Last night, the news broke that the “Gang of Ten” (the Senators who have been trying to break the deadlock between moderates and liberals) had come up with a two-part alternative to the public option. Under their proposal, Americans 55 to 65 could buy in to Medicare if they choose—and if they could afford it. Meanwhile, for Americans under 55, the public option would be replaced with non-profit private insurance plans overseen by The Office of Personnel Management, the group that now administers the Federal Employees’ Plan.
Begin with expanding Medicare to people 55 to 65. This is an idea that I wrote about in Money-Driven Medicine. Bruce Vladeck, who ran Medicare during the Clinton administration, was convinced that Medicare could compete successfully with private insurers, in large part because its administrative expenses are so much lower. I agree that in the late 1990s, it would have been a good idea.
But since then the cost of health care has more than doubled, thanks to a combination of soaring prices and the fact that each year, health care providers are prescribing more products and more services. In just seven years, the volume of MRIs done in this country doubled. From 1986 to 1996 the number of visits to free-standing surgical centers rose by 300 percent. Over the past ten years, private insurers have paid out 8 percent more, each and every year, in reimbursements to doctors, hospitals and patients. While Medicare has been trying to keep some fees flat, its outlays for care have been rising by roughly 6 percent a year.
Just how much would it cost someone to buy into Medicare today? Over at The Health Care Blog, Matthew Holt estimates the premiums would run about $10,000 annually. That’s for an individual, not for a couple.
If that seems high, consider this: Today, employer-sponsored coverage for an individual costs roughly $6,000. Sure, you can find something for less, but it will have a very high deductible, and/or will be filled with holes that you don’t discover until you’re sick. Maybe it covers surgery, but not rehab after surgery. If you want comprehensive coverage, assume you and your employer will pay a total of $6,000—or more.
And that’s the price for people in an enormous pool of 18-65 year olds. At most large companies, the number of employees under 50 outnumbers those over 55. That’s why insurers are able to cover everyone at an average cost of $6,000.
The original public option would have been open to uninsured and self-employed Americans of all ages, plus many who work for a small business. The gang of 10’s “solution” narrows the pool to 55-65 year-olds. These are folks who need—and use—medical care. If you suffer from a chronic disease like diabetes, depression, or heart disease, it will probably begin to catch up with you in your 50s and 60s. About 77 percent of all cancers are diagnosed in people age 55 and older.
When you isolate this group, insurance premiums become very expensive. Granted, Medicare’s lower administrative costs should reduce premiums by about $1,000 per person (or by $2,000 for a family plan according to Commonwealth Fund estimates), but even after factoring in those savings, Matthew’s estimate that it would cost Medicare $10,000 per person to cover Americans 55 to 64 seems reasonable.
By contrast, Washington Post columnist Ezra Klein speculates that perhaps a Medicare program for 55-64 year olds would have enough clout to negotiate premiums that are “20 percent to 30 percent” lower than the premiums that private insurers charge. This ignores the true cost of care for middle-aged Americans. Keep in mind; private insurers enjoy profit margins of just 3%, while the amount they pay out for care is rising 8 percent a year. Premiums are high because our over-priced and inefficient health care system costs so much.
As hospitals and doctors order more tests, do more procedures and prescribe more drugs, expenses mount, and until we rein in the waste—and refuse to pay exorbitant prices for many products and procedures—Medicare won’t be able to negotiate anything like the low premiums that Klein envisions.
Over the next three years, I have argued, Medicare reforms outlined in health care legislation could begin to reduce spending. But not by 20% to 30%. And if a Medicare buy-in becomes available in 2011 (as the Gang of 10 proposes), that gives Medicare just one year to slash spending. It won’t happen. (Already hospitals and specialists are insisting that Medicare for the Middle-aged should pay more than Medicare shells out today.)
Meanwhile, Medicare cannot afford to subsidize 55-64 year-olds who opt into the system. While the compromise proposal would let them buy in to Medicare in 2011, it does not provide any subsidies until 2014. (Perhaps this will change; Howard Dean has said that if the Medicare buy-in for people 55-64 does not include subsidies, this could be a deal-breaker in conference negotiations.)
But if the buy-in did include subsidies, a couple with income over $58,200 would not be eligible for government help. At the same time, it’s hard to imagine where that couple would find $20,000 annually to buy insurance. Of course, legislators could raise subsidy levels—but that probably would mean hiking someone’s taxes. I doubt Joe Lieberman would approve…
The alternative is to turn “Medicare for the Middle-Aged” into a cheap plan with skimpy benefits. I’m not enthusiastic about selling plans that hardly deserve the name “insurance” to “Young Invincibles,” and I certainly don’t see the point of peddling such plans to middle-class 55 to 64 year-olds. They need chronic disease management and preventive care as well as catastrophic insurance. And if deductibles and co-pays are too high, they won’t use the insurance.
Keep in mind that median joint income for households in this age group is $54,500. Roughly one-third of these households earn less than $35,000.
The critical flaw in this proposal is that the Medicare buy-in covers such a shallow pool of older people. Without help from Americans under the age of 55, the insurance will be prohibitively expensive. It’s worth noting that in the past, proposals to open up Medicare suggested allowing a cohort of very young Americans to join the plan, along with 55 to 64 year-olds.
Who then will be helped by the Medicare expansion? The most affluent middle-aged Americans. One-fifth of households in this age group show joint income of more than $100,000. Some of them could no doubt afford $20,000 to purchase insurance for two—though many in that cohort already have good employer-based insurance.
The neediest middle-aged middle-class Americans—those who don’t have employer-based insurance, and can’t afford the high price of individual insurance in the private sector—will be left out in the cold. Of course, this will be their “choice”. No one will tell them that they can’t buy insurance. They just won’t be able to afford it. Once again, we’re rationing by ability to pay.
This is not what I thought we meant by universal coverage.
In part 2 of this post, I’ll discuss what’s wrong with the idea of a plan that offers only private sector insurance and is overseen by The Office of Personnel Management, the group that administers the supposedly “popular” Federal Employees Plan. Talk to some postmen. Ask them how they like the plan. Take a look at the pricing, and the deductibles.
And someone remind me: Why exactly are we letting Joe Lieberman and a handful of moderates dictate the terms for national health reform? Why are Democrats negotiating with themselves?
