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How Do We Control Rising Health Care Costs? It's Medicare, Stupid

Americans overspend $750 billion in health care each year. One-fifth of our economy enriches very few at the expense of everyone else. Labs, drug companies, medical device makers, hospital administrators and purveyors of CT scans, MRIs, canes and wheelchairs are some of the entities and people reaping the financial rewards by gaming the health care system, writes Time magazine's Steven Brill in a fascinating, in-depth look at why health care prices are just "too damn high" in Bitter Pill: Why Medical Bills Are Killing Us.

Brill says too often in the health care debate, we argue over who should pay. The real question we should be asking is, why are we paying so much for health care?

In the U.S., people spend almost 20% of the GDP on health care, compared with about half that in most developed countries. Yet in every measurable way, the results of our health care system are no better and often worse than the outcomes in those other countries.

In this investigation, Brill highlights a maddening, arbitrary internal system of billing hospitals use called chargemaster. These charges regularly go up to 10 times higher than what these items actually cost. For example, one patient in Brill's piece was charged $77 for gauge pads.

Brill talks to middle-class families who are mired in debt from exorbitant medical bills (most already had health insurance), and the stories are devastating (the AFL-CIO Now blog will cover these stories in-depth in the future). But the bright line in the piece is Medicare.

Brill writes:

Unless you are protected by Medicare, the health care market is not a market at all. It’s a crapshoot. People fare differently according to circumstances they can neither control nor predict. They may have no insurance. They may have insurance, but their employer chooses their insurance plan and it may have a payout limit or not cover a drug or treatment they need. They may or may not be old enough to be on Medicare or, given the different standards of the 50 states, be poor enough to be on Medicaid. If they’re not protected by Medicare or they’re protected only partly by private insurance with high co-pays, they have little visibility into pricing, let alone control of it. They have little choice of hospitals or the services they are billed for, even if they somehow know the prices before they get billed for the services. They have no idea what their bills mean, and those who maintain the chargemasters couldn’t explain them if they wanted to.

Eighty-eight-year-old patient Alan A., one person with major health care issues who Brill covered in his article, had a massive heart attack and spent two weeks in an intensive care unit at a hospital that brings in $91 million a year. After that, he spent three weeks in ManorCare, a convalescent center, part of a for-profit chain owned by The Carlyle Group. Alan A. racked up $268,227 in bills from these two facilities. Medicare paid $43,320 and the account was settled. Besides $100 in small incidental charges, Alan A. paid nothing out of pocket.

Medicare determines what they'll pay for medical bills based on the average of every hospital's costs, "with adjustments made for regional cost differences and other local factors," Brill writes. There is no incentive for a hospital to overstate these costs to Medicare because of this system and the fact that doing so is against the law.

Medicare is highly efficient and a model for how private insurers can run, saving out-of-pocket costs for patients. Medicare is able to bring down the exorbitant chargemaster bills to reality.

Alan A., in addition to his heart attack, has been participating in experimental cancer treatment at Memorial Sloan-Kettering in New York City. For 10 years Alan A. travels to New York from Philadelphia to receive follow-up appointments every six weeks. Alan A. is in remission. The annual bill is $57,408. Alan A. only pays a fraction of each visit, about $50 from $7,346 Memorial Sloan-Kettering charges.

Amazingly, despite the fact that Medicare lowers the cost of health care, some in Congress are demanding we raise the Medicare age to 67, delaying the age of eligibility for two years.

Brill writes:

In the debate over controlling Medicare costs, politicians from both parties continue to suggest that Congress raise the age of eligibility for Medicare from 65 to 67. Doing so, they argue, would save the government tens of billions of dollars a year. So it’s worth noting another detail about the case of Janice S., which we examined earlier. Had she felt those chest pains and gone to the Stamford Hospital emergency room a month later, she would have been on Medicare, because she would have just celebrated her 65th birthday.

If covered by Medicare, Janice S.’s $21,000 bill would have been deeply discounted and, as is standard, Medicare would have picked up 80% of the reduced cost. The bottom line is that Janice S. would probably have ended up paying $500 to $600 for her 20% share of her heart-attack scare. And she would have paid only a fraction of that—maybe $100—if, like most Medicare beneficiaries, she had paid for supplemental insurance to cover most of that 20%.

It actually makes sense to lower the age of eligibility for Medicare, Brill writes. "That’s not a liberal argument for protecting entitlements while the deficit balloons. It’s just a matter of hardheaded arithmetic."

It would make sense to allow people close to the age of eligibility to enter the Medicare system earlier. Younger people would lower overall costs since they're less likely to have chronic health issues. This argument stands for 55-year-old people all the way down to 18-year-olds. While Brill doesn't heartily endorse a single-payer health care system, he acknowledges we can and must learn lessons from Medicare to reduce health care overspending in the United States. $750 billion is pretty hefty number to overcome, but if Medicare can "balance countervailing interests" within the health care system, so can the rest of insurers.

Brill writes:

We don’t have to scrap our system and aren’t likely to. But we can reduce the $750 billion that we overspend on health care in the U.S. in part by acknowledging what other countries have: because the health care market deals in a life-or-death product, it cannot be left to its own devices.

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