Conventional wisdom offers us the following scenario:
“The Baby Boomers will soon age into Medicare. These greedy geezers will not be gracious enough to die quickly. Thus, the cost of caring from them in their dotage will soon bankrupt Medicare. We need to cut benefits, raise the eligibility age, or increase co-pays and deductibles. Maybe we should do all of them. Or, we could privatize it. Now that's an idea.”
This is a relatively accurate representation of the current state of debate about Medicare, its future, and the Boomers’ role in that future. However, before I dive into this debate, I need to distinguish between three things: prices, costs, and expenditures. Prices are what a health care provider wants you to pay for a good or service. Costs represent the resources required to produce a good or service. Expenditures are how much someone, in the end, pays for a good or service.
We have a great example from recent times. About 55 years ago, the FDA approved a drug, hydroxyprogesterone caproate or Delalutin, for use to halt an impending miscarriage. The manufacturer stopped producing Delalutin in 2000. It was not effective, and there may have been manufacturing problems. However, a study published in 2003 in the New England Journal of Medicine indicated that the compound reduced the likelihood of pre-term labor for some women who had a previous pre-term delivery. Since then, many women have taken the medication, mixed by compounding pharmacies, to reduce the likelihood of pre-term labor. The cost per weekly injection ranged from approximately $10-$25. Total costs over the entire pregnancy would be somewhere between $200 and $500.
In 2011, the FDA approved this same compound under the name “Makena,” and gave KV Pharmaceuticals (KVPHP) the right to produce and market Makena. KVPHP put a $1,500 price tag on each injection, which adds up to about $30,000 per pregnancy. They also, bless their bleeding hearts, set up a subsidiary to help income-challenged women get the medication. Oh, and just as an aside, KVPHP stock jumped from about $3 per share to $13 in the weeks after this announcement. Two months after their initial approval of Makena, the FDA indicated that it would NOT prosecute compounding pharmacies for producing the generic version of the compound, named 17P. KVPHP then dropped its price to a mere $690 per dose.
The “cost” of producing a unit of the compound was something under (being a generous sort of person) $25. The initial “price” per unit was $1,500. Some analysts indicate that by June of this year over 100 provider and insurers were already paying the “reduced” price of $690. Their expenditures (suckers!) for the compound were $690 per unit. Please keep these distinctions and the example in mind as I return to the central issue here -- Boomers and Medicare.
The scenario that opens this diary is what happens when people take three facts and put them together.
a. The percentage of the population who are elderly is increasing because of the Boomers.
b. Per capita health care costs increase with age.
c. The Medicare Trust Committee in 2009 predicted Medicare bankruptcy in 2017.
OR (to be all pseudo-mathematical about it)
c = a + b is the argument
It’s very simple; it’s very clear; it’s VERY wrong. Don’t misunderstand. Two of those statements (a and b) are true. Statement “c” is arguably true (I will get to that later). It is just that those three “facts” do NOT constitute a causal chain. Statement “c” may be true, but it will not necessarily result from the conjunction of “a” and “b.” That means c ≠ a + b. (Note: My union would rip up my membership card if I wrote something about health care and did not have an equation or two sprinkled around in it.).
The National Committee to Preserve Social Security and Medicare (www.ncpssm.org) has a very nice site that gives you great information on some of reasons why “a” and “b” don’t make “c.” Below is a chart on that site that provides Congressional Budget Office projections from 2005 of Medicare expenditures as a portion of GDP. What is interesting about the chart is that it decomposes the sources of the increase in expenditures. As the chart indicates, the major factor driving expenditure increases are “excess cost growth ” (read that as prices for this discussion)
A few years back (2003), a group of very well respected economists (including Uwe Reinhardt of Princeton), published an article in HEALTH AFFAIRS, the premiere journal for health policy wonks. The article’s title tells the tale ---“IT’S THE PRICES, STUPID.” The conclusion of the article indicated that the USA spends much more on health care than any other country, but we utilize health care services at lower rates than countries that spend much less. The authors then reach the reasonable conclusion echoed in the article’s title --- It’s the prices we pay, not the services we get, that make US health expenditures so high. If they replicated these same analyses today, I have no doubt the conclusion would be the same. I also have no doubt that the same economists that disputed the 2003 conclusion would do the same today, and they would be wrong again.
