Robert Berenson, a board-certified internist, has worked in the field of health care policy for nearly 40 years and is a Fellow at the Urban Institute in Washington, DC. He is a Founding Member of the Academy and currently serves as head of one of the working groups in the Medicare Eligibility Study Panel convened by the Academy in 2019. The Study Panel is tasked with analyzing potential changes to the Medicare program, which is at the center of discussion and debate about how to solve America’s need for affordable health care. Bob Berenson recently shared some thoughts about how Medicare changes might, or might not, solve those needs.
What crucial issues has your Medicare Eligibility Study Panel working group identified?
We are tasked with identifying key design issues when expanding Medicare. But first we have to ask some questions about what we mean by “Medicare for All”. Is it an expansion of the Medicare program that now exists? Or a program that has attributes we like about Medicare? Does it have to be a single payer system with no private insurers at all? Or do we have multiple payers, as some countries have?
Once we establish these basic definitions, the working group will identify the major design issues of a Medicare for All program, such as what the benefit package might look like, how payment works, and options for financing it. Overall, Medicare as it exists now works quite well. It is a social insurance program and it is a government-directed program. Though, apparently, the public does not completely understand that, since people have been known to tell their elected representatives, “Don’t let the government near my Medicare!”
Medicare, however, is not without its shortcomings. It is still largely in the same form as when it was enacted in 1965. There is irrational cost sharing, with significant out of pocket expenses for some services versus zero out of pocket for others. There is no catastrophic care, so people have to buy inefficient Medigap insurance. And it doesn’t cover long term services at all. So we probably want a Medicare-like program for all, which adopts what we like most, such as its universality, portability, and lack of dependence on having a particular employer.
Will the Study Panel findings influence the campaign trail?
I suspect our report will have more impact on policy designers than on politicians. Having tried a couple of times, I learned that you don’t do good policy during a presidential campaign. Promises are made and not delivered on; some candidates won’t know what they’re talking about. For instance, it’s clear some candidates don’t understand how big a role private insurance plays in Medicare delivery. There may be a lot of heated discussion during the campaign, but it won’t bring a lot of light to the issue.
What gets in the way of changing our health care system?
I’ve been doing policy analysis for about 40 years, including time as a domestic policy staffer during the Carter Administration, and this is the third time I’ve seen great enthusiasm for a single payer system. Each time, the process becomes overly ambitious and divisive, leading to a lost opportunity for making substantial progress toward universal coverage and cost containment.
We are not unique in this challenge, even though we like to think we are exceptional. Every other country has worked through very difficult issues in health care, has learned a lot, and implements change. And yet opponents of a larger role for government in health care either lie or make up stuff about other countries—that they have lousy quality or long wait times (which isn’t true for the most part). And across the health policy, political spectrum, we are mostly just ignorant about the experiences in other countries.
What can we learn from other countries?
People on the left and the right have taken up the idea that we should have budgets—give hospitals a budget and they will be more prudent in how they spend money. That sounds good in theory, but the experience in countries that have tried budgets is that they don’t work very well. With a budget you don’t necessarily increase efficiency. Yes, you reliably can contain costs and even target spending to conform to national budgets, but you may be getting fewer patient services as the hospital or other provider underserves to stay within the budget.
Many European countries have found that when they gave hospitals budgets, some did develop waiting lists. Because hospitals were not being rewarded for taking care of people. The result is that many countries have abandoned hospital budgets and have moved instead to diagnosis-related groups, an approach to payment that the U.S. Medicare program pioneered, by which hospitals are paid for the average cost of a specific condition. Payment is provided for activity, instead of just providing a lump sum to a hospital.
Some people think Medicare for All has to be a single payer system, modeled after the Canadian system. However, in Canada the governance is at the provincial level and the federal government just makes a financial contribution. The provinces run the health care system. I think in the U.S. we don’t want individual states running health care. I certainly don’t want Alabama running their own health care program. Some of the mainland European countries have social insurance systems, which could be a better model for us than a more uniform single payer system; all of the hospitals and doctors are in the private sector, they are not government employees, but provider prices are regulated, a major difference from the U.S. situation.
How can costs be contained?
Prices are the primary driver of high costs. As a country, the U.S. doesn’t use a lot more services than many other countries; we just pay a lot more for those services. For example, there’s a notion that we do MRI scans on everyone all the time. That there’s a scanner on every corner. That’s just not the case. Japan does more MRI scans per capita than we do, but they just pay about 20 percent of what we pay per MRI scan. I think we need to change the trajectory of our high prices to get more in line with international norms over time.
