"Five Myths About Medicare"

I recommend you read John Rother's recent op-ed in the Washington Post, "Five Myths About Medicare."

John argues that each of these statements is a myth:

1. Medicare is inefficient and fails to control costs--the CBO has projected that per capita spending will grow only 1% more than inflation over the next decade.
2. The well-off don't pay enough for their Medicare benefits--working age premiums as well as Part B premiums already vary considerably by income.
3. Medicare benefits are overly generous--in 2007 Medicare paid an average of only half of the $18,000 the average beneficiary spent.
4. Cutting Medicare is the only way to save it--changing incentives to providers offers more promise.
5. Medicare needs fundamental restructuring--"Even the most well-run and efficient program cannot nearly double its enrollment without a matching increase in money."

And this conclusion:

"Containing health-care cost growth is critical for Medicare’s survival, but it’s impossible to do that for Medicare alone. Payment restraints and incentives that improve value must be applied to the entire health-care system to be effective."

Read "Five Myths About Medicare"

ICD-10 To Be Delayed Indefinitely--Never Mind!

After years of telling us they are serious this time and everyone in the health care system had better be ready on time to implement the new disease coding system, CMS said today the whole project is going to be delayed indefinitely.

The new ICD-10 system requires payers and providers to convert from the old system of 13,000 codes to the new system of 68,000 codes.

All payers and providers were supposed to be ready by October 1, 2013. The acting CMS Administrator said, "There is a concern that folks cannot get their work done around meaningful use [of information technology], ICD-10 implementation, and be ready for [insurance] exchanges. So we decided to listen and be responsive."

Apparently, a new timeline will be developed through a "rule making process."

Fine, but that has not been the message for months now and lots of people have spent lots of money for apparently no good reason.

The concerns that particularly physicians would not be ready on time have not been minor. CMS conducted a survey between January and March of 2011 that clearly showed there were big problems ahead. But in the year since that survey, they continued to tell stakeholders to keep going ahead full speed, spending big money to be ready.

But in the last few weeks, the American Medical Association has been sounding the alarm--their people wouldn't be ready.

Sounds like the lowest common denominator in the health care system wins out.

Here are the results from a survey CMS conducted from January to March of 2011 by type of industry participant. AHIP is the insurance industry trade association, HBMA and AAPC are associations of industry coding and billing providers, ACP is the American College of Physicians and the AMA is the American Medical Association. The survey also measured readiness for the Version 5100 standards for electronic health transactions that were effective in January 2012, but for which enforcement has been delayed until March 31, 2012.


It was obvious a year ago that the docs (ACP and AMA) weren't going to be ready yet CMS kept telling everyone to keep spending big money on all of this.

There is No Free Lunch and There is No Free Contraception

The otherworldy Obama Administration solution to the contraception firestorm might work politically but it makes no sense in the real world.

The President, hoping to quell a growing political firestorm, today announced a new policy that no longer requires religiously affiliated organizations to provide employees with contraception coverage in health-insurance plans.

Under the new policy, insurance companies will be required to offer free contraception for their employees and dependents. The administration’s idea is to shift the onus for the coverage from the employer to the insurer. Catholic leaders, and lots of other people, had objected to the requirement, which exempted churches but not hospitals, charities and universities with religious affiliations.

So, let’s just play a game here. The religious organization just pretends that it has nothing to do with it but the insurance company pays for it anyway. Hey, the insurance companies are rich.

Of course there is a cost. Today, contraception is almost universally covered in health insurance policies. The argument that forcing insurers to pay for it, without deductibles and copays, saves money because it avoids pregnancy costs is just plain silly. If insurers saved money handing out contraception for free in the first place, they would have started to hand it out for free years ago. Add to that the insurance company must absorb a not insignificant administrative cost for adding a person-by-person "rider" for free contraception.

In addition, we have the unique situation where a business (insurance companies) will be required to provide a product to a specific market (religious organizations not wanting to provide the coverage) but prohibited from charging for it--apparently because the government has done the cost calculation for them and in their sole discretion has decided they don't have to.

The administration is arguing that offering contraception actually lowers costs and therefore forcing insurers to waive copays won't mean higher costs. If this were 1970, when modern contraception was first offered, that might be true. But now plan sponsors are expected to waive copays and deductibles on something that is already virtually universally available. There will be an incremental cost.

