So You Wanna Cut the Deficit, Huh? Part 1: Medicare

To anyone who’s been paying any attention at all lately, the discussion of raising the debt ceiling and trying to reduce the nation’s debt have become the center of the political universe. There has been a lot of discussion about should we cut this or should we cut that, should we increase this tax or close that loophole, and what happens if we default. But what seems to have been missing from much of this discussion is any kind of detailed analysis and debate over precisely where cuts should (or could) be made or taxes raised and, perhaps more importantly, what the ramifications of those policies would be.

So think of this post as the first of a potential series in which I’ll try to look at what could be cut (or taxed) and try to think about the ramifications, in particular unintended consequences (or at least consequences that people may not want to talk about…). I may make statements or suggestions in this post (or in the follow up posts I envision) that are wrong or way off base. Please recognize in advance that I am far from an expert on these matters. Instead, I’m sort of “thinking out loud” and trying to put the issues, as I see and think of them, on the table. If I’m wrong on a fact or misunderstand an issue, please let me know. I can’t make up my own mind absent a decent understanding of the facts, and certainly our society can’t do so either. I invite readers to offer their own thoughts.

It seems to me that government spending can be broken down into three large areas (at least for purposes of this discussion; I know that there’s stuff I’m leaving out): entitlement programs, defense spending, and discretionary spending. I know that defense spending is usually included within discretionary spending, but that seems wrong to me; defense has gotten so enormous and people seem so unwilling to touch it, that it deserves to be considered separately.

First, let’s look at entitlement programs. There are a lot of them, but the three “Big Kahunas” are obviously Medicare, Medicaid, and Social Security. For those who don’t know the difference, Medicare is to help the elderly, Medicaid is to help the poor (and the state’s pay a large part of Medicaid expenditures). I’m going to focus first on Medicare.

Now, whenever we hear about efforts to reduce spending, we hear about cutting out “waste, fraud, and abuse” and that is obviously a laudable goal. In fact, it seems that Medicare and Medicaid are quite susceptible to waste, fraud, and abuse (overbillings, etc.) and any efforts to reduce that seem like a good idea. I mean, who’s for waste, fraud, and abuse other than the guy making money through his fraudulent efforts. Thus, there may in fact be real savings here (and by “real” I mean “big”) but I have a hard time getting excited about those savings because it seems that we should always be working to eliminate waste, fraud, and abuse.

So how else can we reduce spending on Medicare? Let’s brainstorm a bit. Obviously, we can increase what people pay into the system, either in terms of tax withholdings (presently 1.45% of wages) or premiums/co-pays. We could raise the age at which people are entitled to Medicare (presently 65) and/or we could limit eligibility for Medicare (for example, a means-based test). We could reduce the benefits provided by Medicare (such as limits on allowable procedures or medications). We could also allow Medicare to negotiate lower drug prices (in essence, amending the Prescription Drug Act passed in 2003). I have no idea how to figure out how much any of those changes would actually save. But if we really want to have an honest discussion about ways to save, then don’t all of those (and any other possibilities) need to be included in the discussion?

I’m uncomfortable with changes to the system that would create Sarah Palin’s imaginary death panels. In other words, I don’t like the idea of an elderly person being forced to try to convince Medicare that a particular drug or particular surgery is a good idea. That should be largely up to the doctor and patient. That said, however, I am sympathetic to the notion that we might need to have a national discussion (though how well that would go, given what we saw in the debt discussion) about whether we should pay for outrageously expensive surgeries or medicines. And I’m really, really uncomfortable with the idea that an elderly patient should have to convince someone that he or she is likely to live long enough or be valuable enough to the family or society to be “worth” the expenditure of funds to prolong an already long life. But again, I’m sympathetic to the argument that we need to discuss how much is too much when the surgery or drugs would have only a minimal impact on quality and/or quantity of life. Said differently, how comfortable are we as a society paying for an organ transplant for a very elderly patient and are we willing to pay millions for an experimental drug that may or may not work? I don’t know. As the question this way: What are we as a society willing to spend to care for our elderly and what benefit do we expect from that expenditure? However, to my way of thinking, those are discussions that we need to have as a society, not decisions that should be left up to bureaucrats (no matter how well-intentioned they may be).

