Spring 2001; Volume 2, Number 1
Features: Medicare Symposium
Bruce Vladeck, Ph.D.
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For those of us engaged in the delivery of health care outside the Washington beltway, there is a certain air of unreality to Washington discussions of Medicare. We certainly have plenty of quarrels with how much Medicare pays for certain services, what it does and does not pay for, and how it operates, but to listen to the Washington debate you would think that Medicare was some sort of anachronistic relic inferior in every way to the modern and creative private insurance industry. Calls for "reform" of Medicare by many in Congress amount to efforts, implicit or overt, to further privatize it by handing it over to the insurance industry. Compared to how the private sector actually appears to be working these days, however, that would leave many beneficiaries and most providers of service substantially worse off. The fact is that in many basic, but very important ways, Medicare works, reasonably to extremely well. And it works a lot better on those dimensions than anything else in the contemporary American health care system.
Out here in the real world, Medicare appears to work pretty well in at least the following regards:
Within recent memory, the fact that Medicare provides health insurance to essentially every American over the age of 65 (as well as everyone with end-stage renal disease and a large fraction of the permanently disabled) merely meant that the elderly differed from the rest of the population in the source of insurance. Now, having health insurance at all is a more notable characteristic. In the ninth year of what was the longest sustained economic boom in American history, almost one in five Americans under the age of 65 has no health insurance whatsoever. That proportion has grown steadily over the past decade. One can only imagine how rapidly it will grow now that the economy has finally weakened.
While shifts in the political climate and a growing sense of nihilism about the possibility of broad social reform may have dampened efforts to achieve universal health insurance in the United States, no one argues that this is not still a desirable goal. With the recent political changes in South Africa, the U.S. is now the only industrialized nation in which a large proportion of the working-age population is uninsured. In that regard, Medicare is now one of our last links to the rest of the civilized world.
From the point of view of providers of health care, services to the uninsured represent a growing and potentially unsustainable financial burden - even though, controlling for differences in health status, the uninsured are far less likely to seek and receive health care when they need it. And even when some form of subsidy is available to providers to defray some fraction of the costs of caring for the uninsured (in many parts of the country, the most generous such subsidies are those provided by Medicare) obtaining payment requires considerable administrative hassle for both patients and providers.
Reliance on employment-related fringe benefits as the principal vehicle for providing health insurance to the non-elderly also means that - in a world of relatively frequent employment changes, heightened efforts by employers and insurers to coordinate benefits among family members, and changing patterns of family relations - even people who never go without health insurance are likely to encounter changes in health insurers, with concomitant changes in how they get their health care. These effects of ordinary labor-market and family "friction" are exacerbated by the growing willingness of employers to switch healthcare coverage - or induce switches in healthcare coverage - for their employees from one limited-panel plan to another. No one has done a full accounting of the economic, psychic, and healthcare costs imposed on individuals and health care providers by this kind of churning in health insurance, but most of us non-Medicare beneficiaries have become accustomed to periodic disruptions in coverage that, at a minimum, cause considerable hassle for the minority who actually read their plan information, and at a maximum can severely disrupt patterns of care for people with significant chronic conditions who have become highly dependent on relationships with particular physicians or hospitals. Most Medicare beneficiaries do not have these problems. And Medicare does not impose these hidden costs on providers of service.
With some limited exceptions to be discussed below, the only Medicare beneficiaries required to change their healthcare arrangements because of changes in their health insurance are those who choose to do so, by voluntarily electing to enroll in managed care plans, changing plans, or returning from managed care into fee-for-service. The rhetoric of "consumer choice" or "patient choice" dominates much of the contemporary health policy debate, but most Americans who get their health insurance through employment have very little choice about their healthcare plans. In 1997, 57% of privately insured individuals had no choice of plans. When the dominant model of health insurance was a pure indemnity system, it made little difference for most consumers, since they could get their medical care from any physician or hospital willing to see them; but almost all private insurance is now "managed" at least to the extent of limiting the number of providers for whom insurance payment is available. Medicare beneficiaries are almost all among the shrinking minority of Americans who really do have a choice in their health insurance arrangements.
