Medicare Pros
1. The reform reduces Medicare spending.
“CBO estimates that the second-lowest-bid option would reduce net federal spending for Medicare by about $45 billion in 2020 and that the average-bid option would reduce such spending in that year by about $15 billion.” CBO scoring is, of course, conducted on the basis of current law. So, CBO’s savings estimates are conservative, since they are based on the untenable assumption that Obamacare’s massive Medicare payment reductions (estimated at $716 billion over the next 10 years) and the statutorily required 25 percent cut in Medicare physician payments in 2014 go into effect. But these draconian cuts will likely be overridden. Thus, if these provisions are overridden, the more realistic Medicare spending base would be substantially higher, meaning that the potential for additional savings from premium support would also be proportionately higher.
2. Medicare beneficiaries could secure premium savings.
Under the average bid option, average beneficiary premiums would be reduced by 6 percent in 2020. Under the second-lowest bid benchmark, the CBO estimates that premiums would increase. But CBO makes a counterintuitive assumption in both estimates: It assumes that about half of beneficiaries would stay in traditional Medicare, despite paying much higher premiums than they would under a competing private plan.
The CBO estimates that under the second-lowest bid option, average nationwide premiums would be $1,800 in private plans and $2,500 for traditional Medicare. Under the average-bid option, average premiums would be $1,000 for private plans and $2,000 for traditional Medicare. This means that under these scenarios, about half of all beneficiaries would choose to pay nearly 40 percent and 100 percent more, respectively. The idea that seniors are somehow uniquely price insensitive is intriguing if not fanciful, but the CBO report actually underscores a fundamental truth: Competing private plans in a Medicare premium support program, with the same actuarial value as traditional Medicare, would cost less.
3. In choosing private plans, seniors could also reduce their out-of-pocket costs.
According to the CBO analysis, “In 2020, beneficiaries’ total payments would be about 11 percent higher, on average, under the second-lowest-bid option and about 6 percent lower, on average, under the average bid option than they would be under current law.” CBO indicates that total payments would be higher under the second-lowest bid option because CBO assumes many people won’t switch out of higher cost traditional Medicare into cheaper health plans. Nonetheless, the CBO says, “out-of-pocket costs [i.e. deductibles, copayments, etc.] generally would be lower than under current law because more beneficiaries would enroll in lower-bidding private plans, which would tend to reduce the total costs of care while maintaining the required actuarial value.”
4. Your Medicare coverage is protected.
Medicare isn’t part of the Health Insurance Marketplace established by ACA, so you don’t have to replace your Medicare coverage with Marketplace coverage. No matter how you get Medicare, whether through Original Medicare or a Medicare Advantage Plan, you’ll still have the same benefits and security you have now.
You don’t need to do anything with the Marketplace during Open Enrollment.
5. You get more preventive services, for less.
Medicare now covers certain preventive services, like mammograms orcolonoscopies, without charging you for the Part B coinsurance or deductible. You also can get a free yearly “Wellness” visit.
6. You can save money on brand-name drugs. If you’re in the donut hole, you’ll also get a 50% discount when buying Part D-covered brand-name prescription drugs. The discount is applied automatically at the counter of your pharmacy—you don’t have to do anything to get it. The donut hole will be closed completely by 2020.
7. Your doctor gets more support. With new initiatives to support care coordination, your doctor may get additional resources to make sure that your treatments are consistent.
8. The ACA ensures the protection of Medicare for years to come. The life of the Medicare Trust fund will be extended to at least 2029—a 12-year extension due to reductions in waste, fraud and abuse, and Medicare costs, which will provide you with future savings on your premiums and coinsurance.
9. More Americans could retire earlier
When the CBO estimated the effects of a Medicare expansion in 2008, it predicted that some Americans who would have previously stayed in the workforce to ensure they had health coverage would retire earlier, knowing they could buy into the public insurance program. The CBO estimated that allowing 62-to-64-year-olds to buy into Medicare would lead to an increase in Social Security spending of $1.6 billion over 10 years because of early retirements. However, under Democratic health reform, older Americans without jobs would be able to get more affordable private health insurance as well, so it’s unclear if having a Medicare option would affect retirement rates.
