Posted on September 12, 2008 by Peter Pavarini

Why Aren't the Candidates Talking About Health Care?

This may well be the strangest Presidential Election Campaign in U.S. history, but excuse me, what happened to any meaningful discussion of health care reform?  Obviously, the economy and energy issues have caused health care to drop below the radar screen (see Modern Healthcare, Sept. 8, 2008, page 9), but how can this really be an election about "change" if we sweep health care under the rug?  Neither of the major candidates gave any prominence to this issue in his acceptance speech.  Does that mean we have to wait another four years to begin an honest discussion about something as vital as the health and well being of our citizenry?

While others may be tuned into the Gaffe of the Day, it is worth studying what the candidates (or more accurately their campaigns) have said about health policy reform.  This entry and the next two will focus on three aspects of reform:  1) cost, 2) quality and 3) fairness.  Let's begin with cost.

Barack Obama proposes to lower costs by modernizing the U.S. Health Care System. John McCain proposes to lower costs by restoring control of the system to patients and their families.

Obama's proposal involves four major components:  1) moving the cost of underwriting the risk of catastrophic illness from the private sector to the public sector, e.g., a universal risk pool for the most costly cases; 2) requiring providers to participate in a new public disease management plan, 3) supporting programs that improve the coordination and integration of care for those with chronic illnesses, and 4) requiring of providers full transparency about the quality and cost of the services they provide, and requiring payers to show how much of the premiums they collect go to administrative costs.

McCain's proposal primarily uses marketplace forces to drive down prices.  His plan uncouples health insurance from employment and in so doing intends to make it easier for patients to buy affordable coverage and take it with them wherever they go.  Refundable tax credits fo $2500 for individuals and $5000 for families, which would be sent directly to the insurer, would be the primary means to do this, along with expanded Health Savings Accounts.  The McCain plan would also work with the states to establish guaranteed access plans as well financial incentives to foster disease management and preventive care programs.

Both candidates have additional action plans to implement these concepts (which are generally described at their websites).  Not surprisingly, they share some of the same tactics but approach reform from different directions.  The Obama plan expects the federal governement to play a bigger role than it already does.  The McCain puts most of the burden on individuals and state governments.  Neither plan is what anyone would call universal health care, but clearly the Obama plan moves closer to that objective.

What these proposals mean for the health care industry is difficult to determine without much more detail.  Obama's plan would certainly result in greater regulation of providers than McCain's, but neither would leave the industry unchanged.  This is something the American people need to hear much more about in the coming weeks.  We can only hope that  the candidates will seriously address this important topic in their series of debates.
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Posted on July 23, 2008 by Peter Pavarini

Why Medicare Is Broken

Politics aside, can anyone explain how a federal program only 43 years old came to be insolvent?  When Congress enacted the Medicare Act in 1965, the program was estimated to have an annual cost of under $10 billion for quite some time.  Indeed, contributions from Part A payroll taxes and premiums for Part B were designed to create a surplus that would be held in trust for use in the future when revenues might not cover costs.  In 2007, Medicare required an infusion of $178 billion of general revenues just to pay its current bills.  How can we have gotten so far off track?

"The Facts About Medicare," an article that appeared in the July/August 2008 issue of Contingencies, the journal of the American Academy of Actuaries, attempts to answer this question. Six factors are blamed for what might be the greatest forecasting error in history.  First, the Medicare population grew much faster than expected because of a marked increase in life expectancies (which means the program worked!).  Second, new benefits and new covered populations have been continuously added since the inception of the program, the most recent being Part D prescription drug benefits.  Third, medical costs have grown faster than wages  during the same period, both because of price inflation and the addition of new medical technologies (we can do much more today than we were able to do in 1965).  Fourth, the percentage of the program's cost shouldered by consumers has steadily fallen since inception.

The government (i.e., taxpayers) currently pays a much higher percentage and is expected to do so for many years to come.  Fifth, the working population paying payroll taxes has grown at a much slower rate than the number of Medicare beneficiaries.  At the start of Medicare, there were 5 workers for every eligible person.  Now there are only 3.5 workers and that is expected to drop to 2.4 by 2030.  Lastly, the entire health care system and our expectations about it have dramatically changed in the past 43 years.  Simply put, Medicare has distorted the medical marketplace in unimagined ways, perhaps irreversibly.

So what can be done to correct this imbalance?  The group of actuaries responsible for this article suggest that we can start by being honest with the way the books are kept.  No solution is possible without objectively determining how much the program costs, who actually pays for it, and whether we as a society can realistically fund the present value of the future benefits that have been promised.  This will require some difficult cost-benefit decisions as well as a debate about inter-generational equity.

A sustainable long-term funding mechanism for Medicare is desperately needed.  The longer the delay in finding one, the more painful the remedy will be.
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