The US Medicare scheme is nearly universal. Payroll taxes (‘contributions’) are mandated, and anyone with a contribution history of forty quarters (ten years) or more is eligible for coverage, along with their dependant spouse, as soon as they reach the age of 65. Benefits can begin earlier if a covered person should become disabled.
Except for the curious pre-funding of benefits with contributions, and restriction of benefits to the elderly and disabled, I used to think that Medicare in the United States was similar to the Canadian scheme popularly known also as ‘medicare’: government health insurance for legal residents of all ages. I was wrong, for two reasons.
First, the Canadian system is single-payer, whereas participants in the US scheme can opt out into private insurance plans. The higher cost of approved private plans are paid by the Medicare trust fund. Jared Bernstein, a former member of President Obama’s economic team, explains.
For decades, Medicare recipients could enroll in private plans instead of traditional Medicare and a few years ago, Congress created Medicare Advantage, further expanding private coverage options for seniors in Medicare. About a quarter of Medicare recipients are enrolled in such plans right now. ….
[A] significant source of health-care savings in the Affordable Care Act['ObamaCare']—a chunk of which extend the life of the Medicare trust fund by eight years—comes from reducing overpayments to these MA [private] plans ….
[T]he Medicare program’s payments to the private fee-for-service plan in 2009 were 18% above traditional Medicare. ….
These overpayments have fallen over time … in part because Congress has already been enforcing lower payments. I mean, given that we already have Medicare—widely considered to be an excellent form of coverage—why should money be diverted from it to pay for more expensive private plans?
Jared Bernstein, “Medicare (Dis-)Advantage“, On the Economy, 17 August 2012.
Second, whereas there are no co-pays and no lifetime expenditure limits in the Canadian system, US Medicare has both. Dennis Byron, who recently visited TdJ, left this comment on Bernstein’s blog:
This little phrase is the crux of the whole debate:
“given that we already have Medicare—widely considered to be an excellent form of coverage—why…”
Who has told you that healthcare insurance with no catastrophic coverage, up to $6000 a year in hospital deductibles if admitted, 20% co-pays if in a hospital but only observed (possibly thousands of dollars in one visit), 20% co-pays for outpatient and MD visits, very limited rehab benefits, no annual physical coverage, no prescription drug coverage, no vision/dental/aural coverage and severe geographic restrictions is “excellent?” ….
[T]he reason that there is a Medicare issue is that Medicare is terrible insurance.
Dennis Byron, August 18, 2012 at 9:06 am
Jared Bernstein replied that Medicare, though not comprehensive, is nonetheless “very popular and covers a fixed set of essential services … at lower costs (really, lower payments) than the avg MA [private] plan.”
The US healthcare system is extremely complex, and I do not pretend to fully understand how it works. I am now more informed, thanks to people like Jared Bernstein and Dennis Byron.
Jared Bernstein has a PhD in Social Welfare from Columbia University. From 2009 to 2011, he was the Chief Economist and Economic Adviser to Vice President Joe Biden. In May 2011 he joined the Center on Budget and Policy Priorities, a non-profit think tank, as Senior Fellow.
Dennis Byron blogs at
Oh U.S. Medicare. If it were only so simple.
You say:
“anyone with a contribution history of forty quarters (ten years) or more is eligible for coverage…”
Actually everyone is eligible for coverage. But unless you have 40 quarters you have to buy your way in. There is a price break above and below 20 quarters. For those above 40 quarters, it’s “free” (not counting the more like 160 quarters of your working life during which you probably paid into it).
That only applies to Part A Hospital Coverage however. There are three other Parts, all with different prices and rules.
You say:
“… along with their dependant spouse.”
Even an ex-spouse is covered under your account if you were married long enough and a bunch of other rules that I don’t remember.
And thanks for the shout out. I don’t have all that pedigree or education as Bernstein but I do know Medicare a lot better than a “former Obama economic aid” does because I’m on it.
