Fulfilling the Promise of Medicare

by | December 4, 2023

Whom does Medicare serve? 

Medicare serves roughly 60 million Americans who depend on it for healthcare insurance. But Medicare also serves an array of for-profit industries, whose business models depend on making sure that Medicare, as such, never offers comprehensive coverage. Our current system is a scheme designed to leave profitable gaps in coverage to be filled by the private sector. In doing so, it makes US healthcare more expensive, complicated, inefficient, and grotesque than it needs to be.

In what follows, I explain why I have arrived at that conclusion.

To begin, a disclaimer: I am not an unbiased observer. I have just run the gauntlet of Medicare enrollment, as one must upon turning 65 years of age. That has left me scarred and biased, but also better informed about the extraordinary wasteful costs—financial and emotional—that the US Medicare ‘non-system’ imposes. 

It has also left me convinced that there must be a better way of providing healthcare—to seniors and to everyone else. But the obstacle to achieving that superior outcome is not our imagination, nor is it our collective financial resources. Rather it is the opposition of vested interests that profit from the status quo. That may not be a novel insight, but that does not make it any less true.

Medicare: Basics

Medicare is a US federal health insurance program for those 65 and older, for certain younger people with disabilities, and for those with end-stage renal disease. Primarily, however, it is for ‘senior citizens.’ 

Medicare enrollment is mandatory during a seven-month period around one’s 65th birthday, with non-compliance subject to a fine. However, the size of non-compliance fines varies, and may not even apply to some who fail to enroll. That’s peculiar and is just a taste of the mystifying world that is Medicare.

The Good. Heck, Even the Excellent

Before turning to my criticisms, let me state categorically and without reservation that America is much, much better off with Medicare than without it. 

My aim is not to advocate tearing down or wholesale replacing Medicare. Rather, it is to explore ways that would enable Medicare to better realize its promise, and in so doing, offer both superior healthcare to millions and lower costs for all.

To underscore an essential point, Medicare is remarkably good public policy because it provides cheaper and more accessible medical coverage than would otherwise be available for millions of Americans. 

For example, as a self-employed individual my annual premiums are roughly one-third cheaper with Medicare (augmented by supplemental private insurance) than they were under my previous coverage provided by the Affordable Care Act (i.e., ‘Obamacare’). Moreover, it is probable that my out-of-pocket expenses for co-payments, co-insurance, and deductibles will be much lower under Medicare (the actual outcome depends on what misfortunes I might suffer). But I must also note that I won’t get the breadth of healthcare coverage that I had before, which is important for reasons I outline below.

Crucially, for many Americans, enrolling in Medicare provides them with health insurance coverage they could not previously afford or access. Specifically, about 8% of all Americans do not have health insurance, but that number falls to 1.6% for those 65 and older, i.e., those for whom Medicare was principally designed. That means that roughly 3.6 million Americans have moved from the ranks of the uninsured to the insured primarily because of the existence of Medicare. 

The Bad and the Ugly

But Medicare also comes with an alarming amount of confusion and, I suspect, outright disinformation. Indeed, besieged with too much choice, lots of obfuscation, and considerable angst, I—like so many others—engaged the services of a Medicare consultant to get me through the Medicare enrollment process. My consultant was very helpful, patient with my groans (she undoubtedly had heard worse), and pleasant. 

I needed her help given the confusion I faced. Indeed, it is difficult to overstate the complexity of Medicare and the array of complementary private insurance schemes offered alongside it.

For the uninitiated, Medicare is a veritable alphabet of choices, arranged alphabetically from ‘A’ to—I believe—at least ‘N’. I barely made it to ‘G’ before giving up. Those plans cover hospitalization, doctors, prescription drugs, and other key medical services. 

And as with most kinds of insurance, the details are spelled out in numbing detail across reams of pages. But unlike those annoying software disclaimers, where we scroll down and click ‘accept all’, not paying attention to the Medicare fine print can end up being an expensive (or even deadly) mistake. 

Profiting From Unnecessary Complexity

All of which made me ask, what is the point of all this complexity, confusion, and disorder?

Call me a cynic (I am, after all, an economist), but I have suspicions that much of what I and others over 65 have encountered during Medicare enrollment is the by-product of a money-making scheme, which leverages confusion, complexity, and fear to get seniors to pay more than they should for healthcare coverage. I strongly suspect the complexity we encounter is purposeful, not accidental. 

Consider the following. Medicare does not cover all medical conditions. Thus, if not augmented by private insurance, seniors covered by Medicare could be forced to pay financially ruinous bills for gaps in coverage, for deductibles, and for co-insurance. To fill those gaps, an enormous industry of consultants and insurance companies has emerged, taking advantage of the befuddling and byzantine process, and resulting confusion and fear, to sell services.

Fear is the suggestion, in many cases merited, that without added insurance, seniors could face huge financial costs if they get sick or hurt. Confusion fosters the impression, also merited, that decisions about which insurance coverage to buy are too complicated to be left to seniors. 

Presto, an industry of consultants and advisers, marketing themselves as ‘honest brokers’, has mushroomed to guide uninformed and perhaps gullible seniors through the thicket of choices, documents, and enrollment procedures required to supplement Medicare with private insurance.

None of this would be necessary, of course, if Medicare offered comprehensive coverage and limited financial risk to seniors. But it does neither.