10. Premiums for other Americans could drop
Age is a decent proxy for health. So depending on how many and which 55-to-64-year-olds opted for Medicare coverage over private insurance, the pool of individuals and small groups left buying private insurance in the exchange or exchanges — new marketplaces for insurance — would be less risky to insure and could therefore pay lower premiums.
11. Increase Penalties for Health Care Fraud
Estimates show that waste and fraud in the health care system cost taxpayers tens of billions of dollars every year. Proposals to reduce fraud include increasing the penalties for fraudulent activities, such as the illegal distribution of Medicare patient and provider information.
PRO: Increasing penalties on providers and others who commit fraud can reduce such behavior and lead to substantial savings. Dollar for dollar, addressing fraud in this way is an effective strategy compared to other approaches. For every dollar spent on such activities over the past three years, the federal government has collected more than seven dollars in return. (Avalere Health)
12. Require Drug Companies to Give Rebates or Discounts to Medicare
Under current law, drug manufacturers are required to give rebates or discounts to the Medicaid program for prescription drugs purchased by Medicaid beneficiaries. However, Medicare Part D — the optional prescription drug coverage — does not require similar manufacturer rebates or discounts. This proposal would require manufacturers to provide Medicare with the same rebates or discounts as those Medicaid receives for drugs purchased by certain low-income Part D enrollees.
Before 2006, drug companies provided discounts on drugs prescribed for all Medicaid beneficiaries. In 2006, legislation moved many of these beneficiaries to Medicare and ended the required discounts. As a result, the price of drugs for Medicare enrollees is higher than that under Medicaid and other government programs. Drug companies managed fine before 2006 and they can do so again. Restoring the discounts will save the Medicare program $112 billion over the next decade. This is a simple and effective way to save money for Medicare and help lower the federal budget deficit
13. Redesign Medicare’s Copays and Deductibles
Medicare Part A pays for inpatient hospital, skilled nursing facility, hospice and home health care. Part B pays for physician and outpatient services (excluding prescription drugs). Part A and Part B have different cost-sharing and deductibles. Under Part A, beneficiaries who receive inpatient hospital services pay a deductible ($1,156 in 2012) in each benefit period, and there is no initial cost-sharing for hospital stays under 60 days. In contrast, the annual deductible for Part B services is $140, and beneficiaries must pay 20 percent of their costs after meeting their deductible. Some proposals would combine the Part A and Part B programs to have only one deductible (for example, $550) and one coinsurance (for example, 20 percent) for all Part A and Part B services. Currently, there is no annual upper limit on out-of-pocket expenses for Part A or Part B. Some proposals would set an out-of-pocket limit.
PRO: Redesigning Medicare copayments and deductibles could simplify and streamline benefits for beneficiaries. If an annual out-of-pocket spending cap were included in this redesign, Medicare beneficiaries — particularly those with high utilization — would have more financial protection from expenses caused by severe and often unexpected illnesses. This could also reduce the need for supplemental insurance, such as Medigap. While most beneficiaries likely will not reach the out-of-pocket limit in a given year, knowing that the limit exists could give them a greater sense of financial security. Redesigning Medicare cost-sharing could also create savings for the federal government by making beneficiaries more price-sensitive in using health care services, resulting in lower utilization and greater Medicare savings.
14. Allow Faster Market Access to Generic Versions of Biologic Drugs
Expensive biologic drugs (medications made from living organisms) are used to treat conditions like cancer, rheumatoid arthritis and multiple sclerosis. These types of drugs currently provide manufacturers with 12 years of exclusive market access before generic versions (known as biosimilars) can enter the market. This proposal would reduce the exclusivity period to seven years. Because generic medications have a lower retail cost, this would save money for Medicare and its beneficiaries.