He’s wrong about traditional Medicare covering a fixed set of essential services at a lower cost than Medicare Part C, which he calls Medicare Advantage. In fact, in an article referenced in his blog post that you referenced by three Harvard professors the Harvard professors proved that — on the average — 10 equivalent Medicare Part C plans were lower cost than Traditional Medicare
Also note that Bernstein and other Obama disciples want to call Medicare Part C “private” because it was vastly improved about five years ago by George Bush and they don’t like George Bush. It is not private. It is a full Part of Medicare (hence the name Part C). Part C is simply administered by private insurers but so are Parts A and B (what Bernsteing calls Traditional Medicare) and Part D drug coverae, another Bush innovation that has been widely successful down here in the States
Dennis: The first half of your comment is correct, but the second half is misleading and confusing, at least to me.
First, the correct half. It is true that US residents over age 65 who have not paid 40 quarters of the payroll tax can purchase Medicare Part A (hospital) coverage for $451.00 per month (as of 2012). I did not know this. Thanks for bringing it to my attention. Those who pay 160 quarters of this particular payroll tax receive no more benefit than those who pay only 40 quarters. Everyone, I understand, must pay a premium to receive Part B (medical) coverage. In 2012 this premium varies from $99 to $319.70 a month, depending on income.
On the spouse’s benefit, I was fully aware that any current spouse is eligible, along with divorced or former spouses if the marriage lasted for at least 10 years. This is the same requirement for a spousal benefit (50%) of the primary benefit, under the pension provisions of US social security. I did not mention it because I did not think it important, in the great scheme of things, since Medicare is so deficient in so many areas.
Now for the half of your comment that confused me. I am quite certain that Part C IS Medicare Advantage (MA), so I don’t understand your complaint about equating the two. MA may take over only parts A and B of Medicare, but most MA plans include also part D (prescription drugs).
Most important, it is simply not true that “an article … by three Harvard professors … proved that — on the average — 10 equivalent Medicare Part C plans were lower cost than Traditional Medicare”.
Jared Bernstein explains this clearly in his blog post:
“[O]n the Diane Rehm radio show the other day, someone on the panel claimed that such numbers in the bars above were wrong and that a new study (“by three Harvard professors!”) showed that in fact, MA plans come in at 9% below traditional Medicare.
Turns out one of those professors is David Cutler, who sent me a link to the paper. It shows nothing of the kind. Cutler confirmed to me, in fact, that [my] … numbers … are correct in his view.”
The Harvard professors, in the cited study, look at low bids on MA plans, using 2006-2009 data, and are careful to point out “Private plans can cost less than traditional Medicare because: (1) they may use medical resources more efficiently; (2) they may enroll healthier patients relative to the risk adjusted payment; or (3) their negotiated prices may not fully reflect the costs of indirect medical education or payments for disadvantaged hospitals, which traditional Medicare explicitly pays.”
Selection bias, I understand, is an increasing problem, as the sickest patients tend to switch back to traditional Medicare, leaving MA plans with healthier (less costly) patients. From international experience, I would be surprised to see use of private insurance companies produce any cost savings over a single payer system. Unless there is widespread corruption and graft in the public system, such an outcome doesn’t make sense.
This is all very controversial, but you can see for yourself the study of the Harvard professors, which was published in the Journal of the American Medical Association (JAMA), 1 August 2012, pp. 459-460. Bernstein’s link is gated, but Professor Cutler has posted the article here. http://scholar.harvard.edu/sites/scholar.iq.harvard.edu/files/cutler/files/jama_-_song_cutler_chernew.pdf
One final point in what is already too-long a response. Medicare Parts A and B are NOT administered by private companies, to the best of my knowledge. Medicare Part D is administered by private insurers, because GW Bush set it up that way. Medicare Part C (Medicare Advantage) is also most definitely administered by private companies. I did not understand your remarks on who administers the four parts of Medicare. They seem wrong to me.
