MEDICARE ESSENTIAL: A POLICY PROPOSAL TO IMPROVE BENEFITS, IMPROVE CARE, AND LOWER HEALTH SYSTEM COSTS
Karen Davis, Cathy Schoen, and Stuart Guterman
The future of Medicare is moving to the front of the public policy agenda, propelled by the retirement of the boomer generation. To secure this future, in the May 2013 issue of Health Affairs, we describe a new plan option we call “Medicare Essential” that would protect beneficiaries and emphasize high-value care. If combined with broader payment reforms to spur delivery system innovation, the reform could improve care and lower total health system costs.
We propose offering Medicare beneficiaries a comprehensive plan with a single premium that eliminates the need to buy a private drug plan and private supplemental coverage. As presented in “Medicare Essential: An Option to Promote Better Care and Curb Spending Growth,” this new plan would simplify traditional Medicare by unifying benefits now covered separately by Medicare Parts A and B (hospital and physician coverage, respectively), private drug plans (Part D prescription drug coverage), and supplemental insurance. It would replace current Medicare deductibles with a single $250 deductible for hospital and physician services, with no deductible for prescription drug services or preventive care, and would place a ceiling on total out-of-pocket beneficiary costs.
Beneficiaries seeking care from health care providers that offer higher-quality, lower-cost care would have reduced deductibles and coinsurance, sharing in the savings that accrue from better care. Premiums and cost-sharing for beneficiaries would be reduced by 17 percent to 40 percent compared with amounts paid by beneficiaries currently obtaining coverage from multiple sources.
Integrated benefits and provision of coordinated care is also good for the health of Medicare beneficiaries, especially those with multiple chronic and complex conditions. Patient-centered care that coordinates all aspects of a patient’s care and gives providers and patients access to complete medical records, test results, and treatment plans reduces burdens on patients and their families and enhances patient satisfaction. It can also help reduce medical errors and eliminate wasteful duplication of tests and services.
The financial gains that would come from adopting Medicare Essential are significant—$180 billion to the health system over a decade, beginning in 2014. Of that, $63 billion is realized by Medicare beneficiaries themselves. Total out-of-pocket costs—premiums plus cost-sharing expenses—under current Medicare (traditional Medicare plus supplemental Medigap Plan F plus Part D) is estimated at $427 monthly. Under Medicare Essential, the new cost to beneficiaries who see standard providers would be $354 (17 percent lower than under current Medicare), for a monthly savings of $73; for Medicare Essential high-value providers, the cost would be $254 (40 percent lower), for a monthly savings of $173.
Employers and state governments would experience savings as well, as the cost of covering retirees and Medicare–Medicaid dual beneficiaries is reduced. Employers are estimated to save $90 billion over 10 years, while state and local governments would save $27 billion. By design, the proposal is budget-neutral for the federal government for the first 10 years, although federal budget savings in the second decade would be achieved as health care payment and delivery reforms spread throughout the system.
Savings come primarily from reduced administrative costs and improved care delivery. Currently Medigap supplemental private plans average administrative costs of 20 percent, while Medicare has administrative costs of 2 percent to 3 percent. Giving beneficiaries a financial incentive to use providers offering high-value care would accelerate the growth of cost-saving approaches to health care payment and delivery. For example, payment methods now being tested by the Center for Medicare and Medicaid Innovation, such as blended payment for patient-centered medical homes, bundled payment for acute care improvement, and payment with shared savings and/or shared financial risk by accountable care organizations could achieve savings of 10 percent by reducing avoidable hospitalization and emergency room use.
With the aging of the boomers—many of whom are not financially prepared for retirement—it makes sense to reform Medicare with a view to improving financial protection for beneficiaries as well as total system savings. An approach such as Medicare Essential would secure access with financial protection. If combined with payment reforms, this enhanced plan would promote a more affordable care system for the nation—one that achieves the aims of better care, better outcomes, and lower costs.