Protect Medicare. Say No to vouchers.
A new report prepared for the Henry J. Kaiser Foundation, Transforming Medicare Into A Premium Support System: Implications for Beneficiary Premiums, attempts to assess the cost implication for seniors if Medicare went to premium support payments, sometimes called vouchers. Download report ->[download id=”33″]
Untested Theory
The premise of premium supports or vouchers, as offered by Paul Ryan in his federal budget proposal, is that more consumer choice and competition in the Medicare Advantage market place will force the costs of supporting the Medicare program down. The voucher concept hypothesizes that savvy senior consumers, with a set amount of federal dollars to spend, will select the best plan for their situation. In turn, private insurance companies that offer Medicare Advantage plans will flood the market place with lower cost and more efficient plans for seniors to choose from.
Kaiser analysis
The Kaiser report evaluated the premium support or voucher amount, the federal payment on behalf of the enrolled, as being equivalent to the second lowest cost plan in the area or traditional Medicare, which ever was lowest. If the Medicare eligible individual enrolled in a plan equal to or less than the voucher amount, they would pay no additional premium. If they enrolled in a higher cost plan, either private or traditional Medicare, they would pay the difference between the voucher amount and the plan premium. The report applied the premium support scenario as if it were in force in 2010 because there is a data set available, no future estimates, and to make the data relative in today’s market place.
Key findings from the report show:
- The majority (59%) of Medicare beneficiaries – 25 million if fully implemented in 2010 – would be expected to pay higher Medicare premiums than they do under the current program, if they remained in the same plan.
- Among beneficiaries in the traditional Medicare program, about half (53%) – 18.5 million beneficiaries – would be expected to pay higher Medicare premiums for coverage under the traditional Medicare program.
- Among beneficiaries enrolled in private plans, 88 percent would pay higher premiums, unless they switched to a benchmark plan.
- More than one in four beneficiaries (27%) – about 11 million beneficiaries – would be expected to pay an additional $100 or more per month ($1,200 per year) in Medicare premiums if they did not switch to a lower cost plan.
Is this reality?
Kaiser Family Foundation reports are always good at the statistical analysis of health care and insurance issues. They use sound economic modeling and good data to produce and predict possible future outcomes. What is missing, and can’t be impartially evaluated, is how insurance carriers develop plans to maximize profit or how consumers would react to the overwhelming amount of choices and marketing for the plans.
Real world experience
Premium supports or vouchers are similar to minimum wage laws, they distort the market place. Under minimum wage laws, regardless of the benefit, employers rarely pay more than the minimum because they know their competitors won’t. Consequently, Medicare plans will be developed to target and maximize the premium support payment.
In marketing and setting product prices, companies try to determine the price elasticity of the consumers. They want to know at what price the consumer perceives a diminished value and won’t purchase the product. If they know exactly how much the consumer has to spend on a product or service, they will tailor their offerings to that price point.
Current Rules of engagement
Currently, insurance carriers “bid” for reimbursements on their Medicare Advantage Plans and Part D prescription drug plans. Through a complicated formula that takes into account the location, health of the population and regional healthcare prices, the Centers for Medicare and Medicaid determines a capitation or reimbursement rate to pay the plan for each enrolled member.
Even though the bureaucratic bids and formulas can be overwhelming to grasp, at least the government is negotiating with the large carriers to get a fair price for both seniors and the government. The voucher system has the potential to undercut the regulatory protections built into the system by placing more of the comparison and research upon the Medicare beneficiaries. Unless organizations like AARP start negotiating plan prices on behalf of beneficiaries, seniors will get steam rolled.
Who advocates for seniors?
The largest, and sometimes only, advocate for Medicare beneficiaries is the Centers for Medicare and Medicaid (CMS). The myriad of regulations the CMS promulgates are always put in place to protect the most vulnerable in the U.S. It is an enticing proposition to allow “free market” forces, through privatization, to curb the increasing costs of Medicare expenditures. Unfortunately, a competitive market place requires informed consumers making rational decisions about their purchases. As someone who has presented numerous Medicare Educational Seminars, I can attest that there is deep confusion and misunderstanding from seniors over how they receive their Medicare benefits.
Send seniors back to school for training
To require seniors to absorb additional information and compare increasingly complicated plans will only result in more confusion and frustration. Private insurance companies will capitalize on the confusion to suck beneficiaries into plans that may not be in their best interest. We have already witnessed that many Medicare beneficiaries don’t switch their Part D prescription drug plans even when it would save them money. How can we expect the same population to make an even more complicated decision, while adding the concern of premium and medical cost uncertainty, about which plan is right for their situation? Should we send seniors back to school for training to evaluate their alternatives?
The combination of sophisticated companies developing plans to maximize a known voucher payment with an increasing level of research and comparative analysis necessary on the part the beneficiary, makes the premium support or voucher plan a consumer catastrophe waiting to happen.