Check-Ups: Rebuttals to arguments against Medicare reform. (Updated August 21, 2003)
Misdiagnosis: Out-of-pocket costs for Medicare+Choice are increasing at a rate out of line with out-of-pocket costs in traditional fee-for-service (FFS) Medicare.
A recent study released by the Commonwealth Fund states that average out-of-pocket costs for Medicare+Choice enrollees have doubled since 1999 and uses these data to warn Congress against allowing private plans to participate in traditional Medicare FFS.
Second Opinion: Out-of-Pocket costs for those in Medicare+Choice are actually LOWER than out-of-pocket costs for those in traditional FFS Medicare.
A side-by-side comparison of the out-of-pocket costs for Medicare+Choice and traditional FFS Medicare in the study itself shows that in 2003, the average out-of-pocket expenses will be an estimated $667 less for Medicare+Choice than for traditional Medicare. The reason for this disparity in out-of-pocket costs lies in Physician and Hospital Cost-Sharing, where traditional Medicare costs four-times what Medicare+Choice is estimated to cost ($1,219.32 compared to $301.04.)
Misdiagnosis: A competitive model for Medicare, broadly based on the Federal Employees Health Benefit Program (FEHBP), will not save taxpayers money. For example, Families USA, a liberal health policy group, says that there is no reason to believe that a Medicare program “ based on the FEHBP” would do a better job than traditional Medicare in controlling costs.
Second opinion: A Medicare reform, based on the FEHBP model, would indeed save taxpayers money over time. In 1999, the majority of the National Bipartisan Commission on the Future of Medicare, after more than 18 months of research and analysis of the Medicare program and alternatives for reform, released its proposal for reforming Medicare. The proposal offered by Senator John Breaux (D-LA) and Rep. Bill Thomas (R-CA) provided for transitioning the Medicare program into a “premium support” system, based on the similar financing arrangements of the FEHBP.
The Commission staff estimated that the Breaux-Thomas proposal would have saved the program, and thus taxpayers, approximately $100 billion over the 10-year period between 2000 and 2009. Furthermore, the reforms would have slowed program spending from 5 percent of GDP to 4 percent of GDP in 2020 and then from 6.3 percent of GDP to 4.5 percent of GDP by 2030.
Members of Congress, staff and taxpayers can examine the work of the Commission directly. See the Final Commission Report (approved by a vote of 10- 7). For the Commission’s cost analysis;
see also Table 3 of Commission Cost Analysis.
Misdiagnosis: Under the Senate Medicare drug bill, only private-sector seniors would lose their retiree drug coverage and be placed into the new government drug program. The Congressional Budget Office (CBO) has estimated that 37 percent of retirees with employer-based coverage would be dumped out of their existing drug coverage under the Senate bill, and 32 percent of these retirees would be dumped out under the House Ways and Means bill.
Second Opinion: the Senate Medicare drug benefit provisions would, also affect federal retirees, and probably other government retirees. According to the National Association of Federal Retirees (NARFE), the Senate Medicare drug provisions would negatively affect federal retirees, and NARFE has thus come out against the Senate bill. Charles L. Fallis, President of NARFE says, “Although the new drug benefit is to be voluntary, we believe it could easily become an incentive for the Federal Employees Health Benefits Program and other employer plans to reduce or eliminate prescription drug coverage already provided. If that occurred, annuitants would be forced to pay an additional monthly premium for a needlessly complex Medicare drug benefit that would be inferior to what is currently available through the FEHBP.”
According to recent historical data, FEHBP plans typically cover 80 percent or more of drug costs, and it is likely that for private and government retirees dumped out of their existing coverage, their average out of pocket costs would be considerably higher under the Senate Medicare drug bill.
Misdiagnosis: The Senate “Prescription Drug and Medicare Improvement Act of 2003” will help seniors save money on prescription drugs and end “painful choices” between food and medicine.
Second Opinion: Seniors who currently have prescription drug coverage through their former employers will face significantly higher costs.
The Wall Street Journal recently noted that, “Employers who still pay for retiree drug coverage … will in turn be only too happy to pass that burden onto taxpayers.”The Journal noted an internal analysis showing General Motors would save $1.4 billion by dropping retiree coverage.In fact, the Congressional Budget Office has estimated that 37% of seniors with existing employer-provided retiree health benefits would lose their coverage.That means that more than 1 in 3 seniors who currently have employer-provided retiree health benefits could lose their coverage under the pending Senate legislation.
