By John E. McDonough and Sherry Glied
The Milbank Quarterly, January 21, 2021
Every US administration since 1966 has had to engage in Medicare policymaking. The program covers 61 million elderly and disabled Americans, accounts for 14% of all federal spending, and, unlike the larger Social Security program, requires myriad legislative and regulatory tweaks each year to continue its operations. The Biden administration, like its predecessors throughout the program’s 55-year history, will need to perform this regular program maintenance. In addition, Congress and the administration will face two kinds of policy challenges. Some prominent Democrats, including many of Biden’s former competitors in the Democratic primary, see Medicare as a critical stepping stone to a unified system of health insurance coverage for all Americans. They will want to see changes to the program that extend its reach. On the other hand, Medicare actuaries and many conservative members of Congress see the program as an underfunded giant hurtling toward insolvency by 2024. While the administration will need to respond to the insolvency problem, it should try to leverage that response to simultaneously achieve progressive gains.
Job number one is to fix the coming Trust Fund budget hole.
While almost all Americans support Medicare’s survival and solvency, neither of the obvious options for achieving that objective – new taxes or funding cuts – is popular.
A key win-win would be action on prescription drug pricing, a policy goal that the Trump Administration pursued aggressively, but with limited success. Some drug price containment strategies can be achieved through Executive branch regulatory actions, but such regulatory savings will not fill the Trust Fund hole. One problem is that Medicare prescription drugs are funded through Parts B (inpatient) and D (outpatient) of the program, which means that savings achieved through lower prices for drugs would not directly improve Part A solvency. A more comprehensive legislative strategy will be needed. For example, imposing effective controls on prices for inpatient hospital and outpatient drugs, which can be achieved legislatively within reconciliation rules, could be combined with a shift of, say, home health services from the Part A to the Part B benefit as David Cutler and co-authors have recommended. This combination would improve the Trust Fund balance while simultaneously offsetting new costs in general revenue-funded Part B with drug cost savings.
Another health policy area in which savings, and program improvements, may be possible is Medicare Advantage (Part C). Currently, 38% of all Medicare enrollees are enrolled in Medicare Advantage private plans, and the fraction has been increasing steadily. Throughout the program’s history, there have been concerns that private plans have been overpaid. In 2010, the ACA made substantial structural changes to Medicare Advantage to reduce such overpayments. The resulting savings helped to extend the fiscal life of the Part A Trust Fund from 2016 to 2030 and also funded a portion of the ACA’s coverage expansions.
Despite the ACA’s reforms, concerns about overpayment in Medicare Advantage (MA) persist. Recent research documents that many MA plans aggressively code their enrollees’ diagnoses to generate higher risk-adjusted payments from the Centers for Medicare and Medicaid Services. Most of the benefits of these coding adjustments, which cost the federal government billions every year, accrue to plans, not beneficiaries. Because Medicare Advantage plans cover both Part A and Part B benefits, legislative changes in the payment formula for Medicare Advantage would contribute to Trust Fund solvency. These could be combined with improvements to traditional Medicare that would enhance the financial protection available to those who do not participate in Medicare Advantage, such as a cap on out-of-pocket spending.
Slim majorities in Congress will make it hard for the Biden administration to pursue plans that expand Medicare eligibility. But improving the existing program may advance progressive agendas. A curious feature of the Democratic presidential primary debate around “Medicare for All” is that the “Medicare” option promoted by candidates was not the existing Medicare program. The existing program’s flaws make it a less-than-ideal base for expansion. Fixing the Trust Fund budget hole, improving the efficiency of program payments, and, most importantly, extending financial protections that traditional Medicare offers its beneficiaries would make the existing Medicare program a more viable option and framework for future expansion.
By Don McCanne, M.D.
In our quest for single payer Medicare for All, we frequently speak of an improved Medicare for All. The current Medicare program is not satisfactory. At a minimum, we need additional coverage such as a Medigap plan to cover the deficiencies in the traditional Medicare Program, particularly the lack of an out-of-pocket cap on spending.
Actually Medigap Plan F had many features that if they were rolled into the traditional Medicare program would go a long way toward establishing the improved Medicare that we want. In fact, it was so good that Congress outlawed non-grandfathered Plan F plans when they established the Affordable Care Act, since Congress has always catered to the private insurance industry, and Plan F competed very favorably with the private Medicare Advantage plans, except the premium was too high.
Folding in the Plan F benefits would have been much more efficient, reducing the administrative costs considerably. As it is, the claims are processed twice, once by the Medicare administrator and again by the private Medigap insurance plans. These plans, of course, are designed to provide profits to the insurers, so they must charge high premiums to cover not only the medical benefits but also the extensive administrative costs and also the profits. We would be much better off with the benefits rolled into the plans and paid for through equitable taxes. Plus we would not be billed separately for deductibles, coinsurance and lack on caps on out-of-pocket spending. There are several other measures, such as covering long term care and drugs directly, that would improve Medicare that we will not go into here.
Another more immediate concern is the overpayment that we taxpayers make to the private Medicare Advantage plans. Not only are the MA plans being overpaid, funds which they keep, they also are using insurer gimmicks to improve their returns – cherry picking and lemon dropping, limited provider networks, upcoding to expand payments, using prior authorization to deny benefits, passing costs on to surprise bills – measures that reduce benefits but increase their profits. and part of that is paid by us through general tax revenues rather than just by the plan beneficiaries. We are paying them their administrative costs used to cheat patients out of their benefits and to cheat taxpayers out of their dollars. UnitedHealth just reported $15.4 billion in profits alone for 2020. We would be much better off without them.
Generally, incrementalism is a bad idea. However, without a favorable political climate, we might consider taking a transitional step of improving Medicare so that it can later serve as the basis of a comprehensive, efficient, equitable single payer, Medicare for All. As the authors state, that “would make the existing Medicare program a more viable option and framework for future expansion.” First we would try to enact an improved Medicare for All. If that doesn’t work with a president who is opposed, we could then be working on fixing our current Medicare so it would serve as a viable framework for future expansion.
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