• Tag Archives Medicare

  • Why Medicare for All Is Already Looking More Expensive

    Posted on by Azrael Comment


    After my study of the costs of Medicare for All (M4A) was published last July, a fierce debate erupted over whether M4A, while dramatically increasing the costs borne by federal taxpayers, might nevertheless reduce total U.S. health expenditures. Now, just one year after my findings, we have substantial additional evidence that M4A would further increase, not reduce, national health spending.

    To be clear, no one on either side of this debate questioned my central finding that M4A would increase federal costs by an unprecedented amount, likely between $32.6 trillion and $38.8 trillion over ten years—a federal tab so large that even doubling all projected federal individual and corporate income taxes couldn’t finance it. Yet M4A advocates continued to believe that it could bring national health spending down. That’s become substantially more difficult to argue in light of subsequent events.

    To understand how the picture has clarified, let’s review some of the specifics of my cost estimates as well as those of other experts. Prior to the introduction of Sen. Bernie Sanders’s M4A bill in 2017, various experts—including a team from the Urban Institute, Emory professor Ken Thorpe, and others­—attempted to score the costs of M4A. These studies concluded that M4A would not only dramatically increase federal spending, but increase total national health spending as well.

    Subsequent to these studies, but prior to mine, Sen. Sanders introduced his M4A bill. That bill specified that health provider payment rates under M4A would be determined by the same methods used to set Medicare payment rates, which would average about 40 percent less than private insurance rates over the first 10 years of M4A.

    Obviously, if one assumes that payments for all health treatments now covered by private insurance are reduced by about 40 percent, such a dramatic cost-reduction assumption would likely lead to the conclusion that total health spending would decline. My study duly reported the numbers that would derive from this cost-saving assumption but at the same time noted that “it is likely that the actual cost of M4A would be substantially greater than these estimates,” and that they should be regarded as a “lower bound.”

    For one thing, federal lawmakers have historically balked at implementing provider payment reductions much smaller and less sudden than those. For another, dramatically reducing provider payments (and thus health care supply) at the same time that M4A markedly increases the demand for health services would almost certainly disrupt Americans’ timely access to quality health care, precipitating unpredictable political fallout.

    Although my study was clear that the actual costs of M4A would likely be substantially higher than they would be under the aggressive assumption that all provider payments are suddenly cut to Medicare rates, mischaracterizations of my conclusions proliferated. Some M4A advocates wrote (and continue to write) that my study concluded that M4A would reduce national health spending, even though my study did not say this, and despite various Fact Checkers calling out this claim as a distortion.

    It was certainly fair for M4A advocates to express their belief M4A could and would reduce all provider payment rates to Medicare levels, thereby lowering national health spending. At the same time, it was never accurate to misattribute this finding to my study, which had found that such severe cuts were unlikely to be implemented. But now we know more about these dynamics than when my study was published. Based on events over the last year, even M4A’s strongest advocates can’t expect that such dramatic provider payment cuts would be successfully implemented under M4A.

    When my study was first released, some M4A supporters argued that my lower-bound estimate was the best one because it most closely reflected the literal text of the Sanders bill. As one wrote in defense of my lower-bound projection’s credence,

    For now, the Sanders bill would pay health care providers at Medicare rates, which are on average 40 percent lower than private insurance rates.

    In other words, they argued that regardless of whether that course of action was politically realistic, it was nevertheless what was written into the bill, and so it was fair to assert that M4A “as written” would lower national health costs (setting aside the issue of whether my lower-bound estimate’s other assumptions of substantial savings in drug prices and administrative costs were too optimistic).

    However, more recently M4A advocates have been rapidly backing away from this interpretation. For example, an Aug. 20 letter to The Wall Street Journal argued that

    nowhere in the House or Senate Medicare for All bills does it state that Medicare for All would reimburse hospitals at current Medicare rates. The Senate bill states that payment would be established in a manner consistent with current processes.

    An expert recently interviewed by Politifact offered a similarly revised interpretation of the Sanders language: that the text of the bill only requires that a Medicare-style rate-setting process, not actual Medicare rates.

    The article states,

    the Medicare for All bill sponsored by fellow Democratic candidate Sen. Bernie Sanders (I-Vt.) doesn’t actually say hospitals would be paid at Medicare rates. . . . Politically, Anderson argued, the odds are ‘quite low’ that the government would decide to pay all hospitals the current Medicare rates for all services, though it would set a lower price than what many private plans now pay.

