The fifth in the series “The 10 Biggest Myths about the U.S. Health System.” For previous reports, go to www.paulkeckley.com
Medicare is a big deal in U.S. healthcare: no doubt.
It’s the $683 billion federal program that provides insurance coverage to 59 million Americans, up 3 million from 2015. It covers 16% of the population and accounts for 20% of total health spending today. By 2020, it will cover 64 million and 81 million by 2030.
Its beneficiaries are a complex population: One in six is disabled, two of three have at least 2 chronic ailments, half have an income less than two-times the federal poverty level ($26,200 in 2016), one in four has less than $15,000 in savings or retirement accounts, and the average enrollee pays 17% of their total income on out of pocket health costs (30% for those above 85 years of age).
It’s a complicated program: Medicare Part A covers hospital visits and skilled nursing facilities, Part B covers preventative services including doctor visits and diagnostic testing and Part D covers prescription drugs.
So, Medicare is the federal government’s most expensive health program. It gets lots of attention from politicians who vow to protect it, hospitals and physicians who complain its reimbursement stifles innovation and seniors who guard it jealously with their votes. But policymakers and many in the industry might be paying too much attention to it. After all, 84% of the U.S. population and 80% of our total spending falls outside its span of coverage and responsibility.
Four groups in particular seem to be looking beyond Medicare:
Employers: The January announcement that Amazon, Berkshire Hathaway and JPMorgan would combine efforts to develop a fresh approach to health costs on behalf of the 1.1 million they employ was an attention-getter. The reality is that employers are NOT fixated on Medicare or the next version of health reform to fix the health system. Employers instigated bundled payments, price transparency and accountable care models before Medicare tested these waters. They believe health costs are unnecessarily high due to waste, administrative inefficiency and over-priced physician services, drugs and hospital stays. They were years ahead of Medicare in alternative payment models and they’re not waiting for Medicare to make their next moves. Employers are not following the lead of Medicare; they’re pushing for better care, lower costs, and greater value by making their own rules.
Millennials: The popularity of Medicare has been constant since its passage in1965. Per the American Society on Aging, “since 1996, roughly 7 in 10 Americans have expressed a favorable view of the program.” And that finding holds true across every age group. But there’s a major difference between the views of Millennials (those born in the ‘80s and ‘90s) and Seniors: Seniors care about Medicare’s sustainability but push back from changes that might increase their premiums or limit their access to the physicians they use. By contrast, Millennials place higher value on convenience, affordability, digital connectivity and good service. They trust but avoid doctors, use apps to pursue their wellness aims, compare notes with their peers via social media and want to know their estimated costs before they begin treatment for their problems. They seek out providers who treat them respectfully, use technologies to maintain connectivity with their patients and are accessible online. Unlike Medicare enrollees, they define health beyond the absence of sickness: for the 92 million in this generation, health is about wellbeing, lifestyle and happiness. And they’re seeking out providers, facilities and programs that accommodate their needs and preferences.
Investors: The U.S. health industry is capital intense. We borrow, we invest and we operate foundations to secure funding through philanthropy. In the past, much of that capital was used to build facilities and services for the elderly and sickest aka Medicare. Today, capital is being deployed in ventures to manage healthiness and improve efficiency. Solutions featuring artificial intelligence, machine learning, genetics, precision therapies, digital health and facilities more akin to retailing are replacing our predisposition to construct bricks and sticks. And private equity is focused on scale: creating larger organizations via vertical integration resulting in organizations whose scale is national, scope is wide, and value proposition clear. The sources of capital to healthcare do not wait in suspense for Medicare to set a course; they actively surveil opportunities across our industry and make their bets. They’re not waiting on Medicare for direction.
Policymakers: Medicare is 20% of federal spending. Under current law, annual NHE is projected to grow at an average rate of 5.5% per year for 2017-26 to $5.7 trillion in 2026 reaching 19.7% of our GDP. And in this timeframe, Medicare spending will increase 7.4% annually as 10,000 enroll daily in the program. Its outflow is increasing faster than its income from employer payroll taxes (40%) and enrollee premiums (60%). Something’s gotta’ give: lawmakers know Medicare is popular so major changes are unlikely. So, their attention is elsewhere—on bigger Medicaid cuts, intensified pursuit of waste, fraud and abuse, drug pricing reduction and strategies to tackle chronic conditions to avert hospitalizations. Lawmakers opine to the importance of Medicare but look elsewhere for laws that could enhance the efficiency and effectiveness of our system. Medicare is hands-off for politicians. But improving healthcare is on their agenda because it matters to voters.
My take:
There’s substantial opportunity to improve the performance of the U.S. healthcare system. Medicare can be improved, but it’s not the only program that deserves attention.
Many organizations, especially hospitals, physicians, post-acute providers and others, frame their strategies too narrowly waiting for CMS to make changes in Medicare. They develop clinical programs, facilities and services suited for the Medicare population and pay scant attention to others where opportunities are significant.
Medicare is a highly politicized program so changes in this program are incremental. As we have seen for 53 years since the program began, its costs are high and special interests supporting the status quo are strong.
It’s a myth that the future of healthcare in the U.S. is tied primarily to Medicare. Medicare is important, but the future of the U.S. health system will be defined by innovators and disruptors who do not look to the federal government for their opportunities.
Paul
