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Guest Post: Latest from Cato…

Guest post by Michael Halasy

Latest from Cato…

Kaiser Health News carries an article from Michael Cannon from Cato Institute on the benefits of Ryan’s proposal on Medicare.

Cannon is wrong.

First, he begins by advocating for repeal by comparing the roughly 500 billion in cost of the program to the overall debt and deficit, never mentioning that the 500 billion is actually over 10 years. Next he proceeds to Medicare savings, and concludes that there were no mechanisms to constrain Medicare savings…and he’s right here.

However, then he states: “Even if they were, ObamaCare just spends the presumed savings elsewhere”. Which comes across snippy, and a little arrogant. Then he talks about vouchers, and the proposal by Congressman Paul Ryan.

Here’s what he says:

Second, the budget should restrain Medicare spending by giving enrollees fixed vouchers they can use to purchase any private health plan of their choice. Poor and sick enrollees should get larger vouchers, but the average voucher amount should grow only at the overall rate of inflation. Because vouchers enable seniors to keep the savings, they will do what ObamaCare won’t: reduce the wasteful spending that permeates Medicare. Seniors will choose more economical health plans and put downward pressure on prices across the board. Indeed, vouchers are the only way to contain Medicare spending while protecting seniors from government rationing. Skeptics worry that seniors will make bad decisions with their vouchers. They should keep in mind that, according to Obama’s Council of Economic Advisers, “nearly 30 percent of Medicare’s costs could be saved without adverse health consequences.” In other words, vouchers come with a huge built-in margin of safety: seniors could consume one-third less care without harming their health.

There are some big problems with this, which Mr. Cannon never addresses, or even acknowledges.

To start with, many seniors are living on constricted, fixed incomes. Even with “larger” vouchers, as he suggests, keeping them tied to inflation without addressing the reason for healthcare cost escalation is the same as cutting them out of healthcare altogether…at least the effect will be the same over time. Healthcare has grown at a rate far above inflation for years (6.2% average over the past 10 years). What this will do is to force low income seniors to skip medications, avoid physician visits, and avoid preventative care. This will end up being more costly down the road.

The second problem, is that Mr. Cannon is misrepresenting what the Council of Economic Advisors said about Medicare spending. That 30% represents waste within the system, not necessarily (although likely a small percentage is) over treatment of Medicare patients. It’s a dangerous statement to make.

Finally, the block grant idea has some merit, but let’s be honest. That’s not cost savings…..that’s cost shifting. By removing a percentage of federal funding for this patient population, you are forcing the state to pay for it, which is a problem for many cash strapped states already. Mr. Cannon knows all of this, however, he is trying to put a rosy face on an ugly dog.

Guest post: Regional Disparities in Health Spending in Medicare

by Michael Halasy Health Policy Analyst and Emergency Medicine PA

Regional Disparities in Health Spending…

Jason Shafrin, over at the Healthcare Economist, brings up an interesting paper examining the data from the Dartmouth Atlas. For those that are unfamiliar, the Dartmouth Atlas is a compendium of data examining Medicare spending per beneficiary, and then comparing that spending by geographic region. The differences are stark. I know. I use the Dartmouth Atlas data in my health policy talks all the time. The data was highlighted in an Atul Gawande article in 2009 on McAllen, Texas. Jason points us to an article from the New England Journal by Zuckerman…

“Unadjusted Medicare spending per beneficiary was 52% higher in geographic regions in the highest spending quintile than in regions in the lowest quintile. After adjustment for demographic and baseline health characteristics and changes in health status, the difference in spending between the highest and lowest quintiles was reduced to 33%. Health status accounted for 29% of the unadjusted geographic difference in per-beneficiary spending; additional adjustment for area-level dif ferences in the supply of medical resources did not further reduce the observed differences between the top and bottom quintiles.”

