Monday, March 11, 2013

Saving Money by Ending Medigap Coverage?

Among the various proposals offered by Ruth Marcus, ostensibly to help balance the budget, is this:
Another idea, from MIT’s Jonathan Gruber, would attack Medicare costs from the consumer side. It would deal with the current risk of catastrophic costs by adding an out-of-pocket maximum tied to beneficiaries’ incomes so that poorer seniors would face less risk.

But it would also heavily tax seniors’ supplemental insurance plans that fail to impose adequate cost-sharing on beneficiaries. Again, this proposal could appeal to both sides: The Obama administration has suggested limiting Medigap policies, and the Ryan approach is all about giving consumers incentive to control costs. Estimated savings: $125 billion over 10 years.
But wait - I thought the magic of markets and private insurance would "fix everything", so how is it that the healthcare market will become more rational and efficient if we all-but-eliminate Medigap coverage? Well, Ruth Marcus isn't a "free markets" fundamentalist, so I can't hang that one on her, but the underlying concept seems questionable. If Marcus is speaking of savings to Medicare, then she presupposes that without Medigap coverage a huge number of seniors will seek less care. The nominal assumption is that if you shift more cost to the patient, the patient will be more reflective about seeking care, and will be less likely to see a doctor unless it's absolutely necessary. The reality is that this type of cost-shift has a very poor record of reducing the cost of care to the consumer. The nature of Medicare makes it less likely that the consumer is going to be convinced to choose costly options, when an insurance company might require significantly less costly options to be tried first, so real savings could only be achieved if the patient foregoes medical care. From what I've seen in the private health insurance market, that's not likely to happen unless copayments become uncomfortable to afford - in which case you're going to end up denying necessary care.

And yes, according to the Medicare Payment Advisory Commission (MedPAC), if implemenented this proposal would result in seniors going more heavily out of pocket:
Congress should add a new charge for Medicare beneficiaries who buy supplemental insurance, according to a recommendation from its advisory panel.

The size of the fee for Medigap plans was not specified but left up to the secretary of HHS, according to a unanimous recommendation by the panel (PDF). Medicare Payment Advisory Commission members and other health policy experts have frequently criticized such plans as cost drivers for Medicare because they often cover all out-of-pocket costs for beneficiaries, which critics contend leads to overutilization of healthcare services.... Marcus also suggests eliminating fee-for-service and instead "giving Medicare providers a set amount to cover beneficiaries" - an idea that is difficult to reconcile with her Medigap proposal, which appears to be predicated upon the continuation of fee-for-service with copayments for those individual services.

This whole effort is not motivated by a desire to achieve savings, but it's really motivated by a desire to have a benefit package that works for beneficiaries,” Michael Chernew, a panel member and professor in the Department of Health Care Policy at Harvard Medical School, said before the vote.
The person Marcus references, Jonathan Gruber, appears to believe that the impact of this change can be mitigated for less affluent seniors by offering them a greater subsidy in lieu of Medigap - that is to say, they would get what amounts to Medigap as part of their basic Medicare benefit. If the goal is to prevent "overutilization of healthcare services", does that make sense? Are we to believe that only more affluent seniors overutilize medical services, and they'll suddenly stop if they don't have Medigap coverage? For that matter, what evidence is there other than assumption that this overutilization exists, or that it can be affected by imposing a massive tax on Medigap policies?

So seriously, rather than pulling numbers out of... who even knows where, let's have an explanation of why we should believe that this proposal is sound public policy, why should believe it will result in cost savings to Medicare and the degree to which it will increase cost to seniors. Let's compare healthcare utilization rates of seniors to other nations, to see if in fact the level of care our nation's seniors receive is unusually high or is pretty typical. Let's perform a sufficient analysis that we can be reasonably sure we're not going to increase costs, by having a senior neglect a medical condition such as a diabetic abscess, odd symptoms that turn out to be a first heart attack or the onset of kidney failure, or a TIA, until they have a much more costly medical crisis.

Too much to ask? It's easier to simply roll out a massive reinvention of Medicare as a giant, nationwide experiment, but I believe it's appropriate to do some bona fide analysis and testing before engaging in a large-scale experiment that will materially affect the lives of real people, based upon little more than untested theory and assumption.

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