Reading the Manhattan Institute, Part 3

This should be the final segment of my series on reading through Avik Roy’s health insurance and health entitlement proposal.  The major focus will be Medicare.  His major focus is to shrink traditional Medicare expenditures in two ways.  The first is to decrease the incoming population on Medicare by increasing eligibility age by 4 months every year.  In that four month period, some people will die, and more importantly, most people will receive services from other payers instead of Medicare.  The second method of reducing federal fiscal expenditures on Medicare is to dramatically cut benefits for beneficiaries.  Right now, Medicare has an acturial value for median income retired individuals of roughly 80% now that some preventative care is covered and the donut hole is closing.  Traditional Medicare before there are any Medigap or Medicare supplements or Medicare Advantage plans is roughly a solid Gold plan in today’s PPACA plan description language.  Roy wants to make it a weak Silver or a strong Bronze.

His final segment is on healthcare financing and delivery reforms.  There are a couple of pointless shiny objects for conservatives, but also a couple of good ideas that could be worth talking about if there was a rational, policy making inclined faction of the Republican Party that could reliably deliver 100 votes in the House and 20 in the Senate.  That faction at best is turtling like a two-year old scared of potty training, or does not exist nor is it likely to exisit for several more years and presidential election defeats.

So let’s look at Medicare first.

Interesting statement on P. 43

Private health insurance for the nonelderly is also far costlier than it should be, because Medicare’s poor cost controls initially allowed hospitals and doctors to charge whatever they want, knowing that taxpayers would foot the bill.

We know Medicare pays significantly under commercial rates for most procedures.  We know that on an age/health adjusted basis, Medicare has slightly more utilization than commercial plans, but the average cost of care (age/health/risk adjusted) is lower on Medicare than on commercial plans.  So where is this blanket statement coming from?  Also interesting a paragraph earlier that Roy blames half a billion dollars in revenue received by AARP for the use of their name for Medicare supplemental policy branding as the key blocker of any policy reform. Does Roy really want to go there for money as blocking improved policy in politics given who funds him?  Or is this a special case only for notably rare circumstances?

Life expectancy P. 46 :

When Medicare was enacted, in 1965, the average life expectancy at birth was 70.2 years. In other words, it was anticipated that Medicare would cover an average  person’s health expenditures for the last 5.2 years of his life. In 2010, the average American lived to the age of 78.4;

The more relevant comparison from a program income side of things is life expectancy from either age 18 or age 21 (ie when people enter the workforce.)  My kids are absolutely amazing and they produce incredible Ahhh adorable value, but they don’t kick into Medicare yet as FICA does not tax the Tooth Fairy which is my daughter’s primary source of income right now.  From a program expenditure side, the relevant question is how long is someone eligible and how sick are they during that eligibility period.  Interesting that he makes a big claim with handwavingly impressive sourcing without actually showing the relevant data.

Cost savings (P. 46 2nd column) on raising Medicare retirement age:

Over a 30-year period, we estimate that raising the eligibility age for Medicare by four months per year would reduce Medicare spending by $6.6 trillion, with an offsetting increase in exchange-based premium subsidies of $1.5 trillion, for a net spending reduction of $5.1 trillion. These savings would be even larger in future decades.

Of course, it is not difficult to not spend money if the Medicare eligibility age is 75 at the end of the 30 year period.  Most people will die off.  What I find interesting is the $5.1 trillion dollars in net federal spending reduction. Unless Roy is positing massive increases in medical productivity, a massive decrease in elderly medical service utilization and commercial pricing able to get down to Medicare rates, this sure as hell screams a massive reduction in the acturial value of coverage available to seniors.  And that is the case, because Roy earler states that his ideal plans are 40,55, 70 or 85% acturial value on the Universal Exchange.  Furthermore, he removed age rating restrictions for the 21-64 year old population and hinted elsewhere that he wants a Wild West on insurance regulation, so it is safe to ask for clarification on whether there are any age rating restrictions for people who otherwise would have been on Medicare.  My bet is no, so an individual at age 72 will be charged at least a factor of 150% compared to an individual at age 64 who is already, under this plan, getting charged 6 times the premium of a 21 year old.

