So the dominos are falling…
My mom is a staunch conservative and the discussion after tonight's speech was my usual argument of common sense versus pre-conceived notions. She also brought up some good points, though, so let's examine them. Mainly, she's concerned that the country cannot afford this radical idea and that her Medicare benefits will be affected. She also pays for additional insurance, an additional Medicare supplemental insurance police as well as a long-term care policy.
So from tonight's speech:
That is why not a dollar of the Medicare trust fund will be used to pay for this plan. &
The only thing this plan would eliminate is the hundreds of billions of dollars in waste and fraud, as well as unwarranted subsidies in Medicare that go to insurance companies – subsidies that do everything to pad their profits and nothing to improve your care. & Reducing the waste and inefficiency in Medicare and Medicaid will pay for most of this plan. & I will protect Medicare.
So in that language there is an obvious direct cut to Medicare, but not the amount (number) or quality of benefits paid out. I assume the President is referring to overhauling the Medicare prescription drug program, the one that pays full-retail prices for drugs and is administered not really by Medicare, but by the individual insurance companies on behalf of Medicare. Does this extend to anything more or anything else?
Medicare payment processors run on a fairly thin budget, and the reimbursement rates for tests and procedures are pretty low. So I'm trying to figure out where $80B annualized dollars of waste and graft are. The plan is supposed to cost $900B over 10 years, and a majority of that money is supposed to come from savings in Medicare and Medicaid. So I'm rounding down to $80B/yr.
One concept I've come up with is that Obama is proposing taking the payment and processing in-house for the government, and getting rid of the regional MACs. Alternately cutting the number of MACs from 15 to a much lower number, potentially to match the number of Jurisdictions that handle DMERC and Hospice claims would reduce overhead and increase standardization (therefore reducing the number of appeals.)
Logically, this is the continuation of steps that were put in place with the George W. Bush's Medicare Modernization Act (MMA) of 2003 which cut the number of Medicare processing centers in half, ridding the process of the associated waste that comes with 15-20 centers.
I could see $1-$2B per year coming from changing the MACs to match the larger Jurisdictions, but even the overhead in administering the modifications could eat through the initial savings.
I think another small battle for savings would come from taking 1-800-MEDICARE from a 24/7 call center to one that was 8-8 7 days per week. Given that they may only receive 6 phone calls between 7PM Sunday and 8AM Monday it is fairly wasteful to have all that infrastructure in place (including 20 call center reps at $8/hr), but that is savings in the thousands, not billions.
So we're down to $78B/yr in savings we need to "find." Can that simply come from overhauls in the prescription drug program? It's quite possible.
The prescription drug program for Medicare costs about $120B/yr ($1.2T 10 year cost as estimated in 2005.) Say that 25% of that 120B is eaten in administrative costs (that's a REALLY high number. It is likely closer to 5%.) So we're paying $90B/yr for drugs. If the gov't was able to negotiate a lower cost for those drugs, say a 30% savings, 30% of the annual $90B cost is $51B.
Now we're at a $51B/yr annual cost. Comparatively we pay $200M/day to clean-up Iraq. That's 255 days in Iraq, less than what we pay per year for the war to take care of our own.
I haven't even touched Medicaid yet, and that's a subject I know very little about. We can randomly say that reforms in Medicare can yield a 20% "chip" against the $51B/yr cost, taking it to $41B/yr.
If there are additional overhauls in tort reform and less "defensive medicine" is practice, medical costs could stabilize or go even go down (look at IN and TX for examples of tort reform. IN has had it since the 1970s.) So that remaining $41B could come in savings from the fact medicine (not just drugs, but doctors visits, procedures, etc.) won't cost more and continue to outpace inflation. Using fancy math, the $41B annually could be carved from the perceived savings if costs really go down.
So the math almost adds up. Any other clues where this cash will come from? Other than "raising taxes."
