Transcript An ailing program - American Enterprise Institute

Medicare Reform:
Competition, Choice, and
Restructuring
Markets not Madness: Medicare Reform That Works
AEI
April 16, 2013
Joseph R. Antos, Ph.D.
Wilson H. Taylor Scholar in Health Care
and Retirement Policy
American Enterprise Institute
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Cost
◦ Crowding out other federal spending priorities
◦ Crowding out private spending priorities
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Fairness
◦ Intragenerational equity
◦ Intergenerational equity
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Market distortions
◦ Value—do seniors get what they want/need?
◦ Medicare’s reach—coverage, payment, coding, quality of
care, structure of health care business and care delivery
◦ Tremendous leverage on the system—for better or worse
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Slower Per Capita Medicare Spending in Last 3 Years
6.0%
5.0%
5.3%
4.3%
4.0%
2.9%
3.0%
3.6%
3.2%
1.8%
2.0%
0.9%
1.0%
Medicare
GDP
0.0%
-1.0%
2008
2009
2010
2011
-2.0%
-3.0%
-4.0%
-3.1%
Comparable growth rates for total spending and GDP:
8.0% 1.9%
6.9% -2.2%
4.3% 3.8%
6.2% 4.0%
Source: Hartman et al., National Health Spending in 2011, Health Affairs, January 2013
Is GDP + ½% feasible?
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Federal spending as a percentage of GDP, Alternative Fiscal Scenario*
17.2
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16
14
12
Assumes aging accounts for 52% of
growth in health spending and 68%
in health and Social Security
11.6
9.6
10
7.7
8
6.7
6.2
6
9.5
5.0
3.7
4
3.7
1.7
2
1.4
0
Social Security
Medicare
Medicaid, CHIP,
Other Spending
Interest
Deficit
Exchange
2012
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*Assumes Medicare physician fees held at 2012 level, IPAB does not take
effect, current law reductions in per-person exchange subsidies not
enforced, other automatic spending reductions not enforced.
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
Cost
◦ Crowding out other federal spending priorities
◦ Crowding out private spending priorities

Fairness
◦ Intragenerational equity
◦ Intergenerational equity

Market distortions
◦ Value—do seniors get what they want/need?
◦ Medicare’s reach—coverage, payment, coding, quality of
care, structure of health care business and care delivery
◦ Tremendous leverage on the system—for better or worse
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Projected Medicare Enrollment and Covered Workers per beneficiary
100,000
4
3.3
88.7 M
80,000
80.6 M
3
2.6
64.0 M
60,000
Workers per Beneficiary
Enrollment (millions)
93,3 M
2.2
2.1
2.1
2
47.7 M
40,000
1
20,000
0
0
2010
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2020
2030
2040
2050
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Cost
◦ Crowding out other federal spending priorities
◦ Crowding out private spending priorities
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Fairness
◦ Intragenerational equity
◦ Intergenerational equity
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Market distortions
◦ Value—do seniors get what they want/need?
◦ Medicare’s reach—coverage, payment, coding, quality of
care, structure of health care business and care delivery
◦ Tremendous leverage on the system—for better or worse
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50%
Percentage of all U.S. Spending
44%
40%
29%
30%
20%
20%
22%
22%
Physician
services
Rx
23%
10%
0%
Nursing home
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All personal
health care
Hospital services
Home health
care
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A system that promotes volume
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Traditional Medicare’s open-ended subsidy
FFS incentives
Lack of provider coordination
Medigap insulates consumers and providers
Limited consumer information
Medical liability
Fee reductions alone do not change incentives
Can plan competition and consumer choice work?
◦ Blend defined benefit, defined contribution
◦ Who bears risk?
◦ Information challenge
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Premium support
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Competitive bidding
Comprehensive coverage
Defined contribution
Consumer information
Spending cap
Reform traditional Medicare
Regulation
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Ryan and Obama agree on GDP + ½ target
CBO scoring at stake
Bids reveal full cost of benefit, not how much
beneficiaries pay
Will competition drive down cost?
How do we know when the growth target is too
tight?
Can we pull the trigger?
Signal to health sector?
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Free traditional Medicare to operate more
efficiently and better meet demand
◦ Song, Cutler, Chernew (JAMA 2012) – traditional Medicare
low bidder for 75% of beneficiaries
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Improve payment methods
◦ Bundled payment, preferred providers,
centers of excellence, ACOs/shared savings
with teeth
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Reduce need for Medigap
◦ A + B +streamlined cost-sharing
◦ Limit gap coverage/offer coverage at market rate
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Regional FFS plans with greater ability to innovate
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Part D spending 37 percent lower than initial cost
estimate
◦ $485 B vs. $768 B between 2006 and 2013
◦ Lower Rx spending growth in Part D than rest of country
◦ Flexible benefit design drives generic usage, lower cost
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MA plan cost reflects policy decision, poor bidding
structure
◦ BBA 97 limited payments to 2% annual growth, and half of
the plans dropped out
◦ MMA 03 set benchmark above traditional Medicare’s cost—
telling plans what the government is willing to pay
◦ HMOs bid 3% below FFS, but paid 9% above (2010)
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27% of beneficiaries chose MA plans to gain extra
benefits
Part D demonstrates that seniors respond to
incentives, once they understand what is at stake
◦ Initial plan choices in 2006 were often not lowest cost
◦ Between 2006 and 2007, large sample of beneficiaries
switched plans and saved $298 on average
◦ Oldest consumers and those with Alzheimer’s disease
improved by more than the average
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Risk selection could leave traditional Medicare with
the high-cost patients
Improved risk adjustment system for MA payments
plus one-year lock-in has reduced extent of
over/under payment
Self-fulfilling prophecy
◦ Patient “risk” measured by observing actual use of services
◦ If MA plan manages care well, average use declines
◦ Use rates for major service categories (e.g., ED, ambulatory
surgery) 20-30% lower in MA HMOs than in FFS Medicare
◦ More appropriate care or cherry-picking?
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Sluggish economy, rising debt/deficit
Administration emphasizes demographics, which
account for only ~ ½ of spending growth
President’s budget replaces sequester with fee cuts
and limited “structural” changes
◦ Income-related premiums, increase Part B
deductible, home health copays, premium
surcharge for Medigap purchasers
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If there is a negotiation, this is the
starting point
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