Almost everyone agrees that America’s health-care system has the incentives all wrong. Under the fee-for-service system, doctors and hospitals get paid for doing more, even if added tests, operations and procedures have little chance of improving patients’ health. So what happens when someone proposes that we alter the incentives to reward better care, not more care? Well, Rep. Paul Ryan and Republicans found out. No surprise: Democrats slammed them for “ending Medicare as we know it.”

This predictably partisan reaction — preying upon the anxieties of retirees — must depress anyone who cares about the country’s future. It is only a slight exaggeration to say that unless we end Medicare “as we know it,” America “as we know it” will end. Spiraling health spending is the crux of our federal budget problem. In 1965 — the year Congress created Medicare and Medicaid — health spending was 2.6 percent of the budget. In 2010, it was 26.5 percent. The Obama administration estimates it will be 30.3 percent in 2016. By contrast, defense spending is about 20 percent; scientific research and development is 4 percent.

Uncontrolled health spending isn’t simply crowding out other government programs; it’s also dampening overall living standards. Health economists Michael Chernew, Richard Hirth and David Cutler recently reported that higher health costs consumed 35.7 percent of the increase in per capita income from 1999 to 2007. They also project, that under reasonable assumptions, it could absorb half or more of the gain between now and 2083.

Ryan proposes to change that. Beginning in 2022, new (not existing) Medicare beneficiaries would receive a voucher, valued initially at about $8,000. The theory is simple. Suddenly empowered, Medicare beneficiaries would shop for lowest-cost, highest-quality insurance plans providing a required package of benefits. The health-care delivery system would be forced to restructure by reducing costs and improving quality. Doctors, hospitals and clinics would form networks; there would be more “coordination” of care, helped by more investment in information technology; better use of deductibles and co-payments would reduce unnecessary trips to doctors’ offices or clinics.

It’s shock therapy. Would it work? No one knows, but two things are clear.

First, as Medicare goes, so goes the entire health-care system. Medicare is the nation’s largest insurance program, with 48 million recipients and spending last year of $520 billion. About 75 percent of beneficiaries have fee-for-service coverage. If Medicare remains largely fee-for-service, the rest of the system will, too.

Second, few doubt that today’s health-care system has much waste: medical care that does no good; high overhead costs. In a paper, Cutler documented some evidence. In one survey, 20 percent of patients reported that doctors repeated tests because records were unavailable; the health-care sector has twice as many clerical workers as nurses and nine times as many as doctors; care of patients with chronic conditions is often slapdash, so that, for example, only 43 percent of diabetics receive recommended treatment.

Fee-for-service is open-ended reimbursement; the government’s main tool to control Medicare’s costs is to hold down reimbursement rates. Doctors and hospitals respond by ordering more services to offset the rate limits. For all its flaws, say Ryan’s critics, this system beats his. Indeed, the Congressional Budget Office has estimated that in 2022, Ryan’s plan would be more than a third costlier than the status quo, because Medicare’s size makes it more effective at restraining reimbursement rates.

If the CBO is correct, Ryan’s plan fails; beneficiaries’ out-of-pocket costs would roughly double to cover the added expense. But the CBO may be wrong. When a voucher system was adopted for Medicare’s new drug benefit, the CBO overestimated its costs by a third; the Centers for Medicare and Medicaid Services’ overestimate was 42 percent. When fundamental changes are made to a program, the green-eyeshade types can’t easily predict the results. Moreover, as health expert James Capretta notes, “managed care” plans in the Medicare Advantage program in 2010 did not have higher costs than Medicare’s fee-for-service for similar coverage.

Under Ryan’s plan, incentives would shift. Medicare would no longer be an open ATM; the vouchers would limit total spending. Providers would face pressures to do more with less; there would certainly be charges that essential care was being denied. The Obama administration argues that better results can be achieved by modifying incentives within the existing system. Perhaps. But history suggests skepticism. Presidents since Jimmy Carter have made proposals to control spending, with meager results. From 1970 to 2008, Medicare spending per beneficiary increased an average of 9 percent annually.

It’s Ryan’s radicalism vs. President Obama’s tinkering. Which is realistic and which is wishful thinking? This important debate should rise above cheap political rhetoric. Burdened by runaway spending, Medicare “as we know it” is going to end. The only questions are when and on whose terms.

By Bill Kenealy

House Republicans scored a symbolic victory against last year’s health care reform law on Tuesday, passing a bill that defunds one of the law’s central tenets by a margin of 238-183.

H.R. 1213, “To repeal mandatory funding provided to States in the Patient Protection and Affordable Care Act to establish American Health Benefit Exchanges,” passed with unanimous Republican consent and five Democratic votes.

As the name implies, the bill targets the automatic funding intended for the newly mandated insurance exchanges, but does not, however, repeal the requirement that each state establish such an exchange.

"Repealing the fund will protect precious taxpayer resources at a time of record red ink," the bill’s sponsor, Rep. Fred Upton (R-Mich.), said on the House floor.

Elsewhere, a consumer health organization called the legislation misguided.

“House Republicans rhetorically exalt the private health insurance marketplace,” said Ron Pollack, executive director of Families USA. “They ironically, however, plan to defund the creation of such state marketplaces that would enable consumers and small businesses to choose the private health plans they want. This is a perfect example of how their politically motivated zeal to criticize the Affordable Care Act trumps even their long-stated principles.” 

