Let’s Fix Medicare Before We Expand It, Mrs. Clinton, But Then….!

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Dear Mrs. Clinton –

It’s probably good politics to suggest making Medicare available to some under 65s , just when Congressional Republicans are proposing to increase the Medicare eligibility age. Sometimes, though, good politics doesn’t produce good policy.

Medicare may be well-regarded by most Americans, but the program has four huge weaknesses that need to be fixed before considering any expansion.

Here’s what’s wrong.

Medicare is absurdly, insanely overcomplicated.  When Medicare was created in 1965, it consisted of just two components, Part A hospital care and Part B physician and other care, with the split made only to gain AMA support for the legislation. Fast forward to 2016: we now also have Part C (Medicare Advantage), Part D (prescription drug), and seven versions of dual Medicare-Medicaid eligibility (in turn dependent on 50-plus states’ and territories’ own Medicaid regulations). And that’s all before the thousands of pages regulating payments to providers. The complexity provides a lot of jobs for bureaucrats and consultants, but does little for beneficiaries.

Medicare payments are unfair to many (including taxpayers).  For beneficiaries in the fee-for-service program, Medicare currently pays all allowed provider charges (after copays and deductibles). For those choosing Medicare Advantage, the program typically pays the full premium bid by the private plan.  The effect of this misplaced generosity is that one senior’s care may be subsidized by up to $5,000 a year more than another’s with the same health status in the same city—with taxpayers paying the difference.

Medicare is regressive. Traditional Medicare imposes the same deductibles and coinsurance regardless of income and charges the same Part B premiums for the vast majority of beneficiaries. Similarly, Medicare Advantage plans impose the same cost-sharing for all incomes. Congress’s answer has been to allow Medicaid to pay premiums or cost-sharing for lower-income seniors, but many of those potentially eligible are not enrolled, while Medicaid’s rules can mean that a difference of a dollar of income make the difference between eligibility and otherwise.

Medicare is enormously (and unnecessarily) costly—and getting rapidly more so. According to the latest Medicare Trustees report, Medicare expenditures will rise from $683 billion in 2016 to $1.3 trillion in 2025. Even though Medicare per capita costs are rising slightly less rapidly than overall health care costs, the Trustees project that—unless changes to the program are made—these will increase from $12,925 in 2016 to $19,400 in 2025, far, far more than we can afford!

What’s the answer?  Three fixes.

One:  Streamline the program structure. Consolidating the four program parts into a single whole, with all current Part B and D services available to all beneficiaries, will reduce administrative costs and enhance access. Eliminating the need for dual eligibility as described below will do even more.

This is consistent with past consolidation proposals from MedPac, the Bowles-Simpson Commission, the Commonwealth Fund, the Bipartisan Policy Center, and individual members of Congress, but more sweeping and more effective.  It means a single premium and, potentially, a single deductible and out-of-pocket limit to protect beneficiaries against unexpectedly high medical expenses—something current Medicare fails to do. It also means that all Medicare beneficiaries will have a full range of medical coverage, including prescription drugs, guaranteed—again, something Medicare now fails to provide.

Two:  Tie premiums, deductibles, and out-of-pocket limits to income. Medicare has to be made affordable for all seniors without imposing the humiliation of applying for Medicaid on the less well-heeled. This can be done either directly by making all beneficiary costs income-dependent, or indirectly by offering a “gold” coverage option with lower deductibles and out-of-pocket limits for a higher premium that is subsidized for low-income seniors.

Either option could eliminate the need for expensive and inefficient Medigap insurance, as well as protecting lower-income seniors from having to choose between applying for Medicaid and risking financial disaster.

Three:  Move to an equitable “guaranteed contribution” approach. Various forms of premium support have been recommended by bipartisan commissions over the past twenty years as the fairest answer to controlling Medicare costs. The guaranteed contribution approach would differ significantly from that proposed by Congressional Republicans in that beneficiaries choosing coverage options below the benchmark cost would share in the program savings.

All beneficiaries would be guaranteed a choice of traditional fee-for-service and private plan options, and all beneficiaries would be assured that an option would be available for no more than their basic premium cost (with shared savings for lower-cost options). The Congressional Budget Office has estimated that such an approach could cut Medicare spending by up to $45 billion a year, not counting possible additional savings from more effective competition. Although critics have complained that such an approach would mean some beneficiaries would pay more than their basic premium unless they were willing to choose a less expensive plan, this is a far better option for controlling Medicare spending than cutting coverage, increasing all premiums, or slashing provider payments.)

So, imagine if these changes were made.

The result would be a fairer program with less administrative burden, less likely to bankrupt either the government or individual seniors, and one more in line with modern insurance than with the ideas of fifty years ago.

