Real Solutions for Medicare Solvency and Reducing the Deficit

Once again the House of Representatives’ leadership are proposing to change Medicare into a private voucher system. Their proposals would have severe repercussions for Medicare beneficiaries and their families.[1] Sound solutions that would preserve Medicare coverage while reducing costs are still not being seriously addressed.  With the President on record as recommending that we lower Medicare’s drug costs, perhaps now is the time.

The Center for Medicare Advocacy’s recommendations do not shift costs to beneficiaries or completely restructure the Medicare program. They are good for beneficiaries and for the economy. They promote choice and competition while shoring up the solvency of Medicare. Adopting these recommendations would be a responsible step towards reducing our deficit the right way.

  1.  Bring Down the Costs of Prescription Drugs
  • Extend Medicaid Drug Rebates to Low-Income Medicare Beneficiaries

Medicare should benefit from the same discounts for prescription drugs as Medicaid. Low-income dually eligible people (people eligible for both Medicare and Medicaid) comprise one-fourth of all Medicare drug users, and are among the most costly beneficiaries. Because Medicare, rather than Medicaid, covers most of their drugs and because Medicare cannot negotiate drug prices, these drugs are not eligible for the same rebates as they were, and would be, under the Medicaid program. Extending Medicaid rebates for dually eligibles and other low-income people could save more than $145 billion over ten years.[2]  Extending drug rebates to all Medicare beneficiaries would yield even more savings.

  • Negotiate Drug Prices with Pharmaceutical Companies

The Medicare prescription drug law, passed in 2003, prohibits the Secretary of Health and Human Services from negotiating prices with pharmaceutical companies.  These companies gained millions of potential customers when Medicare began covering prescription drugs, but they did not have to adjust their prices in return.  Requiring the Secretary to negotiate drug prices for Medicare could help address rising prescription drug costs.[3] Taxpayers currently pay nearly 70% more for drugs in the Medicare program than through the Veteran’s Administration, which has direct negotiating power.[4] Savings realized from reducing Medicare drug costs could be used to improve benefits for beneficiaries and reduce the deficit.

  • Include a Drug Benefit in Traditional Medicare

Offering a drug benefit in traditional Medicare would give beneficiaries a choice they do not have now, encourage people to stay in traditional Medicare, and save money for taxpayers.  It would also provide an alternative to private Part D and MA-PD plans that leave many with unexpected high out-of-pocket costs. A drug benefit in traditional Medicare would protect beneficiaries against expensive and sometimes inappropriate marketing practices.  Further, traditional Medicare’s lower administrative costs could free up money for quality care, and could result in lower drug prices for beneficiaries.

  1.  Stop Paying Private Medicare Plans Anything More Than Traditional Medicare

Prior to the Affordable Care Act (ACA), payments to private Medicare Advantage (MA) plans averaged as much as 114% of the rate the traditional Medicare program spent on a comparable individual.  The ACA attempted to rein in these overpayments and bring MA costs more in line with costs under traditional Medicare.  Despite these changes, though, various factors prevent more equitable and accurate payment to MA plans, resulting in inflated and wasteful payments.[5]

Most egregious among such wasteful payments is the practice of MA “upcoding” – when an MA plan inappropriately reports an enrollee as being more sick than they actually are in order to obtain a higher risk-adjusted payment from the Medicare program.  According to the Medicare Payment Advisory Commission (MedPAC), “after accounting for all coding adjustments, payments to MA plans were about 4 percent higher than Medicare payments would have been if MA enrollees had been treated in [traditional] Medicare.”[6]  By some estimates, this practice wastes billions of dollars a year.[7]

These inappropriate payments occur amid a growing body of evidence that MA plans might not serve sicker beneficiaries as well as healthier people, including findings that those who are sicker tend to disenroll from MA plans at disproportionately higher rates than other enrollees and tend to rate traditional Medicare more favorably than MA plans for quality and access.[8]

Achieving more accurate MA payments will increase the solvency of the Medicare program and curb costs for taxpayers.  In short, private plans should not be paid any more than traditional Medicare.

