Fixing Medicare

by

 

Joseph F. Baugher

 

Last revised October 13,  2011

 

 

The current American national debt is $14.3 trillion[1], which is just about equal to the current annual Gross Domestic Product.  The federal budget deficit is projected to reach a $1.28 trillion this fiscal year, which ends September 30[2].   The nonpartisan Congressional Budget Office projects that unless something is done, the government will run up about $7 trillion more in budget deficits over the next 10 years.  Many experts feel that this sort of deficit spending cannot go on for much longer.

 

Medicare is accused by many critics of being a major contributor to this deficit.  Many feel that Medicare costs way too much, and that it is not sustainable in the long run.  However, entitlement programs such as Medicare actually contribute only a relatively small amount to the national deficit.  The Congressional Budget Office (CBO) reported in August 2011 that Medicare accounted for less than $50 billion of the projected $1.3 trillion deficit in 2011[3], only about 5 percent of the total deficit.  Other factors contribute much more highly to the deficit, but it cannot be denied that increasing costs are a major threat to the future viability of the entire Medicare program

 

The main problem is that spending on Medicare has been growing faster than the economy in general, and is projected to do so indefinitely into the future.  Medicare cost about $521 billion in the last fiscal year[4], and is projected to cost $569.3 billion this fiscal year.  The CBO projects that federal spending on Medicare (net of beneficiaries’ premiums) and Medicaid will rise from 4 percent of GDP in 2007 to 7 percent by 2025, 12 percent by 2050, and 19 percent by 2082[5].  The May 2011 Medicare Trustees report indicated that Medicare spending is growing at a 7.2 percent annual rate—far faster than the economy in general[6].  Medicare costs will probably continue to grow at an annual rate of 5.6 percent through year 2021, much more than the anticipated growth in the overall economy.  In its 2008 annual report to Congress, the Medicare Board of Trustees projected that the Medicare Part A hospital insurance trust fund will run out of money by 2017.   Given rising costs and an aging population, Medicare’s unfunded liabilities over the next 75 years could amount to almost $31 trillion.

 

Medicare has three major sources of revenue: premiums paid by participants, Medicare payroll taxes paid by working people, and money taken from general tax revenues.  Over recent years, the fraction of Medicare costs that have to be covered by general tax revenues has steadily grown.  This is shown in the table below

 

 

 

Percentage of Medicare Costs Paid

Year

Medicare payroll taxes

Medicare premiums

General revenue

1990

62%

10%

28%

2010

43%

13%

44%

2020

33%

16%

51%

 

In 1990, general tax revenues covered 28 % of Medicare’s costs, but due to the shortfall in payroll tax revenue, health care cost inflation and the onset of baby boomer eligibility for Medicare, the share that had to be covered by general revenue rose to 44. % in 2010, and is predicted to rise further to 51% by 2020, according to the Trustees report.  Adding to the fiscal problems encountered by Medicare was the recession which began in 2007.  As the recession continued to deepen, the Medicare program's financial health deteriorated even more rapidly.   As more and more people were forced out of work, this meant that fewer numbers of people were paying Medicare payroll taxes.  This drove the income derived from Medicare payroll taxes precipitously lower, from 62 % of Medicare revenue in 1990 to only 43% by 2010, a nearly 40% decline.  If health care costs are not curbed by 2020, it is estimated that by that time Medicare payroll taxes will cover only 33% of Medicare costs[7].  The balance will have to come from somewhere—most likely from general revenues, driving the deficit even higher.

 

One reason why Medicare is strapped for cash is that the number of working people paying Medicare taxes is declining, especially in the current difficult economic environment.  Also, medical costs in general have been increasing at an annual rate of 8 percent in recent years, and promise to continue to do so in the future.  One of the reasons for this projected increase in Medicare spending in the coming years is that the number of people enrolled in the program is expected to surge as the population ages, especially as the baby boomers become Medicare eligible.  Medicare currently serves 47.6 million beneficiaries[8], and by fiscal year 2021 it is projected that it will have to serve 65 million people and 77 million people by 2031.   

 

It is unlikely that any tax or premium increase would be large enough to keep up with this growth in Medicare spending.  Some experts are calling for major cutbacks in Medicare, and some politicians even want to eliminate the program altogether.  Others say that they still want to preserve Medicare for future generations, but recognize that certain reforms need to be made to the program to ensure that Medicare benefits will be available in the future. 

 

Congress will be considering numerous proposals for deficit reduction over the next few months, and some of these proposals may involve changes or cuts to Medicare.  Some of the means by which this might happen are described below

 

The Medicare Payment Advisory Commission[9]

 

The first of these is the Medicare Payment Advisory Commission (MedPAC) , which was an independent US federal body established by the Balanced Budget Act of 1997.   The committee has 17 members that are appointed to three-year terms by the Comptroller General.  All of the committee members are experts in the financing and delivery of health care. 

 

This committee is charged with advising Congress on payments to providers in Medicare’s traditional fee-for-service program, as well as on payments to insurance companies that participate in Medicare Advantage.  It is also tasked with analyzing access to care, quality of care, and other issues affecting Medicare.  The Balanced Budget Act also contained a provision known as the Medicare Sustainable Growth Rate (SGR), which linked increases in Medicare spending to the growth in the Gross Domestic Product (GDP).  This was a method to ensure that the yearly increase in the expense per Medicare beneficiary does not exceed the growth in GDP.   Each year, the CMS sends a report to MedPAC that includes a conversion factor that will change the payments to physicians for the next year in order to match the target SGR, and MedPac uses this data to draft their recommendations to Congress. 

 

 However, any recommendations made by MedPac require an act of Congress before they can take effect.  As Medicare expenses have continued to rise, MedPAC’s recommendations have been ignored each and every year by Congress.   Most Congressmen are not well enough informed to make intelligent decisions about what sorts of medical treatments are effective and necessary and which are ineffective or unnecessary.  In addition, legislators are often discouraged from reducing Medicare payments to doctors and hospitals, because they receive generous campaign contributions from providers and suppliers of medical services.  Every year--at the behest of doctors’ and hospitals’ lobbies--Congress has passed repeated “doc fixes” to keep Medicare payments in line with healthcare inflation, and nothing has happened to rein in costs.   The MedPAC has proven to be completely ineffective in controlling Medicare costs.

 

The Joint Select Committee on Deficit Reduction[10][11]

 

Another Medicare cost containment mechanism is the Joint Select Committee on Deficit Reduction, created by the Debt Deal of August 2, 2011 between President Barack Obama and the congressional Republicans, which allowed an increase in the debt ceiling.  Sometimes referred to as the “super-committee”, it consists of six Republicans and six Democrats, and is tasked with figuring out how to slash $1.5 trillion from the national deficit.   Their recommendations must be made by November 23, 2011 and must be voted on by December 23.   If this committee fails to produce a debt reduction plan, as much as $1.2 trillion in mandatory across-the-board cuts will kick in—evenly divided into defense and non-defense spending.

