Hospital's rates way over Medicare's pay
Sunday, 12 May 2013 22:43
Publication: The Denver Post; Date: May 9, 2013; Section: Front Page; Page: 1A
By Michael Booth
Colorado hospital retail prices for common surgeries and treatments often vary from one another by 400 or
Data show retail prices for common surgeries at Colorado facilities can be 10 times what’s covered.
500 percent, and the most egregious rates are eightto 10 times what Medicare pays, according to new federal data.
The wild price fluctuations are evident across the country. Rural hospitals frequently charge much less than their urban counterparts, while a facility just miles from another will sometimes charge double what its rival bills. Local and national health experts attacked the dramatic variations as more evidence of a systemic mess that distorts reality for consumers andhinders the quest for cost and quality progress in medicine. Medical Center of Aurora charges $59,000 to treat pneumonia, for example, compared with $49,000 at University of Colorado Hospital and $17,000 at Arkansas Valley Regional Medical Center in La Junta. Medicare, which identified hospitals in its Wednesday release for the first time, pays only $8,000 to $11,000 for such care.
Hospital executives argue almost no one pays the retail or “chargemaster” rates — Medicare, Medicaid,military and private insurance plans negotiate steep discounts. But some of the uninsured or underinsured do see those high bills and end up in collections if they can’t pay.
The new numbers “highlight a troubling trend:Those with the least ability to afford coverage end up paying the most,” said GeorgeLyford, an attorney with theColorado Center on Law and Policy.The center argues for reforms bringing insurance to more citizens. But the charges can affect a broader swath than that, said Phil Kalin, president of the Center for Improving Value in Health Care. Some insurers still agree to pay a set percentageof thechargemaster, so hospitals have an incentive to bump up those prices 5 or 6 percent a year.
Even though only a small number of insurers pay that way, the results can mean a few million dollars more a year in the billion-dollar hospital systems that are growing to dominate theColorado market, Kalin said. Federal officials said in a conference call they hoped the release would help push more transparency onto hospitals that so far have little incentive to compete for consumers.
“We hope consumers will look at this data, and we hope it will shine a muchbrighter light on practices that don’t make sense to us,” saidJonathan Blum of the U.S. Health and Human Services Department’s Medicare office. Medicare officials and many private groups highlighted more examples they say make nosense:
• For major joint replacement, Medicare allows about $13,000 to $20,000, depending on the region and some allowances for patient mix. The retail price at SkyRidge Medical Center in Lone Tree, which is owned by the for-profit chain HCA-HealthONE, is $84,000. Exempla St. Joseph Hospital also charges about $84,000 for that same joint replacement. By comparison, Denver Health charges about $46,000 for the procedure, and Delta County Memorial Hospital charges only $32,000 to full-paying customers. he national average charge for that service is $50,000.
•For general chest pain treatment, Medicare pays $3,000 to $5,000. Littleton Adventist Hospital, part of the Centura system, charges $31,000, and Exempla St. Joseph,$30,000. Denver Health charges about $13,000, and Montrose Memorial Hospital in western Colorado charges only $8,000. Averaging thecharges in the 100 diagnostic categories analyzedby Medicare, Littleton Adventist chargemaster prices are the highest at 682 percent of what Medicare allows. In themiddle range, charges at St. Anthony North Hospital — also part of Centura — were 437 percent of Medicare, and University was at 343 percent.
At the lower end, Denver Health’s retail charges averaged 212 percent of the Medicare payments, and Keefe Memorial in Cheyenne Wells, whichhad only one procedure listed, was 68 percent. Many hospital executives dismiss the charge information as nearly meaningless because so few consumers really pay those rates. The uninsured who see a bill with full rates often have their care written off as charity or uncollectible, they said. Most hospitals, meanwhile, lose money on cases where they get onlytheMedicare allowance, said Steven Summer, president of the Colorado Hospital Association. The high retail charges, and in-between charges negotiated with insurance companies, make up the difference Some Colorado consumers are protected from the sky-high bills by a state law passed in 2012 limiting what hospitals can chargethe uninsured.That law requires hospitalstowidely advertise their charity-care policies and to charge the poorest patients onlythe same negotiated discount rates offered to major insurance companies.
