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Medicare’s Future: Questions That Fall Through the Cracks

Medicare’s Future: Questions That Fall Through the Cracks

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Sifting through the two major competing proposals for Medicare reform, one key question emerges: What will they really cost taxpayers and beneficiaries?

This subject hasn't been explored in any depth during the presidential debates. And it’s difficult to answer this query when you compare the Romney–Ryan plan to Obama’s Affordable Care Act (ACA) model that was put into place in 2010 and promises savings over time.

 On one hand, except for its call to offer premium support for privately offered health plans and a cap on spending, the Romney–Ryan plan is troubling in its vagueness and lack of detail. No specific funding mechanism is cited. Then there’s the question of whether a plethora of cost-savings measures built into the ACA will have a meaningful impact on the program’s long-term fiscal sustainability.

If you compared the competing plans side-by-side, which one would come out ahead? The Commonwealth Fund, a private foundation that has been a leading voice in health care research and reform, and in creating a “high performance health system,” recently issued a report that examined both plans.

Working with a limited amount of information on the Romney–Ryan proposal, the fund objectively analyzed both approaches. Its basic conclusion is that Obama’s ACA model “substantially increases and improves health insurance coverage in private insurance markets and in public insurance programs for Americans across income and age groups, while also providing new incentives aimed at improving health care quality and lowering the rate of growth in spending.”

This general statement, though, covers the scope of the entire health care market from cradle to grave. It’s much more difficult to break down exactly what this means for Medicare, except for the following key points:

  • If Romney is elected president, he’s vowed to repeal most, if not all, of the ACA. That means reopening the “donut hole” in the Medicare Prescription Drug Plan (Part D) program and possibly phasing out ACA provisions for preventive care and wellness visits.
  • Romney’s promise to repeal the ACA is expected to increase net Medicare spending by $716 billion between 2013 and 2022. That would deplete the Hospital Insurance (HI) trust fund by 2016, compared to 2024 under ACA parameters.
  • The Medicare eligibility age would be raised to 67 under the Romney plan, accounting for increases in population longevity. That change would start in 2034.
  • The Romney–Ryan premium support model would begin in 2023. Maintaining traditional Medicare as an option would allow beneficiaries to choose between premium-support/private plans and fee-for-service Medicare. The idea is to create competition and lower costs.
  • The GOP plan (at least in Ryan's version) also proposes to cap per-capita spending in 2023 to the rate of growth in the U.S. Gross Domestic Product (GDP) plus 0.5 percentage points if the premium-support model fails to rein in spending. The Congressional Budget Office estimates this could lower Medicare spending by 35 percent by 2050.

Projecting the Cost Savings: Major Questions Remain

Commonwealth Fund President Karen Davis (in an Oct. 2 blog post) uses a key phrase in extrapolating what the Romney–Ryan plan would mean in terms of future costs. She cites "fragmenting the risk pool" as a potential trouble spot. That's insurance jargon for separating more expensive beneficiaries into a separate group, which would raise costs across the entire program.

"Even if Medicare beneficiaries retained a choice of enrolling in traditional Medicare as called for in the latest Ryan proposal, physicians and hospitals could receive substantially higher payment from private plans and would be likely to opt out of participation in traditional Medicare, nullifying it as a genuine choice for beneficiaries. Dividing Medicare beneficiaries across multiple private plans would undermine the leverage the program currently has to drive efficiency among providers and widespread change across the entire U.S. health system."

It's conceivable that splitting Medicare patients into an "older" group—those currently age 55 and older, who would not be placed in the premium-support set-up but would remain in the fee-for-service system—and a younger group forced to buy private plans would create perverse incentives for health care providers to prefer those with private payers. That would not result in lower costs overall. Would this create a health care apartheid where providers would only take patients with private coverage? Keep in mind that Congress has yet to establish a permanent fix for the Sustainable Growth Rate payment formula for doctors, who would, of course, rather be paid more, not less, by the government.

What would happen if private insurers could not obtain the same provider payment discounts that the fee-for-service system has had for years? Would they pass the higher fees onto beneficiaries? Would Medicare cover the difference? In either scenario, costs would likely be shifted to taxpayers or beneficiaries and there would be no net savings.

There's also the question of whether multiple private insurers, even competing against each other for new customers, could come close to the low administrative costs of the current Medicare model. After all, private companies would not initially have the economies of scale of the older program and would have to spend money on marketing, commissions and salaries before they paid a single provider.

An even larger question is what happens under the Romney–Ryan plan if Medicare spending exceeds the GDP-linked cap? That's hardly a free-market solution that would promote competition. If actual expenses exceed the limit, will the government and taxpayers cover the difference? Will beneficiaries face higher premiums, which are not capped under the GOP plan?

On the ACA side, there are additional concerns about whether more than 60 provisions relating to Medicare will be effective in driving down costs over time. Critics of this "program integrity" approach, which combines new strategies such as accountable and coordinated care, claim that, in the aggregate, these ideas will not rein in annual expenses enough to make the program fiscally sustainable.

Medicare is also attempting to curb costs by penalizing hospitals in areas such as readmissions and avoidable infections. While it's too soon to tell if those disincentives will succeed in improving care and lowering hospital bills, some of the programs may not work or may need to be fine-tuned. A new study on the rate of hospital-acquired infections by the New England Journal of Medicine, for example, found that penalties had little or no impact on the incidence of the infections.

In the interim, Davis sees the ACA as a building block for future reductions in Medicare's expenditures:

"As policymakers and the nation confront the urgent need to control health spending while continuing to improve the quality and efficiency of care delivered, these activities provide a foundation on which to build, with the potential to control health spending while moving toward a high performance health system."

The ultimate challenge, and one that the Commonwealth Fund endorses, is to find a way to provide more efficient, effective and healing care without sacrificing quality. That's a subject that most candidates can agree upon. (MNG) original articles can be reprinted or republished with credit to The Medicare NewsGroup. To use our content, simply copy and paste text from the MNG website. Use of our content is done in compliance with our Terms and Conditions but does not extend to material from other sources that are subject to their copyright.


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