 

The “super-committee” is charged with recommending spending cuts to cut the overall deficit, and is not specifically tasked with recommending methods to cut Medicare costs.  But some of their recommendations may involve cuts in Medicare spending.  The “super-committee” is supposed to operate independently and completely free from outside influence, but since with such massive potential cuts to the US federal budget being decided by just a handful of lawmakers, we can probably expect that an army of high-paid lobbyists will figure out a way to influence and sway the committee’s recommendations.  Some programs will become sacred cows and will be sheltered from these proposed cuts.  President Obama says that Social Security should not be included in the recommended cuts, and Republicans do not want to see any defense cuts or tax increases.  It seems that everybody has their favorite government program (whether defense or non-defense) that they do not want to see cut. 

 

A lot of pundits feel that the super-committee is almost certainly going to fail to reach any meaningful budget agreement by the deadline.  In addition, the defense cuts envisioned by the automatic trigger mechanism will probably not occur either, especially with the United States being involved in two wars.  It is most likely that the “can will be kicked down the road” once again, leaving future legislators to deal with the whole debt problem.

 

The Independent Payment Advisory Board[12][13]

 

Recognizing that previous attempts to rein in Medicare costs have been largely ineffective, the Affordable Care Act (popularly known as “Obamacare”) has a provision for something known as the Independent Payment Advisory Board, which calls for a panel consisting of 15 individuals (including doctors and patient advocates) appointed by the President and confirmed by the Senate that would be charged with the task of recommending ways to rein in Medicare costs. 

 

The IPAB is charged with enforcing an upper limit on annual Medicare spending growth.  Beginning in 2015, Medicare spending is supposed to be limited, on a per capita basis, to a fixed growth rate, initially set at a mix of general inflation in the economy and inflation in the health sector.  But starting in 2018, the upper limit on the percentage growth in Medicare spending will be set permanently at per-capita percentage domestic product growth plus one percentage point.   CMS will determine in any particular year what the projected per-capita growth rate will be for Medicare in the next year.  If the projected growth rate exceeds the target growth rate, IPAB must make a proposal for spending reduction. 

 

The IPAB has been denounced by some opponents of the Affordable Care Act as a “death panel” that would “pull the plug on Grandma”, although the original use of the term “death panel” referred to another provision of the Affordable Care Act that would allow doctors to bill Medicare for patient counseling related to end-of-life options. 

The IPAB is supposed to generate ideas which will help Medicare to provide better care at lower cost.  Things that might be considered might include ideas on coordinating care, getting rid of waste and fraud in the system, incentivizing best practices, and prioritizing primary care.  But the IPAB is prohibited by law from recommending any policies that would ration care, raise taxes, increase premiums or cost sharing, restrict benefits, or modify who is eligible for Medicare.  About the only thing that IPAB can do is to reduce Medicare payments to doctors and hospitals. 

 

The creation of the IPAB effectively transfers much of the power to reduce Medicare expenses from Congress to the Executive branch, placing the process in control of those who are supposedly more knowledgeable about health care policy.  Under the new system, the IPAB will be given the responsibility for making these decisions, but Congress will still have the power to overrule them.  But if Congress rejects these recommendations, and if Medicare spending exceeds specific targets, Congress must either enact policies which will achieve equivalent savings or let the Secretary of Health and Human Services go ahead and follow the IPAB’s recommendations. 

 

 

Some of the things that these various debt-reduction organizations might be considering are listed below.

 

The Medical Voucher Plan[14][15][16]

 

Perhaps the most radical reform that has been proposed so far is to replace the current Medicare program with a voucher system, which would effectively privatize Medicare.  This is a proposal put forth by Rep Paul Ryan (R-Wisconsin) that would provide people who become eligible for Medicare after the year 2021 with vouchers that could be used to purchase medical insurance policies on a regulated private insurance market, termed a Medicare exchange. 

 

People who become Medicare eligible before 2021 (those currently aged 55 or older) would be unaffected and they could continue to get Medicare under the current system.  Coupled with the act is a gradual increase in the Medicare eligibility age from 65 to 67.   Under the Ryan plan, the government would also lower Medicare spending automatically if the program's trustees determined that the percentage of funding from general revenues topped 45 percent.  In addition, there would be new limits imposed on the coverage that could be provided by Medigap supplemental policies. 

 

The voucher would be a subsidy that would be paid directly to whatever insurance company in the Medicare exchange that the senior selects to provide coverage.   The amount of the subsidy would be indexed to income, with more affluent seniors receiving a smaller subsidy than everyone else.   The value of the voucher would also be indexed to enrollee age and health status, with older people that have greater needs receiving a greater stipend and with wealthier and healthier seniors getting less.  The amount of the subsidy would also be increased annually at the rate of increase in the Consumer Price Index (CPI), plus one percentage point.   It is projected that the plan would save as much as $285 billion per year by 2030.

 

The Ryan plan says that insurance companies participating in the Medicare exchange would be required to accept anyone on Medicare.  They could not cherry-pick and would have to offer insurance to even the sickest and highest-cost beneficiaries, but it is unclear whether insurers could be free to use medical underwriting to set higher premiums for less-healthy applicants. 

 

 

Supporters of the Ryan plan claim that turning over the system to the private marketplace would help a great deal in lowering costs.  It would force health providers to compete for patients, which would supposedly lead to higher quality care at lower costs.  In addition, the introduction of competition into the insurance market would supposedly make it possible to provide better coverage at lower cost.  Such a strategy would supposedly introduce true choice and competition into the system, which would act to lower costs without sacrificing quality.

 

The Ryan proposal has been criticized by several experts, who predict that such a voucher program would be much more expensive to beneficiaries than the current Medicare program.  The initial voucher payment was projected to be worth about $11,000 per year on the average, which would be far less than the actual cost of buying a medical insurance policy on the private market, especially for people over 67 years old.   The CBO estimates that the benefit would cover only 32 percent of the cost of a health insurance package that is equivalent to what Medicare currently offers.   A Congressional Budget Office analysis says that the Ryan plan would double the annual out-of-pocket costs that recipients must pay to an average as high as $12,500. 

 

The experts also project that the voucher would become progressively worth less and less as the years passed.  This is because the value of the voucher would be linked to the rate of increase in the CPI, which has always lagged behind the rate of increase of medical costs in the past.   Private insurance premiums would continue to increase at a rapid rate year after year, whereas the amount of money provided by the voucher would increase at much slower rate.  As the years pass, the real value of the voucher would fall continuously, and the vouchers would cover less and less and enrollees would have to pay more out-of-pocket in insurance premiums.  Coinsurance and copays would probably also increase with each passing year as well.  To cover the shortfall, Medicare participants would either have to pay out-of-pocket, buy extra private insurance, or do without the medical care altogether. 

 

More seriously, the Ryan plan has been criticized as little more than a government subsidy for the medical insurance industry, exacerbating the problems already present with the Medicare Advantage program.  The Ryan would effectively convert Medicare from a defined-benefits plan into a defined contribution plan—sort of like what the 401(k) plan has done for private employer pensions.

 

The proposal passed the House in April of 2011, but failed in the Senate.  However, there is always the possibility that it could be revived.

 

Increase the Medicare Payroll Tax[17].

 

Most experts seem to think that savings wrung from Medicare should be half from cuts in reimbursements and half from revenue increases.  The CBO says that raising the Medicare payroll tax to 3.9 percent from the current 2.9 percent would raise $651 billion, which would go a long way toward plugging the hole in the Medicare budget.  Under such a plan, Medicare might actually begin to run in surplus, at least for a while.