Atleast the name sounds better, Medicare for More. I personally like public option but Buy-in for 55-65 make sense politically and likely can pass. chances are it will likely cause less back lash from public because the option is called “medicare buy in “, I wish they had called Public option as MEDICARE E like you suggested( who knows maybe it would worked with that name). 75% of general public never understood what real public option represented.
Maggie,
You make reference to our healthcare system being over priced, and there being too many ordered procedures. Do you think surgery centers are more expensive than unionized hospitals? Additionally, where do you think one of the primary cost drivers lies? Lawyers and the incredible number of law suits. Yet the liberals in Congress block tort reform due to the massive contributions they get from the ABA. In the US, we now have defensive medicine as a result of this. Go to any doctor, and half the procedures they order is to cover them legally. Where is tort reform with capped awards and loser pays.
thx Hoyt
Its good Maggie to see you talking about lowering the cost of healthcare again since that is the overall problem anyhow.
It is sad to see how the whole thing got derailed into “health insurance reform” rather than “healthcare reform.”
As a single payor fan, I see nothing good about this recent turn of events.
I echo your indignation at politics.
1) If a large proportion of sick-care [so-called health care] expense is paid for care of people in their last year of life… wouldn’t that suggest that much of sick-care is unproductive, ie wasteful. Much of these therapies, even if they do add a small increment of lifespan, do so at the expense of quality of life. Considering this along with the greatly increased use of diagnostic procedures, more and more ever newer therapies, and the general non-holistic treatment of unhealthy (where is the effort to discover the basis of wellness?) people — yes, is it any surprise, this incredible continual, no-end-in-sight cost inflation.
2) Tort reform? Does the idea of excessive law suits being a cost driver have anything to do with the 20-80 rule? I remember reading years ago that it does. A small percentage of practitioners seem to accumulate (repeated) losses in negligence suits due to their making more mistakes, perhaps incompetence, maybe even poor communication of likely outcomes. Perhaps this is more a problem of the profession not regulating or policing itself than it is of ambulance chasing, though no doubt there is some of that. But even so, and even if the long delayed payments for pain and suffering might be rationalized as an incentive to reform some ‘wrong’, though for many, the very idea seems nonsensical and wrong, is this a big driver in cost inflation? I doubt it. I have my doubts it even has much to do with medicine becoming increasingly ‘defensive’.
Comments?
Maggie —
The point that Medicare buy in premiums will be higher than a lot of people would be able to pay is correct. However, the savings available in overhead for the group targeted — people in the individual insurance market — are higher than you seem to think. Perhaps even as high as Ezra Klein’s envisioned 20 to 30%.
If Medicare’s payment schedule were followed, there would be a savings of at least 10% off the top compared with typical payments by private insurers. More important, the individual market is the source of the high estimates that single payer people often provide to argue for large savings from their program. Private insurance in the individual market does in fact have overheads of around 19% for the insurers and of around 10% for the providers. That 29% aggregate overhead compares with around 11-12% for the large group self-insured market and of 6-8% for Medicare.
So in that specific market — and the “Medicare for Some” proposal only envisions providing insurance for people who do not get insurance through employers, as did the proposals for a public option — there are realistic potential savings of up to 20-30% when the savings from reduced payments to providers and reduced overhead are combined.
Obviously, we agree that the major potential savings on health care will and must come from reductions in the inefficiency and poor effectiveness of US health care. Expanding Medicare potentially increases the power that Medicare could have in improving costs, but only if the Senate and House allow the other shoe to drop and approve programs to allow implementation of payment systems designed to improve efficacy and efficiency, including passing IMAC; encouraging results based payment patterns; using payment patterns to push for improved standards of care to prevent infections, re-admissions, and so on; creating pilot programs to test cost saving approaches and then implementing the successful programs; etc. etc.
Maggie:
You make an excellent point of the expense for the 55-64 year old group.
This is why pay-as-you-go insurance schemes don’t work over the long run, at least health insurance schemes.
Of course, exacerbating the pay-as-you-go Medicare arrangement is that the taxes paid in by the 55-64 year olds for Medicare, unfortunately, went to the Treasury’s general fund.
There, the monies were spent on all governmental expenses, of which Medicare is probably 20%.
So, spending 20 cents of every dollar paid in for Medicare doesn’t exactly make it pay-as-you-go.
The Supreme Court summed this up very succinctly in 1936: “The taxation of employees is not a prerequisite to the enjoyment of Social Security benefits. We find nothing in the language of the statute to suggest that the tax on employees is so essential to the operation of the statute.”
“A tax is not an assessment of benefits. It is a means of distributing the burden of the cost of government”
So, the Medicare tax is simply another way of paying for all governmental expenses, including Medicare.
Don Levit
The Supreme Court case is
Carmichael v. Southern Coal & Coke Company.
http://www.ssa.gov/history/supreme3.html.
Don Levit
Here is my take folks.
Besides the very real moral and economic imperatives to pass long overdue US health care reform, if we fail now, the entire US legislative system could very well be declared broken beyond reasonable hope of repair.
That could literally lead to a bone-fide political meltdown which could threaten the very stability of our nation.
Believe it!
Dr.Rick Lippin
Southampton,Pa
Dr.Rick Lippin wrote:
US health care reform, if we fail now, the entire US legislative system could very well be declared broken beyond reasonable hope of repair.
—————
The problem is the 2 seats per state for the senate. It gives trees more representation than people. California with 36,756,666 people has 2 Senate votes while the bottom 19 states with 38 seats still do not equal California’s population. No wonder what is best for the majority of citizens can be held hostage and killed by states with very few people and limited conservative interests. Somehow, someday we need to get a population proportional representation in the Senate!
Based on the limited information available, I’m inclined to reserve judgment about the Medicare For Some proposal, but not rush to dismiss it. I base this on the following assumptions. 1. Working individuals covered by employer-based insurance will continue to utilize this insurance, as do those 65 and older. 2. The option will reduce premium costs for uninsured individuals who would otherwise have to buy private insurance on the individual market. 3. The costs will still be high because of the risk associated with age, but: 4. The current legislative proposals in the absence of expanded Medicare permit insurers to discriminate by age (I think it’s about 2/1 for the House version and more – ?4/1 – for the Senate version, but I don’t recall the exact age parameters).
