A Small Medicare Solution?

Now I have officially joined the Elderly (that is, I am now a geezer) and am forced to carry a Medicare card, I wonder what I should do to help my fellow Baby Boomers. We are told by all responsible economists that Medicare is in trouble, that costs are rapidly outstripping income. There appears to be no solution to the problem. Each year politicians croak about eliminating “fraud, waste and abuse” but it never happens. If Medicare taxes are raised to cover the rising cost of elderly health care, the burden becomes oppressive and reduces prosperity. As we grow older, more of us fall victim to Alzheimer’s and other dementias, and we become huge consumers of health care dollars. What should be done?

One small possible solution is HSAs, Health Savings Accounts for Medicare recipients. We who are forced into Medicare and have relatively good health might be better off with a high deductible insurance plan. We could roll the unused monies in the HSA over from year to year and accumulate quite a nice nest egg, a savings account we could use down the road when our needs are greater.

Do HSAs reduce medical costs? While there are many economists that compile lists of reasons why we should not see medical costs go down, those are theoretical issues. In theory, someone told me, there is no difference between practice and theory. But in practice, there is. So while some say HSAs won’t help, they really do. The reason is very simple. If doctors can be paid in full through an HSA card, there is an incentive to offer lower cost services. And there is the dilemma. There is no downward pressure on prices since most plans insulate the patient against the actual cost.

A friend told me of a health fair his hospital offered. A proctologist was offering free digital rectal exams (DREs) to check men for prostate cancer. An older gentleman was told his DRE was clean and there was no sign of cancer. The patient was happy, and the doctor asked, “How long has it been since your last DRE?” Six weeks, said the patient. The doctor was dumbfounded, and asked the patient why he had come in for another one so soon?

“Well, it was free,” was the reply.

Free care gets used. But no care is free. TANSTAAFL, said Robert Heinlein, in The Moon is a Harsh Mistress. “There ain’t no such thing as a free lunch.” The patient abusing the “free exams” wasted valuable time and resources. He took away time that could have been spent on another more appropriate patient. When you make anything free, whether it is a screening or emergency room care, it gets used more and with less thought.

But if I have an HSA, pay for my own medical care, and can roll the excess money over each year, I have an incentive to shop. In fact, HSAs could easily include a small educational component where patients learn how to shop, ask about fees, and negotiate. “It’s your money,” should be the motto, “take good care of it!”

Doubters will cry that our older people are not able to fund an HSA. First, that is not at all true. Citizens over the age of 65 have a good deal of disposable income. We are actually better off than those in their thirties and forties and fifties who are funding our retirements. (Social security is a Ponzi scheme, since all the taxes I paid into it are long since spent on bridges to nowhere and other boondoggles.) So we often could afford it.

What about those who can’t? A solution to that would be for Social Security to fund 75% of the HSA the first year, and decrease that percent each year by 15% until by the fifth year, we geezers are funding it all by ourselves. Suppose you changed the plan so I could enroll in a high-deductible plan plus an HSA. I would be responsible for all my medical expenses up to $3,000. The Feds would give me $2250 and I would put in $750. That gives me $3,000 to pay my deductible, and suppose I don’t use it all. Suppose I take good care of myself, only use $1,000 in the first year? I now have $2,000 to roll over. I pay in $1,200, the Feds give their incentive of $1,800, and I now have $5,000 in my HSA. Each year my HSA would grow, and I would pay a greater portion until after five years, I am paying the whole $3,000.

An option might be that if I raise my deductible, my insurance should cost less that year. Suppose the Feds and I split the savings? That would further incentivize me to assume more and more responsibility for my own health care.

Government isn’t necessarily the problem, and it usually isn’t the solution. But using good design in government entitlements can nudge old geezers like me toward more self-care and wiser use of resources.