"It places the lotion in the basket" --- getting some really old skin in the game

As they explore possible fiscal deals, President Obama and Congressional Republicans have quietly raised the idea of broad systemic changes to Medicare that could produce significant savings and end the polarizing debate over Republican plans to privatize the insurance program for older Americans.

While the two remain far apart on the central issue of new tax revenue, recent statements from both sides show possible common ground on curbing the costs of Medicare, suggesting some lingering chance, however small, for a budget bargain.

Mr. Obama assured House and Senate Republicans during recent separate visits that he could support specific cost-saving changes to Medicare and deliver Democratic votes, though only as part of a “balanced” package that had additional revenues.

Several changes are likely to once again be in his annual budget, which will be released on April 10, after Congress returns from its break. Mr. Obama also plans a dinner with Senate Republicans that night.

In particular, participants say, the president told House Republicans that he was open to combining Medicare’s coverage for hospitals and doctor services. That would create a single deductible that could increase out-of-pocket costs for many future beneficiaries, but also could pay for a cap on their total expenses and reduce the need to buy Medigap supplementary insurance.

Representative Eric Cantor of Virginia, the No. 2 House Republican, proposed much the same in a speech in February. “We should begin by ending the arbitrary division between Part A, the hospital program, and Part B, the doctor services,” he said. “We can create reasonable and predictable levels of out-of-pocket expenses without forcing seniors to rely on Medigap plans.”
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Both the administration’s and Mr. Cantor’s interest in restructuring Medicare’s Parts A and B dates to 2011, when various proposals were considered by a deficit-reduction group headed by Vice President Joseph R. Biden Jr. that included Mr. Cantor.

The goal is to discourage people from seeking unneeded treatments, shrink health spending and offset the costs of a cap on beneficiaries’ total out-of-pocket costs. Such a cap would reduce beneficiaries’ need for extra insurance. About 90 percent of beneficiaries in the traditional Medicare program have supplemental coverage through Medigap policies, employers’ retiree plans or Medicaid for low-income people.

Many health-policy economists have called for creating a single, unified deductible. The current two deductibles reflect separate legislative tracks that came together in the creation of Medicare in 1965. The deductible for Part A hospital care is relatively high ($1,184 this year), while that for Part B doctor care is relatively low ($147). Patients also have co-payments for many services.

Despite the bipartisan interest, the politics of merging Part A and Part B are complicated.

Glenn M. Hackbarth, chairman of the Medicare Payment Advisory Commission, a group of nonpartisan experts that advises Congress, said a combined deductible could increase costs for those who use only doctor and outpatient services — a majority of beneficiaries in any year. It could reduce costs, he said, for the roughly 20 percent who require hospitalization.

Proponents, including some in the administration, acknowledge the political risks of increasing most beneficiaries’ costs, even in exchange for capping their total costs, as in cases of catastrophic illness. A 1988 law protecting against catastrophic costs caused such an outcry among older Americans, who faced an extra tax, that Congress quickly repealed it.

But administration officials say the 1988 law affected current beneficiaries, while Mr. Obama would apply any changes only to people becoming eligible for Medicare after 2016.

So far, the changes the president has proposed do not go as far as a single deductible and a cap on catastrophic costs. Instead, Mr. Obama has called for increasing the Part B deductible, which has risen much less than medical costs. He also proposed that beneficiaries pay something for home health care, which is among Medicare’s fastest-growing and most fraud-prone expenses; people just released from the hospital would be exempted.

Third, Mr. Obama proposed a 15 percent surcharge on Medigap plans that cover all or nearly all of a beneficiary’s initial annual expenses. Economists say that such coverage leaves beneficiaries insensitive to costs, increasing Medicare’s spending and the premiums beneficiaries pay.

Wonks who subscribe to this premise speak of making people have more “skin in the game,” making them pay more, in other words, for medical services, on the grounds that they’ll then use less of them. The National Association of Insurance Commissioners, in a recent letter to Health and Human Services Secretary Kathleen Sebelius, took a stand against the idea that seniors use more medical care when it is cheaper and recommended against making seniors pay more out-of-pocket. But the “more skin in the game” idea remains alive and well.[...] 

All people on Medicare would pay what’s called a “unified deductible”—the amount a patient pays before insurance kicks in—of $550 instead of a the current separate hospital deductible ($1,184 this year) and a separate medical deductible (now $147). The new deductible would mean that people using medical services—which most do—will be exposed to an out-of-pocket cost four times higher than they have now before Medicare pays for their care.

What about having your Medigap policy cover these gaps, as they have been doing? Not under Corker’s plan they won’t. His bill prohibits any Medigap from paying this new unified deductible. More “skin in the game.” And in future years Corker would like to prohibit seniors from buying Medigap insurance altogether, exposing them to the full cost of coinsurance as well as the deductible.

Seniors would face additional out-of-pocket costs once they satisfy the unified deductible, too, under Corker. They would then pay 20 percent of all Medicare-covered services, including home healthcare and the first 60 days of a hospital stay that are not now subject to any coinsurance—in effect expanding the services subject to cost-sharing.

After seniors pay all of the deductible and the amount of coinsurance they’ve paid hits $5,500, Corker would allow the amount of the coinsurance to drop to five percent for any of the remaining bills, until they’ve reached the yearly maximum—$7,500. Corker then restricts Medigap payment to half of the 20 percent coinsurance amount (50% of $4,950). (The bill is unclear about coverage for the 5 percent co-insurance between $5,500 and $7,500.)

It’s complicated, but the takeaway is that it is expensive. A senior would be faced with paying the first $550 of their medical expenses, $2,250 of their coinsurance, plus the premium for their Medigap policy. A couple without a Medigap policy would pay all of those out of pocket costs —$15,000. That could be quite tough for many seniors, especially those whose only income is from Social Security.

Consider: since half of all Medicare beneficiaries have incomes of $24,000 or less, those with even moderate medical expenses might have to tap assets to cover the higher costs, apply for Medicaid, or choose another option for getting Medicare benefits.

Reporters wading into the weeds here will have to look beyond the carefully crafted press release language, which won’t fully describe the impact of the proposed changes—whether Corker’s or anyone else’s. His bill summary that says the legislation would “update cost-sharing requirements to reflect 21st century health insurance practices” sounds benign enough, but it hardly begins to tell the whole story.