Medicare via Block Grant - how does it save $? NOT POLITICAL DISCUSSION

Parent Cafe
1

It’s looking like turning Medicare into private insurance plans with block grants to the states is going to get a serious look next legislative session, with a good chance of passing. I see pros and cons (trying to be even handed here) but I keep hearing that this approach introduces more competition into the system which should lower costs which benefits the patient. I’m not understanding just HOW this lowers costs…can anyone explain? Have always heard complaints from doctors that medicare reimbursement rates are too low and in fact it’s difficult to find doctors (especially in some specialties) to accept Medicare patients. So with this new approach you’d be buying an insurance plan from an insurance company who has negotiated reimbursement rates with docs - same general approach as Medicare. Does this new competition mean doctors are going to take lower reimbursement rates from insurance companies than they did from the govt for Medicare? And the insurance companies will need to make a profit so that will be added into the plan pricing. How does this save $ which then makes insurance this way cheaper for the patient?

Can anyone help me understand the this concept of competition and how it benefits the patient?

PLEASE - let’s not turn this into a political discussion. That’s absolutely not my intent. I’m trying to understand the logic of this plan without prejudging it.

Thank you!

2

The fact is that Medicare currently delivers coverage far more efficiently than any for-profit insurance company. Their overhead is far lower. Even the for-profit companies admit this.

IMHO, trying to break up and “privatize” Medicare in the name of “competition” is a matter of political and economic theology, not rational thought. I do not think that you will be able to find a convincing dollars and cents case for doing so.

The rational thing would be to put everyone on Medicare and allow them to continue putting into practice the efficiency that they have proven they can, and reaping the savings. If this were a competition for a contract based on price, they would have won hands down long ago. The private insurers could continue to provide additional coverage for those who wished to pay for it, and could afford it.

3

How does it save $? It doesn’t save consumers money, it will increase their costs. it only saves the govt money.

4

It saves money by giving the indigent elderly less good care than they have now. The well off will still be able to buy into better plans.

I’ve seen no evidence that competition among insurance companies results in anything other than more profits for the CEOs.

5

If you want some background on healthcare issues I thought the Brian Lehrer segments which he did as part of his 30 issues run up to the election were interesting.

http://www.wnyc.org/story/30-issues-who-gets-healthcare-right/ (This one covers what other countries do.)
http://www.wnyc.org/story/30-issues-us-healthcare-debate/ (This is a history of health care in the US.)

6

The idea behind block grants (as I understand it) is the following:

1)With current medicare, medicare is the insurance, so the costs increase as they have medicare is paying out more (hence the talk of the cost of entitlements soaring). In theory, they could reign on costs by making people on medicare pay more of the cost, or change reimbursements to providers, but those are politically dangerous IMO, medicare is a very popular plan and groups like AARP would fight it tooth and nail. (And for those who talk about how efficient Medicare is, be careful, yes medicare is very ‘efficient’ , but part of that is medicare sets rates well below the market for reimbursement (it is why a lot of doctors won’t take medicare), and for the doctors who do accept it cost shifting ends up putting the difference on patients with private insurance.

Basically, if you go the block route, government gets out of the insurance business, medicare is folded, and medicare funds through the medicare tax (assuming they don’t repeal that) would be given as block grants to the states.

2)The block grants themselves are covered by congress, and depending on how they wrote the bill, they could theoretically still collect the medicare taxes but only allocate a percentage of those to the states, using the rest as general tax revenue (kind of what they did with SS, where the excess SS payments became revenue de facto).

It would work more like medicaid, where the federal government gives funding to the states which combined with their own spending finances medicaid locally, but in this case people in the state would get a voucher (similar in some ways to the subsidies under ACA, though I don’t know whether the amount would be varied by income or if it would be a flat rate).

The reason it is cost efficient is obvious, congress can set the voucher amount and leave it at that,

3)People would use this voucher, like an ACA subsidy, to find a private insurance plan, the voucher in theory making it affordable. In theory, with all these people looking for private insurance, companies would get into the health insurance business with such a large market.

Potential problems:
1)One of the proposals I have seen is to get rid of the ACA requirements for what plans cover at a minimal level. This could allow fly by night operators to offer “health insurance” that covers office visits and has no provision for hospital and such which existed in the past (in my area, used to see signs on light poles “family health insurance, 69.99 a month”). With the vouchers, they could be buying substandard care because it is all they can affford.

2)The idea of market competition is constantly floated, but the reality has been the industry is in consolidation, long before ACA. Last Studies I read said most areas have maybe 3, 4 providers. Cross state competition? Problem with that is you could end up with al the health insurers in Arkansas or some other place with lax standards (to get the business) and more importantly, if you get a plan from an insurer in Mississippi (low cost state), do you have to go to a doctor or hospital there? One of the reasons plans are cheaper in other states is costs are lower there.

3)Congress, like let’s say they have done with SS, can refuse to change the amount of the voucher, which means year by year it is worth less and less. So if they set it at let’s say 7k, and a plan this year costs the person 7k (14k total), if costs go up as they have been, the person likely will face paying 7.5 k the next year in premiums, 8 the next, and so forth, as the value of the voucher declines in real terms.

My take is it isn’t a solution to the heath care issue, it is simply kicking it downstream and limiting the liability of the federal government without truly solving anything, and likely it will mean those on medicare paying a lot more and even more likely IMO, getting less and less care because they can’t afford it. A voucher program like this contains cost at a federal level, for obvious reasons, and from an ideological standpoint ‘gets government out of being in business’ and the like, but it doesn’t really solve anything.

