Philadelphia Reflections

The musings of a physician who has served the community for over six decades

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Introduction: Surviving Health Costs to Retire: Health (and Retirement) Savings Accounts
New topic 2016-03-08 22:42:53 description

The Problems of Medicare Affect Health Savings Accounts

On March 16, 2016, the Chairman of the Subcommittee on Health, U.S. House of Representatives Committee on Ways and Means, held a hearing on Much-Needed Medicare Reforms. The Chairman of the Subcommittee, Rep. Pat Tiberi (R-OH) chaired the hearing, which included invited guests Robert Moffit, Senior Fellow of the Heritage Foundation, and Katherine Baicker, Harvard Professor of Health Economics. According to the Committee report, there was general agreement with Moffit's assessment that, "Of federal entitlements, Medicare presents the greatest challenge." Not the worst care, just the hardest to pay for, is what we presume he meant.

Essentially, Medicare is a modification of the Blue Cross/Blue Shield plans prior to 1965, anchoring the old employer-based systems into a cluster which was originally administered by Blue Cross; and to a great extent still is. The secondary insurance plans, to cover deductibles, copayments and uncovered charges became a central part of Blue Cross profitability in 1965. The sudden implementation of Lyndon Johnson's Medicare package caused so much administrative commotion at the time, that the final working product originally assembled by Ross Perot's group has approached subsequent changes with trepidation. The 2011 near-collapse of the Obamacare Insurance Exchanges stands as a repeat warning to bureaucrats to tinker with health insurance design -- with great caution, if not reluctance. Medicare has rightly been accused of providing too little advanced planning since its inception fifty years ago. But one of the important reasons was it was so stretched to administer what it had.

Although the passage of time has created a need for many changes, reform has been slow in appearing. Medicare has become the largest non-military source of deficits, has seen its prices soar, contains a poorly-recognized 50% subsidy which is often financed by foreign bond sales, incorporates bewildering complexity into its patient reports, discourages outsiders from suggesting or even acknowledging design flaws, is physically located (Baltimore) at some distance from Washington oversight. In spite of all this, the program is wildly popular with the voters, primarily because of the subsidy -- because it provides a dollar of care for fifty cents. In fact, the collection of payroll taxes from younger people is scarcely noticed, leaving only the premiums visible to its beneficiaries. It appears to them to be a dollar of care for fifteen cents. Among politicians, Medicare is the "Third Rail of Politics; just touch it, and you're dead."

Neither the Heritage Foundation nor Harvard is famous for restraining its criticism of other people, but at this hearing, their proposals were only hesitant and dubious. Although gigantic, stability-threatening deficits were the big elephant in the room, these institutions confined themselves to hesitant and relatively insignificant changes to a program which has had fifty-one years to think of something. The book you are reading is primarily about Health (and Retirement) Savings Accounts, but several of the technical tweaks proposed at this hearing about Medicare would cripple HSA approaches, so I must comment.

Simplifying Parts A and B into a single plan has an efficient sound to it but undermines a central concept of the Health Savings Account, the use of outpatient cash payments as a way of re-establishing market pricing. Part B isolates outpatient medical costs and could be the basis for a market-based system of pricing. Part A, on the other hand, concerns inpatients in a hospital bed, who have neither an interest in costs compared with the illness which threatens them nor the ability to shop around. If rationing is ever praise-worthy, this DRG arrangement is an excellent rationing tool. However, a great many of the services provided to inpatients, are also provided to outpatients. The main cost difference between inpatients and outpatients sometimes is whether the patient needs to be fed with a spoon. Those services which are unique to inpatients could easily be linked, by a relative value scale, with non-unique services. And thus secondarily linked to the market-based prices of outpatients. We are so close to a solution to the dichotomy, it's a pity to hear proposals which would make it more difficult.

Whether to use such market prices or to envelop them within a Diagnosis-Related Group for a hybrid price, is a technical issue. It depends on revising the diagnosis coding system to be more detailed and relevant to the problem; the ICDA system now in use was mainly a response to complaints from record librarians that no one was retrieving charts that way. That's true but irrelevant. What's needed is a code for physicians to describe the medical issue in the patient at hand, not one which describes the occurrence frequency of groupings. In spite of repeated revisions, ICDA still provokes disdain from physicians as aimed at diagnosis frequency, and not sufficiently concerned with diagnosis detail. The physician-developed code, SNODO, has been in use for a century, more recently brought up to date as SNOMed. Until the coding systems are reconciled, ignoring any consideration of frequency, there can be no relative value system for cost without years of effort; reimbursement assignments are a relatively trivial addition to a diagnosis. This whole process sounds complicated and it is, but most of the work has already been done. To combine Parts A and B may serve some administrative purposes, but the tail of insurance claim administration must stop wagging the dog of medical care because it exerts a powerful but unjustified control. Without medical care at its core, cost-neutral Medicare might be strangled more cheaply by just abolishing it.

Re-targeting Medicare Benefits to lower-income enrollees. I'm afraid you will find almost everyone on Medicare-- not just low-income people -- is on a fixed income, has no idea how long his retirement money will last, and has all day available to explain his difficulties to anyone who will listen.

Updating Medicare's eligibility to 67. I'm afraid you will find the uninsured time gap (between retirement and Medicare eligibility) will then widen. With that problem recognized, this last idea does merit some consideration, but it conflicts with proposals to permit a Medicare buyout at age 55. It is important to know what price is envisioned for the buyout. If it's the present Medicare premium, it's about fifteen cents on the dollar. If it includes the Medicare wage-withholding tax, there is reason to suppose that has already been spent. And if it includes the subsidy by the general fund, the Chinese are under the impression you already owe that, to them.

Originally published: Wednesday, March 16, 2016; most-recently modified: Friday, June 07, 2019