Michael Booth: 303-954-1686,
Is Obama's New Index the Right Fix for Social Security?
Wednesday, 08 May 2013 09:01
By Ed Dolan, Wall St. Cheat Sheet – May 5, 2013
One of the most controversial elements of President Obama’s 2014 budget is the proposal to reduce future cost-of-living adjustments to Social Security benefits by changing the inflation index. The U.S. Social Security Administration now bases inflation adjustments on the consumer price index
for urban wage earners and clerical workers (CPI-W), a close cousin of the more widely publicized CPI for all urban consumers (CPI-U). The administration proposal would instead use a relatively new index called the chained CPI, or C-CPI-U, which, in the past, has increased slightly less rapidly.
Predictably, deficit hawks love the idea, while seniors and those who defend their interests hate it. Suppose, though, that we set ideology and interest group politics aside to look at the underlying economics of the issue. On those terms, is the switch to the chained CPI the right fix for Social Security?
What exactly are we trying to fix?
Before we start fixing something, we should be sure we know what is broken. Is a flawed method of inflation adjustment really a major problem? Would fixing it, in isolation, really improve the functioning of the Social Security system as a whole? Or is it just an attempt to disguise an unpalatable cut in benefits as a minor technical correction? If what we really want is an across the board cut, why?
It is sometimes argued that we can afford to slow the growth of Social Security benefits because seniors are no longer as economically disadvantaged as they once were. Consider, for example, the dramatic decrease in poverty rates among the elderly over the past half century. As the following chart shows, in the 1960s, when the government first began to publish official poverty statistics, people 65 and older had the highest poverty rates of any age group. Today they have the lowest rate.
Taken at face value, these trends appear be consistent with the notion that seniors have more than kept up with inflation. However, a closer look at the income status of older Americans raises some doubts about that. One difficulty is that the official approach to measuring poverty probably overstates the standard of living of seniors.
The shortcomings of the official poverty measure are well known. In its original form, it simply multiplies the cost of an economy food plan by three. As a result, it fails to take into account the increasing relative prices of budget elements other than food, the impact of taxes, and the value of in-kind government benefits like SNAP (formerly food stamps), Medicare, and Medicaid. Other problems include inadequate attention to regional differences in living costs and an inadequate view of family structure.
Two years ago, the Census Bureau introduced a new Supplementary Poverty Measure, or SPM, that tries to address these problems.The SPM begins from a minimum budget that includes not just food, but food, shelter, clothing, and utilities — or FCSU. The FCSU budget is then multiplied by 1.2 to allow for other expenditures, and it is further adjusted for family size and regional differences in housing costs.
The SPM then compares the resulting minimum family budget to a measure of resources that adjusts the old cash income concept in three ways. First, it adds the value of in-kind benefits that families can use to meet FCSU needs. Second, it subtracts net taxes. Third, it subtracts other necessary expenses, of which out-of-pocket medical expenses are one of the largest. (For more on the SPM, see this earlier post.)
As the next chart shows, the SPM increases the estimated poverty rate for the whole population only modestly, from 15.2 percent to 16 percent for 2010. However, the impact varies widely by age group. In particular, the poverty rate for people aged 65 and older jumps from 9 percent to 15.9 percent, which is close to the average for the population as a whole. A large part of that increase comes from the way it takes into account out-of-pocket medical expenses that reduce household income available to meet FCSU needs.
A poverty rate for seniors no lower than that for the population as a whole already undermines the case for less generous cost-of-living adjustments to Social Security, but there is more. We should look not just at the poverty rate among seniors, but at the entire distribution of income for the elderly population. According to CBO data, presented in the next chart, that distribution is far less equal than for the rest of the population, and, as for other age groups, it is becoming even more unequal over time.
The chart shows Gini indexes for various population groups based on market income, a measure that does not include Social Security or other government benefits. A higher value of the Gini index means more inequality. The picture we get is of an elderly population in which a relatively few wealthy households account for most of the market income, while many of the rest are highly dependent on Social Security benefits.
