Medicare Reform: Fix Depends On The Pain

By Cyril Tuohy InsuranceNewsNet

By Cyril Tuohy

InsuranceNewsNet

There’s no easy fix in slowing the spending growth of Medicare, only how much pain Americans are willing to bear, according to a new analysis on the sustainability of the nation’s most far-reaching and expensive health insurance program.

On the cost side, the fix is relatively straightforward: hike premiums, subsidize premiums to make them more affordable or push the eligibility age out two years to 67 years old, the study by researchers at RAND Corp. found. All three options have been considered seriously by lawmakers.

“Each of these policies can save money for the Medicare program,” Christine Eibner, the study’s lead author and a senior economist at RAND, said. “The question is what to do about those people who lose Medicare as the cost rises or they are excluded. Those people may not be able to find alternative health coverage.”

Eibner and her colleagues tested three Medicare spending and enrollment models and found that hiking premiums for Medicare Part A would cut spending by 2.4 percent. Subsidizing the cost of purchasing coverage with the help of vouchers, for example, would cut spending by as much as 24 percent. Increasing the Medicare eligibility age would cut spending by 7.2 percent, the study found.

“Each of the policies we examined would require sacrifices in eligibility and in higher costs imposed on Medicare enrollees,” Eibner said in an interview with InsuranceNewsNet.

Policymakers looking for ways to curb Medicare spending growth will have to weigh the costs and the benefits of the alternatives, she said.

Eibner co-authored the study with Dana P. Goldman, founding director of the Leonard D. Schaeffer Center for Health Policy and Economics at the University of Southern California; Jeffrey Sullivan, director of analytic services at Precision Health Economics, and Alan M Garber, professor at the Harvard Medical School.

The study is meant to guide lawmakers who are looking to slow the growth in Medicare spending, which is projected to increase to 24 percent of all federal spending, and to equal 6 percent of the U.S. gross domestic product by 2037.

In 2012, the government spent an estimated $555 billion on Medicare, or about 3.5 percent of gross domestic product, according to the Congressional Budget Office.

Although the Affordable Care Act introduced changes to slow rising Medicare costs, the changes are not expected to make any appreciable dent in overall Medicare spending. Only structural spending reforms will translate into meaningful changes, according to the study’s authors.

Curbing spending increases through subsidies indexed to the growth of the Consumer Price Index would cut enrollment by a projected 13 percent between 2012 and 2036, and hiking the age of Medicare eligibility would slash enrollment by a projected 30 percent over the same period, the researchers found.

Those left out by tighter enrollment, however, are also the people most likely to be from low-income populations with little access to medical care. In states that don’t expand Medicaid programs which cover the poor, people who are not enrolled in Medicare would fall through the cracks, Eibner said. But keeping enrollment up while cutting costs would negate many of the benefits of structural cost reform.

One option is for low-income eligible retirees to use their premium subsidies to buy coverage on health insurance exchanges, but details of how much of their subsidy could count toward spending on the exchanges and under what circumstances would have to be worked out, Eibner also said.

Adding the low-income population to the exchanges would increase premiums for the overall population, as higher-risk adults enter the purchasing pool.

“Younger people’s premiums would go up because of older enrollees,” Eibner said.

Offering subsidies to get people to shop around, however, would offer insurance carriers new opportunities to develop programs tailored to that market.

“We have people dropping off because out-of-pocket expenses go up and up, but if innovative health care products come in and make it affordable, then that's an opportunity for carriers there,” Eibner said.

Medicare already pays private insurers to cover 14 million Americans through the Medicare Advantage program, or 27 percent of the 50 million Americans on Medicare. Medicare Advantage, which has more than doubled in the past seven years, allows private insurers to tailor coverage to specific Medicare-eligible populations.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He has also written about food, restaurants and travel. He can be reached at [email protected].

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].