Medicare makeover: Five responsible reforms to make Medicare healthy



Medicare Makeover
Five responsible reforms to make Medicare healthy

Unless reforms are adopted, Medicare spending will account for more than one quarter of the growth in federal spending over the next 25 years, outpacing domestic economic growth and risking the linchpin of security and stability in the health sector. Here are five of the biggest challenges facing Medicare and suggested reforms to convert the benefit into an efficient, well-functioning and sustainable program for the long-term.

1. Update Medicare's structure so patients understand the cost of care  [MORE]
The problem: Unlike private insurers, Medicare requires beneficiaries to enroll in a separate insurance program for each type of medical care — hospitals (Part A), doctor visits (Part B) and prescription drug coverage (Part D).  [MORE]  Each part has its own deductible and set of coinsurance, copayments, and limits on benefits. The complex structure confuses recipients and makes them unaware of the cost of their medical care.

The solution:  [MORE]
  • Make traditional Medicare a comprehensive health plan by combining Part A and Part B, with a single premium and a single deductible that cover both parts, with 20 percent coinsurance on all services.
  • Change coverage for Medigap, which is private supplemental coverage, so that recipients are sensitive to the cost of their medical care.
  • Establish health savings accounts for enrollees in traditional Medicare so they have a stake in their health care.

  • 2. Facilitate coordination of health care services in traditional Medicare   [MORE]
    The problem: Traditional fee-for-service Medicare fails to promote coordination across health-care providers. As a result, beneficiaries often receive duplicative, inappropriate or even contradictory medical care that drives up costs and could harm their health.

    The solution:   [MORE]
  • Restructure cost-sharing requirements in traditional Medicare so recipients know the price of each service and how much the service benefits them.
  • Establish a plan option that offers a network of high-quality providers who will accept lower Medicare payments in exchange for recognition of their superior service, which will drive more patients to them.
  • Allow Medicare authorities greater latitude to adopt innovative payment schedules and management practices that rewards improved health care delivery.

  • 3. Reform Medicare payment policies  [MORE]
    The problem: As a fee-for-service program, Medicare provides strong financial incentives for physicians to order more tests and recommend costlier services. As a result, Medicare spending grows at a faster pace than the economy.   [MORE]

    The solution:  [MORE]
  • Replace the current system (called the Sustainable Growth Rate) that calls for double-digit cuts in physician fees formula) with a stable payment system that spreads cuts among all parties: physicians, other providers, and beneficiaries.
  • Allow doctors — with advance notice — to charge patients a different rate than what Medicare pays, creating a market-oriented service model rather than a supply-side one.
  • Institute a new physician payment methodology that rewards quality and prudent medical practice.
  • Develop other payment models, including competitive bidding for specific services, bundled payment, performance-based payment, and payment methods that encourage smart management of chronic disease.

    4. Allow private insurers to compete effectively within the Medicare system   [MORE]
    The problem: Medicare Advantage plans give recipients a choice of coverage provided by private insurers, rather than the government, but the bidding process for the insurers to participate is not competitive and raises program costs unnecessarily.

    The solution:
  • Convert Medicare to a defined-contribution/premium support system.   [MORE]
  • Replace the current Medicare Advantage bidding system with fully competitive bidding that allows for variations in prices among local markets.   [MORE]
  • Modify rules to require insurers to offer Medigap coverage whenever they apply for it.  [MORE]
  • Provide beneficiaries with better tools to compare Medicare Advantage to Medigap, including specific information on the cost of Medigap insurance and the likely costs a beneficiary could be expected to pay out-of-pocket for typical medical care services.
    5. Make Medicare more equitable by limiting the subsidy  [MORE]
    The problem: Medicare takes in far less money from payroll taxes and premiums than it pays out in benefits. The average individual who turns 65 in 2030 will have paid $87,000 in payroll taxes to Medicare, but is estimated to receive $251,000 worth of services. That's a $164,000 difference that is steadily adding to our nation's debt.

    The solution:
  • Increase the eligibility age for Medicare to 67. Allow seniors between 62 and 67 to buy into the program.
  • Require seniors to share more of the financial burden of Medicare spending.
  • Increase the base premium for Part B from 25 percent to 35 percent of program spending and impose a premium for Part A. Conversely, combine Parts A and B and raise the cost of the combined premium.
  • Increase cost-sharing for high-income beneficiaries.

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    About the Author


    • Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute (AEI), where his research focuses on the economics of health policy — including the Affordable Care Act, Medicare, the uninsured, and the overall reform of the health care system and its financing. He also studies the impact of health care expenditures on federal budget policy.

      Before joining AEI, Antos was assistant director for health and human resources at the Congressional Budget Office (CBO). He has also held senior positions in the US Department of Health and Human Services, the Office of Management and Budget, and the President’s Council of Economic Advisers. He recently completed a seven-year term as health adviser to CBO, and two terms as a commissioner of the Maryland Health Services Cost Review Commission. In 2013, he was also named adjunct associate professor of emergency medicine at George Washington University.

      Antos has a Ph.D. and an M.A. in economics from the University of Rochester and a B.A. in mathematics from Cornell University.

      Follow Joseph Antos on Twitter.

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