A Surprising Threat to Social Security: Medicare Costs

As USA Today reports, the entire Social Security cost of living adjustment (COLA) boost for 2024 will be canceled out. The culprit? Higher healthcare premiums.

In January, more than 66 million Americans on Social Security will receive a COLA of 3.2 percent, which is roughly $50 per person (or $100 for a couple). Unfortunately, as the article explains, Medicare premiums are projected to increase at over $100 per month.

Simply put, the Social Security COLA is canceled out by higher Medicare costs---and many seniors are concerned. As Mary Johnson, a Social Security and Medicare analyst, explains: “Worry that retirement income won’t be enough...is a top concern.”

And yet, meaningful reform to Medicare (or even healthcare in general) is not a high priority for policy makers. One reason it is not a priority is that they are not willing to consider real solutions.

The 3 greatest problems in healthcare are:

1. Quantity over Quality: A system that only rewards quantity (the volume of services) but not quality (caring for patients)

2. Coding: Medical coding is fundamentally flawed. It does not value conversations or compensate for coordinating care. Consequently, fragmented care is the norm.

3. Overtreatment at end-of-life: We waste billions of dollars overtreating the elderly. What's worse is this "care" often causes unnecessary pain and suffering.

My book, The Journey's End, is a roadmap to help policymakers, physicians, and regular people navigate these challenges. Importantly, it offers pragmatic and implementable solutions to these 3 greatest problems in healthcare.

The case for managing your end-of-life care

Halloween might be over, but here's a spooky headline: It's Never Too Soon to Start End-of-Life Conversations.

In this article, Dr. Pelzman makes the case for patients to proactively manage their end-of-life care. This is a crucial issue that's near and dear to my heart (as evidenced by my book, The Journey's End). While I encourage you to read the full article, here are a few outstanding snippets:

First, as Dr. Pelzman says, "There are things that matter, and then there are things that really matter." End-of-life (EOL) conversations “really matter.” Unfortunately, modern medicine avoids them and instead focuses on things that are easier to measure, like symptoms and test results. Of course, few of us are comfortable discussing death, and fee-for-service medicine (along with the coding system) doesn't allow for meaningful EOL conversations.

Second, Dr. Pelzman muses that maybe someday "the issues of a dignified death, of maximizing the use of hospice and palliative care, of helping our loved ones get the peace they desire, will no longer raise such societal ire and create so much resistance." He adds that many families have been torn apart by these decisions during the last days of life, and that none of us want to see that happen." Amen!

Again, I encourage you to read the full article--and if you're curious for more, there's always my book.

How Medicare Advantage plans impact traditional Medicare

AARP prepared a Special Bulletin this month to inform readers about Medicare’s open enrollment options during this year's open enrollment period, which runs from October to December. Overall, the articles were well-written and did a superb job of explaining the choices for members.

My interest in the Bulletin is to highlight an important point somewhat buried in all the information: Medicare Advantage Plans, as currently constructed, are crushing the traditional Medicare program and costing taxpayers billions more than traditional Medicare. Those increased costs to taxpayers are for the most part going into the profits of private insurers like United, Humana and Evalence to name of few. The Medicare program is struggling financially and yet it is giving away billions in profits to private insurers.

Let’s begin with the facts. Traditional Medicare has been on a steady decline in favor of Medicare Advantage (MA), which is private insurance, since 2008. Today, MA covers more than 50 percent of Medicare recipients. In other words, Medicare has in effect outsourced more than half of the program to private insurance companies. The primary reason consumers are selecting MA is because these plans cost less and cover more services. How is MA able to achieve these results?

• The first reason is that MA offers patients a restricted network of providers to save money.

• The second reason is that MA uses their volume of patients to pay the providers less for their services.

• The third reason is that MA plans wisely focus on primary care as the key to offering better care at lower prices. They are investing billions into acquiring their own primary care practices.

• The fourth reason is that MA uses more restrictive access to expensive services by requiring pre-certification before services are allowed.

• The fifth reason is that MA plans to aggressively market their product to consumers.

These practices save significant dollars for MA plans which go mostly into the private insurers' profits. However, my greatest concern is that Medicare pays the MA plans billions more per year than the cost of traditional Medicare. Substantial research by the Commonwealth Fund (and others) documents “MA plans cost the government and taxpayers more than traditional Medicare on a per beneficiary basis. In 2022, that additional cost was 4 percent [but it has been as high as] 17 percent.” (Medicare Advantage Policy Primer May 3, 2022).

Based on the increasing and massive profits from MA plans, it appears that their cost savings and increased payment go heavily into these private insurers' profits.

So why does Medicare pay these MA plans so much? The answer is the manipulation of coding. According to the Commonwealth Fund, “the government pays MA a set rate per person, per year under what is called a risk contract.” That payment amount is adjusted to reflect risk and uses coding to determine the risk level. Unfortunately, coding is easily susceptible to manipulation and MA plans have mastered that manipulation to their benefit, according to published studies. In fact, the Congressional Budget Office (CBO) recommended that the benchmark payments to these plans be reduced by 10 percent in December 2022. This CBO strategy has been criticized by some, arguing that private insurers will merely raise premiums, which would disproportionately impact lower-income individuals on Medicare.

The facts also indicate that costs for traditional Medicare are going up at a rate of 8 percent per year while MA plans are experiencing increases of only 4 percent per year. So MA plans are spending less on beneficiaries and being paid more for that less expensive care by the government. It is important to acknowledge that MA plans are better at managing healthcare expenses than traditional Medicare, primarily because of the five strategies discussed above. Unfortunately, those savings go into private insurers' profits-not to lower costs for taxpayers.

The trajectory of these facts only compounds the financial disaster for taxpayers due to the Medicare population dramatically increasing over the next seven years. Reforming Medicare is painful but not reforming it will be more painful.

The solutions to these problems go well beyond this article, which is why I wrote the book The Journey’s End. This book offers pragmatic solutions to these challenges.