Policy Expert: Focus on Improving Medicare before Debating Medicare for All

A Manhattan Institute senior fellow makes his case for Medicare Advantage.

A prominent conservative healthcare policy expert had a simple message in a recent opinion column: before diving into a debate over the prospects of “Medicare for All,” maybe Medicare needs a bit of tinkering first.

Manhattan Institute Senior Fellow Chris Pope, writing in the Wall Street Journal, noted that the standard Medicare benefit package falls well short of what progressive supporters of universal healthcare have in mind.

“If Medicare were a private insurance plan, it wouldn’t even qualify as adequate health insurance on the Affordable Care Act’s exchange. Medicare currently leaves enrollees who lack supplemental coverage exposed to potentially catastrophic out-of-pocket expenses and steep deductibles for prescription drugs – one of the primary political concerns of seniors,” Pope wrote. “There’s a solution that doesn’t involve undermining drug innovation or imposing extra costs on taxpayers.

Medicare Advantage (MA), which pays for a beneficiary’s private insurance plan, insures patients at a lower cost than traditional Medicare, which pays hospitals and physicians directly. It also produces consistently better health outcomes.”

MA plans are Medicare plans offered by private companies that contract with Medicare and provide Part A and Part B benefits, often also entailing prescription drug coverage. More than 20 million Americans are reportedly enrolled in more than 2,700 such plans nationwide.

Pope noted that MA plans have a huge incentive to prevent expensive hospitalizations: they are responsible for the full spectrum of healthcare costs.

“Medicare Advantage enrollees were also significantly likelier than traditional Medicare beneficiaries to receive appropriate diagnostic tests, preventive care services, and help managing their prescription medications,” he wrote. “The annual mortality rate of Medicare Advantage enrollees is much lower than those enrolled in traditional Medicare, and the disparity can’t be explained by differences in medical risk factors alone.”

Pope also contrasted the lack of any Medicare cap on out-of-pocket costs with the MA cap of $5,219 annually, noting that in addition to the prevalence of prescription drug coverage, Part D deductibles are two-thirds as expensive as Medicare under MA, and the majority of beneficiaries also receive dental coverage.

Yet, Pope also noted, currently only a little more than a third of Medicare enrollees participate in MA.

“According to a new Manhattan Institute report, there are several reasons,” Pope’s column read. “The generous reimbursements that rural hospitals can claim from traditional Medicare discourage them from entering Medicare Advantage networks. Implicit additional federal subsidies for “wraparound” coverage – such as Medigap, which serves as an alternative to Medicare Advantage – also play a role. But an easily remedied factor limiting the growth of this superior program is the poorly designed way insurers are paid.”

Currently, Pope added, there is an established benchmark, $837 monthly, up to which each plan can claim reimbursement for the expected costs of delivering the standard Medicare benefit. And if a MA plan can cover enrollees for less than that, it must return up to half of whatever savings it generates to the federal government before it can use those funds to enhance the generosity of benefits – and this deters plans from doing so, meaning beneficiaries miss out on about half of the efficiency gains produced by the MA program.

“A simple reform could eliminate this disincentive,” Pope proposed. “Paying Medicare Advantage plans a flat fee for each enrollee they attract would allow them to enhance benefits, reduce costs, and attract more enrollees. The flat fee should be the average net amount that the government currently spends on Medicare Advantage.”

“Before seeking to expand Medicare benefits to the entire population,” Pope concluded, “health reformers should focus on improving coverage for people the program was first designed to help.”

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