Medical Care, Is it a RIGHT?

The first question must ask oneself, and the voters and taxpayers of the country; is  medical care a guaranteed right for every citizen of the United States? That is a fundamental question that must be answered before a reasonable approach for the government's involvement in medical care can even be discussed. Until recently it is clear that the answer was, no it's not.  Medical care was the responsibility of each individual to provide for themselves.  The government had little or no role in that process. People dealt with their family doctors on their own terms, bought insurance from private companies if they so desired, or could afford to, and depended on private charities to take care of the indigent.


Lately however, it seems to me, the dynamic has changed. First the government stepped in to require that emergency rooms treat anyone showing up at their doorstep, with or without the ability to pay. Emergency Rooms became the family doctor for so many people without insurance and indigent folks, especially illegals. Somewhere along the line we decided that us old folks needed to be provided with quality health insurance, so Medicare came into being. Now almost everyone sixty five and older is covered by Medicare, replacing previously private insurance provided by their retirement benefits package. Or self funded in some cases. An interesting thing to note is the cost of medical care has sky rocketed with the advent of sweeping changes in the number of people covered by insurance. Don't know whether they're related, but I have my suspicions.


Something new has entered the field; Dubbed Obamacare.  This legislation provides that everybody be forced to obtain health insurance.  As one might expect, this bill is under heavy attack by many states as being unconstitutional.  At least part of the act will likely be so ruled.  What is also becoming clear is this act will increase the cost of medical care (due to higher insurance premiums) to the consumer. At least that is what all the cost analyses I have read concludes. It solves little and creates all kinds of problems. It probably should be repealed and a better health plan devised to replace it. But, what this act and any subsequent acts cement, is the notion that medical care is the RIGHT of every  citizen of the country and that right should be codified into law by enacting sweeping legislation providing some form of universal health care. It should be noted that almost every advanced nation, outside the US already is on that approach. That RIGHT is certainly not written into the constitution but, like so many of our perceived rights, it has grown into being with the evolution of our dependence on government from cradle to grave. 


It is true that medical care is being paid for now, one way or another.  Much by private insurance, some by self insurance, many by Medicare and Medicaid, some by charitable organizations, etc.  The hospitals are required to treat anyone who shows up at the ER, and the cost is passed on to the paying patients who use the hospital.
As was been pointed out; there is no such thing as a free lunch.  Someone pays. Eventually the consumer pays for all the medical treatment.  Much of the costs are hidden from the consumer, but they pay the bill anyway.  They just don't see it up front.  


The government will continue to gobble around with various approaches to universal health care.  I have no doubt about that.  I don't know whether the American public at large is really for this intrusion into the lives of everyone or not.  But, I do believe it will become a linchpin of the Democratic Party's platform. They will try to force a method down our throats that will be the least onerous to to the core of their party and will burden the middle class workers, or the so called rich, with the bill. It can't help but be expensive, but that won't really matter as it will cement a larger block of votes to their party by the passage of another in a long line of entitlements.


I am going to cave in to the inevitable, that some form of universal health care is coming, like it or not, and I would like to look at an approach that is both simple and may be most cost effective. It is simple to implement because the mechanism is already in place.  I think that serious consideration should be given to just simply put everybody that falls under the Social Security mandate to be enrolled in Medicare, i.e. they and their dependents would be eligible for SS benefits upon retiring (they likely have a SS card). Look at this as being the best alternative to any other type of universal health coverage.  We know the Social Security and it's Medicare component are in deep trouble. Some form of adjustment must be made or the entitlement program will literally go bankrupt carrying the national economy with it. Private insurance has some options to hold down the risks that a government program doesn't enjoy. That will help keep their cost down in the future, but it isn't clear that they will ever be able to provide the kind of coverage offered by Medicare at anything like the costs to the consumer.  


I know this goes against the grain for all those who rightfully fear the growth of big government.  It kind of rubs me the wrong way too. But, if the Republicans don't want to be left at the starting gate, I fear that they must address the overall problem and get behind a program that will provide health care for almost everyone.  They must tailor it in such a way that doesn't increase the reach of government any more than is necessary and does so with the least cost to the taxpayer. 


I found that getting a handle on the necessary data to make this study meaningful is not so easy. I have had to assume (guess) at some of the numbers in order to come up something, that at least approaches reality.  Where these assumptions are made I will point them out.  


