In this series on options for universal coverage, we explore elements of various reform proposals and evaluate their potential impact. Rather than examining complete proposals, we highlight specific policy elements that appear in one or more such proposals. The three we focus on in this series are:
- Eliminating Medicare Advantage (May 14, 2020)
- Expanding Medicare eligibility to all vs. some individuals (June 25, 2020)
- Increasing Medicare benefits (this post)
Increasing Medicare Benefits
Current Medicare benefits
Medicare, like most health insurance, requires beneficiaries to pay out-of-pocket for some portion of their covered health care services. Medicare pays nearly 100% of covered hospital (Part A) services and 80% of covered physician/outpatient (Part B) services (after some relatively small deductibles for each). There is also beneficiary cost-sharing in Medicare Part D (prescription drug coverage). This cost-sharing, however, is not always paid directly by beneficiaries. Many have supplemental “Medigap” insurance, which can be purchased privately or may be provided by employers as a retirement benefit. Medicare Advantage plans also provide a form of supplemental insurance by offering additional coverage at the expense of restricted provider networks.
There are many health services that Medicare does not cover. Among the most notable is long-term care. Although post-acute care and hospice are covered by Medicare, long-term care is not. For most services that are not covered by Medicare, beneficiaries must obtain private insurance or bear the full cost. Long-term care, however, is covered by Medicaid. This leaves beneficiaries with a unenviable choice between purchasing costly private long-term care insurance or paying out-of-pocket until their remaining assets are sufficiently low to qualify for Medicaid.
Implications of increasing Medicare benefits
If Medicare were to cover additional services like long-term care, we could see two key effects:
- First, there could be a substitution effect, where previously supplemental coverage would be shifted to primary Medicare coverage. This would not necessarily affect beneficiary out-of-pocket liability. However, it would reduce the scope for supplemental coverage and could eventually make such coverage obsolete.
- Second, there could be a true decrease in beneficiary out-of-pocket liability. At least on average, consistent with the law of demand, reduced out-of-pocket liability leads to increased use of health services. This “induced demand” effect has been demonstrated by many studies, including a randomized experiment—the most reliable of research designs. The increased use likely includes needed care in some cases and may include more discretionary care in others.
Similar logic applies when considering the implications of expanding Medicare to cover additional services such as long-term care. Expanding Medicare to cover long-term care would alleviate financial burden for patients and Medicaid programs alike. It would also reduce care fragmentation among the elderly, potentially leading to quality improvements. Because long-term care is expensive, however, it would add significant financial burden for Medicare. It might also result in more beneficiaries and their families using long-term care.
Weighing the options for universal coverage
There are many ideas about how to most efficiently close the coverage gap currently plaguing the U.S. health care system. In this series on options for universal coverage, we aimed to examine specific policy elements common to many of the current health reform proposals and what the literature can tell us about these ideas. We focus on Medicare because it already involves such a large fraction of the health care sector and any significant policy change will have major implications for the US population—patients, taxpayers, providers, employers, and so on.
Unintended Consequences?
Of course, any policy may have unintended consequences beyond those discussed here. For example, discussions of expanding Medicare have raised concerns about access to care. Because employer-sponsored health insurance pays hospitals roughly twice as much as Medicare, shifting patients to Medicare might force Medicare to significantly increase its payment rates (and thus further increase taxpayer liability), force some hospitals to close, or both.
Another concern about proposals to modify or expand Medicare is whether they are cost-effective relative to other alternatives or even current initiatives that share the same goals of improving health care access, affordability, and quality. For example, would expansion of Medicare allow for increased resources to fit Value Based Payment (VBP) models to new populations, or would the substantial cost of expanding Medicare overwhelm budget constraints and force the government to reduce or abandon VBP efforts? Experts disagree whether Medicare expansions would increase or decrease health care costs overall but agree that Medicare expansions would increase the government’s health care costs. VBP could be key to improving efficiencies.
Where do we go from here?
Given the complexity of health care and health insurance, there is no consensus as to the optimal administration, eligibility, or financial coverage in Medicare. Still, the literature offers valuable insights on the potential implications of various policies to modify or expand Medicare. While there is unlikely to be one policy that makes everyone better off, these new policies are important tools that may be used to help combat the growing challenges of rising costs and access barriers. Stakeholders can use this series as a starting point for awareness and preparedness for the likely implications of these policies.
Benjamin Silver
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