Too Much Responsibility/Not Enough

The Health Leadership Council (HLC), a coalition of CEOs from many of the leading health care companies, has created a list of Medicare reform recommendations for the Super Committee tasked with finding at least $1.2 trillion in budget savings.

As we begin the national debate over what to do about Medicare’s unsustainable costs, I will suggest that the HLC proposal gives us one, of what will have to be many, outlines for discussion.

Their recommendations include:

  • Creating a new Medicare Exchange, beginning in 2018, where beneficiaries would have the choice of private Medicare plans as well as the traditional Medicare plan. The HLC proposal would be a defined contribution program much like the Republican Ryan plan but would differ from Paul Ryan’s in a couple of key ways. First, in the HLC proposal traditional Medicare would continue to be one of the options. Second, the annual increase in the beneficiary support premium would be more generous—the HLC is proposing an annual premium support increase equal to GDP plus 1%.
  • Gradually increasing the Medicare eligibility age from 65 to 67—starting in 2014.
  • Reforming Medicare’s cost sharing structure by increasing deductibles and co-pays as well as requiring high-income beneficiaries to pay the full cost of Medicare Part B.
  • Implementing medical liability reform including a cap on non-economic damages, a one-year statute of limitations, and a “fair share” provision that would limit damages commensurate with responsibility for the injury.

The HLC estimates that its recommendations would generate savings of $410 billion over ten years—about a third of what the Super Committee is charged with finding.

The HLC’s suggestions have merit but, I will suggest, make the same fundamental mistake the Republican adopted Paul Ryan proposal made: They put all the onus for Medicare savings on the beneficiary—not the providers and not the insurance companies.

No Medicare reform proposal can be enacted if it does not protect Medicare beneficiaries by assuring them that it can achieve affordable costs.

The HLC would create a Medicare premium support based upon the average cost of a Medicare plan—and then increase that by GDP+1% in each subsequent year. That makes sense—the beneficiary support starts where costs are at inception and then increases by a factor (GDP+1%), which is reasonable for beneficiaries and providers and sustainable for the country.

In fact, I will suggest, that any final Medicare reform proposal will likely contain a cap of GDP+1% both because it gives the country an affordable objective and because it preserves spending at current levels plus a reasonable rate of growth.

But the problem with the HLC proposal is just what risk and responsibility does it transfer to health care providers and insurers? If the government premium support isn’t enough, providers can just demand more from insurers, and insurers in turn can just make up the difference by increasing premiums for seniors. There is certainly some upward limit on what people can pay, but the tension will always be to shift costs to the beneficiary as costs escalated.

More, the system would almost certainly become even more tiered than it is today. The Medicare option could easily look more and more like Medicaid as those able to afford better coverage fled to the more expensive private plans and those unable to pay the free market increases would have no alternative but the Medicare fee-for-service plan that stayed viable by paying providers less—and as a result looked more and more like Medicaid.

The HLC’s suggestion to increase the eligibility age for Medicare beginning in 2014 is a non-starter. The Congress might end up increasing the Medicare eligibility age at some point. But it won’t be done for people nearing retirement age—who have done their retirement planning presuming an age-65 eligibility. The Super Committee must come up with savings in the 10-year budget window—and that is too soon for any Medicare eligibility age change.

There is also growing evidence that pushing back the retirement age simply shifts costs to the pre-retirement market at an even higher cost than what it costs for Medicare to cover these beneficiaries.

The HLC’s means testing recommendations call for more cost sharing as a strategy to focus seniors attention on cost control. As a concept, this makes sense and could well be part of any final Super Committee plan–but it all depends upon the details.

The HLC’s tort reform ideas are far too incremental—they call for capping payments on what is a fundamentally flawed system. Why not fix the system rather than Band-Aid it? Proposals for health courts and no-fault resolution that emphasize data collection and quality improvement would have been more the kind of proposals I would have expected from the HLC.

The Health Leadership Council’s recommendations do create a structure that gives seniors more incentives to purchase the most efficient health plans, put a reasonable limit on what our country can spend on the Medicare entitlement, and recognize that more cost sharing, particularly for higher income beneficiaries, and a later eligibility age, will ultimately be part of the solution.

But just what are all the insurance companies and drug companies that are part of this group willing to do to put some of their “skin” in the game?

For those convinced that just putting the market in charge will control costs and produce affordable premiums, a recent post: Inconvenient Facts for Both Republicans and Democrats—Neither Side’s Health Care Proposals Are Supported By Past Performance.

Robert Laszweski currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. Before forming HPSA in 1992, Robert served as the COO, Group Markets, for the Liberty Mutual Insurance Company. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog, where this post first appeared.

