By Karen Davis, Cathy Schoen, and Stuart Guterman. Medicare Essential: An Option To Promote Better Care And Curb Spending Growth

Transcription

1 Sustaining Medicare doi: /hlthaff HEALTH AFFAIRS 32, NO. 5 (2013): Project HOPE The People-to-People Health Foundation, Inc. By Karen Davis, Cathy Schoen, and Stuart Guterman Medicare Essential: An Option To Promote Better Care And Curb Spending Growth Karen Davis (kadavis@ jhsph.edu) is the Eugene and Mildred Lipitz Professor in the Department of Health Policy and Management and director of the Roger C. Lipitz Center for Integrated Health Care, both at the Johns Hopkins Bloomberg School of Public Health, in Baltimore, Maryland. Cathy Schoen is senior vice president for policy, research, and evaluation at the Commonwealth Fund, in New York City. Stuart Guterman is vice president of the Commonwealth Fund and executive director of the Commonwealth Fund s Commission on a High PerformanceHealthSystem. ABSTRACT Medicare s core benefit design reflects private insurance as of 1965, with separate coverage for hospital and physician services (and now prescription drugs) and no protection against catastrophic costs. Modernizing Medicare s benefit design to offer comprehensive benefits, financial protection, and incentives to choose high-value care could improve coverage and lower beneficiary costs. We describe a new option we call Medicare Essential, which would combine Medicare s hospital, physician, and prescription drug coverage into an integrated benefit with an annual limit on out-of-pocket expenses for covered benefits. Cost sharing would be reduced for enrollees who seek care from high-quality low-cost providers. Out-of-pocket savings from lower premiums and health care costs for a Medicare Essential enrollee could be $173 per month, compared to what an enrollee would pay with traditional Medicare, prescription drug and private supplemental coverage. Financed by a budget-neutral premium, we estimate that this new plan choice could reduce total health spending relative to current projections by $180 billion and reduce employer retiree spending by $90 billion during Given its potential, such an alternative should be a part of the debate over the future of Medicare. Today s Medicare beneficiary faces a core benefit in traditional Medicare that reflects private insurance at the time Medicare was enacted in Consequently, beneficiaries are exposed to substantial cost sharing. To secure more comprehensive, protective coverage, beneficiaries must buy separate drug and supplemental plans, facing a complex array of choices at high administrative expense. Modernizing Medicare s benefit design to offer a new integrated choice has the potential to lower future premium and out-of-pocket expenses for beneficiaries and to complement other reforms that support delivery system innovations. As part of the ongoing effort to secure Medicare s future while honoring the commitment to provide health security to the nation s elderly and disabled, we propose a new Medicare public insurance option called Medicare Essential and describe how it could be designed to improve financial protection for beneficiaries and support payment and delivery system reform. This new choice would retain Medicare s defined-benefit structure but would combine Parts A, B, and D and supplemental coverage into a single Medicare choice for beneficiaries wishing to stay in traditional Medicare. The design would include integrated comprehensive benefits; improved financial protection; and positive incentives to seek high-value care, including reduced cost sharing for those receiving care from highvalue care providers. As we describe below, Medicare Essential could be combined with innovative payment methods to health care organizations that meet 900 Health Affairs May :5

2 high performance standards on care coordination and care of high-risk, high-cost patients. These payment methods would build on innovative approaches being implemented and tested by the Centers for Medicare and Medicaid Services (CMS), including comprehensive primary care, bundled payment for care improvement, and a variety of accountable care organization (ACO) models. Providers participating in innovative payment arrangements would be designated as high-value providers in the Medicare Essential benefit design. Beneficiaries electing to use such providers would have reduced cost sharing. This design would align the rewards offered to high-performing providers with new incentives for beneficiaries to use those providers and adhere to their recommendations. This would help accelerate the spread of delivery system innovations that seek to provide more patient-centered, coordinated care and would build on lessons learned from innovative approaches in the public and private sectors. 1 The plan described here is an evolution of an earlier Medicare Extra proposal, incorporating new developments in provider payment and delivery system organization. 