Dear Thought du jour
I am assuming that is was my typical blog commenting run-on sentences that confused you. My complaint about Bernstein was solely that he claimed that traditional Medicare (Parts A and B) delivered “essential services at a lower cost than the average (Medicare Part C) plan.”
I read his original blog post and commented on his claim that Medicare was excellent insurance (it is not). But I never saw that he replied to my comment (and apparently went off on a tangent from my comment) so I’m assuming you quoted his reply to me accurately. If so, what he said is not correct and the data in article in JAMA by the three Harvard professors “proves” the opposite. The Harvard professors showed data that said almost a dozen Part C plans on the average delivered the same “essential services” less expensively than traditional Medicare.
The professor had a very simple to understand table that showed this in addition to saying it a few times in the article. The following paragraph really has nothing to do with the what the Harvard professors’ data “proved.” I think it was their initial attempt (there have been multiple other attempts online) to try to explain a result they were totally aware destroyed every Democratic talking point ever uttered:
“The Harvard professors, in the cited study, look at low bids on MA plans, using 2006-2009 data, and are careful to point out “Private plans can cost less than traditional Medicare because: (1) they may use medical resources more efficiently; (2) they may enroll healthier patients relative to the risk adjusted payment; or (3) their negotiated prices may not fully reflect the costs of indirect medical education or payments for disadvantaged hospitals, which traditional Medicare explicitly pays.”
They may have also mentioned cherry picking as one of their theories about why their data proved the opposite of what they wanted to prove but they also said — as you noted above — maybe the
“private plans… use medical resources more efficiently.”
Their data is their data; everything else (including the silly thing about medical schools) were just trying to undo the damage they did to the Democratic Party position.
(Aside, you say “Medicare Parts A and B are NOT administered by private companies, to the best of my knowledge…” Sorry, no but you are incorrect. All Parts of Medicare are administered by private insurance companies. Basically Medicare in the United States works adminstratively like most employer sponsored insurance works in the United States. For a company like IBM, for example, IBM self insures but hires insurers to administer the claims and do other typical insurance company tasks. Medicare does it the same way for all parts of Medicare.)
Dennis: On the cost of Medicare compared to the cost of Medicare Advantage, see today’s TdJ.
If, as you claim, all four parts of Medicare are administered by private insurers, then the US has a completely private system! Government is involved only by forcing citizens to participate, much as government forces automobile owners to purchase liability insurance. If this assertion were true, Medicare would not be such a hot election issue. Alas, it is not true.
According to a government site, the Centers for Medicare & Medicaid Services (CMS) – a government agency – “administers the Medicare and Medicaid programs, which provide health care to almost one in every three Americans”. Medicaid is run by the states, so most of this administration would be for Medicare. CMS has 4,477 employees. They must be administering something.
Now, it is true that CMS outsources some of the heavy lifting to private companies. It has divided the country into 15 regions, and has a “Medicare administrative contractor” (MAC) for each region. The MAC is paid to ensure that payments, in accord with strict rules and regulations, reach health care providers on behalf of those insured under Medicare Parts A and B. This, I would argue, is not the same as delegating everything to insurance companies, as is done for Part C (known as ‘Medicare Advantage’) and also for Part D (prescription drugs).
You refer to traditional Medicare as ‘private’ insurance, but no one else does. There is a world of difference between traditional Medicare and Medicare Advantage. It serves no useful purpose to give each the same label, so why not call one the public insurance (single payer) option, and the other the private insurance option?
One final point. I think it is unimportant whether we label a system as public or private. What is important is what type of health care an insured person can expect to receive. I do not doubt that Medicare is very poor insurance. In doing this research, I was shocked to learn that after 150 days in hospital, the Medicare co-pay increases from 20% to 100%! This must push a lot of sick people into bankruptcy. Those with long-term illnesses can always apply for Medicaid, government insurance for the poor, but this is widely regarded as very inferior to Medicare.