 

 

Alter the Medicare Reimbursement System

 

One of the tactics that might be followed in an effort to lower the cost of Medicare is to alter the way that Medicare pays doctors and hospitals for services rendered.  Currently, Medicare uses a fee-for-service system, which reimburses doctors and hospitals for the services that they perform for Medicare enrollees.  The amount of the reimbursement is determined by the Medicare Physician Schedule, which sets guidelines for the value of over ten thousand physician services[18].  This system does not take cost into account in determining which services are covered and which ones are not.  This system tends to encourage or at least facilitates the adoption of expensive treatments and procedures, even if the evidence about their effectiveness relative to other less-expensive therapies is limited.  Under such a fee-for-service system, doctors and hospitals have an incentive to provide additional services—as long as the reimbursement payments exceed the costs—even if the effectiveness of these treatments might be only marginal. 

 

Many experts believe that research into the comparative effectiveness of different treatments is a promising mechanism for Medicare cost containment.  This involves a comparison of the impact of different options that are available for treating a given medical condition for a particular set of patients.  These studies could involve a comparison of similar treatment strategies such as competing drugs, or they could involve a comparison between very different approaches such as the employment of surgery in comparison to drug therapy.  The analysis could focus on the relative medical benefits and risks of each treatment option, as well as the weighing of both the costs and benefits of these options, and a judgment would be made about which procedure is the most cost-effective.

 

Supporters of the comparative effectiveness approach recommend that Medicare be changed so that its reimbursement rate to providers be linked to the cost of the most effective or the most efficient treatment, and that Medicare would not pay full reimbursement for the most expensive procedures that are deemed no more effective than less-expensive procedures, nor would it pay for procedures deemed to be ineffective or unnecessary.  Medicare payments to physicians and hospitals would reward value and health outcomes, rather than volume of care, supposedly eliminating unnecessary care and decreasing costs.   This would presumably discourage doctors or hospitals from providing the most expensive therapy, especially if this procedure were shown to be no more effective than a less-expensive procedure.  In addition, since patients would face greater out-of-pocket costs if they opted for these more expensive but less effective procedures, they would presumably be less likely to request them. 

 

Medicare might also offer financial inducements to doctors and patients to encourage them to use more cost-effective care.   Bonuses could be given to doctors and hospitals for practicing effective care, or cuts in reimbursements could be made to those providers who continue to use procedures that are not judged to be cost-effective.  This might provide a financial incentive for medical providers to adopt more cost-effective procedures.  

 

However, it is vital that any alteration in the Medicare reimbursement system be made with great care.  If a meat-ax is taken to the program and across-the-board cuts in Medicare reimbursements are made indiscriminately, this would be devastating to seniors and to the Medicare program in general.  Doctors and hospitals will suddenly find that they are no longer getting enough reimbursement money to cover the cost of the services that they are providing to Medicare patients.  They will now be losing money every time that they serve Medicare patients, and this may force them to see fewer numbers of Medicare patients or opt out of the system entirely.

 

If excessive across-the-board cuts are made to Medicare reimbursements, doctors would be paid much more to care for patients who have private insurance than they would be paid by patients who have Medicare or Medicaid.    As a result, more and more doctors and hospitals might refuse to take Medicare patients, or further limit the number of Medicare patients that they do accept.  This would make it more difficult for seniors to gain the care that they need and forcing them either to obtain private insurance or do without the care altogether.

 

If lower reimbursements force more and more doctors and hospitals to refuse to take Medicare patients, what happens?  It makes little sense to have Medicare coverage, when noone will accept it.   In addition, if patients are unable to find a primary care physician or specialist who accepts Medicare, they may avoid primary care altogether and perhaps end up in the hospital emergency room with much more serious ailments which are even more expensive to treat, driving the per-enrollee costs up further and pushing the Medicare program even deeper into insolvency[19].  Under such an environment, Medicare would slowly wither away. 

 

Increasing the Age of Eligibility

 

Another proposal is to increase the age of eligibility for Medicare from the current age 65 to perhaps age 67 or even older.  This would lower costs by quite a bit, since fewer numbers of people would now be Medicare-eligible.  The Congressional Budget Office has estimated that increasing the Medicare eligibility age from 65 to 67 would save $124.8 billion between 2014 and 2021.   President Obama has said that he might support raising the eligibility age of Medicare from 65 to 67 over the course of 25 years, provided that Congress agrees to increase some tax revenues.

 

But if this happens, seniors will have to postpone getting Medicare coverage for a couple more years.  They will have to delay retirement even longer, just to make sure that they will continue to be able to be covered by their employers’ group insurance plans.  Older Americans will find that they are having trouble in obtaining and keeping jobs which pay medical benefits.   They will find that an increasing number of employers will stop offering medical insurance to their employees. Even if these seniors manage to avoid layoffs and forced early retirements, they will find that their employers require them to pay an increasing fraction of the cost of the premiums for their group medical insurance, and be faced with ever-increasing coinsurance and copays, increasing their out-of-pocket costs.   And if these seniors do lose their jobs, they will be forced to obtain individual private medical insurance policies on their own, which will become increasingly difficult to obtain and will become increasingly unaffordable.  They will still be at the mercy of medical underwriting, rapidly-increasing premiums, and even more staggering coinsurance and copayments.  Many seniors may be forced to do without medical care altogether.

 

A provision of the Affordable Care Act that is scheduled to go into effect in 2014 may help to alleviate some of the negative effects of any future increase in the eligibility age for Medicare.   That provision would guarantee Americans who are not yet old enough for Medicare the opportunity to buy private insurance regardless of health conditions. 

But Republican lawmakers have vowed to repeal the Affordable Care Act.  If this repeal actually happens, and if the Medicare eligibility age is raised as well, people age 65 to 67 will be at the mercy of the private insurance market, and will find that insurance policies will be increasingly difficult to obtain and those that they can obtain will be much more expensive.

 

Means Testing

 

Another proposal is to apply more means-testing to Medicare.  It is already true that people with incomes over a certain level have to pay higher premiums for Part B coverage, as well as for Part D prescription drug coverage.  These income levels might be reduced so that more people will have to pay these surcharges.  Or it could be required that the wealthiest individuals would have to pay premiums for Part A, which up to now has been entirely premium-free for everyone who is Medicare eligible.  Another possibility is that the annual out-of-pocket maximum will be raised to a higher value for more wealthy individuals.  Some more drastic proposals recommend that people who have financial resources that exceed a certain amount not be allowed to participate in Medicare at all, arguing that there is no reason why billionaires like Bill Gates or Warren Buffett should ever get Medicare.

 

President Obama has said that he might be open to some higher amounts of means-testing of Medicare, asking wealthier seniors to pay more in terms of premiums and co-pays, but he did say that he would oppose raising premiums on Medicare beneficiaries that have incomes that are below the threshold income levels already established for Medicare Part B and Part D.

 

If people with higher incomes have to pay more for their Medicare, there is a danger that those of them who have fairly good health might be tempted to leave Medicare altogether and opt for private insurance on their own, which might actually be cheaper and cover more.  This would reduce Medicare’s risk pool, leaving those left in Medicare paying an increasing share of their medical costs as medical costs become more and more expensive.