2 It also builds on a recent analysis by the Medicare Payment Advisory Commission that highlighted the potential of a more comprehensive Medicare benefit design to reduce insurance administrative expenses and encourage beneficiaries to make better decisions about their use of discretionary care. 3 As background, we first discuss the complex choices currently facing Medicare beneficiaries and the rationale for the Medicare Essential approach. We then outline an illustrative benefit design and provide estimates of the potential impact of offering Medicare Essential as a choice starting in The estimates assume premiums for the enhanced benefits are set to be budget-neutral for the federal government. We illustrate the potential impact of Medicare Essential in the context of broader health system reforms by comparing estimates of the costs to beneficiaries under the new plan with costs for beneficiaries enrolled in traditional Medicare, with supplemental Medigap Plan F coverage and a separate Part D plan. And we present ten-year estimates of the potential impacts on national health spending, as well as health spending by the federal government, state and local governments, private employers, and households. Finally, we discuss the advantages of such an option to beneficiaries; the incentives it provides for better care; and its likely effect on providers, health care suppliers, and payers. We argue that Medicare Essential could stabilize the growth of Medicare outlays per beneficiary while improving coverage and care, especially for vulnerable beneficiaries, by accelerating the spread of care system reforms to improve the value and efficiency of health care. Current Medicare Benefit Design: Fragmented And Complex Medicare beneficiaries who enroll in traditional Medicare must patch together multiple plan options to receive adequate financial protection and prescription drug benefits, including supplemental Medigap coverage and a separate drug plan. This creates complexity and confusion for beneficiaries and results in higher administrative expenses because of the multiple insurance carriers involved and the lack of integrated claims administration. These complex choices also open the door to risk selection across the array of diverse Medigap and private drug plan options. The need to obtain coverage from multiple sources also makes it difficult for Medicare to incorporate value-based benefit designs that use patient cost sharing to provide incentives to seek high-value care and compare alternative treatment choices. By offering separate medical and drug coverage, the current design creates a disincentive to achieve hospital and specialty care savings through appropriate medication management. The availability of first-dollar supplemental coverage in the current Medigap market makes it difficult for Medicare to adopt incentives for beneficiaries to register and seek care from primary care practices and medical home teams or seek care from accountable health care systems with a track record of high quality of care and lower costs. 4 The combination of fragmented and firstdollar coverage thus raises total costs and confronts beneficiaries with complex choices at high administrative expense. And current benefits fail to offer protection from catastrophic outof-pocket expenses if beneficiaries cannot afford private supplements. The only option available to beneficiaries who want integrated comprehensive coverage is to enroll in a private Medicare Advantage plan, even though doing so limits their choice of in-network providers. Medicare Essential: Key Features The core goal of the proposed Medicare Essential option is to modernize Medicare s basic benefit design to provide integrated, comprehensive coverage with positive incentives to seek highvalue care and receive care from high-performance care systems. Establishing a Medicare May :5 Health Affairs 901

3 Sustaining Medicare Essential option could also foster more positive competition in the Medicare Advantage marketplace, with the Medicare Essential plan and private plans exerting pressure on each other to improve the value they add through better care delivery and shared physician-patient decision making, while stabilizing health care costs. Benefits To illustrate a potential Medicare Essential benefit design, we assumed that the scope of covered benefits would be the same as current Medicare, with the addition of prescription drugs. As illustrated in Exhibit 1, cost sharing would be reduced compared to current Medicare Parts A, B, and D, and coverage would be integrated with a unified annual limit on beneficiaries out-of-pocket expenses for covered benefits. Starting in 2014 Medicare would sponsor a new plan choice that would include a single deductible of $250 per beneficiary for hospital and physician services. The benefit would cover preventive care in full (exempt from deductible), with modest copayments and coinsurance for primary care and specialists, such as a $20 copayment for primary care visits, $40 copayment for specialty care visits, and $50 for emergency department use. It would set an outof-pocket maximum for Medicare-covered services of $3,400 per year, including prescription drug costs, to ensure financial protection against catastrophic expenses. The integrated benefit design would include prescription medications with no deductible and the use of a single formulary nationwide. It would incorporate a value-based design such as nominal copayment for generic drugs and 25 percent cost sharing for a nonpreferred brand. The prescription drug benefit would be provided by a nationwide pharmaceutical benefit manager, selected by competitive bid. This entity would be authorized to negotiate prices on behalf of Medicare. The benefit design would reduce cost sharing for prescription medications Exhibit 1 Medicare Essential Benefits Compared