Jeb Bush’s Positive Plan to Reform Medicare
(A version of this Health Alert was published by RealClearPolicy.)
Jeb Bush’s Medicare reform contains two proposals — premium support and Health Savings Accounts — that will have a significant, positive effect on seniors’ access to care and Medicare’s finances. In particular, the proposals will address four flaws in Medicare Advantage, an alternative to traditional Medicare in which seniors choose a plan from a private insurer.
Although Obamacare tried to cut seniors’ access to private plans, the use of these plans continues to grow. Before Obama took office, one-quarter of beneficiaries chose Medicare Advantage plans. Today, about one-third do. But despite their popularity, private Medicare plans do not live up to their potential for cost-effectiveness.
The first major flaw of Medicare Advantage is that its costs are deliberately hidden from seniors. Their premiums pay a small share of costs, while federal taxpayers shoulder the rest behind the scenes. In Bush’s premium-support plan, by contrast, all seniors are given a fixed amount of taxpayer money up front, which they can put toward a plan (including traditional Medicare if they desire). This means that seniors will know how much taxpayers are supporting them.
President Obama has mocked this as “some kind of voucher.” However, disclosing Medicare’s full costs to seniors when they make their coverage choices will help them understand how important it is to future generations that we get its costs under control.
Second, Medicare Advantage plans compete by submitting bids to Medicare, and if a bid is higher than a government-set benchmark for the area, enrollees must pay the difference. But incredibly, insurers are paid according to the benchmark, even if the typical bid is much lower. Abolishing the benchmark and setting premium support based on the average bids, as Bush’s plan would do, will save taxpayers money without harming beneficiaries’ access.
Private plans will not like this. However, Bush’s proposal also addresses a third flaw that limits private plans’ opportunities: Because he would set premium support based on private bids, and since seniors would get the same amount of support whether they chose a private plan or traditional Medicare, private plans would have an advantage in places where they provided better service at lower cost than the government-run alternative. In other words, private plans would genuinely compete with traditional Medicare, in which the government hires contractors to pay hospitals, doctors, and other providers according to Soviet-style, fixed-fee schedules.
Experts estimate that premium support will cut 4 percent to 6 percent from Medicare spending, and that this will compound over the years. Further, this is a campaign promise that is likely to be kept if Bush is elected. Paul Ryan, the newly elected speaker of the House of Representatives, has championed premium support for years, and it has the support of the House majority.
Bush’s second proposal is to increase the use of Health Savings Accounts by seniors. HSAs are tax-free accounts that have existed for a decade and have proven to reduce the rate of growth of health spending. According to consultants at Devenir Health, 14 million people had HSAs last year, which had aggregate assets of $24 billion.
Medicare beneficiaries cannot contribute to HSAs, and Bush would change that. However, his proposal goes further, allowing health plans to fund beneficiaries’ HSAs. This addresses Medicare Advantage’s fourth flaw: Health plans are unable to enlist beneficiaries’ interest in reducing Medicare’s costs by rewarding them for doing so. Because Medicare Advantage plans cannot rebate money into seniors’ HSAs, they compete to enroll members through enticements such as fitness-club memberships. This is not a good use of taxpayers’ money.
Allowing health plans to put Medicare dollars under patients’ direct control will cause costs to plummet. For example, Medicare has been paying over $4,000 for power wheelchairs. They can be purchased for around $3,000, or even less in some parts of the country. A senior with Medicare money in his HSA has an obvious interest in saving a thousand dollars or more on his power wheelchair. This reform will cut costs faster than does Medicare’s current method, which relies on bureaucratic price fixing.
Bush also recognizes seniors are ready to take advantage of fast-growing innovation in health information technology, especially telehealth and mobile health. Most of these innovative services are not covered by Medicare. Bush would fix this, and seniors would be able to use their HSAs to choose lower-cost telehealth services instead of frequent office visits.
Kicking necessary Medicare reform down the road has been a tactic employed by too many politicians who are afraid of the challenge. Jeb Bush’s Medicare-reform plan embraces changes that will protect and improve the program for current and future beneficiaries.
Current Medicare Advantage payments to insurers are risk-adjusted. Would vouchers be? If not, insurers would have an even greater incentive than they do now to attract the healthy and avoid the sick.
Bush does not describe that. I make the unstated assumption that risk adjustment in MA remains as it does today. I do not have high expectations for intellectual rigor when it comes to campaign platforms. Nevertheless, this one is quite good by that standard.
Hi John:
Regardless of how the shells are shuffled, Medicare and health care in America cannot be “saved” until there is some form of cost-based pricing.
With the insurance industry consolidating and exempt from anti-trust laws, why is “competitive” bidding amongst insurers actually going to lower costs of delivering care? Health plans will simply shadow price (as Kaiser has done for decades).
Your article also does not mention the billions in subsidies paid to Medicare Advantage Plans to keep them afloat. How do those payments fit in?
Then, most importantly, the “risk adjustment” referred to by Barry actually means, “How do I know I will be able to pay for care if I really get sick or have a chronic condition?” Patients are always going to ask that question and the public will not accept changes that do not provide a real level of security and surety.