Now, sure, health status may reduce the difference in spending, but it doesn’t completely eliminate it. In fact, I would argue that 33% is still a large difference, and one that still needs to be addressed. Comparing the spending in Florida to Minnesota PER beneficiary is quite startling indeed.

crossposted with Health Policy Wonk

The Return of the Myth that Competition will Fix Medicare

Crossposted at The Street Light.

Well, it seems as if Congressional Republicans are going to propose a complete refashioning of the Medicare program. Specifically, they are going to recommend scrapping Medicare as a provider of health insurance to seniors, and instead replace it with a system that will provide subsidies to individuals who will then buy health insurance from private insurance companies. In other words, they want to get the federal government completely out of the health insurance business for senior citizens.

GOP 2012: overhauls on entitlements and taxes, $6.2 trillion in cuts over decade

House Republicans plan to propose Tuesday historic changes to Medicare, Medicaid and other popular programs that pour federal money into Americans’ lives, arguing that a sacrifice now will keep those programs solvent for the future.

…On Medicare, Ryan will propose altering the plan so that the federal government no longer acts as a health insurer for seniors. Instead, he would create what’s called a “premium support plan.” Seniors would pick from a list of private insurance plans, and Medicare would subsidize their coverage.

The idea, again, is to use market competition to create a system with lower costs. Ryan’s plan would not apply to Americans age 55 and older, for whom Medicare would remain under the current system.

The notion that Medicare costs have been rising because it is a government-run health insurance program, or because it is not a “competitive” health insurance program, is odd, to say the least…

Theoretically, economists can list a number of very specific ways in which the markets for health care and health insurance are characterized by market failures. And for those of you who have forgotten your Econ 101 lessons, please recall that economic theory clearly predicts that when there are market failures there is no reason to necessarily expect that competition (i.e. the free market solution) will provide a good outcome.

Providing yet another example when economic theory actually matches what we see in the real world quite well, we find that there is absolutely no evidence that competition among private health insurance companies leads to lower costs. The Kaiser Family Foundation conducts a survey of employer-sponsored health insurance programs every year to estimate private health insurance premiums. Health insurance premiums for workers in large companies — those employing 200 people or more, which encompasses about 65% of all workers covered by private, competitive, employer-sponsored health insurance plans — rose by 135% over the ten year period 1999 to 2009.

Meanwhile, Medicare spending per person rose by about 103% over the same period. (Note that to get this figure I simply divided total Medicare costs from the CBO (pdf) by the number of Medicare enrollees as provided by Census (pdf).)

Given this, I’m really baffled by this repetition of the assertion that more competition in the market for health insurance is the answer. There’s no theoretical justification for it, and no empirical evidence for it. The fact is that people in the US consume more health care services every year. So every year we pay more.

Government Transfer Payments in the US: It’s All About Health Care

There’s been a rather silly news item floating around the internets and business press today about the role of government in the US economy. Here’s an example from the Investors Business Daily:

Is America Becoming A Welfare Nation?

More than one-third of all wages and salaries in this country are actually government handouts. We should be alarmed that we’ve become a nation of dependents.

Using data mined from the Bureau of Economic Analysis, TrimTabs Investment Research has found that 35% of wages and salaries this year will be in the form of a government payment. That’s up sharply from 2000, when it was 21%, which is more than double the rate — 10% — of 1960.

The payouts are primarily Social Security and Medicare benefits, and unemployment checks. But they are not limited to those programs.

In any case, we’re seeing before us a disturbing trend. A society can’t survive moving in this direction.

Sigh. Where to begin.


First of all, just to set the record straight: the press is reporting the numbers wrong. The true figure, according to the BEA data, is that about 18% of personal income in 2010 was in the form of transfer payments from the government. Meanwhile, exactly zero percent of wages and salaries were in the form of transfer payments, because wages and salaries were, well, wages and salaries. I suspect that many people are conflating “wages and salaries” with “personal income” as they report this statistic. But there’s actually a big difference, and wages and salaries actually make up only a bit more than half of personal income in the US.

