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April 24, 2007
Health Care Will Eat Us
Kash Monsori summarizes the pictures of Medicare and Social Security painted by the just-released Trustees' Report:
The SS program will only be able to cover about three-fourths of its expenses by the year 2041; the Medicare program will reach almost the same point in 2019. Fixing the SS shortfall would require a 16 percent increase in payroll taxes; fixing the Medicare shortfall would require a 122 percent increase in payroll taxes.
We could fix Social Security with our eyes closed. Hell, if the trends remain relatively favorable, we won't need to do anything at all. Since I'm in a chart mood lately, the following graph comes from a presentation by Brookings' health care expert Henry Aaron. Notice how gradual Social Security's slope of growth is as compared to Medicare and Medicaid:
But you never hear about conservative plans to reform Medicare. And the reason is that they don't quite knows what to do. Meanwhile, Medicare is just another way of saying "health care," as the exact problems that bedevil our public insurance afflict our private insurance, we just don't issue yearly reports on their effects. This is why liberals tend to focus on systemwide reform; unless you get costs down across the board, were in serious trouble. The following comes from EPI's Jared Bernstein, and it shows what happens to per capita shares of GDP of the next few decades. The yellow line is what happens when you subtract health costs from GDP:
That line going down? That's your income. Cost growth in the private sector is, depending on which data you believe, precisely what it is in the public sector or a little bit higher. Unless we get the whole system under control, we're all going to be hurting.
April 24, 2007 in Health Care | Permalink
Comments
You all know Atrios, for sure. A real, actual, economist in a former life. Yesterday, he deals with the Social Security Shortfall, in his typical fashion:
"Fixing" Social Security
In the summary overview we have this: [quoted]
Social Security could be brought into actuarial balance over the next 75 years in various ways, including an immediate increase of 16 percent in payroll tax revenues or an immediate reduction in benefits of 13 percent or some combination of the two.
...
[the Eschaton analysis]
Roughly, this would require increasing both the employee and employer share of the tax from 6.2% to 7.05% (there might be some employment/wage impacts of such a change so this is a rough take).
A small price to pay to ensure Robert Samuelson never writes another column.
[/Atrian analysis]
The GOP solution to Medicaid is simple: cut funds and eliminate eligibles each budget cycle. Works everytime.
Medicare will be solved by similar conservative rigor (Harry Potter magic).
My thought, based on deep analysis by mighty GOP thinkers, on the Medicare solution: legislated mercy killing of anyone who lives beyond the average age of death[LOL] - since all the major cost drivers are for those in the last six months of life, each year the solution would lop off enough folks to bring the average down, producing a declining cost of healthcare for generations to come. With this plan we could even reduce the age of retirement and give everyone one year to live post-retirement.
Posted by: JimPortlandOR | Apr 24, 2007 11:32:41 AM
Now that second one is a VERY interesting chart. Suddenly I begin to understand the Klein obsession with healthcare even better... Is there a Bernstein article to go with the chart?
Posted by: JohnTh | Apr 24, 2007 12:07:19 PM
Ezra and other single-payer advocates,
How, then, is a "Medicare-for-all"-type solution the asnwer?
Posted by: Wisewon | Apr 24, 2007 12:38:17 PM
I don't see how this is possible.
In 2050, medical care for retirees is supposed to cost 11% of GDP. For simplicity, let's say that this is $11 trillion out of a $100 trillion economy.
At 2050, suppose that there are two workers for each retiree. Using the same cost per person, the medical costs for workers is another $22 trillion.
Cumulatively, that's $33 trillion, or 33% of the economy. Adding another 5% for medicare means that almost 40% of the economy is devoted to medical expenses.
That's very hard to believe. The projections appear to be based on the assumption that current trends will continue indefinitely. While the results are useful as an impetus for taking action, it's hard to imagine that this outcome will actually occur.
Posted by: FS | Apr 24, 2007 1:49:42 PM
On the one hand, current trends will not last forever, but on the other hand, if we do nothing then they just might.
Posted by: American Citizen | Apr 24, 2007 2:53:55 PM
To respond to Wisewon: the idea behind "Medicare-for-all" is a single-payer system. Single-payer has 3 huge benefits over our current system: 1) No money is siphoned off for profits; 2) administrative costs are much, much less, and 3) the system can bargain down the costs of drugs and procedures, as the VA does successfully, but Medicare is currently forbidden to do. I hope that answers your question.
Posted by: beckya57 | Apr 24, 2007 3:20:12 PM
Well, yes, these graphs assume current trends lasting. This won't happen if we change the trends. And hopefully, if more people see and understand the graph, we will...
