Taking aim at Medicare, which is popular and a political third rail for elected officials, is risky. But the Trump administration thinks it has a winning strategy for doing so: embracing the nearly century-old conservative health-care tactic of warning about the threat of socialized medicine.
Trump’s executive order was initially titled “Protecting Medicare From Socialist Destruction” and subsequently renamed “Protecting and Improving Medicare for Our Nation’s Seniors.” The stated threat of socialized medicine has routinely been used to deter politicians and voters from supporting policies that would expand access to health care or control rising costs. Instead of protecting health-care services for consumers, however, these threats simply provide political cover for policies that benefit industry at the expense of offering quality health care to Americans.
In the years leading to the passage of Medicare, politicians were leery of supporting legislation that would provide government-sponsored health care, even for sympathetic groups such as the elderly or military veterans. Since the early 20th century, any attempt to promote a national health insurance plan had led to warnings that this would “socialize” America. Attempts to develop a workers’ health insurance program in the Progressive Era initially garnered broad support, before faltering as public discourse embraced dissenters’ arguments that, at its essence, the plan was un-American.
New Deal politics brought a renewed hope to pass some sort of broader health insurance program, especially after the enactment of Social Security, which reflected an understanding that the aged could not sufficiently work to support themselves. President Franklin D. Roosevelt had omitted health care from his signature initiative to smooth passage, but he hoped to address it later. World War II intervened, and Roosevelt died before getting the chance to lead a postwar charge for health care.
Successor Harry S. Truman took up the mantle, initially enjoying broad support for his national health insurance plan. But a vigorous campaign by the American Medical Association (AMA) and its allies against “socialized medicine” reshaped public opinion. Their red-baiting rhetoric obscured the fact that most physicians who objected to expanding insurance access were primarily motivated by their own wallets and a desire for autonomy to practice medicine as they saw fit.
In 1962, the AMA recruited a young actor turned budding politician, Ronald Reagan, to record stark warnings against the socialist evils that a proposed Medicare program providing health care for seniors would visit upon America. This warning was distributed to the Women’s Auxiliary of the AMA in what was termed “Operation Coffeecup.”
This time, however, the AMA lost the battle, and Medicare became law during the Johnson administration. Yet in many ways, the AMA and its insurance industry allies won the war.
Medicare passed only after much political compromise, which created an unsustainable system. Physicians could charge “reasonable,” “prevailing” or “customary” fees for their services, incentivizing health-care providers to increase their charges. Hospitals would be reimbursed for the costs of care they provided, giving them ample incentive to increase their operating costs and expenses. The result was unsurprising: The first five years of Medicare witnessed rapid increases in health-care spending.
This runaway spending was untenable, and Medicare developed a system that capped fees for services (something that might have killed the bill had it been included initially). Medicare assigned a customary price for each service and paid no more than that. This encouraged hospitals to develop cost-containment measures to ensure their spending would be reimbursed by the government, and set caps for physician charges. This structure offered an incentive to economize.
While a major improvement, this system, which was adopted by commercial insurers and spread across the world, still incentivized treating things with more expensive services, for which providers could be reimbursed more, rather than using the most appropriate services. For instance, physical therapy and massages may be equally effective as back surgery in certain situations, but this system gives practitioners reason to perform procedures that are better compensated.
While the passage of Medicare had been preceded by dire warnings of the dangers of socialized medicine, it turned out to be a boon for a capitalist health-care industry, providing a steady supply of funding for consistently rising health expenditures.
Yet policymakers understood that relentless rising costs were unsustainable. By the 1990s, driven by faith in private-market health care, privatized Medicare plans emerged as a purported market-based solution that could simultaneously offer better benefits and greater choice to patients while reducing costs. The bipartisan Balanced Budget Act of 1997 hastened the proliferation of such plans, today termed Medicare Advantage plans. The government pays private insurers set prices to provide for seniors enrolled in these plans. Yet the dual goal of providing expanded benefits while reducing costs and maintaining profitability proved difficult initially.
Over time, however, Medicare Advantage plans have experienced expanded enrollment. Yet part of their success derives from spending less on providing health-care services, often by offering a narrower choice of providers. Medicare Advantage spends 25 percent less money on health care for an enrollee with a similar medical history than traditional Medicare. This is not necessarily a sign of poor medical care, as cost savings are the goal of these insurance programs. But spending less enables private insurers to pocket a larger proportion of government funds paid to provide health care to seniors. In fact, Medicare Advantage receives more money from the government per enrollee than traditional Medicare.
The big question is whether the profitability of Medicare Advantage comes at the expense of providing quality health care. While the answer isn’t 100 percent clear, we know that Medicare Advantage plans generally offer a broader range of services but with a narrower network. A recent study found that seniors tend to drop their Medicare Advantage plans when they get sick and realize they need access to a fuller spectrum of services.
Thus, whatever its virtues, touting Medicare Advantage as a way to expand patient choice reveals a profound misunderstanding of how it works.
Promoting Medicare Advantage and increasing the fee schedule of traditional Medicare, both goals promoted by Trump’s executive order, therefore, threaten to exacerbate cost-containment problems that have plagued Medicare since Day One. While the 2010 Affordable Care Act aimed to recast incentives in the health-care system to reduce overtreating and to reward clinicians for choosing the most appropriate treatment, rather than the most expensive one, these efforts are in their infancy.
The winners from Trump’s proposal will be providers and private insurers, while seniors will lose. And yet history shows that there is a decent chance that politically, the proposal may garner support from Trump’s base of older voters.
Arguing that paying more for health care is a good idea for patients requires considerable creativity and ingenuity. But the president has clearly mastered the conservative playbook for doing so: For three-quarters of a century or more, the medical industry and its political allies have garnered public support for programs that primarily benefit industry players at the expense of patients by scaring Americans about the dangers of a socialist takeover of health care.
Trump has painted socialism and the infringement of individual liberties, not high health-care costs, as what really ails America.
What actually changes from Trump’s executive order remains to be seen, but it does illuminate why it’s been so hard to devise a way to provide good care for lower costs: Scaremongering by the industry players predominantly motivated by profits continues to be successful.