All Things in Moderation

Better publish this before I forget.

Bunch of links from the NEJM on Medicare reform.

On the whole, we do not believe that the recent slowdown in Medicare spending growth is a fluke. There has been a long-term trend toward tighter Medicare payment policy, and policy changes that began in the middle of the 2000s have continued that tightening (see graph).2 The Deficit Reduction Act of 2005 (DRA) reduced payment rates for imaging, home health services, and durable medical equipment, and the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) made substantial cuts to Medicare Advantage plans. Even though Congress has overridden payment cuts dictated by the sustainable growth rate formula (SGR) each year, the resulting physician-fee increases have fallen further and further below the relevant index of inflation. All these specific constraints on payment rates probably also slowed growth trends in the volume of services provided, leading to a larger slowdown in spending growth.3

Slower growth in Medicare Spending

On December 15, 2011, Senator Ron Wyden (D-OR) and Representative Paul Ryan (R-WI) released a Medicare reform proposal based on the concept of premium support.1 Under their proposal, Medicare would be converted from a defined-benefit to a defined-contribution program. Instead of guaranteeing to pay for services as they are rendered, as fee-for-service Medicare does, the program would give beneficiaries a subsidy (“premium support”) to purchase coverage from one of multiple competing health plans. The motivation behind the approach is to give plans a clear incentive to provide necessary services in a cost-effective manner, which can result in lower premiums or other beneficiary costs, attracting enrollees and increasing the plan’s share of the market.

Wyden-Ryan Proposal

These proposals would offer Medicare beneficiaries vouchers toward the purchase of private insurance or traditional Medicare. Private-plan offerings could vary, but the actuarial value of these alternatives would have to be at least equal to that of traditional Medicare. Increases in the amount of the voucher would be capped by an index that is expected to rise more slowly than health care costs. Advocates claim that cost-conscious enrollees and competition among profit-seeking insurers would hold down program costs. But if they didn’t, the growth cap would do so by shifting costs to the elderly and disabled.

Is premium support along the lines now being proposed a good idea? Is now the time to be making fundamental changes in Medicare? We believe that the answer to both questions is no.

Now is not the time for premium support

Before Senator Ron Wyden (D-OR) and Representative Paul Ryan (R-WI) introduced their “Bipartisan Options for the Future” on December 15, 2011, the notion that Democrats and Republicans agreed about certain aspects of Medicare might have seemed unthinkable.1 But the pairing of a liberal Democrat who has long worked on health care reforms and a fiscally conservative Republican primarily known for work on budget issues suggests that it might be possible for the parties to reach a compromise on Medicare reform. Of course, meaningful reform is not likely to occur in 2012: any significant reform probably won’t happen until the public sends a clearer signal about the kinds of change it will tolerate, which won’t be possible until after the fall elections. Yet some Republicans and Democrats appear to be in substantial agreement about some changes that might make Medicare more efficient, effective, and fiscally sustainable — even if none of these changes are universally accepted by either party as desirable or even tolerable.

Bipartisan Medicare Reform

A surgeon writes at Reason on medical ethics, cost controls and therapeutic guidelines.

Trends in US health care spending

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