7

Note that current Medicare can be used either as traditional Medicare, with the option of buying a private Medigap policy to fill in some of the uncovered areas, or taken as a voucher to purchase a private policy, called Medicare Advantage. Currently, about 69% of Medicare recipients choose traditional Medicare, while 31% choose Medicare Advantage.

Elimination of traditional Medicare means that future changes in funding for Medicare will no longer be tied to actual costs, so that funding (whether in state block grants, or vouchers for Medicare Advantage policies) becomes purely a political decision, to be increased or decreased at will, depending on the politics of the day.

In practice, most users see very little competition, since most employers (other than huge ones like the national and large state governments) offer only a few plans from one or two companies, and the individual market (both without and with ACA) is limited. Employers can shop around, but their criteria may not align with that of individual employees, and insurance companies presumably do not want to be in a competitive market for individual employees (other than for huge employers mentioned above), so they presumably want monopoly within an employer.

8

In theory, it changes how budgets are managed. Instead of the govt running the MC in the red or allocating $ from another program, the govt is out of that aspect of it. Not unlike Daddy giving the kid a fixed amount and not paying that extra bill, expecting some management. In theory, that is.

Medicare Advantage works (and this may still be state dependent,) because the Med A (and any Med B or more that you pay) are shifted to the MAdv providers, who then offer the A and B coverage and their own particular extras, if any, watch their own overhead- and lose, if they can’t run efficiently.

I don’t see this would automatically underpay doctors or provide crappier service. That still depends on your state and how it manages for its people. But what I think is unsaid is whether the govt would try to cut budgets below what is now allocated for part A and what we pay for B and other supplemental coverage.

9

@ucbalumnus:
Even for big companies their choice of providers is small, in any given area the number of companies is maybe 3 or 4 they can choose from (after that, it is HSA versus PPO versus HMO and so forth). These days there simply aren’t that many health insurers out there, since they have all merged into a few mega companies, like Anthem, United Healthcare, and a few others.

10

^ Again, that can be state dependent. Already is.

11

So this largely becomes an issue of how each state handles this? State insurance commissions would set the minimum policy levels, how much $ they are willing to throw at it per person and then insurance companies would decide whether they want to write policies that meet those criteria in that state? And insurance companies would decide how much to charge for insurance.

Would you expect much variance between states in what is covered? I would think costs would vary depending mostly on COL or would number of doctors available in an given area also play into it? And when looking at areas to retire to, wouldn’t I want to look at how a state handles this, what insurance costs are, etc? So the states that cheap out on it wouldn’t be as attractive to me? Just trying to organize my thought process on this as I think the health insurances changes bleed into other areas of our lives…

12

The other thing I don’t get about how we run our health insurance is the whole assumption you are only going to get sick while you are in the state of your official residence.

13

I am so grateful that our insurer will cover us wherever we are hurt/injured, particularly if you use US in network providers but even out of country, up to the “usual & customary charges,” which I suspect are considerably less in other countries than the US anyway. We have never had to make a claim out of country, thank goodness!

14

Please tell me how an elderly person with dementia or another incapacitating issue will be able to deal with grants…and get coverage.

15

How do they do it now? Having just gone through this, it struck me the mind-bending amount of info I received.

16

The paperwork even now is horrendous. My sister has handled my Mom’s finances and medicare, then medicaid, paperwork for years. Even with a degree in accounting and advice from an eldercare lawyer and tax accountant, it is at times almost a full time job for her. I think there would be a great demand for people who would offer services, which would probably only help those who can afford to hire them. State and local governments ask the questions and you’re on your own to get answers.

I’ll be watching this thread with interest because I too am struggling with how introducing insurers with a profit motive will reduce costs, and ideally complexity, for the average person. Whatever one thinks about Social Security and Medicare, they work smoothly.

17

@lookingforward

Once someone is on Medicare, and social security,…it continues.

My impression of these block grants is that they will require annual changes.

18

I don’t know about that yet. I think even the possibility of this getting through is an unknown. That’s all.

19

They’re NOT proposing block grants for Medicare. They are proposing block grants for MEDICAID. You save money with block grants for Medicaid by making them small, or by making them worth less each year, or both.

For Medicare, the proposal is vouchers (coupons). Each senior would get a coupon they could use to buy Medicare. So far, I’ve seen no talk that the coupon would be worth more in places where insurance is more expensive, but I imagine that might happen. But as with block grants for Medicaid, the proposal is not to save money by lowering costs for health care, but to save government money by pushing the cost to patients. In the case of Medicare, the trick is how much the value of the vouchers goes up every year. Watch closely. The plan will be to make the vouchers go up each year by the cost of living. That’s not nearly enough. Health care costs, in the US and everywhere else, go up much faster than the cost of living, something like 4% over the cost of living.

So let’s say the first year of vouchers is 2019. Seniors get vouchers that can buy health insurance equivalent to the Medicare that was just taken away from them. The next year, the real (inflation-adjusted) cost of health care goes up 4%, but the inflation-adjusted value of the voucher doesn’t go up at all, so the voucher is not quite enough to buy insurance and the senior has to pony up 4% of the cost themselves. Make no mistake, insurance for seniors is going to be expensive! So 4% of their insurance cost will be a pretty penny. Each year, the cost of insurance will go up, and the value of the voucher won’t. By 2029, health care costs have gone up about 50% (inflation-adjusted), and vouchers have gone up zero (inflation-adjusted), so the vouchers are utterly inadequate to buy health insurance. Many seniors won’t be able to afford insurance in this regime.

20

@“Cardinal Fang” some of this is already happening.

The cola for SS was a pittance this year. BUT I just got my new Medicare costs for next year, and they have increased by a LOT more than the COLA in SS. In addition, the deductibles have gone up…RX is now $400, medical went up as well.