By Gretchen Jacobson, Tricia Neuman and Anthony Damico
Kaiser Family Foundation, October 2012
Over the past several decades, the idea of transforming Medicare from its current structure to one known as “premium support” has been raised intermittently as an approach for reforming the Medicare program, often in the context of efforts to reduce the federal debt and deficit. The primary goals of a premium support system are to reduce the growth in Medicare spending, and rely more on a competitive marketplace. While the parameters of various premium support proposals differ, the general idea is for the federal government to make a predetermined contribution on behalf of each person on Medicare that would be applied toward the premium for a health insurance plan.
This paper aims to help inform policy discussions by examining the potential implications of a leading premium support approach on Medicare premiums, the extent to which Medicare premiums would vary by state and by county, and the key factors that could drive variations in premiums under this approach. The analysis looks at an approach to premium support that ties federal payments to the second lowest cost plan offered in an area or traditional Medicare, whichever is lower. This approach is similar to the premium support proposal included in Chairman Paul Ryan’s (R-WI) budget proposal for FY2013 that was embraced by Presidential nominee Mitt Romney, and previously included in the Wyden-Ryan and Domenici-Rivlin proposals. The study focuses on beneficiaries’ Medicare premiums, but does not take into consideration out-of-pocket spending due to the effects of changes in benefits, cost-sharing requirements and premiums for supplemental insurance.
From the Discussion
These findings underscore the potential for highly disparate effects of a premium support system for beneficiaries across the country. The results show how individual decision making (plan choices), coupled with geographical variations in the cost of traditional Medicare and the private health plans, would play a major role in determining how well beneficiaries fare with respect to premiums under this approach.
The study estimates that the majority (59%) of Medicare beneficiaries would be expected to face additional premiums, based on current plan preferences, under the modeled premium support system. Clearly, a smaller share of beneficiaries would pay higher premiums if they instead enrolled in a low-cost plan offered in their area. In high-cost areas, such as Miami and Los Angeles, most beneficiaries in the traditional Medicare program would see a significant increase in Medicare premiums, unless they opted to enroll in a lower-cost private plan. Conversely, in low-cost areas, such as Honolulu County in Hawaii and Multnomah County in Oregon (which includes Portland), the majority of beneficiaries would not pay additional premiums if they remained in their plan (based on current enrollment in that county), but a sizeable minority (17% and 43%, respectively) would pay at least $100 more in monthly premiums for their Medicare coverage in a private plan.
Further, this analysis shows that premiums for traditional Medicare would likely vary across states, and within states, by county. If this system had been fully implemented in 2010, some would have paid the same Medicare premium, while others would have paid an additional $200 more per month in Medicare premiums, not considering other additional costs beneficiaries could potentially face, such as cost-sharing requirements for benefits covered by the plan, the cost of benefits not covered by the plan, and premiums for supplemental insurance.
Beyond premiums, other factors could be considered in choosing a plan, which may or may not be consistent with the choice of a low-cost plan. First, enrolling in a low-cost plan, if it requires changing from another plan, may require beneficiaries to change their doctors and other health care providers, posing potential problems for beneficiaries with long-standing relationships with their doctors, especially those with chronic conditions. Second, some beneficiaries may value the option to enroll in a highly-rated plan, but quality is not a factor in determining which plan is the benchmark plan. Third, low-cost plans in a given area may or may not have the capacity to accommodate all beneficiaries who wish to enroll in the plan. Fourth, the low-cost plans offered in an area could change each year or so, as has occurred in the Medicare Part D program, potentially creating instability for beneficiaries with modest incomes who would have a strong financial incentive to remain in a low-cost plan each year.
Given a lack of specificity about some of the key policy elements and questions about the likely response of the insurance industry and beneficiaries, there remains great uncertainty about the expected effects of this approach for elderly and disabled Americans in the future.
Limitations
* This study focuses narrowly on the expected effects of a premium support system on beneficiaries’ Medicare premiums – an approach that excludes the effects of changes in benefits, cost-sharing requirements and premiums for supplemental insurance.
* This study models the effects of a premium support system in a given year, but not the expected costs for beneficiaries over the longer term, including the effects of adverse selection for beneficiaries in traditional Medicare or the potential for Medicare spending caps to increase premiums for beneficiaries over time.
* This study does not examine the effects of a premium support system for beneficiaries with low-incomes, including dual-eligible beneficiaries who could also be affected by changes made to Medicaid, such as a Medicaid block grant.
* This study considers potential changes in plan behavior (changes in bids), but does not analyze the potential for insurers’ responses to vary, based on local market conditions.
* This study does not capture the nuances of beneficiaries’ plan switching behavior and only allows for beneficiaries to switch into a benchmark plan, rather than a plan that is less expensive than their current plan, but is not a benchmark plan.
* This study does not consider whether benchmark plans (if not traditional Medicare) would have sufficient capacity to serve all potential enrollees.
* Finally, this analysis does not consider the effect of a premium support system for other payers, including the federal government, state governments (Medicaid), or employers.
http://www.kff.org/medicare/upload/8373.pdf
Comment:
By Don McCanne, MD
When reforms for health care are proposed, the first response by many is, what will it cost me? In the case of the premium support model (voucher, or defined contribution), most people want to know what the premium will be. This meticulous 48-page study by Kaiser Family Foundation shows that for the majority of individuals, premiums would increase. But there is much more to premium support than merely the premium to be paid.
Reading the full report might be of interest to individuals who would want to see the complexities involved in simply determining the impact on premiums. In the excerpts above, some of the factors that were not considered are emphasized, especially in the list of limitations of the study. Because the proposal depends heavily on private insurance plans, there are a slew of potential negative impacts which can increase costs and impair access for the Medicare beneficiary – impacts that are far beyond those suggested by the list of limitations.
If you aren’t convinced by
now that premium support is a terrible idea, go to our website at www.pnhp.org and type in “premium support” in the search window and spend a an hour or so reading what we have to say. Then go back and read what Romney and Ryan have to say, and you’ll see what they deliberately left out. It is a scheme to slowly unwind the social contract of health care justice, when what we need to do is to improve that contract and expand it to cover everyone.