The Medicare program remains widely popular, but how well is it understood? What about the program works well, and doesn't work well? And is it under threat in the current political climate? This week on The Campbell Conversations, Grant Reeher talks with Yale Emeritus professor Ted Marmor, a leading and longstanding expert on Medicare and the politics surrounding it.
Grant Reeher (GR): Medicare is more widely understood among the public than Medicaid, but I think it still makes sense for us to start with an overview of how Medicare works in our healthcare system. Could you just sketch that out briefly for me?
Ted Marmor (TM): Medicare is a program much more complex than it was when it was born legislatively in 1965 and put into effect in 1966. Then, there were two parts to it: a hospital insurance part, called Part A, and a Part B, which was devoted to, largely, insurance against the fees of physicians. Over time, and particularly in 2003, a drug benefit was added—that’s called Part D—and Part C, which will be hard for people to figure out, is an option that all Medicare beneficiaries have to join a prepaid group practice plan, as long as that plan gives benefits at least as generous as the Part A and Part B and D. So, it’s a four-part insurance arrangement in which it covers doctors, hospitals and drugs, and gives people an option for what in the industry of medical care is called a capitation payment for a prepaid group practice.
(GR): Now, let’s think about the paying for it side. How is it financed and paid for?
(TM): Well, again, I’m going to distinguish these four parts…Medicare, though much more popular than Medicaid, is not better understood in its present form, but was quite understood in its original form. So, how is it financed? The hospital part is absolutely straight-forward example of a social insurance program. People work and pay a health insurance tax of 1.45 [percent], and their employers pay the same percentage. And that is the financing of the hospital, and it illustrates the classic social insurance idea, which is that the entitlement to the benefit is a function of your pooling with other citizens, but the eligibility for the program does not depend on any asset test or any test of your health circumstance. That’s social insurance, not commercial insurance. Commercial insurance, the premium is meant to cover the likely expected cost, so the more likely you are to be sick, the higher the premium. Social insurance is the exact opposite of that…So Part B is an amalgam; it’s confusing. It’s financed by current income and general taxation for about 70 percent…and the remainder comes from a particular earmarked flat-rate payment per month on the part of current beneficiaries…And Part D, the drug bill, the drug program, is financed by, basically, people choosing among private insurance plans and paid for by the combination of both taxes and contributions.
(GR): What would you say is the most common, and maybe most problematic… misunderstanding about the Medicare program among the public?
(TM): The grossest misunderstanding is they don’t know that it’s a public insurance plan, at least in Part A…I think the second misunderstanding has to do with explanation and not simply factual error. I think what I just said about the four parts, almost nobody understands. Nobody understands what Part C and Part D, where they came from, and why they’re so different from Parts A and B. It used to be said that Medicare is relatively simple, and its hospital benefit, it certainly is, but its Part B benefit has deductibles and co-insurance modeled on the ideas of health insurance of the 1950s and early 1960s. And none of this is as simple as what Canadians take for granted in their Medicare program because they have a program covering both hospitals and doctors’ bills. There’s no deductibles or co-insurance. It’s paid for out of a variety of taxes, and nobody wonders about whether or not when they go to the hospital, if fully covered, or whether or not when they go to the hospital, drugs are covered…All I want to emphasize is that one program for hospitals and doctors is simple, and the other program that we have is less simple by a long shot.
(GR): How would you characterize the overall current health of the Medicare program?...How is it standing? How is it doing?
(TM): By comparison with the rest of American medical care, Americans are largely satisfied with their experience with Medicare. Happily, most people are not sick most of the time, so that there’s two different audiences: one, the audience that has a very favorable, general view of Medicare because, as for decades now, [it] has been treated as one of the most stable parts of the American medical scene. Those people who are ill or injured and have a lot of experience with parts A, B and D will find it complex, but they’ll also find that the Medicare program is somewhere more responsive to questions about how it operates than, for example, our private insurance plans. One of the most complex features of Medicare’s Part B is it involves both deductibles and co-insurance. And many Americans, indeed a majority, buy supplementary policies for these matters. And so, the combination of Part B and supplementary could get confused, but even more importantly, the kind of detail that private health insurance takes for granted is utterly bizarre…Two points I would make: One is that it remains popular, and it’s a little like, but not completely like, the support for social security, in that most of the people in politics who don’t like it are scared to attack it. So instead of talking about its desirability, which they think rightly they would lose, they instead talk about its affordability, and that’s where you get huge misunderstandings and misleading commentary…So if you estimate only the cost of covering new parties coming into the Medicare program, you will think about a budget impact or a budget increase that totally misleads the social expenditures for healthcare. Because given now, Medicare’s per capita expenditures are less than that of average private insurance, so as a collective matter, it would actually reduce the overall cost of medical care.
(GR): There are concerns that have been expressed recently in some policy circles that the new tax law…will lead somehow to some kind of significant reduction in the Medicare program or a restructuring of it that, in effect, cuts it back significantly. I wanted to get your take as to whether those concerns, you think, are well founded, and how would that actually happen?
(TM): I don’t think they’re well founded… I think it reflects actually a misunderstanding of how Medicare is financed. Part B is financed by a health insurance tax on wages and salaries paid by both individuals who are working and their employer. So, how is that going to be affected by a general tax change? The answer is it’s not. It’s an earmarked tax…You could change the law, but that’s not what you’re talking about. You’re talking about the impact of the tax law changes, correct?
(GR): Well, both, I think…There’s been some concern expressed that somehow, the effect of lowering the revenues to government through the tax cut is going to give advocates…some sort of wind in their sails to actually significantly cut back or restructure Medicare in a way that does, in effect, cut it back.
(TM): It’s not taxation changes that are doing it; it’s the effort to address the future deficits, which, of course, the Republicans are creating, largely through their tax cuts. So, then the question becomes, how could that impact our Medicare? Well, it could impact, for example, if there were a turn towards reduced revenues and increased patient contributions to Part B premiums…On Part C, it could happen by reducing the capitation payments to prepaid group practice plans…and/or it could affect the contributions of general revenues to the Part D plan. But the hospital payment side is completely protected from that, and nobody yet as proposed a scheme of transforming Medicare.
(GR): A lot of elected Democrats, especially some on the short list of presidential aspirants, are calling for a change in our healthcare system that they are labeling “Medicare for all.”…First question is, what exactly are they calling for? And then, is it realistic politically and policy wise?
(TM): They’re calling for starting with the Medicare program as it is now and expanding those eligible for it ultimately…for the population as a whole. The underlying imagery of what they have in mind is the popularity of the Medicare program as we have it now. The aspiration for a lot of the advocates…is something equal to the Canadian plan…The trouble with it politically is that nobody who’s advocating it has articulated a set of incremental steps that would put it within the realm of political feasibility were the Democrats to return united, both in the Congress and with the executive…Over the last 10 years, there’s been what you could call a hollowing out of the aspiration for full coverage of hospital and doctor expenses and drugs through employment-related insurance. Instead, it’s been steadily moving towards much higher deductibles in co-insurance and much more in the direction of catastrophic insurance. And that was illustrated by what the ACA—the Obama reform—did in connection with its options in the so-called exchanges…It’s also true that the suggestions of the other Democratic candidate, Mrs. Clinton, did not have an incremental plan of any sort at all. Indeed, one of the most important things to say about the contemporary state of American healthcare reform is that there’s no obvious first step anywhere.