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Despite lower costs than previously projected, the Medicare Trust Fund is still in bad shape.

he estimated exhaustion date for Medicare’s Hospital Insurance (HI) trust fund, “…remains at 2024,the same year shown in last year’s report. As in past years…the fund is not adequately financed over the next 10 years. HI expenditures in 2011 were lower than the previous estimate, but the projected level grows more rapidly than shown in last year’s report because of changes in HI provider assumptions and the projected faster growth in earnings after 2014….HI expenditures have exceeded income annually since 2008, and projected amounts continue doing so through the short-range period until the fund becomes exhausted in 2024.”

More important the the exhaustion of the trust fund is how fast Medicare spending grows relative to the overall economy. Like in previous years, the growth in Medicare spending is expected to grow quickly as baby boomers retire.

“Medicare’s costs under the Trustees’ current-law assumptions rise from their current level of 3.7 percent of GDP to 6.0 percent in 2040 and 6.7 percent in 2085.” These projections are unrealistically low as they assume large cuts (~25%) to physician reimbursement level. A more reasonable assumption is that the annual ‘doc fix’ will continue in perpetuity and thus costs will rise even more. Under this alternative assumption:

“Medicare costs would rise to 6.5 percent of GDP in 2040 and 7.8 percent in 2085. Under the full scenario, in which adherence to the ACA cost-saving measures also erodes, costs would rise to 7.0 percent of GDP in 2040 and 10.3 percent in 2085.”

Thus, CMS actuaries project that one out of every 10 dollars in the economy will be spent on Medicare by 2085 if current trends continue.

As stated in the title of this post, we’re fucked.

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U.S. life expectancy after cancer diagnosis is higher than that those for ten European countries.  A recent study in Health Affairs cites these statistics as evidence that the more expensive treatments American physicians employ is worth it.

“We found that US cancer patients experienced greater survival gains than their European counterparts; even after considering higher US costs, this investment generated $598 billion of additional value for US patients who were diagnosed with cancer between 1983 and 1999. The value of that additional survival gain was highest for prostate cancer patients ($627 billion) and breast cancer patients ($173 billion).”

Some critics are not convinced.

“‘This study is pure folly,” said biostatistician Dr. Don Berry of MD Anderson Cancer Center in Houston. “It’s completely misguided and it’s dangerous. Not only are the authors’ analyses flawed but their conclusions are also wrong.’”

Why aren’t some experts convinced?  Philipson and colleagues look at survival rather than mortality.  Survival means how long the patient lives after the patient is diagnosed with cancer. One thing the U.S. is good at is screening for cancer.  Thus, patients may be surviving longer not due to better care, but because because these patients are diagnosed earlier.  U.S. mortality rates from cancer are no better than in Europe.

Another problem with the American approach is over-diagnosis.  According to Doverdiagnosis.  From Merrill Goozner:

“Because cancer screening is much more widespread in the United States than in Europe, especially for breast and prostate cancer, ‘we find many more cancers than are found in Europe,’ [Dr. Berry] said. ‘These are cancers that tend to be slowly growing and many would never kill anyone.’

Screening therefore turns thousands of healthy people into cancer patients, even though their tumor would never threaten their health or life. Counting these cases, of which there are more in the United States than Europe, artificially inflates survival time, experts said.”

Sources:

• Tomas Philipson, Michael Eber, Darius N. Lakdawalla, Mitra Corral, Rena Conti and Dana P. Goldman “An Analysis Of Whether Higher Health Care Spending In The United States Versus Europe Is ‘Worth It’ In The Case Of Cancer” Health Aff April 2012 vol. 31 no. 4 667-675
• Merrill Goozner. “Critics Pounce on Cancer Care Costs Study” GoozNews. 2012.

Medicare is a widely popular program.  Most American support increasing taxes rather than making cuts to Medicare spending.  Americans prioritize spending on only Social Security and education more than Medicare.  Then there is the famous “Keep Your Goddamn Government Hands Off My Medicare!” statement.

Medicaid is Medicare’s ugly step-sister.  Whereas Medicare beneficiaries qualify primarily due to age, most Medicaid beneficiaries qualify based on income.  State legislatures fight constantly to reduce Medicaid spending in their states.

Why is Medicare so much more popular than Medicaid?  Paul Starr provides an answer:

“Though adopted together, Medicare and Medicaid reflected sharply different traditions.  Medicare was buoyed by popular approval and acknowledged dignity of Social Security; Medicaid was burdened by the stigma of public assistance.  While Medicare had uniform national standards for eligibility and benefits, Medicaid left the states to decide how extensive their programs would be.  Medicare allowed physicians to charge above what the program would pay; Medicaid did not and participation among physicians was far more limited.  The objective of Medicaid was to allow the poor to buy into ‘mainstream’ of medicine, but neither the federal government nor the states were willing to spend the money that would have been required.”

Another option for proving health services for the poor would be to establish federally funded community centers.  In fact proposals in 1967 called for one thousand community centers to serve 25 million people.  These proposals were never adopted even though some studies had shown them to be more cost-effective.  Why didn’t policymakers choose to use community health centers rather than Medicaid to treat the poor?

