![The Ford Edsel didn't last, but the 1965 Medicare benefit remains largely unchanged nearly 50 years later. [Credit: phrenicea.com]](https://i0.wp.com/www.dougsbriefcase.com/blog/wp-content/uploads/2013/07/edsel.jpg)
The Ford Edsel didn’t last, but the antiquated Medicare benefit did, still largely unchanged nearly 50 years later.
[Credit: phrenicea.com]
And that’s a good thing.
As with most good things about the new health care law, though, it comes with potentially negative implications for your health coverage.
Let’s start with the good things. Section 1302 of the law requires that all coverage sold through the new health insurance exchanges include the new government-defined “essential benefits package.” The benefits that Medicare offers to 50 million seniors and people with disabilities do not meet these new requirements. That doesn’t help seniors very much, but it means that the government won’t inflict the antiquated Medicare package of benefits on people under 65.
Medicare coverage is widely acknowledged by members of both political parties and by outside experts to be a relic. Congress has refused for almost half a century to change the benefits package in any meaningful sense. There are separate deductibles, for example, for inpatient ($1184) and outpatient ($147) care. There’s even a “blood deductible” – you have to buy 3 pints of blood before Medicare will pay for medically necessary transfusions. Once the deductible for outpatient care is met, beneficiaries are responsible to pay 20 percent of their bills for most treatment and care. Unlike with most private plans, there is no preferred provider network where Medicare beneficiaries can get physician care for a small copay. On the inpatient side, Medicare limits the number of days in the hospital it will pay for both on an annual and lifetime basis.
While there is a limit on what Medicare will pay for, there is no limit on what beneficiaries are expected to pay. And they often have to pay plenty. In recent testimony before the House Energy and Commerce Committee, Harvard economist Kate Baicker quantified how much Medicare beneficiaries spend out of their own pockets for care:
“Without supplemental insurance, 14.5% of beneficiaries would have faced out-of-pocket expenses of more than $2,500 in 2009, and more than half of beneficiaries would have had at least one year between 2000–2009 where they faced $2,500 or more in out-of-pocket expenses (see Exhibit). 15% would have had at least one year between 2000–2009 where they faced more than $5,000 in out-of-pocket expenses – or more than a third of the average annual Social Security income for a retired worker. And these figures are for hospital, outpatient facility, and physician care only – beneficiaries face additional cost-sharing liability for other categories of care such as prescription drugs, medical equipment, and skilled nursing facilities.”
Medicare’s most glaring omission is that it places no overall caps on out-of-pocket spending, putting its beneficiaries at risk of financial ruin. That is exactly what the program was designed to prevent.
“No longer will illness crush and destroy the savings that they have so carefully put away over a lifetime so that they might enjoy dignity in their later years,” Lyndon Johnson said in signing the program into law.
Despite that promise, Baicker’s research found that Medicare exposed 2.4% of seniors to annual out-of-pocket expenses for hospital inpatient and physician care in excess of $10,000 in at least one year between 2000 and 2009. So much for not crushing and destroying their savings.
President Johnson wasn’t trying to hoodwink seniors when he spoke those words. The government sincerely believed that it was providing them with the protection it promised by giving them state-of-the art Blue Cross-Blue Shield health coverage … for 1965.
In a 2012 report to Congress, the Medicare Payment Advisory Commission (MedPAC), a group that advises Congress on the Medicare program, wrote:
“Medicare’s benefit package … has remained substantially unchanged since 1965. During that time, insurance products in the private sector have undergone numerous changes, medical technology has evolved radically, and Medicare payment systems have changed as well. Over the years, Medicare FFS prices and the amount of services beneficiaries receive have grown dramatically; as a result, some beneficiaries may now incur very large cost-sharing liability because under the current benefit design no upper limit exists on the amount of Medicare cost-sharing expenses a beneficiary can incur.
“Current law makes it difficult to change Medicare’s benefit design as our health care system evolves. Although the practice of medicine and medical technology change rapidly, fairly rigid statutory parameters give Medicare’s program managers little flexibility to change its benefit design in response, even as other insurers change their benefit packages.”
Medical care evolves and private insurance coverage evolves with it. That evolution is never even and often not pretty, as the excesses of some HMOs in the 1990s proved. But the private sector generally finds a way to accommodate change. Government does not.
Nearly half a century later, the government is about to repeat President Johnson’s mistake. Under the new health care law, all insurers will have to sell policies that cover a government-defined “essential health benefits package.” Every health plan sold to individuals and small businesses in a state has to be identical. Only deductibles and cost-sharing can vary and, along with them, premiums. Higher deducible policies will cost less than policies with smaller deductibles but covered benefits cannot vary. The state will choose a “benchmark” plan, generally the one with the largest enrollment in the small group market. In many states, that would be Blue Cross. Sound familiar?
The same government that offers seniors 1965 state-of-the-art health benefits will now offer 2013 state-of-the-art health benefits through the new health insurance exchanges. If experience is a reliable guide, people living in 2060 will also get 2013 state-of-the-art coverage.
Backers of the law will say that the “essential health benefits” package will change with the times because the Secretary of HHS is required to review it periodically. Substituting the judgment of a political appointee for that of Congress is hardly an improvement. What the Secretary will do is referee fights among lobbyists, with disease groups asking for more generous coverage of their favored condition and insurers objecting that such additional coverage will result in higher costs to individuals (premiums) and the government (since higher premiums will trigger higher subsidies). Future Secretaries will favor one group or the other on an ad hoc basis, rendering judgments that reflect their own preferences and the political imperatives of the moment.
Moreover, the new health law, unlike Medicare, freezes the private market in place. The law forbids insurers to sell a product in the individual or small group market that deviates from the essential health benefits rigidities. It makes innovation illegal. The Medicare benefit looks so quaint and dated only because we can compare it to the benefits that most of the rest of us have in private plans. Since government now dictates what those plans will sell, we will lose our point of comparison.
Obamacare resurrects President Johnson’s conceit that government knows exactly what insurance should cover. Government knows which health benefits are “essential” and which are not, leaving no room for innovation or individual preference. That there is little reason to hold this conceit — and substantial reason to doubt it — doesn’t matter to the governing class. They are convinced in their bones that they are right and that we all will be better off if we submit to their judgment.
Kenneth Minogue, who until his recent death was a Professor at the London School of Economics, captured the essence of this mindset when he wrote:
“An ideological movement is a collection of people, many of whom could hardly bake a cake, fix a car, sustain a friendship or a marriage, or even do a quadratic equation, yet they believe they know how to rule the world. The university, in which it is possible to combine theoretical pretension with comprehensive ineptitude, has become the natural habitat of the ideological enthusiast.”
People “who combine theoretical pretension with comprehensive ineptitude” no longer confine themselves to academia. They have found a new habitat: government.
And a new vessel into which to pour their theoretical pretensions: Obamacare.
This article infers that standardized Medicare Supplements, i.e., Plan F, etc. will no longer be available for sale after January 2014, not even to Medicare beneficiaries. Surely, that is not the case.
You are correct. That is not the case. The post discusses the Medicare benefit as defined by the government. People can still purchase additional coverage to fill in the gaps that Medicare leaves. That is a deficiency of the benefit. Very few people under 65 purchase supplemental coverage because the policy they have is adequate to their needs. Under Medicare, by contrast, 90 percent of people either avoid that benefit entirely (by enrolling in Medicare Advantage) or have their coverage supplemented through Medicaid, employer-sponsored coverage, or by purchasing Medigap coverage (such as the Plan F that you mention). I didn’t reference the 90 percent figure in the post, although it provides further evidence of just how outdated the government-defined Medicare benefit has become.