Medicare was enacted by Congress in July 1965 under Lyndon Johnson. The goal was to provide health insurance to people over the age of 65 regardless of income or medical history. Currently, roughly 57 million people are enrolled in Medicare. Medicare provides benefits for those over 65 and also for those with disabilities (end stage renal disease and ALS). What is quite interesting even
before Medicare was passed 60% of people over 65 had health insurance. However, older people were paying higher prices. Speaking of prices Medicare sets the prices of over
7,500 tasks. You would think Medicare prices are set by the former Soviet Union.
Medicare is funded by a 2.9% payroll tax. 1.45% of this is contributed by the employee and 1.45% is contributed by the employer. Also there is a surtax of .9% on Medicare wages for individuals making over $200,000 or a married couple making over $250,000. These payroll taxes only cover
1/3 of the Medicare costs. Medicare spending in
2016 as 15% of total spending (
20% of total healthcare spending). To put these numbers in perspective the federal outlays in 2016 were
$3.9 trillion and Medicare spend
$588 billion. The spending has continually increased on an annual basis. From 2000-2016 the annual increase in Medicare spending was
9% per year.The United States spends roughly $10,986/Medicare
recipient. The spending of Medicare has increased which if if not reformed could lead to drastic consequences in the form of reduced care, wait times, and inability to access care. If you were to look at the unfunded liability of Medicare (or the assets needed in the bank today to fund future obligations) that number would be
$43.5 trillion. There are actual some free market solutions that Medicare could implement that would drastically reduce the cost to taxpayers and also increase the quality and transparency of Medicare. Medicare could be publicly funded (through taxpayer dollars) but have the monies privately spent by individuals. Also it is important to note that Medicare has massive inefficiencies, fraud, and waste.
$60 billion per year can be chalked up to Medicare fraud.
There have been some market force changes in healthcare in the past couple of years. In the past couple of years concierge medicine has increased in popularity. Patients were tired of waiting months to see their doctors and when they did see them only getting 15 minutes with them. Doctors were tired of taking on thousands of patients and not being able to spend enough time with their patients. One example of this concierge Medicine is
Atlas MD which charges patients a monthly rate for medical care (this is not insurance). The pricing is based off age and those 65+ pay $100/month ($1,200 per year). This membership style service allows patients 24/7/365 access to their doctors. Patients also get access to see doctors the same day with little to no wait. The model is different because it allows doctors to only work with hundreds of patient instead of thousands (allowing them to spend more time with patients). Atlas also has a prescription
price list that allows patients to access many commonly prescribed drugs at a fraction of the retail price. A similar model from a company called MDVIP allows patients the same 24/7/365 access and patients pay an annual retainer fee for roughly $1,800 per year. This on demand access to a doctor has seen some positive results. In
one study with Medicare Advantage patients showed that the MDVIP program
reduced spending by $3.7 million. The study showed a 20% reduction in emergency room visits in the first year and a 24% reduction in ER visits the second year. Now if government took the money they spent on Medicare and gave it to Medicare beneficiaries and allowed them to purchase these types of concierge plans would lead to improved health outcomes greater efficiency.
Now one issue you might bring up is how will we have enough doctors to cover all these patients? As part of this plan I would allow nurse practitioners and physician assistants to practice medicine independently without supervision.
Currently in 29 states nurse practitioners require some level of physician supervision. According to the American Medical Association (AMA) physician assistants are
not supervised by doctors in 3 states.
20 states require a certain percentage of physician assistant charts to be co-signed by a physician. At the
end of 2016 there are over 115,000 physician assistants. There are
more than 248,000 nurse practitioners. Nurse practitioners commonly diagnose acute/chronic illnesses (diabetes, high blood pressure, infections, etc.), prescribe medications. Nurse practitioners can practice in many areas like gastroenterology, orthopedics, urology, dermatology and many more sub-specialties. Allowing physician assistants and nurse practitioners to see patients (making these changes would empower over 350,000 medical professionals freedom to practice medicine ) without the supervision of doctors would free up not only doctors to do more productive and valuable things but allow more patients to be seen and less time to be wasted.
Another idea Medicare could use is outsource surgery prices to
Medibid (of course it wouldn't be run by the government either). Medibid is a website that matches doctors and patients for prices of common medical procedures and surgeries. The website allows doctors to bid on procedures and allows patients to see the credentials of a doctor, the ratings a doctor has, and the number of procedures they have done-to my knowledge Medicare doesn't offer this information to those patients on Medicare. Patients request they need a procedure and doctors try to bid for business. Doctors quote a price that is all in with no hidden charges (let's compare this to the arcane explanation of benefits (EOB) statements we get from different providers when we currently have a procedure).Using Medibid knee replacements and colonoscopies
were priced at about 1/3 of the insurance price and half of the Medicare price. If Medicare used Medbid as a market price for what should be paid there is no question billions of dollars a year could be saved and there would be more: price transparency, less administrative burden for doctors, and doctors would get paid quicker because they wouldn't have to worry about hassling with the health insurance for payment.