Posted by: Ezra | Apr 24, 2007 6:03:59 PM
beckya57,
I understand the premise of "Medicare-for-all"-- my question was in the context of Ezra's post. If the Medicare system is on a unsustainable cost spiral upwards, how is that a good model to expand to the rest of the system?
FYI-- Before touting the VA drug cost savings as the savior to my question (not mentioning that it severly limits choice, as recent data suggests the Veterans are participating in the Medicare part D for better coverage)- please look at the drivers of cost growth. Prescription drug spending is the third or fourth largest driver of health care cost growth, behind physician services, hospital services and depending on the year analyzed a fourth category called "other."
My point is, at the end of the day, Medicare has not and does not do a good job controlling growth in health care spend. Given that this is the toughest challenge of the health care system, "Medicare-for-all" is a poot solution.
Posted by: wisewon | Apr 24, 2007 8:35:22 PM
Ezra, I haven't read the Trustees' report yet, but is the 122% increase in total payroll taxes or in the 2.9% that goes to the Hospital Insurance trust fund? That would increase payroll taxes by 3.5 percentage points of wages. The necessary payroll increase on the 12.4% that goes to social security would be 2 percentage points of wages. I'm not in favour of raising payroll taxes at all to cover shortfalls, but I'm curious how big the difference in terms of the effect on wages to solve the "crisis" is between the programs.
I should look it up myself...
Posted by: Laura | Apr 24, 2007 9:52:12 PM
If the Medicare system is on a unsustainable cost spiral upwards, how is that a good model to expand to the rest of the system?
Because the rest of the system is already spiraling upwards even faster for completely different, more tractable reasons. Medicare is out of control for demographic reasons (it treats the oldest of us and we're all getting older). Private insurance for younger people is out of control because it's just so damned inefficient. At worst, Medicare for all wouldn't make the cost problem worse and would solve a lot of other problems. (It would make the *Medicare* cost problem worse but not the overall health cost problem).
That's not to say that further reform isn't needed of Medicare, but it would still be a step in the right direction.
Posted by: Consumatopia | Apr 25, 2007 12:44:22 PM
It won't eat us, the report also mentions that since this is the second consecutive Trustees' report to issue a Medicare funding warning the President must propose a plan for fixing the Medicare Funding warning. It will be acted on by Congress on an 'expedited basis'. It is likely no big deal with a Dem controlled congress, but it provides a mechanism to force through Medicare changes in the future.
http://mydd.com/story/2007/4/24/16586/7544
Posted by: crack | Apr 25, 2007 12:51:50 PM
This business about Medicare costs being out of control is infuriating. Medicare costs have risen far more slowly than private health insurance costs. So the answer is to leave it private?
Furthermore, obviously a huge percentage of Medicare is tied to private costs. When private provider costs go up, Medicare costs are going to go up.
Healthcare costs are rising in all industrialized countries. However, the rate of U.S. healthcare cost increases leaves those other guys in the dust.
An old book, As Sick as It Gets, by Rudolph Mueller, MD, has a chart on why healthcare costs more in the U.S. that keeps coming back to me. These are old numbers, but they summarize excess U.S. costs like this:
High pharmaceutical marketing expenses: $10.9 billion
Higher prices for prescription meds: $13.7 b
Higher incomes for U.S. physicians: $53.4 b
Excessive costs of insurance by multi-payers: $43.9 b
Excess administration costs for providers: $46.5 b
Cost of U.S. level of high-tech equipment: $20.9 b
Cost of malpractice & defensive medicine: $31.9 b
More research per capita: $22.6 b
Adjustment for reporting difference: $20.6 b
It adds up to $264.4 billion — and yet Mueller writes that the difference that year between what U.S. costs actually were and what it should have been if we matched the OECD comparative countries was actually $428 billion. That leaves $163.6 billion unaccounted for.
"This gap of over $160 billion in excess costs related to the comparison nations outside the predictors is the huge cost of caring for numerous sick Americans whose illnesses would have been prevented in the comparison nations under their universal healthcare systems."
Medicare for all would save us money and heartache. Not all those "numerous sick" Americans survive. And those who do aren't always capable of working to the same level they had been before their illness. If you believe in people working and pulling their own weight and caring for their families, you believe in single-payer, universal healthcare.
For a far more detailed analysis on costs, try the McKinsey Report that came out earlier this year. There's also the "Conservative Case for Universal Access to Healthcare" by Paul T. Menzel and Donald W. Light, which came out in 2006 from the Hastings Center.
Posted by: Kristen Hannum | Apr 25, 2007 1:32:29 PM
The Social Security solution is easy: raise the retirement age! It is simply untenable to have a system where there are only 2 workers paying into the system for every retiree drawing benefits. That's what we're heading for if we don't adjust the retirement age.
