Monday’s New York Times carried an extremely misinformed editorial by Paul Krugman, Messing with Medicare. If you’re looking for an intelligent column on the subject, read, David Brooks’s column, Medicare Survival Guide which appeared on May 27, 2011. Links to both are below.

Paul Krugman:

David Brooks:

The most significant public policy issue facing this country today is how to manage the ever increasing cost of healthcare. The fact is that with private insurance and Medicare we largely have two extreme opposite models for managing coverage, both with undesirable attributes.


Under Medicare, there are few constraints on either the provider of service or the patient. A tremendous amount of unnecessary care is provided because as long as a claim is coded with a medically necessary service it will be paid. The incentives for the doctors are perverse due to the nature of fee for service medicine – the incentive is to always do more, more tests, more visits, more procedures, more drugs.

Over the years this tendency “to do more” has been exacerbated by the continuing reductions in provider payment schedules. Yesterday I looked at a client’s Medicare Summary Notice for an annual pap smear. The payment to the gynecologist was about what I pay for a haircut. Now, I get a very nice haircut and I appreciate the skill that goes into cutting my hair. But let’s be serious. Shouldn’t Medicare pay a gynecologist more for a medical procedure than I pay for a haircut?

Believe it or not, there are also patients who waste medical resources in outrageous ways. Some are drug abusers, some don’t have access to doctors so use emergency room services inappropriately and some have mental illness which leads them to overutilize medical services as a result of their anxiety. Traditional Medicare has no ability to manage these issues.

Who pays for all these excesses? We all do. 75% of the cost of Medicare Part B which covers outpatient services is paid from our tax dollars, yours and mine.   Not only that, because the poor gynecologist mentioned above has to make up what she lost on Medicare patients, those of us in the non-Medicare world pay more and deal with more hassles.

Private Insurance

Private insurance is often ridiculous in the other extreme. Unlike Medicare which is a blank check for anyone with a Medicare card, private insurers are hard at work to see that they only pay for services they are obligated to pay for. This has become an incredible hassle for patients who have to preauthorize services, for example. Preauthorization is either the patient or provider calling the insurer in advance to make sure services will be paid for. Some of the “rules” insurers impose do feel like tactics to limit or even deny their payment for necessary care. Claims are often denied for no legitimate reason.   Of course, the advantage of private insurance in spite of all this inconvenience is that there’s some effort to ensure that claims are paid for medically necessary and appropriate services which ultimately has some mitigating effect on premium increases.

Of course, there still are some models in our country that are in between these two extremes. I was an executive with one, Kaiser Permanente, a non-profit insurer combined with a large multi-specialty medical group.    This is the type of model President Obama touted before healthcare reform was passed. Unfortunately for the American taxpayer, however, most care in this country is provided in the fee for service world.

Back to Mr. Krugman. I quote below from Mr. Krugman’s work with my response.

Mr. Krugman:

“For Medicare, with all its flaws, works better than private insurance. It has less bureaucracy and, hence, lower administrative costs than private insurers. It has been more successful in controlling costs. While Medicare expenses per beneficiary have soared over the past 40 years, they’ve risen significantly less than private insurance premiums.”
Maura Carley:

Mr. Krugman, for your information Medicare outsources payment of claims to the same private companies you complain about. Those companies likely have lower administrative costs dealing with Medicare because everything coded properly is paid and paid too easily.
Of course Medicare can control its costs more easily than private insurance because the government decides what to pay physicians, hospitals and others for service.   If I could decide what to pay for our mortgage rather than the bank, I would definitely have a lower mortgage payment than I do. Anyway, over the years, low Medicare payment rates have continued to exacerbate the dysfunction in the private insurance world as providers try to “make up” what they lost on Medicare.
Mr. Krugman:

“It’s true that Medicare expenses could be reduced by requiring high-income American to pay higher premiums . . .”
Maura Carley:

Mr. Krugman, it’s 2011. Higher income Americans have been paying more for their Part B premiums since 2007! Some are paying $369.10/month for the pleasure of supporting a system through both premiums and taxes that all their doctors have opted out of due to Medicare’s low payment rates. By the way, this year Medicare Part D premiums, the outpatient prescription drug program, are income indexed too! In fact, many Americans are seeing a substantial portion of their social security checks go to covering Part B and D premiums. Think about it – most pay taxes on their social security income while many have hundreds of dollars per month going to Part B and Part D premiums subtracted from that “income.” Is this sustainable? I think not.


When Medicare first passed, it was a god-send for patients and providers. Some patients who hadn’t enjoyed good access to care could access services. Providers who had provided service without compensation now had a source of payment. Fast forward to the present era and we are in deep trouble because the status quo is not sustainable for many of the reasons mentioned earlier.

Of course, because of income-indexing, Medicare has become far more complex to administer. Income-indexing may be more equitable but has added substantially to the complexity and cost of running Medicare. The IRS must supply tax returns to social security every year to determine appropriate annual Part B and Part D premium levels which are then implemented and communicated to individuals.   There are also forms to file with social security to request a lower Part B premium under certain conditions.  All the while, there are more government employees to manage all this.

Because Mr. Krugman refers to Medicare with such warmth, I would like all readers to know how the federal government handles Medicare Part B enrollment premium penalties.  Medicare’s General Enrollment period which is the first quarter of each year is designed to be punitive. If you enroll in Medicare then, you will pay premium penalties for life. The government must receive a great deal of revenue from these penalties so this egregious practice continues.

More outrageous than the financial penalties is that you have a gap in coverage by design.

In my opinion, how the government handles late Medicare enrollments is more egregious and immoral than just about the sneakiest thing a private insurer has tried.   I can’t see any justification whatsoever for imposing a gap in coverage for anyone age 65 or over. Ironically, if you take social security early, you are sent your Medicare card at age 65 so typically aren’t at risk for incurring an enrollment penalty or gap in coverage. On the other hand, people who don’t take social security early have to actively enroll in Medicare so it is only the people who’ve worked the longest, paid into the system more years, and waited to use their Medicare benefits that end up penalized and have a gap in Medicare coverage. It is indefensible.

Please do not think my views suggest I am a defender of private, for-profit insurance companies. I only worked for non-profit insurance companies and believe the field was more sane when non-profit insurers were more prevalent. At any rate, please do read David Brooks.

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