    The intended message to health providers of these statements is clear: don’t worry, if M4A is enacted, lawmakers won’t really cut your payments down to Medicare levels.

    As interpretations of the M4A bill’s legislative language, these assertions are a stretch. The bill language says specifically that the federal government will establish “fee schedules” for M4A that are consistent with those that result from Medicare’s rate-setting process. My study observed that such stipulations were likely to be amended on the way to enactment, not that they would be enacted as is and then simply ignored. It’s difficult to construe the legislative language as leaving the federal government free to arrive at whatever payment levels are deemed politically acceptable, rather than those that arise under the current-law Medicare process.

    But putting aside the interpretative stretch, advocates’ recent efforts to massage the bill’s intent would, if successful, clearly negate the basis for any claim that M4A would lower national health costs. Such claims of cost savings were always based entirely on the assumption that M4A would lower private insurance payment rates not just a little bit, but all the way down to Medicare levels. Indeed, projections by multiple experts indicate that if instead M4A’s payment rates were set higher than Medicare’s current rates—even if only at the bare minimum that enables hospitals to break even—national health spending would rise, not fall, as a result of M4A’s substantial coverage expansion.

    Of course, the aforementioned quotes represent the perspectives of just certain individuals, and by themselves are not proof that every M4A advocate is now embracing a higher-cost vision for the program. But the quotes also align with what happens, and is now happening, when government-run health plans are developed.

    As previously noted, M4A advocates’ recent shift to supporting higher provider payments is exactly what my study anticipated upon an actual attempt to enact M4A. The initial promises of lower costs would give way to the realities of federal government deal-making. It is always an analytical mistake to unfairly compare the messy reality of existing policies, which have been run through the real-world legislative wringer, to an idealized fantasy alternative that hasn’t. But we don’t need to wait to see these messy compromises rearing their heads with respect to M4A. The shift to countenancing higher government expenditures under M4A is already happening.

    One such scenario recently played out in the state of Washington, which was attempting to set up its so-called “public option”—i.e., a state-run plan through which those lacking other health coverage could acquire it. Here, too, the initial idea was to pay providers participating in the public option at Medicare rates—until, that is, the legislation actually started to move.

    By the end of the process, the legislation had shifted from paying providers at levels no higher than Medicare rates, to paying them at levels no higher than 160 percent of Medicare rates. Faced with the reality that providers wouldn’t support or participate in the plan at Medicare rates, sponsors simply buckled and promised more public funds until opposition was defused and the legislation could pass.

    It should be obvious that this cost-increasing dynamic is even more inevitable with a federal M4A program than it was with Washington state’s “public option.” Under M4A there would be only the one single-payer plan, and providers would either have to participate in it, or cease to practice. Obviously, America’s health providers would fight several times as hard against payment cuts under M4A that they could not escape, as they needed to do against Washington state’s public option in which they could simply have chosen not to participate.

    One M4A advocate understood the significance of the stakes in Washington state:

    This would be a massive game changer . . . if they were able to somehow not only convince a statewide network of doctors and hospitals to agree to a 40% pay cut, but to also manage to make such an arrangement work without driving those hospitals, clinics or physicians into bankruptcy.

    But they didn’t do so, because they couldn’t.

    The great promise of M4A for its advocates is that it will be able to simultaneously offer Americans more comprehensive coverage while also bringing health costs down. But M4A can’t bring health costs down unless it dramatically cuts payments to providers. What we’ve learned over the last few months is that, when faced with a choice between abandoning government-run health care and abandoning cost containment, supporters are choosing to abandon cost containment. By so doing, the core rationale offered for Medicare for All—that it would deliver better health care for less money—is being undone.

    This article is republished with permission from Economics 21.


    Charles Blahous

    Charles Blahous is a senior research fellow for the Mercatus Center, a research fellow for the Hoover Institution, a public trustee for Social Security and Medicare, and a contributor to e21.

    This article was originally published on FEE.org. Read the original article.


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  • How Medicare For All Could Become the Leading Cause of Death In America

    Posted on by Azrael 1 Comment

    The top three leading causes of death in the US are heart disease (614,348), cancer (591,699), and seeking medical treatment. Yes, you read that correctly. According to a 2016 study by Johns Hopkins, medical errors contribute to the deaths of more than 250,000 Americans annually, which places it as the third leading cause of death in the US.

