Consensus Stirs for Medicare Reform

A U.S. House subcommittee's review of proposals to improve the Medicare program focuses on three suggestions, but simultaneously restructuring the benefit design, maintaining the average value of benefits, and producing Medicare savings will not be simple.

The debate over how to modernize and improve the fee-for-service Medicare program continued Wednesday on Capitol Hill as the House Energy & Commerce Subcommittee on Health met with a panel of health policy researchers to review a number of proposals.

Medicare reform has been a front burner issue for several House and Senate committees as Congress grapples with making the tough decisions necessary to preserve the future of the almost 50-year-old program, which faces insolvency in 2026.

In a series of opening statements, representatives from both sides of the aisle presented a laundry list of concerns, including Medicare's complex benefit design, the impact of program changes on the vulnerable population of Medicare beneficiaries, and the effectiveness of cost-sharing in encouraging beneficiaries to seek high-value care.

The witnesses were Patricia Neuman, ScD, director of the Program on Medicare Policy and senior vice president of the Henry J. Kaiser Family Foundation; Katherine Baicker, PhD, a professor of health economics at the Harvard School of Public Health; and Thomas P. Miller, JD, a resident fellow in health policy studies for the American Enterprise Institute.

Wednesday's discussion was framed around several of the specific recommendations presented to the subcommittee in April by the Medicare Payment Advisory Committee, (MedPAC) but focused on these three proposals:

1.Combine Medicare Parts A and B under a unified cost-sharing structure.
Medicare has always maintained separate deductibles for Parts A and B. Initially, Medicare was modeled after private insurance, although a single deductible for all medical services is now commonplace among private plans.

But "a single combined deductible for both types of services might lessen the effects of the current structure on beneficiary incentives," says MedPac's April report to the subcommittee.

Inpatient care (Part A) carries a high deductible and because that care is not discretionary, it is less likely to be influenced by cost sharing. However, physician and outpatient care (Part B) are more discretionary and more likely to be influenced by cost sharing.

Thomas Miller of American Enterprise Institute said removing the separate deductibles for Parts A and B, and even Part D, "provides a potential policy reform tool that could achieve the twin goals of saving taxpayer dollars while improving the most essential risk protection benefits available to elderly beneficiaries." He suggested that savings could be used to provide better stop-loss protection against large catastrophic risks.

2. Institute a cap on out-of-pocket spending to protect beneficiaries from the threat of medical bankruptcy.
In his opening statement Rep. Joe Pitts (R-PA), subcommittee chair, expressed concerned about the uncertainty of out-of-pocket costs. He noted that Medicare typically requires a 20% copayment, but without knowing the total cost for a doctor's visit, hospitalization, or procedure, seniors can't translate that 20% into dollars and cents until after the service is delivered.

While most beneficiaries in FFS Medicare have supplemental insurance to help with unpredictable health expenses, Patricia Neuman of the Program on Medicare Policy said that even with Medicare and supplemental coverage, beneficiaries still have high out-of-pocket costs.

"They spend three times as much of their household budgets on health expenses as do non-Medicare households. Among beneficiaries with incomes below $20,000, half of them spend 20% of their income on healthcare and health insurance premiums."

3. Incentivize high-value care.
While there was general agreement that the current FFS system does very little to engage patients to seek the most effective healthcare, witnesses noted that a body of research indicates that any increase in cost sharing will change how Medicare beneficiaries use services. The goal is to develop incentives that increase the use of essential health services while reducing the use of less effective services.

In her testimony, Katherine Baicker of the Harvard School of Public Health noted that Medicare reforms are typically evaluated on how they impact the bottom line or whether the burden is borne by providers by beneficiaries.

"These metrics are not enough. Reforms must also be evaluated on how they affect the risk of potentially high expenditures to which beneficiaries are exposed–striking a better balance between financial protections on the one hand and preserving incentives to consume care wisely on the other."

Baicker warned that cost-sharing that ignores the differences in health benefits produced by different types of care, could reduce the use of highly effective care as much as it reduces use of low-value care.

A better approach, she suggested, is value-based cost sharing where services of high value would come with little or no cost sharing. Cost sharing "should be ratcheted up depending on how the value of care diminishes. Care that delivers very little benefit for seniors should come with a substantial copayment."

Although the committee hearing ended without taking action on the recommendations, there was general agreement that a consensus is beginning to build around these proposals.

Still, Patricia Neuman cautioned that the committee has "set a high bar" if it hopes to restructure the Medicare benefit design to provide catastrophic protection, streamline benefits, nudge beneficiaries toward higher-value services, strengthen financial protections for low-income beneficiaries, maintain the average value of benefits, and produce Medicare savings. "Achieving all of these goals simultaneously is a challenge."