 

The main argument against imposing more means-testing in Medicare is that it probably won’t save very much money, because there are relatively few people that are rich enough to afford major cost-sharing.  The good thing about Medicare is that it does not depend at all on your personal financial status—you get it as soon as you turn 65, no matter how wealthy you are.   Means-testing of Medicare will probably turn out to be administratively cumbersome and expensive, making the program much more intrusive, like Medicaid.

 

Means-testing of Medicare might also undercut general public support for the system.  More wealthy individuals might begin to perceive Medicare as just another public welfare system like food stamps, a system into which they must pay taxes but from which they derive little or no benefit.   Seniors have paid into Medicare all their working lives, based on the promise that they will be assured of health coverage when they retire.  Applying a means test to their earned benefits might erode the popular support that have sustained the Medicare programs for years and have made it so effective in helping seniors, making it politically more feasible for legislators to cut back on the program or eliminate it altogether.

 

Increase Patient Out-Of-Pocket Costs

 

Another possibility is that the out-of-pocket costs of Medicare to most beneficiaries will have to be raised.  Currently, Medicare Part B covers 80 percent of the cost of doctors’ services and outpatient care, leaving the beneficiaries to cover the remaining 20 percent.  Some proposals call for the beneficiaries’ share of Part B costs to be raised in stages to as high as 35 percent by the year 2019.  Also, the annual Medicare Part B deductible and the Part A deductible for hospital stays might be increased.  In addition, the copays for some services might also be increased.   Perhaps Medicare’s complex array of copays and deductibles could be replaced by one simple annual deductible of $550 for both hospital and doctor coverage, with patients paying 20 percent of any expenses above that deductible, up to $7500 a year[20].  This move might save Medicare $110 billion annually.

 

The philosophy behind increasing patient out-of-pocket costs is that in an environment in which an insurance carrier pays all or most of the cost of the medical service, there is no incentive by either doctors or patients to control costs.  Patients, spurred on by media coverage and by aggressive advertising, now demand all sorts of costly tests and procedures--surgeries, x-rays, CAT scans, and MRIs--because the insurance provider pays for them.  Many of these procedures may not be medically necessary or may be only marginally useful, but the patients go ahead and demand them anyway because they don’t have to pay for them.  When medical care is cheap or free, patients do not worry about the ultimate cost of the service and do not think twice about seeing the doctor and do not bother to question whether recommended procedures are needed or are actually effective.  Doctors are tempted to order extra tests and procedures—some of which are really unnecessary--often simply because they are afraid of lawsuits, knowing full well that they don’t have to worry about the cost because someone else is paying for them.  With a third-party paying for the majority of any particular expense, there is no incentive for either the doctor or the patient to control costs.   

 

Higher deductibles and higher copays would supposedly encourage patients to be more intelligent consumers of medical care, inducing them to ask more questions about the care and treatments that doctors do recommend, perhaps electing to skip procedures which they deem superfluous or unnecessary.  They would pay much more attention to the cost of the medical care that they are receiving.  In addition, doctors would be less inclined to order extra tests and procedures that are only marginally useful, realizing that their patients would have to pay a higher price for them.   Having the patient pay quite a bit more out-of-pocket might help to drive a lot of the extra cost and waste out of the system.

 

One possible way in which patient out-of-pocket costs could be raised is to require that Medigap insurance coverage be more sharply limited.  Currently, people who buy Medigap policies to cover their Medicare deductibles and copays are largely insulated from the true cost of their care and therefore use more services, driving the overall costs of medical care steadily upward.   The problem is that insurance and government programs spread that extra cost around, so that eventually everyone ends paying more in the form of higher premiums or taxes.  Perhaps Medigap policies should be barred from coving the first $500 of their annual out-of-pocket costs.  Also, Medigap coverage could involve more coinsurance and more copays over what is currently provided.  For example, Medigap coverage could be limited to only half of the next $5000 in fees after the initial deductible is met.

 

The problem is that such a program would shift much of the burden of medical costs onto those people with the most serious medical problems.  Any effort to make patients more intelligent consumers of medical care is probably futile, since most people simply don’t have enough knowledge of medicine to distinguish between useful care and unnecessary care.  Higher copays on prescription drugs might encourage seniors to skimp on their medicines, cut their pills in half to extend their durations, or even to skip their medications altogether.  In addition, people faced with the threat of high out-of-pocket costs may choose to avoid medical treatment altogether--they might skip immunizations for their children, and they might be less likely to get cancer screenings.  In addition, the failure to get preventative care early because of higher costs will probably lead to larger and more expensive medical problems down the road.   The addition of higher cost-sharing to Medicare cannot be done indiscriminately—it has to be imposed carefully.  It makes no economic sense to deny coverage of preventative care, or not to provide extra protection for the chronically ill, since this will result in higher costs later on.

 

Rationing

 

Another possibility is that Medicare will have to impose some sort of rationing program to control costs.  Perhaps Medicare should refuse to pay for procedures or treatments that are deemed by medical experts to be ineffective or unnecessary.  Perhaps Medicare should not pay for the treatment of people who get sick because of their unhealthy lifestyle choices (obesity, smoking, drinking, bad diets, lack of exercise, etc).  Perhaps Medicare should not pay for expensive procedures that keep dying patients alive for only a couple of more months.  Some advocates of rationing propose that the care of chronically-ill elder individuals is too expensive for Medicare to afford, arguing that saving the life of a person who is 90 years old via costly medical intervention would only buy him or her another couple of years of life. 

 

All of these choices are unpleasant to think about, and it would probably be politically impossible to carry them out in practice.  It is one thing to think about medical rationing in the abstract, but it is another matter entirely actually to be confronted with such choices when the life of a loved one is at stake.  However, a sudden across-the-board cut in the Medicare reimbursement rate to doctors and hospitals might impose something akin to medical rationing, since Medicare would be effectively reducing or even denying payment for certain services deemed by some group of distant and remote experts to be ineffective, futile, or unnecessary.  If you wanted certain tests or procedures, you would have to get private medical insurance, pay for them entirely out-of-pocket, or do without.  More people would forgo prescribed medicine or follow-up visits with a doctor because they could not afford it, risking more serious illness later on.

 

Negotiating Drug Prices

 

Another proposal is for the federal government to be allowed to negotiate prices for the drugs that are provided under Medicare Part D, which would help to lower drug costs.  The Veterans Administration has for years negotiated drug prices with drug providers, but Medicare Part D is currently prohibited by law from doing this.  Currently, the individual private insurance carriers which provide Part D coverage negotiate drug prices with the drug companies, and they have far less bargaining clout.  Such a change in the Part D program would be politically difficult, owing to the lobbying power of the drug industry and its allies in Congress.

 

President Obama has said that if Medicare could use its clout to negotiate drug prices with the pharmaceutical industry, this might cut government spending on prescription drugs by $200 billion over a ten year period. 

 

Reform Medicare Advantage

 

Another possibility for Medicare cost containment is to reform the Medicare Advantage program.  Estimates indicate that Medicare Advantage plans cost taxpayers an average of 13 percent more per participant than does traditional Medicare.  These figures are actually much higher for some plans—up to 20 percent higher in some areas.  This translates into $14 billion added to the annual cost of Medicare.  Some economists charge that most of these extra payments do very little to improve the health of patients, but go into additional profits for the insurance companies that offer these plans.  Some members of Congress want to reduce the government's payments to Medicare Advantage plans down to the level of traditional Medicare.  A few members of Congress regard the whole Medicare Advantage idea as little more than corporate welfare for the insurance industry and want to eliminate the program altogether.  

