Soc Sec XXXIII: Medicare Finance

I don’t claim to have studied Medicare in depth. They send me the Reports in the same envelope with the Social Security Reports and I browse through them, but that is pretty much it. So this post is more of a call for people more informed on aspects of Medicare to chip in. But I want to throw out some basics. For those who want to follow along the 2008 Report can be found here:

First while there is no such thing as MedicareMedicaidSocial Security and while I firmly believe that the deliberate lumping of them together as ‘entitlements’ is mostly a weasel-word effort that allows attacks on SS via the backdoor, there is a certain structural overlap. All six Social Security Trustees serve on the seven member Medicare Trustees board where they are joined by the Administrator of the Centers for Medicare & Medicaid Services. Which means when we score the outlook for Social Security we are also in part scoring the outlook for Medicare crisis because the Medicare Trustees not surprisingly adopt the Intermediate Cost assumptions of the Social Security Trustees, after all they are not schizoids. This has some implications which I will get to after laying down a couple more basics.

First Medicare is not a single program with a single funding source, instead it is made up of Medicare Parts A, B, C & D.

Medicare Part A is Hospital Insurance and is paid for through payroll tax deductions, 3.01% in 2006. This tax differs from that of Social Security in one respect: it is not capped. But for the most part the better Social Security performs on the revenue side, the better Part A and its HI Trust Fund do, in short they track and overall we have seen the same progress in pushing out dates of Trust Fund Depletion. Somebody can fact check me on this but I believe that when Clinton entered office HI Trust Fund depletion was scheduled for 1999 or about seven years of cushion. By the 2007 Report that date had been pushed back to 2019, which was an increase of a full year over 2006. Why the improvement? Well the Trustees tell us it was “due to slightly higher projected payroll tax income and slightly lower benefits than previously estimated”. In other words their revenue model was too pessimistic, they used Intermediate Cost. Now the 2008 Report reports that Trust Fund Depletion is still scheduled for 2019 but several months earlier in the year than the 2007. Why the slight deterioration? “due to slightly lower projected payroll tax income and slightly higher projected benefits than previously estimated. For the 75-year projection period, the actuarial deficit is virtually the same as in last year’s report, at 3.54 rather than 3.55 percent of taxable payroll. ” I don’t know the reason for the slightly higher projected benefits, but the reduced payroll tax income can be explained in three words: ‘crappy fourth quarter’. Social Security OAS was on track to beat revenue expectations right through September, then the floor fell out.

But the larger picture remains the same, if the economy outperforms Intermediate Cost then the Medicare HI Trust Fund gains more revenue and the outlook should improve. This is complicated somewhat by medical inflation, if most of your overall GDP growth is coming from increased medical costs then the net might end up negative. Which is where you readers come in, any thoughts on how this offsets?

Medicare Parts B, C, & D are mostly funded via the General Fund suplemented by premiums from beneficiaries. Part B is Doctors, Part C is Medicare Advantage (private insurance alternative) and Part D is Drugs. As General Fund programs they are not particularly walled off in the way Part A is with results we saw playing out last week.

Opponents of Medicare don’t have much of an opening on the Part A side, not when its financial health has been improving even if the face of soaring medical costs overall. And you only have to pick up the paper or know someone who has been hosptialized for even invasive surgery. Chances are pretty good you get maybe one night and boom out you go.

Which leaves them left to attack B, C, & D. Which leaves them in a quandary. Part D is a Bush initiative and hugely favorable to Big Pharma, while Part C is hugely favorable to private insurance companies. Which leaves Part B-Doctors. So how did they propose to do this? Follow me briefly below the fold.

It was rather diabolical really. Prior to the introduction of Part C & D costs were roughly split between A & B with A being the bigger brother of the two. And given their different roles and different funding schemes there was little reason to cross compare them. If a doctor getting paid under B was able to give in office care in a way that avoided hospitalization then A saves some money while the spending ratio shifts towards B. On the other hand if B is not taking Medicare patients you may have to wait for that stroke to kick in before being able to get hopitalized under A, at much higher cost thus sending the A/B ratio the other way. While I’ll defer to others on the cost specifics (S-T-R?) it would seem to the outside observer that keeping people out of the hospital (A) via preventive care (B) and simple generic medications for heart and chloesterol (D) would have to be cheaper than the alternative. On balance it would seem that long term the goal should be to get the overall ratio of medical resources to A down and to B & D up. Which is where the 45% rule steps in.

The 45% rule came in with the same bill that introduced Parts C & D, the Medicare Modernization Act. You can see MMA’s basic provisions at Wiki.,_Improvement,_and_Modernization_Act
But to see discussion of the 45% rule try this:

What the 45% rule does is establish a trigger. As soon as the General Fund share of Medicare hits 45% then cuts to Part B are created immediately. Note not to Parts C & D, both equally funded by the General Fund, that would take away from the Insurance Industry and Big Pharma. Nope lets pass the entire cost onto doctors.

Well that is just nutty. If this trigger were based on some overall share of GDP then it would make some sense but instead it is based on a ratio between the various components that is not directly related to overall deterioration or improvement in the health care system. If Doctor B takes on ten new Medicare patients and is able to keep three of them out of the hospital by prescribing a $1 a day generic supplied by Pharmacist D, who cares if Hospital Administrator A doesn’t get to bill medicare. We got three less people with heart attacks or strokes. Yet under the 45% rule the better preventive care gets the closer you get to the trigger. Counterproductive doesn’t begin to describe it. Unless of course your real goal is to force doctors to turn away Medicare patients to start with and so prove that this program is just another example of ‘Big Government is the Problem’.

Why do I say diabolical? Because they doubled down. First they set up a totally irrelevant ratio between A & B and then saddled the B side with additional obligations in the way of C & D and so practically guaranteeing the trigger. The system was set up to fail an artificial test and so pave the way for privatization under insurance company friendly Part C. Maybe others can see this in some other light, which I guess is what comments are for.

Health care mavens? (And don’t hesitate to comment or pose a question about Social Security, I just didn’t have a dedicated SS post prepared.)