Fixing Healthcare for the Middle Class Fixes Healthcare For Medicare and Medicaid

The Middle Class Is Bank Rolling Medicare

If you are connected to the healthcare industry, you know that there is a lot of excitement around Medicare Advantage, CMS Value Based Care experiments, and Medicaid. These programs care for the most vulnerable people in our society. The feel-good vibes from creating solutions for this population is only matched by the unprecedented amount of money flowing into these programs and subsequently, flowing out to innovators. Hence the excitement from venture capital in this section of healthcare.

What you will hear less of is, where does this money to fund Medicare and Medicaid come from and how long will it last? I want to focus on where it comes from. (Nevermind that the Medicare fund is projected to run out in less than 10 years, that is a problem for another day that is coming very soon.) 

The bottom 90% pay for Medicare in the form of 1) Medicare payroll taxes, 2) Income tax, and 3) cross subsidizing lower reimbursement rates. The bottom 90% of wage earners paid for 39.2% of Medicare non-premium revenue in 2021, this represents 8.35% of their wages. (See appendix for all calculations and sources) Adding the 11.6% of income that wage earners on average pay for their own health insurance means they are spending 19.95% of their income on healthcare. If you think about it, with healthcare comprising nearly 20% of GDP, we should not be surprised that 19.95% of every dollar a wage earner earns, would go towards healthcare in some shape or form. 

Ignoring the Middle Class Hurts Medicare

Let’s do some thought experiments on why what’s bad for the commercial population is also bad for the Medicare population in the context of how Medicare is funded.

There is not much more that the middle class can give, they are already giving 20% of their wages to healthcare, and every year they give more as the Medicare fund relies more and more on the income tax to fund itself. Yet, anything that causes Medicare revenue to decrease is bad for vulnerable populations. When there is downward pressure on Medicare revenue, there will be downward pressure on provider reimbursement rates, upward pressure on Medicare premiums, and eventually, increases in cross subsidization of Medicare reimbursement rates by the commercial population. Unfortunately, the following 3 trends directly reduce Medicare revenue because they all directly reduce taxable income:

• High unemployment 
• 10k baby boomers retiring each day 
• Ever increasing commercial health insurance premiums 

There is nothing we can do as in industry about more people becoming Medicare eligible or high unemployment. However, there is something we can do to stop the endless march of health insurance premiums increasing. If we solve this, not only will we be increasing funding to Medicare, but we will also be increasing disposable income for wage earners. 

A Solution for the Middle Class and Medicare That Does Not Require Government Intervention

A solution that reduces health insurance premiums is direct primary care (DPC) when paid by the employer or the health plan when the DPC fee is less than the current PMPM employers or the health plans are paying for the suite of services that the DPC practice provides. 

Implementing DPC can reduce total medical spend by 30%. This would result in lower insurance premiums when implemented correctly by employers and their benefit consultants. The 30% reduction in premium if passed on to employees would have increased wages for all wage earners by $359 Billion in 2021. This not only increases wages for earners, but increases revenue to Medicare by $25.5 Billion, or a 3.6% increase to Medicare non premium revenue. Even if you extrapolate the $70M of savings generated by the 2021 CMS Direct Contracting (DCE) model to the entire Medicare population, the savings would only have been $12.5 Billion, half of what the DPC solution could produce for Medicare. (I do recognize that we need to also reduce the cost of care by eliminating waste, but we have not been very successful in decades)

Employer sponsored DPC combined with the appropriate modifications to the health plan is one of the most effective ways to increase wages and to increase revenue to Medicare without any policy changes or tax increases.