 

The Affordable Care Act changes the way that the government reimburses Medicare Advantage plans.  Excess payments to Medicare Advantage plans are gradually being reduced in stages.  Under the new law, payments for 2012 will be frozen at 2010 levels.  After that, cuts averaging 12 percent per year will be gradually phased in over the next six years, bringing Medicare Advantage plan payments closer to what traditional Medicare spends.  This works out to about $200 less per plan member per year.  The cuts are not the same for all plans.  Plans which perform well can actually get a bonus.

Overall, Medicare Advantage insurance carriers will be paid about $136 billion less by 2019 than they would have received before the Affordable Care Act was passed.

 

These cuts may mean that Medicare Advantage plans will be forced to raise their premiums or to cut out some of the extra benefits such as healthclub memberships or routine vision care.  Some Medicare Advantage insurance carriers may even be forced to drop out of Medicare altogether, and it is possible that Medicare Advantage could gradually wither away over the next few years as more and more insurance carriers are forced to opt out of the program.

 

Curtail Medicare Fraud[21]

 

It is estimated that somewhere between 8% and 13% of annual Medicare spending (some $60-$100 billion) is fraudulent.  CMS estimates that $48 billion of Medicare’s total outlays of $509 billion in fiscal year 2010 (Trustee report says $523 billion) went to improper payments, including fraudulent ones[22].  Medicare processes over 1 billion claims ever year, and is required by law to reimburse claims within 15 to 30 days.  This makes it difficult to spot or prevent criminal activity.  Perhaps significant savings could be obtained by more careful scrutiny of claims.  But this would mean that the payment of claims would be delayed, and that some legitimate claims may be caught up in a general dragnet.  In addition, paying closer attention to Medicare claims to try and root out fraud would add additional administrative costs, perhaps cutting into any cost savings that might be obtained.

 

Cutting Medical Costs

 

I suspect that most of the proposed cost-cutting mechanisms listed above will be relatively ineffective in stemming the tide of Medicare cost increases, given the fact that the cost of medical care in general has been increasing at a rate quite a bit higher than the growth rate in the American economy in general.  In 2008, health care expenditures in the United States reached $2.3 trillion, about 16.2 percent of the nation’s Gross Domestic Product (GDP)[23].  This was more than three times the $714 billion spent on health care in 1990 and over eight times the $253 billion spent in 1980.  This adds up to an average increase of about 8 percent per year for the past 28 years[24].  In comparison, the GDP of the American economy has increased annually at an average of about 5 percent over the same period[25].  The difference between the two rates is sometimes called “excess cost growth.” .So the excessive cost growth rate in medical spending has averaged about 3 percent annually[26].  The Congressional Budget Office (CBO) projects that if this rate of increase in medical spending continues into the future, it could happen that medical costs consume 37 percent of GDP by 2025 and nearly 50 percent by 2082[27]. 

 

The price of just about everything seems to inch up with each passing year.  The Consumer Price Index, which is the most commonly accepted measure of inflation, has increased at an average annual rate of about 2.5 percent in recent years[28].  But this accounts for only about a fifth of the cost rises in medical insurance premiums in the same.  So inflation in the economy in general accounts for only a small part of the increase in medical costs.

 

The cost of our medical care system threatens to eat us all alive.   More money is spent per person on healthcare in the USA than in any other nation in the world.  The impact of rising health care costs on all families, especially on fixed-income retirees, is undermining sales of other products and services.  The high cost of health care is an important factor that prevents businesses from hiring new employees, and is impeding the economic recovery.  If it turned out that all of this money spent on health care actually made us all healthier it might be worthwhile, but life expectancy in the USA is only 50th in the world, below most developed nations and even below some developing nations[29].  In addition, the United States has a higher infant mortality rate than most of the world’s industrialized nations[30]. 

 

Why have medical costs increased at such a high rate?  Most analysts agree that the most important factor to the growth in health care spending in recent years has been the development and adoption of new and advanced medical technologies and services[31][32].  In many parts of our economy, advances in technology seem to result in better quality and lower costs. An example is high-definition TV sets—when they were first introduced about ten years ago, they cost thousands of dollars; now you can get one for only a couple of hundred bucks.  But the same rules that seem to say that technological advances lead to lower costs don’t seem to apply to the American healthcare system[33].   For some perverse reason, improvements in productivity and efficiency haven’t seemed to have led to lower costs in the healthcare system.

 

When I was a kid, a diagnosis of cancer was almost certainly an automatic death sentence, but nowadays a lot of cancers can be treated effectively and the survival rates are a lot better.  Providers are now able to diagnose and treat illnesses in ways that were previously impossible.   But many of these treatments and diagnostic techniques rely on costly drugs, pricey equipment, and high levels of diagnostic and operator skills, which have steadily driven costs upward.  Some of these advanced pieces of equipment can cost millions of dollars.  A single CAT scan can cost somewhere between $500 and $1000, and an MRI or PET scan can cost even more[34].  The Centers for Disease Control and Prevention report that the use of high-tech diagnostic imaging in emergency rooms has quadrupled since the mid-1990s.  But studies have not yet clearly demonstrated that all this imaging is actually lowering death rates, says the editor of the Archives Of Internal Medicine.  Some of the newer drugs can be astronomically expensive—Forbes magazine reported that they had found one drug that cost more than $1000 per day.  Other innovations are actually relatively inexpensive, but costs add up quickly as growing numbers of patients see them promoted in media advertising and start to ask for them.  The Congressional Budget Office experts estimate that about 50 percent of the annual increase in medical costs in the past several decades can be associated with changes in medical care made possible by advances in technology.

 

Yet another cause of spending growth is the relative aging of the American population[35][36].  As people get older, they generally require additional medical care, and as the population gets older, the per-capita spending on health care will rise.  However, in the past few decades, the effect of aging on health care has actually been fairly modest[37].  As the baby-boom generation reaches older age, there will probably be a more pronounced but still fairly modest effect on the increase of medical spending.

 

The burden of chronic diseases such as diabetes and cardiovascular illnesses has risen dramatically in recent years.  It is estimated that health care costs for chronic disease treatment account for over 75 percent of national health expenditures[38].These diseases are generally incurable and are expensive to treat.  This is partly due to the fact that people live longer nowadays and are thus more likely to fall victim to these ailments, but it is also true that these diseases are known to be correlated strongly with bad lifestyle choices such as obesity, smoking, lack of exercise, and diet[39].  Some have proposed that major cost savings could be achieved by providing incentives to people to engage in wellness programs and in prevention by adopting healthier lifestyles, which would prevent them from getting these diseases in the first place, saving a lot of money in the long run.  However, it is unclear whether such a strategy would save very much money in the long run, since, paradoxically, healthier people will live longer and therefore use the healthcare system longer.  None of us are going to live forever, and all of us will die of something sooner or later.