While seniors who do not currently have prescription drug coverage may benefit, those who end up being dropped from their private coverage into the new Medicare program could see their prescription drug bills skyrocket.
Consider a real case: A woman living in Michigan suffers from arteriosclerosis (which took her right leg), osteoarthritis, high cholesterol, high blood pressure, neuropathy, and, within the last couple of years, diabetes. She takes 13 different prescriptions per day. She is currently covered by her retired husband’s plan and her co-pay is only $5 per prescription. Their total spending is $780 per year for, what turns out to be, $30,000 a year worth of prescription drugs.
Under the pending Senate legislation, someone needing $30,000 per year in prescription drugs with an income 160 percent over the Federal Poverty Level ($14,368 for an individual and $19,392 per couple) would end up having to spend $6,119 per year plus monthly premiums. That’s almost ten times the amount that person would have spent under the previously mentioned employer-provided retiree health benefits plan.
While $30,000 a year on prescriptions is uncommon, seniors who currently have drug coverage from their former employers should be wary, even if their drug costs are significantly less. Seniors with incomes over 160 percent of the FPL would have to pay an estimated $35 per month premium ($420 a year), plus they would receive no benefit until they spent the $275 deductible out-of-pocket. Once the deductible was reached, Medicare would pay for half of a senior’s actual drug costs up to $4,500. Upon reaching the $4,500 threshold, there is what is called the “doughnut hole,” where no assistance is given until total drug costs reach $5,813. At which time, 90 percent of all remaining drugs costs would be paid for by Medicare, leaving recipients to cover the other 10 percent.
Seniors who require $10,000 worth of prescriptions per year would have to pay $4,119 out-of-pocket plus monthly premiums. Those using $5,000 worth of drugs in a year would have to pay $2,888 out-of-pocket plus monthly premiums. While the benefits are designed to aid those seniors without private drug coverage, the unintended consequences will be some seniors losing the benefits that they currently enjoy. This loss of benefits will end up costing seniors who already have prescription drug coverage significantly more per year compared to what they pay now.
Misdiagnosis: A competitive, consumer driven system cannot control costs better than Medicare.
A recent study by the Kaiser Family Foundation concluded: “FEHBP’s recent performance suggests that competition alone may not resolve the ongoing dilemma of maintaining comprehensive benefits while controlling spending growth.” Also stating the Medicare spending had grown at a slower rate than the FEHBP between the years 1996 – 2002.
Second Opinion: Over the last twenty years, Medicare and FEHBP have seen nearly identical cost growth.
A new study by the Joint Economic Committee (JEC) found that over the last 20 years Medicare spending grew at 6.7 percent a year while, at the during the same period FEHBP spending grew only 6.5 percent. The JEC also estimated how much FEHBP spending would have increased had it not included a prescription drug benefit in every plan, which it now does, and found that compared to Medicare, which does not offer prescription drug coverage, FEHBP spending grew only 5.8 percent per year.
While Medicare spending actually increased at a slightly higher rate, the actuarial value of Medicare benefits compared to what Medicare would be like were it restructured in the model of the FEHBP show FEHBP having an actuarial value $1,890 higher than that of Medicare.
The FEHBP, through market competition and enrollee plan choice, is more effective than Medicare when it comes to controlling spending and delivering a better value to those enrolled.
Misdiagnosis: Medicare controls costs better than private sector health plans. A number of analysts, both on and off Capitol Hill, say that Medicare is superior to the private sector because over the past three decades, based on the comparative data, Medicare exceeded the performance of the private sector in controlling the growth of health care spending.
Second Opinion: If one accounts for the value of private sector plans, Medicare does not do a superior job of controlling costs. Joseph Antos, health policy analyst with the American Enterprise Institute and former Assistant Director of Congressional Budget Office (CBO), says that a complete analysis should not only compare what one is spending on health care, but also what one is buying for the dollars spent. Although one can easily make the case that private health insurance spending grew faster than Medicare spending over the past three decades, the value of private sector health insurance has grown exponentially.
