MEDICARE ON THE ROPES
Few government programs have been as popular as Medicare. Its reputation
is a triumph in a country prone to think poorly of government
and of the regulations, waste, and bureaucracy widely believed to
be its bastard child. It is hardly a perfect program, yet it has endured for
over 45 years, and, save for some strong market advocates, only a few
propose that it should be significantly changed, much less abolished.
Yet along with American health care more generally, Medicare is
coming into increasingly difficult, even threatening, times. The health
care system, of which Medicare is a key part, is beset by an excessive
rate of cost escalation (now about 7% a year). Although it has controlled
costs better than the private sector (a 1%-2% annual advantage), Medicare's
costs are rising as well. And to create a twin threat, those costs are
rising just as millions of the baby boom generation are moving into
their retirement years. Medicare's budget is projected to climb from its
present $427 billion in 2007 to $884 billion in 2017. A Fidelity Investments
study concluded that a 65-year-old couple retiring in 2008 would
need $225,000 in savings to cover medical costs in retirement, encompassing
co-payments and deductibles, Medicare-premiums, and out-of-pocket
Although Medicare is my point of departure, its vitality (not necessarily
its mere survival) is heavily dependent upon the fate of American
health care more generally. The future of both will depend upon their
mutual capacity to control costs. An important element in managing the
cost escalation problem will depend upon the American willingness to
rein in its long-stranding commitment to unlimited medical progress
and technological innovation as its cherished outcome. I use the word
"willingness" to indicate the importance of a change of both will and
outlook, requiring a concerted moral and social drive in a fresh direction.
The word "ability" is meant to underscore the difficulty, in the face of
many competing interests, economic and cultural, to effect what even
the most concerted drive for reform seeks. As Marilyn Moon, a longtime
analyst of Medicare, put it: "the patterns of spending growth are
very similar to and often below those of private insurance ... [But]
Medicare (and Medicaid) cannot be successful in holding down costs over
the long run if healthcare spending in general is escalating.... Medicare's
size also increases the responsibility to the overall financial health
of the healthcare system."
MEDICARE'S DILEMMA: MORE MONEY OR LESS?
For all of its popularity, Medicare has always had problems and critics.
Its benefit structure rewards the use of technologies and those physicians
who deploy them. It is heavily focused on acute care medicine, which it
generously covers. It does not provide anywhere near decent coverage
for prevention, talking with patients, and good primary care. As the geriatrician
Christine K. Cassel has emphasized, it fails to provide coordinated
treatment management and to address "the growing importance
of self-care, chronic care, and low tech approaches to support quality of
care and to reduce suffering." Another important geriatrician, Muriel
Gillick, has pointed out that "if Medicare is a good program for robust
elders, it is profoundly inadequate for people who are frail or nearing
the end of life." If care of the chronically ill is a weak point, there is also
persistent underfunding of Medicare's administrative structure. Attempts
to move Medicare as an agency from one that pays the bills to
an active manager of improved health have been thwarted by its skimpy
staff and various other limitations built into the program.
Medicare has always faced an obvious dilemma: to fulfill its original
promise, it needs more money to improve administratively as a federal
agency and to strengthen the quality and scope of its coverage, all the
while trying to hold spending down. Higher quality and lower costs, that
win/win combination, are not inconceivable, but at times look like the
health care version of squaring the circle.
If Medicare faces a range of problems now, it is remarkable that it
came into existence at all. In the years prior to its 1965 passage, it faced
considerable resistance in Congress, lobbied against by the American
Medical Association and many business groups. As the political scientist
Jonathan Oberlander succinctly summed up the situation: "During the
1950s and early 1960s, Medicare emerged as a polarizing issue in American
politics. Its legislative history bore the markings of a deeply ideological
and partisan debate that reflected persistent divisions over the failed
national health insurance proposals of the Truman administration." All
that changed rapidly with the 1964 elections and the advent of liberal
democratic majorities in the House and Senate. When Medicare was
launched by Congress, it was met by great public acclaim. If for many it
was seen as prelude to universal health care, which did not happen, the
program was itself a remarkable piece of legislation, overcoming deeply
entrenched political opposition.
Once underway, Medicare enjoyed a long era, from 1965 to 1994, of
bipartisan support and consensus, encouraged in great part by its popularity.
From time to time the program had to cope with budgetary pressures
to limit expenditures, on one hand, and political pressures to improve
its benefits, on the other. The latter pressures were particularly
strong because of gaps in the program (e.g., an absence of drug coverage)
but also because of public opinion that pressed for benefit expansion,
especially with the political force of elderly interest groups behind it.
