Class Warfare Blog

August 15, 2012

Medicare Math

Filed under: Economics,Politics — Steve Ruis @ 10:38 am
Tags: , , , ,

I know that the word “math” in a title is usually a trigger word that sends people running . . . the other way, but stick with me for a minute. I won’t even be using numbers.

I was one of those under-insured people you read about. From my retirement (at age 60) to my 65th birthday, the best I could afford was a health insurance policy in which I paid the first $5000 of medical expenses each year (a so-called “major medical” insurance because it doesn’t kick in until something major happens to you). But when I turn 65 I received Medicare (whew!). Being prudent I also contracted with an insurance company for a Medicare supplemental policy to cover the expenses Medicare doesn’t cover. Combined the two policies cost less than my crummy “major medical” policy did (and covers way more). By the way, if you didn’t know, you have to pay for Medicare, it is not free.

When Medicare kicks in they send you a well-organized and well-written book describing the program and making a number of health recommendations, primarily that one get a health screening to detect as early as possible any illnesses you may have or be susceptible to. In the process of doing that, I racked up several thousands of dollars of medical bills. Being a polite person, I also asked whether the doctors I consulted took Medicare patients and all of them did. I have since gotten the bills and in every case Medicare paid less than half of what was billed. Yet, the “Amount Owed by Patient” box was $0.00. This was true for doctors, technicians, hospitals, and labs (for tests).

“Medicare paid less than half of what was billed.”

At first I thought this was neat, all of those people working for less for our senior citizens but then I thought, well, who then were the full bills for? Ah hah, they were for insurance companies.

Insurance companies rarely work to hold prices down as they can just pass through increased costs to policy holders. Those policy holders are often largish businesses which look at just the bottom line and not what they are paying for item by item. Insurance companies are also trying mightily to shed individuals and any policy holder who might get sick (e.g. having a pre-existing medical condition) as a more cost effective way of improving their bottom line.

You may also have heard that a provision of “Obamacare” is that health insurance companies must pay out at least 80% of their premium income for medical care for policy holders and that when this provision kicked in several major insurance companies are having to issue rebates to customers because they failed to do that. Failing to make that 80% threshold means that their overhead and profits exceeded 20% of premium income.

So, what is Medicare’s overhead? About 3%. (Realize that the 3% is of a much smaller amount because Medicare charges so little.) In other words, 3% is a maximum value for what it costs to “push the paper.”

So, what happens if Medicare gets “voucherized” or “premium supported” out of existence? If one goes on insurance provided by one of the current companies, everybody’s costs go up, way up. The insurance company will pay $4000 for a bill that Medicare settles for $2000. And that private insurance company adds at least another 10% to the bill for its “shareholders” and high salaried executives.

A civilized debate about the future of Medicare would include:

  • the costs associated with the current plan over the next several decades
  • a debate on whether or not to figure out a way just to pay those costs (when the baby boomers die off—this is not callous as I am one—the costs of the system will drop dramatically with the numbers of participants dropping back)
  • several options for reform (each costed out) including comparisons with what other countries are doing better than we are
  • a referendum by the people as to what we want

The questions are: “Can we handle the debate?” “Will the politicians allow it?” “Will the monied powers behind the politicians allow it?”

1 Comment »

  1. The monied powers don’t want debate about this. It is undeniable that medicare is much more efficiently run (3%) than private insurer run programs. At our present rate, without any significant wage increases against the rising cost of health care, it won’t be long before nobody but the VERY rich will be able to afford health care. The U.S. is way behind the rest of the developed world on this issue. We are much more concerned about lining the pockets of the rich than we are taking care of our poor and middle class. Great post!


    Comment by thejumbledmind — August 15, 2012 @ 12:07 pm | Reply

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