the future of Medicare

Healthcare for the elderly in the United States is in an untenable financial situation. This is the result of a convergence of factors: an aging population with increasing life expectancy; the pharmaceutical and device industries devising new and very costly techniques and applying them to this population; the sophistication of patients, demanding them. All of these together lead to health care expenses for the elderly that are consuming an unsustainable portion of the GDP.

Although this problem exists in other countries as well, it is particularly onerous in the US because of the malpractice industry, coupled with the notion that if something goes wrong, someone should pay. In other countries, there is a greater acceptance of the inevitability of things going wrong, a greater reliance on the paternalistic doctor-patient relationship and much lower malpractice rates and awards. This is not to say that paternalism and low malpractice awards are necessarily better or fairer or right, but it does explain the ability of the healthcare system in other countries to significantly limit outlays.

The future of Medicare, in my opinion, lies in some combination of the following approaches:

1. Conventional fee-for-service Medicare. This is what got Medicare into financial difficulty in the first place, and is unsustainable in its present form. However, the current trend, which will certainly accelerate, is towards drastic ratcheting down of Medicare payments to providers in order to keep costs manageable. This will continue and will accelerate the flight of doctors and other providers out of fee-for-service Medicare entirely. Because of this provider flight, fee reductions alone would not be politically feasible, but there will be other alternatives open to patients. As a result, fee-for-service Medicare will become the refuge of a greatly reduced number of highly efficient, low-overhead practitioners as well as those willing to accept much lower incomes.

2. Medicare managed care. This involves Medicare paying a fixed sum to an insurance company, in return for total care of the patient. Insurance companies are highly skilled at gaming the system and figuring out how to enroll the healthiest patients, so Medicare will end up paying more for the care of healthy patients than it would have had they been in fee-for-service. Not a good solution.

3. The new Accountable Care Organization (ACO) approach. This is basically the same as Medicare managed care, but this time, the organization assuming responsibility for the patient’s care is not an insurance company but a healthcare organization, ACO, presumably organized around a hospital system. Medicare thinks it can get a better deal out of the ACO’s than it could out of insurance companies. And hospitals and providers suffer from the delusion that they can provide quality care at low rates (something nobody else has been able to do). There is much enthusiasm for this approach right now, and everyone seems to be scrambling to get on the bandwagon. But there are numerous pitfalls. What happens when a patient wants / needs to get care for an expensive problem outside the ACO? When a patient ends up with a month long ICU stay at another hospital? Who pays? If the original ACO has to pay, it will be ruinous. If Medicare foots the bill, there will be a mad rush to dump the sickest patients onto outside institutions. And again, how should an ACO be able to solve the problems that are inherent in the costly healthcare of the elderly?

4. Finally, there is the voucher approach, where Medicare gives patients vouchers to pay for insurance on the private market. Of course, insurance that provides real quality care for a large population of sick, elderly patients will be extremely expensive, not affordable without supplementing the vouchers substantially.

[As an aside, what about single payer, in all this? I used to think that single payer was desireable but not achievable in this country. Medicare for all seemed to me to be a laudable if illusory goal. But single payer doesn’t have the answer to the cost problem any more than Medicare does. Given the state of Medicare, I no longer think single payer is even particularly desireable. ]

In my opinion, all four of the approaches listed above are likely to be adopted, to varying degrees. A poorly reimbursed fee-for-service system with relatively few providers, managed care and ACO’s, and a voucher system. But none of these approaches solve the underlying problem of the spiraling cost of medical care in an aging, litiginous and sophisticated population.

And so, the end result will be characteristically American: you gets what you pays for. The affluent will pay for expensive insurance, supplementing the Medicare vouchers with their own cash. The rest will have to deal with sparse fee-for-service and cost-shifting managed care and ACO’s (assuming these don’t eventually all fold).

Michael Jacobson, MD
New York, December 21, 2011