Want High-Quality Universal Health Coverage? Fix Medicare First and Use It as a Model

By Maggie Mahar, Health Beat. Posted August 2, 2008.

This article originally appeared on Health Beat.

Thanks to the unbridled rise in health care prices, Medicare is going broke. As I mentioned in a recent post, four years ago the Medicare trust fund that pays for hospital stays started to run out of money. In 2004 the fund began paying out more than it takes in through payroll taxes.

"Since then, the balance in the fund, combined with interest income on that balance, has kept the fund solvent. But in just 11 years, it will be exhausted," the Medicare Payment Advisory Commission (MedPac) reported in March. "Revenues from payroll taxes collected in that year will cover only 79 percent of projected benefit expenditures." And each year after 2019, the shortfall will grow larger.

Make no mistake: This is not an example of an inefficient government program spending hand over fist without caring whether it is getting a bang for the taxpayer's buck. As I discussed in that earlier post, health care prices have been climbing -- without a concomitant improvement in patient outcomes or patient satisfaction -- in the private sector as well.

Medicare Reform Could Pave the Way for National Reform

Before trying to roll out national health insurance, the next administration needs to address the structural problems that undermine the laissez-faire chaos that we euphemistically refer to as our health care "system." Otherwise, we run the risk of winding up with a larger version of the dysfunctional, unsustainable system that we have today. Ideally, the administration should make Medicare reform a demonstration project for high-quality, affordable universal coverage.

Let me be clear: Medicare reform does not preclude national health reform. To the contrary, by starting with Medicare and showing what can be done, reformers enhance their chances of winning the larger war.

Nor does focusing on Medicare first mean that the suffering of uninsured and underinsured Americans must be ignored. As part of Medicare reform, Medicaid and the State Children's Health Insurance Program should be folded into Medicare, turning these "poor programs for the poor" into federal programs, expanding coverage and raising the fees for doctors who treat Medicaid patients.

Medicare presents reformers with a promising starting point. Politically, Medicare reform will be easier than a nationwide overhaul, simply because Congress recognizes that when it comes to Medicare, it has no choice. Legislators know that Medicare has reached a tipping point: They must do something.

This is why, earlier this month, the Senate flirted with political suicide by considering letting a scheduled cut in the fees Medicare pays physicians go into effect. On July 1, Medicare was supposed to slash physicians' fees, across the board, by an average of 10.6 percent. Physicians threatened that they would close their doors to Medicare patients. At the eleventh hour, legislators stepped back from the edge of the cliff.

But Congress knows that the problem has not been solved. Legislators will have to revisit the problem of Medicare spending early in 2009. Physicians' fees are scheduled for another across-the-board cut on Jan. 1, 2009. Everyone knows that this is a crude solution. Medicare pays primary care physicians too little, which is why, MedPac explains, 30 percent of Medicare patients looking for a new primary care doctor report difficulty finding one. Meanwhile, Medicare overpays other physicians for certain services. Dollars need to be redistributed; the net result could easily be a wash.

How Medicare Can Save Dollars and Lift the Quality of Care

But Medicare cannot contain runaway inflation simply by looking at how much it pays doctors. The program overpays drugmakers; it overpays device makers; it overpays private insurers who offer Medicare Advantage. In some cases, it overpays hospitals -- or squanders dollars on services that don't benefit patients, without giving hospitals the right financial incentives to provide more effective, safer care.

In its March and June reports, the Medicare Payment Commission has made a number of shrewd and imaginative suggestions for cutting waste in the system. First, Medicare should eliminate the windfall bonuses that it now pays Medical Advantage insurers (see "The Problems With Medicare Advantage").

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Maggie Mahar is a fellow at the Century Foundation and the author of Money-Driven Medicine: The Real Reason Health Care Costs So Much (Harper/Collins 2006).

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