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Medicare

7 min read

Part of Taxes, spending and debt.

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Every episode (3)

Who argued it

Burton Abrams · Jeffrey Singer · Peter Suderman

Libertarianism · Economics · Public Policy · Obamacare · Fiscal Policy · National Debt

Background

Coding and price controls

In the episode “Will Americans Accept Second Class Medicine?”, Dr. Jeffrey Singer describes the first structural change to Medicare as the creation of a coding system in the early 1980s. Competing code systems existed, but the American Medical Association lobbied Congress for and received a monopoly over the coding system, which it designs each year. The codes assign computerized numbers to thousands of procedures, services and diagnoses, and physicians had to submit Medicare bills using them. Singer says doctors had to describe services based on the codes given to them or else they could not get compensated, even when a code did not describe the patient’s problem or the service rendered. He notes the AMA receives a large sum from Medicare and insurance companies to develop the codes, making a significant portion of its income come from them rather than membership Will Americans Accept Second Class Medicine? (2013).

Bob Zadek frames the shift for listeners: in the old days a patient would see the doctor, the doctor would spend as much time as necessary, and the bill might be predetermined for the visit; now the patient is a series of codes, and the office must convert treatment into as many codes as possible to maximize payment from Medicare or insurers. Singer agrees and adds that in the mid-1980s, during the Reagan administration, Medicare instituted price controls on top of the coding system. A commission decides what each procedure code is worth, and hospitals operate under a similar system called diagnostic related groups, or DRG codes. Singer says he receives a book every October from Medicare listing the reimbursement for each code, and the same amount is paid regardless of whether the physician is the best in the world or performing the operation for the first time. He contrasts this with other professions, where excellence can be rewarded by charging more Will Americans Accept Second Class Medicine? (2013).

Zadek draws the parallel to law: lawyers who consider themselves smarter raise their hourly rate, and if they raise it too much they have a high rate but no income because nobody will pay it, so they are tested against the market every day. Singer replies that under Medicare rules he cannot reduce his fee for a person with very limited income because that would be discriminatory, so he cannot charge less to an 80-year-old widow living on a fixed income. Singer also describes how doctors hire consulting groups and certified coding specialists to maximize reimbursement, and how the need to supply a diagnosis to get paid can distort epidemiological data—for example, a normal breast exam with no mass may be coded as breast pain to obtain payment Will Americans Accept Second Class Medicine? (2013).

Hospital billing and perverse incentives

In the same episode, Zadek describes perverse billing rules under Medicare. He says that if an ophthalmologist performs laser eye surgery in his office, Medicare reimburses $389, but if the same doctor with the same machine goes into a hospital, the hospital gets about twice as much, $738, because the hospital can put on more costs. He gives a second example: an echocardiogram averages $143 in private practice and $319 in Medicare. Zadek says this costs the system about one billion dollars more just by forcing doctors to leave private practice and go to work for a hospital Will Americans Accept Second Class Medicine? (2013).

Singer says the same is happening in cardiology: Medicare pays cardiologists so little for stress tests and echocardiograms that many cannot pay the rent on the equipment if they do not own it, so they send those tests to the hospital rather than lose money doing them in the office. Hospitals are increasingly hiring specialists, and when a hospital bills for a procedure, it gets paid about double what a private surgeon would get, though the surgeon on salary does not receive that difference. Zadek summarizes: the same person, Dr. Jeffrey Singer, does the same procedure with the same scalpel in his hand, and the costs to society are double, forced upon society by the government. Singer attributes the disparity to the Hospital Association doing a better job of lobbying healthcare regulators for reimbursement fees than the medical societies have done, working the overhead of an acute care hospital into reimbursement for a simple procedure Will Americans Accept Second Class Medicine? (2013).

Medicare as a retirement program

In “Worst Ten Economic Mistakes of the 20th Century,” Burton Abrams distinguishes Medicare from Medicaid. He says President Obama doubled the number of people who qualify for Medicaid, which he describes as a welfare program for people in severe financial distress, and he would not call that the folly. Medicare, by contrast, he calls a retirement program that replaces private retirement planning with a government-paid program. Money put into Medicare is money not saved for retirement and is consumed rather than saved, which he says has a long-run detrimental effect on the economy. He calls Medicare the real folly Worst Ten Economic Mistakes of the 20th Century (2014).

Zadek characterizes Medicare as a wealth transfer from working Americans to retired Americans, noting that retired Americans as a demographic class are the wealthiest by age group, which he says makes it hard to justify transferring wealth from productive working people to those who comparatively do not need it. Abrams agrees it transfers wealth and raises the difficulty of measuring wealth. He says many current recipients believe they paid for the program through FICA taxes and expected a nice retirement, and he finds it disturbing to tell them that because they own a house and have some wealth they will not receive what was contractually agreed to. He says he would rather have had the program fully funded, and that an income tax taking back a portion from higher retirement incomes would be a more reasonable outcome than what he calls a class warfare setup of young people paying taxes transferred to the elderly Worst Ten Economic Mistakes of the 20th Century (2014).

Zadek takes issue with the idea that paying in entitles recipients to benefits, saying what they paid in is minuscule compared with what they took out, and that Medicare is a pay-as-you-go system where what you pay in is unrelated to what you get out. Abrams agrees that was true mostly for earlier retirees, citing Harry and Bess Truman as cards number one and two in the Medicare system who paid nothing into it, and says his own parents probably received far more than they paid in. But he says current retirees have paid in during their working lives, and that counting accrued interest shows they are not receiving extraordinary payouts. He adds that two high-income earners in a household pay in two sets of taxes but receive the same Medicare benefits as a low-income family, and with Medicare somewhat means-tested and Social Security payments likely reduced in the future, those individuals may be worse off Worst Ten Economic Mistakes of the 20th Century (2014).

Across episodes

Two episodes from 2013 and 2014 touch on Medicare. The 2013 episode with Dr. Jeffrey Singer examines the coding system, price controls and hospital billing rules; the 2014 episode with Burton Abrams examines Medicare as a retirement program and a wealth transfer. The episodes show no development between the treatments—each addresses a different aspect of the program.

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