A 1986 poll showed that 80% of the public supported Medicare
expansion, even wanting more long-term care (covered by Medicaid).
Nor was that just an expression of hope. The polls also overwhelmingly
showed that the public was willing to accept a tax increase to bring the
improvements about. Even so, program benefits remained more or less
unchanged over the years. Yet from the start, Congress was worried
about the cost of Medicare, which soon came to seem out of control to
many of its members. Unable to stop the cost increases of the program,
cost containment as a priority triumphed over program improvement.
One result was the development of private Medigap insurance, most of
it limited to coverage of co-payments and deductibles, an initiative that
relieved Congress of some of the pressure to improve benefits.
Over time, however, out-of-pocket per annum payments by the elderly
for their health care increased and are now over $5000 on average
and as high as $9000-10,000 for some. By 2003, the median Medicare
beneficiary was spending 15.5% of income on health care, up from
11.9% in 1997. The government's share of Medicare beneficiary costs
is about 60% coverage, although 75-80% is the rough standard of adequacy
for private sector coverage. Even so, Medicare has remained remarkably
popular. It may well be that the security it offers more than
makes up for its many shortcomings.
By the mid-1990s, the era of consensus was over. The earlier era was
based on acceptance of the idea that Medicare would be a single-payer
program resting on liberal principles, notably the conviction that it
should be a social insurance program applicable to all the elderly, rich or
poor, and highly resistant to means testing. The 1994 elections, with
Republicans capturing both houses of Congress, reintroduced many of
the partisan and ideological battles that had marked the era just before
the introduction of Medicare. The drive to privatize the program took
its first strong steps in the late 1990s, and it was combined with efforts
to cut taxes and to reduce Medicare expenditures.
As it turned out, Medicare survived those years more or less intact.
If liberal Democrats over the years could not improve Medicare benefits,
a single-minded Republican and conservative assault could not seriously
cut them. Why not? The best answer seems to be a potent combination
of the popularity of the program, a wide range of financial and other
interests favoring the status quo, and a pervasive nervousness about
tampering with the program. "Both Democrats and Republicans know,"
David A. Hyman has written, "they are unelectable if they speak candidly
about the economic problems facing Medicare. Republicans accordingly
package their reform proposals as attempts to 'modernize' the
Medicare benefit package and offer beneficiaries more options. Democrats
focus their efforts on price caps and prayer." That is a colorful
exaggeration but on target. Christine Cassel makes a related, but no less
frustrated, point: "Reformers are looking more toward incrementally
adjusting benefits and deductibles, like a commercial insurer, than toward
organizing to fulfill a vital public mandate."
IS THERE A MEDICARE CRISIS?
As the global warming debate constantly reminds us, there is hardly any
alleged social, political, or environmental threat that does not have its
contrarians. However strong the general consensus of coming dangers,
there are those who either question them, downplay them, or deny them
altogether. The future of Medicare is no exception. Alternatively, the
threat may be conceded, but pessimism rejected: with a little ingenuity
and a strong will, solutions can be found. Pious hope can replace overwrought
It is not at all difficult to be a contrarian. Long-term financial and
demographic projections are always uncertain. Who foresaw the baby
boom generation coming in the 1930s? Medical cures and breakthroughs,
of great importance in charting future costs, cannot be predicted:
think of the discoveries of penicillin as well as other antibiotics
and antivirals, radically reducing deaths from infectious disease. Or, for
that matter, recall that just as infectious disease seemed by the 1970s to
be conquered, antibiotic resistance and AIDS emerged, now threatening
to overturn the earlier medical victories. And of course, Medicare itself
has over its history faced many alleged budgetary "crises" but has managed
to muddle through, sometimes stronger, sometimes weaker.
There are a number of reasons now to take the problem of credibility
with particular seriousness. There is the clearly visible 7% annual cost
increase with no end in sight. And the baby boom generation is, so to
speak, already in the pipeline, waiting to retire, and to start flowing at a
rapid and increasing rate after 2010, with horrendous projections by
2020 and even worse ones by 2030. Michael Leavitt, Secretary of the
Department of Health and Human Services at the end of the Bush administration,
was no contrarian. In an address in April 2008 he bluntly
said that "Medicare is drifting toward disaster." "It troubles me," he
added, "that this matter is not receiving more attention in the presidential
If Medicare faces a dire situation in the next 10 years or so, then steps
must be taken now to drastically reform the program. It will be too late
then-or too late to put in place anything but last-minute draconian
stop gaps. But hardly anything is harder in politics and social policy than
to take present steps to avert future dangers, and all the more if the
needed reforms themselves will be demanding, even painful. Not much
contrarian skepticism or opposition, even if it is a tiny minority voice,
is needed to make the solution of present problems, not future ones, the
default option. "Delay," the economist Peter Heller has written, "exposes
societies to far greater risks than if the inevitable adjustment has
been anticipated and implemented much earlier.... so governments ...
need to take much more explicit account in the near term of the potential
fiscal consequences of long-term developments, despite the uncertainties
that surround them."
