Medicare Uncovered: Who should pay? Who can pay?

A shout-out to Marketwatch for a thorough report that challenges the "skin-in-the-game" theory

Elizabeth O’Brien’s May 15 Marketwatch piece on proposed changes for Medicare is one of the best I have seen since the government’s health program for elderly and disabled people surfaced last year as a likely target for the federal budget axe. It still is a target, and that makes O’Brien’s effort all the more important. Her story acknowledges an aspect of the debate that has been under-emphasized—that there is another side to the narrative that Medicare beneficiaries should pay more for their care.

As The Second Opinion has noted repeatedly, the “more skin-in-the-game” philosophy of healthcare costs—meaning that if people have to pay more out-of-pocket they’ll use fewer medical services, and the US healthcare tab would drop—is popular among politicians. The media, though, have yet to explore what all this means for beneficiaries themselves.

But O’Brien asks the question: Will people make smarter, more cost-effective choices when more of their own money is on the line? In other words, will they shop around and be the good consumers of healthcare that economists say they can be?

O’Brien addresses the question as she analyzes a new Health Affairs report that found the popular Medigap insurance plans—these cover Medicare’s benefit gaps, and are carried by about one-quarter of the Medicare population—are associated with higher rates of spending growth than traditional Medicare with no supplemental coverage. Translation: people who don’t have Medigap policies use fewer health services.

But, why? The study suggested that beneficiaries who do have supplemental policies use more services because the comprehensive benefits make them less price sensitive—and that, also, they tend to be sicker.

Surprise, surprise! It seems to follow that sicker people do need more services. And, further, that without the coverage afforded by Medigap insurance, many in this group could not pay for them.

That’s the point two sources whose voices are rarely heard in the Medicare debate made in O’Brien’s piece. Stacy Sanders, who directs federal policy for the advocacy group the Medicare Rights Center, told O’Brien: “You can budget for a premium, but you can’t budget for that really high hospital bill.” Indeed most people can’t, and that’s why beneficiaries buy supplemental coverage, which O’Brien reported averages $183 a month. O’Brien also interviewed Jonathan Oberlander, a professor of health policy and social medicine at the University of North Carolina, who said when people “are hurting and really sick or in an emergency situation, it’s absurd to think they can” shop around and conduct a cost-benefit analysis on the care they need. Maybe, Oberlander said, they would shop for the cheapest MRI procedure if they have time, and if they have high-deductible insurance. But even doing that can be tricky.

Floyd J. Fowler, a senior scientific adviser to the Informed Medical Decisions Foundation, a nonprofit group that advocates shared healthcare decision-making between doctor and patient, told O’Brien that Medicare itself is in a better position than the average beneficiary to make decisions about cutting costs. But Fowler pointed out that it’s tough for Medicare to encourage cost-conscious choices because it must pay for FDA-approved drugs and medical procedures deemed necessary, even if there’s a lower-cost alternative that’s just as effective. And it’s worth pointing out again that Obamacare prohibits the government from making any coverage decisions based on both clinical and cost effectiveness. Lobbyists for drug makers and their brethren in the medical healing business saw to that. Maybe O’Brien and other reporters can flesh out this angle in further reporting.

It was good to see O’Brien lay out one of the options the president has proposed for “fixing” Medicare’s budget problem. Those options have gotten little press attention except for a passing mention. O’Brien’s story is the exception. The president wants to make anyone buying two particular Medigap plans, which go by the names Plan F and Plan C, pay an extra amount to have those plans. Plans F and C happen to be the Medigap plans that cover the most services, so it’s no wonder they are popular. Policymakers who believing in the skin-in-the-game approach want to make them less financially attractive.

To that end, Obamacare directed the National Association of Insurance Commissioners (NAIC) to recommend a plan for making seniors pay more for both Plans F and C, but a NAIC task force advised against increasing cost-sharing under those policies—arguing it would be a financial blow to some of the poorest beneficiaries who depend on them.

O’Brien nicely sums up the dilemma people will face if the cost-sharing options on the table become law. The proposed changes “would force them to weigh whether their needs justify the extra outlay.” How they do that is the productive thread for many future Medicare stories. Even if these proposals don’t go anywhere legislatively for now, “proposed changes to Medigap plans will remain under debate among policy experts and politicians,” O’Brien writes.

All the more reason to stay on top of the story.

Follow @USProjectCJR for more posts from this author and the rest of the United States Project team, including our work on healthcare issues and public health at The Second Opinion.

Related content:

Medicare Uncovered: the pain from skin in the game

Medicare Uncovered: parsing Sen. Corker’s big bill

Medicare Uncovered: What the president said, and didn’t say

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Trudy Lieberman is a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for The Second Opinion, CJR's healthcare desk, which is part of our United States Project on the coverage of politics and policy. She also blogs for Health News Review. Follow her on Twitter @Trudy_Lieberman. Tags: