"If anyone here tries to cut ... Medicare ... I will stop you." That was President Biden's promise to a joint session of Congress during last week's State of the Union address.
Some may find such tough talk reassuring. But Biden's refusal to even acknowledge Medicare's dire fiscal situation — much less chart a course for the program's future — isn't encouraging.
Whoever takes the White House this fall will need a plan for rescuing the health entitlement for seniors from financial calamity. What this moment demands are practical solutions to the problems facing Medicare — of which there is no shortage.
Medicare already accounts for 12% of all federal spending — nearly as much as national defense. If current trends continue, the program's Part A hospital insurance trust fund will run out of money in just seven years.
Absent significant reform, annual spending on Medicare will more than double over the next decade from about $1 trillion in 2023 to more than $2.1 trillion by 2034, according to the latest projections from the Congressional Budget Office.
In response to this unsustainable cost growth, the most obvious reform available to lawmakers is means-testing.
That all Americans — even multi-millionaires — are eligible for government-financed health insurance at the age of 65 has never made much sense. Asking wealthier seniors to pay more for the program is only reasonable.
The same can be said for raising the eligibility age to account for the fact that Americans are living longer today than they did in 1965, when the entitlement was created.
But there's also a range of more modest reforms which, together, could add up to substantial savings for the program. A recent paper from the Paragon Health Institute's Joe Albanese advances a number of policies aimed at improving Medicare Advantage — wherein private insurers under contract with Medicare deliver benefits to seniors.
Insurers must compete for seniors' business. So they have a strong incentive to keep costs down and quality up. Last year, the average private Medicare Advantage bid for providing Medicare Part A and Part B benefits was nearly 17% lower than what traditional, publicly administered fee-for-service Medicare would have been expected to spend.
But there is still room for further savings through the program. Albanese recommends capping the federal government's base payment rate for Advantage plans at 100% of the cost of traditional Medicare coverage — except in areas with relatively low Medicare Advantage enrollment.
He also suggests ending Medicare Advantage's Quality Bonus Program, which rewards plans financially for performing well across a number of metrics, including health outcomes and customer experience. It's far from clear whether the program has had any real effect on the quality of coverage. And since traditional Medicare isn't subject to comparable quality measures, the bonus program doesn't allow patients to compare Advantage plans to the federally administered alternative.
Medicare Advantage's system of "risk coding" is also ripe for an update. The process is supposed to boost federal payments to Advantage plans for especially sick patients.
In practice, however, it encourages insurers to record a higher number of diagnoses for each patient, in order to extract more money from the government — whether that money is needed or not. A more accurate payment-adjustment system could allow Medicare to spend less without undermining quality or shifting costs onto patients.
All told, the reform package outlined in the Paragon paper could reduce the cost of Medicare Advantage by $250 billion over 10 years. It would achieve this without disrupting access to care for the millions of Americans who rely on Medicare — and all while strengthening a program that brings much-needed choice and competition to the federal healthcare entitlement for seniors.
These are the sorts of targeted policy fixes that can pull Medicare back from the precipice. And yet, you won't hear such suggestions from Democrats in Congress, or the president for that matter.
For all their talk about "protecting" Medicare, these public officials seem far too willing to watch a perfect storm of actuarial trends and looming insolvency lay waste to Medicare as we know it.
Sally C. Pipes is president, CEO, and the Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is "False Premise, False Promise: The Disastrous Reality of Medicare for All," (Encounter Books 2020). Follow her on Twitter @sallypipes. Read Sally Pipes' Reports — More Here.
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