    Other estimates have actually placed those numbers even higher at around 440,000 annual deaths because errors by health care providers are not included on death certificates.

    Our current health care system is based on a fee-for-service (FFS) reimbursement model that rewards doctors for providing more treatments than necessary because payment is dependent on the quantity, not quality, of care.

    Each time you visit the doctor’s office, consult a specialist, or stay in a hospital, you pay for every single test, treatment, or procedure, even though some of these services may be unnecessary.

    These unnecessary tests and treatments have accounted for $200 billion annually and have been found to actually harm patients. That’s because the FFS system is volume-based, not necessarily value-based. Therefore, any increases in the volume of care equal increases in medical errors.

    Hospital-acquired infections (HAIs) contribute to the deaths of nearly 100,000 people annually, leaving almost two million of the total afflicted population requiring treatments that cost over $25 billion a year. These costs could be passed along to taxpayers under Medicare for All, instead of private insurers and employers, as they are now.

    Take one HAI, for example: central line-associated bloodstream infections (CLABSIs), which occur when germs enter the bloodstream from a catheter (tube) that health care providers insert in the veins (neck, chest, or groin) of patients to supply them with medication or fluids or to collect blood.

    According to an article in the New England Journal of Medicine, CLABSIs may cause an “estimated 80,000 catheter-related bloodstream infections and, as a result, up to 28,000 deaths among patients in intensive care units (ICUs).” These deaths often occur after patients have spent a significant amount of time and money in the hospital.

    The CDC admits the infections are preventable, yet ICUs still experience high numbers of them. A 2003 study conducted by researchers at Johns Hopkins revealed that hospitals can eliminate CLABSIs entirely and very cheaply simply by requiring physicians and hospital staff to follow a five-step checklistwhen inserting central lines, which include obvious sterilization and precautionary measures.

    The researchers tested the checklist at 103 ICUs in Michigan and published their findings a few years later. They found the rate of CLABSIs fell by two-thirds while saving over 1,500 lives and $200 million.

    The simple explanation for most medical mistakes is human error; in CLABSIs’ case, neglecting simple precautionary measures. The problem is hospitals have no incentive to change the issue because they generate more money from treating infections than preventing them.

    It’s evident that iatrogenic events caused by medical oversights or mistakes spur higher health care consumption. An article published in the Journal of the American Medical Association found that issues with quality in outpatient care and medical errors exclusively caused “116 million extra physician visits, 77 million extra prescriptions, 17 million emergency department visits, 8 million hospitalizations, 3 million long-term admissions, 199,000 additional deaths.”

    Patients from HAIs spend, on average, an additional 6.5 days in the hospital and are five times more likely to be readmitted and twice as likely to die, while surgical infections add another $10 billion in annual costs.

    If third-party payers (insurance companies, government, employers) weren’t obscuring the true cost of health care by covering patients’ medical bills, patients would be less likely to permit hospitals to give them highly profitable, easily preventable infections.

    If Medicare for All covered all 325 million Americans—which include the nearly 30 million uninsured Americans and the 41 million more with inadequate health insurance—it would be the most disastrous third-party payer ever, once cost was not a primary factor.

    Including fatal medical errors and the hundreds of thousands of deaths resulting from longer wait times—already exhibited by VA health care—this could presumably make Medicare for All the single biggest factor to the leading cause of death in the US.

    Medicare for All would not only be benefiting those who didn’t contribute 40 or more years into the Medicare Trust, but it also wouldn’t substantially improve conditions because it would forcibly thrust all Americans into a system that costs billions of dollars in unnecessary treatments that don’t necessarily improve patient outcomes but rather impose tremendous harm.

    The fundamental flaw people assume about health care is that being universally insured equals better health outcomes. Not true!

    Canada has a single-payer system, and not only are they experiencing increased wait times every year (average of 21.2 weeks from primary care doctor to specialist for treatment) for health care but their mortality rates from diseases such as cancer (22 percent) are actually 3.5 percent higher than US cancer deaths (18.5 percent) relative to population size. Canadian deaths from heart disease (14.3 percent) fall only 5.4 percent lower than US deaths from heart disease (19.7 percent), so Canada is not significantly healthier because of its single-payer system.