It would be one that could accept enrollees below the age of 65, as you have suggested, Mrs. Clinton, on a pay-as-you go basis (since under-65s would not be entitled to the same level of subsidies as over-65s). In fact, it could replace Obamacare for over-55s—a politically popular move that would give enrollees more choices, potentially lower costs, and reduce taxpayer spending.

Senator Sanders’ supporters would love it as a possible step towards Medicare-for-All (but without costing a hundred thousand insurance jobs), President Obama would be pleased to see his liking for an Obamacare public option being implemented, Republicans would hate it, and you’d be back in charge of healthcare innovation. Why wait?

Roger Collier is the founder of the Campaign for a Rational Healthcare System (www.rational-healthcare.com). He was formerly CEO of a national healthcare consulting firm.

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7 replies »

  1. There’s one part of this post that all should agree on: the structure of the program needs to be simplified so consumers/seniors can better understand it. Most important, Congress needs to enact an out-of-pocket spending cap.

    As for allowing 55 to 64 years olds to enroll/”buy-in” to Medicare: it’s an idea whose time for serious consideration may have come…when Hillary becomes president. It has the potential to solve myriad problems…with coverage gaps for this at-risk, costly age cohort, and exchange enrollment and costs. But, as always, the devil will very much be in the details. For example, there no way Hillary would propose it without subsidies for low-income people. It would, in essence, be a “public option” for this age group….and one structured outside the exchanges. But would 55 to 64 years olds without employer coverage have choice between exchanges and Medicare…or pretty much be pushed into the Medicare buy-in. If so, it could not be same benefit structure now offered in Medicare; no one would buy-in. Many unanswered questions/policy ramifications remain.

  2. A few corrections and clarifications to other comments:
    To Don Levit:
    1. Medigap plans are inefficient because they require claims to be processed twice, by Medicare and by the Medigap insurer. They are expensive for the insured because they typically are high-profit (20 percent or more) for the insurer, and expensive for all taxpayers because they encourage excessive utilization of services.
    2. There are actually two Medicare trust funds. The Part A trust fund is financed by payroll taxes and interest. The Parts B and D trust fund is partially funded by premium payments, but with general revenues paying for some three-quarters of medical and prescription drug costs.

    To Dennis Byron (keyed to your comments):
    1. The original Medicare proposal from the Johnson administration was only for (mandatory) hospital coverage for seniors. The (voluntary) physician coverage in Part B was added by Ways and Means Chairman Wilbur Mills to attract support from Committee Republicans who had been heavily lobbied by the AMA.
    2. See my comments on Medigap above.
    3. In terms of national averages for similar beneficiaries, costs for MA coverage are close to those for the traditional FFS program. However, there are substantial differences in many individual geographical areas, as shown by the 2012 Kaiser Family Foundation study of the potential impact of premium support. For example, in Miami-Dade County, average FFS costs were $492 per month greater than the benchmark private plan cost (based on 2010 data). In Portland, Oregon, however, average FFS costs were $211 per month lower than the average private plan.
    4. See #3
    5. Medicare is definitely regressive. Only those also enrolled in Medicaid pay less than the standard Part A and Part B coinsurance and deductibles. Only a small percentage of seniors (less than 5 percent) pay more than the standard premium because of their higher incomes.
    6. Social Security Extra Help and state pharmaceutical program subsidies apply only to Part D.
    7. The suggested guaranteed contribution plan does differ from the latest Congressional Republican proposal. It is, however, based on the 2011 Domenici-Rivlin and Wyden-Ryan bipartisan proposals (although “word for word” is something of an overstatement).

  3. I wonder why the author thinks Medicare supplements are inefficient and expensive
    When discussing the solvency of the trust fund he neglects to mention that the trust fund actually receives in cash only about 15 cents on the dollar of the amount allocated
    This is because taxes go to the Treasury’s general fund where they then pay General appropriations including Medicare
    If Medicare consumes 15 percent of the budget, it receives 15 cents of every dollar allocated
    The balance is made up of debt which when utilized from the trust fund increases our total debt (debt held by the public plus intragovernmental debt, which is comprised partly of Medicare)

  4. This post nicely describes the patient’ s side .It is staggering to try to enroll in medicare and try to figure out which of ones’ meds are covered and for which there are what level of copays and then, oh , the donut hole, but the medicare advantage plan does not cover the right meds and and but and the 20%, but oh the premiums and deductibles… Really hard.
    In addition I want to speak about he physician side of CMS complexity. We have an epidemic of diabetes in this country but to provide the very cheap little machines that test blood sugar and the test strips that one uses in those machines, takes signing in blood Different pharmacies insist on different paper work ,no matter what the CMS rules say. CMS audits in such draconian ways that DME suppliers are fearful. CMS is huge and complex and its well intended rt hand has no idea it has a well intended left hand Another example- the chronic care codes so that physician can at least do some work without having the patient on site .Perfectly reasonable to adjust insulin or bp meds or give advice Bad enough the code is for once in a calendar month and only if there are two chronic conditions and must be 20 min not 19, and what if the patient needs 15 min every week to stay functioning?. Well-If you submit for March1 and 2 and 3 for 20 min of work , and the patient is admitted late in March to a hospital, and your bill for 40.00 or so lands on CMS’s desk while the patient is in the hospital you will be auditted and appeal and auditted and forced to return CMS portion of 32.00- becasue the patient is not allowed to have services while in the hospital ( although hey why not I was explaining her care to her) but in this case she was eligible for services early in the month but CMS cannot understand that it was only later she was admitted !And we wonder why doctors are discouraged. 32.00 and humiliation because CMS is not well run Yes we have work to do

