Study: Canada Points Way To Saving Medicare

CIA map of Canada

CIA map of Canada (Wikimedia Commons)

Plenty of rhetoric this election season has warned that Medicare, the government health coverage for seniors, will go bankrupt in a few years. (CNN does an excellent fact-check of those claims here.)

What is to be done? The candidates propose differing remedies, but a research letter just out in The Archives of Internal Medicine analyzed decades of Medicare data and offers a persuasive case for an alternative solution: Do as the Canadians do.

It estimates that if the United States Medicare system were more like Canada’s, we could have saved more than $2 trillion since 1980. Instead, our Medicare spending on seniors has grown at almost triple the rate of Canada’s.

Drs. Steffie Woolhandler and David Himmelstein

Drs. Steffie Woolhandler and David Himmelstein

The authors, Dr. David U. Himmelstein and Dr. Steffie Woolhandler, are professors at the City University of New York’s School of Public Health and visiting professors at Harvard Medical School. They are also co-founders of Physicians for a National Health Program and prominent advocates for a single-payer system in the United States. From the press release:

After adjusting for inflation, the authors found U.S. Medicare spending per elderly enrollee rose 198.7 percent from 1980 through 2009. In Canada, the comparable figure was 73 percent.

According to the authors, the findings have important implications for the debate on how to save Medicare. “Had U.S. Medicare spending per elderly enrollee increased as slowly as in Canada, the savings from 1980 through 2009 would have totaled $2.156 trillion,” said Himmelstein. “That’s equivalent to more than one-sixth of the U.S. national debt.”

The new findings appear today in the Archives of Internal Medicine, a leading medical journal published by the American Medical Association. The article, which takes the form of a research letter, includes supplementary analyses based on less detailed data showing that the U.S. could have reaped even larger savings – nearly $3 trillion – from 1971 to 2009.

The article cites several reasons for Canada’s better record on cost containment: Less paperwork and administrative bloat throughout their health system (administrative costs account for 16.7 percent of total health spending vs. 31 percent in the U.S.); the use of lump-sum budgets for hospitals; stringent controls on spending for new buildings and expensive new equipment; the use of single-buyer purchasing power to rein in drug and device prices; relatively low litigation and malpractice costs; and an emphasis on primary care.

Woolhandler commented: “In a nutshell, including the elderly in a universal, nonprofit, publicly administered single-payer system has been the key to Canada’s cost control. Although U.S. Medicare is often called a single-payer system, that’s not quite accurate. It’s true that traditional Medicare is relatively efficient – only about 2 percent of its budget goes to administration, according the most recent trustees’ report, versus about 14 percent for privately run Medicare managed-care plans – but Medicare is only one of many health care payers in the United States.

“As a result,” Woolhandler said, “doctors’ and hospitals’ administrative costs are inflated by having to deal with a multitude of payers and by having to track eligibility, attribute costs and bill for individual services. This extra paperwork and bureaucracy is a major contributor to rising costs in the U.S., and these costs spill over into the relatively efficient Medicare program.

“In contrast, Canada’s single-payer system is much more streamlined and lean throughout, with big dividends for clinical care.”

The press release connects the political dots a bit:

The article notes that some U.S. politicians advocate replacing traditional Medicare with vouchers that seniors could use to buy private coverage. Still others advocate offering incentives for health providers to limit care. Yet none of these proposals have proven themselves to be effective in containing costs, the authors write.

“Canada’s road-tested cost containment methods offer an alternative,” they say.

I asked Drs. Himmelstein and Woolhandler if they could relate their findings even more directly to the impending election. They replied that in their view, the Romney/Ryan ticket would be much worse for Medicare and the seniors who depend on it:

U.S. Medicare cost growth has exceeded Canadian Medicare cost growth for most of the past 40 years. This has been true under Republican administrations as well as Democratic ones. The only two slowdowns in U.S. Medicare cost growth occured during wage and price controls in the early 1970′s and for a few years after passage of the Balanced Budget Act of 1998 at the end of the Clinton Administration.

Despite the fact that Medicare costs have grown under both Republican and Democratic administrations, it’s clear that a Romney-Ryan victory would further fuel the Medicare cost crisis. Romney and Ryan are committed to accelerating the privatization of Medicare — although it is well known that private plans (also known as Medicare Advantage or Medicare HMOs) raise costs to Medicare. A senior who enrolls in a Medicare HMO cost the taxpayers 25% more in 2012 than that senior would have cost had he/she been enrolled in traditional Medicare. This overpayment is due to Medicare HMOs’ cherry-picking, a Congressionally-mandated overpayment to Medicare HMOs initiated by the Medicare Modernization Act of 2003, and a longstanding subsidy related to Medicare HMO enrollees receiving about 3% of their care at VA hospitals.

