by Robert B. Reich

Yes, we have a long-term budget crisis. And, yes, Medicare costs are at the heart of it. But don't be fooled into believing Medicare itself is the problem.

House Republicans want to get rid of Medicare. In its place they'd give seniors vouchers to be cashed in with private insurers. That's nuts. It would leave seniors with less health care and insurers with fatter profits.

The president, on the other hand, wants an independent commission to recommend cuts if the yearly costs of Medicare rise half a percent faster than the national economy. That's better but still assumes Medicare costs are the problem. They're not.

The real problem is the soaring costs of health care underlying Medicare. Those costs are also forcing all of us to pay more and more for health insurance.

Americans are spending almost two and a half times more on health care per person than other advanced nations. Yet the typical American doesn't live as long as citizens in other advanced nations, and we have the highest rate of infant mortality.

The reason: Here, doctors and hospitals have every incentive to spend on unnecessary tests, drugs, and procedures. But they have little incentive to keep people healthy.

You have lower back pain? Almost 95 percent of such cases are best relieved through physical therapy. But doctors and hospitals routinely do expensive MRIs, and then refer patients to orthopedic surgeons who often do even more costly surgery. Why? There's not much money in physical therapy.

Your diabetes, asthma or heart condition is acting up? If you go to the hospital, 20 percent of the time you're back there within a month. You wouldn't be nearly as likely to return if a nurse visited you at home to answer your questions and make sure you were taking your medications. This is common practice in other advanced countries. So why don't nurses do home visits to Americans with acute conditions? Hospitals and nurses aren't paid for it.

America spends $30 billion a year fixing medical errors -- the worst rate among advanced countries. Why? Among other reasons, because we keep patient records on computers that can't share the data. Patient records are continuously rewritten on pieces of paper, and then re-entered into different computers. That spells error.

Meanwhile, administrative costs are eating up 15 percent to 30 percent of all health-care spending in the United States. That's twice the rate of most other advanced nations. Where does this money go? Mainly into collecting money: Doctors collect from hospitals and insurers, hospitals collect from insurers, insurers collect from companies or from policyholders.

At some hospitals, billing clerks outnumber physicians. A third of nursing hours are devoted to documenting what's happened so insurers have proof.

The Republicans' plan would make things worse. It simply funnels money into the hands of for-profit insurers. Their administrative costs are far higher than Medicare.

The president's approach is smarter but doesn't address the underlying problem. It just limits the amounts seniors would receive for Medicare insurance. As health-care costs continued to rise, seniors would get less care. (As a practical matter this won't happen because seniors -- whose clout will grow as boomers are added to the ranks -- will demand the limits be increased.)

So what's the answer? First, allow anyone at any age to join Medicare.

Medicare's administrative costs are in the range of 3 percent. That's well below the 5 percent to 10 percent costs borne by large companies that self-insure. It's even further below the administrative costs of companies in the small-group market (amounting to 25 percent to 27 percent of premiums).

And it's way, way lower than the administrative costs of individual insurance (40 percent). It's even far below the 11 percent costs of private plans under Medicare Advantage, the current private-insurance option under Medicare.

Second, allow Medicare -- and its poor cousin, Medicaid -- to use their huge bargaining leverage over doctors and hospitals to change the incentives driving the health-care system. Instead of reimbursing doctors and hospitals for the costly tests, drugs and procedures, pay them for keeping people healthy.

Estimates of how much would be saved by extending Medicare to cover the entire population range from $58 billion to $400 billion a year. More Americans would get quality health care, and the long-term budget crisis would be sharply reduced.

Medicare isn't the problem. It's the solution.

 

Robert Reich, former U.S. Secretary of Labor, is professor of public policy at the University of California at Berkeley and the author of the book Aftershock: The Next Economy and America's Future.

 

Medicare Isn't the Problem, It's the Solution