A 21st Century Medicare: Bipartisan Proposals to Redesign the Program’s Outdated Benefit Structure


Hearing Description:

The Health Subcommittee recently met to continue their examination of Medicare benefits redesign. The committee questioned policy experts on what ways the government could modernize the program to better suit the elderly.

Hearing Date: June 26th, 2013

Hearing Summary: Prepared for AAPS by the Market Institute

The Health subcommittee recently met to discuss proposals for Medicare’s benefit structure and how the government can improve it. Chairman Joe Pitts (R-Penn.) said in his opening statement that while the private insurance market has undergone vast changes over the last 50 years, Medicare’s benefit design has remained largely the same. Unlike the single deductible private insurance model, Medicare has separate deductibles and co-payments for Hospital Services (Part A) and Physicians Services (Part B). This leads to a great deal of uncertainty for the elderly regarding their out of pocket costs. Furthermore, medical breakthroughs in the last 50 years have led to extraordinary hospital costs that were not possible (due to the high fatality rate of various diseases) when Medicare was conceived. The committee wants to build on MedPAC’s recommendations to modernize Medicare and continue to receive constructive input from policy experts.

Rep. Michael Burgess (R-TX) said in his opening statement that Medicare’s benefit design needs to catch up to the current market and care. Rep. Henry Waxman (D-CA) was adamant that there is a critical need to shore up the financial stability of both the Medicare program and the elderly. Building incentives for high value care and ensuring protections for lower income beneficiaries is important to the future of the Medicare program.

The first witness, Katherine Baicker, Professor of Health Economics at the Harvard School of Public Health testified in her opening statement that Medicare should offer protection from catastrophic medical costs to beneficiaries. There is a balancing act though between offering seniors too little coverage and too much coverage. Beneficiaries are also currently too exposed, with 90% opting for supplemental coverage. Solving the too little/too much insurance conundrum is an important step in modernizing Medicare. Finally, providers need to start thinking across silos to keep costs down. For example, if physician visits were subsidized, expensive emergency room trips could be eliminated.

The second witness, Patricia Neuman, Senior VP at Kaiser Family Foundation testified in her opening statement that even though many Medicare beneficiaries have supplemental insurance, their out of pocket costs are still high. Benefit redesign could potentially involve catastrophic protection, steering beneficiaries towards more high value medical care, and financial protections for low-income beneficiaries. However, achieving all of these things simultaneously will be an enormous challenge. While providing better Medicare services for the elderly should be a priority, it will not be without an added cost.

The last witness, Thomas Miller, Resident Fellow at American Enterprise Institute testified in his opening statement that slowing the future spending rate of Medicare should be the primary reason for reforming the program. Improving risk-based protections directly would address the complications and distortions that arise from supplemental coverage. There is consensus among the witnesses that the modernization of Medicare must include protections for catastrophic health risks, developing value-based health care, and improving the integration of healthcare delivery. Two major steps that could be taken to increase sustainability includes implementing a unified deductible and a stop-loss limit for traditional Medicare.

In response to questioning, Katherine Baicker said:

  • Stressing value-based care is an important step in Medicare redesign
  • Defining what is “high-value” is extremely difficult; there will have to be flexibility based on the sheer amount of variables from patient to patient
  • Investment in wellness have potential long term positive implications; we are starting to see employers recognizing the need for wellness

In response to questioning, Thomas Miller said:

  • Seniors need to be able to think more effectively about purchasing insurance, and able to quantify what the value is of the insurance they are getting
  • Medigap coverage ends up having a higher cost impact on Medicare
  • A competitive Medicare plan structure could be a possibility for redesign, but there are inherent problems

In response to questioning, Patricia Neuman said:

  • While Medigap coverage may result in over-utilization, consumers depend on the security it provides
  • Creating incentives for providers could raise the value of care and insure that beneficiaries are not getting too much of what they don’t need

Hearing Website:


Katherine Baicker, Ph.D.
Professor, Health Economics
Department of Health Policy and Management
Harvard School of Public Health

Thomas P. Miller, J.D.
Resident Fellow
American Enterprise Institute

Patricia Neuman, ScD., M.S.
Senior Vice President
Henry J. Kaiser Family Foundation

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