This would be a radical departure from our present situation where private insurance dominates the market and would be loath to give up this highly profitable business.  You could bet that the lobbying and the propaganda put out by that industry would be intense if this approach ever moved to the floor of the legislature. 


Let us look at this approach in more detail. There are pluses and minuses.  

• The mechanism is already in place to administer the program.  It will not require any new bureaucracy to to be created.  Most of the kinks have been worked out of the Medicare program and it runs pretty efficiently.

• Most people who are now on Medicare are quite satisfied with the program.  It allows a lot of flexibility in the type of medical care to choose from.  Most HMO's now participate in the Medicare line up of options available to the insured as Part C. Most doctors accept Medicare, even highly trained specialists. I've never heard of a hospital or medical clinic that doesn't participate in the program. As most private insurance allowable fees follow Medicare's lead, the private practitioner and medical  facilities have little choice but to continue to do so.  Medicare constitutes a significant percentage of their revenue.

• A study by Mark E. Litow showed that the administrative costs of Medicare vs private, for profit, insurance companies is significant.  The total administrative costs for Medicare was 3.3% in 2010 and 16.7% for private insurance. The study projected that the total administrative costs of Medicare would decrease in the future to 1.6% in 2025. Private insurance is not likely to go down.  How this applies exactly to a broader scope, everybody on Medicare,  isn't clear. But, my sense is that it will only go down if more, healthier people are brought into the program. You can look at the numbers in several ways and reduce the gap between private insurance and Medicare, but in the end, Medicare always comes out as having lower administration costs. 

• Today Medicare covers about 42 million individuals.  That allows a significant economy of scale. Private insurance covers about 165 million people spread over hundreds of companies. So, today about 1 in 4 people covered by any kind of insurance are already on Medicare.  And, the baby boomers are just beginning to enter the age grouping for Medicare and most of them are eligible for Social Security which enrolls them in the plan automatically. I would think that 1 in every 3 Americans will be on Medicare 10 to 15 years from now if nothing is changed. Medicare has four main components to the program. Two "Original Programs" called Part A and Part B and two newer Part C and Part D add ons.  Part A covers "in hospital" expenses while Part B covers other medical expenses such as labs, regular doctor visits, etc.  Part C incorporates private insurance, typically HMO's or the like, into Medicare. The consumer has the option of enrolling in either the "Original Program" or in an Advantage  Plan (Part C). Part D is new and for an additional fee covers Prescriptions. Part D participation is optional.

• The current (2010) breakdown of government payouts among the four plans are:
•       Part A ------36%
•       Part B-------29%
•       Part C-------23%
•       Part D-------11% 

• These ratios are not likely to change very much as the costs of medical services increases in the years ahead.  The costs for  2010 were approximately 519 billion dollars, projected to be around 929 billion dollars by 2020.

• The patients on Medicare at the present time are older and much more likely to be afflicted with serious and costly medical problems.  According to the study the estimated costs per year is about $12,357 per person per year for Medicare patients in 2010.  The average costs for privately insured patients is a little over $6,000 dollars per year. This primarily reflects the fact that private insurance covers a younger, healthier population. If you bring that younger group into the Medicare umbrella the average costs per person would go down significantly.

• My brief research shows that private insurance premiums range from around $200 up to more than $1500 per month per person, depending on deductibles, co-payments and the like.  Some of the plans feature deductibles of $5000 and huge co-payments, wow. However, the private insurance plans also cover both Part A  and Part B type benefits, which make the comparison more dicey. Many are HMO's as well a Pay Per Service PPS type insurance organizations. Some include prescriptions in their plan

                                              PART B

•  Medicare part B covers 80% of the allowable fees for a private medical provider. The balance could be covered by supplemental insurance provided by the individual or as a company perk. There are a lot of such plans already in existence. 

• The current premiums for Medicare Part B is $99.00 dollars per person per month for taxpayers earning less than $85,000, $170,000 for a couple. The plan is already in place for an increase in these premiums in the future. They are progressively higher for the larger income earner. Part B premiums are withheld from the Social Security benefits on a monthly basis. Currently the premiums cover about 26% (134.65 billion) of the costs incurred under Part B coverage. The balance is heavily subsidized from general revenues to the tune of about 74% of total expenditures or about 384 billion dollars. Although expenditures involved in Part B coverage would go down if everyone were included in the program, in terms of cost per patient, the number of patients covered would increase about 5 to 6 times from the 42 million now covered. This will mean a larger increase in the premiums withheld, or a larger raid on the general fund, or both. 

