• 18
    May
  • Confronting Urgent Realities

Obama AfghanistanORIGINS OF MEDICARE’S BANKRUPTCY

Repeal of the bill would be reckless on two counts:

1. Traditional Medicare is bankrupt not only financially but also structurally, because of its archaic methods of financing and reimbursement Marvin s. Wool, MD, MPH and its defined benefit structure. Alone, it is incapable of responding to health care’s technological evolution and America’s looming tectonic demographic shifts.
2. Time is short; Congress cannot afford to start over. The “baby-boomers” will start joining Medicare in 2011 and will continue to inundate it for the following 19 years with an impact underestimated by even the most pessimistic pundits.

A snapshot of Americans and their health care from the year 1966 helps us understand the current predicament. Back then, 5.2 working Americans were contributing payroll taxes for each Medicare beneficiary; today that ratio has declined to 3.9:1. In 1966, each 65-year-old lived only another 14.6 years on average. Today, a 65-year-old lives 20% longer, for an average of 17.6 additional years.

The original financing mechanism was predicated on those demographics as well as on proportional spending for various health care services in the 1966 era. Part A hospital services, which then accounted for 76% of total costs were, and continue to be, fully financed by payroll taxes paid into the Medicare Hospital Trust Fund. By 2002, those services accounted for only 58% of costs. In 1966, in contrast, Part B services accounted for only 24% of costs, 25% of which were financed by premiums paid by beneficiaries and 75% by general revenues (i.e., income taxes). By 2002, Part B’s share had risen to consume 42% of spending; this means that non-Medicare taxes now finance nearly a third (32%) of all Medicare costs, twice the proportion relied upon in 1966. cheap cialis canadian pharmacy

The traditional Medicare defined-benefit plan was also predicated on those 1966 proportional costs: they were richest for Part A hospital services and more modest for Part B outpatient and physician services while ignoring what were then negligible drug costs.

Finally, provider reimbursement in 1966 was based upon a я fee-for-service model. As that model developed fault lines, a series of fixes were attempted:

  • 1983: the Diagnosis-Related Group (DRG) prospective payment system for hospitals
  • 1989: the Resource-Based Relative Value Scale (RBRVS) for physician fees
  • 1997: the Balanced Budget Act (BBA), a combination of prospective payment schemes for outpatient services, specialty hospitals, and home health services—as well as ill-disguised price controls on hospital and physician services

All three initiatives have succeeded only in provoking annual skirmishes between Medicare and its providers and have done little to control costs.

Given this history, is there enough in the 2003 Act upon which to build? A bill that was so vehemently opposed by both the Classic Conservative Trent Lott (R-Miss.) and the Venerable Liberal Lion Ted Kennedy (D-Mass.) can’t be all bad . . . and it’s not.
The most positive news is that the MMA of 2003 does provide 10 million senior citizens with their first-ever drug coverage, while another eight million people at or below the poverty line will keep their existing coverage. Employer tax credits will ensure that most of the 13 million elderly people who currently have an employer-sponsored benefit will retain it, and those unfortunate few with huge costs will be covered.

Two vulnerable, and costly, groups do remain ill served, however: the seven million near-poor seniors with incomes just above the poverty line and people with mid-level drug expenses between $2,250 and $5,100, the infamous “doughnut hole,” in which not a cent is covered.

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