Raising Medicare’s Eligibility Age Could Trigger Gov’t Savings, But Tally Higher Total Health Spending | Kaiser Health News

Here is an interesting article and perspective on raising the Medicare eligibility age.  The overall analysis may be correct, but the assumptions are wrong. 

Medicare does not extract larger discounts from providers than other payers. Medicare simply sets the fees it will pay and thus pays less than market rates thereby shifting health care costs to the non-Medicare population. 

In addition, tracking the spending on specific services is only part of the story. It’s not only the price of a given service that matters, but the use of those services as well. Medicare does virtually no utilization review or management. Thus any saving on a per service basis could be negated if Medicare pays for even a few more of that service than would be allowed by the private sector. 

Indeed, seniors on Medicare are very likely to pay less than under their private insurance, especially if the have supplemental coverage as well. Why?

If you are age 64 today and age 65 tomorrow why does your deductible drop to $166 and your 20% coinsurance based on a lowered allowed fee, if not eliminated via supplemental coverage?   

The purpose of raising the Medicare age is to save Medicare money. Why is it unreasonable to have Medicare coordinated with the normal Social Security retirement age (gradually moving to age 67) as it was at age 65? 

Few employers provide retiree health benefits and even fewer after age 65. And, as required by law, a worker with health benefits does not use Medicare until they retire regardless of their age. 

What is missing from this analysis is that pre Medicare retirees without employer health benefits (the great majority) will now enroll in an Obamacare exchange and most likely be eligible for federal premium subsidies. Over time that may offset a substantial portion of any Medicare savings from raising the eligibility age. 

A May Health Affairs study examines how Medicare’s eligibility age affects spending and prices, as well as the volume of services used by patients.

Using the claims data of 200,870 retired people who transitioned to traditional Medicare from private insurance at age 65, researchers tracked healthcare spending on a per member, per quarter basis for two types of services, outpatient imaging and procedures. The study looked at claims paid for people between the ages of 62 and 68.

When people turned 65 and enrolled in Medicare, the amount that insurers and beneficiaries spent on those services dropped 32.4 percent on average, or $38.56.

The spending decline wasn’t tied to a reduction in beneficiaries’ use of health care services, the study found. Rather, once seniors enrolled in Medicare, doctors continued to see these patients, but at reduced rates.

“It crystallized for me that Medicare, due to its large market share, is able to extract larger discounts from providers than other payers,”
Wallace said. “Medicare is able to pay physicians 30 percent less than other payers, without leading to a reduction in access.”

The impact on individual patients is less clear, since the change in their spending upon enrolling in Medicare would depend on the generosity of the private coverage they had before. But since Medicare generally pays less for services than private insurance, it’s fair to say that seniors might expect to pay less as well for services when they’re responsible for paying a percentage of the cost in the form of coinsurance, Wallace said.

As for raising the Medicare eligibility age to 67, the study’s findings are consistent with a 2011 analysis by the Kaiser Family Foundation, the study said. (KHN is an editorially independent program of the foundation.) That study estimated that raising the Medicare eligibility age would have saved the federal government $5.7 billion in 2014 but would also have increased the out-of-pocket costs of 65- and 66-year-olds by $3.7 billion and employer retiree health care costs by $4.5 billion.

“These findings, like ours, may seem counterintuitive but show the importance of looking at the total picture when trying to understand the effects of a seemingly straightforward proposal,” said Tricia Neuman, director of the program on Medicare Policy at the Kaiser Family Foundation who coauthored the analysis.

Source: Raising Medicare’s Eligibility Age Could Trigger Gov’t Savings, But Tally Higher Total Health Spending | Kaiser Health News


1 reply »

  1. Thanks for this post.

    Actually, there are NO savings here from Medicare’s 30+% “discount”. I once spoke with a provider about that. He confirmed, simply, that he monitors what portion of his practice is Medicare-eligible, and adjusts the prices for the not Medicare-eligible as necessary. This is true everywhere in America’s economy, just most of the time, it is not a result of compliance.

    For all you economists out there, it is called “market equilibrium”. If you charge too much for your product, it will not sell. You end up with a surplus supply and then must discount. But, if you charge too little for your product, you will suffer financial loss. So, the trick is to charge the maximum you can (which will vary by consumer) so that the amount demanded is equal to the amount supplied, then equilibrium is achieved, known as the market equilibrium (aka supply-demand equilibrium), where the quantity is equal to the equilibrium quantity and the price is equal to the equilibrium price. Furthermore, if prices are different from the equilibrium price, then the law of supply and demand states that the price of any product will adjust until the supply equals the demand. So, manufacturers and service providers will often “discount” (coupon, etc.) prices to certain segments of the economy, or, for example, restaurants (lunch, happy hour) during period where demand is traditionally lower. Isn’t it obvious why your half off restaurant coupons aren’t accepted on Mother’s Day?

    Medicare is clearly supply side limiting. Seniors are a known, defined group. Demand is clearly inelastic. So, there are options out there that would control demand and supply – but look how Congress has reacted. They are buying votes. If you want to control demand, your only option is to charge more, to increase point of purchase cost sharing (deductibles, etc.). Commerce in America does this everyday. It limits the market. If everyone could buy a Cadillac at Elantra priced, they would ask “why not?” If you want to control supply, you limit provider reimbursement.

    Sooner or later, as we have seen with Medicaid, limiting provider reimbursement has created a shortage of providers. Just try to find a mental health provider with unused capacity who will take you as a Medicaid patient.

    Back in 1988, Congress passed and Ronald Reagan signed into law the Medicare Catastrophic Coverage Act of 1988. It was designed to limit seniors’ annual out of pocket costs to $2,000. It was endorsed by the AARP. Everything was fine, until retirees (the beneficiaries themselves) found out that THEY would be paying the full cost of the expanded coverage through an income tax surcharge. We saw something that almost never happens. Before most of the provisions of the law could take effect, it was REPEALED. Retirees let Congress know that they were certainly in favor of lower costs and lower out of pocket spend – so long as someone else paid. Bottom line, at least a quarter of the added amount you and I pay (maybe 10% of our cost of services) is needed so providers can comply and subsidize treatment of Medicare eligibles. So long as Congress (and not markets) sets prices so as to maximize vote buying, that’s what we will have.

    So, as Hillary Clinton and others have suggested, instead of increasing the age where Medicare starts, they want to lower the age where Medicare first applies. Some, like Bernie Sanders want Medicare for all. They believe it is better to limit the cost of health coverage by limiting supply, to ration health coverage not by price, but by supply. And, where supply becomes an issue, it is a burden that they believe should be born by income taxpayers – vote buying at its best. That is essentially what we have been given by President Johnson in terms of Medicare Part B, and President Bush II in terms of Medicare Part D (prescription drugs). Vote buying at its best.


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