The Coming Medicare Crash

The golden rule of healthcare first pronounced by economist William Kissick says that, "No nation can afford or provide all the healthcare that its population wants." Yet Medicare is a system that allowed the public to think this rule did not exist.

Most of the current discussion of healthcare reform does not attempt to explain the growth in health care costs nor the reason American health care is so expensive. In reality, Medicare is a key reason for both. Medicare, our version of the single payer plan, was developed to be both politically acceptable (it really wasn’t) and to be a mechanism for protecting the elderly from health care catastrophe. Within a few years, it cost several fold more than Congress was told or that Congress and LBJ intended. This occurred because of the golden rule of healthcare first pronounced by a noted health care economist, William Kissick and paraphrased as, "No nation can afford or provide all the healthcare that its population wants." Yet Medicare is a system that allowed the people to think this rule did not exist. First, Medicare is an insurance plan that is running out of subscribers. Ten years ago there were 5 workers below 65 years for every person over 65 years using Medicare. In 10 years there will be 2 young workers for every Medicare recipient. This is not fixable unless we annex a country with young and skilled workers. Anyone who thinks that a reduction in benefits can be avoided is himself avoiding reality- unless Medicare changes dramatically. Second, the way Medicare goes, so goes the whole healthcare world. Pretty much all the private insurance plans more or less use Medicare billing rules as their billing rules. When President Obama sympathized with the AMA about the morass of paperwork that physicians deal with, he was really criticizing Medicare as much as Aetna, Cigna or anyone else. Every service a doctor provides a Medicare patient has a code- there are thousands and thousands of codes. There is an industry out there that teaches physicians and hospitals how to code and how the code changes every year. Third, Medicare pays physicians a separate fee for each service, test, exam, or visit performed. The more that is done, the more that is paid. On the other hand, Medicare pays hospitals a fixed payment for each admission based on the particular diagnosis that the patient is given and on other components of a complex formula. The hospital makes more if it does less or does it more quickly while the doctor makes more if he/she does more or cares for the patient more slowly. Isn’t that all ridiculous? How can any efficiencies be achieved in that system? Why was it designed that way? Politics. Here is an example of the defect of our national plan: Medicare released a report on hospital readmissions 30 days after an admission for heart failure. Hospitals that fell below the mean were labeled as having lower quality. Perhaps – but to keep patients out of the hospital with a chronic illness requires home visits and other monitoring, and hospitals are paid when patients are readmitted and are not reimbursed for home visits or home monitoring. So get the picture: You are a lower quality hospital but you made more money on the heart failure patients if you had a more frequent readmission rate. With a more localized system, experiments could be created where hospitals were actually paid to keep patients out instead of in. You cannot conduct that sort of experiment on a national scale. We cannot achieve any real efficiencies with this approach to payment. It is not that hospitals are negligent or greedy- they are trying to survive like every other enterprise in America. It is not that physicians are not interested in the best for their patients- it is just that they are mostly overwhelmed with patients and react to incentives like most humans- there is no real incentive for high efficiency. Electronic medical records cannot cure this mess. They will only help track it. Getting rid of private insurance companies will not cure it either. They pretty much do what Medicare does, although they can exclude individuals with potentially high cost conditions and create plans that may be as confusing to some as a subprime third mortgage. The latter problems should be fixed. In fact, because private insurance companies actually have an incentive to be efficient, they have instituted local plans to manage chronic illnesses as outpatients with nurse supervision. We need to reform healthcare and it really should start with a reform of Medicare. Currently we are engaged in a grand discussion about health insurance as if that were actually health care. It is as if we had cars losing their wheels at 80 miles per hour and the national discussion were about how to fix auto insurance to care for the injured instead of how to fix the damn wheels. Restricting how much money is spent on health care (the basic approach to controlling costs in the currently discussed plans) as opposed to fixing a dysfunctional system will produce the worst of all worlds- an underfunded dysfunctional system.