  1. Lower, Don’t Raise, the Age of Medicare Eligibility

Some proposals to reduce the national deficit would increase the age of eligibility for Medicare from 65 to 67, or even higher. This would “save money” for the federal government by shifting costs to beneficiaries, employers and states.  It would also eventually increase health care and Medicare costs, as older people go without insurance, go without needed care, and come into Medicare with more health care needs.[9]

In fact, a common sense approach to insurance argues for lowering the age of Medicare eligibility, thereby decreasing the needs and costs of those in the Medicare risk pool, increasing revenues paid into the program, and reducing overall Medicare costs.[10]

  1. Let the Affordable Care Act Do Its Job

The Affordable Care Act includes many measures to control costs as well as models for reform that will increase the solvency of the Medicare program and lower the deficit while protecting Medicare’s guaranteed benefits. The Congressional Budget Office estimates that repealing or defunding ACA would add billions to the deficit while ignoring the real issue of rising overall health care costs, which contribute heavily to the growing national debt. ACA includes strong measures to allow CMS to combat fraud, waste, and abuse that will bring down costs, as well as a variety of pilot and demonstration projects that aim to bring better care and quality to beneficiaries.  Allowing the ACA to do its job will improve care and hold down costs for taxpayers.

Conclusion

“Protecting Medicare” by shifting costs from the federal government to beneficiaries and their families – whether through a voucher program, spending caps, new co-payments, or other draconian measures  – distorts Medicare’s original intent: to protect older people and their families from illness and financial ruin due to health care costs.  The Center for Medicare Advocacy’s recommendations promote the fiscal welfare of Medicare and the country, and the health and economic security of older and disabled people.  We can keep Medicare’s promise for current and future generations.  There is a way if there is the will.

August, 2017

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[1] See previous Alerts from the Center at http://www.medicareadvocacy.org/articles/weekly-update-archive/ , including “Why Medicaid Matters to Medicare Beneficiaries and Their Families” and “What Happens to Current Nursing Home Residents if House Budget Resolution Becomes Law?” Also see, e.g., “Health Affairs Blog: Medicare Premium Support Proposals Could Increase Costs for Today’s Seniors, Despite Assurances” (May 2017), available at: http://www.kff.org/health-costs/perspective/health-affairs-blog-medicare-premium-support-proposals-could-increase-costs-for-todays-seniors-despite-assurances/.

[2]See Health-Option 11 in Congressional Budget Office, Options for Reducing the Deficit: 2017 to 2026, Chapter 5, Health Options (December 2016), available at https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/52142-breakout-chapter5.pdf.  Also see, e.g., Leadership Council of Aging Organizations (LCAO) Issue Brief: “Building on What Works: Restoring Medicare Drug Rebates” (April 2016), available at: http://www.lcao.org/files/2016/04/lcao-drug-rebates-issue-brief-april2016.pdf.

[3] See, e.g., Kaiser Family Foundation, “Searching for Savings in Medicare Drug Price Negotiations” (January 2017), available at: http://www.kff.org/medicare/issue-brief/searching-for-savings-in-medicare-drug-price-negotiations/.

[4] See, .e.g., Center for Economic and Policy Research (February, 2013), which projects savings to the government and beneficiaries if Medicare were to pay the same amount for prescription drugs as in other countries. Available at: http://www.cepr.net/documents/publications/medicare-drug-2012-12.pdf

[5] See, e.g., Center for Medicare Advocacy, Weekly Alert “CMS Releases Final 2018 Call Letter: Too Little for Consumers” (April 12, 2017), and comments cited therein, available at: http://www.medicareadvocacy.org/cms-releases-final-2018-call-letter-too-little-for-consumers/.

[6] Medicare Payment Advisory Commission (MedPAC), Report to the Congress: Medicare Payment Policy (March 2017), Chapter 13, p. 367 (references risk score growth through 2015), available at: http://medpac.gov/docs/default-source/reports/mar17_entirereport.pdf?sfvrsn=0.

