A Health Reformer's Scary Diagnosis
Health care, says the man most concerned with that 17 percent of America's economy, can be "a nation-ruining issue." As Michael Leavitt ends four years as secretary of health and human services, he offers this attention-arresting arithmetic: Absent fundamental reforms, over the next two decades, the average American household's health-care spending, including the portion of its taxes that pays for Medicare and Medicaid, will go from 23 percent to 41 percent of average household income.
It is, Leavitt says, "predictable" that today's traumatizing economic turbulence, by heightening Americans' insecurity, will complicate reforming entitlements. This, too, is predictable: By curtailing revenue, today's recession will bring closer the projected exhaustion of the Medicare Part A trust fund, from early 2019 to perhaps 2016. That should get the president-elect's attention.
When Medicare was created in 1965, America's median age was 28.4; now it is 36.6. The elderly are more numerous, and medicine is more broadly competent than was then anticipated. Leavitt says that Medicare's "big three" hospital procedure expenses today are hip and knee replacements and cardiovascular operations with stents, which were not on medicine's menu in 1965.
After being elected to three terms as Utah's governor, but before coming to HHS, Leavitt headed the Environmental Protection Agency. He came to consider it a public health agency because the surge in Americans' longevity in the last third of the 20th century correlated with cleaner air and fewer waterborne diseases. Longevity is, however, expensive, and demography is compounding the problem.
In the 43 years since America decided that health care for the elderly would be paid for by people still working, the ratio of workers to seniors has steadily declined. And the number of seniors living long enough to have five or more chronic conditions -- 23 percent of Medicare beneficiaries -- has increased. Many of those conditions could be prevented or managed by better decisions about eating, exercising and smoking. The 20 percent of Americans who still smoke are a much larger percentage of the 23 percent who consume 67 percent of Medicare spending. Furthermore, nearly 30 percent of Medicare spending pays for care in the final year of patients' lives.
Suppose, says Leavitt, buying a car were like getting a knee operation. The dealer would say he does not know the final cumulative price, so just select a car and begin using it. Then a blizzard of bills would begin to arrive -- from the chassis manufacturer, the steering-wheel manufacturer, the seat and paint manufacturers. The dealership would charge for the time the car spent there, and a separate charge would cover the salesperson's time.
Leavitt says that until health-care recipients of common procedures can get, upfront, prices they can understand and compare, there will be little accountability or discipline in the system: "In the auto industry, if the steering-wheel maker charges an exorbitant price, the car company finds a more competitive supplier. In health care, if the medical equipment supplier charges an exorbitant price, none of the other medical participants care."
Medicare is a price-fixing system for upward of 12,000 procedures and drug codes -- and for hundreds of categories of equipment, the providers of which tenaciously oppose competition. Leavitt began implementing a tiny program of competitive bidding covering just 10 products in 10 cities. Based on the 15 days it lasted before Congress repealed it, savings were projected to be substantial. That is why equipment providers got it repealed.
Rather than ruining the new year by dwelling on Medicare's unfunded liabilities of about $34 trillion (over a 75-year span), ruin it with this fact: In the next 50 years, Medicaid, the program for the poor -- broadly, sometimes very broadly defined -- could become a bigger threat than Medicare to the nation's prosperity.
This is partly because of the cost of long-term care for the indigent elderly, some of whom shed assets to meet Medicaid's eligibility standard -- sometimes as high as income under 200 percent of the federal poverty level. And many states, eager to expand the ranks of the dependent with the help of federal Medicaid money, use "income disregards" to make poverty an elastic concept. For example, they say: A person who gets a raise that eliminates his eligibility can disregard the portion of his income that pays for housing or transportation.
Governments with powerful political incentives to behave this way will play an increasingly large role in health care. As is said, if you think health care is expensive now, just wait until it is free.