 

Another factor in the cost growth is the increase in personal income over the last 20 or 30 years, along with the growth in medical insurance coverage[40].  These factors both drive up the demand for medical services.  It is generally trued that wealthier people have higher expectations for health care than do poorer people.  We increasingly demand medical fixes—and have the technological capacity to provide them—for problems that our grandparents would have simply tolerated.  Examples are hip replacement and Lasik eye surgery. 

 

The third-party payment system may be another factor in rising medical costs[41].  This is because it acts to increase the demand for medical care.  Healthcare is unique in the American economy, in that neither the service provider nor the patient gets the bill—it gets sent somewhere else.  Under the fee-for-service model that most health insurance plans use, physicians and hospitals are reimbursed for each office visit and procedure that they use.  This means that the more procedures that doctors do and the more office visits they handle, the more money they make.  This gives them a built-in financial incentive to push for more although not necessarily better healthcare, driving costs steadily upward.  Since someone else is paying most of the cost, doctors are not hesitant to order more and more tests and expensive procedures.  Spurred on by advertising, patients often insist on procedures and tests which are actually only marginally effective or are actually unnecessary.  Patients don’t have to worry very much about the cost of these extra procedures, since third-party insurance is picking up most of the tab.   In addition, since the bill is going to be paid by someone else anyway, there is no incentive for a patient to shop around for the best price[42].  Since patients usually have to pay only a small fraction of the entire cost of the medical services they use, they demand more and more services.  And as every beginning economics student knows, an increase in demand drives up costs.

 

It has been pointed out that cosmetic surgery, which is one of the few types of medical care for which consumers pay almost exclusively out of pocket, has increased in cost much more slowly than has medical care in general[43].  While the  price of medical care in general rose twice as fast as the CPI over the years 1992 through 2001, the  actual price of cosmetic surgery rose  less than two thirds as fast.  This means that while the real price of general health care rose between 1992 and 2001, the real price of cosmetic surgery actually fell.

 

But some experts, such as Elliot Fisher and John Wennberg, estimate that up to 30 percent of the health care that is provided is unnecessary[44].  If unnecessary health care could be driven out of the system, significant cost savings might be obtained.  But who determines what health care measures are effective and what health care measures are unnecessary?  Some insurance company or some government agency?

 

Another item that adds cost is the American medical insurance system.  Most insurance companies are for-profit businesses, which primarily care about making money for their stockholders and for their senior executives.  These companies must turn a profit, or else they will not be in business very long.  The profits earned by insurance companies add to the overall cost of medicine.  They have layers of bureaucracy, a hierarchical command structure, a staff of gatekeeper doctors and rationers who must approve each and every treatment, a battery of lawyers to write new rules and regulations, and teams of reviewers who seem to fight just about every claim.  Very often, it is not a doctor that actually decides whether a given procedure or test is performed--it is an insurance company that says yes or no.  There are administrative and paperwork costs, as well as advertising and billing costs, along with the cost of bonuses for their well-paid CEOs. 

 

The underfunding of state and federal programs such as Medicare and Medicare also contributes to the rising cost of medical care[45][46].  It is often true that public program reimbursements do not cover the full cost of hospital and doctor care.  Most of the hospitals in the USA cannot cover their costs of treating Medicare patients by relying on reimbursements from Medicare alone, and Medicare makes up around 50-60 percent of hospital business[47].   Since hospitals must find this money somewhere, this leads to non-Medicare patients with private insurance being asked to make up the difference.  There is a shifting of costs from the lower reimbursement rate in these public programs to a higher reimbursement rate in the private insurance market.  These higher rates are then reflected in higher insurance premiums, both for employers and for their employees. 

 

Another driver of higher costs is an ever-expanding list of mandates and regulatory requirements that have been imposed by government on the medical industry, both at the state and the federal level[48][49].  There are over a thousand extra mandated benefits that insurance plans must cover, existing at both the state and federal level.  Examples are mandates requiring that insurance carriers provide coverage of optometry, mammograms, reconstructive breast surgery, chemical dependency, and the like.  Although these mandated benefits certainly seem like a good idea and are of course beneficial to those that receive them, it is unfortunately true that each new mandate adds extra cost, and taken together they have significantly increased healthcare costs without adding much value to the healthcare actually delivered.   The Health Insurance Portability and Accountability ACT (HIPPA), which requires health plans and providers to institute a variety of new systems to ensure privacy and standardization of electronic transactions, adds additional cost.  The estimated cost of compliance with HIPPA privacy regulations ranges from $3.1 billion (US Department of Health and Human Services) to $43 billion (Blue Cross).   Finally, these new mandates require that extra employees be hired in both hospitals and insurance companies that will act to ensure compliance with this regulatory thicket, adding further to the cost.   

 

An increasing fraction of the American population is uninsured[50], either because they are unemployed or because their employer doesn’t provide medical insurance.  So they often don’t bother to see doctors at all and avoid primary care altogether.  When they do get sick, they are forced to go to the emergency room, which is an extremely expensive option in comparison to seeing a family doctor.  If nothing is done, chronic diseases such as diabetes may appear at a later time, which could have been managed more effectively and far more cheaply with better primary care.

 

Another cause of rising health care costs is the increased consolidation of medical providers and practices.  As a result, few and larger hospital systems dominate many major metropolitan areas.  The Robert Wood Johnson Foundation reported that hospital consolidation in the 1990s raised inpatient prices by at least 5 percent and probably much more, and prices increased 40 percent or more when merging hospitals are located closely together.  Hospitals have built numerous additions to their physical structures, adding more and larger facilities, all of which cost lots of money.  Hospital personnel costs, particularly for nursing and administrative support people, have increased faster than revenues.  A lot of insurance reimbursement rates are the results of negotiated rates between hospitals and insurance companies.  In order to defray these increased costs, these larger hospital conglomerates can use their increased leverage to pressure insurance providers to increase their reimbursement rates, driving insurance premiums upward.   Since hospitals have become larger and more economically powerful, there has been a definite shift in negotiating strength away from insurance companies and toward providers, resulting in higher payment rates which drive premiums upward[51].  Even though most hospitals are non-profit organizations, they are more often than not run much like large for-profit corporations, with increasing attention to bottom-line issues and to next quarter’s balance sheet.  These hospitals want to increase revenue and lower costs, they want to fill beds, and they aggressively market the newest and most expensive technologies, pushing treatments that patients often do not need.

 

The American medical care system spends a lot of money in administrative overhead.  Examples are hospital administrators, accountants, actuaries, marketing people, attorneys, consultants, UR nurses, ombudsmen, billing people, and gatekeepers.  They provide no medical services, but they're still on the payroll. They're pure overhead and they cost money.  Rising hospital costs often reflect the extra spending on these overhead items that do not directly relate to caring for individual patients.  It is estimated that at least 7 percent of health care expenditures are for administrative costs[52].  It turns out that the Medicare program has much lower administrative costs (less than 2 percent of expenditures).  A lot of doctors and nurses have gotten out of medicine entirely and have moved into administration and consulting, reasoning that these are now much more lucrative fields.  Hospitals have to recover these administrative costs somehow, and a lot of hospitals charge insurance companies for these overhead expenses that are not directly related to care.  Eventually, these costs get passed along in the form of higher insurance premiums.  An example is the extra administrative costs that hospitals and doctors must incur when they have to deal with the current medical insurance environment, with its multiplicity of insurance carriers and the wide variations in the plans offered.  When one goes to a hospital nowadays, one often sees more people who do clerical and administrative work—most of them keeping track of insurance and payments—than one sees doctors or nurses.  It has been suggested that investments in information technology, such as electronic medical records, might be able to reduce some of these overhead costs.

