21st Century Medicare

from Newt's five Challenges

If you are a fiscal conservative who cares about balancing the federal budget, the Medicare Modernization Act of 2003 has begun to move us away from the current model in which insurance companies dominate the health care transaction. The next balanced budgets will only be possible once there is a transformation of the health system.

Transformation in health care is also a moral imperative when poor quality-control systems, scarce information about expected outcomes, unacceptable error rates and lack of consumer choice combine to threaten the safety of patients and limit the opportunities for individuals to find appropriate and affordable treatment.

Medicare must be further strengthened to include a focus on outcomes-based healthcare with more choices, of greater quality, at lower costs. In essence, Medicare (and Medicaid) must continue to evolve into an individual-centered health system that emphasizes healthy living, early detection and the kind of patient self-knowledge based on the latest health information technology.

Medicare is a 40-year-old system created in 1965. The world has changed a lot in those 40 years, and an important first step to modernize it was taken in 2003 with the Medicare Modernization Act.

The historic 2003 Medicare and health savings account legislation was an extraordinarily important first step in the transformation of the American health and health care system that will save lives and money.

First and most significant, the legislation added for the first time an overdue prescription drug benefit for seniors and did so at a reasonable price. Had pharmaceuticals been as fundamental to staying healthy in 1965 -- when Medicare was created -- as they are today, there is little doubt that they would have been included in the original legislation. Over the years, as the drug industry developed more and more life-saving and life-enhancing drugs, the absence of affordable drug coverage for seniors became a glaring shortcoming of Medicare.

For example, it was increasingly nonsensical that Medicare would pay billions for kidney dialysis but not pay the pennies per day for the preventive-care drugs that let many people keep their kidneys healthy. Similarly, it made little sense for Medicare to pay billions to cover open-heart surgery but not cover the couple of dollars a day for statin drugs so that people could avoid surgery in the first place.

In this respect, the drug benefit not only will help keep our seniors healthy, but it will also save money in many cases by preventing health crises that require costly interventions for seniors.

However, the impact of this legislation extends far beyond the drug benefit. Through its creation of health savings accounts, the measure will begin to address the crisis in health care that affects all Americans, and also put Medicare on a surer footing in the future as it will promote healthier lifestyles.

These portable accounts allow individuals to deposit and grow money tax-free, and to withdraw that money tax-free to pay for qualified medical expenses, including prescription drugs and long-term care services (including long-term care insurance). As such, HSAs, which are owned by individuals, are the first completely tax-free account in American history.

If you are a fiscal conservative who cares about balancing the federal budget, this legislation has begun to move us away from the current model in which insurance companies dominate the health care transaction. Instead, the HSA will enable transactions between doctor and patient in which the patient controls how dollars are spent.

Health savings accounts will encourage individuals to shop for health plans that best fit their needs and to make cost-conscious decisions about how they spend their own health dollars as opposed to a third party's money. Individuals who control their own health dollars will be wise purchasers of health services.

With health costs accounting for nearly 14 percent of U.S. gross domestic product, the HSA represents the single most significant transformation that can be made in saving the country from skyrocketing health costs and steadily increasing calls for taxpayers to finance more and more of the health care system through higher taxes. Transformation of this nature is a practical need when so many Americans are without health insurance and when those with (or supplying) insurance coverage have experienced double-digit premium increases for three years in a row.

The next balanced budgets will only be possible once there is a transformation of the health system, and part of the key to this transformation will be the existence of health savings accounts. Without the first dollar interest in the payment of health expenses, there is little incentive on the part of the patient/consumer to scrutinize a doctor's bill.

And without transparency in costs, as well as cost comparison information, it is even more difficult for individuals to assess the true value of a health service and either challenge the bill or decide to take their health business to a different provider who offers better value.

Transformation in health care is also a moral imperative when poor quality-control systems, scarce information about expected outcomes, unacceptable error rates and lack of consumer choice combine to threaten the safety of patients and limit the opportunities for individuals to find appropriate and affordable treatment. The 2003 legislation began to tackle these problems by correcting the current practice in which quality outcomes have no bearing on the reimbursement structure. A provision in the bill will give hospitals incentives to invest in information technology and report on quality outcomes, so people will be able to compare quality outcomes among hospitals.

Medicare must be further strengthened to include a focus on outcomes-based healthcare. The current budgetary structure is clearly biased in favor of reactive care. Presently, there is a different budget for inpatient services and outpatient services. Even within these larger budgets, programs are compartmentalized.

A representative example of this illogical budgetary process is in durable medial equipment (DME). The DME department has to stay within its own budget, therefore purchasing decisions are made based on what the individual department can afford. No consideration is given to the fact that if DME purchases a $15,000 power wheelchair that reclines so that the user can shift his weight during the day, significantly reducing the risk of pressure sores that require hospitalization and surgery, it will save the acute care department a minimum of $30,000.

This type of compartmentalized budgeting is not compatible with the opportunities of the 21st century. It is illogical, irrational, and unethical. It should not matter if a patient is treated in a hospital, in a doctor's office, or in their home. The flow of resources should follow the patient and not driven by a series of bureaucratic structures. As medicine continues to develop new technology to help people avoid sickness, infection, and disease, it is illogical not to account for the money saved by the decrease in invasive and costly procedures and expensive hospitalization.