That picture is confirmed by data from the Social Security Administration, presented in the next chart, that show that a third of the elderly population depend on Social Security for 90 percent of their income, and two-thirds for half or more of their income. For the single elderly, the degree of dependence on Social Security is even greater.
Taken together, these data suggest that an across-the-board benefit reduction, whether by way of a switch to the chained CPI or in any other form, would further aggravate the already unequal distribution of income among seniors. To offset that tendency, the administration budget proposal offers “bump-ups” for retirees older than 75, but the bump-ups may not help low-income retirees as much as is sometimes supposed.
The problem is that people with lower incomes are much less likely than those with higher incomes to live long enough to reach the bump-up age. For example, for men reachingretirement age of 67 in 2006, the life expectancy is five and a half years less for those in the lower half of the income distribution than for those in the top half. That means many of the poorest retirees will die before their get their first bump-up. (The same problem also affects proposals to lower Social Security costs by raising the retirement age, as discussed in this earlier post.)
Any way we look at it, then, it appears that a shift to the chained CPI, with or without bump-ups, would make the already unequal distribution of income among seniors more unequal still. Overcoming that problem would require more far-reaching reforms to the Social Security benefit structure, for example, one that combined a guaranteed minimum benefit at least equaling the poverty level with means testing of benefits for wealthier seniors.
How good is the chained CPI?
Let’s look at the matter from a different perspective now. Regardless of what we do about total Social Security benefit levels, caps, and floors, benefits will, like those of other income support programs, need some kind of inflation adjustment. On purely methodological grounds, what reasons do we have to think that the chained CPI is better than the CPI-W?
What we would really like to have as a basis for inflation adjustment is a true cost of living index, or COLI. A COLI would measure the amount of income we need to reach a certain level of consumer satisfaction. If the COLI rose by 3 percent, and your benefits went up from $1,000 a month to $1,030 a month, then we could truly say that you were no better or worse off than before. Unfortunately, though, a true COLI is a purely theoretical construct that we can only approximate in the real world.
The approximations we do have are price indexes-averages of the prices of the various things we consume, weighted by the quantity of each item in our market basket of goods and services. Economists have long argued that price indexes like the CPI in its various forms tend to overstate the rate of increase of the cost of living. Some of the more important sources of upward bias in the CPI are these:
- A substitution bias, which arises from the fact that changing prices cause consumers to shift, over time, from goods whose prices increase faster than average to those that increase more slowly than average, or fall.
- A quality bias, which arises from the fact that new models of a good have better performance (like flat-screen TVs) or last longer (like radial-ply tires), and therefore give additional satisfaction that partly or fully offsets price increases. Closely related factors, like the introduction of completely new goods and new, lower-cost methods of retailing add to the quality bias.
- A small sample bias, which is a purely technical distortion arising from the fact the BLS makes only a few price observations for each good or service each month.
(Note: These three sources of bias and all of the discussion that follows concern themeasurement
of inflation. In addition, there are strong biases in people’s subjectiveperceptions
of inflation. Many people are skeptical of the idea that published price indexes overstate inflation because they, personally, perceive a much higher rate of inflation than measured by the CPI. The more paranoid among them believe that the government is purposely manipulating the data in a way that understates the true inflation rate. For a detailed discussion of the upward bias in perceived inflation, see this earlier post
In the 1990s, Congress appointed a panel of economists, known as the Boskin Commission, to study the accuracy of the CPI. The commission estimated the upward bias of the CPI-U to be about 1.1 percentage points per year and made several recommendations for mitigating it. Since that time, the Bureau of Labor Statistics has implemented a number of those recommendations. For example, it has significantly reduced the substitution bias by updating base-year quantity weights more frequently.
Also, it has introduced new methods of correcting for changes in the quality of goods, and it pays more attention to outlet stores and online retailing. As a result, the upward bias of the CPI is almost certainly less than it was in the 1990s, but it may still be as much as one-half to a full percentage point per year. (See here and here for some recent discussions.)
