Creating Medicare Advantage Premium Support For All, Part 4: Financing

By Billy Wynne
Health Affairs Blog, July 9, 2018

In this post, I will illustrate how current spending by the federal government, states, and employers could be repurposed to fund universal Medicare coverage that emphasizes competition among private, Medicare Advantage plans and the traditional fee-for-service option, deployed via a premium support benefit model.

As pundits, commentators, and industry stakeholders begin to converge on the wisdom of “Medicare Advantage for All,” let’s take another step down the path of specifying exactly what that means and why it is both economically and politically viable.

The Tally

Starting with the current Medicare per capita spending of $12,139, age-adjusting that by 44 percent, then taking a 4 percent haircut for premium support-induced competition yields an average cost of providing the existing Medicare benefit to a non-Medicare enrollee of $5,127. That is more than 10 percent less than the per capita funding available from current non-Medicare health care programs ($5,721).

(Here I pause for rabid, health policy wonk golf clapping.)

I’m not here to fool anyone or advance a political agenda. I just think our current approach is radically, audaciously absurd. It’s like we’re investing every last morsel of our industriousness and ingenuity into getting it wrong. I posit that, with about the same amount of effort, we can get it right.

(For a full understanding of the proposal by Billy Wynne you should read all four of his posts. Links to the previous three posts are available in Part 4.)

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Posted Comment:

By Don McCanne, M.D.

Premium support is supposedly dependent on competition between private plans, but we’ve had competing private plans for well over half a century, and yet our costs are highest of all nations. This also neglects the profound administrative waste that is uniquely characteristic of our fragmented, dysfunctional health care financing system.

Besides high prices and administrative waste, the premium support model would also perpetuate the loss of choice of health care professionals and institutions because of the dependence on provider networks. Perhaps even worse, the perpetuation of high deductibles and other cost sharing would continue to impair access because of lack of affordability, not to mention creating financial hardship, especially for America’s working families.

A model that would correct these defects without increasing spending would be a single payer, improved Medicare for all. The efficiency of such a system would save a few hundred billion dollars in administrative costs, and administered (negotiated) prices would become sustainable over time. Planning and separate budgeting of capital improvements would improve allocation of our health care resources. That wouldn’t reduce spending much, but it would redistribute it to better serve the currently uninsured and underinsured. Everyone would have free choice of actual health care, not the artificial choice of health plan intermediaries. And the system would be funded equitably though progressive tax policies without the necessity of erecting cost-sharing financial barriers to care.

Considering the money that’s already being wasted in private Medicare Advantage plans, a “Medicare Advantage for All” seems to only perpetuate the high costs and impaired choices in our current health care financing system. It is no wonder that AHIP finds it attractive, but instead we should be supporting reform that would be attractive to patients.

https://www.healthaffairs.org…

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Financing Medicare Into The Future: Premium Support Fails The Risk-Bearing Test

By Sherry A. Glied
Health Affairs, July 2018

Abstract

One often-discussed option for controlling Medicare spending is to switch to a premium-support design. This would shift part of the risk of future health care cost increases from the federal treasury to Medicare beneficiaries. The economics of risk bearing suggests that this would be a mistake for three reasons. First, political decisions, not beneficiary choices, are the critical determinants of future health care costs. Second, only Congress can take into account the consequences of cost-containment decisions for both current and future generations. Third, the federal government is best able to diversify against the risk of future cost growth. Tying Medicare spending to the government’s budget so that Congress sees the benefits of tough cost containment choices is the only way to force the program to make those politically difficult decisions. Economic efficiency is served by retaining the program’s current structure instead of shifting risk to beneficiaries.

From the Introduction

Some members of Congress see entitlement reform—namely, a restructured Medicare program—as the best strategy for bringing federal expenditures in line with newly reduced revenues, particularly as the baby-boom generation swells Medicare rolls.

One frequently touted option is to shift the program to a premium-support structure. Under this structure, the federal government would provide each Medicare beneficiary with a specified allotment (sometimes called a voucher or defined contribution) that the beneficiary could use to purchase health insurance. Beneficiaries would be responsible for all additional premium costs if they chose insurance costing more than the allotted amount.

In some respects, premium support resembles the current Medicare Advantage program, under which many beneficiaries opt in to private health plans. If beneficiaries choose a plan that costs less than the Medicare Advantage benchmark, which is based on the local per capita cost of traditional fee-for-service Medicare, they gain extra benefits and save money on premiums and cost sharing. But premium support would change that model in one very significant respect.

The current Medicare Advantage benchmark rises over time as Medicare utilization and congressionally mandated provider payment levels rise. The savings from premium-support plans, however, are realized by changing that benchmark so that it rises more slowly over time.

Advocates of premium support argue that it would control Medicare expenditures by harnessing competition among health plans and by giving beneficiaries strong incentives to make wise health plan choices. That can be debated. But what is clear is that premium support would transform the federal government’s current open-ended obligation, or entitlement, by making the government’s liability more fixed and predictable and shifting much of the risk and burden of unanticipated future health care cost increases to Medicare beneficiaries. Such a reallocation is bad policy because it leads to inefficient risk bearing. It is inconsistent with the clear guidance that economics provides about how to most efficiently allocate risk.

Who should bear the uncertainty of cost projections?

Legislators see the uncertainty of Medicare spending forecasts and the challenges of designing and implementing legislation to slow the growth of Medicare spending as reasons to shift more of the risk of future Medicare spending growth to beneficiaries through a move to premium support. This intuition is backward. Political decisions, not beneficiary choices, are the critical determinants of future health care costs.

Leaving beneficiaries with the responsibility for cost increases also doesn’t make sense. Beneficiaries cannot plausibly forecast their future health care costs, so they cannot effectively save to protect themselves against these costs. They also cannot turn to private insurance for protection. No private market does or can exist against risks that are highly correlated across everyone in a society, and the costs associated with political decisions and unforeseen health care technologies are exemplars of such correlated costs.

The federal government is best situated to bear the risks associated with unanticipated changes in future health care costs, the federal government is best able to shape the future costs of the program, and only the federal government can appropriately trade off current costs and future technological advances against each other. The economic case is clear: The federal government, not individual beneficiaries, should bear the risk of future increases in the cost of Medicare. Premium support is bad economics.

https://www.healthaffairs.org…

You can access on the PNHP website (www.pnhp.org) a multitude of articles on why competing private Medicare Advantage plans and the financing of them through premium support are terrible ideas. The quirk covered today has to do with the extreme to which others are going in order to latch onto the popular “Medicare for All” rhetoric to advance their inadequate or detrimental schemes for reform.

“Medicare Advantage Premium Support For All” is a real head-shaker, representing policies that are just about the opposite of what we mean by a “single payer, improved Medicare for all” (my posted comment on the HA Blog, reproduced above, clarifies this).

Sherry Glied, dean of the Robert F. Wagner Graduate School of Public Service at New York University, explains why premium support is bad economics. She concludes, “The federal government, not individual beneficiaries, should bear the risk of future increases in the cost of Medicare.” That should apply to all of us, and that is why we need an improved Medicare for all.

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