Send in the bill collectors:

“Currently, Medicare reimburses hospitals and other providers for unpaid deductibles and copays owed by beneficiaries. We recommend gradually putting an end to this practice, which is not mirrored in the private sector.” As a complement to this initiative, Congress should ensure that hospitals have the necessary freedoms to collect unpaid bills that exist in other industries such as credit cards and telecommunications. We estimate 30-year savings from this provision as $128 billion.

What Roy is neglecting is that the Federal government uses Medicare (and to a lesser extend Medicaid) as a means of paying for basic health infrastructure carrying costs.  That is why there were DSH payments, that is why the Feds pay for a good chunk of graduate medical assistance, that is why the Feds are paying some of the co-pays and missed deductibles of beneficiaries; there is a public need for financially viable medical providers and hospitals in poor areas. 

Unified Deductible:

capping  the amount of money that a Medicare enrollee would have to spend out of pocket in a given year. We estimate 30-year savings from this reform of approximately $635 billion.

Right now, Medicare Part A (hospital insurance) has a deductible of $1,206/year with significant co-pays for each day of hospitalization.  Medicare Part B (doctor insurance) has a deductible of $147 per year.  So if a person is reasonably healthy with no hospitalizations, their deductible is pretty low.  Someone hitting the hospital will end up owing Medicare $1,353 before lunch on the first day of admission.  This proposal would combine the deductible.  Looking at Coburn-Lieberman, they proposed a single $550 deductible for medical and hospital services. 

A unified deductible is not inherently a bad idea, it makes things simpler and easier to explain which has significant value.  However, a budget neutral unified deductible would be in the $250 to $400 range.  That would produce winners from the small percentage of the beneficiary pool that is hospitalized every year, and losers among those who are not hospitalized but have more than one office appointment per year.  A deductible of $550 is designed to reduce Federal expenditures and thus is a reduction in the acturial value of Medicare for people who have already seen their Medicare pushed back another 4 months every year. 

Medicare bundled payments:

Congressional Budget Office has also analyzed  the potential of bundling payments for inpatient care and 90 days of post-acute outpatient care. We estimate 30-year savings from this reform of approximately $410 billion.

Good idea.  Can we get this started for next year and can liberals get political cover that these are not death panels. 


Stephen Parente and colleagues at Fortel Analytics took a set of algorithms designed by scientists in 1993 to achieve real-time fraud prevention in the credit-card industry, and applied them to Medicare. By analyzing Medicare claims representing 20 percent of all enrollees—and 100 percent of enrollees for a 3 percent sample of all national Medicare providers—they estimated that their approach would have reduced 2009 Medicare waste by $20.7 billion in Medicare Part A, $18.1 billion in Medicare Part B, and $17.5 billion in retrospective recovery.

Good idea.  I personally don’t think the easily recoverable funds will be as large as initially claimed, but let’s eliminate stupidity and let’s eliminate wasteful or abusive billing.  At the same time, can Roy get his allies to crack down on the AMA from screaming too loudly on the crackdown.  Additionally, would Roy support funding more IRS auditors and recovery specialists as we know there is a lot of money that the IRS is owed that is not being reported, so if cracking down on Waste, Fraud, Abuse on healthcare expenditures is a major public policy win (and it is), the same should apply to the tax code.

Increasing the supply of docs

(1) by increasing federal funding of graduate medical education by $6 billion a year starting in 2016, contingent on a corresponding increase in residency and internship slots; (2) by separating federal funding of graduate medical education out from Medicare, Medicaid, and other agencies into a discrete congressional appropriation; and (3) by expanding the number of foreign visas for immigrant physicians who have passed U.S. medical board licensing examinations.

I was surprised that he did not go further.  #2 is straightforward disentangling subsidization of doctor training from operational medical payments.  That makes sense.  Let’s see what we are actually buying with medical dollars and what we are buying with doctor training dollars.  #1 is again straighforward, although there is a decent debate that the number of docs being trained is less dependent on federal dollars than a naive assumption.  As for #3, again, this makes sense, Dean Baker would be cool with it.