“Demography is not destiny,” even when it comes to heath care expenditures. This should be even clearer when you recognize that we Boomers will completely be out of the health care equation ( read that as dead) by 2050. Note how the total expenditure line in the chart continues its steady rise after 2050, with no interruption, out to 2080s.
I am sure this news comes as a relief to our grandchildren. The thoughtful ones were worried that they might have to figure out a way to evade prosecution for murdering us, so that they and their children might have a chance at a decent life (see my diary ALL BOATS SHOULD RISE ON THE GRAY TIDE for an in-depth discussion of this aspect of inter-generational strife).
All discussions of the bankruptcy of the Medicare Hospital Insurance Trust Fund remind me of Mark Twain’s line that went something like, “Rumors of my death have been greatly exaggerated.” A 2009 Congressional Research Service report provides some interesting information about the insolvency of the Trust Fund. In 1970, the Trustees projected insolvency in 1972; in 1980, their estimate was 1994; in 1990, their date for doom was 2003; in 2000, it went to 2025. The 2010 report makes it 2029, up 12 years from the 2009 report. The Medicare Hospital Insurance Trust Fund is a political ping-pong ball. Its insolvency date is one of the better examples of the role played by smoke and mirrors in health policy and politics in this nation. The Fund will go bankrupt when politicians decide to let it go bankrupt.
A blast from the past might help move this discussion along. Before the Balanced Budget Act of 1997, Medicare home care was incredibly lucrative. A number of health care corporations expanded their Medicare home care dramatically in the 1990s. A colleague was an analyst for one of the groups that dived deeply into Medicare home care. My colleague told the group that these payment levels were a spigot that was going to be turned off in a few years. My colleague’s advice was that they should take care not to put themselves at too high a risk of financial problems when payments dropped. The response was something like, “Yeah, but I will have made tons of money by then. What happens after that doesn’t really matter to me.”
As the example above (and the almost unending list of all the others like it) should convince you that all the rhetoric and reasoning behind Occupy Wall Street (OWS) applies to health care. We have a rapacious medical-industrial complex (MIC) that has, to enhance the wealth of its members, declared war on the American public's pocketbooks and health. They will try to sell a $25 medication (to reduce the likelihood of premmies, for God sake) for $1,500. I am sure if you ask a KVPHP executive why they REALLY did that the answer would be “because we thought we could (and BTW, I made out like a freakin’ bandit on my stock options).”
The corporatization of health care and the ability of the MIC to ride roughshod over the US citizenry has the same roots as the de-regulation of derivatives trading. A boatload of money is out there, waiting to be gobbled up by a few -- at the expense of the many. As an added bonus, the MIC gets to blame any resulting problems (minor issues like infant mortality or no access to health care for the working poor) on demography, technology, bad character, excessive government regulations, or whatever suits its corrupt fancy or fantasies. You should read Vampire Cabbie’s diary GIVE ME HEALTH CARE OR GIVE ME DEATH for a very clear and deeply disturbing image of the human reality behind all these words.
What’s the remedy for this mixture of money and misery? That is a very complex question that has a number of very complex answers (BTW, anyone who says they have the answer is just hyping their latest book.). Of course, a first good step is a single-payer system, MEDICARE FOR ALL, which should go a reasonable distance in dealing with price inflation and get insurance companies out of the mix (it’s a twofer!). But, it’s just a first step. However, I am not an enemy of incremental reform, since I have no idea what the perfect answer is.
If I were all-powerful, then I would have answers. All physicians would be like my friend, Bob. All nurses would be like my friend, Sarah. All health care administrators would be like my friend, Jack. All health policy analyst would be like my friend, Charlene. All for-profit health care corporations would be like…. Wait a minute, there wouldn’t be any such thing as for-profit health care corporations.