• Today Part B premiums are only paid by Social Security recipients (deducted from the SS check).  Expanding the program to include everyone would necessitate some modification, such as payroll deductions, so that the premiums could be paid.  That is, if we keep the same formula. Part B expenses amount to about 29% of the total Medicare payouts or about $3,400/patient.

• It is assumed that the present costs per patient for the age group covered by Medicare would remain the same in any event. The age group now covered by private insurance (the under 65 age group) would be less, but not by much for the type of services covered under Part B insurance. If everybody is covered by insurance they would go to the doctors more often, have preventative procedures done more often, just as seniors do.  But it's hard to get a handle on just how much private insurance companies pay out in expenses that are equivalent to Medicare Part B. They pay out only about one half as much as Medicare for all patient care, but that number includes both expenses that are equivalent to both Part A and Part B of Medicare. I'm going to assume that the payout for the younger crowd will be slightly less than that incurred by Part B Medicare per patients.  To take a stab at the number of people that would get wrapped  up in a full implementation of Medicare a couple of data points are necessary.  

• The population of the USA is around 310 million.
• About 7% of employed people are exempt from SS and Medicare (railroad workers and some states teachers mainly)
• There are about 12 million illegals in the country.
• Therefore about276 million folks will join the party.
• Using these numbers you can calculate about what the total costs will be: The present medicare group of 42 million plus             the new group times the per person cost of the under 65 age group--assume that this age group will cost  25% less than the            3400 dollars for the over 65 age group   

•      (42M X $3400) + (276M - 42M) X ($3400 X .75)= $739.5B      .
• There are about 162 million legally employed people in the US.  If  7% are not included, then that would leave 156 million workers contributing to Medicare Part B. The average wage earner would then pay for 1.8 dependents, including him or her self.  Let's suppose that the program is structured to provide enough funds so that total funding from the Part B from premiums paid by everybody does not gouge the general fund any deeper than it does now( 384 billion dollars).  That would mean that the premiums would need to raise 355.5 billion dollars. 

• To raise that money from the receivers of Social Security and the wage earners of the country gives: 

                       P X(4.7M +156M X 1.8) = $355.5B

                       P= $1240 per year or $104 per month

                      where P is the average premium.  

• It is likely congress would choose to scale the premiums such that the higher wage earners would pay a greater share. 

• If however, we wanted to make Medicare a fully funded, stand alone program, then the premiums would need to be increased to cover the total Part B costs of 739.5 B dollars.  In that case:

          P X (4.7M + 156M X 1.8) = 739.5 B
          giving an average premium of 2,784 dollars per year or
          P=$234 per month. 

•  Again congress would likely scale the premium payments so the higher income folks would pay a greater share..  But, the average would have to support the program. 

• This is of course, is predicated on the 2010 Medicare expenditures.  They will increase in the future.

                                                 PART A

• Part A insurance, which covers most hospital related expenses is funded primarily from two sources.  A tax of 2.9% on earnings is levied, half paid for by the employer, on each worker. That amounts to about 85% of the Part A expenditures. Most of the balance is again financed by the general fund.  Part A insurance consumes the largest part or 36% of the Medicare payouts . 

• The bill for Part A amounted to 183.6 billion dollars a year or $4371 per person in 2010 .  With the population bubble now entering the Medicare age group, it is expected that this figure will grow, with or without modification to the plan. Higher income wage earners are already scheduled to pay more in the future. 

• Considering the age group that would be included with the expansion of Medicare Part A, it is clear that the cost per patient would not be nearly as high for the new recipients as it for the current aging group.  The new plan would cover 267 million total (or 225 million more) people.  Hospital costs would be  much lower on a per person basis than the older generation.  I am going to assume that these types of costs, for the under 65 age group, will be about 1/3 of those incurred by today's participants.  This factor is really based primarily on the fact that total private insurance costs are so much lower than medicare (about 1/2) primarily due to the younger ages of it's policy holders not needing nearly the hospital care. In addition all one has to do is visit your local hospital and get a sense of the ratio of older patients to the general group,  Part A costs would then be:

              The current Part A costs of the over 65 age group

              + the costs for 225 million at 1/3 the per person costs

               of those on Medicare now.
  

