Creating Medicare Advantage Premium Support For All, Part 5: Which Proposal Is Actually Medicare?

By Billy Wynne
Health Affairs Blog, August 15, 2018

Now that a report funded by the Koch Brothers™ (do they have a logo?) accidentally fueled the single payer movement by demonstrating a national coverage system would be cheaper than the irrational hodgepodge we have now, it’s important to continue to weigh the evidence regarding which approach to universal coverage would be optimal.

The focal point of the single payer cause is Senator Bernie Sanders’ “Medicare for All” proposal. (Spoiler alert: it’s not actually Medicare. More on that in a minute). While I happen to believe the single payer crowd’s intentions are in the right place, I have to wonder, for starters, whether the arguably most conservative developed nation will adopt one of the most liberal, socialized approaches to health care coverage.

Instead, I continue to believe that a regime that truly leverages the existing Medicare program in a way that minimizes disruption and maximizes market forces will produce the cheapest, highest quality, most sustainable, and – to use a loaded term – American result.

Sanders Plan 101

Perhaps the most interesting thing about the Sanders Medicare for All plan, scooped above, is that it would not actually extend Medicare to everyone. To the contrary, section 901 of his bill would halt all Medicare benefits, effectively repealing the program in its entirety.

Instead, his proposal would institute a wholly new program, with different benefit design and brand new administrative infrastructure. For example, a new list of essential benefits is outlined in the legislation, the elaborate Medicare cost-sharing scheme would be replaced with first dollar coverage, and the prescription drug program would be replaced with a national formulary.

Medicare Advantage 101

Instead, what if we actually did just expand the stable, beloved Medicare program to include everyone, with emphasis on competition between the traditional benefit and increasingly popular Medicare Advantage plans? In a prior post, I took a closer look at the basic Medicare benefit design. Here, I’d like to explain how the Medicare Advantage (MA), or Part C, program works and what it could offer to a national coverage regime.

MA carriers are required to cover all traditional Medicare benefits (Parts A and B) and offer at least one plan that includes an accompanying prescription drug (Part D) component.

A key strategy that these plans use to reduce costs, which is not deployed in the traditional Medicare program, is limited provider networks. As explained in a prior post, this function lies at the core of why health plans can continue to play an important role in our system.

In 2017, MA plan payments were, on average, equal to the costs of delivering the traditional Medicare benefit.

Unlike traditional Medicare, MA plans are required to cap annual enrollee out of pocket spending on outpatient services at $6700. Using those rebates described above, 50 percent of plans offered coverage that caps that liability at below $5000 in 2017. Also, about half of plans were able to eliminate the Part D deductible altogether.

In Other Words…

I don’t think we need a wholly new coverage regime that upends 20 percent of our economy and, with its centralization of decision-making within the federal government, will never earn the broad support necessary to pass, much less make it sustainable.

After the ACA, I think we’re weary of conjuring new coverage regimes from whole cloth. We have plenty in this country already. Let’s pick the one that has proven itself for decades and increasingly leverages competition between commercial carriers and a government administered option to deliver high-value choices to its consumers. In other words: Medicare.

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Which proposal is actual Medicare, or, for that matter, which is an “American” result? An improved version of the traditional Medicare program expanded to include everyone, or an expanded market of private Medicare Advantage health plans? Instead of diverting this into a rhetorical debate, we should look at which policies applied to nearly one-fifth of our economy would serve us all best.

Although the traditional Medicare program grants the individual the right to choose their health care professionals and institutions – a right that private Medicare Advantage plans restrict by use of provider networks – out-of-pocket expenses are still too high, especially considering the lack of a cap on those expenses.

Private Medicare Advantage plans pay physicians at the same rates as traditional Medicare – much lower than private commercial insurance rates – but they did not achieve this through competition in the marketplace; it was through government fiat – government administered pricing in the private sector. Not only are payment rates lower, but the cap was enacted only for private plans and not for the traditional Medicare program.

Since the out-of-pocket costs are too high, those in the traditional Medicare program require supplemental coverage through retiree plans, dual Medicaid coverage, or they must turn to overpriced Medigap plans which are the main competition for the Medicare Advantage plans. It is the lower premiums plus lower out-of-pocket costs plus a few expanded benefits that the Medicare Advantage plans can offer that has resulted in their popularity. In spite of this advantage, two-thirds still enroll in the traditional Medicare even though it may cost them more (unfairly so since the government gives this advantage to the private plans while denying it to the traditional Medicare program – as part of an ongoing effort to privatize Medicare).

Suppose Congress made the premiums and cost sharing equivalent in the two programs, which of them would be in a better position to manage our health care financing? It is well known that the traditional program has much lower administrative costs (under 3%) thus more of the funds go to health care. But what is not commonly realized is that “Medicare Advantage insurer revenues are 30 percent higher than their healthcare spending” (NBER No. 23090). 30 percent! The taxpayers are getting a terrible deal from the private Medicare Advantage insurers.

There are, of course, many other advantages to a single payer, improved Medicare for all such as true universality, savings from administrative efficiency, improved resource allocation, and an equitable method of progressive financing that removes financial barriers to care while making health care affordable for all.

That rhetoric about an American result? Improving the traditional Medicare program that is still revered by a majority of Americans, or disrupting the system by turning our public funds over to the private insurance industry profiteers? Which America do we really want?

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