Wednesday, May 18, 2011

Medicare: Putting “Going Broke” in Context

Money-Driven Medicine: The Real Reason Health Care Costs So Much
Maggie Maher provides a blog called Health Beat where she posts interesting information related to the world of healthcare. It is a great source of information. For those interested in the subject of healthcare costs, I also recommend her book: Money-Driven Medicine.

She provides us with some insight into Medicare and the report just issued by the Trustees of the system. This report was widely publicized with headlines proclaiming that Medicare will “go broke” in 2024. Maher provides some interesting details from that report and some advice on how to interpret it.

“What the report actually says is that in 2024, money flowing into the Medicare Hospital Insurance (HI) Trust will “be sufficient to pay [just] 90 percent of the trust fund’s costs.” In other words the money flowing into the Medicare fund that covers hospital stays will be 10 percent less than money flowing out.”

“Looking ahead another sixty years, the Trustees project that the Trust fund’s ability to pay all of its bills with revenues dedicated to HI is projected “to decline slowly to 75 percent in 2045, and then to rise slowly, reaching 88 percent in 2085.” In other words, in 2085 Medicare still will be able to cover 88 percent of hospital costs--which means that, in theory, the other 12 percent would come out of general revenues. But that is not likely to happen.”

If you had discovered that you were borrowing more against your credit cards than you could afford to pay off each month, would you announce to your associates that you had “gone broke?” Not likely. You would either try to increase your income (difficult) or lower your expenses (easier). That is the situation Medicare faces.

We have written many times about the opportunities to cut waste and fraud from healthcare costs. The recently passed Patient Protection and Affordable Care Act (ACA) attempts to address many of these issues.

“....the Affordable Care Act (ACA) already has helped keep the Trust Fund in the black. Before Congress passed the ACA, Medicare’s trustees had predicted that the Health Insurance Fund would begin running out of money in 2016 — just five years from now. After President Obama signed the legislation in March of 2010, the Trustees announced that thanks to cost savings and new money raised by the Affordable Care Act, the HI fund wouldn’t begin to run short until 2029.”

“Today Medicare's Trustees reported that a ‘slower than assumed economic recovery’ has taken a toll on revenues, and they moved the turning point up to 2024. This still means that reform legislation has given the Fund an extra eight years.”

“Today the Trustees affirmed that ‘projected Medicare costs over 75 years are about 25 percent lower because of provisions in the Patient Protection and Affordable Care Act.’”

These estimates are based on quantifiable changes that have been made. The problem with cost projections is that there are so many opportunities that cannot be quantified as of yet.

“Just how much will the Affordable Care Act save? Last year, the trustees noted that the ACA ‘contains roughly 165 provisions affecting the Medicare program by reducing costs, increasing revenues, improving certain benefits, combating fraud and abuse, and initiating a major program of research and development for alternative provider payment mechanisms, health care delivery systems, and other changes intended to improve the quality of health care and/or reduce its costs to Medicare.’”

It will take a while to see how all of these approaches pan out—and we have the time. Note that giving Medicare the right to negotiate costs with drug companies is not even included in that list. Meanwhile, there will be other opportunities to save healthcare costs not directly associated with Medicare.

Medicare is not in as bad a shape as some would like you to believe. What is in bad shape is our ability to create intelligence-driven legislation in our House and Senate. If drastic changes are to be made, that is where we should start.

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