Health Reform by Phased Medicare Inclusion

by Eric W. Fonkalsrud and Michael D. Intriligator Dr. Eric W. Fonkalsrud is the former Chief of Pediatric Surgery at UCLA and the author of 448 publications in scientific journals, 120 book chapters, and 5 books.

Michael D. Intriligator is a Professor of Economics, Political Science and Public Policy at UCLA and a Senior Fellow at the Milken Institute.

President Obama and his administration have correctly emphasized that exploding costs, limited access, and uneven quality of basic medical care in the United States are all unacceptable. These problems are top priorities for early correction, calling for an overhaul of the U.S. health care system, not just a shifting of who pays for the escalating costs. The cost of health care in the U.S. is almost twice that of any other industrialized country, yet the overall care is ranked lower than most of them. In 2004, the annual per capita spending for health care was less than $3000 in all other industrialized countries whereas it was over $6000 in the U.S., according to a Commonwealth Fund 2006 study. Despite this disparity in funding, the World Health Organization ranks the U.S. as 72nd in the world in terms of health system attainment and performance; and 37th in the world in health care system efficiency.

Health care has been consuming approximately 17% of the U.S. GDP, and it may currently be even higher since the GDP has decreased by more than 8% during the current recession. Health care cost $2.24 trillion in 2007 and $2.38 trillion in 2008, according to HHS data. Current legislation being seriously considered for the congressional health reform package could add another $1 trillion dollars in spending over the next 10 years.

Almost one sixth of the U.S. population is without health insurance, and this figure will rise further with increasing numbers of workers being laid off and losing their employer-based health insurance. A similar number are uninsured with the burden for health care being placed increasingly on county, city, and charity hospitals, and emergency rooms, These facilities are already overcrowded, understaffed, and greatly under-financed; and because support has been shifted from federal and state budgets to local communities, many are in or near bankruptcy. Market forces in the U.S. over the past two decades have not restrained the downward spiral of health care delivery to Americans nor the exponential upward trajectory of medical costs.

Recently deceased Senator Edward M. Kennedy has stated that, "every American should have decent, quality health care as a fundamental right and not just a privilege." President Obama has recently indicated that any bill that he signs must protect consumers from insurance abuses and provide affordable choices to the uninsured while not adding to the federal deficit.

In our view, the major role of the federal government should be to provide a safety net of basic health care for all citizens, particularly those who do not have adequate private insurance coverage. All citizens should be provided with a standard basic medical benefit package, regardless of income, employment status, health status (including so-called "pre-existing conditions"), age, or where they reside. Increasing numbers of citizens who seek health care just can't afford it and fear that an illness will devastate their financial security regardless of insurance; medical expenses have now become the leading cause of personal bankruptcies in the U.S. And the Congressional Budget Office has concluded that none of the health plans currently pending on Capitol Hill would control long-term spending.

The federal Medicare program has covered basic health care for almost all citizens over age 65 since 1965, and it is one of the most popular government programs existing today. Medicare has established an effective track record during the past 44 years, covering over 20% of the population (primarily the elderly and disabled who utilize medical resources more than any other age group). Well over 50% of individual lifetime health expenditures occur after age 65 years. Medical care generally follows the statistical pattern of 20% of patients consuming 80% of care. Physicians and hospitals have adjusted to this program and continue to provide high quality care on a fee-for-service basis. Medicare provides easy access and is considered largely cost effective and successful. Medicare gives patients a choice of physicians and hospitals, but places a cap on reimbursement for both, which is similar to that provided under most insurance plans.

Nonetheless, the cost of the Medicare program has escalated considerably as the average life expectancy increased by more than ten years during the past two decades; and the number of enrollees is increasing greatly as the baby boomer generation becomes eligible for Medicare, and the years of coverage has more than tripled. Careful oversight of Medicare management is essential since it is estimated that more than $30 billion has been lost to fraud annually. Additionally, the benefits provided by the Medicare Advantage program, and the Part D Medicare expansion for prescription drugs have not justified their costs.

