A Fanciful, But Inaccurate, Premium Support Study
The Kaiser Family Foundation released a study today regarding premium support proposals, which Democrats have used to attack Medicare reform. However, the study is an academic exercise that, by the authors’ own admission, bears little relation to reality. First and foremost, the study assumes full implementation of premium support in 2010. This assumption is particularly problematic, given the many changes that have taken place in Medicare Advantage since then:
- Obamacare enacted more than $300 billion in cuts to Medicare Advantage – part of the law’s $716 billion in Medicare reductions overall;
- The Administration came up with a $8 billion demonstration program – one of questionable merit – to offset the impact of Obamacare’s cuts until after the 2012 elections; and
- Private fee-for-service (PFFS) plans have all-but-disappeared from the marketplace, due to legislative changes; the study admits that “many PFFS plans have exited the market” since the data for the study were compiled in 2010, but doesn’t attempt to model the impact of this significant change.
In other words, by using a 2010 implementation date, the Kaiser study ignores entirely the impact of the biggest changes to both Medicare and Medicare Advantage since the programs were created. Moreover, the study assumes a “Big Bang” model, whereby all the changes to Medicare would take place at once – even though it admits that most proposals being discussed “would gradually phase-in a premium support system in five to ten years,” allowing changes to be implemented in a way that prevents drastic adjustments.
Three other important things you need to know about the Kaiser study:
- The study does not do a good job delineating two separate and distinct phenomena: costs due to disparities between traditional Medicare and Medicare Advantage, and costs due to disparities within traditional Medicare itself. To use one common example, traditional Medicare’s spending is far greater in metropolitan Miami than in many areas in the upper Midwest (for instance, Wisconsin). Yet under current law, all enrollees in traditional Medicare pay the same Part B premium nationwide – meaning that right now, seniors in Wisconsin pay higher Part B premiums that subsidize higher levels of spending in Miami. The premium support proposal modeled by Kaiser would eliminate this disparity – meaning that under the study, premiums in traditional Medicare would rise substantially in Miami, to reflect that area’s much higher spending. Critics would argue these higher premiums demonstrate the flaws of the premium support model. But in reality, that’s not an argument against premium support – that’s an argument against the status quo in traditional Medicare, under which high-cost areas have had their spending subsidized by low-cost regions for far too long.
- The study does not fully model the ability of plan switching to reduce costs. The headline figure about the number of individuals who would pay more to maintain their current coverage presumes that beneficiaries would not switch plans at all – not a realistic assumption under most scenarios. And the study also assumes that low-income individuals would not automatically be assigned to a low-cost plan – current practice in Medicare Part D. In short, the Kaiser study under-estimates both the impact that beneficiary choices and structural design could be used to facilitate enrollment in lower-cost premium support plans.
- At no point does the study even attempt to quantify potential budgetary savings from premium support. The study goes to great lengths to outline the higher costs, but doesn’t make any estimate about the savings to the federal government from such a reform – or how it would improve Medicare’s long-term solvency. In other words, the study focuses solely on pain to beneficiaries – without examining the gains to Medicare’s sustainability.
The Obama campaign’s response to the study – claiming that seniors “would have to give up their doctors or pay extra to maintain access to their choices” – is particularly rich. Mind you, this claim comes from an Administration that will force millions of seniors out of their Medicare Advantage plans – not to save Medicare, but to fund Obamacare instead. It’s yet another example of why Medicare needs real reform – and why this Administration is both unwilling and unable to deliver on it.