Thursday, August 13, 2009

Mythbusters and Medicare

Here are some questions you might want to ask your friendly neighborhood congressman or senator at the next health care town hall meeting:

1) What is the difference between Medicare and Medicaid? (Medicare is for seniors; Medicaid is for low-income people)

If they get that $100 question right, they get to try the $1 million question:

2) What do Parts A, B, C and D in Medicare cover? (A=hospital care; B=physician care; C=Medigap insurance plans and D=prescription drugs, all for seniors)

"And please, no cheating by asking a staffer for the answers, Senator/Congressman!"

If they can't answer these basic questions about the largest federal health plan they oversee in Congress, it is doubtful they should be making major decisions on re-arranging close to 16% of the GDP by voting for this health care proposal now before us.

Everyone knows there is a funding problem for Medicare and Medicaid staring us right in the face. Close to $50 trillion in net present value unfunded liabilities to be exact about it. We have some significant heartburn thinking about expanding such similar federally-run health services to the broader population when we really don't know for sure if we are spending every single tax dollar in an optimal way right now in Medicare and Medicaid.

Maybe proving or dispelling some of the ‘myths’ below might help first:

1) 20% of Medicare is “waste, fraud and abuse” (WFA)

This ‘factoid’ is so commonly thrown around that you almost have to believe it is true.

The Obama White House people ‘swear’ that they will be the first Administration to ferret out all of the WFA in Medicare and while they are at it, Medicaid, with the wonders of computer technology. This will unleash untold billions of dollars of savings that can then be turned around to spend on covering the 44 million ‘uninsured’ (which is more like 24 million, see '44 million?')

Well, the cynical side in us says that we had a computer revolution starting in 1980. Here we are 30 years later and we still can’t seem to find a way to get those elusive 20% WFA Medicare savings anywhere.

I have a friend in Washington who is a Medicare auditor and he says with conviction that on every single audit they do for Medicare, 20% of it is WFA. When I asked him if he wanted to go talk to some congressional committees about it, he said: “What do you think I am, nuts? I started in 2000 with 3 accountants and now I have 175 working for me. That’s as good of a business as you are ever going to see!”

Verdict: True. There is about $100 billion per year in WFA in Medicare, (20% of $500 billion). Let's actually find the savings first, save them and book them, and then maybe think about expanding services. Or how about reducing the national debt by $100 billion per year, maybe?

2) 20% of Medicare is spent on defensive medical practices (DMP)

When you sit in any congressional testimony on health care, you routinely hear doctors say they feel so threatened by potential litigation that they prescribe any and all medical procedures just to protect themselves legally, regardless of medical necessity.

You see it mostly in end-of-life situations such as when a doctor will prescribe “heroic’ measures in order to keep a loved one alive for a few more days, weeks or months, even in a comatose state. Why, you ask? Because only 29% of the American public have a ‘living will’ and a legal power of attorney that directs a physician not to engage in any heroic measures if their lives are coming to an end without any hope of recovering to full capacity. (Do you have both? If not, then you are part of the problem as well)

Until there is significant tort (legal) reform with compelling malpractice insurance reform, these defensive medical practices will continue ad infinitum. Even under the ‘public option’ that is supposed to bring costs down. All that means is the taxpayer will then be footing the bill for spurious lawsuits, not the doctor or the hospitals.

Verdict: Probably True. Another $100 billion down the drain in non-medical delivery to the patient costs. Let's get rid of DMPs for 100% sure before we expand services. Or maybe pay down another $100 billion per year in the national debt, perhaps?

3) People use too much medical services when the bulk of the insurance is paid for by a third party such as Medicare or a private employer. Maybe 20% more?

Well, if it is true that you can get something for nothing, you will probably take advantage of it, wouldn’t you? Would you use ‘less’ health care if you thought you were going to have to pay more directly for it in premiums, copays and deductibles? Probably so.

Verdict: Possibly true. $100 billion more in Medicare costs shot. Perhaps we could save this amount first, book them on the government accounts and then expand services to the uninsured. Or did anyone say maybe pay down the national debt another $100 billion per year?

4) Duplicative Medical Services. 10% or more in costs?

There is enough evidence that with a transient population and the desire to find a ‘good’ diagnosis versus a bad one, health care costs in general might be 10% higher than they should be due to ‘duplicative medicine'. If someone ‘shops around’, especially under a relatively loose and inefficient Medicare management system, for positive diagnoses from different doctors, who is to say that it can’t be as high as 10%, or $50 billion per year?

That brings us to around $350 billion per year in annual savings in Medicare alone if it was run ‘perfectly’, however that is defined. Out of a $500 billion annual budget..and growing.

Is this possible? Probably not. There has to be a lot of overlap between each of these categories. But can this $500 billion Medicare program be run better and more efficiently? Of course it can. When current government-run programs have so much spending unaccounted for, even if it is only $1 billion per year, we should not be so intent on expanding into other areas of coverage.

Let's do something truly radical: Find the actual budget savings first before spending the 'potential' savings (cause they might not ever materialize) on expansion of services.

These are some of the major structural issues that have not been addressed in the current health care debate at all. And until they are addressed and solved, any attempt at comprehensive reform is doomed to fail to arrest the upward spiraling costs to the taxpayer…or rather to your kids and grandkids.

Your congressman and senators should already know that. Ask them yourself.

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