Based on the above, I would guess that relatively few individuals would want to take advantage of the expanded program, and that those who do will pay rather high rates, but lower than they would pay for private insurance. I’d actually like to see a quantitative accounting comparing this option with the estimated costs of premiums for this age group for insurance purhased on the Exchange in the absence of expanded Medicare, which would also be relatively expensive.
Two cases that illustrate why health care costs will not stop rising unless a complete overhaul of the whole medical-pharmaceutical industrial complex takes place:
Medical Research is Broekn. This is about Tamiflu; it raises very troubling questions.
http://brodyhooked.blogspot.com/2009/12/bmj-medical-research-is-broken.html
Getting rich on flimsy pretenses:
http://hcrenewal.blogspot.com/2009/12/more-air-into-health-care-bubble-30000.html
Maggie, I think you and Matt are forgetting something on the cost of Medicare from 55-65. People will have paid into the system for 30+ years, so they will see some of the benefit from that in the form of reduced premiums.
Even if the total claims cost is $10,000, the premium required to be actuarially sound would be considerably less. We don’t need subsidies to get the premium well below $10,000.
Based on no special knowledge, I’m inclined to believe this assessment from Snowe:
“Sen. Olympia Snowe, R-Maine, told reporters premiums would total about $7,600 annually until federal subsidies became available in 2014. That translated into more than $600 a month, far higher than the $96.40 paid by beneficiaries age 65 and up.”
So, not cheap, but a far better deal than some people can get now.
I used to favor single payer, but am coming to realize that overutilization partly comes from the perception that healthcare is free. Most people with insurance are removed from the actual costs. Let’s put more skin in the game and stop covering small costs. We need catastophic coverage so no one goes bankrupt over healthcare costs, but make people think twice about the lab or mri, medication etc. if they have to pay out of pocket. I suspect we could get premiums down and people still wouldn’t have out of pocket expenses of exceeding $10000, as they would shell out for expanded medicare or the insurance exchange.
I agree with your points, but I’m interested in the long view of this process. Let’s say this version does pass the Senate. What happens when the House and the Senate have to settle their differences? What does that bill look like? And can it get passed?
And to address the gentleman who was talking about tort reform, take a look at Texas. There is no major correlation in tort reform and reduced health care costs in that state.
My wife and I are in our 60;s and self employed.
Our Blue Shield premiums are $920 each month.
Our deductible is $8000 per year.
So when we need to see a doctor, we always have to think long and hard about it . That’s because our yearly deductible is so high it only covers major medical costs.
To save on costs we’ve been going to Thailand for the last few years for our medical needs. The costs there are so low, and the quality of care so good that it just made sense for us.
We kept our Blue Shield plan just in case we got in a bad accident here in the US and needed emergency care.
I’m not sure I agree with you that a couple would be paying $20,000 in premiums. As I mentioned before Blue Shield is happy to insure my wife and myself for $11,000 plus an $8000 deductible…after which they cover 100%. That comes to $19,000 a year.
Assuming that Medicare, would have lower admin. cost , I’m guessing worst case scenario is $15,000 in Medicare premiums.
Not great…but better than Blue Shield.
You can’t make money insuring sick people. The latest set of Senate proposals amounts to selctive skimming of the young, healthy and wealthy for the for-profit insurnance companies, and dumping of the poor (Medicaid expansion) and older predictably sicker (Medicare expansion) to the public sector. This makes the public sector more expensive.
All of Ms. Mahar’s arguments for all the other reasons and means to control costs are true.
But it is also true that what is also needed to cover everybody and control costs would also be one all inclusive insurance pool of all Americans, paying in based on progressive taxes and not risk-based premiums.
Dr. Steve, Norris, j.d., Pat, Jeffrey –. . .will be back with more replies
Dr. Steve—Yes, we need one inclusive pool. The original public option was moving in that direction. Initially it would have included the self-employed the uninsured and people working for small businesses—a cross-section of Americans of all ages. And quite quickly, more and more employees of small businesses would be eligible. Then, in four years or so, the idea was to open it up to people who worked for large companies.
Instead, we have a plan that, as you say, sends younger people to private sector insurers, and older people are isolated in their own very expensive pool—where insurance will be unaffordable for the vast majority.
Norris—What you forget is that with Blue Shield, you are in a pool of people buying individual insurance which includes many that are younger than you. When Blue Shield decides how to price your insurance it is estimating how much it will cost to cover everyone in that group. (Depending on the state you live in , it also takes your individual pre-existing conditions into account. ) Neverthelesss, the younger people that BlueShield insures are helping to defray the cost of the insurance. Secondly, the high deductible means that many people who have this insurance never use it—unless they are hit by a catastrophe. This saves Blue Shield quite a bit of money.
j.d.—
The plan is to keep the premiums that 55-64 year olds pay in a separate fund. It will not be mixed with Medicare money.
The fact that a 55-year-old has paid into Medicare for 30 years won’t matter—that money is being saved to help cover him and others when he’s over 65.
This Medicare for middle-aged plan is a “pay as you go” plan—people in this 55-64 group are covering the group’s expenses as they go along.
Olympia Snowe is using an old CBO number. Like most CBO numbers, it’s a wild guesstimate—and its not current. Though as I suggest to Pat below, even if the premium turns out to be $8,000 per person, that’s still unaffordable—median income for a couple in this age group–$58,000. Half earn less and can’t afford $16,000 in premiums for two people plus co-pays and deductibles.
Pat-
Yes, Ezra’s 20% to 30% less is the number single-payer folks use referring to how much insurance in the individual private market costs (much more than in the group market because administrative costs are so much higher.) Don’t know if Ezra realizes this—but it doesn’t really matter.
Whether Medicare for the middle-aged costs 10% less or 25% less, what is important is the cost in absolute dollars—and whether people in this age group can afford it.
A few things to keep in mind:
The $7,600 per person estimate is based on old CBO numbers. A wild guesstimate and not current.
The latest estimates I’ve seen are $8,000 per person, and this assumes that, like Medicare, the program has no cap on out-of-pocket spending. I’m guessing legislators will want to put a cap on how much a family has to pay out of pocket annually—probably $10,000 as in the rest of the reform legislation. And they’ll want a lifetime cap. (For people over 65, there is no lifetime cap, which is why some people on Medicare wind up having to spend all of their savings so that they can qualify for Medicaid.) That makes the cost of covering this group significantly more expensive, and means that premiums need to be higher.
