Medicare Lite

Eric Siegel advises industry leading growth companies on strategic and transactional matters. He also taught entrepreneurship at the Wharton School for 36 years and co-authored books on business planning and studies focusing on growth strategy, corporate venturing and venture capital investing.    Email:  esiegel@siegelmanagement.com

Eric Siegel advises industry leading growth companies on strategic and transactional matters. He also taught entrepreneurship at the Wharton School for 36 years and co-authored books on business planning and studies focusing on growth strategy, corporate venturing and venture capital investing.

Email: esiegel@siegelmanagement.com

The longstanding healthcare debate is heating up and, as presidential campaigns accelerate, rhetoric around this subject will become increasingly hot.  

Many Democrats are proposing universal healthcare or Medicare-for-all, but until now, have not convincingly demonstrated the financial viability of these solutions. Republicans brand such proposals as proof that Democrats are socialists.

Republicans, in turn, will likely suggest inadequate healthcare policies, that may have economic backing, but do not guarantee proper health services for all.

Rather than labeling the “other side” as socialists or heartless bastards, it’s productive to take a step back, consider the core objectives of all and attempt to develop a viable plan that offers an acceptable degree of compromise and satisfaction for all audiences.

A first cardinal objective is that the US must provide high quality healthcare for all.  Take a look at a list of countries not offering universal healthcare – do we really want to be a part of that gang?

A second objective is embedded in the first – a blend of fairness and compassion in apportioning costs.   Many (not all) Americans and businesses, already burdened with sky-high healthcare costs, simply do not want to bear the cost of healthcare for people who cannot afford to pay for themselves.

A third objective holds the key to reconciling the first two objectives.  As almost all would agree, healthcare delivery in this country is too costly and grossly inefficient. Strategic steps must be taken to materially reduce these costs.

According to The Center for Medicare and Medicaid Services, the US spent $3.5 trillion on health care in 2018. Think of these expenditures as one gargantuan pie. Not an apple or cherry pie. This pie is filled with a pantry full of unappealing ingredients that combine to create an awful result that nonetheless must be fully consumed.  Substantive policy debate seems to center on how big of a slice everyone gets.

Many well-intentioned programs do not focus on decreasing the size of the pie, or how much we are spending on healthcare. The focus is more on inclusion (which is great) but far less so on cost control (not so great).

Democratic proposals raise concerns that the expenditure pie – and therefore individual slices – will increase in size.  Obamacare – noble in its goals and a first, vital step in a worthy journey – resulted in increased out of pocket expenditures for many individuals and businesses.  This includes small and medium sized businesses, not just corporate behemoths.

Most Republicans solutions reduce the quality of coverage and the percentage of Americans covered by health insurance.  These proposals suggest that the pain of fixing the health care mess should be borne by those who are least able to bear this pain.

The obvious answer is to reduce the size of the expenditure pie.  But let’s be clear. There is no free lunch.

If we could wave a magic wand and cut annual healthcare expenditure in half, what would this suggest for,the 18 million plus people that the CDC estimates are employed in the healthcare sector?  Or what would Medicare-for-all mean for the 2.66 million people that Statista estimates are employed in the private health insurance sector ?  In efforts to consider the lives of all citizens, the cost control brakes must be applied but not too abruptly.  

A gradual phase in of cost containment measures will allow for a more orderly transition related to associated job reductions.  For example, over time, workers who retire or leave the field will offset the number of workers who must be terminated. This will also give workers more extended notice of impending job reductions allowing for retraining and migration into other occupations and organizations.  The 2.66 million people employed in the private insurance sector are a “complication” that Medicare-for-all proponents don’t really discuss. Some might find employment working for an expanded Medicare program, but there would be plenty of pain and dislocation nonetheless.

Bottom line - if one starts with the premise that overall healthcare expenditures must be reduced, there must also be a realization that fewer dollars translates into fewer jobs and that those feeling the brunt of these job reductions must be treated humanely and with dignity.

Any proposal must do its best to reconcile the goals of universal health care with the legitimate cost concerns of what such a program would cost for unsubsidized individuals and businesses.  A focus on only one of these two goals would leave a lot of people justifiably angry.

By almost all accounts, Medicare is a successful and very popular program serving a population who would otherwise struggle to address healthcare needs.  However, one important shortcoming is that it leaves out the part of the population approaching Medicare age who still face onerous healthcare costs as compared to their younger counterparts.  Given this, one approach for reducing healthcare costs for all is to create a Medicare Lite program for individuals age 55-65, while maintaining the traditional Medicare for the over 65 audience (age 55 is an initial estimate, further study may suggest slightly younger or older is better).  Medicare Lite enrollees would pay higher premiums than those covered by Medicare as they are better able to shoulder higher costs than those over 65. However, Medicare Lite can nonetheless drive down out of pocket costs for these individuals by serving essentially as a bargaining agent for this older segment of the population as is the case with the Medicare population.

According to the Kaiser Family Foundation, the age 55-65 crowd is not attractive to private insurers as they represent 13% of the US population but 20% of expenditures. Moving these people into a Medicare-Lite program would create massive purchasing power as it would aggregate their demand for medical services and allow them – or Medicare Lite on their behalf - to more effectively bargain for lower costs. This sets the stage for cost screws to be steadily but strategically tightened.

This cost reduction effort would have to be gradual so as to avoid creating too much pain within the community of healthcare and private insurance sector workers.  Yet it must be sufficiently aggressive to drive down the cost of care and coverage for older Americans.

The above approach leaves private insurers with a younger, narrower and more appealing segment of the market who no longer will be burdened with subsidizing healthcare costs of the older, more costly segment.  

A smaller expenditure pie for the entirety of the health care sector will inevitably lead to a more acceptable level of health care costs for subsidized and unsubsidized individuals and for businesses.  Each will receive a smaller slice from a smaller pie. This frees up dollars making universal health care economically more viable. There are, no doubt, other solutions, but an approach that does not attack costs will be inadequate.  For those who like the broad direction of Obamacare but not its impact on costs, Medicare Lite may be the perfect solution.