- Higher coinsurance & annual stop-loss caps tied to income level could provide the fairest & most effective avenue toward the best results
- Higher-income seniors should be subsidized less and low-income seniors subsidized more
- Changes in cost sharing must protect vulnerable low-income beneficiaries & remain administratively feasible
Opening Oral Statement
Thank you Chairman Pitts, ranking member Pallone, and members of the Subcommittee for the opportunity to speak this morning on redesign of Medicare’s outdated benefit structure.
Restructuring the splintered cost-sharing requirements of the traditional Medicare fee-for-service program’s separate silos for Part A and B (if not D) provides a potential policy reform tool that could achieve the twin goals of saving taxpayer dollars while improving the most essential risk-protection benefits for elderly beneficiaries. By increasing Medicare enrollees’ cost consciousness regarding more discretionary, initial-dollar health care choices, a coordinated set of changes in traditional Medicare’s deductible and coinsurance provisions could help reduce current and future levels of Medicare spending. Some of the savings from increased cost sharing at the front end of Medicare coverage then could be used to provide better “stop-loss” protection against larger catastrophic risks, as well as to substantially limit, if not eliminate, the need and demand for supplemental insurance that imposes excess costs on basic Medicare coverage.
However, those fiscal and risk protection benefits must compete with and can complement other policy considerations. They include improved integration of health care delivery, realigned incentives to improve value-based health care, more effective competition between traditional Medicare and private Medicare Advantage plans, and continued protection of the most vulnerable low-income beneficiaries. And this complex balancing act – hard enough in theory -- must remain administratively feasible in practice.
A number of cost-sharing reform proposals in recent years hit one or more of these target objectives to varying degrees. My written testimony suggests some different ways to set clear policy priorities, accommodate necessary exceptions, and still maneuver through the complexities of implementation and administration.
(1) Traditional Medicare remains a largely unmanaged fee-for-service program that needs to rely on increased, but more coherent, cost sharing as an important tool, though not the only one, to help control its excess costs. Hence, overcoming the political cross-pressures that resist any such changes must be worth the trouble – by producing significant net budget savings, rather than a budget-neutral rearrangement of the chairs on the spending deck.
(2) The highest priority should be to protect all seniors against health-related financial risks that they cannot bear on their own. That is not equivalent to hiding from them as many health care costs as possible through third-party payments.
(3) Such stop-loss protection, predominant in private insurance plans for decades, is long overdue for traditional Medicare. However, in this case, it should be income-related, rather than set as the same dollar amount for every beneficiary.
(4) This “major-risk” approach to Medicare cost sharing should consider the alternative of relying more on a higher rate of coinsurance across a wider range of initial health spending, and less on deductibles in lump-sum amounts. This would extend the corridor of cost-sensitivity and engage more Medicare beneficiaries in monitoring the real costs of their subsidized care, yet temper the full impact of cost sharing in deciding whether to seek any care at all. Amounts of coinsurance-based cost sharing also reset automatically as health care costs rise (and hopefully fall someday).
(5) The cleaner and less complicated way to deal with the distortions of supplemental insurance for traditional Medicare enrollees is to improve that program’s basic risk protection directly and then set regulatory boundaries on what either individual Medigap plans or employer-sponsored retiree plans can cover. We don’t need another new tax on those plans, piled on top of the existing debris of dead-weight loss distortions throughout the tax code. Let’s subsidize non-poor seniors less, instead of taxing them more.
(6) Of course, the poorest seniors must continue to receive special protection against health care cost burdens. Supplemental Medicaid coverage for dual eligibles would remain in place. More attention should be paid to restructuring current Medicare Savings Programs for other low-income seniors in a better-integrated manner, and in some cases supplementing them – particularly for those facing high-cost conditions. Evidence-based preventive health benefits also should be exempted from expanded cost sharing. Efforts to improve health information and navigational assistance for all beneficiaries, but particularly those with cognitive impairments, need much more attention and budgetary support.
(7) The particular parameters for restructured cost sharing suggested in my written testimony are merely suggestive starting points, but they can help lead us to a reformed Medicare program that relies more on income-related cost-consciousness, enhances true insurance protection against catastrophic risks, and reduces the likelihood of rising premiums, steeper taxes, and hidden benefit cuts..
Thank you. I look forward to your questions.
Read the full testimony here.