President Obama’s consumer-directed recommendations for Medicare

Fiscal Year 2016 Budget of the U.S. Government
Office of Management and Budget

Reducing Cost Growth by Encouraging Beneficiaries to Seek High-Value Services.

The Budget includes structural changes that will encourage Medicare beneficiaries to seek high-value health care services. To help improve the financial stability of the Medicare program, the Budget reduces the Federal subsidy of Medicare costs for those beneficiaries who need that subsidy the least. The Budget includes several modifications for new beneficiaries starting in 2019, such as a modified Part B deductible and a modest copayment for certain home health episodes. Research indicates that beneficiaries with Medigap plans that provide first, or near-first-dollar coverage have less incentive to consider the costs of health care services, thus raising Medicare costs and Part B premiums for all beneficiaries. The Budget applies a premium surcharge for new beneficiaries beginning in 2019 if they choose such Medigap coverage. Together, these proposals would save approximately $84 billion over 10 years.



By Don McCanne, MD

Using the rhetoric of encouraging Medicare beneficiaries “to seek high-value health care services,” President Obama is recommending in his FY 2016 Budget the application of more consumer-directed, moral hazard suppressing, skin-in-the-game measures that shift more costs away from the government and onto Medicare beneficiaries. Although the recommended measures are not dramatic, they are steps that move away from a position of egalitarian social solidarity (a progressive view), and toward a position of encouraging greater personal responsibility for health care (a conservative view).

Thus, as negotiations begin on the federal budget, instead of taking a position of strongly supporting beneficial progressive policies for Medicare, President Obama has adopted policies supported by conservatives as his opening position in the negotiations. Any union negotiator will tell you that you do not give up anything before you go to the table. Yet President Obama is not only declining to ask for any progressive improvements to Medicare, he is also giving the conservatives policies that they support. That leaves him in the position of starting negotiations only after having moved to the right, into their camp, and then attempting to achieve compromises with the much more highly polarized Republicans who have moved to the extreme far right.

So what specifically is wrong with his relatively benign-looking recommendations?

He would reduce “the Federal subsidy of Medicare costs for those beneficiaries who need that subsidy the least.” That is, he will charge much larger Medicare premiums for those with higher incomes. That will diminish the support of the plutocrats who have the political power to instead drive us closer to the premium support model of private insurance plans advocated for by conservatives such as Paul Ryan (the new Chair of House Ways and Means). Funding for Medicare should be completely separated from the benefits. Instead it should be fully funded through progressive taxes, ensuring full fixed benefits for everyone, with equitable funding based on ability to pay.

He supports “a modified Part B deductible.” That modification, of course, is a higher deductible for Part B (physician) services. It is true that higher deductibles do reduce spending modestly by causing patients to forgo beneficial health care services. But erecting financial barriers to care is exactly the opposite of what we should be doing with a program that should be designed to remove financial barriers, thereby encouraging people to get the care that they should have. Medicare should be a prepaid system for everyone.

He would initiate “a modest copayment for certain home health episodes.” Home health care is a more economical and humane way of providing health care services for many people with advanced illnesses. Individuals in those circumstances may not have enough funds for cost sharing. Introducing copays is a definitive first step in shifting ever more of the costs of home care to patients, and certainly more steps would follow. Bad move.

Conservatives have long targeted Medigap plans because they allegedly create the moral hazard of patients using more health care simply because it is free at the point of care - deductibles and coinsurance being paid by the plan. This theory is based on a misinterpretation of the results of the RAND HIE. Hypochondriasis is very rare. People always have a legitimate medical reason for going to the doctor. 

However, rather than requiring a minimum amount of cost sharing in the Medigap plans, President Obama’s recommendation is to apply a surcharge to the Medigap premiums. Medigap plans are already one of the worst values in health insurance, and jacking the premiums up even more with surcharges is certainly a move in the wrong direction. Perhaps this is an indirect way of intimidating people into forgoing Medigap plans in order to expose them to more out-of-pocket costs, or perhaps to stimulate a market for more spartan Medigap plans with no first dollar coverage. Regardless, it is another push toward the perverse method of reducing spending by making appropriate health care less affordable.

If nothing else, this shows that the conservative, consumer-directed advocates have won the rhetorical debate. It astounds me how many people across the political spectrum have bought the meme that paying medical expenses out-of-pocket gives people pride in exercising their personal responsibility.

Are people in other countries with lower costs and first-dollar coverage ashamed that they abandoned personal responsibility by walking out of their health care facility without making an out-of-pocket payment? If they are ashamed, they have been very effective in hiding it behind the false pride they show in their egalitarianism. Or, could it be? Are they actually egalitarian? Can we try that?