THCB

Controlling the Medicare Budget – Two Infeasible Proposals

How to slow Medicare’s escalating costs has been the big health care policy issue this month, with Republicans and Democrats offering competing proposals, each part of broader plans for reducing the federal deficit—projected to be $1.5 trillion this year, with the government borrowing 40 cents for every dollar it spends.

Unfortunately, neither the Medicare proposal of Representative Paul Ryan’s House Budget Committee, nor that offered in response by President Obama, can be considered realistic.

Both proposals do have some merits. Representative Ryan’s plan for switching Medicare to a quasi-voucher premium support program in which beneficiaries would pay part of the premium for their choice of health plan could make seniors more cost conscious and introduce more competition among insurers. President Obama’s proposed strengthening of the Independent Payment Advisory Board provision of the ACA by lowering the trigger point for IPAB action would force further efforts to reduce costs, while doing much to remove Medicare policy from lobbyist-vulnerable political considerations. Both, if implemented, would effectively guarantee that federal Medicare expenditures would drop dramatically from current projections.

Neither, however, has any chance of enactment. The Congressional Budget Office’s projection of the average 65-year-old paying more than two-thirds of the cost of Medicare coverage by 2030—and more than twice as much as under the present program—almost certainly dooms Representative Ryan’s proposal. (The CBO’s assumption of the continuation of the differential between traditional Medicare and insurers’ equivalent offerings can be questioned, but it’s the forecast of the unfortunate 65-year-old’s 68 percent share of the tab that will resonate for seniors, their lobbyists, and their political supporters.)

President Obama’s proposal is just as unlikely to succeed. Senior Republicans were scathing in their criticisms of the original IPAB provision, as further increasing bureaucratic meddling in seniors’ care, and can be assumed to be even more opposed to any strengthening of IPAB. Political considerations aside, the President’s plan faces practical problems. The ACA severely limits the scope of IPAB recommendations, specifically excluding increases in beneficiary costs, benefit restrictions, changes to eligibility criteria, or any “health care rationing.” Since the ACA also forbids most targeting of hospital and hospice rates before 2020, the major cost-control option remaining is a severe cut in physician payments (and even that is excluded if a permanent fix to the sustainable growth rate problem is enacted), something that—even if it were politically feasible—would almost certainly lead to a wholesale exit of doctors from the program.

Both proposals suffer from another problem: each would shift costs onto Medicare beneficiaries and onto non-Medicare private sector insureds, although in slightly different ways.

Representative Ryan’s proposal would require beneficiaries to contribute to the cost of insurance coverage in excess of the government voucher value. To the extent that insurers respond to beneficiaries’ expected increased cost consciousness by squeezing provider rates, it’s likely that providers will try to recoup by increasing their charges to private sector payers.

President Obama’s proposal would require IPAB to impose cost reduction strategies to meet the targets prescribed in the ACA.  Whether these are simply cuts in rates or more stringent applications of “evidence-based” medical criteria, each almost certainly resulting in providers leaving Medicare, the result is likely to be many beneficiaries paying out of pocket to obtain care, and—just as for Representative Ryan’s proposal—providers increasing charges to other payers .

The two proposals have one other feature in common: they each ignore history. Representative Ryan’s plan ignores the total failure of Medicare Advantage’s insurer competition model to reduce expenditures. President Obama’s plan ignores the almost equally total failure of CMS and its predecessors to bring Medicare costs under control in any significant way, other than by reducing provider reimbursement (and anyone who believes the current proposals for Accountable Care Organizations will achieve this cost control miracle would do well to read recent critiques by Ron Klar and Jeff Goldsmith [in www.healthaffairs.org/blog]).

Roger Collier was formerly CEO of a national health care consulting firm. His experience includes the design and implementation of innovative health care programs for HMOs, health insurers, and state and federal agencies.  He is editor of Health Care REFORM UPDATE.

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Samantha PrabhuHu WillistonLee AbramsonMatt Mdennis byron Recent comment authors
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Samantha Prabhu
Guest

Can some one tell me the eligibility for the Medicare policy in US for non citizens !

Hu Williston
Guest

Nate yes where are you getting your $500 NRI Nate yes where are you getting your $500 MRI. I wonder if Exxon likes making 10% of $25 or $100 barrel of oil, similarly do insurance companies and brokers prefer 20% or 2% of $100 or $1000 a month health insurance? Where is the incentive to control costs? How do I as a physician cope with filing claims with 1000 insurance companies if competition is opened country wide and through the internet when I am not coping with the 100 I presently deal with, admittedly perhaps 20 account for 90% of… Read more »

Peter
Guest
Peter

“Democrats have been studying, spending money, and reforming healthcare since 1965, how’s that worked out?”

Can’t say, but in Canada they seem to be doing a pretty good job.
http://www4.hrsdc.gc.ca/.3ndic.1t.4r@-eng.jsp?iid=7#M_1

Lee Abramson
Guest

I am running for President in the 2012 elections as an Independent candidate. Here are my health care policies: He says Obama Care does not go far enough, and proposes a completely new healthcare plan he calls “Americare,” which will provide government healthcare for everyone from cradle to grave. “Americare will pay for the needs of all United States citizens and allow healthcare providers to be compensated according to their skill set. It will replace Medicare, Medicaid, and all private insurance. I believe that all private insurance companies are criminal organizations, because they make profits by delaying and denying care… Read more »

Nate Ogden
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Nate Ogden

“That they’re studying, working and spending money on reducing wait times ”

Democrats have been studying, spending money, and reforming healthcare since 1965, how’s that worked out?

