Lawmakers examine efficiencies of merging Medicare Parts A and B

Washington House lawmakers have begun work on modernizing Medicare’s benefit package for seniors by looking at the segregation of the inpatient and outpatient sides of the program.

The structure of the hospital, physician and drug coverage benefits in Medicare is inefficient and does not make sense in today’s health care system, said House Ways and Means health subcommittee chair Kevin Brady (R, Texas). “No private insurance company in its right mind would design and offer a benefit that looks like this,” he said. “And given a choice, most seniors wouldn’t accept it.”

The health panel convened a Feb. 26 hearing on reforming the program’s design. Expert witnesses recommended such steps as merging the Part A and Part B deductibles, introducing an out-of-pocket spending cap for beneficiaries and implementing a fee for purchasing supplemental health coverage.

Giving program administrators the ability to lower or raise patient fees based on the quality of services they receive also could lead to more beneficiaries choosing to obtain preventive care and other needed health care services, said Mark Fendrick, MD, director of the University of Michigan Center for Value-Based Insurance Design. A “clinical nuance” should be applied to make wise purchasing decisions and obtain better health for each dollar spent, he said.

“Mr. Chairman, does it make sense to you that my Medicare patients pay the same co-payment for a lifesaving cancer drug as a drug that will make their toenail fungus go away?” Dr. Frederick asked. “Due to the lack of appropriate incentives, Medicare beneficiaries use too little high-value care and too much low-value care.”

Numerous reforms to Medicare’s benefit design have been proposed in recent years to account for the fact that the insurance lacks any resemblance to most private plans, which offer hospital, physician and drug coverage in one product. A 2011 Congressional Budget Office report evaluated the effects of implementing a combined Part A and B deductible of $550, a co-pay of 20% and a catastrophic annual cap of $5,500, said Patricia Neuman, ScD, senior vice president of the Henry J. Kaiser Family Foundation and director of its Program on Medicare Policy.

The benefit package resembles a proposal offered by the Simpson-Bowles deficit reduction commission convened by the White House in 2010. Federal spending would be reduced by $13 billion over five years under such a plan, CBO said.

The change would raise overall costs for a majority of beneficiaries, while a minority would see reduced spending because of the annual out-of-pocket limits, Neuman said.

MedPAC plan

The Medicare Payment Advisory Commission has drafted its own program design reform based on five principles. They are: protecting patients from high out-of-pocket spending; creating incentives for patients to make wise decisions about their care; maintaining the current aggregate cost-sharing levels; allowing for ongoing adjustments to the design; and recouping some of the additional costs from higher spending through the use of supplemental insurance.

Higher Medicare spending is linked to beneficiaries having the extra coverage, MedPAC Chair Glenn Hackbarth said at the hearing. In a June 2012 MedPAC recommendation, the advisory panel did not recommend prohibiting certain types of supplemental insurance but said the government should recoup some of the costs associated with a patient augmenting his or her coverage.

Patient advocates have warned against adding costs to the use of supplemental insurance. Higher costs would create significant risk for patients, said Bonnie Burns, an official with California Health Advocates, in a statement.

“Our organizations found that added cost sharing causes beneficiaries to forgo necessary medical care, leading to poorer health outcomes and a greater incidence of emergency room visits and hospitalizations,” she said.

Giving CMS officials the ability to make ongoing changes to the benefit structure could address any negative health care utilization trends that arise, Hackbarth said.