(Picture credit: Commonwealth Fund website) In “Medicare Essential: An option to promote better care and curb spending growth”, also in the May 2013 issue of Health Affairs, K. Davis, C. Schoen and S. Guterman suggest an alternative to the current Medicare – with its separate coverage for hospital, physician services and prescription drugs – that would offer comprehensive, integrated benefits as well as incentives to choose high-value care. They make the following estimates:
- Out-of-pocket savings from lower premiums and health care costs for a Medicare Essential enrollee would be $173 per month.
- Total health spending relative to current projections would be reduced by $180 billion.
- Employer retiree spending would reach $90 billion during 2014-2023.
Given all the talk about bundled payments and better coordination of care, it is indeed curious that a possible redesign of the Medicare program has not received more attention in the media. The choice available to retirees is humongous, the differences between the various options are not clear, and many researchers in behavioral economics have found that too much choice leads to paralysis – ultimately, no choice or regret about the choice because of all the options left unexplored. (The most famous experiment is due to S. Iyengar and involves jam samples in a supermarket: “When choice is demotivating.” It is important to note her conclusion is not that there should be no choice at all. A moderate level of choice is good; however, too much choice is overwhelming for customers and here, potential plan enrollees.)
The separate prescription drug coverage (Medicare Part D) only came into effect in 2006, as a result of the 2003 Medicare Modernization Act, to make prescription drugs more affordable for retirees. This left the program only three short years to get off the ground before discussions regarding the Affordable Care Act took center stage. The ACA continues to hog the limelight with the current implementation of Health Insurance Exchanges, but it has always been obvious that enforcing mandatory insurance without structural cost reforms would do little to address the severe strains on the federal budget.
The authors have advocated for Medicare reforms before, in particular through a new program design they had called “Medicare Extra”. The first author in particular, who recently returned to Johns Hopkings after many years leading the Commonwealth Fund, has a rich experience in the real-life world of healthcare finance. The integrated Medicare Essential approach echoes the conclusions reached by the Medicare Payment Advisory Commission (MedPAC) in its June 2013 report to Congress, “Medicare and the Health Care Delivery System”.
Davis et al provide a summary table of Medicare Essential Benefits Design and Incentives in their Exhibit 2. Here are some snippets of their plan:
Deductible: hospital/physician, unified $250 deductible (does not apply to preventive care.)
Cost-sharing: $20 co-pay for primary care visit, $40 copay for specialist visit, 10% for lab or diagnostic outpatient (lowered to 5% in some cases such as ACO), 10% for other Part B services currently subject to 20% cost-sharing (outpatient surgery, durable medical equipment, etc), $50 copay emergency department visit unless urgent or accident.
Prescription drugs: 25% cost-sharing for non-preferred brands, out-of-pocket limit includes Rx drugs. Would use reference pricing (pay up to level of lowest-cost two drugs, patient would pay the difference unless provider justifies not using the lowest-cost drugs). There would be a nominal copay for generic drugs.
I think this idea has a lot of potential, in addition to being very timely, and hope it will serve as the starting point for a reform integrating the various plans of the Medicare program.