Secondly, the estimates all assume that this program pays Medicare rates to providers. Doctors and hospitals are making it clear that they will fight this. I suspect they’ll win on this point (as they did with the public option). Medicare for the middle-aged will have to negotiate rates, and because it will be much smaller than the public option (It’s estimated that only 1/10 of uninsured people 55 to 64 will sign up) it will have little clout. Paying higher fees than Medicare means premiums will be higher than current estimates.
But, for the sake of argument, let’s assume premiums of $8,000 per person. That means that a couple with joint income (before taxes) of $60,000 will have to come up with $16,000 for premiums—plus co-pays and deductibles. (Medicare, as you know has co-pays and deductibles that are not cheap)
That couple will not qualify for a subsidy. Only couples earning less than $58,200 qualify for subsidies, and since they are set on a sliding scale, a couple earning, say, $50,000 would get only a fairly small subsidy.
Just 25% of couples 55-64 have joint income over $100,000. And even for a couple earning $110,000 , finding $16,000 plus co-pays and deductibles won’t be easy.
Today, 10% of 55-64-year olds are uninsured—either unemployed or self-employed. These are not the most affluent 55-64-year olds. (IF they were, most would buy individual insurance in the private market
Today I have seen estimates that Medicare for the Middle-aged would reduce the share who are uninsured by only 1 percent—from 10 percent to 9 percent..)
That’s why I call this reform a ruse. It’s not attempting to get anywhere close to universal coverage.
Of course wealthier 55-64-year olds who now buy individual insurance might find that $8,000 per person is less than they are paying now. (It depends on whether they live in a state where insurers can refuse to sell insurance to people with pre-existing conditions. If they do, and they are healthy, there is a good chance that their insurance will cost less than $8,000 per person because sick people aren’t in the pool. Of course sick people will be in the Medicare for the middle-aged pool. They will do their best to scrape up the $8,000 to get Medicare for the middle-aged.—even if they have to borrow it.
Finally, the point of health care reform is not to create a “better deal” financially for affluent Americans. The point is to cover everyone, make care more affordable for everyone, and lift quality. This does none of those things.
It just creates the “impression” that we are opening Medicare to everyone –if you can afford it.
P.S. Medicare for people over 65 works because it’s not being funded by people over 65—it’s funded by everyone (taxpayers) and through the payroll tax on younger people.
Jeffrey—80% of health care dollars are spent on people suffering from chronic conditions like diabetes, depression, cancer, congestive heart failure etc. By definition “chronic” means that these are condition s that last a long time. Only a part of this money is spent during the last year of life.
Maggie – Maybe I’m missing something, but the Medicare extension to the 55-64 age group (with subsidies as necessary) seems to offer advantages, at least for some potential subscribers.
Consider, for example, the current Senate bill without the Medicare extension. Uninsured individuals in this age group would be able to purchase insurance on the Exchange, but the legislation permits insurers to charge premiums that vary by up to a 4/1 ratio according to age (the House version is more generous, at 2/1). In that sense, these older subscribers would presumably be paying more than younger subscribers by possibly a considerable amount.
If the Medicare extension is added, they will also pay more than younger individuals, but I assume the same risk factors that entered into the original Senate calculation will operate here, and so I’m not sure what evidence exists to suggest they will be penalized more for their age.
On the other hand, there are other potential complexities that I haven’t seen addressed beyond age alone. For example, the Senate and House bills set the actuarial values of their basic plans at 60 percent and 70 percent respectively. Will the Medicare extension pay a larger share of expenses? If so, will that attract a higher risk pool, or will the extended Medicare plan be tailored to match the basic plans proposed in the bills? If there is a difference, will a risk adjustment mechanism be applied so as not to penalize one plan or another?
The current level of detail is very sparse, but some of these issues probably need to be addressed.
Barbara:
I agree with everything you wrote.
Overinsurance on the front end simply exacerbates the affordability problem.
For higher deductibles or co-pays, we are trading dollars with tyhe overinsured.
When a person can save one dollar in premium for every 3 dollars of foregone coverage, that is a good deal for the consumer.
Don Levit
Maggie —
1.) I agree that unless Medicare for Some uses Medicare rates of payment it is not a good idea. I don’t agree that providers will be able to force it to abandon Medicare rates. There is an interesting situation going on here: the insurance industry and its pocket representatives (you heard me, Joe Lieberman) are opposed to the public option in all forms. The providers hate Medicare in all forms and want to stop expansion. Right this minute, the path to 60 in the Senate seems to favor the insurance people. Time will tell.
2.) I will grant you, as I said before, that Medicare for Some will break the bank for many people who are over 55 and out of the group market. But it will nonetheless be cheaper, by quite a bit, than their existing options. Disclosure: I am in fact personally a victim/insuree in the individual over 55 market. The numbers you are citing are less — much less — than I pay right now. See Norris Hall’s testimony on the same point.
3.) I have always liked the idea of the “squeeze” approach to federalizing health care. The proposal here to expand both Medicaid and Medicare as well as to insure 100% of children is a variation of that. As some people are saying, once this starts to happen it may cause people to demand better programs for themselves.
4.) We definitely need to supplement the payments to Medicare for Some to make it affordable to most of its target market. That will supposedly come in 2014 or 2015 to some extent, but it needs to be better and sooner. If and when that happens, I definitely think it is preferable to pay less money and pay it to Medicare than to pay more money and pay it to private insurers once the supplement kicks in.
4.) Finally, to all the people who are saying that we need to control costs: of course we need to control costs. E-mail or phone your Senators and congressmen to say you think that part of the bill must be strenghthened with a good IMAC, stronger controls on payments for ineffective or harmful care, more emphasis on payment for results and less on payment for volume of services, use of bundling of inpatient/outparient care, etc. etc. However, I will again point out that Medicare, with all its works and all its pomps, is both better positioned and has a better history of addressing cost issues than private insurance does, and increasing the number of people covered by Medicare makes it that much stronger — thats what the doctors and hospitals are whining about.
Maggie-
Following all the numbers that are getting thrown around is kind of tricky– so this might be way off base, but a couple of things:
I didn’t see the original quote, but I think maybe when Ezra Klein talked about saving 20-30% in premiums he was talking about how Medicare pays providers lower rates than private insurance, in addition to administrative savings from public programs.