According to LIMRA, the Life Insurance and Market Research Association, more than fifty percent of seniors ages 55-79 feel that changes to Medicare and Social Security will affect their ability to afford retirement.  This research presented at the 2011 Retirement Industry Conference, examined how retirees received their income and how it is subsequently spent.  It was revealed that eighty-five percent of seniors involved in the study relied on Social Security for their income while three quarters had a traditional pension plan for an income source, some utilizing both.  “These concerns, as well as inflation, are top of mind for all retirees but especially true for those with the lowest incomes and assets, who can least absorb additional unexpected costs during retirement,” said Marie Rice, corporate vice president, LIMRA Retirement Research. “With so many lawmakers talking about cutting costs to reduce the growing deficit and the financial implications resulting from it, retirees who might have felt secure that their retirement savings would last their lifetime, now recognize the uncertainty of the times and how vulnerable they are.” The changes currently occurring in government budgeting could have a serious effect on the income and financial future’s of retirees.

Tim Johnson, M.D. has spent over 25 years reporting for ABC News on medical issues.  He became increasingly concerned about the costs and lack of information regarding health care.  He offers his opinions for the first time in his new online book. In this excerpt from The Truth About Getting Sick in America, he examines the topic of whether the nation has a moral obligation to provide health care to everyone.

The Big Sermon

I am an ordained Protestant minister (I finished seminary before starting medical school), so you may not be too surprised if I think it is important to explore the moral issues related to health care. The most basic question, of course, is whether or not we have a moral obligation to provide health care for all our citizens.

Actually, polls show that most Americans feel we should not let people die on the streets, and that we should take care of them when they "really need it." The debates start when we try to discuss how to fulfill this obligation. Should we do it like we do now, with multiple levels of care, where those with money and/or good insurance can get attention more readily and earlier than those who don't have those resources? What's wrong with that as long as everyone eventually gets care? (As then-President George W. Bush once said, we have "access to care" because anyone can "just go to the emergency room.")

Well, there are several problems with this approach. One is economic. People without health insurance tend to delay getting care. When they finally get into the system, usually through the emergency room, their care will often be more complicated and costly than if they could have been treated at an earlier stage — or if their illness could have been prevented in the first place. The uninsured account for about one-fifth of ER visits in this country.

Take the example of an early stage pneumonia: Those of us with good insurance and ready access to some kind of primary care will get it treated with antibiotics — if it is caused by bacteria — but a person without insurance may delay to the point where they need to be admitted to the ICU with pulmonary failure, at which point their pneumonia may cost hundreds of thousands of dollars to treat.

Early care is key

But here's the point: If we are going to treat everyone eventually, when they get sick enough, why not provide basic insurance that would encourage people to get care earlier? We do have universal care in the sense that we usually don't let people die on the street. What we need is universal insurance coverage that provides preventive care and treatment at an earlier stage. I agree with those experts who point out that it is no accident that every other developed country has universal coverage and at significantly lower cost per person than the United States.

And we should never forget that those of us fortunate enough to have health insurance are, in fact, already helping to pay for those who don't have it — we just don't see it directly on our bills. Somebody has to pay, one way or another, for all the care provided in emergency rooms and public clinics for the uninsured. Most of that cost is paid by federal, state and local governments — and ultimately by taxpayers. Another way the uninsured are paid for is "cost shifting," in which hospitals charge higher prices to those with private insurance to help pay for the uninsured. So, again, if we are going to take care of the uninsured anyway (and pay for it), why not do it up front through direct insurance coverage, where the money spent could be more effective?

That's why I also favor mandates requiring everyone to buy health insurance — presuming it is priced fairly and that subsidies are available for those who truly cannot afford it. Again, if we can get over the emotional reaction of not liking "the government telling us what to do," insurance mandates make sense at several levels.

First, the basic idea of all insurance is to spread the risk as widely as possible. The more people paying into the insurance pool, the lower the cost for everyone. Second, it is also the fair thing to do. People who are young and healthy often complain about paying for something they don't need. But when they do get sick or have an accident and end up in the ER, they usually expect to be taken care of by society.

What about the "moral hazard" argument, which basically says that if you give people something for free or very cheaply, they will abuse the offer? A bowl of candy that is free, for example, will disappear more quickly than one where you have to pay by the piece. And some experts predict that is what will happen with universal health insurance coverage: People will abuse it by going to the doctor or clinic at the slightest twinge of pain. Clearly, this is a potential problem, which is why almost everyone agrees there has to be some sensible system of copays to prevent frivolous decisions. But aside from true hypochondriacs, my guess is that not many people will abuse the system for unnecessary major treatments or tests.

Insurance for all: a life-or-death issue

For me, the lack of good health insurance becomes a moral issue because we now have good data to show that people without insurance have a higher risk of premature death than those with it. A recent Harvard study suggests that as many as 45,000 people in this country die prematurely every year because they lack health insurance. How can people who call themselves "pro-life" live with that? I find it absolutely unacceptable as well as embarrassing that a country as rich as ours is the only developed country in the world without universal coverage!