    US Medicare is wasteful, ineffective, and expensive. The Dartmouth Atlasdocuments variations in health care utilization in the US, and it can reveal spending differences on Medicare patients in separate geographical locations with demographically homogeneous populations.

    Further, studies show the variances between patients in these separate regions were not due to differences in prices of medical services or levels of illness but rather the aggregate amount of medical services, which did not generally correlate with better patient outcomes.

    More spending in the higher-cost regions results in “supply-sensitive” services by providers: more frequent doctor visits mean more use of diagnostic tests and procedures, which result in more costly hospital visits.

    Medicare currently enrolls 57 million Americans and suffers $60 billion in annual fraud, waste, abuse, and improper payments (a single payer would reduce some improper payments) using up 10 percent of Medicare’s total annual budget. Adding another 268 million Americans under Medicare for All would certainly raise that annual $60 billion significantly higher.

    Medicare reimbursement rates are set by physicians, which leads to inflated pricing of medical services, and most enrollees are covered by traditional FFS Medicare so there’s no guarantee Medicare for All would decrease the volume of services or the associated negative effects which, altogether, would equate to higher taxes, increased medical injuries, and more fraud under Medicare for All.

    Medicare doesn’t cover all health care expenses for its enrollees, so expecting a Medicare for All plan to cover 325 million Americans for “free” looks a lot more like “Medicaid for All” than “Medicare for All,” which would be an even more dreadful scenario.

    The private insurance market largely follows Medicare’s reimbursement rates and the types of health care services Medicare reimburses. Changing what Medicare reimburses would change the entire incentive structure because private insurance companies could cover evidence-based treatments that improve health outcomes, and provider services would be aligned with what insurers cover so it would transform the entire health care industry.

    Successful attempts have been made by identifying high-cost, high-tech medical interventions such as cardiac catheterization, coronary angioplasty, and stent implantation that are less effective than low-cost, low-tech interventions such as intensive cardiac rehabilitation (or lifestyle medicine)—which actually reverses heart disease.

    Value-based strategies such as lifestyle medicine that address lifestyle factors (i.e. nutrition, physical inactivity, and chronic stress) improve health outcomes of patients, and these strategies should be implemented into the current system before committing $32 trillion in new costs for a Medicare for All plan that is more a political talking point than a medical solution to improve the overall health outcomes of Americans.

    Source: How Medicare For All Could Become the Leading Cause of Death In America – Foundation for Economic Education


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  • We’re on the Precipice of an Economic Crisis–and Everyone Knows It’s Coming

    Posted on by Azrael Comment

    Writing about federal spending last week, I shared five charts illustrating how the process works and what’s causing America’s fiscal problems.

    Most importantly, I showed that the ever-increasing burden of federal spending is almost entirely the result of domestic spending increasing much faster than what would be needed to keep pace with inflation.

    And when I further sliced and diced the numbers, I showed that outlays for entitlements (programs such as Social Security, Medicare, Medicaid, and Obamacare) were the real problem.

    Let’s elaborate.

    John Cogan, writing for the Wall Street Journal, summarizes our current predicament.

    Since the end of World War II, federal tax revenue has grown 15% faster than national income—while federal spending has grown 50% faster. …all—yes, all—of the increase in federal spending relative to GDP over the past seven decades is attributable to entitlement spending. Since the late 1940s, entitlement claims on the nation’s output of goods and services have risen from less than 4% to 14%. …If you’re seeking the reason for the federal government’s chronic budget deficits and crushing national debt, look no further than entitlement programs. …entitlement spending accounts for nearly two-thirds of federal spending. …What about the future? Social Security and Medicare expenditures are accelerating now that baby boomers have begun to collect their government-financed retirement and health-care benefits. If left unchecked, these programs will push government spending to levels never seen during peacetime. Financing this spending will require either record levels of taxation or debt.

    Here’s a chart from his column. Only instead of looking at inflation-adjusted growth of past spending, he looks at what will happen to future entitlement spending, measured as a share of economic output.

    And he concludes with a very dismal point.

    …restraint is not possible without presidential leadership. Unfortunately, President Trump has failed to step up.

    I largely agree. Trump has nominally endorsed some reforms, but the White House hasn’t expended the slightest bit of effort to fix any of the entitlement programs.

    Now let’s see what another expert has to say on the topic. Brian Riedl of the Manhattan Institute paints a rather gloomy picture in an article for National Review.