In the end, as Al Simpson and Erskine Bowles continue to remind us, health care is bankrupting this country. We have to reform health care from the grass roots up, not the top down. Cutting health care costs begins with each individual assuming responsibility for his/her wellbeing, then helping his/her neighbor. These individual acts will do more to cut the costs of care than rewiring payments. Patients/beneficiaries’ behavior is the greatest predictor of cost and the greatest predictor of outcome.
Your proposal of rationing the dollars for Medicare benificiaries may have some effect, but at what cost to the wellness of the person foregoing care?
If we invested a fraction of what we are paying Medicare Advantage plans now in programs to reward individual responsiblity (like corporate wellness programs), costs will go down dramatically. (Studies show a net 3-5% drop in costs)
Likewise, simple tort reform would cut real costs significantly (at least 5%) I helped author MICRA (California’s malpractice reforms) and we have 40 years of irrefutable proof that it works.
Malpractice reform can be built into Medicare reform easily: All we have to do is offer two options for Medicare Part B one with the reforms as a condition of the beneficiary’s participation and one without the reforms at a higher price. The beneficiary could choose either one. The trial lawyers should not oppose this Medicare reform too strongly because most substantial malpractice claims are made by younger plaintiffs. Older plaintiffs who are not working (and thus have no economic loss) and have shorter life spans make much less interesting cases for the trial lawyers.And there is precedent: federally qualified health clinics have modified tort protections. This would merely extend tort reforms to other government-paid patients.
In sum, the verdict is coming in loud and clear. The reform of health care payments (such as was tried with Obamacare) won’t change people’s behavior’s to be more health conscious, won’t mend the underlying inefficiencies in the delivery system, won’t relieve the system of unnecessary litigation-based costs, and thus will not bend the cost curve enough. We have to roll up our sleeves and reform health care from the grass roots up, not the top down.
I would love to hear from any like-minded souls.
Cheers,
Charlie Bond
I wonder how many government-subsidized corporate wellness program benefits are available to minimum wage, part-time employees? Some of them amongst the millions who lost their jobs and homes in 2008, now dependent on Medicaid (if their state expanded coverage or still with no insurance if their state didn’t) earning under the minimum income required for government-funded private healthcare subsidizes. Surely there are some in this bunch who could use help in taking responsibility for their own well-being. It should be noted that the AFA already includes robust corporate wellness program funding, in some cases offering up to 50% reimbursement – http://www.dol.gov/ebsa/newsroom/fswellnessprogram.html. One more thought. I fail to see how retired seniors who purchase government-funded Medicare Advantage insurance plans will benefit from additional corporate wellness or similar program funding if as you suggest, the government significantly reduces its investment in Medicare Advantage programs. Do you suppose these same seniors, many living on Social Security alone, have the resources to pay the higher premiums that would undoubtedly result from such a funding shift? IMO the fact that every American isn’t guaranteed equal access to healthcare, and indeed still risks going bankrupt as a result of an illness, even with insurance, is shameful and destructive to our nation.
My two cents worth.
“This means that seniors will know how much taxpayers are supporting them”
John Graham
Most all seniors are powerless to do anything about this grand bargain, at this point seniors all have a ticket and are riding on the bus, period!!!
Stan Firebaugh
If you want a proxy for how seniors are willing and able to plan for the expenses of old age investigate how many have Long Term Care insurance. Seniors have been taught that Medicare plus a supplement will cover 100% of expenses. Breaking that habit will be controversial.
“One Size Fits All” premium support will absolutely NOT Work. I do not support Jeb Bush’s plan for this reason (and others). The unintended consequences of such a policy will cripple the Republican party for many years to come. Seniors are NOT similar in their healthcare needs as other less aged adults – this should be obvious, but evidently is not to policy makers. Barry Carol is correct is stating that Insurers will have greater incentive than ever to attract the healthy and discourage the sick from joining their plans. The current Medicare Advantage system of risk adjustment is superior to any other system ever devised to level the playing field for seniors. It is a highly effective system for ensuring that the sickest seniors receive the care that they need from the private sector without being priced out of the system entirely. Furthermore, Wellness and Care Coordination programs actually work within the Medicare Advantage (MA) system and the fitness programs embedded in this MA system (like Silver Sneakers Programs) actually do help seniors stay healthy. We in the industry see this positive effect every day. Minimizing the value of Fitness Club memberships is downright silly since physical fitness cures any number of ills. This is based on solid science.
Charlie Bond stated, “Patients/beneficiaries’ behavior is the greatest predictor of cost and the greatest predictor of outcome.” This is true and is the only way to save our entitlements for future generations. Let me be more specific: we must first help beneficiaries change their behavior on how they access the healthcare system and then change their personal lifestyle choices. The first is much easier to do and will save a huge amount of money by itself; regardless of personal lifestyle behavior change, which is extremely difficult to accomplish and takes a very long time.
I do agree with the idea of providing HSA’s to Medicare beneficiaries through the private sector. This has huge value if administered through the private sector (Health Plans and their IPA partners) and if based upon measurable behavior change by the beneficiaries. This behavior change can be as simple as beneficiary compliance with the need for annual complete physicals and Follow-up visits from an established Medical Home and with electronic home monitoring compliance when needed for beneficiaries with multiple chronic conditions who frequently visit Emergency Rooms.