Just as in 1993, when the architects of health reform initially took Medicare for granted and then scrambled to address beneficiaries' concerns, Washington finds itself caught up in the fog of hysteria, misinformation, anxiety and downright dishonesty that so often afflicts Medicare politics.
By many measures, including beneficiary satisfaction, Medicare works substantially better than any other part of America's health insurance system, so reformers tend to take it for granted. After all, Americans 65 years old and over have essentially had universal coverage for more than 40 years. On the other hand, Medicare's projected future costs terrify budget wonks, and they don't have any good solutions. Further, Medicare beneficiaries vote at a much higher rate than other Americans, but many don't understand the program very well themselves. So the preconditions for a political meltdown are fully present.
In this context, it's important to start with a few basic truths. The most serious problem with Medicare—which no one wants to talk about—is that its benefits are inadequate. The much criticized "bronze" option in the Senate Finance Committee bill would cover 65 percent of a household's expected health care expenses. Medicare covers less than 60 percent of beneficiaries' health care costs, despite average incomes only half as great as those of the nonelderly. This problem is exacerbated by the accelerating disappearance of retiree health insurance, which filled much of the gap for as many as 40 percent of beneficiaries little more than a decade ago.
About 20 percent of Medicare beneficiaries do receive somewhat better benefits: The government pays Medicare Advantage plans 10 percent to 15 percent more than the fee-for-service benefit would cost, and the plans give a fraction of that supplement back to their enrollees. The House health reform bills would reallocate that money to improve the drug benefit for all beneficiaries, but hardly anyone outside the Beltway has even noticed.
Medicare's financing system, last modernized in the 1980s, fits neither contemporary nor future realities. So long as health care costs grow, on average, twice as fast as wages, a system whose income is tied to wages (through payroll and income taxes) and whose outlays are tied to health care costs will eventually run into trouble. Adding a drug benefit without any financing provisions only worsened the problem.
Of course, if health care costs keep growing twice as fast as wages, there is little hope for the U.S. healthcare system or the U.S. economy altogether. The bottom line is that there's no plausible scenario in which Medicare's current benefit package can be preserved—let alone improved—over time without new revenue. I know from personal experience that no one wants to talk about that.
Medicare can't control healthcare costs all by itself. Medicare can control its costs pretty effectively. We did that in the Balanced Budget Act by slicing prices. But if most of the rest of the health care system goes on its merry way, beneficiaries will experience access problems in at least some communities, insurers will scream about cost-shifting, and—most importantly—those providers and communities most dependent on Medicare patients, and most essential to their care, will face serious financial jeopardy. Whatever Medicare payment reductions are included in health reform, the long-term benefits to Medicare solvency will be minimal without serious cost containment in the private sector.
Medicare provides a uniform national benefit package in an extremely large, diverse and heterogeneous country. There are a lot more poor people in some communities than others, and—not surprisingly—more sick people in many of those communities as well. Wages are higher in some parts of the country than others. Electric power is cheaper in the Pacific Northwest and upstate New York than in the Midwest, but agricultural subsidies are a lot more important in those states than they are here in New York. New York, by the way, along with Washington appears to be a favorite target of our foreign enemies, but most of the military bases, and their associated spending, are in the South. So the fact that Medicare spends more, even on a per capita basis, in some communities than others should be recognized as just another artifact of the wonderful, diverse mosaic that is the United States of America.
The combination, however, of some inadequately careful researchers, a relentless publicity campaign, and the tendency of many members of Congress to define distributive justice as whatever formula yields the greatest revenue for their district has produced an astonishing level of confusion in Medicare discussions. There are wide variations in both Medicare costs and utilization from one place to another—with some correlation between the two, though not nearly so much as the Dartmouth folks would have you believe.
But people in different communities have different illnesses and levels of social support, and healthcare providers in different communities have different costs of doing business, and some have unionized workers. And that's all probably OK. But obsessing about it contributes absolutely nothing to making Medicare better, or cheaper, or more sustainable over time.
Sooner or later, we are going to have to fix Medicare. As an intellectual or conceptual exercise, that shouldn't be that hard to do (although fixing Social Security is even easier, by a long shot). But every other industrialized nation has long since figured out how to provide universal access to healthcare for less than 15 percent of the gross domestic product, and we seem unable to even do that. The root question is whether our political system is up to the challenge.
The views presented in this commentary are those of the author and should not be attributed to The Commonwealth Fund or its directors, officers, or staff.