Under the new health care law, brand-name biologic drug manufacturers are allowed to sell their products without any competition for 12 years. This period is excessive and should be shortened in order to encourage lower prices and maximize savings for consumers and Medicare. Allowing seven years of market exclusivity is more than enough time to give manufacturers a monopoly to recoup their development costs
15. Strengthen the Independent Payment Advisory Board (IPAB)
The IPAB is a group of 15 health experts (generally appointed by the president and approved by the Senate) who are required to recommend ways to hold down Medicare spending growth if that growth exceeds a certain limit. The IPAB has the authority to reduce payments to some Medicare providers (e.g., hospitals, doctors), but it cannot raise beneficiary premiums or reduce their benefits. Some proposals would change the law to give the IPAB more authority so it could also reduce benefits, while other proposals would further limit the amount of Medicare spending growth, which could require the IPAB to further reduce spending on doctors, hospitals and other health care providers. Some would eliminate the IPAB altogether.
The IPAB is a promising way to limit the growth of Medicare spending without rationing care or cutting access to care by the elderly and disabled. It should be retained and strengthened so it can improve incentives for doctors, hospitals and other providers to deliver higher-quality care at reasonable cost. Some members of Congress want to kill the IPAB even before it goes to work because of a mistaken belief that it usurps congressional authority. It does not. Congress remains free to reverse any recommendations that the IPAB makes. It could even kill the IPAB with new legislation. But the creation of the IPAB expresses a congressional commitment to an important goal — slowing the growth of health care spending.
Medicare Cons
1. Doctors and hospitals could see incomes and revenues drop
Medicare-reimbursement rates are lower than those of private insurance, so bulking up the number of Americans covered by Medicare could adversely affect the bottom lines of doctors and hospitals. The American Hospital Association and American Medical Association have already said they oppose expanding Medicare eligibility, and at least one Democrat, North Dakota Senator Conrad, has expressed concern on the same grounds.
2.. Generate New Revenue by Increasing the Payroll Tax Rate
The primary source of funding for Medicare hospital services (Part A) comes from the payroll tax. Workers and their employers each contribute 1.45 percent of earnings for a total contribution of 2.9 percent. Medicare also offers coverage for physician services (Part B) and prescription drugs (Part D), but these services are not funded by the payroll tax. It’s estimated that beginning in 2024 Medicare will not have enough money to pay for all of the expected hospital expenses. Increasing the payroll tax rate by 0.5 percent to 3.9 percent (or to 1.95 percent each for workers and employers) would raise additional revenue for Medicare’s inpatient hospital expenses. For an individual earning about $50,000 a year in wages, this increase would amount to an extra $250 in Medicare payroll taxes per year.
CON: Addressing Medicare’s long-term financial problems by raising payroll taxes on working Americans is not the answer. Doing so will make the situation worse for the economy and for our children and grandchildren, and it will erode the political will to undertake needed reforms. We need to make sure that programs like Medicare don’t take such a large share of the economy in the future that there is not enough for other critical goals like education, rebuilding our roads and bridges, and defending America. We’ve got to get the future costs of Medicare down, not tax Americans more
3. Prohibit Pay-for-Delay Agreements
Brand-name pharmaceutical companies can delay generic entry into the marketplace by compensating a generic competitor for holding its competing product off the market for a certain period of time. Some proposals would prohibit brand-name and generic pharmaceutical manufacturers from entering into these “pay-for-delay” agreements.
CON: Pay-for-delay agreements are an efficient and cost-effective way for pharmaceutical companies to resolve expensive patent lawsuits. If pay-for-delay agreements are prohibited, generic drugs could actually be kept off the market for a longer period of time, since it can take years to resolve patent litigation through the court system. In addition, prohibiting pay-for-delay agreements could also affect generic manufacturers’ willingness to challenge brand-name drug patents, reducing the number of generic drugs that become available before their brand-name counterparts go off patent. There is little proof that pay-for-delay agreements prevent generic competition. In fact, a majority of pay-for-delay agreements allow generic drugs to enter the market before the brand-name patent has expired. It is also important to ensure that the innovations of brand-name drug manufacturers are adequately protected by patents. Without this security, pharmaceutical companies may be less likely to invest money in the research and development of new drugs.