If the program is self-insured, the insurer will not get any of the benefits from lower pregnancy cost--it will all go to the plan sponsor--but the self-insured administrator will be expected to cover the entire cost of the contraceptive services.

This is simply an attempt by the administration to backpedal from a firestorm of controversy they should have never been in in the first place. They are caught between the left that is not about to back down over what they see as a critical women’s health issue and the right that is not about to countenance the government ever telling a church what to do.

But insurers will likely just shut up and go along with it. They have no intention of getting into the middle of this political mess—but they will quietly pass the costs along. In fact, for any large religious organization that is self-insured, they won’t have much choice but to pass the costs on to the employer. But that won’t be a problem so long as everyone just agrees to pretend.

This is a clumsy attempt on the part of the Obama Administration to be on both sides of a thorny issue.

The problem is that there is no free lunch and there is no free contraception.

Dismantling the Affordable Care Act: The Obama Supreme Court Argument + 51 Republican Senators

I have no idea which way the Supreme Court will rule this year on the Affordable Care Act. Let me go out on a limb and predict a 5-4 vote on the question of whether the individual mandate is Constitutional. Just don’t ask me which way the vote goes.

I found the recent Obama administration brief submitted to the Court on the mandate question somewhat ironic. Not surprisingly, the Obama Justice Department argued that a finding by the Court that the individual mandate is unconstitutional should not jeopardize the vast majority of the new health law.

But the Obama Justice Department did concede that there are two provisions of the Affordable Care Act that should also be declared invalid if the Court rules the individual mandate is unconstitutional—the health insurance guaranteed issue and community rating provisions.

Now, I know there are lots of other people, many of them filing briefs with the Court, that disagree arguing that the whole law needs to be found invalid because the mandate is the lynchpin for all of it. But I will suggest it is significant that the administration would appear to be building a firewall for the rest of the law as they concede these points.

But consider this potential scenario.

First, if the Republicans win the Senate come November—not a certainty but very possible—they will do it with only one, two, or three seats to spare. That would be way short of the 60 votes necessary to get rid of the entire law. You will recall it took 60 votes to pass the entire law in the first place. I fully expect Republicans will hold their House majority and a Republican House would be only too willing to support whatever the Senate could accomplish in repealing the Affordable Care Act.

Many Republican legislative strategists have already concluded they can get rid of all of the new health law having to do with the budget—with a House majority and only 51 Senate votes. The insurance subsidies are the biggest part of the law and they are budget related. Of all of the non-budget items needing 60 votes, the biggest are the insurance reforms—the guaranteed issue and community rating provisions.

The Obama Justice Department, in conceding these insurance reform provisions would have to go if the mandate falls, may have just potentially paved the way for getting rid of effectively the entire law should the Court throw out the individual mandate: The Court knocks out the mandate and with it the insurance reform provisions and a 2013 bare Republican majority gets rid of almost all of the rest of the law.

That just leaves one detail. Will it be a Republican President or President Obama that would have to sign any Republican repeal legislation?

Medicare Advantage Premiums Drop an Average of 7% and Enrollment up 10%—That Must Make Republicans Just Want to Cry

Medicare Advantage would appear to be a fantastic success—senior premiums are dropping and enrollment is increasing.

Listening to Health and Human Services Secretary Sebelius last week, you would think private Medicare plans were a Democratic idea and this is their success. Many industry observers, including me, have worried that Medicare Advantage benefits would shrink and premiums would rise because the new health care law reduced federal payments to the plans by $136 billion over the next decade.

“The Medicare Advantage program is stronger than ever,” said Secretary Sebelius. “Premiums are down on average, enrollment is up, and thanks to the Affordable Care Act we have unprecedented new tools to ensure that seniors and people with disabilities are getting the best value out of their coverage.”

Of course, privatizing Medicare has always been a Republican idea and most Democrats would like nothing better than to kill it dead out of fear that Medicare Advantage plans will undermine the financial integrity of Medicare—private plans get paid more than Medicare gets for the same enrollees—and that the private plans risk turning the Medicare entitlement into a two-tiered program—one for the rich and one for the poor.

And, Democrats can’t wait to use the Paul Ryan Premium Support plan, which would rely exclusively on private Medicare plans, as an election issue charging that the Republicans want to kill Medicare as we know it.

