Medicare and Medicaid: A Stark Warning on Society's Future

Jon Walker, at Firedoglake, when comparing Medicare to Medicaid, asks, "Why has Medicare been so much more successful?" He disfavors Medicaid, describing it as largely a failure, "the bastard stepchild of the two programs."

Walker then tries to explain why Medicare is supposedly so much more "successful" than Medicaid, arguing:

I suspect it succeeded for three main reasons: It is a fully federal program, it helps a broad cross section of American people, and it has a sufficiently large base of active users. By being a fully federal program, Medicare is equally as good in red states as it is in blue states. It was not carved up, poorly executed, improperly regulated, or underfunded in many states for ideological reasons, or out of budgetary necessity. Being a fully federal program was very important, and made sure its success with felt by people equally across the entire country.

Having Medicare serve everyone over 65 gave it a strong cross-section of supporters. It benefits the rich as well as poor. It helps everyone–from truck drivers and factory worker, to lawyers, politicians, and doctors–this has ensured that at least some of the people on Medicare are well-organized, politically active members of society. Finally, Medicare covers roughly 13% of Americans, and a greater percentage of voters. This is a large enough chunk voters that it makes messing with Medicare very dangerous politically.

There's a lot wrong with this. For one thing, Walker fails to note the difference between entitlements and means-tested (public assistance) programs. Medicare, as an entitlement, is perceived as "earned" by beneficiaries. Folks have worked over their lifetimes, qualified for Social Security benefits, and thus the Medicare add-on health program as well. Medicaid is basically welfare, and there's never been a broad-based level of popular support for it. Walker's right to note the middle-class basis of Medicare's support, but that has little to do with whether the program is run by the federal government or the states. The key issue is the welfare-dependency concept itself. With Medicaid being one program out of many in the smorgasboard of state-level public assistance hand-outs, taxpayers have long resisted the increasing demands on their earnings to pay for programs that are not infrequently abused by those with chronic unemployment and resistance to self-sufficiency, as well as among illegal immigrant communities who use emergency rooms as out-patient clinics. California has been known to exceed $1 billion annually on Medicare outlays for the undocumented. Clearly, the nexus between poverty, healthcare, and border control is not something leftists are eager to talk about.

But back to Medicare. All is not rosy with the President Johnson's social policy progeny. In fact, Medicare itself is a major contributor to the out-of-control cost system that current efforts at healthcare reform hope to remedy. As Eric Cohen explained, in his 2004 article, "The Politics and Realities of Medicare":

First, Medicare is primarily a federally funded, third-party payer, fee-for-service program. In other words, when seniors get sick, they go to the doctor and the government pays most of the bill. Beneficiaries pay some premiums: an $876 deductible for major hospital visits under Part A; $66.60 per month, a $100 annual deductible, and 20 percent co-payments for most outpatient treatment under Part B. But the value of the government subsidies rises the more care one uses. Seniors who participate in traditional Medicare (roughly 88 percent) have the freedom to see any doctor who will see them. This is generally wonderful for beneficiaries: They have access to all the care they desire. But it is problematic for society as a whole, since there are limited incentives for seniors to cut their own health-care costs, and there is limited room within the heavily regulated system for private insurers to improve efficiency by creating health-care networks or tailoring services to individual needs. This economic problem will only get worse, many believe, as expensive new medical technologies become available, as the percentage of the national population on Medicare increases, and as the average age of Medicare beneficiaries rises and their health deteriorates.

Second, Medicare is a major part of the "hidden subsidy" and "price control" system that now shapes American health care. The government sets the prices by fiat for all the medical services covered under Medicare--with different physician groups lobbying constantly for increases to the reimbursement rate for their own specialties, and the government trying constantly to keep up with ongoing changes in the nature of medical care. This system allows government to exert some control over Medicare costs--though reimbursement cuts in the past have often resulted in reduced access to care, reduced quality of care, or increased billing for a larger volume of services. And of course, government doesn't get the prices right. This means the system only works because those services that are over-reimbursed subsidize those services that are under-reimbursed--for example, over-payment for cancer drugs subsidizes under-payment for cancer treatment. This system of cross-subsidizing exists both within Medicare and between Medicare and private-sector health insurance.

Third, Medicare's system of government-controlled pricing also shapes how patients are treated, and not always for the better. In some cases, people seek not the best or cheapest treatments for a given condition but those treatments that are covered by Medicare. In other cases, avoiding inexpensive but uncovered therapies leads to expensive but covered emergencies in the future. As Joseph Antos, an analyst for the American Enterprise Institute (AEI), explains about cancer therapy: "There is widespread agreement that Medicare overpaid for Part B drugs, although oncologists argued that those overpayments helped compensate for the extra costs of administering the drugs and caring for patients that were not reflected in fees paid by Medicare for office visits." The problem is that when the federal government reduced payments for cancer drugs, as it did in MMA, there was "a shift of patients out of the doctor's office and back to the inpatient hospital care, which reduces patient satisfaction and could increase federal outlays."