[7]See, e.g., Kronick, R., “Projected Coding Intensity In Medicare Advantage Could Increase Medicare Spending By $200 Billion Over Ten Years,” (Health Affairs: February 2017), available at: http://content.healthaffairs.org/content/36/2/320.abstract.; GAO, “Medicare Advantage: Fundamental Improvements Needed in CMS’s Effort to Recover Substantial Amounts of Improper Payments” (April 2016), available at: www.gao.gov/assets/680/676441.pdf;  Center for Public Integrity, “Medicare Advantage audits reveal pervasive overcharges” (August 2016), available at: https://www.publicintegrity.org/2016/08/29/20148/medicare-advantage-audits-reveal-pervasive-overcharges?utm_source=email&utm_campaign=watchdog&utm_medium=publici-email&goal=0_ffd1d0160d-631decf34e-100055089&mc_cid=631decf34e&mc_eid=52f7afd44e; and Center for Public Integrity, “Why Medicare Advantage costs taxpayers billions more than it should” (June 2014), available at: https://www.publicintegrity.org/2014/06/04/14840/why-medicare-advantage-costs-taxpayers-billions-more-it-should.

[8] See, e.g., General Accounting Office (GAO), “Medicare Advantage: CMS Should Use Data on Disenrollment and Beneficiary Health Status to Strengthen Oversight” (GAO-17-393: Published: Apr 28, 2017, Publicly Released: May 30, 2017, available at http://www.gao.gov/products/GAO-17-393; Austin Frakt, “Sicker Patients Seen at a Disadvantage with Medicare Advantage,” New York Times (Apr. 4, 2016), available at http://www.nytimes.com/2016/04/05/upshot/sicker-patients-signal-a-drawback-of-medicare-advantage.html?emc=eta1; Momotazur Rahman et al., High-Cost Patients Had Substantial Rates of Leaving Medicare Advantage and Joining Traditional Medicare, Health Affairs 34(10):1676-82 (2015); Gerald F. Riley, “Impact of Continued Biased Disenrollment from the Medicare Advantage Program to Fee-for-Services,” CMS, Medicare & Medicaid Research Review (MMRR) Vol. 2 No. 4 (2012), available at http://www.cms.gov/mmrr/Articles/A2012/mmrr-2012-002-04-a08.html. See also Kaiser Family Foundation, “What Do We Know About Health Care Access and Quality in Medicare Advantage Versus the Traditional Medicare Program?” (Nov. 2014), which notes that “beneficiaries continue to rate traditional Medicare more favorably than Medicare Advantage plans in terms of quality and access.…[and] Among beneficiaries who are sick, the differential between traditional Medicare and Medicare Advantage is particularly large (relative to those who are healthy), favoring traditional Medicare;” this report is available at http://kff.org/medicare/report/what-do-we-know-about-health-care-access-and-quality-in-medicare-advantage-versus-the-traditional-medicare-program/.

[9] See, e.g., Task Force on America’s Health and Retirement Security, “Impact of Raising Eligibility Age for Medicare” (January 2017), available at: http://bit.ly/Medicarereport; Leadership Council of Aging Organizations (LCAO) Issue Brief: “Raising the Medicare Eligibility Age: Bad Policy All Around” (March 2013), available at: http://www.lcao.org/lcao-medicare-eligibility-age-issue-brief/; and Kaiser Family Foundation, “Raising the Age of Medicare Eligibility: A Fresh Look Following Implementation of Health Reform” (July 2011), available at: http://www.kff.org/medicare/report/raising-the-age-of-medicare-eligibility/.

[10] For certain arguments in favor of lowering the age of Medicare eligibility, see, e.g., Healthcare Finance News, “The case for lowering Medicare eligibility to 50” (July 23,2015), available at: http://www.healthcarefinancenews.com/news/case-lowering-medicare-eligibility-50; Redberg, Rita, Wall Street Journal, “Don’t Raise the Medicare Age. Lower It.” (November 19, 2013), available at: https://blogs.wsj.com/experts/2013/11/19/dont-raise-the-medicare-age-lower-it/.