But instead the Obama administration used last week’s announcement of lower Medicare Advantage premiums and solid enrollment growth as evidence of just how successful they’ve been at running the program and how overdone Republican charges were that the Medicare cuts in the Affordable Care Act would wreck private Medicare.

There is that old saying, “Sometimes it’s better to be lucky than good.”

First, the entire health insurance industry is experiencing an unexpected drop in health care trend rates—costs are escalating far less than expected. When that happens, health insurers generally see their bottom line improve in the form of windfall profits.

What Medicare pays Medicare Advantage plans is a function of the last year’s experience. With the expectation that care costs would be higher than they turned out to be, private plans were inadvertently paid more, as well as charged seniors more, than they needed. That typically goes on for as long as health care cost trend decelerates.

The good results in Medicare Advantage were also helped by the Obama administration, which declared a “Lake Wobegon” moment. They took $6.7 billion intended to be paid as bonuses to the highest quality plans under the new health law and instead declared just about all of them “above average” or better and infused those billions among almost all Medicare Advantage contractors, further improving their bottom lines.

Why did the Democrats who hate Medicare Advantage so much find an extra $6.7 billion for them? Because it’s an election year. Seniors vote and the Democrats very quickly concluded that having seniors lose their private plans, or have to pay more for them because of payment changes due to the new health law, wasn’t going to help their reelection chances in places like Florida.

So, ironically, the Democrats were so scared Medicare Advantage premiums were going to soar that they dumped billions into the program to offset the expected.

But the expected didn’t happen when cost trend came in lower than everyone predicted. The result was even better profit results for the industry, better than expected prices for seniors, and enrollment growth.

Now, Sebelius could have said, “Whoops, we just flooded the health insurance industry with billions they didn’t need.” But why do that when you can take credit for a popular program you really want to kill?

Does this mean Medicare Advantage is out of the woods? No, more like there is a cliff still coming.

First, no more $6.7 billion gifts to the insurance industry from the Obama administration are in the pipeline.

Second, trend can’t keep falling. At best, it will stabilize and erase the windfall profits. At worst, it will start climbing and we’ll have the opposite impact on profitability and pricing.

Third, the $136 billion in cuts to Medicare Advantage the Affordable Care Act makes to the program really doesn't begin for another two years—the new law just froze payments this year at unintentionally generous levels.

Medicare Advantage plans are now benefiting from a perfect storm of good things. In a couple of years, it could be a perfect storm of bad things— no more “Lake Wobegon” payments, rising trend rates resulting in inadequate payments to insurers, and the $136 billion in real cuts finally kicking in.

Until then, we can expect to see President Obama campaigning in front of seniors taking credit for all the good things his new health law has done for Medicare Advantage.

It must make Republicans just want to cry.

The Wyden-Ryan Plan Will Be the Foundation for Serious Medicare Reform—and Maybe More

In two companion articles in January’s New England Journal of Medicine, Henry Aaron with Austin Frakt, and Joe Antos critique the Wyden-Ryan Medicare reform proposal.

Senator Ron Wyden (D-OR) and Representative Paul Ryan (R-WI) are proposing a hybrid Medicare reform proposal combing both Republican defined contribution free market principles—a premium support scheme—with Democratic defined benefit principles—a baseline guaranteed plan and premium support.

In, “Now is Not the Time for Premium Support,” Aaron and Frakt argue that there is a market history of Medicare experimentation that hasn’t accomplished much and that a premium support scheme could well leave beneficiaries the victims of cost shifting:

Advocates of premium support claim that Medicare Part D, which has a premium-support structure, shows that competition holds down spending and that beneficiaries make wise choices. Their claims are unjustified. Although Part D drug spending per enrollee is lower than was initially forecast, non-Medicare drug spending is even further below past projections. Furthermore, enrollees have, on average, chosen plans that exposed them to greater financial risk than the best options available to them. Most important, because Part D has no public option, it cannot provide evidence on whether private plans are better or worse than a government plan would be.

So, although it's true that Medicare is a key driver of long-term federal spending, we don't believe that recently proposed premium-support reforms are the solution. They lack safeguards for beneficiaries. They threaten to shift costs to the elderly and disabled and force them to shop for coverage in a confusing insurance market. And the ability to run health exchanges for the Medicare population is currently in doubt.

