Medicare Fix Must Include Means-Testing

The Democrats may have picked up a seat in New York by running against Paul Ryan's Medicare reform proposals. Anyone who is honestly contemplating Medicare's future though must admit that controlling the program’s costs must include some level of means-testing.

Up to now, Democratic leadership has been adamant about denying the necessity for means-testing, clearly for reasons of partisanship and ideology. Can anyone deny the absurdity of the millionaires and billionaires the president is so fond of targeting receiving the same health insurance subsidies as the retired domestic worker? Now however, some Democratic leaders have come to see the foolishness of their pose: Minority Whip Steny Hoyer has even acknowledged the need for a new approach at his last weekly briefing.

This new reality raises the question about how one would go about operationalizing means-testing of Medicare. This is not easy. Medicare now pays 80% of an established physician fee schedule which is based on valuing the work and overhead costs associated with thousands of physician-delivered services. Physicians submit codes and Medicare sends them a check. How could this system be converted into a means-tested process?  Each individual could have a different co-pay level, but who would monitor that variable? Would physicians have to go to some central database to identify each patient’s co-pay?  Suppose a patient’s economic status changed. How would a new level of individual co-pay be known to the physician? Clearly this solution would be unworkable.

Another approach would be a tax refund based on medical expenses for the preceding year. But that approach would depend on the IRS tracking a patient’s net worth each year and also tracking the legitimacy of any medical claims. It would destroy any notion of the privacy of medical data and create a huge new level of data assessment for the IRS. In essence, the IRS would become a health insurance claims company.

Finally, the approach could be to simply raise the premium that affluent seniors must pay monthly for Medicare Part B  (the physician component of Medicare). Currently, the premium is about $120 per month. While it may be necessary to pursue this solution, it would require a very large premium (really a tax increase) of, say, $500 to $1000 per month. This approach will not do anything to constrain health care costs in Medicare and will be enormously controversial. Many would rather shop for a high deductible insurance plan than pay such expensive premiums.

The only simple approach to this problem is actually the Paul Ryan proposal for utilizing the insurance industry to handle Medicare claims through its current infrastructure. This way, individuals would purchase their insurance using vouchers whose value would be based on a yearly assessment of an individual’s net worth or income.  Ryan has emphasized the means-testing of his approach but this point has been overshadowed by demagoguery about the overall proposal.

The administrative advantage of utilizing a voucher system to allow an efficient approach to means-testing is still a relatively minor benefit of managing Medicare through health insurance companies.  These companies now have the infrastructure to implement many of the reforms that Obamacare hopes to only study in the years beyond 2014. Take, for example, the Accountable Quality Contract (AQC) implemented by Blue Cross/ Blue Shield in the home of Romneycare. The AQC is a modified global payment model, designed to encourage cost-effective and patient-centered care by paying participating physicians and hospitals for the quality, not the quantity of the care they deliver. This model delivered impressive improvements in care as reported by BlueCross BlueShield of Massachusetts:

For preventative care measures like cancer screenings and well-child visits, the rate of improvement in AQC groups' performance was three times that of non-AQC groups, and more than double the AQC group's own improvement before joining the AQC.

For chronic disease care measures such as management of diabetes and cardiovascular disease, among the most costly and prevalent chronic care conditions, the AQC groups' rate of improvement on screening and monitoring measures far exceeded those of physicians not in an AQC contract. In year one of the contract, AQC organizations made gains on these measures at a rate more than four times what they had been accomplishing before the contract.

On clinical outcome measures, many AQC group's performance measures are approaching or have reached the highest levels of quality believed to be attainable for a patient population. Outcome measures indicate results of patient care, such as control of blood pressure, blood sugar, or cholesterol, which signify that a patient's chronic condition like diabetes or cardiovascular disease is well-managed.

This kind of quality improvement can only be achieved when information systems have the ability to track medication use, patients seeking care at multiple institutions, and other important demographic and outcome data. The nation’s health insurance companies are the only regional enterprises that possess this capability for a large population.

So, an honest look at a plan that means-tests Medicare and allows implementation of new payment models must acknowledge the central role that the health insurance industry must play in healthcare reform. If Medicare costs continue to spiral upwards, Ryan’s plan or some iteration of it should be enacted.

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