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It's not 1965 anymore
New technology requires new ways to pay for it

By Merrill Goozner
Posted: March 2, 2013 - 12:01 am ET

A lot has changed in healthcare since Medicare began in 1965. Could the law's architects have imagined artificial hips, electronic medical records and sensors that attach to your cellphones to read blood pressure and heart beat? The cover story in this month's Atlantic Magazine looks at an artificial intelligence machine that uses its constantly updated storehouse of medical knowledge to diagnose illness from personal health data. The robot could one day make your doctor obsolete, the story suggested.

OK. That's hyperbole. But there's no doubt that healthcare is on the cusp of a technological revolution. Decades of work and billions in government cash spent on deploying computers in the nation's hospitals and physician offices will soon give way to the sophisticated use of the data stored on that hardware. Researchers are already talking about mining store-

houses of de-identified medical records to rapidly advance the practice of medicine—and weed out what doesn't work.

Amid healthcare's rapidly changing technological landscape, one thing remains unchanged: the structure of how the nation pays for its senior citizen healthcare program. The benefit structure created in 1965 is the same one we have today. Hospitalization (Part A) is paid for out of the payroll tax with an extremely high deductible—$1,184 in 2013 for every hospital stay.

Retirees also have a separate insurance plan for physician visits (Part B). Though they pay a small premium, it is mostly subsidized by the government's general fund with a relatively low deductible and 20% copays for every visit. There are also publicly subsidized private insurance plans for Part D, the drug benefit enacted in 2003, each with its own co-pays and deductibles.

This fractured benefit structure would produce tremendous financial uncertainty if it weren't for the fact that nearly 90% of seniors buy or receive supplemental “Medigap” policies. But what is individually smart is socially disastrous. Supplemental insurance removes any incentive for seniors to choose wisely in the medical marketplace.

Medicare spending is already 33% higher for beneficiaries with Medigap policies than those without, according to testimony offered on Capitol Hill last week by Glenn Hackbarth, chairman of the Medicare Payment Advisory Commission. Imagine how much higher it will be once all those high-tech gadgets for continuously monitoring of blood pressure, glucose and urine protein become widely available.

The time has come to make Medicare's benefit structure as modern as the technology it pays for. It should wrap all its benefits into a single insurance plan that protects seniors from catastrophic out-of-pocket costs while providing incentives through copays and deductibles to make them more discriminating purchasers of care.

Hackbarth outlined a potential benefit package that he said could lower Medicare spending by 4% if enacted along with a ban on Medigap policies. It would cap out-of-pocket expenses at $5,000 with an initial deductible for all medical expenses at $500. (The caps could be lower for the less well-off; a side benefit of a unified structure would be the ability to introduce greater means-testing into Medicare.)

The new benefit could have different copays for different services. This would enable the program to signal the high-value and low-value services. Those that are less medically advantageous would have the highest copays; services that provide the greatest medical benefit would have the lowest.

Unfortunately, MedPAC's recommendations remain a sideshow in Washington. Unless our dysfunctional political system acts, Medicare and other government health programs in about a month's time will be subjected to a mindless 2% across-the-board cut. If Hackbarth is right, Congress could save twice as much by creating a Medicare benefit structure worthy of the technology now being developed in our cutting-edge hospitals and labs.

Merrill Goozner, Editor


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