Another no brainer to help save Medicare billions is to legalize the selling of organs (especially kidneys). Every year
$32 billion is spent by Medicare for dialysis. Dialysis is required to those who have a loss of kidney function. One way to get off dialysis is to receive a kidney. However, currently there are over
120,000 people waiting for a kidney. Close to
5,000 people every year die waiting for a kidney transplant. One way to fix this is to allow people to sell their kidneys. This would add a supply of organs (after all it is your body) to the market allowing sellers to receive cash to-pay bills, start a business, or pay off college tuition or credit card debt. Also if people were selling their kidney would increase the number of surgeries which would allow surgeons to improve the procedure and become even more experienced with the process which would improve the outcome. The buyer would get a kidney and no longer have to continue to receive dialysis which is costly and painful for the patient as they sometimes have to go multiple times a week. Is it moral to allow people who own their own kidney not to sell it? This would save billions of dollars every year, improve the overall health and quality of live for not only the 5,000 people who pass away every year but also give hope for the 120,000 people and their families who have to wait.
A simple way to greatly increase competition is to give the money directly spent on Medicare directly to Medicare recipients (or as they like to say cut out the middle man). In any true market, competitors compete for business by providing a better product or service at a better price. Healthcare is different because there are third parties providers (insurance companies) and the government that picks up the bill for both Medicaid and Medicare. What if however individuals were given the money that was spent on Medicare for them and allowed to spend it for medical expenses in whatever way they saw fit.
If Medicare spends $11,000 per beneficiary and the average 65 (male) needs about
$4,500 per year for insurance premiums (of course there would need to reforms in the health insurance market with massive deregulation to drive the premiums down even further). Now if $8,000 could be deposited into each Medicare recipients health savings account (this would be done by a company like ADP or some other payroll company of course-they would have to bid on this contract too) you would allow people to spend money for their own health decisions. Also this program could be means tested (trying to go for bipartisan support here) and tied to income. For instance if someone earned an income of $300,000 they would be phased out of the $8,000 and get only $4,000 deposited. You might say what is to prevent the person from taking the $8,000 out of the health savings account and spending it on something else. Well existing rules on health savings accounts already subject distributions from a health savings that are not for medical expenses to ordinary income plus a 10% penalty (so if your ordinary income is 10% and the penalty is 10% there would be an effective 20% tax on the distribution). It would be costly for someone to take a distribution for something other than medical expenses (I would even be okay increasing the penalty for taking a distribution of non medical expenses from an H.S.A. to 20-30% if needed). The other thing to remember is that earnings inside a health savings account grow tax free (so it would be foolish to take a distribution from this account). If you have $8,000 every year in a health savings account grow every year future health expenses could be covered. Say there are 43 million people on Medicare and if Medicare is spending roughly $11,000 per beneficiaries and $8,000 was deposited into each beneficiaries account (remember if it was mean tested some people would get less than $8,000) then conservatively $129 billion would be saved every year. In addition to this, Medicare beneficiaries would have an incentive to understand what healthcare procedure/care they received and evaluate the cost and benefit. Doctors would no longer bill Medicare and would instead would receive payment directly from a health savings account which would be quicker and the doctor wouldn't have to wait to get paid. The $8,000 would only be for a number of years (4-5 years) and eventually phased out to the next step.
The next step for Medicare would be to allow younger people to opt out of paying Medicare taxes and instead have the monies go into a health savings account (you would have to change some of the current regulations to not require a high deductible plan for a H.S.A.) or the option to save possible for individuals and families to save for medical expenses in retirement. If people were able to start saving for their healthcare expenses in retirement over a 30-40 years it would allow for the effect of compounding growth. For example if someone saved $1,000 per year, for 40 years, at a 6% interest rate they would accumulate close to $200,000 that could be set aside for medical expenses in retirement. If you just increased the amount of savings to $2,000 per year the amount (keeping all other variables constant) the individual could have a little over $300,000 in assets. If you had a married couple this could be over $600,000 in assets for medical expenses in retirement. What is interesting is that it is predicted that in retirement individuals will need roughly
$280,000 in retirement for healthcare expenses. Clearly allowing participants to save for their medical expenses in their older years would the way to go.
Now the next logical question is if younger people opt out of Medicare taxes how would would the government earn revenue from Medicare payroll taxes. As I mentioned in
this post the government
owns billions of barrels of oil and trillions of cubic feet of natural gas (the estimate of just the oil the government owns is $62 trillion and add in another $5 trillion for natural gas and you have ~$67 trillion in government owned assets that could be sold. In 2017, payroll tax revenue from Social Security and Medicare was
$1.16 trillion. If you include the value of oil, gas, and coal owned by the government this totals
$128 trillion. Clearly selling off these assets to individuals, companies, and foreign companies would be a windfall of income for the government that could be used to replace payroll taxes for both Social Security and Medicare.
The current Medicare situation is quite complicated and expensive. If changes are not made future consequences will unfold that could have a dramatic effect on the quality of healthcare and access provided in the future. The obvious no brainers are allowing physicians assistants to practice without supervision (would allow Medicare patients more access), allowing Medicare to outsource their price system to Medibid (this would save billions), allow individuals to sell their kidney (this would save many tens of billions of dollars). After these were accomplished Medicare could transition to using a portion of the of the money they spent on Medicare recipients ($11,000 per recipient) and deposit $8,000 per year into an individual health savings account (for a married couple this would be up to $16,000). Individuals over 65 would have the ability to determine to shop around for health care and create much more competition and transparency. This program would last 4-5 years (after this Medicare would effectively be phased out) at the start of this program younger folks would be able to opt out of paying Medicare tax and allowed to save this money in a health savings account to finance their future Medicare expenses. To make up for the lost payroll tax revenue a portion of the $128 trillion of assets owned by the government would be sold. These changes would allow for more competition, less bureaucracy, greatly improve access and affordability of healthcare, and allow Medicare to be sustainable.
