Wednesday, August 3, 2011

Spending on Medicare and Medicaid is Absolutely Out of Control

As a quick follow up to this morning’s piece about how liberals and progressives need to concede to reality and stop bemoaning the impending demise of the New Deal and Great Society programs that cannot be sustained in a resource depleting world, there was an article published today in the that graphically illustrates the exploding costs of Medicare and Medicaid, right into the teeth of the Great Recession:
Medicare and Medicaid spending rose 10% in the second quarter from a year earlier to a combined annual rate of almost $992 billion, according to new data from the Bureau of Economic Analysis (BEA). The two programs are on track to rise $90 billion in 2011 and crack the $1 trillion milestone for the first time.

The jump in health care spending is the biggest since the Medicare prescription drug benefit was added five years ago and ends a brief lull in the spending increases that occurred during the economic downturn.
The article went on to add:
The latest spending surge in federal health care is driven by more people getting more treatment, not by price increases. Health care inflation is at its lowest level in more than a decade — a 1.7% annual rate — but the aging population and the weak economy are sending more patients to government-financed care.

Medicare and Medicaid paid a record 57.5% of patient bills for hospital, doctors, drugs and other care in the last quarter, up from 49.3% in 2005.
The graph at the top of the page is from the same article. As you can see, going back to the first quarter of 2008, the quarter that marked the “official” beginning of the Great Recession, Medicare and Medicaid spending has in fact exploded by 21%, advancing a staggering $208 billion on an annualized basis during that time. Extrapolating that growth rate forward would cause such spending to double to nearly $2 trillion per year by 2021, the final year of the ten year time frame used in the just completed deficit reduction battle. Even scarier, that total is not far below the amount of revenue (around $2.1 trillion) the federal government took in from taxes last year.

Obviously, unless real, organic economic growth not tied to federal deficit spending resumes, these two programs are in big trouble. And that doesn’t even take into account that the Baby Boomer generation is just now reaching the point where its oldest members are becoming eligible for Medicare benefits.

Though the debt limit accord passed this week was hazy on real specifics, I think we can safely assume that whatever cuts are planned for Medicare and Medicaid will hardly curb this explosion in costs. Since we have reached a point thanks to peak oil and resource depletion where continued real economic growth is impossible, a genuine crisis in these programs (as opposed to the fake political crisis we just witnessed) is quite obviously not far away.


  1. When my wife's grandfather turned 65, his health insurance provider dropped him since he was now eligible for medicare.

    He was not happy, he had been healthy all his life and paid his (self-employed - a rancher) premiums with fail for decades.

    It's not just the fact that the baby boomers are reaching retirement age. It's the fact that no matter how much they saved, how well they planned, they will be moved from private insurance to medicare because older people need more care and that cuts into profits.

    It's a perfect example of privatizing the profits (premiums while young and healthy) and socializing the costs (medical care in older age.)

  2. The problem is not Medicare, it's health care.

    About half of the projected increase in Medicare spending is directly attributable to the demographics of an aging population. It's baked in the cake, so we either abandon the elderly or we raise more revenue to cover this cost.

    Most of the rest of the increase reflects rising health care costs. This half of the rising costs is not a Medicare problem, it's a symptom of a broken health care system. Well, technically, that's not correct. We have a "for-profit, private" health care system. Obviously, the primary goal of such a system (given laws on fiduciary responsibility and general greed), is to maximize profit. This is done by maximizing revenue (charging more) and minimizing costs (covering less, like sick people or old people). That is precisely what the system does, which, of course, is precisely what is is intended to do. So, technically, it's not broken, it's just fucking immoral.

    All that said, I would bet that you could prune out maybe 15-30% of costs from the overall Medicare system with the right combination of intelligent policies. Don't hold your breath.

    Here's an alternative solution to cutting Medicare costs... open the program to absolutely everybody, turn it into a single payer public option, and then use that massive enrollment to drive prices down throughout the system. Drive any insurance company or medical provider who can't compete out of the game. With luck, you might even close down the entire crooked health insurance system over time and be able to convert to a true government-based, self-funded, single payer system in which we demonstrate the moral cajones to actually put the health of our citizenry above the profits of a few powerful industries.

    Won't happen, but it's at least morally and ethically conscionable.

    I mean, we only pay about twice what every other developed nation pays on a per capita basis. Clearly, we are getting twice the value, right? Oh wait! We have a lower life expectancy and generally worse performance in almost every measure of national health. How can that be?! Maybe it's due to the fact that our system is designed to make money, not to improve people's health (except when absolutely necessary, ideally on somebody else's time).

    Fix health care. Adjust Medicare revenues to reflect the requirements of the aging population. Aggressively pursue cost savings within the plan. There, Medicare problem solved. Now, what should we work on next? ;-)

  3. @Harry - that's a way of looking at it I had never considered before. You're absolutely right.

  4. @bmerson - you're right on all of your points. Taking the profit motive out of health care only makes sense. Though I do think that even your fix would only buy the system time before it eventually collapses anyway.

    Then again, if we used that time to educate people as to what is coming...

  5. The problems of health care are very complex and will require some planning to target what technology will be available on the public dime. For example in the 1970's when pacemakers were first used they only produced a fixed impulse at a rate that could not be adjusted once implanted. The price to get one was around a thousand dollars. Today they are extremely sophisticated and are able to sense ventricular demand. They sense when a shock should be delivered and on and on. The price a hundred thousand dollars. This same effect is seen in drugs, ventilators, bed design, anesthesia machines, operating room robots and on and on and on. And don't kid yourself. these things do extend life and enhance quality of life. Who will decide what technology will be available and at what degree of illness or old age you will not be allowed access. These decisions will have to be made. If not we will go down the energy hill in an orderly fashion.

    People believe it is their right to have any and all treatments available to them. I will never forget as an intern in internal medicine. A patient frequented the ICU every 3 months or so. He had both arms amputated and both legs amputated from severe periferal vascular disease. He had stroked severely and was unable to understand or respond to verbal commands with an eye blink. He was a diabetic and had renal failure requireing hemodialysis. He required a suprapubic catheter to drain urine directly from his bladder to a bag on the pelvis. He had a feeding tube directly in the stomach. His usual diagnosis on admission was urosepsis which was caused by a recurrent infection in the bladder that would extent up the ureters and into the kidneys which would then dump bacteria into bloodstream which lead to respiratory failure. In order to keep him alive we would admit him to the ICU and place a breathing tube and mechanically ventilate his lungs. He would recieve intravenous antibiotics and several other drugs and all the other things than go along with an ICU stay. The thing that made this so memorable was the family. They would in a very angry manner get right in my face and tell me in no uncertain terms that they wanted full measures to keep him alive.
    I could go on and give numerous examples of cases of futile care where the patient was a living vegetable. You and I are shelling out money to maintain life for no reason other than family wishes. Somewhere in this mess someone will have to hear the word NO.

    How about poverty stricken women having access to OB services when they are on their 8th 9th or 10th kid on your dime. Where are we going to draw the line? Who will be in charge of drawing that line?

    This barely scratches the surface of all the issues in health care.

    And one more issue. If there are more reimbursement cuts to my practice I will no longer be able to keep my doors open. Get angry, yell at the greedy doctors however I am nearing the point where I cannot pay my staff. When I go negative for 3 months I am done. Maybe Americans would like to find some good herbalists to care for them.