Much more importantly, one must realize that of course transfer payments were higher than usual in 2010 – we were emerging from the deepest recession in 75 years. Transfer payments are crucial automatic stabilizers for the economy, and comprise our society’s safety net. They have been operating exactly as they’re supposed to, with payments rising during a recession to make up for the fall in other types of income. When you have the deepest recession since the invention of transfer payments, as we did in 2008-09, then of course you would expect to find them rise to their highest levels ever.

Finally, the alarming statistics cited in such articles are really just due to one, and only one, phenomenon: the incredible and seemingly unstoppable rise in health care costs in the US.

The blue line in the following picture shows transfer payments as a percent of total personal income. The red line shows transfer payments excluding Medicare and Medicaid.


With the exception of health care costs, there’s really no trend to see in this data at all. Really, it’s all about health care costs. Again. Still.

The Medicare Headline You Didn’t See (and won’t)

For years we have been regaled with scary, scary numbers about how Medicare’s projected unfunded liability was in the TENS OF TRILLIONS. And sure enough if you consulted the Medicare Report and examined the actuarial projections for Medicare Part A you would find that number. But a funny thing happened with the 2010 Report and is shown in the data table above: the 75 year number is down to $6.9 trillion, a big number but only 0.5% of projected GDP over that period, and the infinite future number is actually a $600 billion SURPLUS.

Oddly this multi-multi trillion dollar turnaround did not result in banner headlines in the NYT or the WaPo, nor did congratulatory telegrams pour into the offices of Nancy Pelosi, Harry Reid and dare I say it Barack Obama from the folk at Cato and Concord that have been weeping bitter, bitter tears about ‘intergenerational inequity’ and begging us to ‘think about the grandchildren’. Because that is not how they roll nor was any of this what the kerfluffle has been about. The fundamental hostility to Medicare among the self-style deficit hawks is not because it is broken, but instead because it works. For them that infinite future $600 billion SURPLUS is terrible, terrible news. Which is why it never made it to the inboxes of Lori Montgomery and Perry Bacon at the WaPo, though you can bet big that any deterioration would have. Funny that.

HEALTH CARE thoughts: The Durable Medical Equipment (DME) mess

by Tom aka Rusty Rustbelt

HEALTH CARE: The Durable Medical Equipment (DME) mess

So you go to an orthopedic surgeon with a complaint of back pain, and the surgeon orders a lumbar back brace for support.

Can you stop at a counter and buy the brace on the way out the door? Probably not.
Years ago some members of Congress (Stark, Waxman, et.al.) thought it would be harmful if physicians profited from their prescriptions, but not harmful for others to do so, and thus has flourished a huge DME industry, ranging from hospitals and national chain pharmacies to mom-and-pop operations. (When I ran ortho centers we subbed out DME, too much hassle and compliance risk.)

Some DME providers get greedy and there has been a significant amounts of fraud in this area, most recently dealing with the ubiquitous motorized wheelchairs and power chairs of television fame.

But the latest DME fraud trend is really disturbing. DME fraud is being committed by phony “providers” who tend to be involved with organized crime, immigrant organized crime, computer hackers and identity thieves. These businesses do not exist, have no customers, provide no merchandise and steal billions from the feds with phony billings. Reading the indictments is enlightening.

(A few years ago nearly 50% of all of the diabetic supplies FOR THE ENTIRE COUNTRY were being billed from Miami – Dade County. Huh? Impossible of course. Miami appears to be a hot bed for immigrant crime.)

The feds caught on somewhat and set up a task force in southern Florida, and now are using the task force in Houston and possibly elsewhere.

Something here aggravates me. Getting a physician Medicare ID number, or adding a physician to an established group, takes a lot of time and a lot of paperwork, even though the physician is licensed and board certified. Apparently though any ambitious criminal can get a DME provider number with almost no hassle and start firing in billings. After a few months the operation closes down, takes the cash and billing starts for a new phony provider.