Peter
Guest
Peter

“What are you trying to say with the links?” That they’re studying, working and spending money on reducing wait times – after all it’s free and there are no wait time for emergencies. As well wait times are regional and by city, so the “average” doesn’t mean much. The link to the study was to show that Canada is not just throwing money at it, they’re trying to figure out the best access/cost direction. Nate, you complain about how U.S. system is overused but then scorn Canada that attempts to control use. If impatient Canadians want an MRI so bad… Read more »

Nate Ogden
Guest
Nate Ogden

non hospital owned is the key words these days, you can easily save 60%+ by having it done outside the hospital.

Barry Carol
Guest
Barry Carol

“Plus, where can you get a full MRI for $500.” Matt M. – A little over a year ago, I had a brain MRI. The non-hospital owned imaging center billed $1,800 but it accepted $475 from my insurer, Highmark Blue Cross, as full payment of which I paid 20% or $95. The test was done in New York City – lower Manhattan to be precise. A college friend of my wife’s lives in Southwestern Ohio. An imaging center near her offers virtually any MRI to even those without insurance for $600. The imaging center at Ohio State University Medical Center… Read more »

Matt M
Guest

$75,000 seems a lot until you have to live on it with a family. Plus, where can you get a full MRI for $500.

Peter
Guest
Peter

Nate, can you tell me the wait times for U.S. uninsured for MRI?

Nate Ogden
Guest
Nate Ogden

couple hours, 24 tops unless they are very rural, geography is a major part of access

Mark Spohr
Guest

Except they won’t be able to afford it so might as well have no access.

Nate Ogden
Guest
Nate Ogden

why can someone making 75,000 a year not afford a $500 MRI?

Mark Spohr
Guest

Aren’t you supposed to be in the insurance business? MRIs in the US don’t cost $500 anywhere. That doesn’t even cover the radiologist fee (which was included in the France MRI).

Try Google: “I recently had a lumbar spine MRI with and without contrast. My insurance company was charged $4,307 plus an additional $700+ for the radiologist’s fee.

Nate Ogden
Guest
Nate Ogden

I don’t need to check google I have the cashed checks and contracts, FYI who cares what they were charged what did they pay?

Peter
Guest
Nate Ogden
Guest
Nate Ogden

What are you trying to say with the links? That canada has unacceptable wait times and haven’t solved the problem, they ration by denial of care via insufficient resources?

Wouldn’t an HMO or insurer in America with these wait times be sued? A point people making the we spend twice as much complaint don’t even seem to factor in.

Nate Ogden
Guest
Nate Ogden

unless they go the NHS or Canada route and you wait weeks until the few machines have free time or you just don’t get the MRI you need. Couple years old but; “The median wait for an MRI across Canada was 10.1 weeks. Patients in Ontario experienced the shortest wait for an MRI (7.8 weeks), while Newfoundland and Labrador residents waited longest (20.0 weeks).” Is this where we are headed? “Derby’s hospitals trust is earning £100,000 a year from doing MRI scans for fee-paying patients despite year-long waiting lists for its NHS patients who face waits of up to two… Read more »

Mark Spohr
Guest

I had a friend who went skiing in France. Fell and needed an MRI. Had the MRI immediately. Cost was $250 (as an uninsured out of country visitor it was paid in cash). (She’s doing fine now.)
This illustrates just how corrupt our US health care system is… grossly overpriced services… and how France does a much better job of controlling cost and providing access.

Nate Ogden
Guest
Nate Ogden

really? Just becuase someone hasn’t read you a story about their financial problems doesn’t mean they aren’t happening. “In June 2010, the French government announced that it was to cut healthcare spending by EUR600mn (US$826mn) in 2010 in order to rein in mounting budget deficits. Cost containment measures to be employed included reducing drug prices by EUR100mn (US$138mn), a EUR180mn (US$247mn) freeze in government support to hospitals and retirement homes, and the freezing of EUR105mn (US$145mn) of funds allocated to the upgrade of health facilities. ” “The U.S., the U.K., France and Germany must control spending on pensions and health… Read more »

Barry Carol
Guest
Barry Carol

Margalit – If in the future, the PCP is a salaried employee of an ACO and the ACO is paid a risk adjusted capitated rate to provide all appropriate care for a patient population, then the current fee for service based arrangement will become irrelevant. Most hospitals will always need to have radiology equipment, including MRI machines, onsite to handle inpatients and emergencies. If there is additional capacity to handle outpatient procedures, the marginal costs to perform those tests will be low. If there is a need for additional capacity to handle the non-emergency cases and a non-hospital or non-ACO… Read more »

Margalit Gur-Arie
Guest

In the new order of employed PCPs, they will have to refer to the facilities of their employer and it won’t be the free standing center, no matter how good and how cheap it is.
Also if MLRs are fixed, insurers will have even less financial incentive to reduce spending. And I’m not saying that the solution is to let insurers pocket the difference.

Nate Ogden
Guest
Nate Ogden

3-4 years ago imaging centers were all the rage for investors, every issue of forbes and fortune had adds. How do we get that radiology group who already has a relationship with the hospital? Why after decades working with the hospital would they switch to us? How much are you and I going to want to make on our money and how quickly are we looking for a return? A doctor who can self refer has much less risk then you and I would. Not to say it can’t and doesn’t work but its not a clear cut solution and… Read more »