The area that I expected to see more was scope of service regulation.  Nurse practicioners (CRNPs) and Physician Assistants are master level clinicians who have very varied levels of allowable practice by state.  Expanding the pool of primary care master level practicioners by expanding scope of service for their skills/training/credentialling seems to me to be both a good approach to reducing the PCP shortfall, and right up the alley of a liberterian.  Most liberal health policy wonks would agree to this in half a second.

Health Finance Section 5

Consolidation and market power:

H OSPITALS HAVE COME TO RECOGNIZE THAT BY consolidating their market power, they can force private insurers to accept higher prices.

And then he proposes that there are fewer restrictions on building new hospitals and an encouragement of medical tourism.  Both are, in and of themselves, not bad ideas.  Dean Baker would probably like them in that they are breaking the limited local monopolies of healthcare by making a metropolitan area based market into national markets.  I’m not quite sure how closing the VA helps this problem.  Opening the VA up to more prioirity groups or the general civilian population could give some additional competition in consolidated markets.  Not a bad idea.

However, the obvious solution is also advanced in a more active federal regulatory role. This is a bit surprising in a good way:

The Universal Exchange Plan would beef up the hospital  industry staff of the FTC, so that the agency could do more to challenge anticompetitive hospital mergers. Expanding staffing at a government agency may seem like a counterintuitive way to increase market competition, but antitrust litigation is an important, and underutilized, tool for combating anticompetitive hospital practices. Furthermore, the Plan would protect private-sector consumers from anticompetitive pricing practices by requiring hospitals in extremely concentrated markets— with an HHI above 4,000—to accept Medicare rates from the privately insured and uninsured. Rural communities, which naturally endure a less competitive hospital environment, might require a higher HHI threshold, such as 5,000.

Trust busting is a good thing.  I would support this in half a second without seeking any other policy trades.  I would anticipate liberals would have to give up quite a bit to conservatives to get an active anti-trust enforcement from the FTC on hospitals and key specialty groups. 

Restrictions on malpractice torts:

The Universal Exchange Plan would cap malpractice damages for any patient receiving a federal subsidy through Medicare, Medicaid, exchange-based coverage, or other federal programs. Other forms of malpractice reform would properly remain the province of the states, due to states’ sovereignty on most issues of  tort law.

If you are poor or old, it doesn’t matter too much if the doctor screws up on you.  The rest of his proposals are based on restricting access to the courts for people harmed by providers and limiting damages.  We saw in Texas that these policies don’t lower malpractice insurance premiums but do lead to more suffering.  The best way to lower malpractice insurance premiums is to reduce the number of incidents that are malpractice or in the fuzzy gray area.  In my opinion, the creation of a national safe harbor that if a provider is following national best practices, they are safe, and if they are not, they are on the hook should lead to a strong incentive structure to move medicine away from folk art with idiosyncratic methodologies to a more rigourously defined process where standards of care are much closer to uniform nationally than a haphazard patch of one hospital preferring intensive interventions while the hospital the town over on the same patient with the same indicators goes to a wait and see approach. 

27 replies
  1. 1
    Baud says:

    Thanks for the informative post, Richard. What I’d like to know is, how much can we cut out of Medicare so that it makes us money? In the end, isn’t that the only thing that matters?

  2. 2
    JPL says:

    Richard, You are a treasure and I hope that Congressional Democratic members are having their interns and aides read your columns’

  3. 3
    Baud says:

    I also wish I didn’t have to go to work so I could spend the morning mocking Roy’s proposal.

  4. 4
    dww44 says:

    @JPL: I agree with both your points. He writes in such a way that one doesn’t necessarily have to be a policy wonk to understand his points.

    As a separate note, is it just my computer that’s reduced the font size in much of Richard’s text? Difficult to read.

  5. 5
    dick mayhew says:

    @dww44: Nope, it is the back-end that wiped the font down

  6. 6
    Schlemizel says:

    No, I am getting the teeny font too.

    The ‘crisis’ is coming in Medicare, both the actual troubles and the imaginary, well-hyped, politically motivated one. Its that second one that needs to be beaten back or the result will be the first not being dealt with while the program is put into a much worse situation. For an example look at the Social Security ‘reform’ that took place under ST. Ronnie.

