Means-Testing In Medicare
Health Affairs
December 8, 2004
Means-Testing In Medicare
By Mark V. Pauly
The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 introduces means-testing of premiums and benefits in two ways. It will means-test the Part B premium, setting higher premiums for better-off seniors. More importantly, it will offer much more generous drug benefits, at low or zero premiums, to lower-income beneficiaries. This paper argues that additional means-testing could improve Medicare’s financial picture. It proposes a strategy in which future Medicare beneficiaries with higher incomes will pay for cost-increasing but quality-improving new technology, possibly with prefunding that begins before retirement.
Medicare as we know it today cannot be sustained…
The upper middle class, to some extent, live off their wealth after they retire, instead of cutting consumption close to the poverty level. The primary type of wealth for retirees is housing wealth; more than half of elderly households have housing wealth in excess of $100,000; they own their own homes, often with a paid-up mortgage. In contrast, nonhousing financial wealth is low among the elderly and is highly correlated with income, with only about 10 percent having nonhousing wealth in six figures. The primary consumption-increasing aspect of the situation for many seniors is being able to live nearly tax-free in a mortgage-free house, so housing costs are low. It is this extra consumption “cushion” that could help pay for access to new technology.
…these actions may require that the majority of the population that is not poor accept the responsibility of explicitly paying for its access to new technology, through partial income conditioning. Far from being a threat to Medicare as we know it, means-testing may be one of the few ways to preserve the program’s generous funding and access, without across-the-board “brute rationing,” that we all want to be able to anticipate in retirement.
http://content.healthaffairs.org/cgi/content/full/hlthaff.w4.546/DC1
And…
Health Affairs
December 8, 2004
Perspective: Medicare Means-Testing: A Skeptical View
By Marilyn Moon
In response to claims that Medicare is unsustainable over time, Mark Pauly has suggested a means-testing approach as a solution to its financing problems. To obtain enough resources in this way, however, it is necessary to ask middle-class beneficiaries to pay much more for their health care, by subjecting them to vouchers. The spending limits Pauly suggests are arbitrary and would likely place an untenable burden on beneficiaries with modest incomes. A better approach to financing would be to examine the ability of both taxpayers and beneficiaries to pay in the future-likely resulting in a different outcome.
Pauly’s premise depends on three sets of assumptions: (1) that it is feasible to limit insurance to cover only existing technology, (2) that there are enough wealthy older Americans to make this means-testing exercise worthwhile, and (3) that society is unwilling to help pay for an aging population. As argued above, the first two assumptions are highly questionable, since Pauly would have to ask modest-income seniors to pay very high costs over time based on an arbitrary formula whose meaning would be hard to fathom by those affected. But even more important, one can only hope that willingness to pay is based on something beyond the assertion of no more taxes.
http://content.healthaffairs.org/cgi/content/full/hlthaff.w4.558/DC1
Comment: Medicare covers an average of only one-half of the health care expenses for the typical Medicare beneficiary. The out-of-pocket financial burden is already great for those with significant health care needs.
And
most of them have non-housing “wealth” of under $100,000, which is expected to last for the remainder of their lives.
Mark Pauly’s numbers on income levels that would be appropriate for means testing are confusing, but he suggests that he would include about 40 to 60 percent of retirees, which would include those over 300% of the poverty level ($28,000 for an individual or $37,000 for a couple). With his background in economics, you would think that Pauly might squirm a little bit if he faced the prospect of having to help fund his own high tech medical care with less than $100,000 in the bank and a pension of $28,000.
Mark Pauly is already famous for advocating for greater patient cost sharing in order to avoid the “moral hazard” of accessing more health care services merely because they are covered by insurance. Unfortunately, cost sharing is a blunt instrument that reduces access to beneficial services by making them unaffordable for many. Means testing of Medicare beneficiaries prior to funding access to high tech medical services would seem to have the same blunt impact that would make technologically advanced care unaffordable for many.
Allowing Mark Pauly to play a role in health care reform seems to me to be a much greater moral hazard than providing adequate insurance coverage for those with genuine health care needs.
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Message: 2
Date: Thu, 9 Dec 2004 08:14:56 -0800
From: “Don McCanne”
Subject: qotd: Pauly and Moon and the truth behind means-tested
kaisernetwork.org
HealthCast
12/8/2004
Means-Testing in Medicare
An interview of Mark Pauly and Marilyn Moon by Larry Levitt, editor-in-chief, kaisernetwork.org
Mark Pauly, Ph.D., professor, health care systems, Wharton School, University of Pennsylvania:
“The real problem with Medicare is not so much the future spending growth, but the fact that it is financed through the tax system.”
Marilyn Moon, Ph.D., vice president and director of the health program, American Institutes for Research:
“I think … that when we have to make tough choices, we should look at whether people should pay more. But I don’t think that the price of holding taxes exactly where they are should be borne solely by people who are really firmly middle and lower middle class seniors.”
“I think to call thirty-thousand-dollar-a-year households as being well off and able to bear a substantially higher burden that over time will lend them to be spending half or more of their income on health care is not the right approach. I think that this is another example of where people in their enthusiasm to avoid higher taxes can go overboard in the other direction.”
For the audio of this interview:
http://www.kaisernetwork.org/health_cast/hcast_index.cfm?display=detail&hc=1326
Comment: Yesterday’s message commented on the carefully written Health Affairs articles by these two authors. But it is interesting to see how a live interview can get down to the real issues that are otherwise buried in the rhetoric of erudite articles.