Raising the Medicare Age

WSJ has a debate on raising the Medicare age featuring Maya Macguineas (yes) and Aaron Carroll (no).

I think Aaron is correct that it is a bad idea in policy terms (and truly dreadful if the ACA is repealed), but I also believe it is virtually inevitable that we will raise the Medicare age as part of any ‘grand bargain’ that moves ahead with the ACA and related changes. As I write in Chapter 7 of my book p. 74-5:

I do not suggest raising the Medicare age as a policy option, because it mostly shifts, and doesn’t reduce costs. Removing the youngest and therefore healthiest sliver of the Medicare program will not revolutionize the cost of the program, but would shift some costs from the federal budget onto beneficiaries or to another aspect of the federal government (income based premium support, for example). In fact, recent analysis suggests that doing this will increase overall health care spending, because all such a policy does is to move persons out of the largest risk pool (Medicare) into a smaller one.

As a stand-alone policy, there is no doubt that raising the Medicare eligibility age this is a bad one. And doing so assumes the implementation of exchanges under the ACA. However, I am open to raising the Medicare age in a manner that equalizes it with the Social Security retirement age as part of a broader political deal that either brings about federally-guaranteed universal catastrophic coverage or an agreement to move ahead with implementation of the ACA that makes reform the responsibility of both parties. For many Conservatives, a move such as this one is a strong signal of seriousness in addressing long range health care cost problems. As I say, I don’t think they are correct, but there is a policy logic of increasing the age along with Social Security increases given that they have been linked for so long. In the end, I would potentially agree to this, so long as what is gained in return is consequential enough.

For me, it depends on what else is in the deal.

The Subsidy of Marriage by Social Security

(cross posted at Same Facts)

Josh Barro notes that marriage cannot be an entirely state issue because of the way in which it impacts things like Social Security and Medicare eligibility. Below is the majority of a post I wrote in September, 2011 on the subsidy of marriage provided by Social Security…..

Gene Steurle and Stephanie Rennane have a nice policy brief put out by the National Institute for Health Care Management on the lifetime contributions and benefits of Social Security and Medicare. This is mostly familiar stuff, with lifetime Medicare benefits consistently being several times larger than contributions to the pay-as-you-go program, and Social Security lifetime contributions and benefits being more similar for singles and two-earner couples. However, one thing jumped out from this figure (circled):

The profound subsidy of marriage that is inherent in how Social Security determines benefits for spouses who do not pay Social Security taxes in earlier life. As Steurle notes:

While a single woman who worked a full career at the average wage can expect to receive Social Security benefits roughly in line with her payroll contributions, a married woman who never worked but whose husband paid the same taxes as the single woman can expect to receive about $180,000 in spousal and survivor benefits. Unlike private pensions, these additional benefits are essentially free but only to those who are married, regardless of need, contributions or any child rearing.

The subsidy would be the same if the gender roles were switched.

Determining what type of contracts (marriage, civil union, etc.) provide the benefit described here–allowing one member of a couple to obtain eligibility for Medicare and a Social Security pension even if they have no market wages that were subject to payroll taxes over their younger years– and whether all American citizens have access to this subsidy, is a key public policy detail that will have to be worked out if marriage equality is to have its fullest meaning.

Medicare’s funding future: income v. payroll taxes

The 2012 Medicare Trustees report is out (h/t @sarahkliff), and one graph jumped out at me: the historical and projected financing components of Medicare (payroll taxes, income taxes, premiums, and the much smaller items of taxes on benefits for higher income persons and state contributions for Part D).

Historically, payroll taxes have been the primary funding mechanism, but the further in the future we go, income taxes become increasingly important (general revenue transfers) for financing Medicare. As the report says on p. 25

The Trustees expect growth in SMI Part B and Part D premiums and general fund transfers to continue to outpace GDP growth and HI payroll tax growth in the future. This phenomenon occurs primarily because, under current law, SMI revenue increases at the same rate as expenditures, whereas HI revenue does not. Accordingly, as the HI sources of revenue become increasingly inadequate to cover HI costs, SMI revenues would represent a growing share of total Medicare revenues.