  5. “Medicare is absurdly, insanely overcomplicated. ”

    Indeed. And MACRA and MIPS will make it even more so.

  6. Mr Collier
    I agree with the thought expressed in the headline but the way you got there seems to be based on some basic misunderstandings of Medicare. I guess it’s OK to get to the right destination the wrong way but just FYI, you write:

    1. “ When Medicare was created in 1965, it consisted of just two components, Part A hospital care and Part B physician and other care, with the split made only to gain AMA support for the legislation.” In 1965, almost all health insurance – for the 65%-70% of people who had it then — was split that way. Maybe it was split that way for everyone else for the sake of the AMA but that split had nothing specific to do with Medicare.
    2. “Fast forward to 2016: we now also have Part C (Medicare Advantage), Part D (prescription drug), and seven versions of dual Medicare-Medicaid eligibility…” And you’re not even counting the private individually bought Medigap insurance and private group retiree insurance on which over 50% of the people on Medicare Parts A and B depend because Parts A and B are so bad. But these choices are good. Some people do not need Part B because a former employer provides similar coverage; most of us do. Many people do not like Managed Medicare so do not want Part C Medicare Advantage; 33% of us do like Managed Medicare. Some people can get drugs through the VA or a former employer so don’t need Part D; 30% of us do want Part D. The choices you seem to think are bad are what most people call “the American way.” Despite your claim, those choices do a great deal for Medicare beneficiaries, primarily saving us money.
    3. “For beneficiaries in the fee-for-service program, Medicare currently pays all allowed provider charges (after copays and deductibles). For those choosing Medicare Advantage, the program typically pays the full premium bid by the private plan.” It is not clear what you mean by this sentence because you mix up premiums for Part C and charges under traditional Medicare, two different things. Of course it is true that “The effect of this…is that one senior’s care may be subsidized by up to $5,000 a year more than another’s…” That’s the way insurance works after all.
    4. If on the other hand, you are claiming that on average public Part C Medicare Advantage beneficiaries cost the Medicare trust funds $5000 a year more a year for person A than traditional Medicare costs for Person B if persons A and B are otherwise exactly the same, that is not correct. To claim the difference is $5000 would mean that people on public Part C Medicare Advantage receive 50% more in Trust funds per year on average than people on traditional Medicare. The left wing MedPAC organization estimates that there is a about a 2% difference ‘in favor of’ Medicare Advantage beneficiaries per year per capita – FOR LIKE BENEFICIARIES AND NOT COUNTING RISK RELATED PAYMENTS. On the other hand, the official Medicare Trustee numbers show a 2% to 4% difference “against” Medicare Advantage beneficiaries per year per capita – COUNTING ALL BENEFICIARIES AND INCLUDING RISK RELATED PAYMENTS. The correct answer is likely somewhere in the middle (that is, there is essentially no difference as intended by the law). But even if you want to believe the MedPAC estimate, the “extra” money per person from the Trust funds would equal $400 not $5000. (Most of the difference, if there is one, is caused by a special Medicare Advantage program used mostly by Democratic Party affiliated unions according to MedPAC and that program is being phased out in 2017 and 2018.)
    5. “Medicare is regressive. Traditional Medicare imposes the same deductibles and coinsurance regardless of income and charges the same Part B premiums for the vast majority of beneficiaries.” So in other words it is not regressive. Between 15%-20% of us pay nothing for Part B. Between 10%-15% of us pay much more than the standard premiums for Part B (and Part D if we want it). The 70%-75% of us in the middle pay the same as everyone else in the middle. That sounds pretty progressive to me.
    6. “Similarly, Medicare Advantage plans impose the same cost-sharing for all incomes.” That is also not true. People on Social Security Extra Help and state pharmaceutical assistance programs (which are very generous in many states and not asset based) help lower income and middle income seniors who want one purchase public Part C Medicare Advantage plans.

    You go on to describe what you call a guaranteed contribution plan and say it is different than past Republican and bipartisan proposals. But it appears to be word for word the same as past Republican and bipartisan proposals, particularly Wyden-Ryan?