If we don't change the retirement age, the ratio of "Covered workers per OASDI beneficiary" is projected to drop from its current level of 3.3 down to 2.0 by the year 2050. (see http://www.ssa.gov/OACT/TR/TR07/IV_LRest.html#wp295447 ) And then it drops to 1.9 by 2070.
It seems like common sense to raise the retirement age proportionately to keep pace with increases in longevity. Imagine there was a medical breakthough that raised life expectancy to 130 years. Would you really expect retirees to collect benefits for 65 years, MOST of their adult lives? Of course not.
Posted by: Will | Apr 25, 2007 4:02:43 PM
Laura you got it right on the button. The quote from the summary:
"Medicare's HI Trust Fund now has a projected 75-year actuaraila deficit equal to 3.55% of payroll compared with last year's estimate of 3.51%"
The more mathematical among us might want to calculate the Cost of Inactivity here. If we had 'fixed' Medicare Part A last year by raising payroll tax the person earning $50,000 would be out of pocket $1755. By doing nothing we ended up increasing that bite going forward to $1775. Which means for anyone less than 88.75 years from retirement Nothing was mathematically the correct plan. Whether you spent the money or invested it, the utility of ignoring Medicare was higher than that of addressing it.
The reality is that Social Security and Medicare have been getting worse at a whole lot slower rate than the models suggest. Depletion dates keep getting pushed back. In 1992 the HI Trust Fund was projected to go to depletion in 1999. Today it is projected to go to depletion in 2020. A seven year crisis gradually morphed into a 13 year crisis. Which is to say take these medium term and long term estimates with a couple extra grains of salt.
I know it looks funny but the math checks out. To those people who tell you we just got to do something anything ask them 'Why?' The price of doing Nothing was $1755 left in the pocket of the median income family and a $20 payment due. Nice return on that $20.
The numbers are even more stark on Social Security. The payroll gap actually dropped from 2.02 to 1.95. The Cost of Inactivity here left the $50000 earner with an extra $1010 from last year and only facing a potential liability of $975 going forward. The total Cost of Inactivity? Well counting the $35 they wouldn't have to take out of your check this year Nothing saved you $1055.
This is not to say that we can ignore the challenges medical care is going to pose overall. but the problem is not in the financing of Medicare, at least not yet, the focus needs to be on the ultimate cost of care overall.
Posted by: Bruce Webb | Apr 25, 2007 5:10:49 PM
Furthermore, obviously a huge percentage of Medicare is tied to private costs. When private provider costs go up, Medicare costs are going to go up."
Thats absolutely wrong. Medicare/Medicaid controls almost 50% of all healthcare dollars spent in the USA. No private insurance entity controls anywhere near that (BC/BS covers about 15%, they are teh biggest private player).
Private insurers base costs on what Medicare pays for healthcare, not vice versa. Without Medicare, private insurance costs would have gone up by a lot more.
Medicare is weighing down on private insurance costs. INdividual private insurers are piss ants compared to the behemoth of Medicare.
Posted by: joe blow | Apr 25, 2007 9:00:14 PM
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Posted by: judy | Sep 28, 2007 4:26:22 AM
Just to clarify the issue here: Government AND private health insurance costs are both being driven higher by the same thing, namely the rising cost of health care(which includes both growth of utilization [getting more of it] and inflation of prices [paying more for the same thing]). Who's picking up the tab for any specific instance of care is immaterial: if the health care's being provided, it's going to be paid for eventually. If you want to keep the governent, and the economy for that matter, from drowning in high health care costs, you've got to reduce the growth of utilization and/or price inflation.
Given that we have so many uninsured & underinsured, and an aging population, and medical science is continuing to both discover and cure new ailments every day, it's a very long-term proposition to get to the point where utilization on net will go anywhere but up. That means tackling price inflation. Doing that, without imposing price controls, means structuring the market so that the buyers have more power than the sellers. The theory is that single payer creates that structure (unless and until the providers amass their own market power to push back on the single payer), and you end up with lower price inflation. It isn't guaranteed to work (although the track record is infinitely better than our own radically decentralized model), and there are trade-offs & negative externalities (as well as positive ones). But that's pretty much the argument for single payer (IMHO).
Also: To say that 'government' health programs account for 50% of all spending is not to say that government as a payer enjoys anything like monopsony market power. That's because the programs are disaggregated and uncoordinated (Medicaid is 50 different programs, the VA health care system is separate from the military & civilian government retriee programs, etc.). You could actually make a pretty good case for containing health care spending simply combining all of the government health programs and imposing a standard payment schedule across all of them, without going to single-payer; in fact in a lotf ways, that's what the Edwards plan would do. Anyway, at least today, 'government' is as much a grab-bag of disaggregated programs as 'private' is.
Posted by: TW | Oct 12, 2007 4:36:32 PM
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