Budgetary officers should develop a single outcomes-based budget so doctors can focus on taking care of the whole person without modifying what is medically best for the patient to fit Medicare's reimbursement structure. Without a total overhaul of the budget practices of Medicare and the scoring procedures (i.e. the process of actuaries assessing how much a change in procedure being proposed in a bill will cost the government long-term) of Congress and the White House, there will never be an appropriate focus on prevention.

The natural order of the 21st century economy is continually to have more choices, of greater quality, at lower costs. It is what 70 million baby boomers have come to expect in most areas of their lives, with the health and health care system a glaring aberration.

Yet, much more needs to be done. America needs a 21st Century Intelligent Health System. Medicare must be a part of that more effective system.

In essence, Medicare (and Medicaid) must continue to evolve into an individual-centered health system that emphasizes healthy living, early detection and the kind of patient self-knowledge that will be a radical departure from current best practices. The latest health information technology will allow everyone to have a comprehensive, personal electronic health record that updates in real time in a paper-free environment. Patients will emerge the biggest winners.

The more important reason to transform Medicare is that the program shortchanges beneficiaries. It relies on outdated third-party payment and rigidly defined government benefits and prices that are biased in favor of reactive and episodic acute care. Medicare, for example, sets prices for more than 10,000 procedures in 3,000 counties. Such a system would have devastating effects on innovation and customer service if it were applied to supermarkets or car repair shops.

Beneficiaries do not realize that the information they get about their particular ailment tends to be limited to what is paid for by Medicare. It is impossible for a centrally planned bureaucracy to keep up with the most cutting-edge knowledge and treatments, especially when there are no financial incentives for it to do so. Provider withdrawal from both programs continues unabated.

This transformation will take place because good health is not only the right moral goal-it is cheaper. Fully one-quarter of the entire federal budget is being spent on health in 2005. Both Medicare and Medicaid have grown exponentially, beyond original fiscal projections, and their trajectories pose a serious threat to other budgetary priorities and to overall long-term economic growth. Our economic future is bleak if we as a nation do not get a handle on runaway health expenditures.

Transformed Medicare and Medicaid programs will maximize individual choice by providing clear and understandable information about quality, outcomes, best practices and prices. They will create the right incentives for individuals and health plans to achieve optimum health outcomes. This will require not only wise policy decisions by our elected officials but entrepreneurial management by committed public servants.

There are 40 years of accumulated bureaucracy, rules and regulations anchoring the current systems to the past that must be circumvented. The plan of the best chief executive officer is of no value if his or her lieutenants do not follow through on the vision.

The government should also incentivize people to purchase long-term care insurance. Many people are surprised that Medicare does not adequately cover home care or a stay in a nursing home longer than 100 days when either they or their loved ones are becoming less independent. Without long-term care insurance, the family's only option is to spend down their assets or their parent's assets to become eligible for Medicaid. The final years of life for a Medicaid recipient involve roommates and shared televisions, telephones, and bathrooms. This fate could be avoided if we purchased long-term care insurance for our loved ones and ourselves.

Currently, long-term care insurance, like health insurance, is not tax deductible in many states. Out-of-pocket costs and private long-term care insurance make up roughly one quarter of all long-term care funding. Over 75% comes from Medicare or Medicaid. A focused effort should be made to reverse that ratio. A first step would be to provide a tax credit for purchasing long-term care insurance so people will be reminded every year

Medicare must also shift to supporting long-term living that emphasizes capabilities instead of disabilities. Look for Medicare Advantage plans to offer heavy incentives for seniors to participate in fitness programs such as Silver Sneakers. Seniors who are active and social are considerably better off physically and emotionally.

Medicare beneficiaries will become more Internet-savvy every year. They will demand quality information about physicians, hospitals, drugs, treatments and devices.

The Medicare.gov Web site has a new section, Hospital Compare, that allows users to see how their hospital of choice stacks up against the national average. The sophistication of this site will grow every year. There are dozens of similar sites, such as HealthGrades.com, that do the same thing. Information on drug interactions, prices and recalls will become ubiquitous, as well.

Medicare could also allow beneficiaries to opt into a private health-insurance plan of their choice partially subsidized by Medicare dollars. A voucher in the amount of $2,500 annually (roughly one-third of what Medicare spends for the average beneficiary per year) would stimulate a tidal wave of innovative plan arrangements and therefore promote consumer choice. For many Americans, especially those arriving at age 65 with significant balances in their health savings accounts, or HSAs, this option might be very attractive.

A 25-year-old who contributes $2,000 annually to an HSA beginning in 2005 will have $127,000 accumulated in 40 years, provided he or she earns 5% interest and withdraws an average of $1,000 per year for medical expenses. Even adjusting for inflation, that is a tidy sum. Lawmakers also should consider repealing Section 4507 of the Balanced Budget Act of 1997 that bans private contracting between doctors and Medicare beneficiaries. This provision has a considerable chilling effect on patient choice.

Tomorrow's Medicare and Medicaid programs will emphasize health, diet and exercise as much as they will emphasize acute care. Both programs will do so because it makes the most economic sense. Unlike during the managed-care era, this kind of economic sense will be in the patient's best interest. Saving lives and saving money need not be mutually exclusive.

Posted by David at 4:17 PM | | Comments (0) | TrackBacks (0)