Breaking the Bank

Over the course of the last thirty years or so there have been several inflection points that I thought had the potential of rendering our healthcare system so expensive that major reform would be inevitable. For example, I thought the AIDS crisis, as it appeared in the 1980s and early 1990s, had that potential but that’s a bullet we’ve dodged.

We’ve reached another of those crossroads:

Federal Medicare officials are embracing medical guidelines for the treatment of hepatitis C that could result in tens of thousands of older Americans getting access to expensive new drugs that can cure the deadly infection.

This policy change would pay for treatment with a combination of new, expensive drugs for patients who haven’t responded to older treatment regimens and are approaching or have cirrhosis of the liver.

The shift has come about because of an Arizona man named Walter Bianco who was twice denied Medicare coverage for two new drugs that together cost about $150,000.

The potential total cost of that change of policy could result in an increase in spending of billions or tens of billions by the Medicare system which, in turn, would hasten the insolvency of the Medicare trust fund, presently anticipated in 2026 (we’ll get an update on that from the trustees soon). That wouldn’t necessarily provoke a fiscal crisis since the federal government is a monetary sovereign but it would provoke a political crisis and I honestly have no idea of its outcome.

And then there’s the Medicaid system.

10 comments… add one
  • steve

    Much more of a problem for Medicaid. The over 65 group with Hep C is not that large. Mean age is closer to 50, with growth at the younger end. Looks like another $10-$20 billion/year for Medicare, but a lot more for Medicaid and private insurers. Medicaid is easier as states just wont let people into the Medicaid program. Cant pay for it? Too bad. Private insurers are going to have a hard time not paying.

    (Page 6 for graphs)


  • That largely supports my key point, Steve. If treating Hep C using the new drug protocol gets too expensive for them, private insurers will start leaving the market.

    It probably won’t happen all at once but in some markets there’s only one private insurer.

  • Lee

    I am a little unclear as to how Medicare works. Watching my parents, it seems they were booted from the insurance they had though their jobs. My mom retired BEFORE she was 65, and had insurance through her retirement benefit–UNTIL she was 65, then she was essentially booted off and on to Medicare. My dad retired AFTER he was 65, and as soon as he retired, he was booted off onto Medicare. (They both got some sort of supplemental insurance through their retirements benefits.) If everyone HAS to go on to Medicare, we are in trouble.

  • It’s pretty easy to explain, Lee. Anyone who has worked and paid into the system via payroll deduction (or self-employment tax) or has a spouse who has done so is entitled to Medicare benefits. No one is required to take Medicare benefits although for practical purposes everyone who’s eligible is required to enroll.

    If you elect not to accept Medicare benefits, your alternatives are either private insurance or paying your own way. Either of those alternatives can be quite costly for an elderly person so most elect to use Medicare.

  • steve

    Lee- People dont have to go on Medicare. My wife is Medicare age but is still covered on our corporate plan. She is signed up for Part A as you pay a penalty if you delay signing up for it. It is rally up to the people paying for the private plan. (She will lose my private insurance when I retire and use Medicare. Not many companies can afford to pay for private insurance for retirees.)


  • I think the key point to understand is that a completely public healthcare system (whether single payer or national health service) in the absence of the will to ration or declare any services ineligible for reimbursement will probably add at least 30% to total U. S. healthcare spending, increasing by 4-8% in real dollars per year.

    With a non-healthcare economy growing at perhaps 1% per year, it’s not clear to me how that remains doable.

    Further aggravating the situation is that such a system would require a substantial increase in the total volume of healthcare services available. That can only be done with a substantial increase in the number of doctors, nurses, etc. or with major changes in how healthcare services are provided or both.

    Either one of those will produce an upheaval in the healthcare system.

  • michael reynolds

    Gideon makes the drug. Market cap around 125 billion. So the USG or insurers or both should buy the company, sell the drug at a more reasonable mark-up, probably turn a profit on the whole deal, while cutting costs to insurers.

  • michael reynolds

    Sorry, Gilead, not Gideon. Got my Bible confused.

  • steve

    From my POV, we are already undergoing a pretty significant upheaval. I have spent the last couple of months redesigning our department. I am now working on another department that we are taking over. In a way it is kind of liberating to not have to worry so much about revenues (meaning what the insurance companies are willing to pay for) but instead concentrate on designing a system that costs less while delivering better quality. It means that I have the freedom to question everything we do, and even stuff that other people do.

    I expect us to make significant cuts. What is clear, where you are correct, is that if technology keeps turning out new therapies that grow in cost faster than the economy it is not sustainable. That requires a political/cultural solution.


  • jan

    Medicare and SS are tied together. If you refuse medicare then you don’t get your SS benefits.

    It’s called government arm-wringing at it’s best. But, that’s how government gets it’s work done — by forcing people to do what they want citizens to do. The PPACA mandates are a prime example of that, as well as the one-fits-all unreasonable criteria constructed by the governmest in their plans.

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