Medicare Essential — Is this the future of Medicare?
According to The Hill’s Elise Viebeck President Obama is receptive to combining Medicare Part A (in-patient hospital) and Part B (outpatient and doctor) deductibles, into a single deductible just like every other insurance scheme in the US. Predictably those to his left complained, maybe because Virginia’s Eric Cantor also likes the idea. The impact would raise the deductible for people who use only physician services, lower it for anyone who is hospitalized, and, net, save Medicare money by shifting more costs to beneficiaries. However, some of the savings would also be used to add an annual out-of-pocket cap on what beneficiaries would have to spend. This is good insurance logic: don’t cover relatively low cost, predictable expenses. Focus coverage on protecting beneficiaries from catastrophic loss.
The combined deductible idea is echoed in a recent article in Health Affairs that proposes unification of Parts A and B, and Part D drug benefits. The Health Affairs article also proposes reducing beneficiary cost sharing to levels comparable to Medicare Advantage plans, eliminating the need for Medicare Supplemental coverage. The new Medicare plan, called Medicare Essential, would become the default for people who qualify for Medicare for the first time. New Medicare beneficiaries could opt out and take old traditional Medicare, and go buy their own Part D and Medicare Supplement plans, or they could buy Medicare Advantage plans. Medicare Essential would have a much higher premium than Medicare Part B, but the authors of the article claim that the overall cost would be less than Part B plus Part D plus the full-coverage Medicare Supplement Plan F that most seniors select. So proponents could argue that the added cost of the increased premium is a bargain and that people could always opt out and avoid the higher cost if they wanted to. Medicare Essentials could show significant savings by avoiding the broker commissions that add to the cost of Medicare Supplemental and Medicare Advantage plans. Whether the new program would be able to achieve the supposed 2% administrative cost ratio sometimes claimed for Medicare is highly suspect, but elimination of the need to re-process claims to pay Supplement benefits, along with simplification of coverage rules overall, would probably yield some further efficiencies.
This proposal could significantly change the dynamics of the Medicare market place. For starters, Medicare Supplemental plans would be in trouble. Who would opt to pay more for similar coverage when you are already enrolled in a less expensive plan? Also, it’s not clear whether Part D plans would survive for long if Medicare Essential provides the same drug coverage. The effect on Medicare Advantage is less obvious, but Essential would certainly put pressure on Advantage premiums, since the benefits would be comparable.
For those who want to speculate further, imagine a competitive marketplace along the lines of Paul Ryan’s plan, but with Medicare Advantage plans competing with Medicare Essential. In the competitive market, the federal subsidy would equal the premium of the second cheapest plan in each market, and the current benchmark approach would go away. Beneficiaries choosing a more expensive product, whether Medicare Advantage or Medicare Essential, would pay the difference. People who pick the cheapest plan get a check for the difference.
Oh, and one more thing. Medicare Essential benefits would be more generous for services provided by preferred providers, just like a PPO benefit design.
This is something to watch. The Health Affairs article, available to subscribers, or to others for a fee, is titled “Medicare Essential: An Option to Promote Better Care and Curb Spending Growth,” in the May 2013 edition.
Resources
Attend the 2013 GHG Forum June 13-14 in Washington, DC to hear more about Medicare’s Future and what it means for Medicare Advantage.
Visit our website to learn how Gorman Health Group can help support your Medicare Advantage goals.