With Various Other Current (2012) Plan Options Medicare with Part D only Component Medicare Essential Hospital inpatient Deductible $250 annual, including all covered services Cost sharing None $289 per day for days of an episode Physician Deductible Cost sharing $250 annual, including all covered services a $20 primary care/$40 specialist/$50 ED unless urgent or accident a Prescription drugs Deductible None Varies widely by plan; standard benefit $320 annual, most plans lower Cost sharing 25%, lower for generic Varies widely by plan; and essential drugs standard benefit 25%; lower copay for generics Out-of-pocket spending Limit $3,400 annual a No limit for Parts A and B, $4,700+ limit for Part D b Medicare Advantage, typical HMO Medicare Advantage, typical PPO (innetwork) FEHB BCBS Standard Option, PPO (innetwork) $1,156 per episode None None $350 annual, including all covered services $500 per admission $250 per day for $250 per admission days 1 7 of a stay $140 annual, Part B services None None $350 annual, including all covered services 20% $20 primary care/$30 $20 primary care/$50 $20 primary care/$30 specialist/$65 ED specialist/$65 ED specialist/15% ED None None $350 annual, including all covered services 5 tiers: $5/$13/$45/ $80/25% per 1-month Rx 5 tiers: $6/$33/$45/ $95/33% per 1-month Rx 3 tiers: 20%/30%/45% (no cost sharing for first 4 generic Rx per drug per year) $3,400 annual $6,700 annual $5,000 annual SOURCES Centers for Medicare and Medicaid Services. Your Medicare benefits. Baltimore (MD): CMS; 2012 Jun. Kaiser Permanente Medicare Plus Standard Plan (health maintenance organization, or HMO) and Aetna Medicare Standard Plan (preferred provider organization, or PPO) benefits described in Centers for Medicare and Medicaid Services. Find-a-Plan [Internet]. Baltimore (MD): CMS; 2012 [cited 2012 Oct 15]. Available from: Federal Employees Health Benefit Program. Blue Cross and Blue Shield Service Benefit Plan Description, Washington (DC): Office of Personnel Management; NOTE ED is emergency department. a Under Medicare Essential, there would be no deductible or cost sharing for preventive care. Cost sharing and the out-of-pocket spending limit would be lowerfor beneficiaries who registered with primary care medical homes, care teams, or accountable care networks. See Exhibit 2. b Part D has an out-of-pocket spending limit of $4,700 plus small coinsurance or copayments for covered drugs after catastrophic coverage threshold is reached. 902 Health Affairs May :5

4 known to be highly effective or essential and would use information on comparative effectiveness as appropriate. This could include prior authorization depending on whether or not scientific evidence indicated that the treatment or service had benefit, but only for specific patients and conditions. Starting in 2014 the Medigap market for those newly eligible for Medicare would also be reformed to require some nominal cost sharing to conform to the new benefit design. Beneficiaries would pay the first $250 in covered costs, the unified deductible, and nominal copays for physician office and emergency department visits. Provider Payment Reform In the estimates we assumed that innovative Medicare payment methods would be offered to primary care practices, health systems, and ACOs meeting high performance standards on care coordination and care of high-risk, high-cost patients. Providers participating in these payment methods would be designated as high-value providers. The payment methods would be based on payment pilots now being tested by the Center for Medicare and Medicaid Innovation. Primary care practices using a team approach to care would be paid a blended rate of fee-forservice, care management fee per beneficiary, and performance bonuses similar to those being tested in the Innovation Center s Comprehensive Primary Care Initiative. 5 Health systems that provided integrated acute and postacute care for selected conditions and procedures, such as hip replacement, and that met appropriate quality standards would be paid an all-inclusive global fee for care received during and after hospitalization for a period of time. Accountable care organizations would be paid under one or more of the various methods now being tested by the Innovation Center including shared savings with no downside risk, two-sided risk, or partial or full capitation. 6,7 These policies would direct increased payment toward models of care that have the potential to reduce costs and improve outcomes, producing net overall savings. The Medicare Essential plan would reduce cost sharing for beneficiaries selecting care from these high-value providers. As illustrated in Exhibit 2, the estimates assumed that the design would waive deductibles and reduce cost sharing to a $10 copayment for visits to patient-centered medical homes and 5 percent coinsurance for specialty care within preferred health systems or accountable care organizations. Financing Beneficiaries selecting the Medicare Essential plan would pay a premium that would combine the current Part B premium, estimated at $127 per month for most beneficiaries in 2014, with the extra costs of offering the integrated, essential benefit design that includes prescription drugs. The premium would be set to fully cover the estimated cost of the improved benefit design relative to the cost of the current Medicare benefit package over the first ten years, to be budget-neutral for the federal budget. 