There are strong theoretical reasons for thinking that the chained CPI further reduces the substitution bias. The reason is that it takes into account quantities consumed in the current period, when prices are measured, rather than just quantities consumed in the past. Both theoretical considerations and experience with the C-CPI-U since the BLS began to calculate it in 2000 suggest that the reduction in the substitution bias is in the range of 0.2 to 0.3 percentage points per year. However, that does not automatically make the chained CPI an ideal basis for indexing Social Security benefits. It has problems of its own.
One problem as that the data on current consumption patterns needed to calculate the chained CPI are available only with a lag. The first version of the C-CPI-U released each month is only an estimate based on extrapolations from past data. Social Security benefits would have to be adjusted using a preliminary calculation of the chained CPI rather than the final revision.
A more serious problem is that the quantity weights used for both the CPI-U and the C-CPI-U do not necessarily reflect the consumption patterns of Social Security beneficiaries. Beneficiaries are much older, on average, than the population as a whole; they are likely to drive less, use more medical care, and perhaps differ in other ways as well from the general population.
Conceptually, it would be better to adjust Social Security benefits using a price index specially tailored to the consumption patterns of the people receiving them. With this in mind, the BLS has experimented with a separate consumer price index for the elderly population, known as the CPI-E. Although there are several methodological issues to be resolved before the CPI-E is ready for the big time, preliminary results suggest that it has been rising at a rate about 0.2 percentage points faster than the CPI-W, in large part because of the greater weight it puts on healthcare goods and services.
Arguably, a chained version of the CPI-E would be an even better basis for inflation adjustment of Social Security. The BLS has not yet tried to calculate such an index, but if the substitution bias for the CPI-E is about the same as it is for the CPI-U, a chained CPI-E would probably rise about 0.2 to 0.3 percentage points more slowly than the unchained version. That means that when we take into account the offsetting effects of the substitution bias and the differences in consumption patterns between elderly and younger consumers, it could well turn out that the CPI-W, as now implemented, is a better approximation to a COLI for senior citizens than the C-CPI-U.
The bottom line
When all is said and done, the economic arguments for switching from the CPI-W to the chained CPI for inflation adjustment of Social Security benefits is a good deal weaker than it is often represented to be. We cannot really be confident that the chained CPI is a better approximation to changes in the cost of living of the elderly population than the CPI-W. In addition, switching to the C-CPI-U without adjusting benefit floors and caps could very well increase the inequality of income distribution among the elderly, which is already greater than for the population as a whole.
The fact is, the proposal to switch Social Security to the chained CPI has much more to do with politics than with economics. In the current phase of the budget debate, the White House appears eager to assume the role of the reasonable party by offering to cut entitlements, in order to set up a contrast with a conservative opposition that is unwilling to consider even small increases in revenue. The administration apparently hopes that it can minimize the backlash from its core supporters by passing off the C-CPI-U a purely technical adjustment.It is not likely to work. My advice would be to forget about changing inflation adjustments for Social Security until the political climate allows consideration of a more comprehensive set of entitlement reforms. Use of the C-CPI-U or some similar chained price index might eventually make sense as part of broader reform package, but as a stand-alone measure, it offers little to love.
Ed Dolan is Wall St. Cheat Sheet’s in-house economics professor. He is the author of an acclaimed series of textbooks Introduction to Economics and Ed Dolan’s Econ Blog.
Medicare Increases Could Ding Some in Middle Class
Wednesday, 17 April 2013 18:08
By RICARDO ALONSO-ZALDIVAR
WASHINGTON (AP) -- Retired city worker Sheila Pugach lives in a modest home on a quiet street in Albuquerque, N.M., and drives an 18-year-old Subaru.
Pugach doesn't see herself as upper-income by any stretch, but President Barack Obama's budget would raise her Medicare premiums and those of other comfortably retired seniors, adding to a surcharge that already costs some 2 million beneficiaries hundreds of dollars a year each.
Due to the creeping effects of inflation, 20 million Medicare beneficiaries also would end up paying higher "income related" premiums for their outpatient and prescription coverage over time.
