The Agenda

James Capretta on the Prospects for Medicare Reform in 2013

If conservatives can’t persuade the Obama administration and Senate Democrats to embrace premium support this coming year, as seems likely, are there alternative reforms that are worth pursuing? James Capretta offers a roadmap for incremental Medicare reform at Economics 21. His basic view is that beneficiaries need to play a more active role in making decisions about their medical care, and this requires making them more cost-conscious. He also wants to guarantee that accountable care organizations (ACOs) are responsive to beneficiaries and not just administrative directives from CMS:

First, in general, Medigap plans and employer-sponsored retiree coverage should not be allowed to fill in entirely Medicare’s cost-sharing. In an FFS insurance model, that’s commonsense. In addition to regular Medigap insurance, this rule would apply to the health program for retired federal employees as well as the military health system, both of which serve as secondary insurance for millions of former government workers and military personnel.

Second, the ACO “shared savings” program should be explicitly expanded to foster competition among ACOs through beneficiary choice. Instead of the automatic enrollment system now in place, beneficiaries should be given the option to enroll in an ACO of their choosing. And, as an incentive to do so, they should be allowed to share in the savings from ACO cost-cutting. The amount of savings they would get (in the form of reduced Medicare premiums) should be directly proportional to how much ACOs can bring down overall costs below what would otherwise occur in unmanaged FFS. Thus, ACOs that are particularly effective at cutting costs would attract market share and enrollment because beneficiaries would experience reduced premiums if they signed up with them.

Third, to provide even more incentive for enrollment in cost-effective care, the reform should allow secondary insurance to provide more favorable cost-sharing for beneficiaries who get their care from an approved integrated system (that could be an ACO model or perhaps even more aggressively managed models). This would give the beneficiaries even stronger financial incentives to forgo unmanaged FFS and would create within Medicare something like an “in-network” and “out-of-network” structure, much like what many private employers have in place today.

These three reforms would dramatically change the cost dynamic in the program.

I found Capretta’s analysis very encouraging.

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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