Report finds flaws in proposals for premium support programs in Medicare

The Urban Institute issued a report titled “Restructuring Medicare: The False Promise of Premium Support,” in which the authors attempt to point out the potential flaws in the proposed premium support program in Medicare. The report states that the proposals attempt to model the program off of the arguably successful Medicare Advantage (MA) program, but fail to account for the features of MA that actually make it work. According to the Urban Institute, the proposals also ultimately shift the burden of the rising cost of the Medicare program to the beneficiaries, who are not in a position to shoulder the increased costs.

The proposal

Current Medicare beneficiaries can choose between traditional Medicare, where they have defined benefits covered by specified providers, or MA, where the beneficiary picks from a selection of private plans that have been approved by Medicare and charge close to traditional Medicare costs. A premium support program would allow beneficiaries a fixed-dollar contribution that they could take and apply to the insurance plan they choose in a health insurance marketplace. Beneficiaries could choose a plan that costs more than their Medicare contribution amount, but they would be responsible for paying the difference out of their own pocket. Supporters of this proposed program argue that setting a fixed cost for each beneficiary would reduce government spending and the marketplace would create competition, which would in turn drive down prices.

Burden shifting

Proponents of the premium support plan argue that without the plan, the Medicare program will run out of money, noting that the “CBO projects that between 2017 and 2047, Medicare spending will grow from 3.1 percent to 6.7 percent of GDP.” However, the report argues that the proponents of are focusing on the wrong problem. The aging-in of the baby boom generation is expected to increase Medicare enrollment by about 50 percent by 2030. By focusing on the cost of premiums and restructuring the program to force more beneficiaries to pay more out of pocket, they are shifting the burden of the increase in incoming enrollees to the beneficiaries. Medicare beneficiaries reported an annual median income of about $25,000 in 2012. “Medicare households spent nearly three times as much of their household budgets on out-of-pocket spending as non-Medicare households did” in 2012. A premium support plan could potentially increase the financial burden on those low-income beneficiaries, and force them into plans that they wouldn’t choose otherwise just to alleviate some of that financial burden.

Competitive markets

Proponents argue that forcing insurance plans to submit bids to participate similar to the way MA does would create competition and lead to lower premiums. The government contribution would then be set based on a weighted average of all of the bids for each region. However, premiums can drastically vary within a region and if premiums are higher in an area than the benchmark government contribution for the region, beneficiaries would be forced to pay the difference. The difference between earlier versions of the premium support plan and the current proposals show that the proponents have noted that there would not be an even playing field in all areas and they have attempted to come up with different ways to set the government contribution amount and increase it annually based on different factors. The MA program has an administratively set benchmark government contribution that is based on traditional Medicare spending in each area, which varies significantly compared to the bids.

Providers who bid to participate in MA are aware that there is a billing limit and they will be paid Medicare rates. The premium support plan does not take into account the impact this has on who submits bids and at what rate. In 2013, “CBO found that commercial insurance rates for inpatient hospital services were 89 percent higher than traditional Medicare rates, but Medicare Advantage plan rates for inpatient services were roughly equal to traditional Medicare’s rates.” Private insurers competing with one another in the bidding process are not likely to drop their prices down to Medicare level rates unless limits are placed on the billing of Medicare beneficiaries, similar to the limits in the MA programs. This leaves Medicare beneficiaries effectively priced out of these competing private insurance plans.

Medicare Advantage looks forward to a stable new year

The Medicare Advantage (MA) market appears that it will remain relatively stable in 2017, undergoing limited changes in average premiums, plan offerings, and insurer participation, according to a Kaiser Family Foundation (KFF) Issue Brief. While KFF determined that factors like plan availability, premiums, out-of-pocket limits, and other plan features, suggest a stable market, the Issue Brief warns that lawmakers’ plans proposing to transform Medicare into a “premium support system” could have uncertain consequences for both plans and beneficiaries.

Plans

The Issue Brief points to the following highlights for MA plans in 2017:

  • with a total of 2,034 MA plans offered in 2017, the average MA beneficiary will be able to choose between 19 plans (a number which has remained stable since 2012);
  • the average MA beneficiary will have a choice of plans offered by six firms;
  • enrollees in MA prescription drug plans (MA-PDs) who stay in the same plan between 2016 and 2017, will experience, on average, a premiums increase of 4 percent;
  • premiums remain relatively flat while out-of-pocket costs for Part A and B benefits have increased by 25 percent, since 2011, to $5,332 in 2017; and
  • about 41 percent of MA plans are rated as 4 stars or higher in 2017.

Shortcomings

The Issue Brief notes that it remains difficult for consumers and researchers to obtain the information necessary to allow plan comparisons. Specifically, it is difficult to find data to compare plan networks, cost sharing, extra benefits, or the performance of individual plans on quality and efficiency metrics. Access to such material could be helpful in strengthening program oversight and assisting consumers with making appropriate plan choices.

Medicare Transformation

KFF acknowledges that some lawmakers are planning to build off of the MA model to transform Medicare into a “premium support system.” The Issue Brief warns that such a transformation would constitute a significant departure from the status quo, in terms of altering federal payments to plans and plans’ financial incentives—changes with unknown impact for Medicare and its beneficiaries.