care needs of the elderly under Medicare.

“In 2005, for instance, the number of days in the hospital for Medicare patients dropped by 8 percent,” Professor Christopher T. Warden wrote in Accuracy in Academia’s forthcoming textbook, Voodoo Anyone? How to understand economics without really trying. “For all patients, the number of days in the hospital dropped less than 2 percent.”

“What this means is that Medicare patients were getting kicked out of hospitals at a faster rate than all patients put together.” The late Professor Warden covered health care in the 1990s as a Washington bureau reporter for Investor’s Business Daily.

Marilyn Moon may have also missed this, from the Medicare 2008 Trustee’s Report:

“As we reported last year, Medicare’s financial difficulties come sooner—and are more severe—than those confronting Social Security. While both programs face demographic challenges, rapidly growing health care costs also affect Medicare. Underlying health costs per enrollee are projected to rise faster than the wages per worker on which payroll taxes and Social Security benefits are based. As a result, while Medicare’s annual costs were 3.2 percent of GDP in 2007, or nearly three quarters of Social Security’s, they are projected to surpass Social Security expenditures in 2028 and reach 10.8 percent of GDP in 2082.”

Moreover, these are the government’s own predictions which have always been far rosier about the program’s future than reality warranted. “In 1967, the first year Medicare was fully in effect, spending was a little more than $3 billion,” Professor Warden noted. “And policymakers predicted that costs would reach $12 billion by 1990.

“It’s as if that six-pack of soda that cost $2 went up to $8. But you wouldn’t care. You weren’t paying for it.”

“As it happens, the Medicare system saw double-digit percentage increases in spending every year, but two, from 1966 to 1990. The actual cost of Medicare in 1990 was more than $98 billion.

Daniel Allen is an intern at the American Journalism Center, a training program run by Accuracy in Media and Accuracy in Academia.