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Mr. President: Why Medicare isn’t the problem, it’s the solution

Robert Reich, professor of public policy | April 13, 2011

I hope when he tells America how he aims to tame future budget deficits the President doesn’t accept conventional Washington wisdom that the biggest problem in the federal budget is Medicare (and its poor cousin Medicaid).

Medicare isn’t the problem. It’s the solution.

The real problem is the soaring costs of health care that lie beneath Medicare. They’re costs all of us are bearing in the form of soaring premiums, co-payments, and deductibles.

Americans spend more on health care per person than any other advanced nation and get less for our money. Yearly public and private healthcare spending is $7,538 per person. That’s almost two and a half times the average of other advanced nations.

Yet the typical American lives 77.9 years — less than the average 79.4 years in other advanced nations. And we have the highest rate of infant mortality of all advanced nations.

Medical costs are soaring because our health-care system is totally screwed up. Doctors and hospitals have every incentive to spend on unnecessary tests, drugs, and procedures.

You have lower back pain? Almost 95% of such cases are best relieved through physical therapy. But doctors and hospitals routinely do expensive MRI’s, and then refer patients to orthopedic surgeons who often do even more costly surgery. Why? There’s not much money in physical therapy.

Your diabetes, asthma, or heart condition is acting up? If you go to the hospital, 20 percent of the time you’re back there within a month. You wouldn’t be nearly as likely to return if a nurse visited you at home to make sure you were taking your medications. This is common practice in other advanced countries. So why don’t nurses do home visits to Americans with acute conditions? Hospitals aren’t paid for it.

America spends $30 billion a year fixing medical errors – the worst rate among advanced countries. Why? Among other reasons because we keep patient records on computers that can’t share the data. Patient records are continuously re-written on pieces of paper, and then re-entered into different computers. That spells error.

Meanwhile, administrative costs eat up 15 to 30 percent of all healthcare spending in the United States. That’s twice the rate of most other advanced nations. Where does this money go? Mainly into collecting money: Doctors collect from hospitals and insurers, hospitals collect from insurers, insurers collect from companies or from policy holders.

A major occupational category at most hospitals is “billing clerk.” A third of nursing hours are devoted to documenting what’s happened so insurers have proof.

Trying to slow the rise in Medicare costs doesn’t deal with any of this. It will just limit the amounts seniors can spend, which means less care. As a practical matter it means more political battles, as seniors — whose clout will grow as boomers are added to the ranks – demand the limits be increased. (If you thought the demagoguery over “death panels” was bad, you ain’t seen nothin’ yet.)

Paul Ryan’s plan — to give seniors vouchers they can cash in with private for-profit insurers — would be even worse. It would funnel money into the hands of for-profit insurers, whose administrative costs are far higher than Medicare.

So what’s the answer? For starters, allow anyone at any age to join Medicare. Medicare’s administrative costs are in the range of 3 percent. That’s well below the 5 to 10 percent costs borne by large companies that self-insure. It’s even further below the administrative costs of companies in the small-group market (amounting to 25 to 27 percent of premiums). And it’s way, way lower than the administrative costs of individual insurance (40 percent). It’s even far below the 11 percent costs of private plans under Medicare Advantage, the current private-insurance option under Medicare.

In addition, allow Medicare — and its poor cousin Medicaid — to use their huge bargaining leverage to negotiate lower rates with hospitals, doctors, and pharmaceutical companies. This would help move health care from a fee-for-the-most-costly-service system into one designed to get the highest-quality outcomes most cheaply.

Estimates of how much would be saved by extending Medicare to cover the entire population range from $58 billion to $400 billion a year. More Americans would get quality health care, and the long-term budget crisis would be sharply reduced.

Let me say it again: Medicare isn’t the problem. It’s the solution.

Cross-posted from Robert Reich’s blog.

Comments to “Mr. President: Why Medicare isn’t the problem, it’s the solution

  1. Professor Reich- This article and your recent article on the death of longterm care in Affordable Care Act indicates that you are a single payer (Medicare) supporter for all. In California we have a well designed bill (currently named SB 810, The Californian Universal Health Care Act) making it’s way through the legislature. It has past both houses 3 times only to be declined by our late Governor Arnold Schwartzenegger.

    Hopefully in 2012 the legislature will again vote positively and Governor Brown will sign it as the California version of one of the Affordable Care Act exchange alternatives. Your open and vocal support for this bill would certainly help. Go to to sign on as a supporter and speak out.

    — Lynne Penek-Holden, health care for All- Santa Clara county chapter.

  2. “America spending $30 billion a year fixing medical errors – the worst rate among advanced countries.” This stat is really worrying. But this post really shown some important issues today. Thaks Reich.

  3. Prof Reich, what an excellent article. I always respect your opinions although I am not so sure that Medicare will actually lower their admin costs. Since 911 many institutions have had to endure rising insurance excess costs as much as 50%. In the event of any and all claims, these costs have to be met somewhere along the line.

  4. Thank You Again Prof. Reich, another excellent post sticking up for We The People against a GOP leadership that is just as anti-American as the Tories were in the 18th century.

    One imperative today is to bring the young peoples of the world together in a global conversation to take repair of the world into their own hands, taking responsibility to create solutions that shall produce an acceptable quality of life into the long-term future for all of humanity.

    I trust that you, your colleagues and all Cal students will join together, similar to the way my generation was supported in the 60s, to save the future.

  5. Reich’s assertion that Medicare’s administrative costs are lower are questionable. You can read this yourself here.

    The article also raises the point that administrative costs could be lower because claims are not being checked for legitimacy. Interesting point!

  6. America has huge problems which only can be cured by cutting government spending to the bone and abolishing the IRS. Reich is merely serving up the same crapola that got us into this mess in the first place. This is the worst freakin’ economy I’ve seen in my entire life. We are 14 trillion in debt and if government spending is so great why aren’t we at full employment? Instead we are in a wrecked economy and inflation is eating us up alive regardless of what the official welfare state statisticians tell us. This country got to be the strongest superpower in the in the history of the world based on rugged individualism, freedom and decentralized authority. We are going down to tubes thanks to the collectivist thinking of the Democrats who’s policies stifle competition and innovation. If we don’t get rid of the nanny state, over regulation and socialist thinking our children are going to inherit a huge debt burden, a crumbling civilization and an economy that is going to crush the dreams and aspiration of the common man. My friends who are out of work and under employed will never find suitable employment either. The callous disregard of Mr. Reich, his class, Obama and the Democrat Party in general to the welfare of the common citizen in this country is absolutely frightening.

  7. Medical costs are soaring because our health-care system is totally screwed up [ because of Democratic Greed]. Fixed it for you!

    The conglamorate of the medical establishment wants more money like you want more money, but you ask them in this speil-of-garbadge to take a serious cut. There is a voluntary program now at Cal to reduce your salary to save money that never came from Obama’s lies ( he said education funding was hin #1 priority, but we also know liberals are prolific liars). I suggest you give back all your money, your home, and get out onto the streets, you cannot even teach 5 -year-olds.

    Cal is paid by the whole public and censors comments that do not agree with their avarice ways.

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