Comparing the public option to this new compromise– It seems that any savings from risk pooling in the public option would be canceled out by the fact that older people could be charged 3 times as much as younger people, and Medicare pays providers less. So, while it sucks that younger people won’t have access to a public plan, I don’t see why a public option without provider rates tied to Medicare would be much more affordable for older people. Maybe the bigger problem is that the subsidies are too low?
Also, about Joe Lieberman– if the bill needs 60 votes, that’s every Democrat and either Joe Lieberman or one of the Maine Republicans. What alternative do Democrats have besides negotiating with that handful of moderates?
Ray, NG, Fred, Pat (your 2nd comment), Hoyt ,Ed, Don, Dr. Rick, Frankie
Ray–I agree. 75% of the general publici never understood what the public optoin represented. So they have no way of knowing what they are losing.
For this, I blame the liberal press and liberal bloggers who, by and large, just didn’t do as good a job as they might have in explaining the public optoin. (There are of course many exceptions)
NG– You are entirely right. Senators coming from very sparsely populated states have had disprorporionate amount of power in this debate.
But of course the 2 sentaors per state rule was conceived at a time when most American citizens were disenfranchised: you couldn’t vote unless you owned land and were a man.
It really didn’t matter what the majority of the population thought.
Fred–
You make a very important point when you note that under the House bill, older people could be charged premiums that were twice as high as what younger Americans paid–and that under the Senate bill, they could be asked to pay 4 times as much.
To me, that was the worst aspect of both bills. But I assumed that, as got closer to trying to enact the bills–and began to talk about realistic numbers–it would beocme clear that older people wouldn’t be able to afford the premiums–and taxpayeres wouldnt’ be able to afford the subsidies to help them.
So, we would have to level the playing field. Younger Americans might pay less, but not 50% less.
The problem with the current compromise is that it creates a structure which ensures that older Americans pay far more–by isolating them in a separate pool.
This can’t be easily amended.
On whetherr Medicare for 55-64 year olds would be less expensive than private insurance in the individual market, please see my reply to Pat just below.
Pat–The average annual premium, in the private sector individual market, for someone 55 to 64, is $4,600.
See http://healthinsurance.about.com/gi/o.htm?zi=1/XJ&zTi=1&sdn=healthinsurance&cdn=health&tm=30&gps=338_745_1263_747&f=00&tt=12&bt=0&bts=0&zu=http%3A//www.ahipresearch.org/pdfs/Individual_Market_Survey_December_2007.pdf
Average premiums range widely,from $8,500 in Mass to $1.254 in Wisconsin for single coverage.
Why the wide variation? In all but three states insurers can deny individual coverage to people with pre-existing conditions. Medicare for the middle-aged wouldn’t be able to do that.
The vast majority of these individual plans in the private market are PPOs. 1/3 have an out-of-pocket limit of $5,000 to $7500. 1/4 have an out of pocket limit of
$3,000 to $4,000.
Only 14% are like Medicare-with no out of pocket limit.
Why is Medicare so much more expensive than most individual plans in the private market? Because it is more comprehensive and, most importantly, because it doesn’t shun the sick and doesn’t charge them more.
I suspect that you have picked a very good comprehensive plan for yourlself. That’s what I did when I was self-employed (writing books); it cost me about $7,000 a year. This was three years ago, and I got a so-called “group rate” as a member of the Author’s Guild.
I truly couldn’t afford that amount, but I paid it because I consider health insurance a very high priority. I never want to be sick AND worried about money at the same time.
Most people don’t pick such comprehensive coverage. Many are just not willing to spend that much for health insurance. They see it as spending money to cover medical care for other people. (I see it as good Karma to throw my coins in the pool. Somehow, it may make it less likely that I beoome sick. (admittedly, superstitious thinking)
And in any case, I am very very happy to put more into the insurance pool than I take out. Just as I’m happy that I never have reocvered on the money I put into fire insurance: I’d rather my home doesn’t burn down.)
Also, most Americans have no idea how much it could cost them if they landed in a hospital for 7 days with a 20% co-pay.
At the same time, the vast majority just aren’t able to spend that much on insurance.
So when you tell 55 to 64 year olds that healthhcare are reform is going to offer them Medicare for the Middle-aged for $8,000 (or $10,00–today, I heard the NYT was citing $10,000).
very, very few 55 to 64 year olds are going to be willing or able to buy it.
This means that Medicare for the Middle-Aged will have very little clout negotiating with providers.
Pat, you believe that it won’t be forced to negotiate–but we have already seen that the lobbyists managed to persuade the Senate that the public option should have to negotiate fees. And since this program covers a smaller slice of voters, the 55-64 year olds will have less protection.
In terms of how many 55-64 year olds will be able to afford this coverage, I’d add that most very well-educated Americans just don’t realize just how poor most Americans are.
Half of all 55 to 64-year-olds have joint income, before taxes, of less than $58,000. And they have very little savings. I personally know, very few people in that age range with that little income.
But, because I’m a jouranlist, I wind up Googling these numbers year after year–and am always somewhat surprised.
I realize that you work with poor patients, and I imagine you have a keen sense of how poor low-income people are.
But I think most of us just don’t realize how little money the vast majority of Middle-Class Americans earn and have.
Providing subsidies to cover say, $12,000 of the $16,000 cost for the 3/4 of 55-64 year old couples with joint income under $100,000 would be very expensive–and younger taxpayers just wouldnt’ be willing to foot the bill.
(Here, I have to say that you live in a kinder, gentler part of the country than I do. But I’m afraid that when it comes to how Americans feel about older people, New York is closer to the national consensus than where you are now (or where you lived previously.)
This is why it is terribly important to have 55-64 year olds in the same insurance pool with younger Americans. In that way, it is much less obvious that younger Americans are helping to pay for older Americans.
And over time, younger Americans become older Americans in that same pool–and reap the benefits.
When you create separate pools , people beginn to feel that “we” am paying for “them.”
One way to get past this type of thinking is to put everyone in one pool. This has worked with with Social Security and Medicare.
Hoyt–
Yes, surgery centers are actually, on average, more expensive than hospitals.
On malpractice, see Bruce Fryer’s comment above. He is right. Health care spending in much higher in Texas than in most states–despite health care reform.