In 1970, private health insurance paid for 60 percent of total private hospital and physician costs, by 1999 it paid for 85 percent of those costs. Antos thus concludes, “Accounting for the increasing generosity of private coverage, the conclusion appears to be the reverse. Although private insurance spending has risen faster than Medicare spending over the past thirty years, the unit cost of private coverage grew more slowly. That suggests that Medicare does not have an advantage over the private sector in limiting the growth of health care spending.”
See , for example, Marilyn Moon and Cristina Bocutti, “Comparing Medicare and Private Insurers: Growth Rates in Spending over Three Decades, Health Affairs, Volume 22, No. 2 ( March/April, 2003). Moon and Boccuti base their calculations on enrollee spending , compare like services, and do a comparative analysis of cumulative spending for Medicare and the private sector. In making their argument for the superiority of Medicare over private health insurance, they cite Medicare’s ability “to price aggressively for the services it covers.” In other words, government price controls.
Joseph R. Antos, ‘The Role of Market Competition in Strengthening Medicare,” testimony before the Special Committee on Aging, United States Senate, May 6, 2003, p. 2.
Ibid.,
Misdiagnosis: Medicare is more trusted than private health plans. In a press release dated March 20th, 2002, Congressman Sherrod Brown (D-OH) said: “Medicare is also more popular than private health plans. According to a survey conducted by the independent Commonwealth Fund, Medicare far outranks private insurance as a trusted source of health coverage.”[1]
Second Opinion: The trust factor for Medicare and private plans is dependant upon how one defines private health plans. As in most opinion surveys, the answer to a question depends precisely upon how the question is framed. According to the July 2000 Commonwealth Fund survey; Counting on Medicare: Perspectives and Concerns of Americans Ages 50 to 70, 33 percent of those surveyed between the ages of 50-64 said that they trusted Medicare more than private health insurance. . But note that in the Commonwealth Fund survey, private sector health insurance was broken down into two distinct categories: employer provided coverage and “direct coverage through private insurance.” Twenty-three percent of respondents said that they trusted private coverage more and 28 percent said that they trusted employer based health coverage more to cover those ages 50-64. Inasmuch as employer based coverage and “direct coverage through private insurance” are both in the private sector, the remarkable fact is that a total of 51 percent of those ages 50-64 are more trusting of private coverage than the most popular government health insurance program, Medicare, to provide them with coverage.[2]
This finding has particular significance for Medicare reform. The reason: Heritage Foundation analysts and others have proposed allowing persons to take their private employer-based health insurance coverage into retirement with them as their primary coverage and getting a government contribution, in the form of a premium support, to offset its cost.[3]
Curiously, the Commonwealth Fund survey had another significant finding. Among those of retirement age, ages 65-70, and who are either already on Medicare or are eligible, only 38 percent trusted Medicare more than private coverage compared to 26 percent who trust employer based coverage and 18 percent who trust “direct coverage through private insurance” for a total of 44 percent who trusted private coverage more than Medicare. In other words, by a margin of 6 percentage points, those currently on Medicare and other Medicare eligible respondents trusted private sector options more than Medicare itself to cover those ages 50-64.[4]
[1] Congressman Sherrod Brown, President Bush’s Medicare Proposal Reflects Push for Privatization, March 20, 2002. http://www.house.gov/sherrodbrown/fehb320.html.
[2] Cathy Schoen, Elisabeth Simantov, Lisa Duchon, and Karen Davis, Counting on Medicare: Perspectives and Concerns of Americans Ages 50 to 70, The Commonwealth Fund, July 2000 chart 1, p 7.
[3] See for example, Robert E.Moffit, “Medicare needs More Than s Facelift,” The Wall Street Journal, February 20th, 2003.
[4] Schoen, et al, op. cit. p. 7.
