Health Affairs, May 2013
Medicare Essential: An Option To Promote Better Care And Curb Spending Growth
By Karen Davis, Cathy Schoen and Stuart Guterman
We describe a new option we call Medicare Essential, which would combine Medicare’s hospital, physician, and prescription drug coverage into an integrated benefit with an annual limit on out-of-pocket expenses for covered benefits. Cost sharing would be reduced for enrollees who seek care from high-quality low-cost providers. Out-of-pocket savings from lower premiums and health care costs for a Medicare Essential enrollee could be $173 per month, compared to what an enrollee would pay with traditional Medicare, prescription drug and private supplemental coverage. Financed by a budget-neutral premium, we estimate that this new plan choice could reduce total health spending relative to current projections by $180 billion and reduce employer retiree spending by $90 billion during 2014–23. Given its potential, such an alternative should be a part of the debate over the future of Medicare.
Supplemental Coverage Associated With More Rapid Spending Growth For Medicare Beneficiaries
By Ezra Golberstein, Kayo Walsh, Yulei He and Michael E. Chernew
Supplemental coverage makes health care more affordable for beneficiaries but also makes beneficiaries insensitive to the cost of their care, thereby increasing the demand for care. We found that supplemental insurance coverage was associated with significantly higher rates of overall spending growth. Specifically, employer-sponsored and self-purchased supplemental coverage were associated with annual total spending growth rates of 7.17 percent and 7.18 percent, respectively, compared to 6.08 percent annual growth for beneficiaries without supplemental coverage. Results for Medicare program spending were more equivocal, however. Our results are consistent with the belief that current trends away from generous employer-sponsored supplemental coverage and efforts to restrict the generosity of supplemental coverage may slow spending growth.
Public Financing Of The Medicare Program Will Make Its Uniform Structure Increasingly Costly To Sustain
By Katherine Baicker, Mark Shepard and Jonathan Skinner
In this article we describe a model incorporating the benefits of public programs and the cost of tax financing. The model implies that the “one-size-fits-all” Medicare program, with everyone covered by the same insurance policy, will be increasingly difficult to sustain. We show that a Medicare program with guaranteed basic benefits and the option to purchase additional coverage could lead to more unequal health spending but slower growth in taxation, greater overall well-being, and more rapid growth of gross domestic product.
Our model thus helps explain the rapid growth in US health care expenditures relative to other countries. More important, the model highlights the trade-offs in different approaches to reining in public spending — from the current approach of providing a uniform benefit that increasingly crowds out other programs, to a less egalitarian model that guarantees only a basic benefit and redirects some redistribution toward other programs.
Our analysis suggests that the policy of providing a uniform benefit to all — rather than a basic benefit that higher-income residents can augment — may be increasingly untenable if health care expenditures continue to rise.
Why has the United States diverged so dramatically from its counterparts? This divergence is probably not explained by commonly cited factors such as administrative costs — already high by the 1980s — or physician salaries, which have stagnated over the past decade.
The implications of our model are not dissimilar to the idea of voucher-type premium support suggested over the years by Ezekiel Emanuel and Victor Fuchs, Henry Aaron and Robert Reischauer, and Rep. Paul Ryan (R-WI). Indeed, it may appear that this plan most closely resembles a Ryan-style premium support plan.
Our “basic” plan does not correspond so much to a high-deductible or higher-cost-sharing plan, but rather to one that covers a more limited set of treatments or providers. Unlike high-deductible plans, the basic plan need not expose poorer households to the risk of substantial cost sharing. Instead, it is designed to limit coverage to treatments with proven effectiveness at a reasonable cost. Of course, identifying which treatments are of high value — and for which patients — poses substantial challenges.
Perhaps the greatest challenge to offering this kind of plan choice more widely in Medicare is that it would require setting aside the egalitarian goals enshrined in the Medicare legislation of 1965. Publicly providing only basic coverage would implicitly recognize that higher-income households would probably elect to procure more generous coverage — and, ultimately, to obtain more health care and possibly better health outcomes.