Finally, the current Medicare system does not pay for long-term care. If someone suffers a stroke, for example, Medicare covers the expenses incurred in its immediate aftermath--hospital care, 21 days of skilled nursing care with no deductible, and 79 additional days of skilled nursing care for a subsidized rate of $109.50 per day. However, once the patient no longer requires skilled medical treatment but still requires constant personal care, Medicare pays nothing. This leaves individuals and families with a range of hard choices: family caretaking by a spouse or child; professional caretaking paid for out-of-pocket; or self-impoverishment until one qualifies for Medicaid, which does pay for long-term care, either by spending down one's assets or moving them in advance to one's children or siblings. The result is that a significant number of seniors who live to 65 end up on Medicaid--a welfare program--at some point before dying, including many who were self-sufficient throughout most of their lives. And looking forward, it suggests that the next Medicare entitlement debate will be about whether to add a long-term care benefit--which could prove far more expensive than paying for drugs.

In other words, the Medicare system creates all kinds of individual and market perversions and disincentives that stand in the way of efficiency and optimality. As a public system, Medicare may result in a misallocation of resources, and suboptimal healthcare outcomes. It also removes personal responsibility from much of health maintenance and rationalization. Not only that, because of the coverage gap for long-term care, the perceptual difference between "entitlements" and "means-tested" becomes meaningless. If folks live long enough, they'll end up on public support for the healthcare. Following that logic, Cohen goes on to argue that Medicare Part B reforms in 2007 shifted the system to a means-testing regime for individuals with annual incomes of $80,000 and couples with $160,000. Thus:

The cost savings of such a change are likely minor compared to the cost of Medicare as a whole, since the higher premiums will affect only an estimated 1.2 million seniors out of the 35 million now on Medicare. But the principle it establishes for future reform may be significant: namely, the idea that means-testing is a potential route for further cost-cutting.

But Cohen has some important warnings for the Bush administration drug coverage expansion from 2003, called the Medicare Modernization Act (MMA):

The fact is that, if Medicare were being created from scratch, it would almost certainly include a prescription drug benefit. But there are also good reasons to believe that adding a universal drug benefit was unnecessary or unwise, and that the sense of urgency in doing so was more artificial than real--a battle for senior-friendly voters (young, not old) who presumed a crisis that never really existed. As Samuelson reported in the Washington Post, a government survey of Medicare recipients in 2002 asked the following question: "In the last six months, how much of a problem, if any, was it to get the prescription medicine you needed?" The answers: 86.4 percent, not a problem; 9.4 percent, a small problem; 4.2 percent, a big problem. And so one could have imagined a targeted subsidy for low-income seniors in need, and national acceptance that drugs are just one of those things on which seniors will have to spend their own money.

But for the politically ambitious, drug coverage had already become a "must deliver" issue, and for the country, it had become a political expectation. Moreover, it is unclear how the above survey from 2002 meshes with other realities, such as the high number of low-income Medicare beneficiaries who will now be eligible for drug subsidies, or the deepening erosion of employee-based drug coverage for retirees. Clearly, there existed some real hardship, though hardly a national crisis. And clearly, both parties believed they needed to pass a prescription drug benefit in order to remain attractive to senior and senior-friendly voters.

Given these realities, there is a certain wisdom in the way MMA's drug benefit is designed. It establishes a baseline of coverage for all seniors, and thus assures universal access to at least the most urgently needed medications. It provides genuine insurance against catastrophic drug costs--that is, against suddenly losing all of one's financial resources in a desperate effort to stay alive. But MMA also establishes the principle that not everything can be paid for by government; that medicine must be balanced against other national priorities and other human goods; and that middle-class individuals will have to support their own middling drug bills. The "hole in the doughnut," for all the mockery it has received, is sensible in its guiding principles.

Or, in other words, at some point we won't be able to afford this luxurious entitlement. That, or drastic trade-offs will be necessay, particularly among the younger age-cohorts (post-Baby Boomers) who will be saddled with increased taxes to pay for their parents and the grandparents care, and reduced benefits when they themselves will be ready for retirement.

Now, if you go back to the Walker essay, he's arguing for an additional epochal expansion of a program that's already structured to go bankrupt. As he writes:

What path will this new health care reform bill follow? My strong hope was that the House bill would follow Medicare. It has a national exchange that is funded directly by the federal government. There is national regulation of the insurance industry, and a nationwide public option.

It's a straightforward recipe for government nationalization of the healthcare industry. And we know what will happen: Even great market disincentives will be established. Costs will not decline, since meaningful preventative medicine and health rationalization will be obviated. Access and quality of services will decline, as the U.S. system increasingly apes the Canadian. And of course, taxes will skyrocket, and expected payouts for future generations will deteriorate even further -- which will result in collapsing public support for the federal government all around.

In fact, real solutions should be found not at the federal level, but in the states. Ironically, both the House and Senate versions of the ObamaCare legislation create Medicaid mandates that are being staunchly resisted by states that have managed their programs efficiently. And in the current healthcare debate, as was true in the debate of Medicare prescription drug expansion, a very small minority of Americans report dissatisfaction with their health insurance or the quality of their care. So for the lofty goal of "social justice," today's Democratic-left is on the precipice of destroying the last remants of a functioning healthcare market while bankrupting the nation AND causing a deterioration of health-delivery outcomes all at the same time.

There won't be any "successes" after that.