Medicare Thought Leader Provides Opinion on Medicare Savings Program

May 4, 2011

Gail R. Wilensky, PhD, has written an editorial on the Medicare reform that was published on April 27. 2011 in the online version of the NEJM. Professor Wilensky is an ecomomist, senior fellow at Project HOPE, and serves on Congressional committees to advise Congress on payment and other Medicare-related issues.

Gail R. Wilensky, PhD, has written an editorial on the Medicare reform that was published on April 27. 2011 in the online version of the NEJM (DOI: 10.1056/NEJMp1104425). Professor Wilensky is an ecomomist, senior fellow at Project HOPE (an international health foundation), and serves on Congressional committees to advise Congress on payment and other Medicare-related issues. From 1997-2001, she chaired the Medicare Payment Advisory Commission, which advises Congress on payment and other issues relating to Medicare. 

In the article, Professor Wilensky highlights the current spotlight on Medicare as a government entitlement program, in light of the political discussion of the deficit. The author points out the endemic Medicare and overall healthcare-spending problem: Healthcare spending has been growing 2% to 2.5 % faster than the U.S economy since the 1960s. A novel issue is the retirement of baby boomers, which started in January 2011 and is projected to result in an estimated 32 million people flooding the Medicare system by 2030: This will almost double the number of Medicare recipients. However, as the author points out, the central problem is excess spending overall.

The Affordable Care Act (ACA) is just starting to be rolled out, and should result in reductions in reimbursements to Medicare providers that equal more than $500 billioni in savings over the next 10 years. However, the Centers for Medicare and Medicaid Services actuary has questioned the sustainability of the ACA reductions, which they say will lead to major access problems. The problem is that no fundamental changes to the fee-for-service approach has been made. There is no precedent for the savings proposal-the minimum savings requirement for ACOs greatly exceeds what large-group practices were able to achieve in an earlier CMS project. The hope is that ACA pilot programs that have the potential to fundamentally change providers’ incentives will result in cost savings. 

Wilensky goes on to describe a different approach, that proposed by the House of Representatives Chair of the Budget Committee, congressman Paul Ryan (R-WI). His approach would be a “defined contribution,” or voucher plan. It would allow beneficiaries to choose from a range of private plans with varying benefits, and it would allow beneficiaries to switch plans annually. This plans would not discriminate based on age or health status. Americans who turned 65 in 2022 or later would receive a defined contribution or a fixed subsidy. The subsidy would grow as a measure of the Consumer Price index and would be adjusted for the older and sicker population and for low-income beneficiaries. Those who are 55 or older could continue on their current Medicare program if they choose.

Wilensky lists three ways to make the proposal more adoptable, but her options would decrease some of the potential savings. She would increase the rate of subsidy to 1% plus the GDP to allow for a more sustainable growth rate measure. A second proposed change would be to make sure that the subsidy is sufficient for the purchase of one healthcare plan in a specific geographic region, to allow coverage of at least 75% of the premium (or the appropriate amount chosen for 2022). Lastly, Wilensky believes that making traditional Medicare available on a premium basis to beneficiaries along with private plans is a viable option.

In the article, the author conveys that the modified Ryan plan would allow private plans to introduce changes such as reducing provider reimbursements and changing provider incentives without government intervention.