Misdiagnosis: A consumer based system of competing and varied health plans would be plagued by the problem of adverse selection. Adverse selection occurs when older persons with higher health care costs gravitate to a plan, thus raising that plan’s premiums and driving younger persons with lower costs out of the plan and creating instability in the health insurance market. Families USA, a prominent liberal group, has recently argued, for example, that the problem of adverse selection would undermine the efficiency of a new Medicare system modeled after the Federal Employees Health benefits Program (FEHBP).[1]
Second Opinion: There is “little observable risk selection” in the FEHBP. Recent and extensive research on the issue of adverse selection in the FEHBP shows that in fact the program is remarkably stable.[2] Indeed the performance of the FEHBP is even more remarkable because there is no comprehensive standardized benefits package required of competing health plans, premiums are governed by a crude form of community rating (older persons pay the same rates as younger ones), and all plans are required to enroll persons without regard to their health status.
Slightly more than half of regular active workers and older, Medicare-eligible workers are enrolled in low cost health plans, but the age distribution is roughly the same across all competing health plans: low cost, medium cost and high cost plans. Among low, medium and high priced plans in the FEHBP, the average age of active workers was roughly the same, ranging from 42.7 years of age in low cost plans to 43.9 years of age for high priced plans.[3] For Medicare eligible workers, the average age for workers enrolled in low cost plans was 68.2 years of age; for medium priced plans, 68.6; and for high priced plans was 68.6. [4] The research indicates that the generosity of the subsidy, a government contribution up to 75 percent of the cost of the health plan, is enough to encourage younger and healthier persons to pay extra for the attractive benefits in higher priced health plans.[5] These findings have profound, positive implications for Medicare reform, where proposed government contributions to competing health plans would likely be more generous than those in the FEHBP.
[1] See Dee Mahan, “ “Why FEHBP Isn’t a Good Option for Medicare,” Families USA , Issue Brief ( March 2003), pp. 3-4.
[2] Curtis S. Florence and Kenneth E. Thorpe, “ How Does The Employer Contribution for The Federal Employees Health Benefit Program Influence Plan Selection?,” Health Affairs, Vol. 22, No.2 ( Spring, 2003), pp. 211-218.
[3] Ibid., pp. 215. See also Kenneth E. Thorpe, “The Federal Employees Health Benefits Program and Health Care Reform,” Department of Health Policy and Management, Rollins School of Public Health, Emory University, presented at a conference cosponsored by the Heritage Foundation and Health Affairs, March 12, 2003.
[4] Thorpe, “ The Federal Employees Health Benefits Program and Health Care Reform”.
[5] Florence and Thorpe, op cit.
Misdiagnosis: The President’s Medicare reform proposal would coerce senior citizens into an HMO for them to get prescription drug coverage. Within minutes of this year's State of the Union address, Washington state Governor Gary Locke attacked the president’s Medicare reform agenda saying: “Our parents shouldn’t be forced to give up their doctor or join an HMO to get the medicine they need. That wouldn’t save Medicare, that would privatize it.” Within 24 hours, Senator Debbie Stabenow (D-MI) stated, “The president’s proposal is an effort to say [that] if seniors want to have help with their prescription drug costs, they would have to lose their choice of doctor and go into a private sector HMO.” And, Sen. Edward M. Kennedy (D-MA) called the President’s pending proposal “[A]n outrageous attempt to force senior citizens to give up their family doctor and join HMOs”.[1]
Second Opinion: There is no evidence that the President plans to take away seniors’ choice of doctor and coerce them into HMOs to get drug coverage. The President clearly stated in his address to the nation that senior citizens would enjoy the same variety of choices as Members of Congress and federal workers and retirees enrolled in the popular and successful Federal Employees Health Benefits Program (FEHBP). The FEHBP offers fee for service plans, preferred provider organizations (PPOs) and HMOs. FEHBP plans include traditional insurance plans, as well as plans that are sponsored by unions and employee organizations. On January 28th, White House “talking points” confirmed: “All seniors will be given choices of a variety of health plans, similar to those enjoyed by members of Congress.” For the record, according to the General Accounting Office, 70 percent of all FEHBP enrollees choose fee- for- service or preferred provider plans, and 30 percent choose HMOs.[2] All health plans in the FEHBP have prescription drug coverage.
[1] Amy Goldstein, “Medicare Plan A Mystery on The Hill,” The Washington Post, January 25, 2003, p. A-4.
[2] United States General Accounting Office, Federal Employees’ Health Plans: Premium Growth and OPM’s Role in Negotiating Benefits, Report to the Subcommittee on International Security, Proliferation, and Federal Services, Committee on Governmental Affairs, U.S. Senate ( GAO-03-236), December 2002, pp.6-7.
