Why Reform Medicare? The President’s and Other Bipartisan Proposals to Reform Medicare

Mr. Chairman Members of the Committee:
Why reform Medicare? The main reason for reforming Medicare is not that the program is the principal driver of future federal spending increases, although it is. The main reason is not that Medicare beneficiaries could be receiving much better coordinated and more effective care, although they could.  The most important reason is that Medicare is big enough to move the whole American health delivery system away from fee-for-service reimbursement, which rewards volume of services, toward new delivery structures, which reward quality and value. Medicare can lead a revolution in health care delivery that will give all Americans better health care at sustainable cost.

As this Subcommittee knows very well, health care in the United States is expensive and getting more so.  Moreover, quality is uneven and much care is duplicative, wasteful, and uncoordinated. For many decades, however, reformers focused less on cost containment and quality improvement than on closing growing gaps in health insurance coverage. Now that near-universal coverage has been assured by the Affordable Care Act, attention should shift to improving quality and value of health care delivery for all and containing cost growth.  

I recently had the privilege of co-leading (with former Senators Daschle, Domenici, and Frist) the Bipartisan Policy Center’s team that produced, A Bipartisan Rx for Patient-Centered Care and System-wide Cost Containment, in April. We reached consensus on a comprehensive package of reforms that span the entire health care system, with a particular focus on the Medicare program and federal health-related tax policy.

We believe that, if enacted together, these reforms will improve health care quality for patients and families and lower overall spending growth across the entire health care system. While budget saving were not our primary objective, we believe our Medicare reforms would achieve roughly $300 billion in net savings over ten years (2014-2023), and over the second decade (2024-2033) would result in another almost $1 trillion in budgetary savings to the Medicare program. These savings estimates are net of the cost of fixing the dysfunctional Sustainable Growth Rate (SGR) physician payment formula.

Our bipartisan foursome were not mavericks working in isolation. The major themes of our report are featured in two other recent bipartisan reports—an update of the Simpson Bowles Commission recommendations and a report from the Bending the Curve project at the Engelberg Center at the Brookings Institution—and many aspects appear in the President’s budget proposals. These reports suggest a bipartisan convergence on the importance of using Medicare and tax reform to lead the transition of the health system away from fee-for-service reimbursement toward quality and value-based care. 

Broadly the recommendations of the Bipartisan Policy Center report include:

  • Preserve the guaranteed health coverage promised in traditional Medicare while adding more choices and protections for beneficiaries, especially low-income beneficiaries.
  • Modernize the benefit package for Medicare.
    • Cap beneficiary cost sharing at $5315 (catastrophic protection).
    • Combine the deductible for Parts A and B ($500) and make coinsurance more predictable.
    • Exempt physician visits from the deductible and preventive care from cost-sharing.
  • Limit Medicare supplemental coverage, which beneficiaries will have less incentive to buy if they have catastrophic. [Restrict first dollar coverage–Medigap must have deductible of $250 and can’t pay more than half coinsurance and deductibles—includes Tricare and FEHBP].
  • Protect low-income beneficiaries—help with all cost sharing (A,B,D) up to 150% FPL
  • Raise Part B premiums for higher income beneficiaries—[lower thresholds for increased premium to $60,000 for singles and $90,000 for couples and index.]
  • Create “Medicare Networks” an improved version of the Affordable Care Organization demonstrations in the ACA. Medicare Networks would be provider led and enrollment based and would enable better coordinated care. Beneficiaries would have incentives to join (lower premiums and lower cost-sharing in network) and providers would have incentives to join (higher updates and shared savings.) Reimbursement to Medicare Networks would increasingly reflect measures of quality and value.
  • Replace SGR with better designed structure and update with MEI. Costs offset some of the savings, but worth it to get rid of dysfunctional SGR.
  • Increase competition among health plans in MA by implementing a new competitive bidding structure where that would result in lower payments and helping beneficiaries navigate plan choice on a user-friendly website. Allow MA plans to share savings with beneficiaries. Improve risk adjustment in MA and supplement better risk adjustment with reinsurance. Well executed reform of MA could accomplish many of goals of premium support without establishing a whole new system.
  • Limit the tax-favored treatment of expensive health insurance products. Cap the exclusion of employer-paid benefits as a substitute for the “Cadillac Tax.”
  • Under our plan beneficiaries would have three choices: traditional FFS Medicare; Medicare Networks reimbursed for performance on measures of quality and value; and Medicare Advantage (MA). We would have a fall back cumulative limit on the increase in Medicare spending for each choice. Doubt would be necessary.

This will not be an easy set of reforms to enact or implement. It will require sustained effort at both the federal and state levels, as well as in the private sector. But there is no simple way to change our complex, fragmented health care system. We believe enactment and implementation of these reforms would not only improve care and save taxpayer dollars in Medicare; it would do the same for the whole health care delivery system.