Restructuring Medicare

Health Affairs, Health Policy Briefs, June 20, 2013

To reduce federal spending, advance entitlement reform, and simplify benefits, policy makers have proposed redesigning Medicare cost sharing.

What’s The Issue?

Some policy makers have recommended redesigning the program to protect beneficiaries from high out-of-pocket spending, better align incentives to reduce overuse of services, and potentially lower costs for the federal government. Opponents of such reform efforts fear that, in trying to reduce federal spending, reforms will shift costs onto beneficiaries and could make them less likely to seek needed care.

What’s The Debate?

Supporters of redesign believe that cost sharing under a redesigned Medicare program will be more predictable and simpler for beneficiaries to understand and better align incentives to reduce any overuse of services. Others fear that, if designed to reduce federal spending, restructuring the benefit design would likely shift costs onto many Medicare beneficiaries. Critics note that Medicare beneficiaries already spend three times as much of their income on health care as do people under age 65. Critics believe most beneficiaries cannot afford to pay more for their health care and are particularly concerned about proposals that include even higher deductibles or out-of-pocket caps.

Reforms of supplemental coverage, particularly efforts to limit first-dollar coverage, are also controversial. Opponents particularly question the wisdom of Medigap reforms that would likely reduce beneficiaries’ use of both necessary as well as unnecessary services.

The National Association of Insurance Commissioners (NAIC) recently recommended that the Department of Health and Human Services not add cost sharing to Medigap plans. NAIC noted that supplemental plans have little ability to change what care Medicare beneficiaries seek as well as how effective it is: The Medicare program determines what services are covered or not covered, and physicians guide individual beneficiaries on what particular care they need. NAIC expects that beneficiaries are unlikely to disagree with physicians about whether specific care is necessary, regardless of financial incentives.

What’s Next?

Medicare redesign remains a topic of interest on Capitol Hill. The House Ways and Means and Energy and Commerce Health Subcommittees held hearings on this subject on February 26 and April 11, respectively. Ways and Means Subcommittee Chair Kevin Brady (R-TX) indicated that he expected to hold more hearings on the future of Medicare and hoped to forge a bipartisan approach to reforming the program.

The topic of “entitlement reform” doesn’t go away. Regarding Medicare, virtually all proposals under current consideration include mechanisms of shifting more costs onto the beneficiaries. As this policy brief states, “Medicare beneficiaries already spend three times as much of their income on health care as do people under age 65.” We cannot place this additional burden on those who need health care the most.

The National Association of Insurance Commissioners agrees that cost sharing should not be added to Medigap plans, for the reasons mentioned above. Why should only those with Medigap plans be protected? The Medigap benefits need to be folded into the traditional Medicare program so that all can benefit by having financial barriers to care removed.

Sadly, the political momentum is moving in the opposite direction – “saving” Medicare by making it less affordable and therefore less accessible for those who need it. Do we simply sit back and watch it happen? If so, “Improved Medicare for All” will continue to wither as a health care justice goal for the nation.