Medicare Meets Mephistopheles by David A. Hyman is as funny, frightening and informative as anything I have read in ages. It is written from the perspective of the fool who sold his soul to the Devil for knowledge and power but instead became his agent for eternity. This book describes the growing "market share" in the U.S. for Lucifer, using recipes employed for centuries with politicians and lawyers, mixing the seven deadly sins of avarice, gluttony, envy, sloth, lust, anger and vanity.

Yes, this topic is quite germane for readers of this journal because every firm and every employee pays dearly for Medicare. But it is essential that all know how and why Medicare is in worse shape than the Social Security retirement fund. You know, the one some politicians say has a "trust fund" secured in a "lock box."

President Lyndon B. Johnson signed the first Medicare legislation on July 20, 1965, with little thought about the long-term burdens imposed for public health care. Medicare pays roughly 45% of all U.S. health expenditures. In 2000 there were 4 workers per retiree paying taxes to support 39.7 million beneficiaries. In 2010 this will drop to 3.7 workers for each of the 46 million Medicare recipients. Medicare now has four parts: hospitalization, outpatient services, managed care (added in 1997) and pharmaceuticals (added in 2003). Hospitalization costs every worker 2.9% of earned income, and outpatient services, managed care and pharmaceuticals is paid from general tax revenues and small premiums paid by beneficiaries. There is no "means testing" to get benefits with a result that from 75% to 90% of all taxpayers receive no benefit while paying into this intergenerational pyramid scheme.

Medicare pays about 17% of every health-care dollar spent in the U.S., 31% of all hospital revenues and 24% of all physician services. Computing the present value of the Medicare future financial shortfalls reveals a sobering thought. Without counting pharmaceuticals/prescription drug coverage, existing obligations total $54.6 trillion. Then add another $16.2 trillion for new pharmaceuticals. That total of $70.8 trillion is five times the U.S.'s current gross domestic product.

Analysis of system structural faults and their origins reveals merits of the saying "the Devil is in the details." There are examples that provide lessons to avoid repeating this failed approach in national policy. At Medicare's beginning, costs were paid on the basis of "usual, customary, and reasonable charges." Now Medicare costs are paid by "administered pricing," which allows government to dictate how much compensation a provider receives in a no-competition environment with defective incentives, inadequate monitoring, encouraged incompetence and "gaming" the system. This payment method, based on provider input (procedures performed or time spent) and not output (quality of care), causes great geographical disparities because of a "resource based relative value scale" used to compute payments that result in variations in compensation of over 50% in some cases for performing the same care. Therefore, Medicare has steadily moved health care toward mediocrity with increasing costs.

This system touts low overhead but has no marketing costs, and it uses the IRS to collect revenues and the Social Security Administration to process premiums from recipients - all with a 7% fraudulent claim rate from among the 1.3 million providers nationwide. And do not forget that most politicians have the moral vanity to insist that taxpayers subsidize health care for the elderly with coverage features more generous than those taxpayers are willing and able to buy for themselves. Do you think there is any connection between the $340-billion-a-year health-care industry, by far the largest lobbying and political-candidate contributor, and politicians?

Medicare thrives in large part because it allows each generation to mortgage the future of the next generation. The system relies on those seven deadly sins and the lost virtues of thrift and truthfulness among the public. Being honest about it, Medicare is an example of politician's vanity, portraying "sensitive caring" by spending other people's money. It is a truism learned from P.J. O'Rourke: "There is no virtue in compulsory government charity."

What to do to correct Medicare problems is another matter, and the following possible exorcisms have the Devil worried. Congress has had thoughts and concerns about:
  • Financial ability to sustain prescription drug coverage
  • Public response to means testing for beneficiaries (which should be a no-brainer)
  • Better and realistic enforcement of fraud cases
  • Reversal of the "administered pricing" means for provider compensation

Maybe it is time to call your congressional, strike that...member and urge government to begin the exorcism.