Ed– Yes, lowering the cost of care is a major part of reform.
And that means reducing over-treatment–which is the major cause of health care inflation.
Don–You are entirely right The plan for 55-64 year olds is “pay -as -you go” healthcare.
Dr. Rick–
I would tend to agree with you that we must pass Something.
But passing this Senate compromise will do little, if anything, to lower the threat to the U.S. economy.
The cost of care will continue to spiral. Private insurers have little reason to rein in costs–if they try to say “no” to unncessary care, they lose market share.
And if Medicare for Middleaged American si rolled out in 2011, as proposed, there is not enough time to really being to cut overpayments to hospitals (paying for errors), overpayments to drug-makers and evice-makerse and overpayments to many specialists for services that provide little or no benefit to many of their patients.
Dr. Frankie– thanks for the links. I will take a look at them.
Ray, NG, Fred, Pat (your 2nd comment), Hoyt ,Ed, Don, Dr. Rick, Frankie
Ray–I agree. 75% of the general publici never understood what the public optoin represented. So they have no way of knowing what they are losing.
For this, I blame the liberal press and liberal bloggers who, by and large, just didn’t do as good a job as they might have in explaining the public optoin. (There are of course many exceptions)
NG– You are entirely right. Senators coming from very sparsely populated states have had disprorporionate amount of power in this debate.
But of course the 2 sentaors per state rule was conceived at a time when most American citizens were disenfranchised: you couldn’t vote unless you owned land and were a man.
It really didn’t matter what the majority of the population thought.
Fred–
You make a very important point when you note that under the House bill, older people could be charged premiums that were twice as high as what younger Americans paid–and that under the Senate bill, they could be asked to pay 4 times as much.
To me, that was the worst aspect of both bills. But I assumed that, as got closer to trying to enact the bills–and began to talk about realistic numbers–it would beocme clear that older people wouldn’t be able to afford the premiums–and taxpayeres wouldnt’ be able to afford the subsidies to help them.
So, we would have to level the playing field. Younger Americans might pay less, but not 50% less.
The problem with the current compromise is that it creates a structure which ensures that older Americans pay far more–by isolating them in a separate pool.
This can’t be easily amended.
On whetherr Medicare for 55-64 year olds would be less expensive than private insurance in the individual market, please see my reply to Pat just below.
Pat–The average annual premium, in the private sector individual market, for someone 55 to 64, is $4,600.
See http://healthinsurance.about.com/gi/o.htm?zi=1/XJ&zTi=1&sdn=healthinsurance&cdn=health&tm=30&gps=338_745_1263_747&f=00&tt=12&bt=0&bts=0&zu=http%3A//www.ahipresearch.org/pdfs/Individual_Market_Survey_December_2007.pdf
Average premiums range widely,from $8,500 in Mass to $1.254 in Wisconsin for single coverage.
Why the wide variation? In all but three states insurers can deny individual coverage to people with pre-existing conditions. Medicare for the middle-aged wouldn’t be able to do that.
The vast majority of these individual plans in the private market are PPOs. 1/3 have an out-of-pocket limit of $5,000 to $7500. 1/4 have an out of pocket limit of
$3,000 to $4,000.
Only 14% are like Medicare-with no out of pocket limit.
Why is Medicare so much more expensive than most individual plans in the private market? Because it is more comprehensive and, most importantly, because it doesn’t shun the sick and doesn’t charge them more.
I suspect that you have picked a very good comprehensive plan for yourlself. That’s what I did when I was self-employed (writing books); it cost me about $7,000 a year. This was three years ago, and I got a so-called “group rate” as a member of the Author’s Guild.
I truly couldn’t afford that amount, but I paid it because I consider health insurance a very high priority. I never want to be sick AND worried about money at the same time.
Most people don’t pick such comprehensive coverage. Many are just not willing to spend that much for health insurance. They see it as spending money to cover medical care for other people. (I see it as good Karma to throw my coins in the pool. Somehow, it may make it less likely that I beoome sick. (admittedly, superstitious thinking)
And in any case, I am very very happy to put more into the insurance pool than I take out. Just as I’m happy that I never have reocvered on the money I put into fire insurance: I’d rather my home doesn’t burn down.)
Also, most Americans have no idea how much it could cost them if they landed in a hospital for 7 days with a 20% co-pay.
At the same time, the vast majority just aren’t able to spend that much on insurance.
So when you tell 55 to 64 year olds that healthhcare are reform is going to offer them Medicare for the Middle-aged for $8,000 (or $10,00–today, I heard the NYT was citing $10,000).
very, very few 55 to 64 year olds are going to be willing or able to buy it.
This means that Medicare for the Middle-Aged will have very little clout negotiating with providers.
Pat, you believe that it won’t be forced to negotiate–but we have already seen that the lobbyists managed to persuade the Senate that the public option should have to negotiate fees. And since this program covers a smaller slice of voters, the 55-64 year olds will have less protection.
In terms of how many 55-64 year olds will be able to afford this coverage, I’d add that most very well-educated Americans just don’t realize just how poor most Americans are.
Half of all 55 to 64-year-olds have joint income, before taxes, of less than $58,000. And they have very little savings. I personally know, very few people in that age range with that little income.
But, because I’m a jouranlist, I wind up Googling these numbers year after year–and am always somewhat surprised.
I realize that you work with poor patients, and I imagine you have a keen sense of how poor low-income people are.
But I think most of us just don’t realize how little money the vast majority of Middle-Class Americans earn and have.
Providing subsidies to cover say, $12,000 of the $16,000 cost for the 3/4 of 55-64 year old couples with joint income under $100,000 would be very expensive–and younger taxpayers just wouldnt’ be willing to foot the bill.
(Here, I have to say that you live in a kinder, gentler part of the country than I do. But I’m afraid that when it comes to how Americans feel about older people, New York is closer to the national consensus than where you are now (or where you lived previously.)
This is why it is terribly important to have 55-64 year olds in the same insurance pool with younger Americans. In that way, it is much less obvious that younger Americans are helping to pay for older Americans.
And over time, younger Americans become older Americans in that same pool–and reap the benefits.
When you create separate pools , people beginn to feel that “we” am paying for “them.”
One way to get past this type of thinking is to put everyone in one pool. This has worked with with Social Security and Medicare.