Misdiagnosis: Medicare reform based on consumer choice will leave rural patients without choice of health plans. Criticizing the President’s Medicare reform agenda, Senator John D. Rockefeller IV (D-WV) said, “He says choice, and who’s going to argue with that? It’s a great American word… There won’t be any choice in West Virginia.” [1]
Second Opinion: Based on the experience of the FEHBP, patients in every area of the country would be able to choose among numerous options. In the FEHBP, every Federal worker and retiree in every part of the country has at least 12 plan options for enrollment in 2003.[2] Beyond these nationwide options, which include fee-for service and PPO plans, FEHBP also offers coverage via 170 state-based HMOs, though the number of HMO options varies from state to state. In Sen. Rockefeller’s state, Federal workers and retirees have three HMO options, the high and standard options of the Upper Ohio Valley Health Plan and Blue HMO in Wheelling and Parkersburg, West Virginia.[3] Sen. Rockefeller and other congressional critics of a consumer-choice Medicare reform program often base their criticisms on the experience of the flawed Medicare+Choice program they created in 1997. But the FEHBP, not Medicare+Choice, is the leading model for reform.
[1] Robin Toner, “ Bush, Like Clinton, Learns The Perils of Health Policy,” The New York Times, February 2, 2003.
[2] Information on national plan options supplied by Jonathan Blyth, Office of Congressional Relations, U.S. Office of Personnel Management, February 13, 2003.
[3] For the latest on the range of plan choices in the FEHBP, plus ratings on price, quality and service of competing health plans, see Checkbook’s 2003 Guide to Health Plans For Federal Employees (Washington: Washington Consumers Checkbook, 2002).
Misdiagnosis: Those who want to reform Medicare want to “privatize” Medicare. Dr. Don McCanne, president of Physicians for a National Health Care Program, said, ”The whole privatization scheme is the wrong direction. It will shift patients into an industry that has much higher administrative costs…and will do it at a cost of decreasing the benefit for Medicare beneficiaries.” [1] Likewise, Rep. Fortney “Pete” Stark (D-CA) said, “It is clear that President Bush intends to privatize Medicare. He’s cleverly using the promise of a meager drug benefit as a bribe to push Medicare beneficiaries into second rate, low-quality health plans…this is a cruel hoax.” [2]
Second Opinion: The FEHBP, the leading model for Medicare reform, is a government program. Congress created the FEHBP in 1959. It was then, and is now a government programoperating under the provisions of Chapter 89 of Title V of the United States Code. The United States Office of Personnel Management (OPM), a government agency, administers it. OPM annually negotiates rates and benefits on behalf of government employees and retirees, approves plans for participation and subjects plans to government regulatory authority. It is also annually financed through Congressional appropriations, and it is periodically subjected to Congressional oversight hearings.
Under Medicare, government reimburses private clinics, hospitals and physicians, and even health plans, for services to Medicare beneficiaries. For the past 43 years, private health plans have contracted with OPM, and these are government contracts.
For the record, the progressive FEHBP is superior to today’s Medicare program in every way: in the richness and variety of FEHBP benefit packages (including catastrophic and prescription drug coverage); in the flexibility of its administration; in the rapidity with which it adopts new and better benefits, medical treatments and procedures, drugs and medical technologies; and, most importantly, in the range of patient choice and personal control it offers.
[1] Cited by Deborah Barfield Berry, “ Weighing Privatization,” Newsday, February 3, 2003.
[2] Cited by Jeff Tieman, “Few Details, Big Debate”, Modern Healthcare, Vol. 33, No. 5, February 3, 2003.
Background
Within eight years 77 million Baby Boomers will start to retire.
Absent fundamental reform, the Medicare program will not be able to absorb the shock of this unprecedented demand for high quality medical services without resorting to massive spending increases (i.e. crushing taxation), or slashing benefits and standards.
Congress can avoid this nightmare scenario by transforming the Medicare program into a superior health care program based on consumer choice and free-market competition. A new patient-centered Medicare program would respect personal liberty, the privacy of patients, and uphold professional integrity and independence of physicians.
Center for Health Policy Studies: access the latest Heritage analysis and policy recommendations.
