Friday, August 30, 2013

Medicare at 48: Surviving And Still Innovating the Flagship Of American Economy And Jewel In The Crown Of The American Health System

by William Toby Jr., Health Care Consultant, William Toby Health Care Consulting Board Member, Adelphi University Center for Health Innovation Advisory Board

On July 30th, surprisingly Medicare reached its 48th birthday without any fanfare. Yet, it had much to celebrate. For it has transformed the dismal state of the elderly being   underinsured prior to 1965 and gave them health security and peace of mind. 

The world of 1965 was no bed of roses for the elderly. They were largely underinsured with an outrageously low coverage level of 53% and that coverage was limited to $10 a day. Thus, former President Lyndon Johnson enacted Medicare as an important addition to Social Security whose aim was to help prevent the elderly from becoming destitute after they could no longer work.

The inevitable medical expenses of old age were wiping out the life savings of those whose health insurance coverage ended with their retirement.  Together, Social Security and Medicare allowed those who worked all their lives and contributed to the country’s economy a more secure and dignified old age. In short, Medicare coverage transformed the lives of the elderly and is the main reason so many is in the middle class today.

Strikingly, of the 48 million Medicare beneficiaries, patient surveys show 83% of them are satisfied with their coverage and confident in their ability to get care, a figure private insurance cannot match.

It is little understood and appreciated that Medicare is the only stable payor in a fragile health care system dependent on third party payors. It pays every clean claim in 14-days versus 30-days for the private sector and it has the lowest administrative cost. In addition, per beneficiary spending has grown more slowly over time than private insurance premiums for comparable benefits.

Medicare’s impact on our economy is huge. Its annual expenditures of over $522 billion make it the flagship of the American economy representing 3.6 percent of our Gross Domestic Product and 16 percent of the Federal budget.
Many of the nation’s over 800,000 physicians depend on Medicare for their Part B income of over $21 billion. Our more than 5,000 hospitals receive over 28% of Medicare outlays and it finances more than one third of all hospital stays nationally.

The assurance of timely and adequate reimbursement for such a large proportion of their patients has allowed hospitals to borrow and invest in infrastructure, new technology and research and has helped enable important advances in medicine.

Our teaching hospitals depend on Medicare subsidies for graduate medical education and high technology services.  The subsidies alone for medical students have been estimated to exceed $70,000 per resident per year.

Looking back to 1965, much like the Affordable Care Act (ACA) today, Medicare at birth was met by dire predictions and given little chance of success by health planners, politicians, and the media. It was supposed to be a train wreck, given little chance of success. 

Medicare was opposed by the AMA, which called it socialized medicine. But President Johnson outsmarted opponents by adopting two guiding principles of government policy for Medicare implementation: (1) the public required more health services than the private market could provide; (2) the private sector was uniquely qualified to organize health services.

This compromise resulted in Medicare having to use the payment policies of the Aetna Insurance company’s Federal Plan and Blue Cross and Blue Shield based on “usual and customary” charges for non-institutional providers. Hospitals, Skilled Nursing facilities and Home Health Agencies were paid on the basis of reasonable cost.

Looking ahead, there are few challenges greater than improving Medicare for future generations.  Yet, it is important to meet those challenges in a way that do not sacrifice Medicare’s essential protections. Indeed, in this current polarized debate over the role of Medicare in deficit and debt reduction the crucial thing to remember is that Medicare  actually saves money compared to private insurance and that there are still policies Medicare can adopt that can save money in future years.

For example, a major goal of the new health care law (ACA) that receives too little notice in the media is “to sustain Medicare by reducing program expenditures.” Medicare now has the tools to link payments to the performance of health care providers and to test out new models for payment and service delivery.

Already, the cost controls in ACA are slowing expenditure growth and lowering health care costs. Since enactment the Affordable Care Act, health care spending has grown at the lowest rate in the 52 years since records have been kept. According to the Congressional Budget Office, spending on Medicare and Medicaid last year was five percent  lower than they predicted just two years before.

There’s a clear slowdown in health care spending. But we need to do more, and do it faster, to change the way Medicare pays for health care.  ACA reforms are a good start and should go forward since they represent new thinking on Medicare.

What I find worrisome about Medicare is that it is too oriented towards acute care when chronic illnesses represent 63 % of its spending. That figure is higher system-wide because we  are spending $2 trillion on health care and 75% of the costs and 7 out of 10 deaths are attributable to chronic diseases such asthma, diabetes, heart disease, and cancer.

The lack of care-coordination for chronic care sufferers results in high re-admission to hospitals. And they also end up in expensive hospital emergency rooms, which is the worst place for people with chronic conditions.

Yet, in Medicare today there is no system to manage chronic care cases, but health reform legislation like ACA and the Medicare Advantage program take Medicare in that direction.  Thus, for the near term, a focus on chronic conditions is the best policy approach for the future of the program.

From my point of view as a manager of Medicare for 31 years, Medicare at 48 is a great success because even in its present form it has delivered on its promise to provide health security for our elderly and disabled.

It is now up to us to make those policy decisions that will reform the program to protect it for future beneficiaries. 

Happy birthday, Medicare!

(William Toby Jr. is a former CMS Administrator who administered the Medicare and Medicaid programs.)