    Maybe we need to compile all of Richards posts and send them to our Congressional offices.

  7. 7
    japa21 says:

    Richard, in terms of interesting statement page 43, Roy played a little semantic trick. He said “initially allowed hospitals and doctors to charge whatever they want.”

    Then he talks about poor cost controls as if that practice continues today. It doesn’t and he knows it.

    Not that there aren’t some problems with cost controls in Medicare. There is not a strict utilization revview process with Medicare as there is with most private insureres. On the one side, this can result in unnecessary treatment being provided and paid for. On the other side, even a lot of private insurers have reduced the amount of care that requires review as UR is a costly process. There could probably be a more effective process within Medicare that would save money without being too costly or depriving care.

    Most of your other comments are, as usual, spot on. And yes, if the GOP wasn’t a bunch of turtles, many of these could be done.

    And yes, my computer is also showing font sizes going all over the place.

  8. 8
    Rex Tremendae says:

    It’s interesting that people always talk about “kicking it down the road” as a way of avoiding dealing with Medicare issue. How is slowly raising the age to 75 not kicking it down the road?

  9. 9
    MattR says:

    When Medicare was enacted, in 1965, the average life expectancy at birth was 70.2 years. In other words, it was anticipated that Medicare would cover an average person’s health expenditures for the last 5.2 years of his life. In 2010, the average American lived to the age of 78.4;

    This is the perfect example of twisting stats to suit your argument. Average life expectancy at birth is relatively meaningless when examining Medicare. It is more important to know what % of workers are expected to reach the retirement age as well as the life expectancy of a person at that point.

    As a simple, example – if half the country lived to be 60.2 and half lived to be 80.2, then the average life expectancy would be 70.2. But half the country would never collect Medicare while the other half would use it for 15.2 years (which averages out to 7.6 years per person if calculated across the entire population)

    I would also note that like most things, life expectancy increases aren’t evenly spread among the population. Those with more money generally have a greater life expectancy (and that trend has unsurprisbly been increasing over time – In 1972, a 60 year old male in the top half of earnings lived 1.2 years longer than one in the bottom half of earnings. By 2001, that gap was up to 5.8 years, and the life expectancy of the bottom half only increased 1.9 years during that 39 year period – see table 4)

  10. 10

    The first is to decrease the incoming population on Medicare by increasing eligibility age by 4 months every year.

    Making me ineligible until I’m 75. How the fuck am I supposed to get health insurance in the meantime?

  11. 11
    Hunter Gathers says:


    How the fuck am I supposed to get health insurance in the meantime?

    Stop being lazy, pull yourself up by your bootstraps and get rich like Jesus wants you to. Unless you’re black. Then you’ll deserve your early death for being a welfare cheating, pot-fueled savage.

  12. 12
    Eric U. says:

    I wonder if there wouldn’t be cost benefits to reducing the medicare eligibility age. If the ACA is successful in getting people care, maybe not, but in the current situation it seems that there are a lot of people that don’t have proper care until they go on medicare

  13. 13
    Mart says:

    Go stand in front of a mirror. Pump your arms like you are running. What part of an open palm and open forearm do you see? It is all behind you.

  14. 14
    Dave L says:

    Adding to MattR’s point about the uselessness of life expectancy at birth – in fact, it’s easy to find data on the far more important measure of life expectancy at 65. The OECD, for example, calculates the increase in this measure between 1960 and 2009, and puts it at 4.5 years for U.S. males and 4.2 years for females. In other words, about half the increase Roy finds for the at-birth measure.

    This is an excellent example of lying by omission. There’s not a snowball’s chance in hell that Avik Roy is unaware of these numbers, or of the reasons for using them. He just chose to ignore them because he could inflate his thesis more by using the wrong numbers. He’s just a shill in a lab coat.

  15. 15
    rea says:

    @Dave L: Not to mention that you’d expect medicare, working properly, to result in increased life expectancy–it’s rather the point.

