• Premium support proposal and critique: Conclusion

    This post is part of a series. If you haven’t read the prior posts in the series, you really should. The introduction explains what I’m doing and links to all posts to date. I’m assuming you’ve read them all.

    After introducing and defending the merits of a particular premium support proposal, I then critiqued it. I stand by all I’ve written, but it begs the question, taking into consideration all the merits and critiques, should we look favorably on the premium support plan or not? I feel I owe you an answer to that question. I will provide one in this post, but do not expect it to be a simple one, and don’t expect it to be very satisfying.

    I claim that how you should view premium support depends on how much you feel traditional Medicare (TM) needs to remain strong and viable. I make that claim because I think the odds are high that premium support will lead to an erosion of TM and possibly its demise. Sure, in principle that plan type could do just fine if the playing field is level. I think that all but the political threat to TM is technically surmountable, at least sufficiently to prevent TM from certain death. But I am not confident the political realities can be any different than I described. In that domain, the playing field cannot be level. It will favor private plans. TM is likely to suffer, at least somewhat, under premium support.

    So, let us consider the extreme case of TM’s demise and ask, do we need it? That’s the natural question, but it isn’t quite the right one. It’s not the heart of the matter. What is needed in Medicare and system-wide is a way make sensible coverage decisions, to stop paying for health technologies that do not improve health. Comparative effectiveness research can reveal what those wasteful technologies are.* To date, private plans generally don’t make the hard coverage choices such research suggests, not unless Medicare takes the lead. In cases in which they have tried, and patients have sued, courts have been reluctant to make rulings based on science and often interpret insurance contracts broadly so as to favor the insured.**

    Thus, provided it can make those tough choices and serve as cover for private plans, it would seem that TM is needed. Unfortunately, TM doesn’t make those choices either, at least not enough of them. To deny or circumscribe coverage for a health technology is too easily subject to demagoguery by politicians or pressure by medical interest groups. So, though TM is in a leadership position, it doesn’t lead. There is hope in the IPAB, though it is legally prohibited from “rationing.” Whether it could survive the political and/or legal challenges to its use of comparative effectiveness research in adjusting how Medicare pays for procedures remains to be seen, if indeed it even attempts such a thing. If it does and can survive challenge, then TM might lead an efficiency revolution. If the IPAB will not or cannot, it is not clear that TM has a vital role to play.

    At the same time, it’s not clear that private plans would fill the void. As described, they follow TM’s lead. There’s no compelling reason to expect them to take up a leadership role if TM fades away. For them to do so probably would require changes in the law to provide safe harbor for use of scientific evidence in coverage decisions. Thus, any premium support proposal that does not include ways of enhancing and protecting private plans’ role in making the tough decisions our system needs is incomplete.

    What this suggests is that whether or not we adopt premium support is not the most important question we face. Contrary to what some may claim, competition among private (and public) plans alone is not going to bend the cost curve. However, neither is TM guaranteed to do so, or not by enough anyway. What matters is whether public and private insurers can serve as more than pass-through entities. What matters is whether we are going to continue to use public or collective funds to pay for any and every medical technology that clever minds can invent, whether more effective than cheaper alternatives or not. If TM can broadly apply the results of scientific scrutiny of treatment types, we ought to embrace it and be thankful. We ought to preserve and protect it if it will actually lead us where we need to go. If it cannot, then it is not evident it deserves special treatment. But it is also not clear how private plans will perform any better. Either way, there is more work to be done.

    In this sense, premium support is a red herring. It’s something reasonable to wrestle with in the near term, but shouldn’t distract us from the longer term challenge we face: either we dramatically reduce the rate of growth in Medicare and the broader health system by being smarter about what public and private plans cover or we ratchet up taxes and premiums (or some of both). Premium support or not, this challenge will likely be with us for a long time to come. It’s reasonable to believe that either private or public plans could meet this challenge, but not without substantial changes to law, culture, and politics. Until those are addressed, nobody on either side of the debate can stand up and credibly claim they have a complete solution.

    In short, I don’t believe premium support is necessary or sufficient. By the same token, neither is the status quo or even “Medicare for all.” I told you my answer would not be very satisfying. If about nothing else, I’m probably right about that.