One of the few real cost control measures in the 2010 Affordable Care Act (ACA) was a reduction in Medicare’s overpayment to these private plans. For instance, Medicare’s overpayment to private plans in 2009 (just prior to passage of the ACA) was a whopping 32%. The ACA’s cut to the Medicare HMO overpayment makes up almost a third of the $715 billion dollar Medicare savings contained in the ACA, savings provisions that Romney-Ryan have attacked and said they would repeal. So Romney and Ryan have told us that they would 1) push even more seniors into private plans, and 2) repeal the measures in the ACA that were meant to bring payments to private plans in line with costs in traditional Medicare. It’s clear that when in comes to the Medicare cost crisis, a Romney/Ryan victory would make a bad situation worse.

Quite apart from these changes, which would drive up the total costs of caring for senior citizens, a Romney/Ryan victory would worsen the affordability of health care by making seniors pay a higher share of these total costs, and by reducing federal support for Medicaid (much of which goes to provide supplemental coverage to impoverished seniors).

Readers? Reactions?

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  • catherinalucy

    U.S should improve a lot about the medicare facilities.

  • Dennis Byron

    This pair has been arguing for a total single payer approach for years. This is just a bass-ackwards way of arguing for it. (Their argument is Medicare for seniors here in the U.S. would be wondrous if it were part of a single payer approach for everyone like they have in Canada.) I personally have nothing against single payer especially because as a retiree I won’t have to pay the 20%-25% Massachusetts income and sales taxes it would take to make it happen. (Actually I guess I’d have to pay some of the sales taxes unless I run over the border to do my shopping.)

    However the pair make many at least misleading statements about the U.S. Medicare system (I’m basing this on the context of your blog post, not reading their article):

    You say they say:

    “It’s true that traditional Medicare is relatively efficient – only about 2 percent of its budget goes to administration…”

    Actually that’s not true on two levels.
    – At the wonky level, the 2% claim does not compare the cost per beneficiary, the correct way to measure such things, nor does the 2% claim properly account for traditional Medicare Part A/B administrative functions performed in other parts of the U.S. government or by providers.
    – On the easy-to-understand level, the “Medicare is efficient” claim does not count the 25% fraud/waste/abuse in traditional Medicare Part A/B spending according to Dr. Berwick.

    You say they say:

    “Medicare is only one of many health care payers in the United States.”

    That’s true but misleading when discussing U.S. Medicare. In fact, Medicare is only one of many health care payers just in U.S. Medicare Part A/B itself. Many seniors have three or more insurers counting the insurance companies that adminsiter their traditional Medicare Part A/B benefits. 95% of seniors on traditional Medicare Part A/B depend on multiple private insurers for their catastrophic or near-catastrophic coverage, more affordable health care services (traditional Medicare has almost prohibitively expensive co-pays and deductibles) and coverage of many other health care services such as annual physical exams and medicine not provided by traditional Medicare Part A/B.

    The number of such seniors needing multiple insurers is decreasing as a percent of total however because of the increasing popularity of Part A/B/C Medicare health plans. Strangely the authors criticize Part A/B/C health plans as privately run but Part A/B/C health plans are no more or less privately run than traditional Medicare Parts A and B? I would think the authors would want to get everyone on a capitated, accountable-care single-payer Part C Medicare health plan given what you say they say about single payer, the administrative burden of the traditional Medicare Part A/B fee for service process, and the importance of primary care, etc.

    You say they say a person on a capitated single-payer Part A/B/C Medicare health plan will cost the government 25% more than a person on traditional fee-for-service Medicare Part A and B in 2012. This 25% number is based partially on a disproven theory that cherry picking takes place (see Journal of Managed Care, September 2012; article by Harvard professor Song et al) The expectation according to the Medicare trustees is that on average people on Part A/B/C will cost 7% more than people on Part A/B only (including some only on Part A, which makes these comparisons very apples to oranges in favor of fee for service Medicare).

    But that 7% bump includes the special incentives used by CMS to get health plans into rural areas and into the inner city to help the poor. The vanilla HMOs (or accountable care organizations if you prefer) that make up most Part A/B/C Medicare health plans and that most Part A/B/C health plan members use cost the government 5% less than fee for service Traditional Medicare Parts A/B. (The trustees report on this subject does not count the incentives given under a CMS bonus demonstration project that has been ruled illegal by the Government Accountablility Office.)

    You say they say that some U.S. politicians are promoting vouchers. Could you name one? I’ve looked as far back as 1995 at Democratic (Aaron/Reischauer), Republican (counting blue dog Breaux as a Republican) and bipartisan (Ryan-Rivlin, Wyden-Ryan) Medicare reform proposals. They are all almost alike and I have yet to find one that proposes a voucher and all use the CMS to regulate Medicare just as it is regulated today.

    Speaking of context. you should note somewhere that Canada is currently having its own big and equally contentious debate about how to “save its Medicare,” that is, its entire universal health insurance system, which sunsets next year. (see but I have no idea what current status is.) It looks like their “Medicare” is more like our “Medicaid” but almost everyone qualifies. So things must not be as rosy north of the border as the two NYU professors think.

  • Keith

    “stringent controls on spending for new buildings and expensive new equipment”
    I think that about sums it up. Canada has controlled health care costs effectively by not providing the same level of health care as has the US.