Hoyt–
Yes, surgery centers are actually, on average, more expensive than hospitals.
On malpractice, see Bruce Fryer’s comment above. He is right. Health care spending in much higher in Texas than in most states–despite health care reform.
Ed– Yes, lowering the cost of care is a major part of reform.
And that means reducing over-treatment–which is the major cause of health care inflation.
Don–You are entirely right The plan for 55-64 year olds is “pay -as -you go” healthcare.
Dr. Rick–
I would tend to agree with you that we must pass Something.
But passing this Senate compromise will do little, if anything, to lower the threat to the U.S. economy.
The cost of care will continue to spiral. Private insurers have little reason to rein in costs–if they try to say “no” to unncessary care, they lose market share.
And if Medicare for Middleaged American si rolled out in 2011, as proposed, there is not enough time to really being to cut overpayments to hospitals (paying for errors), overpayments to drug-makers and evice-makerse and overpayments to many specialists for services that provide little or no benefit to many of their patients.
Dr. Frankie– thanks for the links. I will take a look at them.
Barbara, Bruce Fryer, Rob
Barbara-
Welcome to the blog—
I understand what you are saying, but in the end, overutilization has relatively little to do with patient demand.
Few patients demand the big-ticket items (sugeries, the chance to die in an ICU, the chance to be poked and prodded by more than 10 specialists during your final 6 months of life, the chance to spend more days in the hospital during your final two years of life, More Chemo!!
etc. etc.
The supplier (hospitals and doctors) tell patients what care they think they need. Most patients accept the doctor’s or the hospital’s advice.
True, a small percentage of patients demand an MRI, but those patient and those MRIs account for a very small percentage of health care spending.
Medical research also shows that when patients have higher co-pays and higher deductibles, they are just as likely to forego necessary care as they are to put off unnecessary care. In the long run, this can cost society more.
The problem is at the provider end, where hospitals and doctors recommend more tests, procedures, drugs etc. than patients need– for a wide variety of reasons.
This is the way U.S. doctors are trained–“don’t just sit there–do something!” Fee-for-service payment encourages “doing more”
Fear of malpractice suits encourages over-treament.
Hospitals can’t pay for their very expensive diagnostic testing equipment unless they use it. . . Overtreatment is inevitable in our current profit-driven health care system.
Rob–
Thanks for your comment.
On older people paying 2 or 3 or even 4 times more more for iinsurance in the original reform legislation—see my reply to Fred.
I assumed all along that this was an element of the legislaiton that would have to be ameneded.
The new comprormise creates a Structure in which older Americans are isolated in a separate pool and will definitely pay more that most can afford.
This structural aspect of the compromise legislation cannot be easily amended.
So most middle-class and even upper-middle-class 55-64-year olds will be “exempted” from insurance.In other words, we will continue to ration by ability to pay.
Also, if the Senate couldn’t reach a compromise, and couldn’t get to 60 votes with a public option, that wouldn’t necesarily have been terrible.
If they had to drop the public option to vote the plan out, a great many Americans would have realized that the SEnate had failed.
Then when the House bill and the Senate bill went to confrence where they would have to be merged, the House would have an advantage (in terms of public perception/support) and would probably have dominated in the final merger.
In the past, the Senate has been more powerful than the House–but that was true when we had many legendary Senators.
Today, we don’t. This is a mediocre Senate (with a few notable exceptions.)
And it is a very conservative Senate–more conservative than the House, and I would argue, more conservative than the majority of the American people.
Maggie —
Since we are talking about people age 55 to 65, the data on the mean prices in the individual market mean very little. People in that age range pay much higher insurance premiums, so high that the cost of insurance is a major impediment to retirement before 65.
Medicare has lower overhead costs and pays lower payments to providers. It is quite clear that for the same actuarial value Medicare can and would charge less. Bear in mind that the 55 to 65 age group is expected to have premiums between twice and four times as high as younger people in the bills before congress, so take the mean numbers you have given and multiply them by 2, 3, or 4 times to get an idea of what the premiums would be.
This does not change the argument that many people will need help with their premiums to afford them, that costs need to be controlled, and so on. But it is simply true that dollar for dollar of actuarial value Medicare costs less, and that most of that savings comes not from lower payments (about one third does) but rather from greater efficiency of operation.
I don’t know what mean costs for 55 to 65 year olds in the individual market are. I wonder if anyone has those numbers, so we can talk apples and apples.
Meanwhile, none of this changes the fact that many if not most people need help with their health care costs in the form of cost sharing and of cost control.
However the realistic thing is that older people cost more to insure and always will, regardless of if they are 45, 55, 65, 75, or 85, and regardless of whether they are marathoners or couch potatoes. There will always be higher costs in those ages. If we cannot construct a program that allows people in that age range to afford health care, we are dead in the water before we even start. The argument for such a program is that everyone, God willing, will one day be 45, 55, 65, 75, and 85. If people don’t get that idea, health reform is doomed.
Pat–
You write: “I don’t know what mean costs for 55 to 65 year olds in the individual market are. I wonder if anyone has those numbers, so we can talk apples and apples?”
I’m confused by your response.
We do have numbers for the cost of premiums for people 55-64.
As I said in the first sentence of my response:
“The average annual premium, in the private sector individual market, For Someone 55 to 64, Is $4,600.”
See URL in my reponse that will take you to the site for his info.
Maggie —
My bad. I see what you said now.
That number is interesting, since it is almost identical to the average cost of single coverage insurance policies in the group market. The article goes on to point out that the weighted average out of pocket for all ages is over $6000.
The question now is what the actuarial value of the insurance policy is. How high is the deductible? What benefits are included? What are the co-pays and co-insurance? As you discussed in an earlier post on reform, one of the critical questions to ask about cost is what the benefits are.
I remain convinced, possibly based on prejudice but mostly based on the existing numbers on overhead costs and on payment rates, that private insurance cannot provide coverage for any age or risk group cheaper than Medicare without significantly cutting the value of the policies. It seems to be a arithmetical impossibility to be able to charge overheads that are at least three times as high and to pay payment rates that are at least 10% higher (and are 30% higher if you believe the insurance industry’s own numbers) and then provide insurance for half as much. There is a significant problem with the numbers here, which I have no doubt can be explained by having the “insurance” sold to people in the 55-65 individual market having very low actuarial value due to poor benefits. My own personal experience and the experience of everyone I have ever talked to who is in this market verifies that.