 

Many doctors regard the current medical malpractice environment as a major cost factor[53].  Bolstered by media coverage of a few prominent malpractice lawsuits, malpractice insurance premiums have rapidly escalated in recent years.  Medical malpractice insurance is now so expensive that many states face a severe shortage of doctors specializing in key areas such as obstetrics and gynecology, who cannot afford the price of practicing medicine.  The fear of a costly malpractice suit can be an important non-clinical factor in a doctor’s decision to recommend a given procedure or test, fearing that the omission of even one of a long battery of tests might chance to miss something, resulting in a costly lawsuit.  This can lead to the practice of “defensive medicine”—that is the application of tests and procedures mainly as a defense against possible malpractice lawsuits rather than for any real medical need.   Nationally, it is estimated that over $100 billion is added each year to medical costs because physicians feel compelled to practice defensive medicine—ordering unnecessary tests and making unnecessary referrals—simply to avoid future litigation[54].

 

The pharmaceutical industry is another factor in the rapid rise in medical costs[55].  The cost of prescription drugs has been rapidly increasing in recent years.  There has been an increased demand for prescription drugs—from 1999 to 2009, the number of prescriptions purchased in the USA increased by 39 percent, whereas the population only increased by 9 percent[56].  In April of 2009, the Wall Street Journal reported that pharmaceutical companies have been pushing through hefty price increases aimed at bolstering earnings at unprecedented rates.  The present patent system gives a legal monopoly lasting 20 years to pharmaceutical companies that produce new drugs, and a monopoly system can drive costs upward.  Once the patent expires, generic versions of the drug can be manufactured by other companies, but it seems that the original patent holder is able to obtain another patent on a slightly-modified version of the drug about to go off patent, extending their monopoly even longer.  The costs of manufacturing a given drug are actually fairly small relative to the overhead costs, which include research and development costs that must be recovered, as well as the costs involved in obtaining FDA approval for the drug.  In addition, drug companies have to recover the cost of abandoned or unsuccessful projects through the prices charged for the only one out of every five drugs which eventually make it to FDA approval and to the market.  In addition, the cost of marketing and television and magazine advertising of these new drugs must also be recovered. 

 

About a hundred thousand people die every year from hospital-acquired infections[57], and the treatment of these healthcare-associated infections adds from $35.7 to $45 billion in annual healthcare costs. Medical errors—prescription drug errors, unnecessary surgeries, the wrong medication being applied, etc—kill another 100,000 people per year and cost $29 billion per year[58].  These are largely preventable by using more careful techniques, but they add to the overall cost of medicine.  Improved information technology might be able to help in avoiding some of these medical errors.

 

Finally, there is the problem of large-scale fraud and abuse in the system, which might be a significant share of health care costs.  The more conservative estimates propose that there is a minimum of $68 billion wasted every year in fraud in the US health care system[59].

 

 

 

References:

 

  1. The Facts about the Independent Payment Advisory Board, http://www.whitehouse.gov/blog/2011/04/20/facts-about-independent-payment-advisory-board
  2. Medicare, Medicaid on the Table, http://www.aarp.org/health/medicare-insurance/info-08-2011/medicare-medicaid-cuts.3.html
  3. The New Health Care Law and Medicare Advantage, AARP, http://www.aarp.org/health/health-care-reform/info-04-2010/health_care_reform_and_medicare_advantage.html
  4. The Independent Payment Advisory Board and Health Care Price Controls, Kaiser Health News, http://www.kaiserhealthnews.org/Columns/2010/May/050610Capretta.aspx
  5. The Not-So-Super Committee, Counterpunch, http://www.counterpunch.org/2011/09/16/the-not-so-super-committee/
  6. The Long Term Outlook For Health Care Spending, Congressional Budgetary Office, http://www.cbo.gov/ftpdocs/87xx/doc8758/maintext.3.1.shtml
  7. Costs and Spending, Kaiser EDU, http://www.kaiseredu.org/Topics/Costs-and-Spending.aspx
  8. US Health Care Costs, Kaiser EDU, http://www.kaiseredu.org/Issue-Modules/US-Health-Care-Costs/Background-Brief.aspx
  9. Prescription Drug Costs, Kaiser EDU, http://www.kaiseredu.org/Issue-Modules/Prescription-Drug-Costs/Background-Brief.aspx
  10. MEDPAC—Advising the Congress On Medicare Issues, http://www.medpac.gov/about.cfm
  11. World Health Statistics 2009, World Health Organization, http://www.who.int/whosis/whostat/EN_WHS09_Full.pdf
  12. The Top Ten Reasons for Soaring Health-Care Costs, Charles Wheelan, http://finance.yahoo.com/expert/article/economist/2760
  13. Devon Herric, Why Are Health Costs Rising?, NCPA, Ideas Changing The World, http://www.ncpa.org/pub/ba437
  14. Price Waterhouse Coopers, The Factors Fueling Rising Healthcare Costs, http://www.ahipresearch.org/pdfs/PwCFinalReport.pdf
  15. The Facts About Rising Health Care Premiums, Aetna, http://www.aetna.com/news/2010/CostDrivers.pdf
  16. Rising Health Costs—What Factors Are Driving Increases?  The Association of Washington Healthcare Plans, http://www.awhp-online.com/issues/AWHP_RisingHealthCareCosts_7-26-04.pdf
  17. Bill Kadereit, Open Letter from National Retiree Legistlative Network, October 5, 2011

 

 

 



[1] Unites States Public Debt, Wikipedia, http://en.wikipedia.org/wiki/United_States_public_debt

[2] The Federal Budget Deficit, $1.23 Trillion through the first 11 month of 2011, Congressional Budget Office Director’s Blog, http://cboblog.cbo.gov/?p=2714

[3] Open Letter from National Retiree Legistlative Network, October 5, 2011

[4] Medicare Primer, Congressional Research Service, http://aging.senate.gov/crs/medicare1.pdf

[5] The Long-Term Outlook for Health Care Spending, Congressional Budgetary Office, http://www.cbo.gov/ftpdocs/87xx/doc8758/maintext3.1.shtml

[6] Bill Kadereit, Open Letter from National Retiree Legistlative Network, October 5, 2011

[7] Bill Kadereit, Open Letter from National Retiree Legislative Network, October 5, 2011

[8] Doctors Face Difficult Choices To Save Medicare, KevinMD, http://www.kevinmd.com/blog/2011/08/doctors-face-difficult-choices-save-medicare.html

[9] Medpac—Advising the Congress on Medicare Issues, http://www.medpac.gov/

[10] The Joint Committee on Deficit Reduction, http://topics.nytimes.com/top/reference/timestopics/organizations/c/congress/joint_congressional_committee_on_deficit_reduction/index.html

[11] The Not So Super Super Committee, http://www.counterpunch.org/2011/09/16/the-not-so-super-committee/

