The Fallacy of Medicare as a Uniform National Insurance Program

Thursday, May 18, 2017 | Larry Sobal

 

As the Senate begins what is expected to be a lengthy process to take the AHCA legislation passed by the House, and either modify or replace it with their own version, there will undoubtedly be calls for a simpler, national health care model. Last week I wrote about single payer vs. universal coverage with the hopes of explaining the sometimes confusing difference between the two. This week, I want to weigh in on the oft mentioned suggestion that we expand the Medicare program to everyone.

Many people, even those in health care, consider Medicare to be the closest thing the U.S. has to a national health insurance model, and that it might be easy to utilize it as a single payer universal coverage program. But as we peel back the layers of how Medicare functions, we find that it really doesn’t work that way today for its beneficiaries.

I think it helps to start with the basics. Started in 1966, Medicare is the federal health insurance program for people who are 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease (permanent kidney failure requiring dialysis or a transplant, sometimes called ESRD). Similar to Social Security, Medicare is an entitlement program. U.S. citizens (mostly those 65 and older) earn the right to enroll in Medicare by working and paying their taxes for a minimum required period. Even if you didn't work long enough to be entitled to Medicare benefits, you may still be eligible to enroll, but you might have to pay more. Today there are around 57 million eligible Medicare beneficiaries.

The four different parts of Medicare help cover specific services:

• Medicare Part A – Also called “original Medicare,” covers inpatient hospital care, inpatient stays at most skilled nursing facilities, hospice and home health services
• Medicare Part B - Also called “original Medicare,” covers doctor and clinical lab services, outpatient and preventative care, screenings, surgical fees and supplies
• Medicare Part C – Also called “Medicare Advantage” is a different way of offering Part A and Part B coverage into one plan (which may also be combined with Part D), and is offered by non-government private administrators such as HMOs, PPOs, Fee for Service or Special Needs plans. In total, 2,034 Medicare Advantage plans were available nationwide for individual enrollment in 2017. Medicare Advantage HMOs continue to account for the large majority of plans available, and for two-thirds of all plans offered in 2017
• Medicare Part D – Prescription drug coverage which can be provided as a stand-alone plan (i.e. not joined with other insurance) or it may be combined with Medicare Advantage

Not to be confused with the federally offered parts, there are 12 standardized Medicare Supplement plans “A” through “L”, sometimes referred to as “Medigap,” which are sold by private companies and intended to help pay some of the health care costs that original Medicare doesn't cover, like co-payments, co-insurance, and deductibles. If you have Original Medicare and you buy a Medigap policy, Medicare will pay its share of the Medicare-approved amount for covered health care costs. Then your Medigap policy pays its share. A Medigap policy is different from a Medicare Advantage Plan. Those plans are ways to get Medicare benefits, while a Medigap policy only supplements your original Medicare benefits.

Still with me?  As you can see, Medicare is not just a simple national program of coverage. And its position as a federal program is diminishing since a  growing proportion of Medicare beneficiaries — around 18 million beneficiaries or one-third of the Medicare population in 2017 — are opting out of the government-run Medicare insurance program, and  instead are choosing one of the private Medicare Advantage plan alternatives. The Congressional Budget Office predicts that will grow to 30 million in the next few years. This is despite cuts to Medicare Advantage that were legislated by the Affordable Care Act (ACA).

Now let’s talk about how Medicare is not uniform across the country. The Medicare statute states that items and services provided to beneficiaries must be “reasonable and necessary” to be covered for reimbursement to physicians, hospitals, and other providers. Although the Medicare program may determine (in specific cases) whether a particular item or service was reasonable and necessary, it also issues policies, called coverage determinations, to instruct carriers and other intermediaries regarding reimbursement to providers.

As a result, we have regional Medicare Administrative Contractors (MACs) and Local Coverage Determinations (LCDs) that can lead to differences across the country. A MAC is a private health care insurer that has been awarded a geographic jurisdiction to process Medicare Part A and Part B medical claims or Durable Medical Equipment (DME) claims for Medicare Fee-For-Service (FFS) beneficiaries. CMS relies on a network of MACs to serve as the primary operational contact between the Medicare FFS program and the health care providers enrolled in the program. MACs are multi-state, regional contractors. Currently there are 12 part A/B MACs and 4 DME MACs that process Medicare FFS claims for the roughly two-thirds of Medicare beneficiaries not in Medicare Advantage. Where the regional differences occur is when MACs issue different LCDs, and therefore what is covered and reimbursed in one part of the country might differ in another.

It may be easier to start from scratch and design such a system for the future rather than tweak a 50-year-old model.

But MACs and LCDs aren’t the only source of regional variation. What is more complex, and more hotly debated, are the wide variances between what some parts of the country (versus others) are paid for delivery of the same service. That’s because, according to Medicare, the costs of health care are not uniform throughout the U.S., so Medicare uses some complex formulas in an attempt to account for those differences in cost.

To determine how much Medicare will pay a physician or hospital it uses a fee schedule, which is determined by the U.S. Government. For example, the Medicare physician fee schedule (MPFS) is intended to calculate the amount of work involved in a particular procedure multiplied by a conversion factor that accounts for the cost of being a doctor in a particular geographic region (similar to a regional cost of living). The result is that Medicare pays hospitals and physicians different amounts, with the reimbursement varying between locations. In other words, a doctor treating a Medicare patient in midtown Manhattan receives more than a doctor providing the same service in rural West Virginia.

The rub comes in when the geographic adjustments seem to be outdated or defy logic. In some places, large geographic swaths are considered part of the same region, meaning all doctors or hospitals in an immediate area receive relatively the same reimbursement. But other places, sometimes just down the road — where building rents, equipment costs and staff salaries are practically the same — could get higher Medicare reimbursement for providing the same service. It continues to be a point of high contention for physicians and hospital executives alike, especially for those whose Medicare formula places them on the low end of the reimbursement scale.

So let’s sum this up. The Medicare population is projected to increase from 57 million beneficiaries today to over 80 million beneficiaries by 2030 as the baby-boom generation ages into Medicare. With that increase, the number of taxpaying workers per beneficiary will decline, straining the federal ability to sustain the program. And those Medicare beneficiaries are increasingly opting out of traditional Medicare in favor of a privatized Medicare Advantage plan, while the regionalization of coverage determinations and reimbursement rates can cause Medicare to vary, sometimes widely, in different parts of the country.

This does not appear to me to be the type of uniform program that is ready to expand to become a single payer universal coverage program for the United States. That’s not to say it could not be modified to the point of doing so, but I suspect it may be easier to start from scratch and design such a system for the future rather than tweak a 50-year-old model. However, I have a hard time believing that is what the Senate will propose as their version of a health care bill. But if there is one thing that this era in health care is teaching us, it is to expect the unexpected.

 

Illustration: Lee Sauer

---

 

Larry Sobal is Executive Vice President and a Senior Consultant at MedAxiom. He has a 35-year background as a senior executive in medical group leadership, hospital leadership and health insurance. Larry consults, writes and presents on topics relevant to transforming physician practices and health systems. His weekly blog post comes out on Thursdays and can be accessed at www.medaxiom.com.

 

---