    * Consideration of cost-effectiveness may ultimately be needed too, but comparative effectiveness is challenging enough and a good start. So, I’ll focus only on that.

    ** Here I am referring to decisions to deny coverage for a particular technology either entirely or for a sub-population for whom it does not improve health, not to deny coverage to treat a condition at all.


    • Truman was correct. Economists have too many hands. That aside, I think that I am a bit less concerned with defending TM since it clearly needs major changes. Given that the single largest voting demographic in the US is the elderly, it seems unlikely (but not impossible I concede) that retirement care for the elderly would be gutted as drastically as proposed by Ryan. In fact, I think many of us explicitly criticized Ryan’s plan as not being politically feasible because we were sure the premium supports would be increased due to interest group pressure.

      Hence, I am a bit more sanguine about premium support and the Wyden-Ryan plan. There is some risk that TM disappears, but if premium support levels keep the burden borne by beneficiaries fairly constant, I am not sure why that should be so bad. It may also have the added benefit, IMHO, of placing everyone in the same kind of medical care system if, big if, it can be melded with the ACA or whatever we end up with. As I am concerned about total health care spending, I still think it unlikely we achieve real savings in a system where interest group politics sabotages attempts at cutting costs.

      Maybe I am too optimistic, or a bit naive, but I dont see any solution w/o risk. SIngle payer is off the table. Which way should we then go? AS I think you once or twice said, this is hard. Premium support does not look like it will go very far towards cutting costs, but just like the ACA, it could be a first step that could then be modified to a better solution.


      • I’ve really thought hard about these questions lately. My main concern that motivates me to not be so cavalier about losing TM is that it seems to be the best, though imperfect, vehicle for making the actual, hard choices that will need to be made for long-term cost control. By this I mean what I’ve written: making coverage decisions on new technology. I do not see how more private plan enrollment will do it, given that those plans look to Medicare for legal cover.

        However, if someone put forth a premium support proposal that addressed this issue, that would be interesting. So far nobody has. Rationing is too radioactive. But it is where the action is.

        • Fair point. Is it practical to write legislation that would provide cover for private insurers absent Medicare? I guess that would still leave the negative PR issue and heaven knows insurers obsess over market share. Need to think this one over a bit.


          • @steve and Austin
            put another way, private insurers would need IPAB-like board with actual power to say x won’t be covered, likely more than will Medicare. Title 8 of Paul Ryan’s Patients’ Choice Act envisions boards having broader powers than Medicare, but for entire health care system, though its biggest penalty described was banning providers from billing Medicare. As Austin rightly says, creating a board that gives cover to private insurers to not pay would be even hotter than IPAB focused on Medicare only. Of course Ryan would say his boards won’t ration but improve appropriateness and quality.

        • Yes, rationing is radioactive in the US. So, where does that leave us? Since Americans seem determined to get any and all medical treatment out there paid for (I exaggerate but…) can costs ever truly go down? Not unless we cut pay to medical care providers and/or raise premiums so high to discourage insurance coverage. In theory, we could pass a law tomorrow reducing payment by 30 percent to medical providers- voila!- problem solved. Or we could pass a law raising premiums by, say, 5 thousand dollars a year for everyone- voila!- problem solved as so many would not buy insurance.

          We are battling two assumptions: medical providers deserve what they get paid and Americans must have every treatment available no matter the cost. Well, something has to change or the system will simply implode. My bet, cynically, is that the system will implode before any real examination/change is undertaken. In the meantime, we will continue to pay for prostate exams and colonoscopies and breast exams for people over 70. and we will pay countless money to save the life of premature babies weighing ounces; along with the lifetimes costs associated with the same.

          I suppose I would be okay with that if we as a society would just stop complaining about taxes/premiums and pay them until our society collapsed under the weight of all this medical care. And it will collapse because those who have the vast majority of wealth and income in this society do not pay their fair share. The unfortunate part is how many will be hurt; almost all of whom will be those without said wealth. The rich will always have the best medical care. Always.