8 Beginning in 2014 newly eligible Medicare beneficiaries would be automatically enrolled in this new option, with the choice of opting into any Medicare Advantage plan or the current basic traditional Medicare plan instead. Those currently enrolled in traditional Medicare would have the option of switching to Medicare Essential or remaining in their current arrangement. Cost-Estimating Methods Estimates of the potential premium, out-of-pocket, and longerterm impacts of the illustrative benefit design were based on modeling by the Actuarial Research Corporation; details are available in the online Appendix. 9 The Actuarial Research Corporation used its Medicare micromodel to calculate the cost effects of the Medicare Essential design with and without incentives for highvalue providers. The model uses three years of Medical Expenditure Panel Survey data with imputed skilled nursing facility services, controlled to the national health expenditure current policy baseline in It uses programs that simulate the changes in cost sharing under the two options standard providers or high-value providers compared to projections under current Medicare policy. The model performs an iterative induction calculation, with induction applied separately by service and type of supplemental insurance. To illustrate the potential impact over the tenyear period , the modeling assumed that 10 percent of beneficiaries in traditional Medicare not Medicare Advantage would join Medicare Essential in 2014 and that 10 percent of those beneficiaries would take advantage of positive incentives to register with a primary care practice, medical home, care team, or ACO network. The modeling assumed that by 2023, 90 percent of those not in Medicare Advantage would be enrolled in Medicare Essential, with all benefiting from the incentives for high-value care. Currently, 27 percent of Medicare beneficiaries have enrolled in Medicare Advantage, choosing to obtain coverage through private plans rather than traditional Medicare. For simplicity, the modeling assumed that the same percentage would be in Medicare Advantage throughout the decade as is currently projected; there was no attempt to explore potential interactive effects between Medicare Essential and Medical Advantage plans. The Actuarial Research Corporation s May :5 Health Affairs 903

5 Sustaining Medicare Exhibit 2 Medicare Essential Benefit Design And Incentives Component Core benefits Incentives: lower cost sharing for high value Deductible Hospital/physician: unified $250 deductible; does not apply to preventive care Deductible does not apply to primary care if registered with primary care practice or PCMH Deductible does not apply if referred to specialist by PCMH or high-cost care team a Cost sharing Prescription drugs $20 copay for primary care visit $40 copay for specialist visit 10% coinsurance for lab or diagnostic outpatient 10% coinsurance for other Part B services currently subject to 20% cost sharing (outpatient surgery, durable medical equipment, etc.) $50 copay ED visit unless urgent, accident 25% cost sharing for nonpreferred brand; out-of-pocket limit includes Rx drugs $10 copay for primary care if PCMH practice Coinsurance lowered to 5% for lab, diagnostic if PCMH, highcost care team, or ACO a No cost sharing for care management; health home networks covered for dually eligible where available Use reference pricing pay up to level of equivalent drugs (lowest-cost two drugs); patients pay the difference unless doctor specifies reference drug not appropriate for patient Nominal copay for generic drugs If in ACO network or high-value care teams, expanded benefit as needed to avoid hospitalization Home health, skilled nursing Home health: no cost sharing (same as current) Skilled nursing: $80 per day for days Out-of-pocket limit $3,400 annual $2,000 if high-cost care team or certified ACO network $2,000 limit if low-income Other provisions Low income b Medigap Medicare Advantage Current provisions: if eligible for Medicaid, Medicaid pays Medicare Essential premium Under 150% of poverty but not Medicaid eligible: out-of-pocket limit of $2,000 per year Starting in 2014 Medigap does not cover the $250 deductible, and all plans must include at least $20 copayment per physician and ED visit (similar to Medigap Plan N); applies to new enrollees, older plans are grandfathered in Upper limit on out-of-pocket maximum: $3,400 (lower limits permitted) No cost sharing for home health if part of care plan (to avoid risk selection) SOURCE Authors specification of plan design. NOTES ED is emergency department. PCMH is patient-centered medical home. ACO is accountable care organization. a Highcost care teams care for higher-cost, sicker patients, often with multiple conditions. b Up to 150% of the federal poverty level. estimates of spending during were based on the current policy baseline of the CMS Office of the Actuary as of June 2012, extended though 2023 and with an adjustment to Medicare spending based on the assumption that Congress will continue to postpone the scheduled Medicare physician fee cuts. 10 Study Results Cost Per Beneficiary Under the current program, total monthly spending on Medicarecovered services, including premiums and outof-pocket expenses, for a typical beneficiary with Medigap Plan F and Part D coverage, is an estimated $427 in 2014 dollars (Exhibit 3). This