Medicare Reform Strategy Floated by House Committees

A series of papers describing Medicare policy reform proposals is expected to be released over the coming months by the House Energy & Commerce and House Ways & Means committees.

A discussion paper released last week by two influential House committees outlines a Medicare reform strategy focused on deductibles, coinsurance and a cap on out-of-pocket spending. The proposals reflect many of the topics discussed during House committee meetings held in recent months.

Modernizing Medicare for the 21st Century is the first paper in a series of Medicare policy proposals expected to be released over the coming months by the House Energy & Commerce and House Ways & Means committees. The papers are intended to "spark discussion on how to protect seniors and place the Medicare program on sound financial footing."

See Also: Consensus Stirs for Medicare Reform

Since 2008 the Medicare Trust Fund has paid out more in hospital benefits and other expenditures than it receives in income. Interest earnings and asset redemptions are used to cover the difference. In 2012 alone, $11 billion in interest income and $24 billion in asset reserves were used to cover the shortfall, according to the 2013 Medicare Trustees Report.

The latest estimates have Medicare Part A, the hospital trust fund facing insolvency in 2026.

While acknowledging that the onslaught of aging baby boomers, increased expenditures, and draining resources have all contributed to Medicare's ongoing problems, the discussion paper also points a finger at what it terms "the program's outdated 1960's-era old-fashioned and complicated benefit design" that fails to "encourage consumer involvement and often leaves beneficiaries confused."

According to the paper, it is time for Medicare to follow the lead of commercial insurers, which have long coordinated hospital and physician benefits. Medicare continues to relay on "an array of confusing coinsurance and deductible levels and a fee-for-service structure," that have discouraged provider care coordination, rewarded overutilization, and increased costs.

The paper makes these suggestions:

• Uniform deductible. Set a combined annual deductible for Medicare Part A (hospital, skilled nursing, and home health services) and Medicare Part B (physician and outpatient services) to "better align beneficiary incentives."
• Coinsurance. Put in place a simplified coinsurance rate that applies to spending above the uniform deductible to help make out-of-pocket costs more predictable for a beneficiary.

In addition, there is a call for reforms to protect Medicare beneficiaries from out-of-pocket costs that "exceed a defined and reasonable catastrophic limit."

The discussion paper also notes that any reform proposals must take into account how the purchase of supplemental coverage, including so-called Medigap policies and employer-sponsored retiree plans, may impact overall Medicare costs.

A 2009 MedPAC study found that overall Medicare spending was 33% higher when beneficiaries had Medigap insurance and 17% higher when they had employer-sponsored coverage.

No time line for additional discussion papers, committee hearings, or reform bills has been given.