Feeling the Burn on Medicare

“We don’t have to invent Medicare, we have it…it is a popular, effective program. Unfortunately, it is only applicable to people 65 or over. So the simple answer is…Medicare should be available to all of us.”

Thus spoke the Independent Senator from the Green Mountain State to a town hall meeting that reached over a million people last night. A chicken in every pot, a car in every garage, and a Medicare card in every wallet sounds like a great idea. Until it doesn’t.

In my travels as a Centers for Medicare & Medicaid Services (CMS) Regional Administrator, I gave a lot of talks to a lot of smart people. People smarter than me. And in every forum somebody would raise this issue. Medicare works, Medicare is more efficient than private insurance, everybody should be on Medicare.

I spent 37 years at CMS, and here is something I learned: Medicare really is a miracle. It’s a miracle it works at all! Old COBOL computer code underlies claims payment, there is never enough money allocated for standing up new mandates, time and energy is wasted preparing for and recovering from arbitrary “shutdowns,” contractors have to be shuffled periodically in a time-consuming and pointless game of musical chairs, and, oh, by the way, the program is going broke.

The argument I find the most misleading is the efficiency argument. Some argue that Medicare’s administrative cost is low, in the range of 3 or 4 percent. Consider this. Less than one percent of Medicare claims are reviewed beyond simple computer screening. Why? Because the screening comes from the administrative budget of CMS. The appropriation CMS gets to run the program comes out of the general fund. CMS has to compete for budget with bridges to nowhere, aircraft carriers, and other things that are more fun for elected Senators and Representatives than claims review. And, by the way, all that claims review makes the providers mad. CMS program safeguards (claims review) generally yield a return on investment around 5 to 1 whether they are done pre or post payment. But CMS can’t use benefit dollars to fund program safeguards. If you had the opportunity to invest in a guaranteed 500% return, you would be reaching for your wallet. Health and Human Services (HHS) admits somewhere north of 12% of payments are improper.

Fee-for-Service Medicare is an amazing benefit. According to an Urban Institute study, a male earning an average wage over his lifetime will receive from Medicare lifetime benefits in retirement that amount to $180,000.1 Lifetime Medicare taxes for this average male would have amounted to only $61,000. We can’t afford that for those over 65, and we certainly can’t extend it to everyone! The health insurance problem isn’t going to be solved by the Medicare program as we know it.

 

1C. Eugene Stuerle and Caleb Quackenbush, Social Security and Medicare Taxes and Benefits Over a Lifetime: 2012 Update. Urban Institute, October 2012

 

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