While major changes to Medicare are unlikely to occur this election year, more and more proposals are coming out that recognize that Medicare’s current benefit design is not sustainable.
PPACA included about $500 billion in Medicare savings over 10 years, including cutting Medicare Advantage plans and slashing payments to hospitals and providers. It also requires higher-income seniors to pay more. Some additional modest proposals should pass this year at least to stop the automatic 2 percent spending cuts included in the deficit reduction agreement.
But here are some of the more dramatic proposals emerging that could gain traction in coming years:
- On March 29, the House approved a federal budget for FFY 2013 that changes Medicare fundamentally. The House backed providing a fixed amount of money for future Medicare beneficiaries (those now under 55) to purchase either a private health plan or participate in Medicare FFS in lieu of guaranteed benefits. This is akin to the move toward defined contribution retirement plans instead of expensive defined benefit plans. That subsidy would replace the guaranteed set of benefits the federal government now provides regardless of costs. Several Democratic Senators have expressed interest in something akin to the House GOP plan. But predictably, most Democrats, including the president, have slammed the proposal this election year.
- MedPAC, the advisory commission on Medicare, has begun crafting its own version of Medicare reform. Under its preliminary vision, Medicare would feature catastrophic coverage based on an out-of-pocket maximum, deductibles (not cost-sharing) for Parts A and B coverage, a surcharge on Medigap supplemental insurance, and differential cost-sharing based on services and value. It attempts to morph Medicare FFS from a transaction-based system to a value-based one. MedPAC says most seniors will feel no financial impact, but it would slow overall Medicare costs over time by promoting value-based purchases and remove the incentives to over-utilize in the current system. The over-utilization is driven not only by transaction-based reimbursement to providers but also by the ability of seniors to combine Medicare coverage and private supplemental gap coverage to bring their outlays on some or even all services to almost nothing.