amount includes the Parts B and D premiums, estimated at $127 and $35, respectively; the Medigap monthly premium, estimated at $217; and an average of $48 per month in out-of-pocket spending on covered services. The monthly premium for the same beneficiary to enroll in Medicare Essential is estimated at $111 in addition to Part B, to offset the additional cost to Medicare of the more comprehensive benefits. On average, however, the same beneficiary would face lower total spending under Medicare Essential than under traditional Medicare plus Medigap F plus Part D (Exhibit 3). Total monthly premium costs would drop from $379 to $238. Although the direct out-of-pocket cost of medical care would increase with the elimination of first-dollar coverage, the beneficiary s savings from reduced premium and drug costs would more than offset that increase. For beneficiaries choosing standard providers, monthly premiums and out-of-pocket costs for care for all services, including drugs, would drop from an estimated $427 a month to $354 a month a net monthly savings of about 17 percent. Even more savings could be obtained if beneficiaries sought care from preferred providers, taking advantage of the benefit design incentives available to Medicare Essential enrollees. Assuming that such care systems succeeded in providing more-efficient care over time, supported by changes in Medicare payment policy now being implemented and piloted, the shift to more accountable care teams could reduce total costs of care as well. Assuming a potential 10 percent efficiency gain by 2023 compared to current care systems, combined out-of-pocket expenses could be reduced by an additional 28 percent for ben- 904 Health Affairs May :5

6 Exhibit 3 Estimated Monthly Out-Of-Pocket Expenses For A Typical Medicare Beneficiary With Medicare Essential (Using Standard Providers And High-Value Providers), Compared With Traditional Medicare Plus Medigap Plan F And Part D, 2014 Traditional Medicare plus Medigap Plan F Expenditure item and Part D (1) Cost sharing for Medicare-covered services Medicare Essential (standard providers) (2) Net difference, (2) (1) Medicare Essential (high-value providers) (4) Medical care (Parts A and B) $0 $80 $80 $40 $40 Prescription drugs (Part D) Premiums Part B Part D Medigap Plan F Medicare Essential Total monthly out-of-pocket expense Cost sharing plus premiums Net difference, (4) (1) SOURCE Estimates provided to the authors by the Actuarial Research Corporation, based on its Medicare micromodel. NOTE Estimates reflect full implementation of Medicare Essential in eficiaries who took advantage of the incentives described above, to an average of $254 a month. This total would be 40 percent lower than projected costs in 2014 of $427 under the current program with private supplements (Exhibit 3). Impact On Health Spending By Payer Medicare Essential could be expected to be attractive to employers that now sponsor supplemental coverage for their retirees, by offering lower total costs, more integrated benefits, and greater protection for enrollees. State Medicaid programs also could gain from lower costs for beneficiaries who are dually eligible for Medicaid and Medicare and for state public employees. Using the assumed participation rates described above, Exhibit 4 presents estimates of the net cumulative impact from 2014 to 2023 on national health expenditures, as well as health spending by the federal government, state and local governments, private employers, and households, compared to current Medicare policy. 11 Offering the Medicare Essential option would reduce total health spending relative to the projected baseline by an estimated $180 billion over the ten-year period. This reflects the shift of Medicare beneficiaries into patientcentered medical homes and high-performing ACOs, the value-based benefit design incorporated in the new option, and a new cost-sharing structure that encourages use of effective services as well as discouraging use of higher-cost medications and treatments that do not yield added benefit over lower-cost alternatives. The estimates set the premium at a budgetneutral level, with the new option designed to be self-financing over the initial ten-year period. Some federal government outlays may be required initially, as the participation rate in the newly integrated prescription drug benefit would increase compared to the current participation rate for Part D. By design, then, federal government spending would not increase or decrease relative to the current projections over the period If the program operated as anticipated, there could well be a decrease in federal spending in future years, as overall health spending slowed. Employers could save an estimated $90 billion over the ten-year period, if they took advantage of coverage that cost less than the current retiree supplemental coverage they provide. With high premium costs and administrative costs that typically run percent, employers would gain from paying Medicare Essential premiums instead of supplementing Medicare through the private insurance market. States could save an Exhibit 4 Changes In National Health Expenditures Under Medicare Essential Compared To Projected Spending Under Current Policy, By Payer Source (Billions Of Dollars) National health expenditures $12.9 $179.9 Federal government State and local governments Private employers Households SOURCE Estimates provided to the authors by the Actuarial Research Corporation, based on its Medicare micromodel. NOTES Projected spending under current policy assumed that the Sustainable Growth Rate formula for paying physicians would be repealed and Medicare physician fees instead increased by 1 percent in 2013 and were held constant from 2014 through The model assumed increased participation in Medicare Essential over time compared to traditional Medicare, with 90 percent of beneficiaries who selected the option by the end of the decade participating in the high-value option. Medicare Advantage enrollment was assumed to be unchanged throughout the period. May :5 Health Affairs 905