    • I’ve heard statistics cited that up to 75% of healthcare costs are preventable via changes in diet and other health habits. Maybe this is not true for the 65+ population, but I’m guessing it’s still a large number. It seems to me that under premium support with bidding, plans would have huge incentives to work this angle. The discussion I’ve read on this board suggests treating risk as a purely exogenous variable, needing ex post adjustment, etc. But what if a plan does something really radical — I don’t know, hiring dieticians to call/consult plan enrollees, buying them treadmills, whatever — and they end up saving money. Shouldn’t that be rewarded? To me, that’s what’s attractive about this version of premium support proposed by Wyden and Ryan: the incentivizing of firms to actually lower costs because of the bidding mechanism.

      Now, I am pretty new to the field of health policy, so please correct any wrong-headed or naive notions….

      • And they are not doing it today because …?

        • Well, I’m thinking it’s because the current bidding mechanism under MA doesn’t reward cost savings very much. They have to kick 25% back to Medicare and the rest back to enrollees as additional benefits. While this latter option gives them some competitive edge at the margin, I doubt it is a significant motivator. They can provide more glasses and hearing aids, I guess, to attract enrollees. But after that set of additional benefits has been fully tapped, what’s the point of doing anything aggressive to generate significant cost savings? If there is one, I am not seeing it.

          • Actually, I think there is merit in the idea, but I think there are other reasons we don’t see a lot of it going on, even among non-Medicare plans (though there may be some). The reason is that it is far too easy to play hot potato. How does further splintering the risk pool solve that?

            • My interpretation of the proposed reform is that includes much stronger anti-hot-potato measures. Is that correct?

              Also, I would go further and limit the risk adjustments to ex ante rather than ex post, forcing companies to own the risk, treat it as endogenous, and work hard to lower it. But for this to be successful, they have to be allowed to keep a bigger chunk of the profits they make.

              Also, as to rebating premiums back, this seems very convoluted (and probably from a senior’s point of view, suspicious) way of saving the consumer money. The Wyden-Ryan proposal seems like it would make these price differentials much more up-front, so consumers would be more apt to choose accordingly than they are now.

        • I can think of two reasons companies have less incentive to reduce costs so that they can reduce premiums. ( I realize that there are other incentives to reduce costs.). First, Medicare Advantage Plans collective share of the Medicare market is limited by the fact that many elderly either don’t know about Medicare Advantage or don’t trust private insurance or for any of a dozen other reasons don’t seriously consider Medicare Advantage. That limits the rewards of gaining of greater market share (e.g 10% of a market that is 30% of the elderly versus 10% of a market that might be 50% of elderly if more elderly were open to Medicare advantage)

          The second reason is that, reasonably or unreasonably, there is enough distrust of private insurance that people would wonder what the catch was if a company lowered premiums too much. I know I would and I don’t think I’m alone. Part of the problem might be that the mechanisms to insure that companies don’t cheat people by denying coverage aren’t sufficiently powerful and/or visible or that stories of coverage denials are both visible enough and emotionally powerful enough that people don’t forget them. Keep in mind that it is what the general public (e.g. me) know of these mechanisms that counts not what experts know.

          Setting aside the issue or reducing premiums to gain greater market
          share, I am not sure what the incentive is to cut costs with Medicare Advantage. My understanding–and my memory may be playing tricks on me– is that Medicare Advantage companies whose costs are lower than expected are required to use most of that money to provide additional services, which gets us back to the issue of market penetration.

    • @A. Barker- This from Aaron should help to cover the issue of excessive illness in the US. As Austin noted, if 75% were really the case, one would expect private insurers to be doing everything you suggest, and cost 75% less than Medicare. Not the case. (If you are new to health care policy, you might enjoy perusing the FAQ area.)



      • Thanks, that was interesting. The 75% number I threw out came from a source that is trying to include all diseases that stem from nutrient-poor diets, meaning too few whole grains and vegetables and too much meat and dairy. It is obviously speculative, and it was meant for the whole population, not 65+. It has a long time horizon as well, meaning that companies’ outlooks on risk would have to be just as far-reaching in order for us to see them tap into it, since there would be substantial up-front investment in nudging people into modifying their behavior. Finally, I think it’s also relatively new information, as nutrition research is finally coming into its own, and I would guess that if companies’ incentives were aligned as I suggested in my previous post, they would be quick to capitalize on it.