The Medicare Showdown

A distinct advantage of writing for my Over 65 colleagues and readers is that I can safely refer to bits of popular culture now long gone. In this case, I want to invoke the “perils of Pauline,” the troubles of a famous heroine in the silent film era. She went from one likely disaster to another (e.g., tied to the train tracks with the night express bearing down on her) but always managed to pull through.

Medicare is like that.

Going back almost to the starting year of 1965 the Medicare trustees have annually projected the number of years left before the program ran out of money. Those projections fluctuated over the years, from 8 to 25 years, but they never saw the coffers empty; even so, the projections could now and then bring on some temporary anxiety. The program just grew and grew. Now, we may have reached a final showdown in budget proposals now before Congress. One way or another, cuts will have to be made.

As I am writing this, President Obama has presented his 2014 budget to Congress and it is now being debated in the Senate. To the exasperation of many Democrats he is proposing some cuts in Medicare, some changes to Social Security, and in the process asking for some Republican  response in kind, that is, a tax increase.

Specifically, his budget calls for $57 billion in higher payments by Medicare recipients – most of which would come from higher premiums for high-income people for prescription drugs and physician services – and cutting $300 billion in provider payments. For Social Security, there is a proposed change from the present consumer-price-index (CPI) to a so-called “chained CPI,” putting some taxpayers into higher tax brackets. Obama’s budget was met with scorn by Republicans even though John Boehner managed a few lukewarm phrases saying that the president was at least trying – although not nearly enough to elicit a matching effort from Republicans.

While the Social Security trimming was not great, Obama did address one problem of great importance often overlooked. It is the shortfall of income that a likely majority of future retirees will suffer from the combination of a) out-of-pocket Medicare expenses (averaging some 18% of retirement income, and b) an insufficient retirement income from Social Security and private savings and/or pension funds (and from which the out-of-pocket Medicare costs must be paid). The average baby boomer nearing retirement age has saved only $38,000 to meet such expenses. The president’s proposal contains a gradual increase of benefits after age 76 to offset inadequate retirement income, a far-sighted and welcome idea.

The president has taken a beating from some factions of his own party for proposing Medicare cuts, something he once said he would never do. I don’t believe he has any serious choice. Quite apart from the long-term deficit crisis, Medicare is in deep trouble:  unsustainable in the long run and a burden already. Much higher taxes, especially for the rich but even for the middle class, will be necessary to soften the impact of benefit cuts.

It is important to keep in mind a budget consideration. Medicare is a payment program, not a health care delivery system, one that disburses money to the private sector to provide medical, clinical, and hospital care. In that sense it can be said that the private sector – a very profitable territory in which to sell goods and services – holds Medicare hostage and is not helped a bit when some physicians say they will cease taking Medicare patients if their reimbursements are reduced.

The future sustainability of Medicare rests, I believe, on reducing those background costs. The popular win/win solution is to get rid of inefficiency and waste, calculated to cost the health care system some 20% a year. Surely, there is waste and things can always be done better, but I think it is a pipe dream that reducing waste alone is  enough to make real difference, particularly with a rapidly growing number of retirees who will drive up costs even in a lean system.

Only cutting the income of every actor in our health care system can keep up with the coming onslaught: doctors, nurses, hospital executives, the drug and device industries, and the fees of sub-specialty physicians. Medicare, we need to recall, was a great bonanza for American medicine, making it possible for those in health care to do well while doing good. It may take a good deal of pain in the bloated health care system, the backbone of Medicare, to bring the lifestyle, fees, and practices back to a pre-Medicare level.

I concede that this is a long shot, but no more so than the belief (at least 40 years old) in getting rid of waste, or that more research and technological innovation will lower costs, or that greater “skin in the game” by consumers in making costly medical decisions, or a better “alignment” of physician practices and payments will do the job. If there is any wisdom in age (and I am not a great believer in that comforting story), here’s mine, reflecting some 45 years of examining proposed cost nostrums: do not for an minute believe scenarios for Medicare that hold that reform can be had without pain.

Daniel Callahan, 82, is President Emeritus of The Hastings Center and the author of two new books, a memoir, In Search of the Good: A Life in Bioethics (MIT Press), and a collection of essays and papers, The Roots of Bioethics (Oxford University Press).







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