Medicare is often cited as our greatest domestic health care program — troubled only by its widely acknowledged financial distress. Indeed, many liberal reformers point to Medicare as the model to follow for covering everyone. Paul Krugman (N.Y Times subscription required) even advocates Medicare expansion as the best way to get the “special interests” out of health care! Such nonsense deserves exposure.

Medicare’s greatest strength, of course, is that it provides health care coverage to nearly all of America’s senior citizens and the seriously disabled. Moreover, Medicare is funded on principles of social insurance, not casualty insurance. Thus, the taxes and premiums that support it are mostly income-related, and low risks subsidize high risks. Those clearly are features that most Americans strongly support.

Medicare’s greatest and most ignored weakness is that as a “defined benefits” program, it requires Congress to make hundreds, sometimes thousands, of decisions each year, mostly to further define some benefit or to adjust the prices Medicare will pay for every covered service or medical device. As a consequence, Medicare laws and regulations now number some 120,000 pages, making the IRS code look simple.

The complexity and unintelligibility of the program were highlighted when the Congress passed the Medicare Modernization Act in 2003. Section 904 of that massive law requires the secretary of health and human services to make periodic reports to Congress to identify inconsistencies and conflicts among the Medicare laws that Congress has passed and to recommend ways out of the problems created thereby. One can admire Congress for confessing that it really doesn’t know what it’s doing.

True, Congress is only making the kinds of decisions that private insurers and health plans have to make, but private plans look for cost containment or quality enhancement (or both), not for political trade-offs. Their basic business is insurance and health care, and mostly they know what they’re doing. Private plans have to know each local market to succeed, and they are aware that if their decisions don’t work well, their customers can and will go elsewhere.

The Making Of The Medicare-Industrial Complex

Medicare’s design has led directly to the “Medicare-industrial complex” — the thousands of special interests camped out on Capitol Hill to “help” Congress make all those decisions. And to assure that all those special interests really get to “help,” all are invited to contribute to the reelection campaigns of the congressmen involved. Such invitations are hard to turn down.

One consequence of this design is that it took Congress more than thirty years to add an outpatient prescription drug benefit (almost forty years after every other significant health insurance plan covered drugs). When finally that benefit was added (effective 2006), it was made voluntary because of political considerations, thus threatening serious adverse selection and leading to an unusually complex, confusing benefit design.

Congress knows that Medicare is financially unsustainable, so it demands that CMS (the Medicare administrative agency) propose payment reductions wherever possible. CMS does so. Then the affected interest groups get their congressional allies to block the payment reductions for as long as possible, usually quite successfully.

Two examples: Not long ago, CMS found abuses of outpatient imaging service payments (for example, for CT scans), and it proposed reductions. In short order, more than forty House members were cosponsoring a bill, the “Access To Medicare Imaging Act of 2006,” designed to block the reductions. The matter is unresolved.

In August 2006, CMS proposed to better align hospital payment rates with costs, which would reduce profitability variations among services. The proposal, although probably 10-15 years overdue, makes sense. However, it will hurt some hospitals and help others –- and that renders hospital associations unable to lobby for or against the move. Result? Fifty-three senators and 189 House members signed a letter to CMS urging FURTHER DELAY in implementing the changes. Now these refinements are to be phased in over three years (or, most probably, much longer).

That, unfortunately, is the way Medicare policy is made, or not made, many times a year, every year. And because of the cost pressures Medicare is under, that policy process will flourish.

Whenever Congress does pass payment reductions, their impact goes far beyond Medicare’s finances. They typically result in either some cost shifting to the private sector (as in hospitals) or a reduction of service availability (doctors refusing to take Medicare patients), or many providers’ going out of business (where did all those home health agencies go?), or just distorting the price signals in the marketplace.

Why should the public care? Here’s one small example: The demand for specialists in geriatric medicine is rising sharply, because the population is aging. But the supply of geriatricians is actually falling. The current estimate is that we will be short some 30,000 geriatricians in twenty years’ time. Why? Maybe doctors in training don’t like the prospect of dealing with cranky old coots like me. Or maybe they know they will never pay back their educational loans and make a reasonable living if Medicare is their primary payer. Forget geriatrics.

Getting Congress Out Of Micro-Managing Medicare

The basic problem should be clear: Medicare’s design requires a congressional decision-making process that inevitably substitutes short-run political considerations for long-run health care considerations. Even if Congress could somehow “rise above” that problem, the scale and complexity of the health care industry are beyond the grasp of 500 politicians sitting in Washington (indeed, beyond the grasp of 500 anybodies sitting anywhere).

In 1999 the National Bipartisan Commission on the Future of Medicare recommended redesigning Medicare roughly along the lines of the Federal Employees Health Benefits (FEHB) program. These changes would keep the best of Medicare and get Congress out of its micromanaging, political horse-trading, campaign-funding role. But some of the same political forces that “help Congress” manage Medicare were able to kill these recommendations. It’s time they were resurrected –- they would make Medicare financially sustainable, and maybe even a model for reforming the entire U.S. health care system.

Footnote: In 2003, in MMA, Congress did authorize demonstration projects for the “managed competition” ideas the commission recommended. They are supposed to begin in 2010, in a few cities, and run for six years. If Medicare history is any guide, however, NIMBY (Not In My Back Yard) politics will prevent these demos from ever happening. Moreover, we don’t have another ten years to straighten this out.

Tags: Medicare