Recent political debates have created broad discussions about Medicare, Medicare for All, and other variants such as Medicare for All Who Want it. These policies, if enacted, intend to ensure that all Americans have health insurance. Despite strong opinions, Medicare is poorly understood by many.
What is Medicare?
Medicare is a form of national health insurance. It is not socialized medicine. In socialized medicine, healthcare facilities are owned by the government and healthcare workers are governmental employees. In Medicare, healthcare is largely financed through taxes, but–unlike socialized medicine– the physicians, nurses, and others providing care are not employees of the government and hospitals are not owned by the government.
Who and What is Covered?
Medicare is primarily for those sixty-five years of age and older and people younger than 65 with a diagnosis of End-Stage Renal (kidney) Disease or Amyotrophic Lateral Sclerosis (Lou Gehrig’s Disease). Originally intended to be merely the first age cohort to have access to national health insurance, other than for those with the diseases listed, Medicare has excluded younger populations.
There are four categories of Medicare. They are termed Part A, Part B, Part C, and Part D. Medicare Part A pays for hospital care and is financed by taxes on employers and employees that are held in the Hospital Insurance Trust Fund. Medicare Part B pays for professional services such as physician care and is financed by general tax revenue and beneficiary premiums. This beneficiary premium is an ongoing monthly sum eligible people pay to have Part B insurance coverage. Medicare Part C (Medicare Advantage) is Medicare obtained through a private health insurance company, for example, Blue Cross and Blue Shield or Aetna. Finally, Medicare Part D covers prescription drug costs and is financed like Part B plus some state funds. By law, Medicare is not allowed to negotiate with pharmaceutical companies to lower drug costs. Many politicians oppose this rule and believe that this law should be changed as one strategy to lower prescription drug prices.
Medicare is not designed to cover all costs of care. On average, Medicare covers 80% and the person using services will pay 20% in the form of cost sharing such as copayments—an amount to be paid at the point-of-service each time services are used—and deductibles—an amount the person must pay before Medicare starts to pay. Cost sharing is in addition to the monthly premiums Medicare beneficiaries pay for Parts B, C and D. Some Medicare for All advocates call for first dollar coverage, that is, no cost sharing, such as copayments and deductibles, to remove all financial barriers to care. For others, such first dollar coverage raises concern about moral hazard. An economic term, moral hazard simply means that people may use more, unnecessary care when there are no immediate, personal financial consequences tied to the use of that care. From an economic perspective, first dollar coverage in healthcare represents a market inefficiency. What do you think?
One major Medicare for All issue being debated is the role of private commercial insurance. Some political candidates believe that private insurance companies should be eliminated, although they differ on the timeline for this, ranging from four to ten years. Others suggest a different approach, a so called “public option” in which people can keep their private insurance or opt into a governmental insurance program. One candidate calls this Medicare for All Who Want It. Still others focus on the opportunity to opt into a Medicaid-type public option, which offers more long-term care services and supports than Medicare.
Many health care organizations oppose these changes. One likely reason is that Medicare reimburses providers much less money than private insurance does, and Medicaid even less than Medicare. These cost are then shifted to those with private commercial insurance. As a result, even when receiving the exact same health services, those with commercial insurance pay much more for those services than those with Medicare. This difference varies by region of the country, from 150% to 400%, with a national average of 250%. Interested in how your hospital fares? Check out https://www.rand.org/pubs/research_reports/RR3033.html. This price variability and lack of price transparency are major policy issues and will be discussed in an upcoming blog.
One final note: Medicare is designed to reimburse health care providers at the cost of care, yet many would find it difficult to live within this cost structure.
References:
White, C., & Whaley, C. (2019) Prices paid to hospitals by private health plans are high relative to Medicare and vary widely. Santa Monica, CA: Rand Corporation. Retrieved from https://www.rand.org/pubs/research_reports/RR3033.html