4. Increase Supplemental Plan Costs and Reduce Coverage
Even with Medicare coverage, seniors are often left with significant health care costs, so many people purchase supplemental private insurance coverage (such as Medigap plans) to reduce their out-of-pocket expenses. One proposal would charge more for certain types of supplemental plans, such as those that cover all costs so seniors incur no out-of-pocket expenses themselves. Other proposals would limit what Medigap supplemental insurance plans will cover. For instance, they could prevent Medigap from covering the first $500 of a Medicare beneficiary’s out-of-pocket costs, and only cover 50 percent of the remaining charges. Some proposals may also include a cap to limit overall out-of-pocket expenses.
CON: It would be unwise to increase the premium amounts for Medicare supplemental insurance, such as Medigap, or to decrease the amount of coverage available to enrollees under these policies. There is no evidence that these reforms would deter the use of unnecessary health care services. Rather, these Medigap proposals would simply raise costs for Medicare beneficiaries and have an unfair effect on lower-income Medicare enrollees and those in poor health.
5. Raise Medicare Premiums for Higher-Income Beneficiaries
Most Medicare beneficiaries pay a separate monthly premium for doctor visits (Part B) and prescription drug coverage (Part D) in Medicare. The premiums people pay for parts B and D cover about 25 percent of what Medicare spends on these services. Individuals with annual incomes of more than $85,000 and couples with annual incomes above $170,000 pay higher premiums, up to three times the standard premium depending on income level. Under several proposals, these higher-income beneficiaries would be required to pay as much as 15 percent more than they currently pay.
CON: On the surface, it may seem reasonable to charge Medicare beneficiaries with higher incomes more for the same parts B and D coverage. However, in reality, many of these proposals will push costs on to more middle-class beneficiaries, particularly if the income level at which individuals are subject to the higher premium continues to be frozen, or even reduced. In addition, higher-income beneficiaries already pay more money into the Medicare program before retirement, and they also pay more in premiums for Medicare parts B and D — they should not have to pay even more for the same coverage as other beneficiaries.
Also, some higher-income beneficiaries may decide it is more advantageous to drop out of parts B and D if they are able to buy less expensive private coverage or simply self-pay for the physician visits and medications. If enough higher-income beneficiaries drop out of parts B and D, the premiums for Medicare parts B and D will need to increase for beneficiaries who remain in the program, making Medicare participation more expensive for almost everyone.
6. Increase Medicare Cost-Sharing for Home Health Care, Skilled Nursing Facility Care and Laboratory Services
Medicare does not charge a copay for patients whose doctors prescribe home health care or for the first 20 days in a skilled nursing facility. Several proposals would require a copay for home health care, including one that would require a payment of $100 for home health episodes with five or more home health visits and add copays for the first 20 days of care in a skilled nursing facility. Medicare does not currently require a copay for laboratory services (such as blood and diagnostic tests). A number of proposals would require beneficiaries to pay 20 percent of the cost of laboratory services.
CON: Many Medicare beneficiaries — particularly those who are low income and do not qualify for any additional assistance — will have trouble affording new copayments for home health, skilled nursing facility and laboratory services. These individuals may end up not receiving needed care or services. Even Medicare beneficiaries with supplemental policies could face higher out-of-pocket costs, as premiums would likely rise to offset the higher copays. State governments would also pay more, as Medicaid would be responsible for the copayments of low-income Medicare beneficiaries who receive assistance from Medicaid.
7. No new incentives for primary care physicians.
Physicians are increasingly turning to specialties as a way to pay off expensive medical school debt and make more money. This means more workload and burnout for primary care physicians, who get no bureaucratic relief under the current reform bill. That also means longer wait times, more obstacles, and potentially higher specialist costs for consumers.
