Health Care Cost Battles Are Heating Up

Health Care Cost Battles

Health care cost battles are heating up as President Barack Obama goes to war against the rising health care expenses, as evidenced by yesterday’s announcement of proposed cuts in the Medicare payment rate for managed care services. But yesterday’s announcement was merely the latest in a series of moves designed to curtail increasing medical care costs.

Republican  point to runaway health care costs and Social Security expenses as the two ticking time bombs waiting to blow up the U.S. economy….but it is a Democratic president who is trying to put the brakes on those runaway costs through a combination of cost saving measures, while the Republican congressional delegation crying foul over the moves.

Last month’s health care cost battles  revolved around the Centers for Medicare and Medicaid Services (CMS) proposal calling for a reduction in the number of medications authorized for purchase under the blanket contracts negotiated by health insurance companies for three categories of drugs, immunosuppressive drugs for transplant recipients, and antidepressants, and antipsychotics for patients with mental health issues, saving  more than $500 million annually if that rule is approved.

Yesterday, CMS announced  of a 1.9 percent reduction the benchmark rate used in the calculations for Medicare reimbursement payments for a group of managed-care plans serving more than 25 percent of the people in the Medicare program, triggering another round of health care cost battles talk.

This means that Medicare will reduce the amount it will reimburse Medicare Advantage program operators by 1.9 percent, effectively increasing the amount that Medicare patients will have to pay out of their own pockets for the goods and services they receive in the course of their medical care.

Medicare costs were $472 billion in 2012. On that basis, the 1.9% savings would generate more than $9 billion in savings annually….but those savings would be achieved by pushing the cost of that 1.9% reduction back onto the Medicare beneficiaries, according to the Republican congressional delegation.

Rep. David Camp (R-MI), chairman of House Ways and Means Committee, claims that millions of Medicare patients who are in Medicare Advantage programs would lose their health plans, along with their doctors, benefits and financial protection from catastrophic health care expenses…but there’s no evidence for this position. The worst case scenario for most seniors would be a 1.9% increase in their insurance premiums.

Medicare Advantage programs provide managed care services for Medicare patients by underwriting the cost of the treatment and medications they receive. More than 15 million people are now in such plans, representing 29 percent of the 52 million Medicare beneficiaries.

The health care costs battles are being triggered by the recent slowing of health care cost increases, which have been moving  much more slowly than previously anticipated,  possibly reflecting the fact that the health conscious Baby Boomers who are joining the ranks of Medicare patients are healthier than previous generations of Medicare beneficiaries. They eat better, drink less, smoke less, and exercise more than their parents and grandparents did. As a result, they present themselves with fewer medical issues when they sign up for Medicare.

While the Affordable Care Act was sold on the basis of making health care costs more affordable individual patients, the real intent was to make health care costs for affordable for the nation as a whole, by forcing whole categories of people into the health care system.

Under the old system, people who could not qualify for health insurance, could not afford to buy health insurance, or simply refused to do so ended up using the free care provided by hospitals and clinics at the astronomically high rates charged for emergency room care.

The Affordable Care Act uses a carrot and stick approach to force people who did not have health insurance into the system. The carrot was the exemption for pre-existing conditions, which kept many people from purchasing health insurance, and subsidies for those whose income was too low. The stick were fines levied upon those who refused to buy into the system.

The underlying economics was the balancing of the increasing cost for universal health care on revenues from healthy younger people, who would be paying into the system, but not using the resources of the system because they didn’t have health issues that necessitated medical care.

The ticking time bomb that Republican legislators are concerned about are the runaway increases in health care costs. In 1958, per capita annual health care expenses were $134. In 2012, per capita health spending climbed to $8,953. In constant dollars, that’s equal to a 400 percent increase.

Another issue that bothers economists is that inflation ebbs and flows, but health care costs keep going up at an exponential rate due to the rapidly escalating capital costs required to equip and maintain a modern medical facility and  to the escalating costs of malpractice insurance.

The health care issue for liberals is the question of how much, or how little, Americans get for their money. Republicans claim U.S. has the best medical care in the world, but there’s really not much evidence of that. The U.S. excels at the treatment of cancer and heart disease but preventive care services are among the worst in the developed world. The U.S. performs most of the high tech medical research, but average Americans rarely see the treatments research creates because they are just too expensive for the average income wage earner and, because they are experimental in nature, are not covered by insurance.

If anything is true about the recent health care cost battles, it is that the Obama administration’s health care offensive is being driven by a deep understanding that the continued escalation of our health care costs, which came to 17.8 percent of the Gross Domestic Product (GDP) in 2013, cannot be supported by the U.S. economy for much longer.  Only time will tell if  President Obama can beat the clock on health care reform before time runs out.

By Alan M. Milner

Health Care Cost Battles Are Heating Up

New York Times
World Bank
Center on Budget and Policy Priorities

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