Three Reasons Why Medicare Cost-Shifting Is the Wrong Solution

02/21/2013 03:24 pm ET Updated Apr 23, 2013

The president opened last week's State of the Union address calling for "modest" changes to contain Medicare costs. One of the president's primary audiences, Congress, faces a series of deadlines in the coming months, including automatic spending cuts on March 1, expiration of the federal budget patch on March 27 and the impending debt ceiling this summer. Any one of these deadlines may force decisions about Medicare's future.

Yet, there is little consensus among lawmakers on what to do about Medicare. Some policymakers are unwilling to ask questions like these: What do people with Medicare already pay for health care? Can they afford these costs? How can we improve the health care system to make it more efficient? How can we ensure access to high quality care? Instead, many members of Congress remain solely interested in cutting Medicare spending regardless of the effect on the people Medicare was created to protect. As this discussion unfolds, Congress must remember three key Medicare facts:

  1. Most people with Medicare cannot afford to pay more. Half of all Medicare beneficiaries -- nearly 25 million seniors and people with disabilities -- live on annual incomes of $22,000 or less and have less than $53,000 in personal savings. And people with Medicare already contribute a significant amount towards their health care costs. On average, Medicare households spend 15% of their total household income on health care costs, three times as much as non-Medicare households.
  1. Medicare is not in crisis. Recent analysis shows that Medicare costs are slowing dramatically--far below that of private health care spending. According to Peter Orzag, former Director of the Office of Management and Budget, " care costs have decelerated over the past few years, and Medicare costs have decelerated more than other health costs." The U.S. Department of Health and Human Services confirms that slowed growth over the last three years is "unprecedented in the history of the Medicare program." As a result of this deceleration, the Congressional Budget Office reduced its ten-year estimates on expected Medicare spending by almost $140 billion.
  1. Health care costs are the problem. Medicare is a solution. Steadily rising health care costs are the true threat to our nation's economic health--not Medicare. In fact, Medicare is a leader in cost control, surpassing private plans in containing health care costs. Over the next ten years, Medicare costs are expected to grow 3.1% per person, compared to 5% for private health plans. Medicare is also an innovator. Medicare is the incubator for delivery system reforms advanced by the Affordable Care Act (ACA) to promote high value health care, meaning better quality care at a lower price. Lessons learned through these Medicare demonstrations will inform the transformation of our health care system overall.

Fact-Driven Solutions: Cost Savers vs. Cost Shifters

Some of the most discussed Medicare proposals would create savings for the federal government simply by shifting costs onto people with Medicare. A recent proposal introduced by Senator Hatch would raise the Medicare eligibility age from 65 to 67 years, prohibit first-dollar coverage by supplemental Medigap plans, combine the Medicare Part A and B deductibles and privatize Medicare benefits. None of these proposals address the problem of rising health care costs.

The Hatch plan fails to account for the fact that burdening people with Medicare with additional costs does nothing to rein in rising health care costs system-wide. At the same time, these plans put the health and economic security of people with Medicare at risk. Facing additional health care costs, beneficiaries with limited incomes will forgo needed health care entirely. We know this is true because of the stories we hear on our national helpline.

Marc is one of these callers, who reached out to find help paying for his prescription drugs. Marc suffers from a rare lung disease and lives on $1,600 per month in Social Security disability benefits. At the end of last year, Marc found himself in the Part D coverage gap for his prescription drugs, also known as the doughnut hole. Despite Marc's limited income, he is ineligible for assistance to cover the cost of his drugs. To save money, Marc decided which drugs were the most important and simply stopped taking the rest. He also started cutting his pain patches into halves or thirds to spread out this significant expense. Marc was left hoping that his health would hold out until he spent his way out of the doughnut hole. With a new year, Marc's drug benefit has reset, but he is preparing to ration his medicines when he falls into the coverage gap once again.

Rather than shifting costs to people like Marc, wasteful spending should be eliminated to strengthen Medicare's fiscal outlook for the long term. Restoring drug rebates to the Medicare program, allowing Medicare to negotiate drug prices directly with pharmaceutical companies and introducing a public Medicare drug benefit are examples of reforms that will create savings in the Medicare program and also drive down the price that Marc pays for his medications. Further savings can be found in Medicare by advancing and expanding the delivery system innovations made possible by health care reform.

No matter what deadline forces a dialogue about Medicare's future, the facts make one thing clear: cost shifting, in any form, is not a solution for health care savings.