Interestingly, private insurers agree with me, having argued aggressively that a strong public option based on Medicare payment rates and using the Medicare administration system would destroy private insurance. That is not the voice of an industry that can sell policies for half as much as their public competition.
Pat S.–
You’re aboslultely right: the private market cannot offer equally comprehensive insurance for less–and it doesn’t try to.
But most people are not able to analyze an insurance policy and figure out its actuarial value.
Even if they could, they’re going to pick the $4,000 policy over the $8,000 policy–and hope for the best.
The only way they’ll buy the $8,000 policy is if its’ fully subsidized.
That may be what we have to do. (I’m writing about this now). But Medicare can’t afford it, and we’re going to need to raise taxes for many other things. (for example, to create jobs. The market won’t can’t do it at this point in time. )
I’d greatly prefer to subsidize care for the middle-aged by having them in one pool with everyone else. . .
Barbara,
I have to say that I have a hard time disagreeing with the principal of individuals having more skin in the game. You makes a seemingly good point when you argue that paying out of pocket for small medical expenses keeps us individually cost-conscious, while insurance paying big expenses keeps us individually solvent. But the unfortunate flip side is that this arrangement creates a disincentive for preventive and other low-tech inexpensive care (“I have to pay for it!”) and continues the current system’s incentive (“Don’t worry, the patient isn’t paying for it.”) for high-tech expensive care. This blog has discussed where that leads: medical students flocking toward high-tech procedural specialties, hospitals competing with rivals for the most expensive technology….
R. Kasbeer-
Thanks for your comment. I agree, on both counts.
R Kasbeer:
Can you offer your opinion as to why people will not pay out of pocket for preventive care?
Let’s assume that preventive care is affordable, say, capped at 2% of income.
Don Levit
Don,
Good question. Some will and some won’t. Some will for their kids and won’t for themselves. That is part of the reason I am on the fence on this issue. A carefully written insurance/gov’t policy with provisions such as what you suggest might work, especially for people generally healthy, intelligent, and not poor. This is one of the many details that is going to be difficult to optimize.
R. Kasbeer and Don Levit–
Half of all American households live on less than $58,000, joint income, before taxes.
Many live on far less.
These include a great many households that include two or more children.
Most of these households have to worry about making the rent, paying the electric bill. They do not have a cushion; they have little or no discretionary savings.
When I was in my 30s, a free-lance writer and single mom with two young children, I would often finding myself typing a free-lance article knowing that I had to get it done and in the mail as quickly as possible, so that I could get the check, which I would need for the next month’s mortgage.
I was operating with little or no savings–no cushion. And I was a successful freelance; I always had assignments.
Most of the writers I knew were in the same position–as were many young academics with children (paid less than they are now) not to mention my neighbors in Connecticut.
In that situation, a co-pay is a barrier to getting preventive care.
And I was in a better situation than most people when it comes to judging whether or not I really needed the care.
But I did once go two days with a broken arm before going to a doctor because:
a) I really didn’t want to find out my arm was broken and that I now faced medical expenses that I really couldn’t afford.
b) I just dreaded going to a doctor: the hassle, the time involved . . I didn’t have an extra two hours to blow sitting in a doctor’s waiting room.
When I finally gave in , and a young doctor set it, it turned out that the cast was too tight. It hurt horribly-and then my arm started ot change color–a friend suggested it might be infected.
Again, I delayed going to the doctor. And when I did go indeed, it was infected. The cast had been digging into my arm.
And I’m an intelligent person . .
What I think you don’t understand is that a great many people in this country really can’t afford an extra $25. They have $200 in theier checking account, and no savings account. Or if they do have a savings account, the $800 in it is already spoken for. (New water heater, whatever.) .
In addition, most people don’t like going to the doctor. The exam may be uncomfortable or even painful; you may find out something you don’t want to hear; you will probably have to wait a least a half hour–maybe longer–and if you’re a busy working parent you can’t afford the time.
The only people I know who enjoy going to the doctor are older retired people who are in pretty good health and view it as a social occasion.
Finally, we have plenty of reserach showing that when they have co-pays and deductibles, people defer necessary care.
At one time, the VA had a smoking cessation program with a very modest co-pay.
When they decided to drop the co-pay, the number of people who enrolled soared. (And the program is very successful; people stop smoking.)
Most people dread the pain of trying to stop smoking. A $20 co-pay was just enough of a deterrent to tip the scale.
Finally, we know that in European countries where there is no co-pay, people get much better preventive care. In some countires cervical cancer is nearly non-existent–because there is no co-pay, eveyrone automatically gets a Pap smear.
To say that people need to have “more skin in the game” is to ignore the
healthier populations in all of those countires.
Maggie and R. Kasbeer:
Let’s say the idea of “skin in the game,” is an account of dollars that can be either used for health care this year, or rolled over next year to provide even more dollars.
And, let’s say that if these dollars are not spent on health care, a portion of them would be available as an inheritance.
So, they have skin in the game – the individual’s health versus his family’s
potential inheritance.
Shouldn’t people have the option to choose?
Don Levit
Don–
You just don’t seem to realize that a huge number of Americans die with no savings and owing money.
The whole notion of “inheritances” and “leaving money” is unimaginable.
Try reading Babara Eihrenerich’s Nickled and Dimed for a sense of how a huge swathe of America lives.
Maggie:
I am familiar with that book, having skimmed through it several times.
You and I seem to be on the same page, when it comes to income inequality, and the disappearance of the middle class.
In my opinion, we should never have gotten to the situation where a family policy costs $13,000 with a median family income of $58,000.
We certainly haven’t arrived at this scenario, due to “market economics,” for supply and demand would infer the premiums are unaffordable, except for the upper 10% of families.
Rather, we have arrived at this situation through large employer subsidies and federal tax breaks.
The health insurance exemption for employers (and employees) is by far the largest tax break the government offers, surpassing the home interest deduction.
When I suggested this money being available for preventive care, and to be rolled over if not used, this money would be available either through lower premiums, for higher deductibles, or through subsidies.
It would not be extra money out of pocket.
Don Levit
Medicare for More? Seriously, you like that? Ugh, I really dislike that name, Ray! Come on!