[12] http://www.whitehouse.gov/blog/2011/04/20/facts-about-independent-payment-advisory-board

[13] http://en.wikipedia.org/wiki/Independent_Payment_Advisory_Board

[14] Rep. Payl Ryan’s Daring Budget Proposal, Ezra Klein, Washington Post, http://voices.washingtonpost.com/ezra-klein/2010/02/rep_paul_ryans_daring_budget_p.html

[15] Understanding Rep. Ryan’s Plan For Medicare, Kaiser Health News, April 4, 2011, http://www.kaiserhealthnews.org/Stories/2011/April/05/ryan-plan-for-medicare-vouchers-vs-premium-support.aspx

[16] Alice Rivlin and Paul Ryan, A Long Term Plan for Medicare and Medicaid, Nov 17, 2010, http://paulryan.house.gov/UploadedFiles/rivlinryan.pdf

[17] Bara Vaida, Expert Adive on Finding Savings, AARP Bulletin, October 2011

[18] US Health Care Costs, Kaiser EDU, http://www.kaiseredu.org/Issue-Modules/US-Health-Care-Costs/

[19] Doctors Face Difficult Choices To Save Medicare, KevinMD, http://www.kevinmd.com/blog/2011/08/doctors-face-difficult-choices-save-medicare.html

[20] Bara Vaida, Expert Aevice on Finding Savings, AARP Bulletin, October 2011

[21] Saving Medicare From Itself, National Affairs, Summer 2011, http://www.nationalaffairs.com/publications/detail/saving-medicare-from-itself

[22] Open Letter from National Retiree Legistlative Network, October 5, 2011

[23] Costs and Spending, KaiserEDU.org,  http://www.kaiseredu.org/Topics/Costs-and-Spending.aspx

[24] The Facts About Rising Health Care Premiums, Aetna, http://www.aetna.com/news/2010/CostDrivers.pdf

[25] United States GDP Annual Growth Rate,  Trading Economics, http://www.tradingeconomics.com/united-states/gdp-growth-annual

[26] The Long-Term Outlook for Health Care Spending, Congressional Budgetary Office, http://www.cbo.gov/ftpdocs/87xx/doc8758/maintext3.1.shtml

[27] The Long-Term Outlook for Health Care Spending, Congressional Budgetary Office, http://www.cbo.gov/ftpdocs/87xx/doc8758/maintext.3.1.shtml

[28] US Inflation Calculator, Historical Inflation Rates: 1914-2011, http://www.usinflationcalculator.com/inflation/historical-inflation-rates/

[29] CIA World Factbook, https://www.cia.gov/library/publications/the-world-factbook/rankorder/2102rank.html

[30] World Health Statistics, World Health Organization, http://www.who.int/whosis/whostat/EN_WHS09_Full.pdf

[31] The Top 10 Reasons for Soaring Health Care Costs, Charles Wheelan, http://finance.yahoo.com/expert/article/economist/2760

[32] Rising Healthcare Costs—What Factors Are Driving Increases? The Association of Washington Healthcare Plans, , http://www.awhp-online.com/issues/AWHP_RisingHealthCareCosts_7-26-04.pdf

[33] The Top 10 Reasons for Soaring Health Care Costs, Charles Wheelan, http://finance.yahoo.com/expert/article/economist/2760

[34] Price Waterhouse Coopers, The Factors Fueling Rising Healthcare Costs, http://www.ahipresearch.org/pdfs/PwCFinalReport.pdf

[35] Price Waterhouse Coopers, The Factors Fueling Rising Healthcare Costs, http://www.ahipresearch.org/pdfs/PwCFinalReport.pdf

[36] The Long-Term Outlook for Health Care Spending, Congressional Budgetary Office, http://www.cbo.gov/ftpdocs/87xx/doc8758/maintext3.1.shtml

[37] US Census Bureau

[38] Kaiser Family Foundation calculations using data from IMS Health, httP//www.imshealth.com

[39] The Facts About Rising Health Care Premiums, Aetna, http://www.aetna.com/news/2010/CostDrivers.pdf

[40] The Long-Term Outlook for Health Care Spending, Congressional Budgetary Office, http://www.cbo.gov/ftpdocs/87xx/doc8758/maintext3.1.shtml

[41] Why are Health Costs Rising, National Center For Policy Analysis, http://www.ncpa.org/pub/ba437

[42] The Top 10 Reasons for Soaring Health Care Costs, Charles Wheelan, http://finance.yahoo.com/expert/article/economist/2760

[43] Why are Health Costs Rising? National Center For Policy Analysis, http://www.ncpa.org/pub/ba437

[44] The Facts About Rising Health Care Premiums, Aetna, http://www.aetna.com/news/2010/CostDrivers.pdf

[45] Rising Healthcare Costs—What Factors Are Driving Increases? The Association of Washington Healthcare Plans, , http://www.awhp-online.com/issues/AWHP_RisingHealthCareCosts_7-26-04.pdf

[46] The Facts About Rising Health Care Premiums, Aetna, http://www.aetna.com/news/2010/CostDrivers.pdf

[47] Doctors Face Difficult Choices to Save Medicare, Nick Dawson, KevinMD.com, http://www.kevinmd.com/blog/2011/08/doctors-face-difficult-choices-save-medicare.html

[48] Price Waterhouse Coopers, The Factors Fueling Rising Healthcare Costs, http://www.ahipresearch.org/pdfs/PwCFinalReport.pdf

[49] Rising Healthcare Costs—What Factors Are Driving Increases? The Association of Washington Healthcare Plans, , http://www.awhp-online.com/issues/AWHP_RisingHealthCareCosts_7-26-04.pdf

[50] Charles Wheelan, The Top 10 Reasons For Soaring Health-care Costs, http://finance.yahoo.com/expert/article/economist/2760

[51] The Facts About Rising Health Care Premiums, Aetna, http://www.aetna.com/news/2010/CostDrivers.pdf

[52] US Health Care Costs, Kaiser EDU, http://www.kaiseredu.org/Issue-Modules/US-Health-Care-Costs

[53] Price Waterhouse Coopers, The Factors Fueling Rising Healthcare Costs, http://www.ahipresearch.org/pdfs/PwCFinalReport.pdf

[54] Rising Healthcare Costs—What Factors Are Driving Increases? The Association of Washington Healthcare Plans, , http://www.awhp-online.com/issues/AWHP_RisingHealthCareCosts_7-26-04.pdf

[55] Prescription Drug Costs, KaiserEDU, http://www.kaiseredu.org/Issue-Modules/Prescription-Drug-Costs/Background-Brief.aspx

[56] Prescription Drug Costs, Kaiser EDU, http://www.kaiseredu.org/Issue-Modules/Prescription-Drug-Costs/

[57] Public Reporting of Hospital Acquired Infections, South Carolina Department of Health and Environmental control, http://www.scdhec.gov/health/disease/hai/

[58] Preventable Medical Errors Are A Leading Cause of Death, Warren and Kallianos Blog, http://www.charlottepersonalinjurylaw.com/2010/10/preventable-medical-errors-are-a-leading-cause-of-death.shtml

[59] Price Waterhouse Coopers, The Factors Fueling Rising Healthcare Costs, http://www.ahipresearch.org/pdfs/PwCFinalReport.pdf