“…policy makers did not deliberately choose to push Medicaid over neighborhood health centers on the basis of any evaluation of relative cost effectiveness.  Medicaid simply had the advantage of institutional compatibility.  It covered what would otherwise have been bad debts for hospitals and raised no challenge to private interests in the medical sector.  Although neighborhood health centers managed to survive (and even grow in the later seventies), they never became more than a marginal alternative.”

• The Social Transformation of American Medicine, Paul Starr.

The Health insurance exchanges enacted by the PPACA (i.e., ‘Health Reform’) are meant to bring competition to the small group and individual markets.  These exchanges will begin in 2014.  A GAO survey of States, however, found that the current small group health insurance market is very concentrated.

• There is significant market concentration.  Twenty-seven states reported that the largest health insurer had more than 40 percent of the market whereas in only 12 states did the dominant carrier own less than 40 percent of the market.  In 23 states, the top five plans captured 90 percent of more of the small group plan market share compared to only 16 where the top five carriers captures less than 90 percent of the market share.
  
• Blue Cross/Blue Shield is the dominant player.  Of the 44 states reporting this information, BCBS was the largest carrier for small group health insurance plans for 36 of the states and was the second largest carrier for 3 states.  In only 5 of the states did BCBS non rank as one of the top-2 carriers in terms of market share.

Health exchanges may not increase competition, but instead be a boon for the established players in the individual and small group markets.

What is the Basic Health Plan (BHP)? Stan Dorn of the Urban Institute explains:

The Patient Protection and Affordable Care Act (ACA) offers states the option to implement the Basic Health Program (BHP). BHP gives states 95 percent of what the federal government would have spent on tax credits and subsidies for out-of-pocket costs for two groups:

• Adults with income between 133 and 200 percent of the federal poverty level (FPL); and
• Legally resident immigrants with incomes below 133 percent FPL whose immigration status disqualifies them from federally matched Medicaid.

If a state implements BHP, these two groups of consumers cannot receive subsidized insurance in the exchange. Instead, the state covers them by contracting with health plans or providers. Such contracts must provide at least the minimum essential benefits under ACA, and consumers may not be charged more than what they would have paid in the exchange.

Source:

• Stan Dorn, “The Basic Health Program Option under Federal Health Reform:Issues for Consumers and States” Urban Institute, March 2011.

The best diseases, from a business point of view, would be those that cause lingering illnesses. Ideally–that is, for maximum profit–the patient should either get well or die just before all of his or her money runs out. It’s a fine calculation.

• Crake, from Oryx and Crake: A Novel by Margaret Atwood.

Its has been well established that medical errors are a serious problem in modern health care.  One study found that medical errors kill between 50k and 100k annually and another found that 2.9% of people who enter the hospital are actually harmed by the care they receive.  The most recent issue of  Health Affairs, however, has found that not only is there still much work to be done, but the scale of the problem may be even larger than previously anticipated.

Some of the key findings from the press release include the following:

• Claussen et al. (2011) “…compared three methods for detecting adverse events in hospitalized patients, including the Institute’s own Global Trigger Tool. The study drew on comparable samples of patients from three leading hospitals that had undertaken quality and safety improvement efforts. Among the 795 patient records reviewed, voluntary reporting detected four events, the Agency for Healthcare Research and Quality (AHRQ) Indicators detected 35, and the Global Trigger Tool detected 354 events, ten times more than the AHRQ method.  In other words, the AHRQ indicators and voluntary reporting missed more than 90 percent of adverse events identified by the Global Trigger Tool.  If anything, the researchers say, their findings are conservative, because they rely on medical record review, which would not detect as many adverse events as direct, real-time observation would.
• Van Den Bos et al. (2011) estimate that “…the annual cost of measurable preventable medical errors that harm patients to be $17.1 billion…”
• Werner et al. (2011) examines whether P4P can help improve quality. They examine the effect of Medicare’s largest pay-for-performance hospital demonstration project, the CMS/Premier Hospital Quality Incentive Demonstration. “The findings suggest that, while hospital quality did improve under the demonstration, by the end of the experiment, other hospitals not in the demonstration had caught up.”

Most people think medical care is supposed to improve your health, not diminish it.  Reducing medical errors may be the single most important issue to improve medical quality now and in the future.

Sources:

• David C. Classen, Roger Resar, Frances Griffin, Frank Federico, Terri Frankel, Nancy Kimmel, John C. Whittington, Allan Frankel, Andrew Seger, and Brent C. James. ‘Global Trigger Tool’ Shows That Adverse Events In Hospitals May Be Ten Times Greater Than Previously Measured. Health Aff April 2011 30:4581-589.
• Jill Van Den Bos, Karan Rustagi, Travis Gray, Michael Halford, Eva Ziemkiewicz and Jonathan Shreve. The $17.1 Billion Problem: The Annual Cost Of Measurable Medical Errors.” Health Aff April 2011 vol. 30 no. 4 596-603.
• Rachel M. Werner, Jonathan T. Kolstad, Elizabeth A. Stuart and Daniel Polsky. “The Effect Of Pay-For-Performance In Hospitals: Lessons For Quality Improvement” Health Aff April 2011 vol. 30 no. 4 690-698.