8. Raise the Medicare Eligibility Age
Since Medicare’s creation in 1965, the eligibility age has been 65 for people without disabilities. Some proposals would gradually raise Medicare’s eligibility age from 65 to 67. So instead of receiving health coverage through Medicare, 65- and 66-year-olds would need to enroll in coverage through an employer plan or a government program (such as Medicaid) or purchase their own coverage on the individual market or through a health insurance exchange. CON: Raising the age of eligibility for Medicare at this time would be a bad idea. It would save the federal government little money, raise total health care spending, impose significant financial burdens on many financially vulnerable seniors and impose new costs on businesses and state governments. Having to wait until age 65 for Medicare coverage is a serious problem even now. Raising the age of eligibility for Medicare makes the wait longer and the problem worse. Now is not the time to put at risk the health insurance coverage for millions of 65- and 66-year-olds in the mistaken belief that doing so will contribute significantly to lowering the federal deficit
9. Raise Medicare Premiums for Higher-Income Beneficiaries
Most Medicare beneficiaries pay a separate monthly premium for doctor visits (Part B) and prescription drug coverage (Part D) in Medicare. The premiums people pay for parts B and D cover about 25 percent of what Medicare spends on these services. Individuals with annual incomes of more than $85,000 and couples with annual incomes above $170,000 pay higher premiums, up to three times the standard premium depending on income level. Under several proposals, these higher-income beneficiaries would be required to pay as much as 15 percent more than they currently pay. CON: On the surface, it may seem reasonable to charge Medicare beneficiaries with higher incomes more for the same parts B and D coverage. However, in reality, many of these proposals will push costs on to more middle-class beneficiaries, particularly if the income level at which individuals are subject to the higher premium continues to be frozen, or even reduced. In addition, higher-income beneficiaries already pay more money into the Medicare program before retirement, and they also pay more in premiums for Medicare parts B and D — they should not have to pay even more for the same coverage as other beneficiaries.
Also, some higher-income beneficiaries may decide it is more advantageous to drop out of parts B and D if they are able to buy less expensive private coverage or simply self-pay for the physician visits and medications. If enough higher-income beneficiaries drop out of parts B and D, the premiums for Medicare parts B and D will need to increase for beneficiaries who remain in the program, making Medicare participation more expensive for almost everyone.
10. Change Medicare to a Premium Support Plan
Under this proposal, newly eligible Medicare beneficiaries would receive their health coverage through private insurance plans, not traditional Medicare. Beneficiaries would choose among competing plans and the federal government would contribute a fixed amount to pay the premiums for the private insurance plan. If the private insurance premiums prove to be higher than the federal contribution, seniors would be required to pay the difference. If the government’s annual contribution does not increase by the same amount as the annual cost increase in premiums, beneficiaries would pay the difference, which could get larger over time. CON: Now is not the time for premium support. All current proposals carry a threat that the vouchers will not keep pace with rising health costs, threatening the elderly and disabled with increased health care costs they cannot afford. Not until and unless we find out how to effectively enroll and pay subsidies to the working age Americans in the health insurance exchanges that are called for by the health reform legislation will it be time to consider whether to take on the much harder job of shifting elderly and disabled Medicare beneficiaries into such new and untested organizations.
Conclusions
Medicare spending will skyrocket in coming decades absent fundamental reform. Yet it is unlikely that Congress could increase taxes to match this projected rise in spending. For one thing, the level of taxation in America has been about the same share of the economy for decades, and voters would surely reject changes that increased the tax burden very much. Furthermore, every effort to fill Medicare’s funding gap with higher taxes would damage the economy, increase tax avoidance, and shrink the federal tax base, which, in turn, would create economic and political barriers to further tax increases.
Congress must cut Medicare spending substantially and give enrollees the freedom to choose the coverage and services that mean the most to them, rather than subject them to government rationing. The way to do so is to transform Medicare into a system based on individual savings, choice, and vigorous private competition, using individual vouchers and large HSAs. Doctors, hospitals, and insurance firms would have strong incentives to innovate and reduce prices to serve their newly cost- and quality-conscious consumers. We might see greater use of retail clinics, telemedicine, integrated delivery systems, electronic medical records, comparative-effectiveness research, care coordination, and other innovations.
Cutting Medicare is a fiscal necessity, but it’s also a great opportunity for structural reforms that could improve medical care for all Americans.
Medicare’s lessons are readily applied to today’s health reform debate. The program has grappled with many of the issues that now face policymakers engaged in health reform, including the issues of choice among private options and the potential role of a public plan option. Medicare’s experiences also highlight problem areas that still need to be addressed for any reform to be successful, including how to hold down the growth of health care costs, how to keep politics out of decision making, how much regulation and oversight of private plans is needed, and how to protect the needs of the ultimate client—the U.S. population.
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