Obama administration officials say Obama's proposal will help improve the financial stability of Medicare by reducing taxpayer subsidies for retirees who can afford to pay a bigger share of costs. Congressional Republicans agree with the president on this one, making it highly likely the idea will become law if there's a budget deal this year.
But the way Pugach sees it, she's being penalized for prudence, dinged for saving diligently.
It was the government, she says, that pushed her into a higher income bracket where she'd have to pay additional Medicare premiums.
IRS rules require people age 70-and-a-half and older to make regular minimum withdrawals from tax-deferred retirement nest eggs like 401(k)s. That was enough to nudge her over Medicare's line.
"We were good soldiers when we were young," said Pugach, who worked as a computer systems analyst. "I was afraid of not having money for retirement and I put in as much as I could. The consequence is now I have to pay about $500 a year more in Medicare premiums."
Currently only about 1 in 20 Medicare beneficiaries pays the higher income-based premiums, which start at incomes over $85,000 for individuals and $170,000 for couples. As a reference point, the median or midpoint U.S. household income is about $53,000.
Obama's budget would change Medicare's upper-income premiums in several ways. First, it would raise the monthly amounts for those currently paying.
If the proposal already were law, Pugach would be paying about $168 a month for outpatient coverage under Medicare's Part B, instead of $146.90.
Then, the plan would create five new income brackets to squeeze more revenue from the top tiers of retirees.
But its biggest impact would come through inflation.
The administration is proposing to extend a freeze on the income brackets at which seniors are liable for the higher premiums untl 1 in 4 retirees has to pay. It wouldn't be the top 5 percent anymore, but the top 25 percent.
"Over time, the higher premiums will affect people who by today's standards are considered middle-income," explained Tricia Neuman, vice president for Medicare policy at the nonpartisan Kaiser Family Foundation. "At some point, it raises questions about whether (Medicare) premiums will continue to be affordable."
Required withdrawals from retirement accounts would be the trigger for some of these retirees. For others it could be taking a part-time job.
One consequence could be political problems for Medicare. A growing group of beneficiaries might come together around a shared a sense of grievance.
"That's part of the problem with the premiums - they simply act like a higher tax based on income," said David Certner, federal policy director for AARP, the seniors lobby.
"Means testing" of Medicare benefits was introduced in 2007 under President George W. Bush in the form of higher outpatient premiums for the top-earning retirees. Obama's health care law expanded the policy and also added a surcharge for prescription coverage.
The latest proposal ramps up the reach of means testing and sets up a political confrontation between AARP and liberal groups on one side and fiscal conservatives on the other. The liberals long have argued that support for Medicare will be undermined if the program starts charging more for the well-to-do. Not only are higher-income people more likely to be politically active, but they also tend to be in better health.
Fiscal conservatives say it makes no sense for government to provide the same generous subsidies to people who can afford to pay at least some of the cost themselves. As a rule, taxpayers pay for 75 percent of Medicare's outpatient and prescription benefits. Even millionaires would still get a 10 percent subsidy on their premiums under Obama's plan. Technically, both programs are voluntary.
"The government has to understand the difference between universal opportunity and universal subsidy," said David Walker, the former head of the congressional Government Accountability Office. "This is a very modest step toward changing the government subsidy associated with Medicare's two voluntary programs."
It still doesn't sit well with Pugach. She says she's been postponing remodeling work on her 58-year-old house because she's concerned about the cost. Having a convenient utility room so she doesn't have to go out to the garage to do laundry would help with her back problems.
"They think all old people are living the life of Riley," she said.
Experiment in Oregon Gives Medicaid Very Local Roots
Sunday, 14 April 2013 14:39
New York Times
Thomas Patterson for The New York Times
Hannah Lobingier, right, works in a Community Care Organization program that aims to divert patients to less expensive settings than emergency rooms. Here, she worked with the parents of Bellagrace Hurley, 4, who took her to the emergency room at Providence St. Vincent Medical Center in Portland with dental paiPublished: April 12, 2013
Thomas Patterson for The New York Times Gov. John Kitzhaber, a former emergency room doctor, said, “We’re building something that’s never been built before.”
