President Obama’s consumer-directed recommendations for Medicare

Office of Management and Budget
Fiscal Year 2016 Budget of the U.S. Government

Reducing Cost Growth by Encouraging Beneficiaries to Seek High-Value
Services.

The Budget includes structural changes that will encourage Medicare
beneficiaries to seek high-value health care services. To help improve
the financial stability of the Medicare program, the Budget reduces the
Federal subsidy of Medicare costs for those beneficiaries who need that
subsidy the least. The Budget includes several modifications for new
beneficiaries starting in 2019, such as a modified Part B deductible and
a modest copayment for certain home health episodes. Research indicates
that beneficiaries with Medigap plans that provide first, or
near-first-dollar coverage have less incentive to consider the costs of
health care services, thus raising Medicare costs and Part B premiums
for all beneficiaries. The Budget applies a premium surcharge for new
beneficiaries beginning in 2019 if they choose such Medigap coverage.
Together, these proposals would save approximately $84 billion over 10
years.

http://www.whitehouse.gov/sites/default/files/omb/budget/fy2016/assets/budget.pdf

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Comment by Don McCanne

Using the rhetoric of encouraging Medicare beneficiaries "to seek
high-value health care services," President Obama is recommending in his
FY 2016 Budget the application of more consumer-directed, moral hazard
suppressing, skin-in-the-game measures that shift more costs away from
the government and onto Medicare beneficiaries. Although the recommended
measures are not dramatic, they are steps that move away from a position
of egalitarian social solidarity (a progressive view), and toward a
position of encouraging greater personal responsibility for health care
(a conservative view).

Thus, as negotiations begin on the federal budget, instead of taking a
position of strongly supporting beneficial progressive policies for
Medicare, President Obama has adopted policies supported by
conservatives as his opening position in the negotiations. Any union
negotiator will tell you that you do not give up anything before you go
to the table. Yet President Obama is not only declining to ask for any
progressive improvements to Medicare, he is also giving the
conservatives policies that they support. That leaves him in the
position of starting negotiations only after having moved to the right,
into their camp, and then attempting to achieve compromises with the
much more highly polarized Republicans who have moved to the extreme far
right.

So what specifically is wrong with his relatively benign-looking
recommendations?

He would reduce "the Federal subsidy of Medicare costs for those
beneficiaries who need that subsidy the least." That is, he will charge
much larger Medicare premiums for those with higher incomes. That will
diminish the support of the plutocrats who have the political power to
instead drive us closer to the premium support model of private
insurance plans advocated for by conservatives such as Paul Ryan (the
new Chair of House Ways and Means). Funding for Medicare should be
completely separated from the benefits. Instead it should be fully
funded through progressive taxes, ensuring full fixed benefits for
everyone, with equitable funding based on ability to pay.

He supports "a modified Part B deductible." That modification, of
course, is a higher deductible for Part B (physician) services. It is
true that higher deductibles do reduce spending modestly by causing
patients to forgo beneficial health care services. But erecting
financial barriers to care is exactly the opposite of what we should be
doing with a program that should be designed to remove financial
barriers, thereby encouraging people to get the care that they should
have. Medicare should be a prepaid system for everyone.

He would initiate "a modest copayment for certain home health episodes."
Home health care is a more economical and humane way of providing health
care services for many people with advanced illnesses. Individuals in
those circumstances may not have enough funds for cost sharing.
Introducing copays is a definitive first step in shifting ever more of
the costs of home care to patients, and certainly more steps would
follow. Bad move.

Conservatives have long targeted Medigap plans because they allegedly
create the moral hazard of patients using more health care simply
because it is free at the point of care - deductibles and coinsurance
being paid by the plan. This theory is based on a misinterpretation of
the results of the RAND HIE. Hypochondriasis is very rare. People always
have a legitimate medical reason for going to the doctor.

However, rather than requiring a minimum amount of cost sharing in the
Medigap plans, President Obama's recommendation is to apply a surcharge
to the Medigap premiums. Medigap plans are already one of the worst
values in health insurance, and jacking the premiums up even more with
surcharges is certainly a move in the wrong direction. Perhaps this is
an indirect way of intimidating people into forgoing Medigap plans in
order to expose them to more out-of-pocket costs, or perhaps to
stimulate a market for more spartan Medigap plans with no first dollar
coverage. Regardless, it is another push toward the perverse method of
reducing spending by making appropriate health care less affordable.

If nothing else, this shows that the conservative, consumer-directed
advocates have won the rhetorical debate. It astounds me how many people
across the political spectrum have bought the meme that paying medical
expenses out-of-pocket gives people pride in exercising their personal
responsibility.

Are people in other countries with lower costs and first-dollar coverage
ashamed that they abandoned personal responsibility by walking out of
their health care facility without making an out-of-pocket payment? If
they are ashamed, they have been very effective in hiding it behind the
false pride they show in their egalitarianism. Or, could it be? Are they
actually egalitarian? Can we try that?