One of the major obstacles to cost containment are consolidated markets with limited competition. Commercial insurers have to negotiate rates with hospitals. Over the past 15 years, hospitals have figured out how to have substantial bargaining power in those negotiations, like buying up other hospitals so they reduce competition in the market. They make sure there aren’t a lot of extra beds sitting around. So the insurer has no choice but to negotiate rates with the dominant provider in the community. Many markets now don’t even have multiple, competing provider systems; they just have one or maybe two hospital systems in the area. So the insurer has to give the hospitals what they want. What hospitals want now is often well over 200% of the Medicare rates. And Medicare pays close to hospitals’ costs. There’s no question, and recent studies have confirmed, that high prices driven by monopolistic health care providers are what’s been driving health care spending in this country.
The solution for that is government regulation, yet we do not allow government to do what every other country does: have government play a major role in determining prices. In my view, there are various ways to achieve universal insurance coverage – such as strengthening the Affordable Care Act, especially the Medicaid expansion. This is one of the points I want to emphasize: We do not have to have a single payer system to have government control over provider prices.
How do commercial insurers fit in?
The insurers don’t have much competition either, so we now have concentration in the insurance market as well. Insurance companies don’t mind passing on those high costs to employers. They want to have the most favorable rate, yes, but it doesn’t have to be a low rate. Yet, I think there’s been too much attention to insurers as the bad guys and not enough focus on the role of not-for-profit hospitals, some of which have $5 billion or more in reserves. They are technically not-for-profit – they have “retained earnings” not “profits,” but in some ways they behave like for-profit enterprises, like in their very high C-suite salaries and bonuses. Hospital margins have never been higher—they are at about 8%, whereas they used to be at 2-3%. While some rural hospitals and some inner city hospitals are in the red. The “haves” and the “have-nots.”
This is one of the challenges that I think some Medicare-for-All proponents don’t understand. When some hospitals are being paid at 250-300% or even more of the Medicare rate for patients with the same clinical diagnosis, you can’t just reduce hospitals to Medicare levels immediately. You would have patient dislocations, substantial hospital worker unemployment, and under service, because fees could no longer support the massive physical plants with lots of clinical services and high staffing that have developed in the era—now going on a couple of decades—of very generous payments. You can’t turn that around in a year or two or three. You’ll need probably eight to ten years to phase down the over payments to permit phased downsizing and would need to have differential price updates for different hospitals. So people are overpromising what a single payer or a MFA program could accomplish right away. Over time, yes you probably could get control over costs, but it would take time. One would have to plan very carefully for the transition.
Where can we begin?
We can start by putting limits on prices that negotiations between monopoly providers and passive insurers produce. For example, perhaps put a ceiling on what a negotiated rate could be in relation to Medicare, perhaps no more than two times the Medicare amount, initially. Then, over time, bring that number down. Let those successful not-for-profit hospitals start using some of those billions of dollars in reserves as they gradually reduce the size and scope of their operations so they can live within a leaner revenue stream.
I’m happy we’re having a discussion about Medicare-for-All. But I hope the Democratic House of Representatives does not undermine the demonstrated value of the Affordable Care Act while they promote Medicare-for-All. I appreciate the enthusiasm people have for considering single payer as an aspiration, but in the meantime I say, ‘Let’s try to identify goals that can be achieved in the near term.’ There is too much political opposition to Medicare-for-All to put too many eggs in that basket. The Republican Senate that opposed the nomination of Merrick Garland to the Supreme Court is not about to permit passage of anything resembling Medicare-for-All.
The findings of the Medicare Eligibility Study Panel will be reported at the Academy’s 32nd annual policy conference in March 2020.
More about Bob Berenson
Robert Berenson is an Institute Fellow at the Urban Institute and a Visiting Scholar this year at Families USA. He received his M.D. degree at the Mount Sinai School of Medicine and is a board-certified internist. He practiced internal medicine for 12 years in the District of Columbia. He was the Robert Wood Johnson Clinical Scholar from 1977-1979 and, through funding from the foundation in 1994, served as the National Program Director of Improving Malpractice Prevention and Compensation Systems (IMPACS) until 1998.
Berenson has twice lent his expertise to the White House, in 1979-1980, serving as Assistant Director of Carter White House Domestic Policy Staff, and in 1993, co-chairing initiatives under the Clinton Task Force on Health Care Reform. He served a tour on the Medicare Payment Advisory Commission and was Vice-Chair for two years, ending in 2012. Berenson is a Founding Member of the Academy and a Fellow of the American College of Physicians. He has co-authored two books on health policy and publishes frequently, with emphasis on issues involving Medicare. These publications include Health Affairs, New England Journal of Medicine, and The New York Times.