Even the more pro-market Antos, in an article titled, “The Wyden-Ryan Proposal--A Foundation for Realistic Medicare Reform,” offers only limited praise for the plan:

Ryan and Wyden hint at the need for commonsense reforms to traditional Medicare, including a new structure of deductibles and copayments, a cap on catastrophic costs, and a new physician-payment system. They skirt the central problem: a disorganized fee-for-service system and top-down limits on prices paid for services drive the use of more, and more complicated, services. The program's survival depends on our willingness to make substantial changes over the next few years — before the major reform is implemented — so that traditional Medicare can provide cost-effective care without draining the Treasury.

The current proposal also offers a more politically palatable fiscal target at the cost of achieving fewer “scoreable” savings. Under Ryan's earlier proposal, the federal subsidy would grow only with general inflation (1.5% in 2012, according to the CBO) instead of the more generous target of GDP plus 1% (a rate projected to total 4.8% in 2012). Not coincidentally, that is the same fiscal target established for the Independent Payment Advisory Board (IPAB) under the ACA.

A 3.3-percentage-point difference in fiscal targets translates to a 1-year increase in program spending of about $20 billion, or about $300 billion over 10 years. Adopting the weaker target means a substantial loss of budget savings, but only if Congress would actually enforce the stricter limits. That may be unlikely given recent history. Over the past 8 years, Congress has overridden even relatively small reductions in physician payments called for by the sustainable growth rate formula. Clearly, a favorable score from the CBO does not guarantee lower program spending.

But then Antos suggests Wyden-Ryan could be the basis of real reform:

Given the serious fiscal problems facing this country, slowing the growth of Medicare spending is no longer optional. The only question is how to do it. The Wyden–Ryan proposal outlines a strategy for Medicare reform that harnesses market forces to control costs. It provides a real alternative to the top-down controls favored in the ACA. Paul Ryan and Ron Wyden have defined the policy parameters that could be the basis for real Medicare reform in 2013.

I will suggest that the last point is key.

Wyden-Ryan is now little more than a policy outline. It does fall short on real reform because it offers only a bare outline for how it will contain costs—there will be a still undefined fallback mechanism if costs exceed targets.

But what Wyden-Ryan does do is offer a political roadmap for how we could well see Medicare reform addressed after the election—particularly if Republicans gain control of the Congress.

Any successful reform has to achieve two things:

1. It has to be politically feasible in the first place.
2. Then it has to work—in this case it has to control costs and provide quality health care.

What Wyden and Ryan have given us is a very well developed political strategy for reform and only the outline for policy reform.

As I said in an earlier blog post:

What is elegant about the Wyden-Ryan compromise is that they have proposed a hybrid plan—it contains significant elements of both a Republican defined contribution and a Democratic defined benefit approach.

Republicans get an affordable cap on what the federal government would spend on Medicare—that growth would be no more than GDP+1%—and they would get a program built on a free market platform where consumers would have the incentive to maximize their premium support by shopping for the plan that best met their needs.

Democrats would get a plan that still contained the traditional government-run Medicare plan as one of the options and they would have a plan where all seniors were guaranteed a federal premium support level good enough to buy at least the two lowest cost Medicare plans available in their community—albeit maybe not the traditional Medicare option.

If there was ever a place for Republicans and Democrats to compromise on Medicare reform this is it. It is an elegant compromise—a hybrid—of both defined benefit and defined contribution principles.

Sooner or later all of this partisan bickering has to end. A Republican sweep in the November elections would do it. Wyden-Ryan would be on top of the health care agenda if that happened.

Even if we faced a divided government in 2013, the imperative for entitlement reform makes addressing Medicare costs unavoidable. In that case a basis for ideological compromise will be necessary. Wyden-Ryan presents that opportunity.

It will be the next part of the plan that is still too vaguely defined—how costs would be controlled and beneficiaries therefore protected—that Wyden and Ryan must address. Both Antos and Aaron/Frakt are right in pointing that out.

How will we achieve the needed “scoreable” savings a future Congress can’t easily override and do it in a way that will be politically palatable in the first place? That is the big question. Wyden-Ryan is just an empty political box without answering that.

But do not underestimate how important this first bipartisan step is that Ron Wyden and Paul Ryan have taken. Unless the Democrats sweep the November elections, this is what the next debate will revolve around.

In fact, one can foresee this same bipartisan political formula as a means to eventually deal with the under-age-65 health insurance market. Remember Wyden-Bennett? Could there be another under-65 version of Wyden-Ryan?