The present system of health care delivery involves multiple providers, opaque and diverse policies regarding coverage, and excessive paperwork for patient approval and for reimbursement, which are increasingly frustrating to patients and physicians. Expansion of Medicare coverage to the uninsured or under-insured is the most logical and least expensive method of assuring basic health coverage for all citizens. Medicare should not be considered as a national "single payer system," which has a lightening rod effect on many legislators, but rather as a backup for those who do not have adequate private insurance.

Although some polls indicate that 80% of citizens are pleased with their private health insurance coverage, 70% see the need for health reform. A majority of these subscribers are healthy and have low cost policies, which provide very limited benefits when care is needed. The various marketed private health care options are so complex that even physicians have great difficulty in interpreting the differences in patient coverage from the information booklets from each company, which are intended to indicate what is and is not covered. Increasingly, there are high expectations, and demands by many patients for the most expensive care available.

The overhead for management and marketing for private insurance companies is more than seven times greater than that spent by Medicare during the past decade. Mandates to require private insurance coverage for this inadequately covered population subsidized by the federal government would add considerably more to the national deficit than would a gradual expansion of the Medicare program. Lack of portability, denial of coverage, lowering compensation to physicians, increasing co-payments, and rejection of applicants with pre-existing conditions and marketing to the young and healthy are part of the health insurance industry strategy to reduce the risk in their subscriber pools.

The Senate Finance Committee is currently considering requiring insurers to reimburse policyholders for medical costs at the low rate of 65%. Thus, the profitability of private insurance companies is high and the risk is low. The number of health insurance companies has decreased markedly during the past five years with the few emerging leaders having a combined subscriber pool of more than 90 million persons following their numerous acquisitions and mergers (Wellpoint, United Health care, Blue Cross, Blue Shield and Aetna). For-profit insurance companies are currently spending $1.5 million daily lobbying against any expansion of public programs (over 35 million in 2009), and view the 50 million uninsured citizens as new private customers to be subsidized by federal revenues. This would be a health care bonanza for lobbyists that is now one of the largest cartels in the U.S. that is protected against competition. In this scenario, the corporate CEO and staff make the decisions regarding health expenditures and insurance charges to patients, which would replace the decisions for Medicare by publicly elected legislators and advisors by profit-oriented corporate bureaucrats and stock shareholders who have added complexity to the system at every level. Health care has increasingly become an immoral money-driven business and is one of the largest profit centers in the U.S. economy.

When private health care insurance for a family of four (approximately $14,000 annually) is paid by employers, companies are at a disadvantage in an international competitive marketplace and some have required government bailouts, such as the automobile industry. Small employers with marginal profit may face bankruptcy. Increasingly, companies have shifted the growing burden of medical costs to their workers. Health care spending by companies has increased 29% during the past 5 years, while employees have seen their outlays for premiums, co-pays, and deductibles rise 40%. Continuing to have health care benefits provided by employers is no longer a viable option for companies since the coverage is very inequitable, expensive to manage, and is not continued for employees who are laid off or who accept another job offer, and thus not portable. More than half of Medicare participants currently have supplemental private insurance to cover the cost of care that is not adequately reimbursed, or eligible for Medicare.

For low-income families, the combined state and federally managed Medicaid program with often extremely low compensation to caregivers, causing a large number to opt out of the system, is available for the majority of medical disorders that are considered basic care for the indigent population, primarily for children. Medicaid compensation varies greatly between states, a few with great fiscal deficits, e.g. California, providing compensation more than 5 times lower than that of Medicare. Private management, in some states, e.g. the Kaiser HMO Health System has been quite efficient, effective, and cost effective although since Medicaid switched to HMOs, the costs have increased approximately 40%; however, state bureaucracy, and fraud have generally increased management costs for Medicaid and reduced reimbursement for physicians. In contrast to Medicaid, few physicians or hospitals could currently survive without accepting Medicare patients.

