Pt. II: Medicare and Medicaid
Continued from prior post...
Established in 1965, the federal healthcare programs Medicare & Medicaid (I will use Medicare as proxy for both) are the largest healthcare providers in the US. These programs are not insurance as generally defined; they are pay as you go. In other words, your current taxes pay the health care expenses incurred by current beneficiaries. Your taxes DO NOT pay premiums for your future policy costs.
One consistent feature of Medicare has been costs well in excess of predictions. At its inception in 1966, Medicare cost $3 billion and the initial (conservative!) inflation adjusted cost estimate of $12 billion in 1990 when in fact the cost in 1990 was $109 billion! Actual spending in 2010 grew to $524 Billion.
Despite the rising costs, Medicare reimburses below market rates. This results in "cost-shifting" as providers increases prices to consumers with private health care plans. The size of this is cost shifting is debated although a recent study by Wu demonstrated a 21% cost shift effect as Medicare further decreased reimbursement. Analysis of claims data in 2009 demonstrated Medicare also has the highest rate of denied claims, just ahead of Aetna and 1.7x the average of private insurers. As a result providers are dropping Medicare patients including the Mayo Clinic in Arizona. Self-referral of imaging is also notorious for not accepting Medicare. Poor Medicare reimbursement also plays a part in the rise of so called "concierge practices".
Medicare and single payor advocates point to the efficiency as measured by low overhead costs. Superficially, this is true; Medicare has the lowest overhead costs. However, Medicare patients have greater per capita expenses than private insureds resulting in a higher denominator in the calculation of efficiency (overhead/total expenditures). More importantly, a significant part of overhead cost for private insurers is for battling fraud and abuse. This is not the case with Medicare. How big of a problem is Medicare fraud and abuse? The GAO estimated the cost at $24.1 Billion in 2009 but conceded that "this may not be a full picture" while other estimates range up to 15% of total Medicare expenses. Politicians of all stripes and from both parties continue promising to cut fraud and waste, yet it persists. In the parlance of the software industry 'it's not a bug, it's a feature'.
