The Future of Medicare – Addressing the Problems Politics and Solutions

Rate of Spending Will Rise. The incentives associated with the combination of traditional Medicare, plus supplementary insurance, have been especially problematic. The current system rewards the most aggressive health care practitioners, penalizes conservatively practicing physicians, provides negligible incentives for the elderly to seek cost-effective physicians or hospitals, and gives incentives to pay for new technologies and procedures irrespective of cost. Add to this the growing elderly population, and Medicare spending, absent budget constraints or reform, will grow more than 7 percent per year (See Figure 3).

THE POLITICS

The principal obstacle in moving forward continues to be “politics.” Most politicians – republicans and democrats alike – are petrified to disturb a program that is enormously popular with the nation’s 40 million elderly (most of whom vote). One need only recall what happened in 1988 when the Congress passed the Medicare Catastrophic Coverage Act. This law was a major expansion of the Medicare program that added a new long-term care benefit. Its passage was a direct result of the lobbying efforts of the American Association of Retired Persons (AARP). The program was funded entirely by additional taxes on high-income beneficiaries, however, and many viewed the benefits not to be worth the costs. Irate seniors led to the bill’s repeal in 1989.

The AARP is not the only political force serving as an obstruction to meaningful reform. Medicare epitomizes the concept of special-interest politics and every major group with a stake in the Medicare pie has a lobbying force in place to protect their own turf. Medicare is the largest single source of income for the nation’s hospitals, physicians, home health agencies, clinical laboratories, durable medical equipment suppliers, to name some. All of these groups work hard to protect and advance their interests through the political process. Bruce C. Vladeck, the former Administrator of the Health Care Financing Administration (HCFA), has referred to this as the “Medicare-Industrial Complex.”

Forging a solution to the impending crisis is highly unlikely unless all players involved in the debate can reach a bipartisan consensus. Given that Medicare is a public program, it will never be able to escape the realities of the political process. However, we will likely continue to witness the implementation of short-term stopgap measures focused on provider cuts rather than systemic change, unless our elected officials get the courage to break free of the pressures put on them by the “Medicare-Industrial Complex.”

THE SOLUTIONS

Within the current debate a number of options exist for reforming the system, including

1. Cut Federal Medicare Spending. Because Medicare spending already is 12 percent of the federal budget and rising, one reform objective is to curb the program’s growth, while retaining the basic framework of the current program. Options under consideration are as follows:
   • Trim payments to hospitals, doctors, and other health care providers. Supporters of this approach maintain that it has been an effective way in reducing overall spending in the past and has not had a negative impact on provider participation in Medicare. Opponents argue, however, that further reductions in provider payments may result in physicians refusing to treat Medicare patients, or worse, reducing access to medical technology.

   • Curb fraud and abuse. Many believe that Medicare’s financial problems could be solved, at least in part, by rooting out fraud and inappropriate payments to providers. Unfortunately, it is not that simple. Although a 1997 audit of the program found that Medicare should not have paid claims worth about $20 billion, not all of these claims were outright fraud. Thus, any savings from such measures would be miniscule in comparison to the amount of money needed to restrain spending growth.

   • Raise the eligibility age for Medicare. Given the increased life expectancy, many policymakers advocate raising the age of Medicare eligibility from 65 to at least 67. This would limit the number of people covered under the program, thus cutting Medicare spending. Given that some people might find it hard or impossible to work past the age of 65, this could lead to an increased uninsured population for those individuals no longer maintaining employer-sponsored health insurance coverage.

2. Have Beneficiaries Pay a Greater Share of Program Costs or Raise Revenue From Other Sources. Coupled with proposals to reduce Medicare spending are several options for generating program revenue.
   • Raise Part B premiums . Current beneficiary premiums are set to cover approximately 25 percent of Part B costs. The remaining 75 percent is funded by general revenues. Raising the premiums would alter this ratio, saving the federal treasury some additional money. Opponents of this proposal argue, however, that this would put an undue financial burden on poorer beneficiaries.