7 Sustaining Medicare estimated $27 billion through lower Medicaid spending and lower costs for public retiree health benefits. The major gains from Medicare Essential, however, would accrue to Medicare beneficiaries. Although they would have to pay a premium for the enhanced benefits they would receive, with some cost sharing, total out-of-pocket expenses would be lower than what they now pay for Medigap and prescription drug coverage. Beneficiaries would reap both these savings and the benefits of receiving care from a more efficient and effective health system. Estimated net savings for households over the ten-year period were $63 billion. Discussion Advantages To Beneficiaries Medicare Essential would improve financial protection for beneficiaries; reduce the complexity and confusion of obtaining supplemental coverage; and, for those without private supplements, reduce financial barriers that impede access to needed care. It would incorporate a comprehensive single deductible, compared with $1,156 per hospital episode and an annual $140 deductible for Part B services in traditional Medicare; would lower copays for many services; and for the first time would place a ceiling on total out-of-pocket expenses. The design would eliminate the need to buy costly supplemental coverage. By reducing administrative costs entailed in the use of multiple plans plus adopting a unified design, the new plan choice could achieve beneficiary savings of percent relative to the current cost for a typical beneficiary with Part D and Medigap Part F coverage. Impact On Care Delivery All Medicare beneficiaries would have positive incentives to register with primary care practices qualifying as a patient-centered medical home and employing teams that would help coordinate care and arrange referrals to specialists. These medical home practices could be required to have roundthe-clock coverage arrangements and be accessible by phone as needed. High-risk beneficiaries with multiple chronic conditions would have enhanced support at home if they selected a primary care team able to provide them with highquality coordinated care. To assure that beneficiaries had the opportunity to make informed choices, there could be a new requirement for specialists to engage in shared decision making using patient decision aids when alternative treatment choices exist. Beneficiaries would also have reduced cost sharing if they used preferred providers, including high-performing health systems and ACOs participating in innovative payment methods. System Efficiency Medicare Essential should be able to lower administrative costs. Twenty-eight percent of Medicare beneficiaries now purchase Medigap coverage to go with Medicare plans that average 20 percent in administrative overhead compared with 2 percent for traditional Medicare. 12 Medicare Essential would also replace the first-dollar supplemental coverage that many beneficiaries buy under Medigap with modest cost sharing. With Medigap reforms to include the new Medicare deductible, the net effect could be more costconscious use of health care services, without running the risk of underuse of effective services. Offering Medicare Essential would allow those now enrolled in Medicare Advantage to choose between a comprehensive private or public plan. Medicare Essential would also achieve savings through the retention of a pharmaceutical benefit manager to negotiate prescription drug prices and establish a single formulary. Competitive bidding for devices and other commodities could further lower costs for Medicare and its beneficiaries. Beneficiary incentives to choose lower-cost care combined with new payment incentives for providers to reduce duplication and wasteful care care with no perceived benefit would over time lower total health system costs. At the end of the decade, nearly all care provided to Medicare beneficiaries could be from either high-performing networks of providers in Medicare or high-performing Medicare Advantage plans. Equitable Access For Low-Income Beneficiaries Medicare s high cost sharing is especially daunting for beneficiaries with low incomes, particularly those without supplemental coverage who do not qualify for full Medicaid. Assistance with Part B premiums and other cost sharing is available to some low-income beneficiaries through Medicaid and Medicare Savings Programs. The programs, which are run by the states and jointly financed by state and federal governments, subsidize all Medicare cost sharing for beneficiaries with incomes below the federal poverty level and premiums for those with incomes below 135 percent of the poverty level. Separate provisions and poverty thresholds apply for Part D subsidies for lower-income beneficiaries. The estimates assumed that current provisions for low-income Medicare beneficiaries would continue. Medicaid would pay a Medicare Essential incremental premium and cost sharing for all Medicaid-eligible beneficiaries. This arrangement would provide these beneficiaries with the 906 Health Affairs May :5

