Medicare is a government health care program. But do you know just how big truly it is? In 2017, fee-for-service Medicare covered 48 million people and wrote over a billion+ checks for medical services. I think we can agree that is a lot. But here’s the rub: Medicare can affect you even if you don’t use it. It is so large in the U.S. that the price Medicare pays doctors influences what your private health insurance plan pays. But do you know where those prices come from? Probably not…. So sit back, and relax.
So, Medicare in Michigan pays for health services. This means it deals with tons of numbers and formulas in order to figure out what each service costs. Basically an actuary nightmare..
Now, with other types of insurance, this process is straightforward: if you wreck your car, you go to a mechanic (or a few), get a quote, and that’s the price. But it’s a very different process with medical care for some odd reason. Ever get a quote for draining a lower leg lesion? No? Let’s say you need to. Here’s what the Medicare payment formula would look like: To determine the cost, the government looks at three components: (1), the work involved (things like does the doctor need a lot of technical skill? Does the work require a lot of physical effort? Is it mentally stressful?); (2), it considers practice expenses (like overhead); and the (3) factor is the cost of malpractice insurance.
Each year, codes are added and updated, the formulas compute new prices, and Medicare writes another billion (or so) checks. So, yeah, Medicare is huge and only getting bigger within this country. But its impact is even bigger than you think. Why? Because private plans often use Medicare prices as a benchmark. So what does that mean? That means Medicare prices ripple throughout the entire health insurance market with the pre-65 age group. And because these prices have such a large impact, getting them right is critical. So are they right? Probably not, because the current system has many problems, such as: (1) Only a select group of doctors is asked to set prices. (2) The AMA committee representing those doctors can cherry pick cost estimates and the committee is biased in favor of specialties.