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Medicare’s Rollout vs. Obamacare’s Glitches Brew

January 2nd, 2014

The smooth and inexpensive rollout of Medicare on July 1, 1966 provides a sharp contrast to the costly chaos of Obamacare.

We won’t rehearse the chaos part here, just the costs.

As of March, 2013, federal grants for Obamacare’s state exchanges totaled $3.8 billion.  Spending for the federal exchange is harder to pin down because funding has come from multiple accounts, including: the $1 billion Health Insurance Implementation Fund; DHHS’ General Departmental Management Account and General Departmental Management Account; CMS’s Program Management Account and the Prevention and Public Health Fund.  CMS estimates fiscal 2014 spending for the federally-operated exchanges at $2 billion.  So it’s safe to say that the costs of getting the exchanges up and running, and (hopefully) enrolling 7 million people in the program’s first year will exceed $6 billion.

Bear in mind that the exchanges won’t actually pay any medical bills, just sign people up for coverage.  So billions more in overhead costs will show up on the books of the private insurers and state Medicaid programs that will actually process medical claims.

Back in 1966, Medicare started paying bills for 18.9 million seniors (99 percent of those eligible for coverage) just 11 months after Pres. Johnson signed it into law.  Overhead costs for the first year totaled $120 million (equivalent to $867 million in 2013 – all subsequent figures are given in 2013 dollars).  But that figure includes the cost of processing medical bills, not just the enrollment costs.

Moreover, Medicare and Medicaid (which was passed at the same time) displaced several smaller federal health assistance programs, saving about $376 million on their overhead costs.

Signing up most of the elderly for Medicare was simple; they were already known to Social Security Administration, which handled enrollment.  To find the rest, the feds sent out mailings to seniors, held local meetings, and asked postal workers, forest rangers and agricultural representatives to help contact people in remote areas.  The Office for Economic Opportunity spent $14.5 million to hire 5,000 low income seniors who went door-to-door in their neighborhoods.

Despite predictions of chaos, and worries that the newly-insured seniors would flood the health care system, there were few bottlenecks.  Hospitals continued to operate smoothly and no waiting lists materialized.  The only real “glitch” was that many hospitals in the Deep South initially refused to integrate their facilities – which Medicare required for certification and payment.  But by the end of the first month, 99.5 percent of hospitals had signed on.

Obamacare’s start-up has been rocky because complexity is “baked in” to the design, just as simplicity was “baked in” to Medicare.  Obamacare’s exchanges must coordinate thousands of different plans, with premiums, co-payments, deductibles and provider networks that vary county-by-county; Medicare offered a single, uniform plan.  The exchanges must calculate subsidies for each applicant after first verifying income, family size and immigration status; Medicare offered free hospital coverage, with a minimal ($22) uniform premium for doctor coverage.  Instead of setting up a new bureaucracy to collect premiums from millions of enrollees and funnel them to private insurers, Medicare relied on the existing payroll and income tax system to garner funds.

Obamacare’s byzantine complexity reflects the contortions required to simultaneously expand coverage and appease private insurers.  And private insurers will exact a steep ongoing toll.  Medicare’s overhead is just 2 percent, vs. an average of 13 percent for private plans (on top of the Exchanges’ costs, roughly 3 percent of premiums).  A single payer plan that excluded private insurers could save hundreds of billions in transaction costs.

Medical quality improvement experts often advise hospitals to “avoid workarounds”; fix system defects rather than force doctors and nurses to sidestep problems like faulty equipment, understaffing, or illegible handwritings.  This advice is equally valid for health reform.  To avoid glitches and wasteful expense, design the system right; eliminate private insurers and cover everyone under a single payer program.

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8 Responses to “Medicare’s Rollout vs. Obamacare’s Glitches Brew”

  1. Lis Says:

    Medicare costs over $12,000 per person per year and, adjusted for age and health, has a 50% higher utilization rate (because it’s all “free”). It has the highest rate of denials of all plans and will be bankrupt in ten years. A growing percent of providers won’t participate in it and no reimbursement is available for seniors who won’t use government doctors. Really, does anyone want that?

  2. Henry Bennett Says:

    Having lived most of my life under the private insurance care model, and the last few years under Medicare, I can tell you that from a consumer’s point of view, Medicare is FAR superior. Could it be better? yes it could. Medicare should cover EVERY medical problem including dental and vision care, and it should do so without the necessity to purchase a Medicare supplemental insurance policy from the private insurance market. Why doesn’t it? Because the private insurance market has lobbied successfully to prevent this from happening. Why isn’t it even less expensive than it already is? Because the private health care market has successfully lobbied to prevent Medicare from negotiating drug prices and other costs of medical services/products.