Thomas Patterson for The New York Times Ms. Lobingier offered information on local clinics to a man who said he had long had chest pain.
Under an agreement signed with the Obama administration last year, and just now taking shape, Oregon and the federal government have wagered $1.9 billion that — through a hyper-local focus on Medicaid — the state can show both improved health outcomes for low-income Medicaid populations and a lower rate of spending growth than the rest of the nation. If Oregon fails on either front, the consequences are grave, potentially tens of millions of dollars in penalties a year, bleeding a state budget still wounded from recession.
Fifteen Community Advisory Councils have been established across the state, charged with setting local goals. One of them, around the college town of Eugene, will take aim starting July 1 at smoking by pregnant women, hoping to cut neonatal costs through a system of rewards, like gift cards at the doctor’s office for women who go tobacco free. Another council, in Portland, is focusing on something that might sound ho-hum in health care, but that local leaders have identified as a care-and-cost driver: mold in low-income housing. Another group, in an economically depressed rural swath in the state’s center, will try getting people out of their cars, aiming for a payoff in reduced cardiovascular care that is both measurable and relatively quick. Hands-on work with patients is common to all the efforts, including one that is using “patient guides,” to talk through care options with people who stack up in emergency rooms with often routine medical problems.
Other states, notably Massachusetts and Vermont, are experimenting with new models as well, mainly through regulation. But Oregon’s way — one ear to the ground, health care with local input — has always been different, and the Medicaid experiment, health care experts said, has now sharpened those distinctions to an incisive edge.
“We’ve got essentially 15 experiments going around Oregon,” said Gov. John Kitzhaber, who was an emergency room physician before entering public life, and still signs his official correspondence with an M.D. next to his name. “They all have to meet the same metrics in outcome and quality,” he added, but after that the new Coordinated Care Organizations, to which the advisory councils report, are largely being left to their own devices in finding a way that makes sense for them.
Local, interventionist, hands-on attention — reducing health problems before care is warranted or billed — means breaking deep tradition in a system that thinks mostly about treatment and response. “We’re building something that’s never been built before,” Mr. Kitzhaber said.
National health care experts are divided about whether the Oregon Experiment, as many people call it, can achieve real, measurable goals within the five-year timeline of the federal agreement. Some say that to expect once-competing hospitals, in some cases with different cultural traditions and billing systems, to pull together for a common goal — a pattern in some of the new organizations — runs contrary to human or institutional nature.
Others say that Oregon’s path through the health care wilderness is so idiosyncratic that what happens here might stay here, untransplantable to other locales even if it does succeed.
The state has been tweaking its Medicaid system for years under Mr. Kitzhaber, a Democrat who served two terms starting in the mid-1990s, then ran again and won in 2010. Nonprofit organizations with a collaborative bent, like Kaiser Permanente, also run deep in the health care culture, with a big presence and market share. And Oregonians tend to be joiners, with some of the highest rates of volunteerism in the nation, especially in liberal Portland, which has 40 percent of the state’s Medicaid patients, and where words like “community” and “social justice” get repeated in public life like mantras.
“One thing unique about the C.C.O. process is the degree to which it focuses on all the elements of an Oregon Health Plan recipient’s life,” said Steve Weiss, the chairman of the advisory board at Health Share of Oregon, a Coordinated Care Organization in Portland. Mr. Weiss, 70, is disabled and gets by, he said, on $864 a month.
Mr. Kitzhaber, in an interview in his office at the Capitol, said the anecdotal interventionist health care story he imagines is that of a poor 92-year-old woman who develops congestive heart failure in a heat wave because she has no air-conditioner.
“Under the current system, Medicaid will pay for an ambulance and $50,000 in the hospital,” he said. “What it won’t pay for is a $200 window air-conditioner, which is all she needs to stay in her home and out of the acute medical system.”
Getting to that $200 decision, though, is not easy. It means both having a community health care worker able to check in on the woman, he said, then having a system flexible enough to send someone down to the local Target store with a credit card.
