We’re discussing the insolvency of Medicare and Medicaid and what needs to be done. Seema Verma, former administrator for the Centers for Medicare and Medicaid Services under President Trump, offers her solutions in a recent article published in The Wall Street Journal.
In Part I we discussed Verma’s solution of a value-based reimbursement model, which is often called capitation payments. This means payment based on the number of patient lives covered by the physician provider or hospital system. After a fixed payment for each patient, no additional payments are received, regardless of the treatment provided.
In Part II, Verma discussed how to avoid rationing of care by holding providers accountable for both quality and patient outcomes. But there are drawbacks to these practices, which I discussed as well. Furthermore, she discussed how to lower the costs of drugs in the federal 340B Drug Pricing Program, which provides discounted drugs to so-called safety-net providers to help them reduce medication costs for low-income patients. She is concerned about these providers unfairly profiting from not passing along discounts they received.
In Part III, I will address these concerns and others she expresses, and then offer some solutions to the rising costs of Medicare and Medicaid. To begin, I will repeat her last concern:
Verma is concerned about the drugs provided to Medicaid enrollees. The federal 340B Drug Pricing Program provides discounted drugs to so-called safety-net providers to help them reduce medication costs for low-income patients. But she argues providers aren’t required to pass on the discounts when selling medicines to patients and can pocket the profit. To this end, 340B providers have worked to acquire physician-owned clinics and smaller hospitals, allowing them to expand their use of the program and thus their profit and monopoly power.
I would say there are simple solutions to her concerns. First, limit the amount of mark-up these providers can charge for these drugs to a reasonable amount to cover their overhead. The worker’s compensation system in Florida has limited such mark-ups to 20%. With current inflation at 6.5%, perhaps this number needs to be a bit higher, say 25%. On the other hand, physician-owned clinics and smaller for-profit hospitals have been shown to reduce overall healthcare costs, not increase them. Also, when providers can see more profit available, it makes access to healthcare more available. Limited access to healthcare is a major problem with Medicaid patients.
Verma does make a good point concerning surgery. Medicare forces seniors to get surgeries in hospitals. The “Medicare inpatient-only list” outlines the type of procedures that are reimbursable only if done in hospitals. This includes joint replacement surgeries, which are among the most frequent procedures for seniors. Many operations can be safely performed in outpatient centers where the cost is lower and the quality is even higher. Current rules make it harder for outpatient surgery centers to compete with large hospital monopolies, which perform the vast majority of surgeries for Medicare patients. Allowing these same procedures to be performed in outpatient centers would likely cut the cost in half or more.
The Trump administration tried to fix this problem by removing the inpatient-only list, making it clear that medical decisions shouldn’t be made by federal bureaucrats. Unfortunately, the Biden administration reversed this Trump decision, like so many others, with adverse results. The costs for Medicare and seniors have gone up again.
Verma also makes another good point when she says more needs to be done to enforce price-transparency regulations for both payers and hospitals. Transparency allows competition and market forces to be effective in lowering costs. She calls on the president and Congress to work to lower costs and increase quality through market competition to avoid more draconian changes like benefit cuts, increased taxes or higher beneficiary spending.
What are my solutions?
I would say there is another significant way to lower Medicare/Medicaid costs – increase the eligibility requirements. When Medicare was enacted on July 30, 1965, life expectancy was 66.8 years for men and 73.7 for women. That means the average man became eligible for Medicare only 1.8 years before his expected death. The average woman became eligible only 8.7 years before her expected death. That means the government was only picking up the tab for 1.8 and 8.7 years for men and women respectively.
Today the life expectancy of a man is 79.1 years and for women it is 81 years. That means today the government must pay the healthcare expenses of a man for an average of 14.1 years and for a woman 16 years compared to 1.8 years and 8.7 years in 1965. Congress never anticipated such a huge increase in expenses for subsidizing healthcare.
Medicaid eligibility is dependent on economics, not age. Medicaid was originally implemented to cover pregnant women, children, and the elderly and disabled. Income eligibility varied by states. The original eligibility for pregnant women and young children was household income below 133 percent of the federal poverty line (FPL). For school age children it dropped to 100 percent of FPL and for the elderly and disabled to 75 percent of FPL. For working parents, it went down to 25 percent of FPL. Able-bodied adults were ineligible.
All that has changed since the Affordable Care Act (ObamaCare) of 2010. Eligibility was increased to 138 percent of FPL for all enrollees if states opted in. This includes able-bodied adults, who were never originally intended to be eligible. Today, 40 states have opted in including the District of Columbia, while 11 states remain under the old eligibility rules. Medicaid enrollment today is 82.3 million according to the Kaiser Family Foundation. In 2010, just before the passage of ObamaCare, only 54.6 million were enrolled. This huge expansion of Medicaid is a major reason why we are now over $31 trillion in debt.
The solution to the insolvency of Medicare is raising the age of eligibility. There is no reason for the federal government to be picking up most of the tab for seniors for the last 14 years or more of their lives. This was never the original intent of Congress. For Medicaid, the solution is lowering the eligibility levels to their original intent – low-income Americans, pregnant women, young children and the disabled. Covering the healthcare of abled-bodied adults was never the original intent of Congress. These adults can get a job – there are literally millions of jobs out there looking for people to work and many will provide health insurance. It’s time we decreased the rolls of those who are dependent on the federal government.
These two solutions are simple to explain – but will require compromise by both political parties to achieve. Unfortunately, even discussing solutions has become a weapon in the arsenal of some politicians. This will only change when the American people demand changes to safeguard these important entitlements for the security of their future.
