Let seniors control Medicare’s exploding expenses

This year, Medicare will begin paying out more in benefits than it collects in payroll taxes. If trends continue, the so-called trust fund will bust by 2019. This is all according to the Medicare Board of Trustees, who recently warned that the “projected long run program costs are not sustainable under current financing arrangements.”

Medicare is on a collision course for one simple reason: Its payment model.

And the first step in fixing Medicare — despite what we hear from Republicans and Democrats alike — is to change that model.

Right now, Medicare subsidizes the supply of health care by paying providers directly. And the program’s pricing system dates back to 1983, when officials surveyed thousands of physicians to determine the time and effort needed to perform various medical tasks.

This was little but financial alchemy.

Consider just one example. Medicare’s economists concluded that a hysterectomy takes twice as much time as a psychotherapy session, 3.8 times as much mental effort, 4.47 times as much technical skill and physical effort, and 4.24 times as much risk. Add it all up, and a hysterectomy is 4.99 times as much work as a psychotherapy session — at least according to the government.

Just about every possible procedure, treatment and appointment was calculated similarly. That’s how the government determined the prices it would pay under Medicare.

Unsurprisingly, health care providers became really good at exploiting this system. To increase their incomes, providers simply needed to lobby Congress to ramp up Medicare spending.

Today, health care providers are some of the most powerful lobbyists in Washington.

To rescue Medicare’s cascading finances, the government should subsidize health care demand. Currently, seniors have no say over how their Medicare money is spent. If seniors could control their own purse strings, they’d likely not stand for health care providers’ exploding costs.

For purposes of analogy, think about one of the most popular senior pastimes, golf.

Right now, the golf industry markets itself directly to seniors. Courses tout their lush greens and comfortable carts. Club makers advertise the forgiveness of their clubs or how far they’ll hit the ball. Once they’ve sold you on the golf, resorts market their spas, restaurants, and hotel rooms.

Now imagine if golf were a government entitlement. We’ll call it “Medicare Part G.”

If Congress subsidized the demand for golf, things wouldn’t be much different. Sure, there’d be more seniors playing — but the industry would still have to compete for customers.

If Congress instead subsidized the supply of golf — paying golf courses and club makers for giving seniors the opportunity to enjoy the sport — the industry’s behavior would change overnight.

With Congress as its customer, “Big Golf” would hire a boatload of lobbyists to convince lawmakers about the benefits of the game. Club makers would vie for time at congressional hearings to call for full funding of their new graphite-shafted drivers. Citing the rising cost of grass seed or a sudden influx of Canadian geese, courses would demand more money year after year.

Left out of this debate, of course, would be the most important party — the golfers. The same can be said of Medicare.

Seniors are captive to the compromises reached by Congress and healthcare providers. Indeed, seniors aren’t even allowed to avoid the Medicare morass by funding their healthcare expenses independently through health savings accounts — it’s illegal.

Unlike any other marketplace, healthcare consumers — that is, ordinary seniors — have no control over the prices they pay.

Until Congress recognizes that subsidizing the supply of health care only forces its price ever higher, Medicare will be doomed to bankruptcy.

Returning Medicare dollars to the folks that use them will help to get Medicare’s finances out of the sand trap and drive down healthcare costs for everyone.

John R. Graham is director of health care studies at the Pacific Research Institute in San Francisco. Please e-mail comments to [email protected].

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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