8 enhanced benefit design, with Medicaid wrapping around for long-term care services. Reduced prescription drug cost-sharing provisions for low-income beneficiaries with incomes up to 150 percent of poverty would also continue to apply. The Medicare Essential design would provide beneficiaries with incomes too high to qualify for Medicaid but below 150 percent of poverty with a lower out-of-pocket maximum for all services: $2,000 per person. This is similar to provisions for reduced cost sharing for the population under age sixty-five in the Affordable Care Act. In keeping with the goal of reducing administrative layers, the Medicare Essential design could be expanded so that Medicare would charge lower premiums for those at or near poverty, avoiding the need for separate applications to Medicaid for premium assistance. The federal government now pays 55 percent of Medicaid costs, on average; thus, the net costs would be less than the cost of the premium assistance. Participation And Potential For Risk Selection The success of Medicare Essential in offering a more integrated choice at lower cost depends critically on which beneficiaries would select this option. To the extent that younger or healthier beneficiaries would be more likely to select Medicare Advantage or Medigap plans, there is the potential for Medicare Essential to attract a sicker, older mix of beneficiaries. To prevent risk selection, policies could be adopted that require Medigap plans to return to charging community- rather than age-rated premiums. Medicare Advantage premiums are typically lower than the estimated premium for Medicare Essential. Phasing out the excess payments for Medicare Advantage plans (which now pay them more than their enrollees would be expected to cost in traditional Medicare) under the Affordable Care Act would narrow these differences. 13 The Obama administration s announcement in April of increased Medicare Advantage payments in fiscal year 2014 did not alter the long-term policy of phasing out excess payments. Medicare Essential would provide a new alternative that could challenge Medicare Advantage plans to innovate and provide valueadded care system choices. Automatic enrollment of newly eligible beneficiaries in Medicare Essential would help reduce adverse risk selection. An extensive literature suggests that many people prefer not to make active choices and would probably participate in Medicare Essential if initially enrolled in this option. 14 However, attention to risk adjustment and market dynamics would be needed to ensure competition based on value rather than the health and risk mix of enrollees. Differential Geographic Access To High- Value Providers To the extent that the care system innovations spread unevenly across the country, beneficiaries enrolled in Medicare Essential would have differential access to enhanced primary care, care teams, and high-value health systems and ACO networks and would not benefit from the lower cost-sharing provisions of the benefit design. If geographic differences persisted, out-of-pocket costs would probably be higher in areas without access to providers designated as high value. This could result in increased demand by Medicare beneficiaries and their families for local care system innovation. Conclusion Beneficiaries in traditional Medicare have consistently expressed higher satisfaction with their coverage than have nonelderly enrollees in employer health plans and than Medicare Advantage enrollees. 15 Improving Medicare s benefits by offering an integrated insurance design sponsored by Medicare would build on this record and permit those beneficiaries who want to stay in the core Medicare program to consolidate their benefits there. A comprehensive Medicare Essential benefit has strong advantages for beneficiaries. Beneficiaries would have benefits they want at lower cost and with less confusion and complexity. A Medicare Essential option would also offer a genuine choice between Medicare and Medicare Advantage plans, with the potential to stimulate competition based on value added to the enrollee. If combined with positive incentives to seek care from primary care medical home practices, care teams, health systems, and networks able to provide high-quality care at a lower cost, a Medicare Essential option has the potential to support and enhance initiatives aimed at transforming the delivery system. In addition to the potential administrative savings and streamlined benefits, having the Medicare program assume fiscal risk and use its leverage in the market with a modern benefit design could accelerate progress toward achieving better outcomes and care experiences at lower costs. Given its potential, such an alternative should be a part of the debate over the future of Medicare. The nation needs a unified patient-centered strategy to preserve access while securing a highquality, more affordable health care system. As it often has in the past, Medicare can lead the way in innovations that ultimately will help achieve systemwide goals for value, savings, and quality for all Americans. May :5 Health Affairs 907