One thing that I’ve heard before, and which is worth including in the discussion, is the fact that an enormous percentage of Medicare funds are expended in the very last stages of life (in other words, the cost for a patient’s heart and cholesterol medication, even for 20 years, as far, far less, than the cost for extended hospitalization and other end of life care). Am I saying that we should deny drugs or life-prolonging treatment to the very old or very infirm? Of course not. But I do think that we need to think about what we as a society are willing to do for the very old and very infirm. And frankly, though some may not want to hear this, that should include the ability for those patients to choose end of life care that would allow them to die with dignity rather than prolonging life in pain or with no real quality. If we really want to cut costs, all options really do need to be a part of the discussion. But when thinking about these issues, ask also whether we, again as a society, would be happy with a stratified system in which the very wealthy could afford top-notch end of life care with the best doctors, medicines, and facilities, while those who are forced to rely upon Medicare could only expect lesser doctors, fewer medicines, and dingy, over-crowded facilities?

With regard to raising the eligibility age, this certainly seems like something worth discussing. My initial concern, though, is that people who have been counting on Medicare at a particular age (in their insurance purchases, retirement planning, and so forth) ought not be adversely impacted. By the same token, it seems like it might be unfair to say, “Gee, if you were born before 19xx, you get Medicare at 65, but if you were born later than that you have to wait two more years.” So perhaps some kind of slowly advancing scale, something along the lines of an additional calendar quarter prior to eligibility each year beginning 10 years from now (with those increases continuing until the eligibility age is … I don’t know … 67? 68? 70? We should also probably take into consideration actual empirical evidence concerning life expectancy, ages at which people begin to need additional medications, and so forth. And we should probably be sure that people aren’t forced to retire before they’re eligible for Medicare. Just imagine the situation of people forced to retire at 65 who then might not have any insurance until Medicare eligibility kicked in several years later.

One notion that I’ve heard suggested that frankly leaves me a little uncomfortable is some kind of sliding eligibility scale based on health. But I’m not sure why we’d want to “reward” people who didn’t take care of themselves by providing earlier coverage. In a similar vein, how would we feel about excluding certain types of ailments from Medicare coveerage? For example, what if we were to say that Medicare wouldn’t pay for treatment of lung cancer or emphysema caused by smoking? The problem, of course, with this line of thinking is the slippery slope. Should we refuse coverage for high blood pressure for people who are overweight? Should we refuse to pay for dentures for people who didn’t brush their teeth regularly? But it may be that we, as a society, are willing to say that the medical ramifications of certain conduct ought not to be covered by Medicare. Smoking does seem like the poster child for this sort of approach.

And query whether, if the empirical evidence demonstrates different aging patterns for men and women, we should consider eligibility determinations that include gender as a component (i.e., should the “healthier” sex have Medicare eligibility beginning later)?

So what about means testing? In other words, should a millionaire (or billionaire) be eligible for the same Medicare payments as someone living below the poverty line? Or should we ask those who can afford it to pay a larger portion of their own medical costs? We don’t give millionaires food stamps, so is it wise to give them Medicare coverage? Or is healthcare something … different … for which means testing is inappropriate? It may be that we conclude that caring for our elderly is simply an obligation of an ordered society and that we should accept that cost, no matter the means of the recipient. We’ve all heard stories of elderly people giving away their assets (presumably to family…) in order to qualify for certain programs. While I’m all for sensible estate planning, the idea that people should have to sacrifice assets in order to qualify for some kind of medical care seems wrong. Then again, it also seems wrong that people would try to hide assets or shift them around (again, presumably to family…) in order to qualify for coverages. Trying to “game” the system, doesn’t feel right either.

Finally, before finishing with Medicare, I do want readers to do one thing: Think about the types of changes that I’ve discussed and think about how those changes might impact our society other than in terms of budgets and deficits. For example, what will be the ramifications if there is less Medicare money to spend on end of life care? Who will be taking care of our seniors and what happens to those seniors who don’t have family that is capable or willing to care for them? Do we, as a society, want to simply dump the elderly poor into large group homes where they can wait to die? I doubt it. And what percentage of a family’s budget should we expect to be directed toward caring for elderly family members? And if that family has to divert funds from, say, education for their children, then what will those long-term ramifications be? These are the sorts of questions that must be a part of the discussion, not just whether we should cut or increase expenditures by a certain percent or whether we should reduce benefits or means-test recipients.

Unfortunately, in our current political climate, I don’t think that anyone has the stomach for the type of discussion that is really needed; for that matter, I think that there are way too many people who would ignore empirical evidence or the opinions of experts on these matters. We’ve become too set in black and white, sound bite solutions to problems. And issues as complex as these cannot be solved on the back of a napkin.

Well, that’s all for now. I feel that I’ve chewed this issue up pretty well for the moment. Maybe after some reader feedback (hint, hint…), I’ll return to Medicare. But coming up next, I’ll take a look at … um … well, whichever particular tax or expenditure issue grabs my attention at that particular moment.