    …the $82 trillion avalanche of Social Security and Medicare deficits that will come over the next three decades elicits a collective shrug. Future historians—and taxpayers—are unlikely to forgive our casual indifference to what has been called “the most predictable economic crisis in history.” …Between 2008 and 2030, 74 million Americans born between 1946 and 1964—or 10,000 per day—will retire into Social Security and Medicare. And despite trust-fund accounting games, all spending will be financed by current taxpayers. That was all right in 1960, when five workers supported each retiree. The ratio has since fallen below three-to-one today, on its way to two-to-one by the 2030s. …These demographic challenges are worsened by rising health-care costs and repeated benefit expansions from Congress. Today’s typical retiring couple has paid $140,000 into Medicare and will receive $420,000 in benefits (in net present value)… Most Social Security recipients also come out ahead. In other words, seniors are not merely getting back what they paid in. …the spending avalanche has already begun. Since 2008—when the first Baby Boomers qualified for early retirement—Social Security and Medicare have accounted for 72 percent of all inflation-adjusted federal-spending growth (with other health entitlements responsible for the rest). …

    Brian speculates on what will happen if politicians kick the can down the road.

    …something has to give. Will it be responsible policy changes now, or a Greek-style crisis of debt and taxes later? …Restructuring cannot wait. Every year of delay sees 4 million more Baby Boomers retire and get locked into benefits that will be difficult to alter… Unless Washington reins in Social Security and Medicare, no tax cuts can be sustained over the long run. Ultimately, the math always wins. …Frédéric Bastiat long ago observed that “government is the great fiction through which everybody endeavors to live at the expense of everybody else.” Reality will soon fall like an anvil on Generation X and Millennials, as they find themselves on the wrong side of the largest intergenerational wealth transfer in world history.

    Not exactly a cause for optimism!

    Last but not least, Charles Hughes writes on the looming entitlement crisis for E21.

    Medicare and Social Security already account for roughly two-fifths of all federal outlays, and they will account for a growing share of the federal budget over the coming decade. …Entitlement spending growth is a major reason that budget deficits are projected to surge over the next decade. …The unsustainable nature of these programs mean that some reforms will have to be implemented: the only questions are when and what kind of changes will be made. The longer these reforms are put off, the inevitable changes will by necessity be larger and more abrupt. …Without real reform, the important task of placing entitlement programs back on a sustainable trajectory will be left for later generations—at which point the country will be farther down this unsustainable path.

    By the way, it’s not just libertarians and conservatives who recognize there is a problem.

    There have been several proposals from centrists and bipartisan groups to address the problem, such as the Simpson-Bowles plan, the Debt Reduction Task Force, and Obama’s Fiscal Commission.

    For what it’s worth, I’m not a big fan of these initiatives since they include big tax increases. And oftentimes, they even propose the wrong kind of entitlement reform.

    Heck, even folks on the left recognize there’s a problem. Paul Krugman correctly notes that America is facing a massive demographic shift that will lead to much higher levels of spending. And he admits that entitlement spending is driving the budget further into the red. That’s a welcome acknowledgment of reality.

    Sadly, he concludes that we should somehow fix this spending problem with tax hikes.

    That hasn’t worked for Europe, though, so it’s silly to think that same tax-and-spend approach will work for the United States.

    I’ll close by also offering some friendly criticism of conservatives and libertarians. If you read what Cogan, Riedl, and Hughes wrote, they all stated that entitlement programs were a problem in part because they would produce rising levels of red ink.

    It’s certainly true that deficits and debt will increase in the absence of genuine entitlement reform, but what irks me about this rhetoric is that a focus on red ink might lead some people to conclude that rising levels of entitlements somehow wouldn’t be a problem if matched by big tax hikes.

    Wrong. Tax-financed spending diverts resources from the private economy, just as debt-financed spending diverts resources from the private economy.

    In other words, the real problem is spending, not how it’s financed.

    I’m almost tempted to give all of them the Bob Dole Award.

    P.S. For more on America’s built-in entitlement crisis, click here, here, here, and here.

    Reprinted from International Liberty.


    Daniel J. Mitchell

    Daniel J. Mitchell is a Washington-based economist who specializes in fiscal policy, particularly tax reform, international tax competition, and the economic burden of government spending. He also serves on the editorial board of the Cayman Financial Review.

    This article was originally published on FEE.org. Read the original article.



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