There are obviously many moving parts to such a projection, and there is great policy uncertainty about what we might do in the future. With that proviso I note two points:

  • Shifting more Medicare financing burden to income taxes is an increase in the use of a more progressive form of taxation (income taxes given current system) to fund Medicare
  • Payroll taxes and history of beneficiaries having paid payroll taxes have been a key part of the popularity of Medicare, and reinforced the (incorrect) notion that beneficiaries had pre-funded their Medicare costs (it is a pay as you go system). If income taxes are used to pay a larger portion of Medicare in the future, it may help to end the perception that beneficiaries already paid for the cost of their care. This post shows that payroll taxes by beneficiaries do not cover the cost of their care; they weren’t designed to do so, but the perception lingers to powerful effect that makes addressing the cost side of the program very hard

Who is responsible for SGR cuts?

Jeff Levin-Scherz has an interesting post based on a new NEJM paper looking at what states and specialties have “overspent” their targets leading to the planned cut in Medicare physician payments if Congress doesn’t act. Go check it out.

Key to Wyden/Ryan is the ACA

The Wyden/Ryan compromise Medicare reform was announced yesterday. Austin looked at the policy and politics; his series on premium support is required reading. Aaron also had several good posts up right away.

In policy terms, something like this proposal will likely be adopted one day in Medicare, for both political and policy reasons. I used to call for an end to private insurance options in Medicare. However, having no private insurance option in Medicare is a fantasy of the left, just as having no public option (traditional Medicare) is a fantasy of the right. Given that there will likely be some sort of private insurance option in Medicare along with a public one, I think that some version of premium support based on competitive bidding could be better than our current Medicare Advantage program. And we must do something. The Wyden/Ryan plan continues that part of the conversation.

It is true that Rep. Ryan moved to the center from his initial Medicare proposal, but that only means he moved away from his fantasy with respect to Medicare, as have I. However, I am unable to give a final grade to the Wyden/Ryan proposal without knowing what we will do to expand coverage (or not) for people under the age of 65, while seeking to slow costs and improve quality. If Wyden/Ryan were a part of a deal that also adopted a compromise to modify and implement the ACA, then maybe (but more details are needed).

In fairness to Rep. Ryan, he has a replace plan for the under 65 set, the Patients’ Choice Act, introduced before any House committee passed any version of the ACA in 2009, and which he recently re-embraced. I have blogged quite a lot about this bill and as always, the details are important. I see a great more policy overlap between the PCA and the ACA than Rep. Ryan’s rhetoric suggests. However, the big picture is more telling on replace than are the details of any one proposal: no House committee has marked up any sort of comprehensive replace bill  since the Republicans took control of that body. Nothing. It is very easy to say what you are against, but hard to get 218 votes in the House, 60 in the Senate and 1 in the White House.

Both political parties claim to be interested in a long range sustainable budget. To achieve this will require a health reform plan. The Democratic party passed one, and the ACA was what could pass. It can and needs to be reformed and changed; we will never be done with health reform, and the ACA gives us a place to start. The Republicans need a deal on health reform in the long-run-achieve-a-sustainable-budget-sense more so than do the Democrats; there is no example of the Republican party using political capital to drive any sort of comprehensive health reform, ever. Without a health reform plan, there will never be another balanced budget, or anything close.

Wyden/Ryan is only a placeholder unless there is to be a fuller discussion about health care reform. Senator Wyden said the key to his relationship with Rep. Ryan was not discussing the ACA. That conversation has to be had, in the Supreme Court and beyond.


Medicare is complicted, ctd.

It has been fascinating to show people the CHRT‘s chart of how people would get health insurance under the ACA, and to listen to what they see (complicated; simple; clear; confusing; Medicare much simpler; no it is more complicated; it is simple in one sense, complicated in another, etc.).

Austin’s take was that the chart is misleading because it says “if age 65 plus or otherwise eligible for Medicare, then you have Medicare” while it then provides a flow chart for everyone else. Essentially, the box “to Medicare” could have an asterisk that says “flip to the back for the Medicare flow chart.” Recently, I helped an age-eligible Medicare beneficiary decide what to do inside the “Medicare” box of the chart.