9 Sustaining Medicare Karen Davis is a member of the boards of directors of Geisinger Health System, Geisinger Health Plan, and ProMedica Health System. NOTES 1 The potential benefits of accelerating these and other innovative payment and delivery models can be substantial. See Commission on a High Performance Health System. Confronting costs: stabilizing U.S. health spending while moving toward a high performance U.S. health care system. New York (NY): Commonwealth Fund; 2013 Jan. 2 Davis K, Moon M, Cooper B, Schoen C. Medicare extra: a comprehensive benefit option for Medicare beneficiaries. Health Aff (Millwood). 2005;24:w DOI: / hlthaff.w Medicare Payment Advisory Commission. Report to the Congress: Medicare and the health care delivery system. Washington (DC): MedPAC: 2012 Jun. 4 Hogan C. Exploring the effects of secondary coverage on Medicare spending for the elderly.washington (DC): Medicare Payment Advisory Commission; 2009 Jun. 5 See Center for Medicare and Medicaid Innovation. Comprehensive Primary Care Initiative fact sheet [Internet]. Baltimore (MD): Innovation Center; [updated 2012 Aug 22; cited 2013 Apr 8]. Available from: innovation.cms.gov/files/factsheet/cpci-fact-sheet.pdf 6 See Berwick DM. Making good on ACOs promise the final rule for the Medicare Shared Savings Program. N Engl J Med. 2011;365(19): Commission on a High Performance Health System. High performance accountable care: building on success and learning from experience. New York (NY): Commonwealth Fund; 2011 Apr. 8 As more beneficiaries receive their care from preferred high-value providers, additional savings could be available to both the Medicare program and its beneficiaries through decreasing premiums over time. 9 To access the Appendix, click on the Appendix link in the box to the right of the article online. 10 The Actuarial Research Corporation s current policy baseline assumed that the Sustainable Growth Rate formula that determines Medicare physician fees under current law would be repealed beginning in 2013 rather than cutting fees. It also assumed that fees would be increased by 1 percent in 2013 and held constant in succeeding years. 11 The baseline for these calculations assumed that Congress would continue to postpone implementation of the across-the-board cuts in Medicare physician fees under the Sustainable Growth Rate formula, instead freezing fees at their 2012 level through Sheingold S, Shartzer A, Ly D. Variation and trends in Medigap premiums. Washington (DC): Department of Health and Human Services, Office of the Assistant Secretary for Policy and Evaluation; 2011 Dec. (Issue Brief). 13 Biles B, Casillas G, Arnold G, Guterman S. The impact of health reform on the Medicare Advantage program: realigning payment with performance. New York (NY): Commonwealth Fund; 2012 Oct. (Issue Brief). 14 Kopcke RW, Little JS, Tootell GMB. How humans behave: implications for economics and economic policy. N Engl Econ Rev. 2004; Davis K, Stremikis K, Doty MM, Zezza MA. Medicare beneficiaries less likely to experience cost- and access-related problems than adults with private coverage. Health Aff (Millwood). 2012;31(8): Health Affairs May :5

10 ABOUT THE AUTHORS: KAREN DAVIS, CATHY SCHOEN & STUART GUTERMAN Karen Davis is director of the Roger C. Lipitz Center for Integrated Health Care at Johns Hopkins University. In this month s Health Affairs, Karen Davis and coauthors introduce Medicare Essential, a proposed new Medicare option that could bring about a more comprehensive and integrated system that works better on every level for patients, health care providers, and payers. DavisistheEugeneandMildred Lipitz Professor in the Department of Health Policy and Management and director of the Roger C. Lipitz Center for Integrated Health Care, both at the Bloomberg School of Public Health, Johns Hopkins University. The center strives to discover and disseminate practical, cost-effective approaches to providing comprehensive, coordinated, and compassionate health care to chronically ill people and their families. Formerly the president of the Commonwealth Fund, Davis also serves on the boards of directors of the Geisinger Health System and Geisinger Health Plan. She received a doctorate in economics from Rice University. Cathy Schoen is senior vice president for policy, research, and evaluation at the Commonwealth Fund. Cathy Schoen is senior vice president for policy, research, and evaluation at the Commonwealth Fund. She serves on the fund s executive management team and as research director of the fund s CommissiononaHigh Performance Health System, which is charged with promoting a highperforming health system that provides all Americans with affordable access to high-quality, safe care while maximizing efficiency in its delivery and administration. Schoen s work includes strategic oversight of surveys, research, and policy initiatives to track health system performance. She has authored numerous publications on health policy issues, insurance, and national and international health system performance. She received a master s degreeineconomicsfrom Boston College. Stuart Guterman is executive director of the Commission on a High Performance Health System. Stuart Guterman is vice president of the Commonwealth Fund and executive director of the Commission on a High Performance Health System. He has a master s degree in economics from Brown University. May :5 Health Affairs 909