   • Raise deductibles and co-payments. Proponents of this proposal argue that imposing higher cost-sharing requirements would discourage beneficiaries from consuming unnecessary medical care. Again, the drawback is that higher cost sharing would be most burdensome for the lowest-income and sickest beneficiaries.

   • Raise premiums for beneficiaries with higher incomes. An alternative to across-the-board increases in beneficiaries’ costs would be to raise premiums only for those who are economically better off, based on a sliding scale. Unfortunately, this proposal is unlikely to result in a significant amount of money for Medicare, since only about 5 percent of Medicare beneficiaries have incomes above $50,000.

   • Raise payroll taxes. An increase in the payroll tax would extend the life of the Medicare trust fund. HCFA estimates that raising the rate from the current 1.45 percent to 1.70 percent of wages for both employers and employees would extend the trust fund through 2021. The downside to this proposal is that it places an undue burden on younger workers and may have a significant negative effect on the nation’s economy.

   • Raise revenue from other sources. Other sources of revenue under consideration include, for example, an increase in the tax on cigarettes and other tobacco products.

3. Improve Benefits. Many experts argue that a modern Medicare program should address not just future spending, but also the adequacy of Medicare coverage. Additional benefits include prescription drug coverage, stop-loss protection and long-term care. The costs associated with these benefits could be enormous, and unless they are folded into an entirely restructured program, would only add to Medicare’s financial instability.

4. Fundamentally Restructure Medicare. Many believe that the aforementioned options are temporary solutions, at best, and that the program needs complete restructuring. Several leading proposals that would significantly reform the Medicare program include:
   • Adopt a defined contribution plan to limit federal spending. Under this approach, Medicare would give beneficiaries a choice of health plans that would offer a basic level of benefits. Medicare would pay a fixed amount toward the cost of whichever health plan the beneficiary selects. If Medicare payments do not cover the full cost of the premium, then beneficiaries would have to pay the balance themselves.

     Supporters like this approach because it would make federal spending on Medicare more predictable. Competition among health plans could improve quality of care and lower costs. Opponents argue, however, that beneficiaries would probably face higher out-of-pocket spending for medical care. Therefore, those with modest incomes or significant health problems could be adversely affected.

   • Replace Medicare with an individual investment-based system of funding retiree health care. Some policymakers have proposed replacing Medicare, which now provides federally guaranteed benefits with a broad-based system of retiree health savings accounts. In such a system, people would save a percentage of their income during their working years to pay for their own medical expenses upon retirement. Certain tax incentives, similar to Individual Retirement Accounts (IRAs) would be put in place to encourage savings.

     Proponents of this approach maintain that this system would help with the demographic imbalance and could introduce greater competition in the health care system – giving individuals greater control over how their health dollars are spent when they retire. This market-based approach could, in turn, help reduce the growth in health care spending.

     The significant disadvantage to this approach, however, is that low-income workers may not save enough money to cover their future health care expenses. Moreover, the amount of money available in the health accounts would be dependent upon how the funds had been invested. The transition from the current financing mechanism to an investment-based system would be difficult, since younger workers might have to contribute to both systems simultaneously.

What Does the Future Hold in Store?
Enactment of the Balanced Budget Act of 1997 (BBA 97) produced an estimated $115 billion of savings over five years from Medicare spending that otherwise would have occurred under then current law. This bill, coupled with a fairly robust economy, has extended the life of the Medicare trust fund from 2008 to approximately 2015.

The BBA 97 also created the National Bipartisan Commission on the Future of Medicare. It was hoped that this 17-member commission made up of individuals appointed by the U.S. Senate, U.S. House of Representatives and President Clinton would develop recommendations that would provide Members of Congress political “cover” to vote in favor of the recommendations. Unfortunately, the Commission failed to garner the necessary 11 votes and the preliminary recommendations failed to move forward.

Despite the failure of the Commission, Members of Congress, President Clinton, Medicare stakeholders and other health policy experts continue to debate this critical issue. Over the course of the next year, we can expect to see numerous proposals put on the table for consideration and Medicare reform will likely be a key issue in the 2000 elections. Neurosurgeons should continue to monitor and participate in this debate, as the Medicare program will change and these changes will impact neurosurgeons and the patients they serve.