Policy researchers rethink Medicare's value proposition, structure

With Medicare enrollment and spending set to grow in the coming decades, the program needs to better spread risk and incentivize value and also needs a better statutory definition of cost-benefit considerations, researchers argue in the latest issue of the New England Journal of Medicine.

Policy proposals for making Medicare more efficient are usually critiqued on how long they extend the Medicare trust fund’s life, how they impact Medicare’s share of U.S. GDP, or whether they increase burdens for seniors or hospitals.

But reforms should also be evaluated based on how well they balance financial protection for seniors and incentives for smart healthcare consumption, write health economists Katherine Baicker, from Harvard, and Helen Levy, from the University of Michigan.

Currently, Baicker and Levy write, Medicare’s performance as an insurance program balances risk and consumption rather poorly, and offers only limited protection against financial risks for beneficiaries, without caps on out-of-pocket spending for the basic Medicare Part A.

That’s probably why 90 percent of Medicare beneficiaries purchase or obtain supplemental insurance, through retiree health benefits, Medicare Advantage or Medicaid. And yet that, Baicker and Levy argue, has likely left many Medicare beneficiaries over-insured, and in turn led to unnecessary and costly care. Citing the landmark RAND Health Insurance Experiment, Baicker and Levy write that low copayments often lead to the consumption of more care, at least some being of little or no benefit.

“Having little or no cost sharing may lead enrollees to consume low-value care and drive up the cost of Medicare for everyone,” they write.

Amid the various proposals for Medicare reform that have emerged over the years, some have been based on good ideas and some have missed the mark, Baicker and Levy write. The Simpson-Bowles Commission, the Congressional Budget Office and the Medicare Payment Advisory Commission have made similar proposals that included capping out-of-pocket expenses while restricting supplemental coverage without beneficiary cost-sharing.

Both measures would go some way towards incentivizing high-value care, the authors write; yet they remain controversial. The Medicare Catastrophic Coverage Act of 1988 capped beneficiary out-of-pocket spending and also placed a tax on Part A beneficiaries, and it was repealed a year later amid anti-tax opposition.

[See also: Proposed lawsuit will alter home health Medicare reimbursements]

In another New England Journal of Medicine article, Tufts Medical Center clinical and policy researchers Peter Neumann and James Chambers examine the incredibly vague Medicare statute that bars the federal government from paying for health services and devices that "are not reasonable and necessary for the diagnosis or treatment of illness or injury."