Medicare needs better management.

Tom aka Rusty Rustbelt

Medicare Fee Ordeal- Continued

Tom aka Rusty Rustbelt

Medicare Fee Ordeal – Continued

As of Friday the Senate has passed a six (6) month patch to counter the Sustained Growth Rate formula cuts directed at most physicians.

The average for all physicians was a 21% cut, with changes ranging from primary care (+6%) to cardiology (-42%).

The House will consider the patch next week, and is likely to pass the necessary legislation.

CMS contractors will process claims from June 1 forward – someday. This will really help cash flow in medical practices.

Stay tuned.

Health Care Reform and Caregivers Refusing Medicare Patients

Robert goes out on a limb and guesses that Lori Montgomery fell for (or is pushing) Republican spin in this article in the Washington Post
Report: Bill would reduce senior care
Medicare cuts approved by House may affect access to providers

A plan to slash more than $500 billion from future Medicare spending — one of the biggest sources of funding for President Obama’s proposed overhaul of the nation’s health-care system — would sharply reduce benefits for some senior citizens and could jeopardize access to care for millions of others, according to a government evaluation released Saturday.

The report, requested by House Republicans, found that Medicare cuts contained in the health package approved by the House on Nov. 7 are likely to prove so costly to hospitals and nursing homes that they could stop taking Medicare altogether.

Congress could intervene to avoid such an outcome, but “so doing would likely result in significantly smaller actual savings” than is currently projected, according to the analysis by the chief actuary for the agency that administers Medicare and Medicaid.

I have read the report (warning pdf) … well actually up to the passage stressed by Republicans and Montgomery. Montgomery’s article focuses on one paragraph deep in the report which begins “It is important to note that the estimated savings for one category of Medicare proposals may be unrealistic.” That’s some serious digging.

The paragraph goes on to discuss what seems to be new additional budgetary flimflam which is assuming that productivity in hospitals and nursing homes grows at the national average (measured productivity grows much more slowly and it doesn’t matter if this is due to unmeasured improved quality of care). That would be part of a large savings of $ 282 billion. The report doesn’t describe what the savings would be if Medicare rates were adjusted to a reasonable forecast of productivity growth.

Now I had assumed that Medicare cuts other than eliminating the Medicare advantage boondoggle were reductions in money effectively given to hospitals (and nursing homes etc) so they could afford to take care of the uninsured. Hospitals’ budgets will be affected by increased health insurance coverage, both by the increases in the total fraction of people insured and the fraction of people with pre-existing conditions insured. This means that the total effect on Hospitals’ budgets can’t be calculated assuming only Medicare payment rates change.

Importantly, the Foster (the author) assumes that reduced Medicare payments will cause hospitals to choose to refuse Medicare patients and not drive Hospitals bankrupt. It is true that relatively lower Medicare rates will cause more hospitals to refuse Medicare patients. How many currently do? I googled
“hospitals which refuse medicare” I got links to articles about physicians who refuse Medicare patients and this link to someone who works at a hospital where they talked about refusing Medicare patients.

Medicare rates are already low. There sure don’t seem to be many hospitals which refuse to treat Medicare patients.

OK so I tried the past tense and googled “hospital did not accept medicare”
This link to someone who says an anonymous hospital told her in 1998 that they didn’t accept Medicare patients.

Quite frankly this doesn’t seem to be a huge problem. The idea that it will get even bigger if Medicare rates fall further below other rates doesn’t seem to me to merit page 1 treatment.

I think Foster is saying that he believes that the new restrictions on Medicare compensation will be waived just as the existing restrictions are waived. He can’t say that Congress is flimflamming so he has to explain how this might be a natural response to unforeseen events in the future. My current guess is that the event will be the perfectly foreseeable complaints from hospitals and nursing homes and that the forecast that Congress will waive the rule is the only forecast a responsible actuary can make.

