National Academy of Social Insurance17th Annual ConferenceWashington, D.C. January 28, 2005

Is There a Better Way to Reduce Growth in Medicare Spending?

Joseph Antos, Ph.D.

Wilson H. Taylor Scholar in Health Care

and Retirement Policy

American Enterprise Institute

2

Medicare consumes an ever larger share of GDP

0

2

4

6

8

10

12

14

16

1970 1990 2010 2030 2050 2070

Perc

enta

ge o

f G

DP

.

Actual

Projected

1970: 0.7%

2004:2.7%

2080:13.9%

Source: 2004 Medicare Trustees report

3

Medicare outpaces other federal spending, 2005-2015

1.3%

2.1%

4.3%

5.5% 5.6%

7.8%

9%

4.9%

2.2%

0

2

4

6

8

10A

vera

ge a

nn

ual gro

wth

rate

Defens

e

Nonde

f. dis

cret.

Tota

l out

lays

Net in

tere

st

Social

Sec

urity

Medica

id

Medica

re

Nominal

GDPCPI

Source: CBO, 2005

4

Approaches to cost containment

Regulatory Set prices administratively Restrict access (Rx non-coverage)

Technical/Scientific Improve health care delivery (IT, DM, evidence-based medicine,

coverage tied to data collection) Improve patients (prevention)

Economic Realign incentives facing patients and providers

5

Cost containment track records

6.7% 6.5%

5.8%

6.9%6.4%

9.1%

7.1%

4.9%

0%

2%

4%

6%

8%

10%

Avera

ge a

nnual

perc

ent

change

Medicare

FEHBP

FEHBP w/o Rx

CalPERS

CalPERS w/o Rx

Private

Ins

Medicaid GDP

Average Spending Growth, 1983-2002

Source: Joint Economic Committee, 2003

6

Best practices to the rescue?

Disease management Promising concept, but will it reduce spending? CBO assessment

Evidence-based medicine Medical innovation outpaces evaluation Cox-2 scares – big gaps in knowledge Coverage contingent on data collection

Health IT Cultural, financial, privacy barriers

Prevention Near-term cost, long-term savings? Will patients respond?

7

Can the U.S. become more like MN?

Medicare spending per enrollee, 2001

Lower spending, equal or better health outcomes

Source: Dartmouth Atlas

Minnesota $4,767

U.S. $6,237

8

New competition in Medicare

M+C becomes MA

PDPs, regional MA plans, bidding

CCA demo?

2004 2005 2006 2007 2008 2009 2010

9

What’s new about the new competition?

Bidding/negotiation process reflects plans’ actual costs

Risk-sharing Risk adjustment, risk corridors, stabilization fund, network

adequacy fund

Many more options for seniors Traditional Medicare or MA plan MA plan options: Regional PPO, local HMO or PPO, private FFS Choice of Medicare Rx plan (or none) Basic Rx coverage or enhanced coverage

10

Bidding can hold down cost…

DME competitive bidding demonstration Multiple sellers of equivalent products Price, quality, and customer service were considered Existing fee schedule provides price comparison Previous suppliers grandfathered in

Savings about 20% of fee schedule Wide range of discounts Bid prices exceeded fee schedule for certain products (surgical

dressings)

11

Competing plans are expected to participate in MA and PDPs

Impact on program spending uncertain: Risk corridors reduce plans’ incentives to bid aggressively Impact of FEHBP-style negotiations? Plan overpayments and risk adjustment Bids may cluster around benchmark Savings may be used to enhance benefits, not lower costs Seniors may not adapt quickly to new choices—low MA market

share?

Will MA competition work?

12

CCA demonstration not likely

Comparative Cost Adjustment, aka premium support 6-year demonstration, beginning 2010 No more than 6 sites Bidding determines premiums for MA and traditional Medicare Impact on traditional Medicare is phased in over 5 years

Precursors never got off the ground HCFA competitive pricing demonstration failed in Baltimore

(1996) and Denver (1997) BBA demonstration failed in Kansas City and Phoenix (1999) Provider and plan resistance was key

13

Not in my back yard

“I particularly oppose Michigan seniors being forced to participate in this ill advised experiment.”

-Senator Debbie Stabenow (D-Mich.)

“If they want these pilot programs, they should only go to those states where the Senators voted for this bill.”

-Senator Hillary Clinton (D-NY)

14

Past experience is sobering

M+C/ MA Plan Participation and Enrollment

0

50

100

150

200

250

300

350

400

1990 1992 1994 1996 1998 2000 2002 2004

Tota

l Pla

ns

0

1

2

3

4

5

6

7

Enro

llm

ent

(millions)

.

M+C Plans Enrollment

Max enrollment6.3 M in 1999Max plan participation

346 in 1998

2004: 154 plans & 4.7 M enrollees

15

- 3000

- 2000

- 1000

0

1000

2000

3000

1994 1996 1998 2000 2002 2004

$B

illions

.

- 600

- 400

- 200

0

200

400

600

$B

illions

.

Actual Deficit 5- year Deficit Forecast

BBA 97

MMA

BBRA 99

BIPA 00

Will history repeat itself?

Source: CBO