Medicare Scams

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Mark Weisbrot
The Seattle Times, August 22, 1997
The Baltimore Sun, August 27, 1997
The Denver Post,
September 7, 1997
 
Miami Herald,
- September 26, 1997

Medicare fraud has been in the front pages lately, and some of the stories are the kind of stuff that makes satire unnecessary. Like the owners of a home health care business who tried to include the BMW driven by their son in college as a cost of doing business.

Other reports are more ghastly, as if they escaped from the script of a horror film: a cardiologist who got kickbacks from a pacemaker manufacturer is alleged to have implanted the devices in dozens of patients who didn't need them.

The overall scale of the fraud is impressive too, with estimates running into the tens of billions of dollars.

But the worst part of the scandal is that all the wrong conclusions are being drawn from it. It is seen as another example of the waste and inefficiency of government, or the futility of trying to provide federal insurance for health care. This is a huge mistake.

The biggest impediment to our nation's ability provide affordable health care for everyone does not come from Medicare, or from any government program.

The real problem is our increasingly market-driven health care system. From 1970 to 1993, the cost of health care-- both public and private-- increased by more than 13% percent a year, taking a huge bite out of the average household's income. Meanwhile the number of uninsured Americans has risen to 41 million.

One would expect such a system to be judged inadequate, in comparison to those of other developed countries who provide health care for everyone, at a much lower cost per person. But money has a special place in American politics, and insurance money is big money. So we have been moving to make matters worse by encouraging private insurers to take over Medicare.

The number of senior citizens who get their Medicare coverage through HMO's has more than tripled in the last 12 years, and continues grow at the rate of 25% per year. It's a great scam for the owners of the HMO's. Here's how it works: the average senior citizen costs Medicare $4750 per year. But the sickest 10% cost $37,000, and other 90% average less than $1200. The government pays the HMO about $4500, and guess which senior citizens they recruit: the healthier ones! The arithmetic is such that there is no easier and surer way for them to make truckloads of money, short of printing it.

This gaming is so lucrative that there are billions of dollars left over for exorbitant executive pay-- e.g. $8.6 million for Cigna's Wilson Taylor last year-- and to waste on advertising, marketing, and figuring out how to avoid paying for covered services.

So much for the "magic of the marketplace" as applied to health care. Unfortunately, our policy makers are mostly like an alcoholic who thinks he'll be just fine if he can just find something stronger to drink. The recent budget deal bill allocated $2.2 billion to create "Medical Savings Accounts." These would further subdivide the population of senior citizens by allowing the healthiest ones to gamble that their health care expenses will be less than average, and keep some of the difference if they win.

Sooner or later it will become clear that the solution to our national health care problem lies in the opposite direction. We currently waste enormous resources in fragmenting the population into different risk pools-- healthy and sick, poor and non-poor, elderly, middle-aged, and young-- and then having hundreds of insurance companies compete for the most profitable patients.

A smarter system would put everyone in the same risk pool. This is the principle of universal social insurance. We already have such social insurance for retirement, survivors, and disability: it's called Social Security. It's the most successful government program in our history, and it operates with administrative costs that are a tiny fraction of those in the private sector. Medicare was an attempt to extend this principle to health insurance for the elderly.

Medicare has also been successful, although its coverage is inadequate and leaves senior citizens spending 21% of their income on health care. But its financial difficulties have always derived from the inefficiencies and unsustainable price increases in the private sector. The current wave of privatization is just throwing more gasoline on the fire.

The latest scandals will undoubtedly lead to more effective policing of providers' billing practices, and it would not be all that difficult to drastically reduce the amount of fraud. The wide ranging criminal investigation of Columbia/HCA, the $20 billion-a-year health care tyrannosaurus that has devoured 350 hospitals and transformed the language of medicine-- patients are "consumers" and diseases have become "product lines"-- is a good start. But until we get past the notion that the "free market" is the most efficient way to insure and distribute health care services, Medicare's financial problems will continue to worsen.                 


Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. He is also president of Just Foreign Policy