The Republican/Montgomery/www.washingtonpost.com headline guy spin that elderly people will be denied care if the bill passes is absurd. If that’s the way things worked, the 1997 rule wouldn’t be waived year after year.

There don’t seem to be many reports of hospitals refusing Medicaid either.
No google hits for “hospital refuses medicaid” one for “hospital refused medicaid” to a publication of the National Center for Policy Analysis. Hmmm, where have I heard of that? It’s the so called think tank which fired Bruce Bartlett for heresy.

The document to which I link asserts that Veterans care is queue rationed and that the veterans administration does provide as high quality care as that available to people with private insurance. Non ideological sources rate the veterans administration as the best care provider — number one.

I think that “Hospitals will refuse Medicare and/or Medicaid” is a serious policy concern on a level similar to the “tax cuts cause increased revenues.” And here it is on the front page of www.washingtonpost.com.

Update: Note I am writing about hospitals who refuse Medicare not doctors in private practice who refuse Medicare. My googling and questions were on hospitals which refuse medicare and/or medicaid. Of the first 7 comments, 5 discussed office based practices which refuse medicare. By my count letters “hospital” appear in that order 18 (eighteen) times in the post (sometimes followed immediately by an s). Somehow commenters seem to have overlooked all 18 (eighteen) of them.

This is not a quibble. The provision of the bill which Foster suspects will not be actually applied concerns “institutional” providers of health care not physicians in private practice. I quote from his report

H.R. 3962 would introduce permanent annual productivity adjustments to price updates for institutional providers (such as acute car hospitals, skilled nursing facilities, and home health agencies) using a 10-year moving average of economy-wide productivity gains. [skip] end participation in the program (possibly jeopardizing access to care for beneficiaries).

That’s why I asked about Hospitals refusing medicare patients. There is a big difference between squeezing the entities which can’t be squeezed and squeezing those which can be squeezed (provided they are getting a lot more money due to increased insurance coverage so they won’t go bankrupt).

Talking Point vs Reality: Health Care Reform’s Effect on Medicare

by Bruce Webb

The latest Republican talking point, promoted among others by Chuck Grassley this morning, is that proposed cuts to Medicare make its financial situation more precarious. Why cut $500 billion if Medicare is already in trouble? This is totally backwards and shows a total unawareness of how Medicare is financed. So lets review:

Medicare has four ‘Parts’ A (Hospital), B (Physicians), C (Medicare Advantage) and D (Drugs).

Part A is financed primarily by a tax on payroll supplemented by co-pays for extended stays. Tax receipts not needed for immediate payout are deposited in the HI (Hospital Insurance) Trust Fund which like its counterparts in Social Security functions as a reserve fund, serving to buffer out fluctuations in tax income.

Parts B & D are financed by a combination of premiums and direct transfers from the General Fund, while Part C being a combination of A, B, and D draws from all three sources and is run by insurance companies.

The Health Care bills under consideration leave current revenues into Medicare alone and so CAN’T worsen the overall financial health of the system. Instead they propose to change the payment mix going out and slash the extra premium going to Part C and so make the overall financial position BETTER. These changes actually move the date the HI Trust Fund is projected to go to depletion OUT IN TIME.

Now it is fair to argue that cuts in Medicare potentially deprive people on Medicare benefits they have come accustomed to, but the argument that they financially weaken Medicare is to get it 180 degrees reversed. Republicans have been bleating about an ‘entitlements crisis’ whose costs are out of control. Well the answer to that is to cut costs. The only difference is that Democrats propose to use the savings to extend coverage to the uninsured while Republicans were hoping to use them to preserve tax cuts.

So don’t buy the “We are trying to save Medicare” argument from the Republicans, they don’t like it, never have, and don’t care in principle about cutting money going to gramma. Instead all of this, all of it is about wanting Obama and the Democrats to fail so that Republicans can make gains in the 2010 mid-terms. Pay no attention to the crocodile tears.