A phased expansion of Medicare over the next 4 years would be an important basis for rationalization of the allocation of health resources with more emphasis on primary care and preventive care and with less emphasis on procedure-oriented reimbursement. Less than 8% of current medical school graduates become primary care physicians. There should be more widespread use of generic medications with government negotiations for the lowest price from competing pharmaceutical companies. There should also be widespread use of comprehensive electronic records, which are easier to establish and less expensive in a national standards program, e.g. VA Hospitals, than in diverse community hospitals (currently used in only 1.5% of hospitals surveyed).

Further expansion of the national quality and assessment programs together with careful evaluation of outcomes research studies should play an important role in eliminating unnecessary and ineffective services and treatments, with some limits on the aggressive treatment of patients who have conditions with a hopeless prognosis as is currently the case with private insurance, and not on "death panels" and also in standardizing basic health care. As much as 30% of every health care dollar is currently spent on medical therapy that is unnecessary, ineffective, duplicative, or even harmful. Reimbursement for care should increasingly be related to the outcome following overall treatment, rather than from type and number of procedures performed.

The Medicare program should encourage hospital efficiency with more than one patient per room unless there are specific indications for isolation or intensive care, and increasing use of outpatient facilities. Self-inflicted medical disorders such as obesity, and those caused by smoking, alcohol, drug abuse, and others might be discouraged by adding a co-payment for care and adding the sales tax for known harmful foods and products. Slight increases in FICA taxes would be more equitable and efficient than the current employer-based insurance in use of revenues.

Tort reform is essential if health care costs are to be restrained since more than 100 billion dollars is spent annually for extensive malpractice insurance and defensive medical diagnostic procedures. Caution will be required to maintain equitable reimbursement for physicians and nurses to encourage high quality care and to encourage bright young students to enter the medical field in the future. More emphasis should be placed on increasing the number of primary care physicians and greater attention will have to be directed to the increasing costs of progression of shifting medical care of 5 8-hour days per week compensated by hospitals or HMO providers. It is likely that many additional physicians will be needed over the coming years to provide 24-hour coverage for patients.

Expansion of Medicare with complete coverage for all citizens who do not have the desired private insurance coverage in one step would be prohibitively expensive. Our proposed phased Medicare Expansion would expand the existing program for citizens over the age of 65 years with gradual phasing out of the very uneven and underfunded state-administered Medicaid programs, with prioritization of the most essential and effective types of care to be delivered. This restructuring would involve gradual changes in the age of eligibility for Medicare to include the most needy first, until all citizens without, or with inadequate health insurance would be covered. The first step would be to enroll children under 5 years of age, pregnant women and those with lifelong illness during the first year. The remainder of the population would be phased in gradually over a 4-year period, taking the most needy age groups first until all persons are covered. This proposal for Medicare Expansion would be relatively easy to conduct from an administrative standpoint since age is easily verified, and the basic system is in place and functioning. The urgency of health care reform is clearly apparent, with the emphasis placed here on efficient, effective, high quality, no frills basic care.

The current complex patchwork multiple payer health insurance programs are much more expensive, regardless of how they are administered, and they do not eliminate the majority of problems with the present medical delivery system. By contrast, phased Medicare Expansion builds around an efficient and well-established payment system, and the incentive driven, but controlled fee-for-service mechanism, supplemented by a private insurance partnership for non-basic and more extensive desired care. It is difficult to comprehend why so many citizens are confused about the costs of health care, comparing a completely private insurance system to a government managed program, since the management charges for the former are more than 7 times greater than the latter. Health care stirs powerful emotions, and because the subject is so complicated, with the result that people are often unable to balance their emotional reactions with rational ones. Medicare Expansion would establish a system of comprehensive health care in the United States which would both control costs and provide quality basic health care to all Americans and could be supplemented with private insurance. If we do not achieve health reform now, the cost will be considerably greater in the future.

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