Medicare: A Challenged Program – Part II – How Can Congress Keep it from Disappearing in 2034?

(If you missed the first part of this article, see this issue of WIP for “Medicare: A Challenged Program – Part I – The Current Situation”.)

Past Attempts to Solve Medicare’s Solvency Problems

The Congress has done a number of things to attempt to “fix” Medicare – to keep benefits coming.

Most important is that Medicare sets reimbursement rates for every imaginable procedure, and the providers are not allowed to charge more than that. This began with the Balanced Budget Act in 1997.

If you see your medical bills, you see a “retail price” and the “allowed amount.” They can be quite different. Below is a recent “Explanation of Benefits” for a x-ray I needed. The “retail” price was $192. The amount allowed (under Medicare rules) was only $134.88. Because my Medicare Advantage plan covers x-rays in full, I paid nothing. Under Traditional Medicare, I would have been billed 20% of the allowed amount.

Hospitals and some medical providers complain vociferously that the Medicare reimbursement limits are not adequate. I suspect there are times when this is true, but the providers seem to stay in the business, which tells me that they are at least covering their incremental costs of providing service.

The next big “fix” came in 2013, when the “Additional Medicare Tax” was adopted. Unlike Social Security, there is no “cap” on wages above which the 2.9% Medicare tax no longer applies. But that was just for wages. Rich people get most of their money from investments, not from wages. The “Additional Medicare Tax” requires high-income individuals to pay a share of their income from all sources (wages, interest, investments returns, capital gains) to Medicare.

This is big money. If this were applied to Social Security, about 80% of the shortfall expected over the next few decades would be solved. But it does apply to Medicare.

BUT, this was partly offset by the creation of the Medicare prescription drug coverage (Part D) in 2006. Prescription drugs are expensive, and Medicare pays for a lot of drug benefits. $137 billion for 2025. The shortfall in Part D is coming from federal appropriations from general taxes—and Federal Treasury debt, since we have had a budget deficit every year since Bill Clinton left office in 2001.

Finally, two years ago, Medicare began negotiating prescription drug prices, under a provision of the Inflation Reduction Act (which also provided incentives for wind, solar, and heat pumps, now being eviscerated by the current Administration.) Medicare started with TEN drugs for which Medicare was paying tens of billions of dollars per year. This year it has been extended to another 15 drugs. Don’t ask me why it has to go so slow; ask the big Pharma lobbyists and ask Congresswoman Strickland.

What are the fixes for Medicare going forward?

Kiplinger recently published a list of five changes that could save Medicare. These include:

1. Raise the Eligibility Age: However, many of us believe in universal health care, and have hoped that the eligibility age for Medicare would be gradually LOWERED to provide coverage for MORE people.
2. Earmark revenue from an existing tax: This would take money now being collected and used for general government purposes and dedicate it to Medicare. Of course, that would leave some other program unfunded.
3. Reduce compensation for Medicare Advantage: Some studies show that Medicare Advantage is costing more than Traditional Medicare, and suggest that lowering the compensation rate is appropriate.
4. Negotiate Drug Prices: This has begun, but very slowly. Medicare Part D coverage would cost half as much – about $65 billion per year less – if we paid the same drug prices as other developed countries do. The Pharma lobby has far more lobbyists than the Congress has Senators and Representatives to make sure this moves slowly.
5. Shift to a Defined Contribution Program: This would turn Medicare into a traditional insurance program, where healthy people would get all of their costs covered, while people with serious health problems would be left with massive medical bills. This is the very problem that Medicare was created to address – seniors living in poverty or bankrupted by high medical care costs.]

I have a few ideas of my own:

1. Look at compensation levels in the upper echelons of health care. Nurses should earn as much as electricians (they don’t), and primary care doctors should get paid like other professionals (they do). But orthopedic surgeons making $500,000 per year, neurosurgeons making $2 million per year, and hospital administrators making over $1 million per year? (Providence has about twenty people above $1 million/year). The Governor is paid $218,744, and Superior Court judges are paid $244,631 per year. That seems like enough.
2. Require all health programs to designate a same-day care clinic, available to all of their members. Group Health used to provide same-day or next-day appointments. It can take two months to get an appointment with my doctor. This pushes a lot of care into the urgent care clinics and emergency rooms, which are far more expensive. The “Minute Clinic” at CVS is a good example, with a nurse practitioner or physician’s assistant providing initial screening.
3. Require all health care providers to charge the same price to every customer. I worked my career in utility regulation, where the law requires that “no public service company shall charge any customer a greater, lesser, or different price than the price in the approved rate schedule.” Let’s get rid of the price discrimination and the “allowed amount” calculation.
4. Use fewer doctors and more nurse practitioners and physician’s assistants. This is happening slower; it needs to happen faster. 95% of my needs can be met with a lower level of professional training.
5. Integrate medical education more fully into medical care. I like it when I get a student radiology tech – like me, they are trying to get it right. Less classroom time and more patient contact.
6. Deal head-on with the need to ration health care. At 17% of our economy, rising health care costs are a primary cause of people being unable to afford housing, education, groceries, sports, vacations, and culture. If we do not bring costs under control, health care will devour our economy. Some hard decisions will need to be made. It won’t be pretty — but the alternative is really ugly.

Summary

This one ain’t easy, folks. We’re an aging society. There are more retirees, and fewer people working. Costs are rising, in part because of all the amazing things we’ve learned how to do, from laser eye surgery to deal with cataracts to hip replacements using robotic surgery to intensive care units with incredible capabilities.

I’m frankly not optimistic that the current Congress will even TRY to address the Medicare Trust Fund depletion, and that will leave a bigger, more brutal challenge for the next Congress.

Jim Lazar is an economist, retired from a career in energy economics and utility regulation.