16 replies »

  1. CoreyTowson,It was really bush who olescd down and limited Medicare Obama just recently opened it all back up again. Hence seeing that lady on the news that said Oh my god you mean I don’t have to work any longer? Public tend to want to vote in act of kindness of something when they own have a supply of in it. It is called a conflict of appeal and it is not theme to just any one have fun!You know how you fix that? you FIRE THEM!You are misinformed. Do you even live in the US?

  2. Your commentary is more blaanced than some, but the facts remain we are heading into a world where there will be 2 workers for ea retiree unsustainable to say the least. I don’t think that the younger generation is unwilling to help seniors in need, but a line has been crossed here. The younger generations are paying more and more fica and medicare taxes have done increased and are going to have to go higher. Still, they have literally no hope of receiving benefits anywhere close to what today’s seniors are getting. There is no disputing these basic facts.I understand the need for self preservation, but there is something perverted about parents and grandparents throwing their kids and grandkids under the bus so to speak. It would be one thing if we had elders living in abject poverty. The fact that in many cases, the elderly are better off financially than their kids. In terms of the transfer you mentioned in the form of real estate, I say bunk. To cry poor boomer when a market was severely overvalued due to the very financial maneuvering and game playing by the boomers finally gets half-way to reasonable is obscene. In the 60 s and 70 s, one could buy a reasonable middle class home for twice your salary. The median salary now is about $50K. Think you can buy a house today for $100K. Not where I live. Never mind ins premiums will cost you $6K for a family. Wasn’t that when you were young. You have to have dual income families and therefore need daycare add another $20K at least to your budget. I just wish we could all get together and decide on what would be fair to EVERYONE.

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  4. Nothing says tcoyote made it to the bathroom.

    In fact the government must decrease its outlay. They need seniors to be more careful when choosing to access healthcare. Nothing says the programs cannot be adjusted for more coverage when something is covered, while allowing balance billing.

    There will still be deductibles and copays. These could be adjusted.

    There should be no free scooters or lift chairs.

    Nursing home physical therapy should cost no more than outpatient physical therapy. Right now the nursing home patient is a cash cow milked 24 hours a day by pharmacy and rehab services. Why do you thinnk they all renamed themselves.

    Seniors are the wealthiest age group in the country. If they want to preserve Medicare they will be pressed to pay for stuff that the younger voter will cancel at their first opportunity.

  5. Balance billing would be a great solution if we were looking to increase health care prices while simultaneously decreasing the number of customers. Make it like shopping at Tiffany sort of thing.
    But then again that’s what that CEOs proposal is all about as well.

    I’ll join tcoyote in the bathroom now…..

  6. Balance billing means a lot of people will not be able to afford care. What will the political response be when lots of of retirees go w/o health care? This is the group that actually votes in our country, and it is a growing demographic group. You need a sustainable solution.

    I like the idea of exchanges and competitive bidding for private Medicare plans. The exchanges can make sure that people are given clear, transparent choices. However, there are limits to how much you cut Medicare w/o addressing private insurance rates. Also, I would like to see an effort made to focus on utilization rates and cost effective care. When two treatments are equally effective, we should only pay for the cheaper one, and let patients pay the difference if they want the more costly therapy.


  7. with the increase of death rate dying lower than age 60, i think the healthcare industry should start making a move. healthcare industry is supposed to take care health and not to be commercially made.

  8. Sure took a lot of courage for the “industry” to say “don’t cut our provider or vendor payments, shove the cost off onto beneficiaries instead”! It’s pretty transparently disgusting.

    Particularly the more or less immediate raising of the Medicare eligibility age to 67. There are 13.2 million uninsured baby boomers (close to 20% of the generation). It’s one thing to be 24 years old, uninsured and immortal. It’s another thing altogether to be 53 years old, widowed, diabetic and uninsured. Uninsured older folks with chronic illnesses (read most of them) are sicker and more costly to treat when they join Medicare, and they stay sicker than the average Medicare recipient for SEVEN YEARS after they join the program. And THEIR emergency room visits will be of the $50 thousand variety.

    A lot of those uninsured boomers are counting the months until they are eligible so they can afford their medications and see the doctor again. If you were going to cover single subgroup of the uninsured on a priority basis, it would be the 50+ uninsured.

    Medicare’s eligibility age should be LOWERED, not raised, and people should be able to sign up before 65 on a voluntary basis, with the poor receiving some form of subsidy. When that came up in the health reform debate, hospitals killed it because they didn’t want to lose their most profitable (e.g. privately insured) 55-64 year old patients to public coverage.

    Excuse me, I have to go throw up now. . .

  9. I think it is a amazing idea As we begin the national debate over what to do about Medicare’s unsustainable costs is good thing.

  10. Mr Laszewski asks – “But just what are all the insurance companies and drug companies that are part of this group willing to do to put some of their “skin” in the game?”

    Obvious answer= NOTHING! Because in their board rooms they cannot perceive their inevitable demise and ultimate individual and institutional self destruction. It is just too painful for them to change.

    This is failed leadership personified. Dump their stocks if you own any.