Why not? Well, back in 1965, when Medicare was introduced, it might have been plausible to argue that items not covered, such as basic dental, vision, and hearing care, were not central to the health and well-being of seniors. That is a laughable proposition today.

Equally absurd is the idea that individuals should pay up to 20% of the cost of various procedures. That might make sense for routine checkups but is unviable for many when what is at stake are acute, prolonged, or other very expensive medical treatments.

So, why hasn’t the US government passed legislation to expand Medicare coverage for all health services and to reduce financial risk to seniors?

Partly, it is about cost. Taxes would have to go up, no question. But an equally important reason is the powerful opposition to genuinely universal Medicare coverage by vested interests. Those include for-profit hospitals preferring higher payments from private insurers than lower ones from Medicare, paid healthcare consultants whose role is to guide us through unnecessary complexity, and insurance companies whose policies appear to cover gaps in coverage but which, in fact, may not. In aggregate, a powerful lobby opposes universal Medicare. 

Why Should We Care?

Some might ask, why should we care? Aren’t we getting what is intended, namely healthcare coverage for our seniors?

To which the answers are: This can be done more cheaply and, no, we aren’t getting the coverage for seniors that they require. 

On the costs, I won’t go into the numbing detail here (the interested reader can find details here and here), but most public health economists and experts have come to the conclusion that US healthcare is more expensive and less efficient than those of other countries with single-payer systems. Americans pay nearly twice as much, as a share of GDP, for healthcare than denizens of Europe, the UK, Canada, or Japan. That outcome stems in large part from the mixed public/private provision of US healthcare with higher administrative, medical, and drug costs than found in peer countries. Medicare is an agglomeration of part-public, part-private healthcare insurance and thus is a microcosm of the larger disfunction of US healthcare provision.

Moreover, Medicare, even when complemented by private insurance, fails to provide comprehensive and affordable coverage. 

For example, Medicare does not cover dental, eye, or hearing care. Nor do many ‘supplemental’ private insurance policies, which ostensibly are meant to plug gaps in Medicare. Apparently, the folks behind the ‘system’ don’t believe that old people ever have rotting teeth, bad eyesight, or a hard time hearing.

Moreover, Medicare ‘Advantage’ plans, another form of private ‘gap’ insurance for Medicare recipients that generally do cover dental, vision and hearing needs, typically come with higher deductibles and co-insurance payments, which can leave policyholders on the hook for thousands of dollars owed in the event of serious accident or disease. 

Seniors are therefore advised, as I was in my consultations, that we must choose between covering everyday needs, such as dental work or hearing aids, or ensuring against catastrophic outcomes. Apparently, we cannot insure all our potential (indeed, probable) needs.

Concluding Remarks

None of what I have described means the current setup is utterly dysfunctional. It is not, and most seniors benefit vastly from it.

Rather, the takeaways are these:

  • First, it would be better for Medicare to simply offer seniors universal coverage for ailments and to cap their out-of-pocket potential liability at reasonable levels, ideally scaled by ‘means tests’ according to income and wealth. That enhancement would meet needs and remove anxiety. But it would also displace armies of private healthcare consultants and insurers, meaning it would be vigorously opposed by them.
  • Second, comprehensive coverage offered by a single-payer system with its vast buying leverage (a ‘monopsonist’ in the geekdom of economics) would grant Medicare the power to reduce the cost of healthcare for the ageing demographic most likely to need it. That, in turn, would lower costs for those who pay for it, namely today’s younger workers. Instead, in today’s mixed public-private system, everyone overpays for inadequate coverage.

In short, count me in on universal healthcare coverage. It beats the alternative that we currently ‘enjoy’. 

It is time to start offering genuine comprehensive healthcare for our seniors, as well as for those less fortunate. It is the right thing to do—morally and economically. And it might eventually help us transition to an even better place where everyone, from birth to death, enjoys universal healthcare services at affordable prices.

Filed Under: Featured . Politics

About the Author

Larry Hatheway has over 25 years’ experience as an economist and multi-asset investment professional. He is co-founder, with Alexander Friedman, of Jackson Hole Economics, a non-profit offering commentary and analysis on the global economy, matters of public policy, and capital markets. Larry is also the founder of HarborAdvisors, LLC, an investment advisory firm catering to family offices and institutional clients worldwide.

Previously, Larry worked at GAM Investments from 2015-2019 as Group Chief Economist and Global Head of Investment Solutions, where he was responsible for a team of 50 investment professionals managing over $10bn in assets. While at GAM, Larry authored numerous articles on the world economy, policy-making, and multi-asset investment strategy.

From 1992 until 2015 Larry worked at UBS Investment Bank as Chief Economist (2005-2015), Head of Global Asset Allocation (2001-2012), Global Head of Fixed Income and Currency Strategy (1998-2001), Chief Economist, Asia (1995-1998) and Senior International Economist (1992-1995). Larry is widely recognized for his appearances on Bloomberg TV, CNBC, the BBC, CNN, and other media outlets. He frequently publishes articles and opinion pieces for Bloomberg, Barron’s, and Project Syndicate, among others.

Larry holds a PhD in Economics from the University of Texas, an MA in International Studies from the Johns Hopkins University, and a BA in History and German from Whitman College. Larry is married with four grown children and resides with his wife in Redding, CT, alongside their dog, chickens, bees, and a few ‘loaner’ sheep and goats.

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