  16. 16
    hoodie says:

    Roy’s proposals seemed to sum up as disingenous bullshit sprinkled with a few cost saving measures that liberals will agree with to make it look “bipartisan” but Roy’s GOP buddies will later label as death panels, Big Gummint, or some functional equivalent.

  17. 17
    Belafon says:

    @Eric U.: I believe that was supposed to be the goal of Medicare: Show how well it takes care of the older people and then gradually lower the age requirement. But then IGMFY and “don’t give those lazy blacks health care” became the mantra in this country.

  18. 18
    Villago Delenda Est says:

    @rea: Well, for rational human beings. But we’re talking about the Manhattan Institute here.

  19. 19
    Villago Delenda Est says:

    We know Medicare pays significantly under commercial rates for most procedures. We know that on an age/health adjusted basis, Medicare has slightly more utilization than commercial plans, but the average cost of care (age/health/risk adjusted) is lower on Medicare than on commercial plans. So where is this blanket statement coming from?

    I believe the answer to this question is “directly from Roy’s rectum”.

  20. 20
    Violet says:

    test 2

  21. 21
    Calouste says:

    Regarding raising Medicare retirement age, Avik Roy seems to postulate that those savings happen in isolation. But people still need medical care during that time, so raising the Medicare retirement aging doesn’t making one iota difference in savings to society as a whole, it’s just shifting costs, most likely to people who can’t afford it.

  22. 22
    Newdealfarmgrrrlll says:

    Back in the day, I worked in the production department of a new-agey book publisher. We’d sometimes help the acquisitions manager review incoming manuscripts. Avik Roy’s output we would have put in the “channeled it out his ass” category.

    Thank you, Mr. Mayhew, for reading it so I didn’t have to.

  23. 23
    Richard Mayhew says:

    @Calouste: Yeah, that is part of my round-up/final thoughts post that is currently marinating in the back of my mind.

    90% or more of his policy prescription is either explicit cost shifting or implicit cost shifting (ie the little people live with more pain/worse health) instead of actual cost savings. The piece on hospital consolidation is a cost savings piece, the piece on provider education could be a cost savings piece, but everything else is shifting.

  24. 24
    Roger Moore says:

    @Rex Tremendae:
    When people talk about “kicking the can down the road”, they mean putting off dealing with a problem rather than confronting it now. I think Krugthulu has the correct response to this basic line of attack on entitlements. The people advocating immediate cuts are pushing them to head off long term problems, the result of which would be … cuts in the distant future. That makes no sense at all. If there’s a problem a long way down the line, we should look at slow, gradual solution that reins in cost growth or raises revenues so that long term costs are brought back in line with long term revenues.

  25. 25
    Uncle Cosmo says:

    @Dave L:

    This is an excellent example of lying by omission. There’s not a snowball’s chance in hell that Avik Roy is unaware of these numbers, or of the reasons for using them. He just chose to ignore them because he could inflate his thesis more by using the wrong numbers. He’s just a shill in a lab coat.

    As they say in southern India, Bangalore! Wiki notes that “lies, damned lies & statistics” is actually a change rung on this quote from Nature in 1885″:

    A well-known lawyer, now a judge, once grouped witnesses into three classes: simple liars, damned liars, and experts.

    One presumes Roy thinks of himself as one of those experts…

    The appropriate measure of incoming revenue per year is the sum of the contributions of all those paying into the trust fund that year (i.e., 21-65, still alive & still employed).

    The appropriate measure of outgoing revenue is the sum of the disbursements to Medicare recipients for medical care in that year (i.e., >65, still alive & still hitting up Medicare for medical care).

    Bang those two against one another using the best available estimates for mortality rates and demand for medical services & you might be able to draw some halfway-valid conclusions. Anything less is BS.

  26. 26
    Rex Tremendae says:

    @Roger Moore: My point is that raising the age to 75 apparently “solves” many future budget issues, but obviously will create all sorts of health care problems for the future elderly. It kicks that can down the road.

    The “can” is always meant to refer to the budget. But why can’t it refer to other problems, such as how are we going to insure the future elderly.

  27. 27
    docg says:

    Almost no comments again. Well, Richard, you can lead a horse to water, but if you can get him to float on his back, then you really have something!

Comments are closed.