Background paper (40 pages): “Optimal Healthcare Spending with Redistributive Financing”
Three Large-Scale Changes To The Medicare Program Could Curb Its Costs But Also Reduce Enrollment
By Christine Eibner, Dana P. Goldman, Jeffrey Sullivan and Alan M. Garber
With Medicare spending projected to increase to 24 percent of all federal spending and to equal 6 percent of the gross domestic product by 2037, policy makers are again considering ways to curb the program’s spending growth. We used a microsimulation approach to estimate three scenarios: imposing a means-tested premium for Part A hospital insurance, introducing a premium support credit to purchase health insurance, and increasing the eligibility age to sixty-seven. We found that the scenarios would lead to reductions in cumulative Medicare spending in 2012–36 of 2.4–24.0 percent. However, the scenarios also would increase out-of-pocket spending for enrollees and, in some cases, cause millions of seniors not to enroll in the program and to be left without coverage.
Additional Reductions In Medicare Spending Growth Will Likely Require Shifting Costs To Beneficiaries
By Michael E. Chernew
The Affordable Care Act created a projected trajectory for Medicare spending per beneficiary that is lower than historical growth rates. Although opportunities for one-time savings exist, any long-term savings from Medicare, beyond those already forecast, will probably require a shift in spending from taxpayers to beneficiaries via higher beneficiary premium contributions (overall or via means testing), changes in eligibility, or greater cost sharing at the point of service.
By Don McCanne, M.D.
At a time when our politicians have decided to open discussions on reducing government spending in Medicare, it likely is no coincidence that this cluster of articles on ways of reforming the financing of Medicare appears in the leading journal of health policy – Health Affairs. But beware; the thrust of most of the articles should raise our concerns.
The most alarming articles are the pair from Katherine Baicker and her colleagues. They support unlimited care with “better health outcomes” for higher-income households, with only “basic” care for for the rest of us, even though they note that defining basic c
are “poses substantial challenges.” Class division in health care seems to be a uniquely American concept. “It would require setting aside the egalitarian goals enshrined in the Medicare legislation of 1965.”
The article by Ezra Golberstein and his colleagues calls for diminishing the financial protection offered by supplemental Medigap and retiree health benefits “to restrict the generosity of supplemental coverage,” making beneficiaries more sensitive to the cost of their care, even though “results for Medicare program spending were more equivocal.” Feeling the pain of their health care spending seems to be the policy goal even if the total reduction in Medicare spending is only nominal.
Christine Eibner and her colleagues propose, “imposing a means-tested premium for Part A hospital insurance, introducing a premium support credit to purchase health insurance, and increasing the eligibility age to sixty-seven” as three means of reducing overall Medicare spending, even though these measures would shift costs to the beneficiaries and cause perhaps millions of them to withdraw from Medicare and remain uninsured.
Michael Chernew keeps it simple. Lowering the projected trajectory for Medicare spending “will probably require a shift in spending from taxpayers to beneficiaries via higher beneficiary premium contributions (overall or via means testing), changes in eligibility, or greater cost sharing at the point of service.” In other words, reduce the tax transfer by sticking it to the seniors.
We can thank Karen Davis, Cathy Schoen and Stuart Guterman for not causing us to lose all hope. Their proposal – “Medicare Essential” – is designed to increase the coverage and efficiency of Medicare. They would combine the hospital Part A, physician Part B, and drug Part D programs into a single program with less administrative complexity. They would also add much needed catastrophic coverage by placing a maximum on out-of-pocket expenses. They would also fold in the benefits of supplemental plans eliminating the need for wasteful, superfluous Medigap and retiree health plans. Their proposal would actually reduce spending for most Medicare beneficiaries while enhancing the benefits.
They would leave in place the flawed Medicare Advantage plans, although competing with a truly superior public plan could make them obsolete – the goal of “the public option.” They would have the deductible apply to Part A, opening the treacherous territory of a path for more cost shifting to beneficiaries. Also they do not mention that Medicare Essential could eventually be expanded to include everyone, becoming an improved Medicare for all. There are many other important features of the PNHP version of the single payer model that they do not address, and that we won’t mention here. Suffice it to say, that Medicare Essential is only a tiny though important step in the direction in which we should be headed.
For incrementalists, Medicare Essential should captivate you. For those of us who are impassioned single payer supporters, we should continue to advocate for moving the political process forward toward achieving an Improved Medicare for All single payer program as soon as possible.