One more quick dive into the weeds on the Medicare dust up and then I promise to get back to the real economy and jobs. I’m not saying that these campaign debates re retiree health care are a distraction from what matters most to most people. Jobs and paychecks are of course up there at the top of most peoples’ concerns. But so are retirement security, affordable health coverage, and a boatload of what the eminent physician Dr. John would call “refried confusion.”
And hear this: the next misleading turn in the debate will be around something called Medicare Advantage and one can already get a pretty good idea of the obfuscation that’s coming.
For decades, Medicare recipients could enroll in private plans instead of traditional Medicare and a few years ago, Congress created Medicare Advantage, further expanding private coverage options for seniors in Medicare. About a quarter of Medicare recipients are enrolled in such plans right now.
So why am I bugging you about this? At least three reasons.
First, yesterday Gov Romney said the following:
“The plan that I’ve put forward is a plan very similar to Medicare Advantage. It gives all of the next generation retirees the option of having either standard Medicare, a fee-for-service-type, government-run Medicare, or a private Medicare plan.”
So, yeah…you’ll be hearing a lot about MA plans in coming days. FTR, there’s nothing inconsistent with what the Gov said and Paul Ryan’s premium support plans I’ve discussed a lot around here lately.
Second, a significant source of health-care savings in the Affordable Care Act—a chunk of which extend the life of the Medicare trust fund by eight years—comes from reducing overpayments to these MA plans (see the blue section of the pie chart here).
That’s right—as the figure below reveals, payments to MA plans have in recent years been higher than those that go to tradition Medicare. Note, for example, that the Medicare program’s payments to the private fee-for-service plan in 2009 were 18% above traditional Medicare.
Source: Kaiser Family Foundation
These overpayments have fallen over time—the link above to the Romney story cites 7% as the most recent figure. But that’s in part because Congress has already been enforcing lower payments. I mean, given that we already have Medicare—widely considered to be an excellent form of coverage—why should money be diverted from it to pay for more expensive private plans?
At any rate, ceasing these overpayments is important not only to sustain the program, but as a stark warning that you shouldn’t assume private coverage automatically saves money. To the contrary—remember, health care is a very unique market. We’re not talking normal goods here; we’re talking about a service that must, by law, be provided to you if show up at the emergency room regardless of what your treatment costs or your coverage status. Once you enter that realm, all market bets are off.
Okay, third and final reason. Contrary to the chart above, on the Diane Rehm radio show the other day, someone on the panel claimed that such numbers in the bars above were wrong and that a new study (“by three Harvard professors!”) showed that in fact, MA plans come in at 9% below traditional Medicare.
Turns out one of those professors is David Cutler, who sent me a link to the paper. It shows nothing of the kind. Cutler confirmed to me, in fact, that the numbers in the chart are correct in his view. What he and his colleagues actually did in their paper, however, is relevant and related to this discussion.
They asked whether a Ryan-Wyden style premium support plan would lead current beneficiaries to have to pay more out of pocket, something I and others have stressed is a likely outcome of a voucher plan that shifts costs onto beneficiaries.
And here’s what they found (note that Ryan/Wyden benchmarks the voucher to the second least expensive plan in the county):
…68% of traditional Medicare beneficiaries in 2009 (approximately 24 million beneficiaries) lived in counties in which traditional Medicare spending was greater than the second–least expensive plan and would have paid more to keep their choice of coverage (a share that would have been 81% in 2008, 75% in 2007, and 67% in 2006). Furthermore, more than 90% of MA beneficiaries (approximately 6.6 million seniors, excluding those dually eligible or in employer plans) would have also paid more for the plan they chose.
In other words, the majority of both Medicare and MA participants would pay more out-of-pocket. That may be OK with you, it may not be. The average increase in out-of-pocket costs came to $770 a year, which is a lot given that the median income of Medicare households is $25,000, though certainly not much for rich retirees. But it clearly shifts costs onto beneficiaries, something the ACA conspicuously avoids, for good reason.
Again, from the Cutler et al paper:
Premium support, based on competitive bidding, may offer a fiscal solution if ACA reforms fail, but at the cost of making Medicare beneficiaries responsible for solving Medicare’s fiscal crisis.
There are lots of other reasons to be skeptical about such moves toward voucherization/privatization. I’ve always been very uncomfortable with the assumption that retirees really, really want to shop for insurance coverage. Cutler et al have germane thoughts on that as well:
…incentivizing beneficiaries to join private Medicare plans, even if less expensive, may have undesirable effects. In particular, reliance on beneficiary shopping to discipline the market has been problematic. Beneficiaries are often slow to switch plans due to cognitive impairment, choice overload, consumer inertia, or other influences. For example, Medicare Part D plans, which also operate in a bidding system, have found it profitable to price low initially, attract many enrollees, then increase prices over time. Moreover, beneficiaries do not enroll in Part D plans that offer them the best coverage for their premiums and medical conditions. These market failures would likely be even greater in a market-based Medicare system in which choosing plans would likely be even more difficult than in Part D. The market requires beneficiaries to trade restrictions on care or limited physician networks for premiums, which is counter to how many seniors view Medicare.
As a card-carrying employee of the Center on Budget and a fiscally responsible American, I am not at all complacent about the budgetary pressures from health care cost growth. In fact, since such growth is better controlled in the public vs. private sector, it’s one reason I want to strengthen the public programs we’ve got. But there’s a right way and a wrong way to go about it. Solely shifting the costs to retired beneficiaries is the wrong way.