New York Times Editorial: Fixing Medicare

From The New York Times:

There is no way to wrestle down the deficit without reining in Medicare costs. Ensuring that the program provides quality health care coverage to millions of older and disabled Americans is essential. These goals are not incompatible, but they require a judicious approach to policy making that is depressingly absent in Washington.

Medicare is nothing less than a lifeline for 49 million older and disabled Americans. It helps pay for care in a wide range of settings, including hospitals, nursing homes, outpatient clinics, doctors’ offices, hospices and at home, as well as for prescription drugs.

It is also hugely costly. The federal government spent about $477 billion in net Medicare outlays in fiscal year 2011 — 13 percent of its total spending. By 2021, it is projected to spend $864 billion — or 16 percent of the total — according to figures derived by the Kaiser Family Foundation. That rate of growth is not sustainable indefinitely.

Unfortunately, many politicians seem less interested in coming up with ways to fix Medicare than in how they might impose their ideology on the program or leverage the issue for their next political campaign. Members of both parties need to define more clearly for the public what Medicare’s true problems are and how they propose to address them. Here are some of the major issues:

NEAR-TERM COSTS There are three key drivers of Medicare spending: the spiraling cost of all health care as new technologies and treatments are developed; much greater use of medical services by the typical beneficiary; and an aging population. By 2020, the number of enrollees will increase to 64 million.

The current rancorous debate in Washington is focused on finding big immediate cuts to slow Medicare spending. We are skeptical that this can be done quickly without wreaking major havoc.

The health care reform law enacted last year calls for cutting more than $400 billion from Medicare over the next decade, primarily by slowing the rate of growth in payments to health care providers and phasing out unjustified subsidies to private Medicare Advantage plans that insure roughly a quarter of all enrollees. Republican leaders, who denounced those cuts in 2010, have since embraced Representative Paul Ryan’s proposal, which adopts virtually all of the same reductions. Even these will be difficult to achieve without driving out providers, according to the government’s nonpartisan budget analysts.

There is time to get this right. Since January 2010 the growth in Medicare spending has actually slowed to an annual rate of about 4 percent, less than half the annual rate for the previous decade. No one is quite sure why, but one theory holds that hospitals are scrambling to squeeze a lot of fat out of the system even before the health care reforms pressure them to do it.

LONGER-TERM SAVINGS The only way to make Medicare sustainable is to have it grow at the same rate as the economy that provides the tax base to support it. In recent years, Medicare spending has been growing faster than gross domestic product, by roughly 1.7 to 2 percentage points.

Policy experts of varied political stripes have proposed a host of ways to eliminate excess spending without harming beneficiaries or the medical system. Some would charge higher Medicare premiums for those able to afford them, or raise the age of eligibility, or increase cost-sharing by beneficiaries to deter unnecessary use of medical care. All such proposals have strengths and weaknesses that need to be carefully analyzed.

A more radical proposal, championed primarily by Republicans, is to stop providing Medicare payments for specified benefits no matter the cost and instead give beneficiaries a set amount of money to buy private insurance policies that might not provide the same benefits. These so-called premium-support or voucher plans come in many flavors — some good, some bad — and would need to be carefully vetted. The most extreme version, proposed by Representative Ryan, would save the federal government a lot of money mainly by shifting big costs to beneficiaries and driving up costs for the rest of the health care system.

FEE-FOR-SERVICE Experts across the political spectrum agree that Medicare’s system for paying health care providers is a big part of its spending problem. The traditional Medicare program pays doctors separate fees for each of 7,000 different services, such as a diagnostic test, office visit or surgical procedure. This encourages excess use of medical tests and procedures because the doctors get more income as their services proliferate and the patient has little reason to question whether another M.R.I. so soon after the last one is really necessary.

The solution, most experts agree, is to have Medicare pay doctors and other health care providers fixed sums to manage a patient’s care and then let the doctors decide which services are truly necessary. Close monitoring would be needed to ensure that doctors don’t deny medically important services to improve their bottom lines.

The reform law is making a start with pilot programs and modest changes in payment policies to encourage coordinated care management. More vigorous action is needed. This can be done by strengthening provisions in the reform law (unless the Republicans succeed in repealing it) or by adding additional measures that gain bipartisan approval.

BENEFITS Medicare reform should not just be about saving money. Medicare’s coverage has some glaring gaps that need fixing. There is no provision for long-term care in nursing homes or at home, forcing many middle-class people to impoverish themselves to qualify for Medicaid. And patients can be socked with very high or very low rates of cost-sharing depending on whether care is delivered in a hospital, nursing home, by a doctor or at home. This crazy-quilt pattern confuses patients about the costs they will have to pay and almost certainly complicates and drives up the costs of administering the program.

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At this point, the supercommittee looks close to implosion. But the last time Washington tried for a quick fix of Medicare, in 1997, it did not turn out well. Congress devised a flawed formula that was supposed to hold down payments to doctors. Instead, many doctors simply expanded the number of services delivered to keep their incomes high, while Congress — after being lobbied — has postponed the payment cuts year after year. To catch up with the formula, Congress would have to cut physician reimbursements by 29 percent next year. That obviously shouldn’t happen and won’t.

That cautionary tale is in no way an argument for inaction. It is an argument for serious, unhurried analysis in a less polarized climate. That is the only way to fix this vital program.