  • She had been covered by a combination Medicare supplement/prescription drug plan for the past 6 years, provided by the company from which her spouse retired 19 years ago; this company decided to drop all employee health insurance benefits beginning Jan. 1, 2012.
  • That means that she can sign up for a Medigap plan and a Part D prescription plan with no penalty for late sign up so long as she does so during the Medicare open enrollment period (Oct 15-Dec 7, 2011).
  • She could also sign up for one of 19 Medicare Advantage plans available in her zip code (private option that combines Parts A, B, D and Medigap).
  • After talking with her I concluded several things: physician choice was very important to her, to an extent that I consider to be the extreme, so this tilted me away from Medicare Advantage plans, some of which had either/or choices in terms of one health system on another where she lives and she currently sees docs in both systems.
  • Picking the Medigap plan to cover what Part A and Part B do not cover was fairly straightforward, and plan F was the one for her given historical use patterns. There was one that provided the most physician choice available to her. Interestingly, it also had the lowest premiums so it was an easy call. This turns the more choice/higher premium assumption on its head. I think this is due to the fact that it is by far the dominant insurance carrier in this state. update: In theory all Medigap plans cover all docs that accept Medicare, but there was a therapeutic example in this person’s medical history related to the application of a non-pharmaceutical therapy in which a plan stipulated they would supply the needed factor, and some physicians will not do it this way.
  • Prescription drug plans were trickier. This person takes 14 prescriptions, several of which are very expensive; she refuses to do mail order; she insists on using one pharmacy that is very small. These preferences (esp mail order) trimmed the list quickly and left 4 options.
  • I used an online tool and entered the pharmaceuticals taken and got a clear out of pocket and premium estimate. I also checked with her pharmacy to ask a few questions.
  • I picked the best one and it was offered by a company she had told me at the beginning of the process that she would “never do business with them because they were in business with the government.” I showed here that the second best plan would cost her about $1,100 more in out of pocket costs in a year and she changed her mind.
  • Bottom line: it was easy finding a Medigap plan and coverage is about the same as what she had. The prescription plan she had before was tons better (for her) than any Part D plan available; I see why the company wants out of providing that to spouses of retirees (also, the initial company has now been sold 4 times and the helpful person on the telephone said it was easier (and of course cheaper) to get out of the retiree health insurance business than to try and unify all the plans).
  • I spent 5-6 hours investigating this and around 2 hours over three conversations to convince the Medicare beneficiary that my suggestions represented the best route.

This is what Austin had in mind when he said Medicare is complicated.


Care Coordination for Dual Eligibles

Ken Thorpe has a new study funded by AHIP out in white paper form that suggests that moving all dual eligibles (covered by Medicare and Medicaid) into private plans using care coordination could save the federal government and states $125 billion over 10 years. Thorpe notes that CBO projects that combined Medicare and Medicaid spending on the duals will be $3.7 trillion over 10 years by default, owing to their multiple health care needs (over half have 5+ chronic conditions and many reside in nursing homes). The 9 million dual eligibles are among the most sick and vulnerable members of society.

Thorpe proposes defaulting dual eligibles into private plans who will have strong incentive to reduce costs since they would be responsible for all care; similar incentives for Medicare and Medicaid are now reduced owing to the ways they share the cost of caring for the duals. A few details:

  • All dual eligibles would be enrolled in a health plan with an opportunity to opt out. All covered Medicaid and Medicare services would be provided through the health plans.
  • States can innovate and design their own approaches, but must have an evidence based design.
  •  Health plans would be responsible for coordinating the multiple needs of their patients, including contracting with other entities such as community health teams (defined in section 3502 of the Affordable Care Act) or medical homes.

The paper includes a rich literature review that suggests costs can be reduced while improving quality, and he includes a simulation of potential 10 year savings if all duals were in private plans: $80.9 billion for Medicare and $44.6 billion for Medicaid, around $35 billion of which would be savings to the states (clearly upper bound estimates):

I have suggested that dual eligible costs should be federalized (essentially making Medicare responsible for their total cost), with the main point being to put one payer in charge of all their care in order to incentivize cost reduction while increasing quality. Thorpe’s idea would achieve the same general goal using private insurance. There are many relevant details to discuss about Thorpe’s proposal (how would premiums for private plans be set?, what are realistic uptake estimates?, etc.), but it is clear that the current approach to caring for the dual eligibles is wanting both in terms of cost and quality. The only question is what changes should be undertaken to better care for them?

Update: There has been lots done on TIE about private v. public plans and cost control and the evidence tilts toward public doing better than private at controlling costs [FAQ and podcast]. Most Dual Eligibles have not been in private Medicare plans, so the balance of the evidence does not include them. However, the special needs plans do cover duals. There was some interesting tweeting yesterday about distribution of dual eligibles in such plans; I will try and track down a linkable source and blog about these issues more over the next week. Finally, by noting in the first sentence of the post that this is a ‘white paper’ that means it has not been subjected to peer review.