    I was a young boy when President Harry Truman wanted to institute a national health care program. My father was a doctor and belonged to the AMA which lobbied hard and successfully against President Truman’s proposal by calling it “Socialized Medicine”. My father bought this argument, and I remember him telling my mother at one point “I don’t think we should have socialized medicine.” In his later years he came to regret his position as he watched our health care system costs grow more and more out of control, and many people fall out of our health care system because they simply could not afford it.

    I strongly agree with the position that my father came to late in his life. We NEED single-payer, and will never solve our health care affordability problem until we implement it. We also need the full ability for Medicare to negotiate the prices of ALL services and products that are covered by it, including pharmaceuticals. The ONLY solution to our health care affordability problem is MEDICARE FOR ALL!

  3. Kim Slocum Says:

    Some of the criticism from previous comments misses the point of this post. The authors have long advocated a single payer solution to the problems facing the US health care system. One can agree or disagree with that view, but the thrust of this article is simply that the ACA’s roll out was more complex because of the need to accommodate a myriad of private insurers and their systems. Having seen the problems of last fall, it is hard to argue with that particular hypothesis… enrolling all legal residents of the US in Medicare (or a similar program) would have indeed been simpler. Whether or not it would have resulted in better/cheaper health care is a different discussion.

    Those who follow health policy will recall that such a conversation did not occur in a serious way during the 2009-2010 debate leading up to the passage of the ACA. If the reform law fails to deliver on its goals of affordable and effective coverage, we will need to revisit the question of how best to proceed, since there is near universal agreement that the pre-ACA status quo was/ is unsustainable. Given the frequency with which we see it used in other parts of the world, a single payer system would have to be one of the plausible options evaluated.

  4. Rob Stone MD Says:

    Thanks to Drs Himmelstein and Woolhandler for this brilliant analysis. The single payer concept remains the most likely to actually work to provide affordable care to the largest number of people. Medicare is not perfect, but actually already takes care of the sickest and most expensive Americans, is generally VERY popular, much more popular than private insurance, and MUCH more efficient.

  5. Michael Bertaut Says:

    Is this really the position you want to take?

    You know as well as anyone that Medicare/Medicaid are giving away roughly 11% of their total allocation in Fraud, Waste, Abuse, and improper care, according to the GAO ($60-$80B/year). That same reports lists private insurance companies as losing less than 1% of premiums to the same issues. 2% overhead in Medicare? Really.

    Second, you also know that the “satisfied seniors” on Medicare are buying private wrap-around coverage at roughly 65% of the population due to the holes in Part A/B coverage.

    And finally, can you promise with a straight face that any public insurance plan that takes a significant part of the insured population and pays Medicare-like rates to providers won’t end up closing down Docs nationwide? If Medicare becomes the BEST payer in the market, how much capacity do we lose?

    And if insurers have a “strangehold” on DC, how did PPACA pass at all? Most of the big for-profit carriers aren’t even on exchanges except in very few states.

    Sorry, I expected a bit more reflection from you.


  6. Prof.A.Alagarsamy Says:

    Any policy should not affect the public. A policy must consider the affordability of payment of a poor man. Such policy will get the affiliations and support that.

  7. William Ralph, Ph.D. Says:

    The problems inherent in private healthcare insurance companies maximizing profits/rationing care are (by now one hopes) understood by thoughtful and fair-minded people. Nevertheless despite years of exposition and debate a much-vaunted “single payer plan” (e.g., universal Medicare) has not realistically addressed the non-sustainability of current Medicare (projected) costs vs. funding, among other things. The same Medicare program lauded as a “solution” is one which has year after year threatened large cuts in reimbursement to providers, has for decades discriminated against mental health services, etc. Like the partisan rigidity in Washington our stale debates need an infusion of critical, honest and outside-the box thinking. Universal health coverage is something worth fighting for and the struggle for it has been long and frustrating. Still, neither the single payer mantra nor any other siren song should be permitted to obscure the very real need for a comprehensive and enlightened solution which competently anticipates and intelligently addresses well-known (in this case) Medicare-for-all pitfalls.

  8. Vince Kuraitis Says:

    “Inexpensive rollout of Medicare” = today’s best oxymoron.

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