            $183.6B + 225M X ($4371 X .33) = $511.4 B

•  This gives a average monthly hospital cost per person spread of 276 million policy holders of $2000. As one might expect the costs per person went down when the younger, healthier group is brought into the fold.

•  The new payroll tax rate that would need to raise  85% of 511.4 billion dollars, if it is to cover of the  costs of Part A insurance without dipping  further into the general fund.  The new tax rate would roughly be the old tax rate of 2.9% factored by the increase in total revenue necessary to cover the bill.  

•                Factor is 511.4 X .85/183.6 = 2.367 
•               Tax Rate would be  2.367 X .029 = 6.86%

• If the employer pays 50% then the worker would pay 3.43% payroll tax for Part A insurance. This would have a middle income employee earning $100,000 and supporting 1.8 dependents  paying 1.8 X $100000 X .0343=$6,174/year

                       or $514/month --

•  For the employee earning $25,000 per year the deduction would be $1543.50 per year or $128.63 per month.

• Whether this is acceptable or not depends on the individual.  How much do they pay for insurance now and what does it cover.  And, if the employer pays 50%, does that  increase their insurance costs. My feeling is that it's a godsend to the lower income group and the employers who hire them.  For big companies with many upper income earners it might create a problem.  I guess a little further research is needed to determine how much. Of course self employed people would not get the 50% sharing of the employed wage earner, so it will be twice the ding for them.  It will mean little to retiree's as they have no earnings to tax. Just as today, the workers will be subsidizing the older and retired generation. Of course this could be mitigated by a partial support from the general fund, but all that means is we'll be paying for it in another way. Just remember, there is no such thing as a free lunch. 

                                      Part C 

• Part C insurance is an option to the "Original Programs".  The recipient may chose to have an HMO, a PPO or other private insurance plans cover them.  Several advantages to many of these plans is that they offer additional services not covered by the Original Programs.  A common addition is subscriptions, some with eye glasses. 

• The draw back for Part C coverage is the limitations on the choices of medical treatment options available.  Except in emergencies, the recipient is limited to the doctors that they can see, and the medical facilities they can use.  Kaiser, for instant, is a totally locked in plan. Most of the plans require that you be referred to a specialist by a primary doctor acting as a gate keeper. 

• Advantage Programs (Part C) that can enter into contracts with the government must supply, at least, the services provided by the "Original Program" benefits. The private providers are given a monthly fee to supply the services. But, the private insurance providers may ask for additional fees to offer more services than is covered in the basic contract.  There is myriad of  choices one can make for this option. 

• In any event the Medicare Program spends 23%  of it's total costs on Advantage Programs. The Part C program is funded from the same sources as Part A and Part B.  So to the recipient there is really no additional charge, except any that is levied by the private insurance company.

•                                  PART D

• Part D insurance is a very new addition to the Medicare family of plans.  It covers prescription drugs as an option.  There is a fee associated with this plan and, if selected, is deducted from the Social Security check. 

• Part D consumes about 11% of the total Medicare expenditures.  Whether that will increase in the future, as more company backed prescription plans move their retired workers from their plan to Medicare Part D, isn't clear. But, I suspect it will.  Of course the fees charged for this service add to the income into Medicare, but is largely self financed as far as I can determine.  The premiums vary widely depending on many factors, each of which is chosen by the recipient upon entry in to the prescription plan.  

 Most large companies and even some smaller ones provide the insurance for their workers, in whole or in part. That includes insurance coverage for workers retired before age 65. This is often a union negotiated perk. Most salaried personnel are covered also.  We need to lower the cost of doing business and producing products, enhancing their affordability, especially in the overseas market where we must increase our exports or we will owe America to foreign powers.  Right now we probably owe China more that we can pay.  The people who work for smaller companies, which by the way employs the vast majority of American workers, likely have little company financed medical insurance.  If they have it at all they are, at least partially, self financed usually through a group policy contracted by the company. But the premiums are high in any event.


Whether this plan is good or not depends on the vantage point of the beholder. If congress is going to mandate full insurance coverage then it seems to me that this plan may be the best alternative.  Further study is likely necessary to refine the numbers. Comments are welcome to any of my blogs.