In the fall of 1998, when a number of HMOs announced that they were withdrawing from Medicare participation as a result of changes in payment and regulations created by the Balanced Budget Act of 1997, more than 400,000 Medicare beneficiaries were involuntarily terminated from their plans, and had to make other arrangements, although almost all of them had the option of enrolling in another Medicare HMO in addition to returning to fee-for-service Medicare. An enormous hullabaloo resulted, complete with congressional hearings and reams of newspaper stories. Yet this experience affecting fewer than 2% of Medicare beneficiaries got so much attention precisely because it was so unusual - in Medicare - although it is so common in private insurance that it hardly ever receives any public attention at all.
The gradual disappearance of indemnity-style insurance in the private sector has posed an additional problem for many American families. In this most geographically-mobile of societies, indemnity insurance plans were largely indifferent to the site at which service was rendered; medical care away from home, at least in the United States, was generally covered to precisely the same extent as medical care in one's hometown. The same generally does not apply to limited or closed-network plans. Every family with a kid in college has had at least one experience with this issue, as have many people who must travel extensively for professional reasons. From the provider's perspective, "foreign" insurers are always a headache, and frequently a source of non-payment.
Fee-for-service Medicare, of course, is completely portable within the United States. Indeed, one of the reasons for the relatively smaller penetration of managed care enrollment in the Medicare population, compared to the privately-insured, is precisely the issue of out-of-area coverage: as more and more retirees spend parts of the year away from their primary residences, the inability of the managed care industry to develop effective reciprocity or out-of-area coverage arrangements, for a population always vulnerable to needing services, is a major deterrent to managed care enrollment.Medicare as Payer
Even though they are the ones responsible for printing it (or more commonly, in the contemporary world, creating the relevant electronic blips), the government of the United States, and the people who make policy for it, have almost no conception of cash. The budgeting process for the government of the United States of America pretty systematically ignores the time value of money, and the expenditure control mechanisms in the Executive Branch concentrate on funds that are "obligated" rather than those that are actually expended.
In general, there is a lot to be said for the virtues of accrual accounting, but health care remains largely a cash business, for the simple reason that most of the costs incurred by providers of health care, from the largest hospitals to the smallest physician offices, are for compensation to individuals who expect to be paid in cash or its paper or electronic equivalents every week or two. Because of insurance, healthcare providers are rarely paid in full at the time they deliver a service (and incur the associated personnel and other costs); generally, the provision of service only creates the opportunity for the provider to generate a bill. Cash flow is thus a constant preoccupation of all but the most affluent or incompetent healthcare providers.
Although it receives almost no attention within the Washington policy community, the fact that Medicare pays most of its bills quickly and completely is indispensably important to most hospitals and home health agencies as well as many larger physician practices, equipment suppliers, and others (although recent changes in the administration of the Medicare home care benefit have caused traumatic cash flow problems for many home care agencies). By law, Medicare is required to pay "clean" claims within 27 days when they are submitted on paper, and within 14 days when they are submitted electronically, as the overwhelming proportion of Medicare claims now are. "Clean" claims are those that are technically accurate, and that are not pulled out of the process for manual medical or program integrity review, and indeed it is incontrovertible that, until recently, Medicare was paying too high a proportion of claims quickly and automatically, at least from the viewpoint of optimal program administration and prevention and detection of fraud or abusive practices. As in home health, recent efforts to tighten up on the Medicarepayment process have reduced the rapidity of Medicare cash flow for many providers. But even slowed down as much as it has, Medicare still pays faster and more completely than most private insurers. Not unrelatedly, it also pioneered the implementation of electronic billing and remittance systems, thus not only facilitating cash flow but also reducing paperwork and administrative expenses.page 1 | page 2
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