Moreover, if the argument of this book is plausible-that nothing less
than a rethinking of some fundamental values is needed-then a strong
consensus indeed will be necessary to deflect attention away from the
organizational and management schemes that presently dominate mainline
American reform efforts: just make the system work better. That
kind of approach is a dead end, but a pursuit of such efforts can be likened
to one of the endemic problems of end-of-life care, that of embracing
hope and unlikely treatments and of refusing to grant the obvious fact
that the patient is dying. Do not give up: provide one more round of
chemotherapy. Do not give up: provide one more effort toward improving
the efficiency and cutting waste in the health care system.
THE PESSIMISM OF THE MEDICARE TRUSTEES
The most pessimistic judgments on Medicare's financial problems have
always come from the Trustees of its Trust Fund. Because the program
still exists over 40 years later, it is not hard to become wary of, even
jaded by, the traditional hand-wringing of its Trustees. For much of its
history, the Medicare Trust Fund has projected a long-term deficit. At
some future point, the Trustees have repeatedly said, its expenses will
outrun its income (from payroll taxes in the case of hospital care, part
A). But it has presented a peculiar kind of problem: the projected date of
bankruptcy has fluctuated over the years, always pushed back to a later
date. In 1966, the estimated date of exhaustion was 1990, or 24 years. In
1986, the exhaustion date was 1997, 11 years to go. By 2006 the date
moved to 2024, or 18 years. Now it is down to ten years. The source
of the fluctuation has been a mixture of higher and lower government
revenue, changing medical costs, and a regular dose of anxiety "crisis"
politics designed to avert fiscal threats. The fact that Medicare has continued
despite the dire forecasts is at least one reason why some commentators
expect that it will continue doing so: whatever its problems,
Congress will not allow Medicare to go under.
Once again the language of crisis is being used, but this time with
greater urgency than in the past and repeating other recent warnings.
The 2008 report of the Board of Trustees of the Federal Hospital Insurance
Fund (Part A) said that "HI [hospital insurance] tax income began
falling short of HI expenditures in 2004 and is projected to do so in all
future years ... and fund assets are projected to be exhausted in 2019.
... Consideration of ... reforms should occur in the relatively near future
... We believe that prompt, effective, and decisive action is necessary
to address these challenges." Medicare expenditures represented
2.7% of GDP in 2005, grew to 3.2% in 2006, and are projected to rise
to 7.3% in 2035.
Echoing the Trustee anxieties, the Congressional Budget Office (CBO)
has noted that, along with an increase in the proportion of GDP spent
on Medicare, the number of beneficiaries has increased from 20 million
in 1970 to 41 million by 2003, with an increase as well in their average
age. Most notably, costs per enrollee grew at a rate 3% faster than per
capita GDP. Another federal agency, the Congressional Research Office
(CRS), combining Medicare and Medicaid projections, forecasts a rise
from 4% of GDP today to 12% of GDP in 2030 to a staggering 21% in
2050. It notes that "relatively small tax increases or benefit reductions
could return Social Security to long-run solvency." But it could offer
no silver lining for Medicare and Medicaid: "to finance projected increases
in spending ... would require tax increases of an unprecedented
magnitude.... Under current policy, future generations will be made
worse off by higher taxes or lower benefits."
To highlight this point further, the CRS notes that, short of serious
reform, health care deficits will grow from 6.1% to 12.3% of the GDP
by 2030 and from 14.3% to 35% in 2050-and adds that the United
States has never had a peacetime deficit greater than 6%. The economic
effects of even lower projections would do severe economic damage to
the country, pushing it far beyond its borrowing and financing capacities.
Moreover, with current policies unchanged, the Medicare Trust Fund
will lack necessary resources well before the Fund is exhausted. Tax revenue
is neither projected to rise nor costs projected to fall in any way
sufficient to keep up with program spending.
Excerpted from "Taming the Beloved Beast: How Medical Technology Costs Are Destroying Our Health Care System" by Daniel Callahan. Copyright © 0 by Daniel Callahan. Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher. Excerpts are provided solely for the personal use of visitors to this web site.