Thursday, March 1, 2012

"Premium Support" Medicare: Still A Terrible Idea!

The fell plan for Medicare that we thought had long since been interred, evidently is still alive and well. That is, the "premiumn support" Paul Ryan plan for Medicare. According to Fred Barnes WSJ op-ed piece today ('Ryan's Medicare Revolution') we are on the cusp of a change in Medicare which both parties will have no option other than to agree with....given soaring budget deficits (most, I remind readers, traced to wars of choice and a decade plus of unpaid for tax cuts, mainly benefiting the wealthy).

Barnes also gets his facts wrong when he writes:

"The revolution involves Medicare, the health care program for the elderly and the single biggest cause of America's looming debt crisis..."

In fact, it is not Medicare which is the "single biggest cause of the debt crisis" but the combination of ten years of useless, costly and unwinnable military adventures in Iraq and Afghanistan - which have already gobbled up over $2.9 trillion combined, and 10-plus years of unjustified tax cuts. Those latter have now taken out nearly $3.6 trillion from revenues and hence, with the military overstretch, created a deficit hole nearly $6.5 trillion wide. And yet, Medicare, in which beneficiaries must pay nearly $1500 a year in premiums plus 80% of all co pays, gets the blame!

Why? Because for knuckle dragging economic Neandertals it's the most convenient way to try to justify taking a sledge hammer to the program.

How does premium support work? Barnes again:

"Beginning in 2022, it would create a marketplace in which seniors have a fixed amount of money to buy health insurance. The amount of 'support' would match the price of the insurance premium."

Is he for real? What kind of a "marketplace" does he think will be created to attend to the medical needs of the mostly sick or infirmity -ridden elderly, who typically have 80-90% more medical demands and needs than the 24-44 year olds?

First, NO health insurance companies are going to compete for senior health care! They only do it now because the Medicare Advantage plans are paid more for their services than the government pays in standard Medicare. Hence, contributing to the standard program’s insolvency (by an excess $12 billion a year according to the GAO).

Barnes is also dishonest about claiming that premium support "matches" insurance pricing! Let us bear in mind here the maximum "premium support" ever suggested for this absurd program has been $15,000/yr. But the current average senior in Medicare requires support (or if you want, assistance) in the vicinity of $30,000/yr and much more post-86 years of age. This means that at the level of only $1,250 a month, most seniors - unless spectacularly healthy - won't get much help.

Let us assume an elderly woman requires hip replacement surgery at an on-paper cost of $30,000. Today, Medicare - standard Medicare, will pay 80% of that or $24,000, leaving her with $6,000 to pay on her own. A goodly amount, but not insuperable. In premium support at the maximum level, however, the woman would use ALL her allottment for one operation and still have $15,000 left to pay, and no more "premium support" for any other needs that may arise.

Worse, why compete for a pool of citizens which is basically going to be sickly most of the time? This is self-evident. Even now health insurance companies factor in the medical loss ratio (the ratio of unhealthy subscribers to the healthy ones that support them via fees, costs) as the most important in getting continued profits. That means they already know that any private plans for seniors on the open market would have vast medical loss ratios meaning the proportion of insurers' profits would be next to nil. Thus, seniors will clearly be shut out, translating to a no win situation for them. (No Medicare, and no private insurer to take them)

Secondly, competition per se doesn’t mean prices coming down. This is a myth that capitalists repeat over and over but there’s precious little evidence to support it. See all those gas stations out there competing with each other, ostensibly? You see any of them lowering their prices significantly more than any others in their vicinity? I don’t! The reason the gas prices stay high is because speculators hidden in their green eyeshades are making bets that oil prices will rise and so they do!

In the same way, look for medical insurance futures to be the next big thing by 2022 so "medical traders" will be speculating on how much inflations sends hip replacement or other operations soaring. Think medical costs are high now? Wait until after the GOP gets in again, assuming they do, and they implement "medical futures markets"! As a recent TIME columnist pointed out (‘The Market Can’t Cure Medicare’, May 2, 2011): “Nowhere in Adam Smith’s rule book does it say prices have to come down every time competitors show up”.

Thus it is egregious nonsense for Barnes to claim "the cost of Medicare will be capped with premium support".

No it won't. What will be "capped" is elderly access to any health care, period. We will then be back to the days...the harsh and savage era....before Medicare, e.g.

As Economics Professor Fiona Scott Morton aptly put it (ibid.) Ryan’s plan, and indeed any such premium support plan, is merely a demand shedding plan. As she puts it, “there’s no evidence many companies will be rushing in to provide health coverage to ailing boomers with competition that ought to lower any premiums"


She added:

"The Republican plan is not solving the problem. It’s solving the problem of the cost of government health care. You have people who can’t afford it and they’ll just die. Economists call that demand shedding”.

Thus the “Medicare revolution” proffered by Barnes and Ryan is NOT to engender market competition to "lower health premiums for seniors", but to shed market demand (by seniors) so they'll be unable to enter or access any private health care, period. And since no government help or insurance will be available (other than a meager voucher to try and purchase private insurance in an open market with seniors the only and largest risk pool) the senior will have no choice but to die.

Thus, we have a death policy and there's no gaming it with euphemisms or trying to put any lipstick on this pig.

Apart from that, we know health isn’t like buying a car, or i-pad or TV. The elements of objective and cool rational choice aren’t available mainly because the time when people most need health care is when their lives may be on the line: after a serious auto accident or fall, or appendicitis, or contracting pneumonia. Then, they simply need care and cost may not factor into it given that we know costs vary across large geographical regions, see e.g.

As shown in that blog, there is a way to control medical costs, but it doesn't depend on "premium support". It requires a provider network than mandates FIXED pricing for each procedure irrespective of what insurance vehicle one has....or doesn't. In this way, the delivery of care is rendered uniform without wild variations in costs, and in addition, costs can be controlled - especially as unnecessary procedures.

It is based on the compendium of cost-saving data cost-saving was highlighted in The Dartmouth Atlas of Health Care . The accumulated data - extracted from billing records compiled from hospitals across the nation, discovered variations from one town to the next in the treatment of the same ailment. This led to massive variation in the cost of treating the same ailment. As a result, some U.S. localities (like Miami) spend $17,000 per year on the average Medicare patient, while others (in Grand Junction, CO) spend less than $7,000 per year with results that are just as good.

All of this was highlighted in a recent PBS program:

In the specific type of system portrayed in Grand Junction, seniors - the elderly - would receive great care and at an economic cost without having to gamble they will be turned down in a premium support market.

It's eminently simple...IF you're out to serve people and not merely rake in profits!

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