It also requires a paper trail of measurements and procedures, officials said, to ensure that local decisions are fair and based on predictable outcomes, so that something like the purchase of one air-conditioner does not open the door to questions of bias, or claims that every poor family is entitled, in the name of fairness or social equity, to cooler air at state expense.
Mike Bonetto, a health policy adviser to Mr. Kitzhaber, said: “How do you maximize the value of the tax dollars that are being spent on health care? If it’s to pay for the air-conditioner, so be it.” He says the public understands that linkage — that savings on many small things can mean greater support for big things like public safety and education — and the Democratic-controlled State Legislature has endorsed it with bipartisan votes on elements of the health package.
The state has also developed 33 performance measures to aim to show to the public and the federal government how the project is working, with financial incentives to local Coordinated Care Organizations for meeting goals like rates of adolescent well-care visits and colorectal cancer screening.
The first reports of baseline data are scheduled to start coming in this spring.
Mark V. Pauly, a professor of health care management at the Wharton School of Business at the University of Pennsylvania, says he thinks coordinated care of the sort Oregon is embarking on might seem a little too interventionist in parts of the country where people are expected to mind their own business.
“We don’t know whether Americans are ready for coordinated care,” he said. “But Oregon keeps trying. God bless them.”
Health Advocates Push for Medicare Benefit Change
Sunday, 14 April 2013 14:09
By Emily Ethridge
Roll Call Staff
April 8, 2013, 7 p.m.
Alice Rivlin supports creating a combined deductible for Medicare Parts A and B. The Obama administration and lawmakers have expressed interest in the idea.
Health care stakeholders complain that some of Medicare’s benefit structure is still stuck in the 1960s, when the program was created. As lawmakers search for ways to reduce government spending, many are looking to find savings by bringing all of Medicare into the current century.
One way to update Medicare would be to create a combined deductible for Medicare Parts A and B, an idea that comes up from time to time. The Obama administration and Republicans both have shown support for it, although early takes on the president’s budget, to be released Wednesday, suggest he’s not putting it on the table just yet.
Unlike almost all private insurance plans, Medicare currently has separate deductibles for different kinds of medical services. That can be confusing for beneficiaries and does not encourage them to get the most efficient care.
Creating a single uniform deductible for services under Parts A and B would modernize Medicare and make it easier for beneficiaries to get cost-effective care, supporters of the idea say. “It’s not a major item, but if you’re trying to modernize Medicare, the fact that we have two separate deductibles for Part A and Part B is just something that seems like that it would be simpler if we didn’t,” said Alice Rivlin, a former Clinton budget director and co-chairwoman of the Bipartisan Policy Center’s Debt Reduction Task Force. But how much would such a move save Medicare? What are the odds that lawmakers would rally behind it? And what do these different parts cover anyway?
What Are the Programs?
Medicare Part A covers inpatient hospital services, while Part B covers outpatient and physician services. Almost all Medicare beneficiaries are enrolled in both parts, with about 7 percent participating in only one, according to the Medicare Payment Advisory Commission.
Currently, the programs have two separate deductibles, as well as different copayments and cost-sharing charges. Thedeductible for Part A services is relatively high and was $1,156 in 2012, according to MedPAC. For Part B, the deductible was a relatively low $140 in 2012.
The separate deductibles make Medicare different from most private insurance plans, which now have a single deductible for medical services. Medicare, on the other hand, reflects the insurance industry norms of the era when it was created.
“This structure of having two distinct parts is mainly historical, reflecting the structure of private insurance as it existed in the 1960s,” MedPAC said in a June 2012 report.
Rivlin said that creating a single combined deductible for medical services would be “fixing a problem that shouldn’t have occurred.”
Who Supports the Change?
Several deficit reduction proposals have included the combined deductible idea, including ones from President Barack Obama’s National Commission on Fiscal Responsibility and Reform, the Bipartisan Policy Center’s Debt Reduction Task Force, and then-Sen. Joseph I. Lieberman, I-Conn., and Sen. Tom Coburn, R-Okla. This year, House Majority Leader Eric Cantor, R-Va., and Senate Finance ranking Republican Orrin G. Hatch of Utah both suggested making a combined deductible part of a Medicare system change.
How Would It Affect Beneficiaries?
Supporters say a uniform, combined deductible would make things simpler for beneficiaries and help them track alltheir medical services.
But some beneficiaries could wind up paying more out of pocket, depending on where the deductible is set and what other benefit structure changes come along with it.
The Kaiser Family Foundation ran a model with a single deductible of $550 for services under Parts A and B, a uniform 20 percent coinsurance rate and a $5,500 limit on out-of-pocket spending — the benefit changes most commonly grouped together in the deficit reduction proposals.
Under that model, 71 percent of beneficiaries would have higher out-of-pocket spending, 5 percent would have lower, and the rest would have no or nominal changes. The design also would decrease Medicare spending by $4.2 billion in 2013, while beneficiaries’ aggregate spending would rise by $2.3 billion.
Supporters argue that while beneficiaries might pay more, they would also have less reason to buy supplemental coverage through Medigap plans and would probably get a cap on out-of-pocket spending for the first time.
“We can create reasonable and predictable levels of out-of-pocket expenses without forcing seniors to rely on Medigap plans,” said Cantor, when advocating for the benefit structure change.
G. William Hoagland, senior vice president at the Bipartisan Policy Center and a former top GOP Senate aide, emphasized the importance of the structural changes happening together. “I don’t think you do this in isolation of other changes within the system,” Hoagland said of making a combined deductible for Parts A and B. He noted that most proposals that feature a combined deductible also include some kind of catastrophic coverage provision, which Medicare currently lacks. As it stands now, beneficiaries have no limit on their out-of-pocket spending under Medicare.
Rivlin said that getting that catastrophic coverage is one of the main reasons beneficiaries buy Medigap insurance. But when they have Medigap coverage, people generally receive more services than they would otherwise, which raises the cost of Medicare overall, she said.
“If you had a simpler, easier-to-understand deductible, and the catastrophic coverage, you might discourage people from buying Medigap insurance,” she said.
What About Savings?
Changing the Medicare benefit structure could save the federal government money, but it really depends on where the deductible is set. Opponents of the move note that any savings to the government would mostly come from beneficiaries paying more out of their own pockets, such as under the Kaiser model.
MedPAC noted that the combined deductible would affect individual beneficiaries’ cost-sharing differently depending on which services they use. Most beneficiaries in a given year use only Part B services, and they would have their low deductibles increase. But the 20 percent of beneficiaries who use Part A hospital services each year would see lower deductibles there.
Most cost-sharing changes are meant to encourage beneficiaries to be choosier and find the most efficient, best quality health services. MedPAC says the current system fails at that because the health services that are generally optional are covered under Part B and so have a low deductible. Hoagland said a combined deductible would have only a limited effect on making beneficiaries more aware of their health spending.
“It could have some behavioral impact, except, Part A, you really don’t have much choice,” he said. “If you have hospitalization, you have hospitalization.”
Rivlin noted that in most deficit reduction plans, changes to the Medicare benefit structure are done in a benefit-neutral way — and aren’t as focused on finding big savings.
Any Problems With This Idea?
Opponents of the combined deductible plan worry that seniors will carry the burden by paying more so the federal government can pay less money. Even those seniors who wind up paying lower deductibles may not actually pay less overall, as was found in the Kaiser Foundation model.
“Because the role of a deductible is to reduce the cost of other aspects of the benefit package — such as premiums, copayments, and coinsurance — a lower deductible would not necessarily lower total costs for a given beneficiary,” MedPAC explained.
There could also be a problem with instituting the single combined deductible. Parts A and B have different funding sources. Part A is funded through the Hospital Insurance Trust Fund, which gets much of its funding through a payroll tax and premiums from some beneficiaries. Part B benefits are funded through a different trust fund, which gets some of its funding from premiums paid by people for Part B and Medicare Part D, which covers prescription drugs.
If the programs are combined and have a single deductible, with uniform cost-sharing, that would confuse what money goes into which trust fund. “I have yet, to be honest with you, yet to see anybody that’s said: Once we combine A and B, what do we do about the trust funds?” Hoagland said.