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Sunday, August 19, 2012

Blog Reader Asks How a Medicare Voucher System Will Cost Beneficiaries $6000 a Year

Peter Barbella from Littleton Massachusetts writes:

"Can anyone explain, in plain English, exactly what is a Medicare Voucher system? Precisely how is it going to cost me an additional $6000 per year? I have yet to see a rationale explanation that would allow me to take sides one way or the other."

Although I have not read the Medicare Voucher plan as proposed by Congressman Paul Ryan in his budget cutting proposal, the concept is predicated on shared risk between the insurance company and Medicare.  At the end of the day, the insurance company will do whatever it takes to generate a profit from the vouchers while, at the same time, negotiating with the beneficiaries for the amount of services provided. Today, the amount of services provided under Medicare are paid under a shared risk reimbursement formula with the provider, not the beneficiary.

Medicare guarantees certain basic benefits while negotiating payment to the providers based upon several formulas known as prospective payment (PPS), or diagnostic related groups (DRGs), or Fee for Service or Pay for Performance, and other models.  Medical care is covered, presuming the procedures are necessary and the costs are reasonable.  

On the provider's side, like physicians, hospitals, clinics, etc, the services provided are monitored and evaluated for quality and necessity. Beneficiaries seldom see the detail of the Medicare reviews the providers must respond to if certain procedures are questioned. If a procedure is deemed unnecessary, the provider eats the cost and the beneficiary is never charged.  A Voucher System will put the guarantee for payment on the beneficiary.  If Medicare denies the procedure, the beneficiary will pay for it under a Voucher system.

Therefore, when Peter Barbella asks how the beneficiary will see a $6000 increase in out of pocket expenses under a Voucher Plan, the answer is based upon the retrospective data Medicare collects about payment to providers, like physicians, hospitals and home health agencies.  In simplistic language, if the average cost of a procedure (let's say, just for example, gall bladder surgery) is $3,500, but the beneficiary doesn't include gall bladder surgery in the plan selected from the Voucher menu provided by the insurance companies, then the provider risks, either, not getting paid under a Voucher Plan or the beneficiary will have to pay for the procedure.  

Medicare data knows the average cost of gall bladder surgery.  In fact, Medicare knows the cost of gall bladder surgery by zip code, by physician and by hospital.  Medicare also knows how prevalent gall bladder surgery is among the 65 years and older population. Therefore, a Medicare actuarial analysis can project the risk of gall bladder surgery and the cost of this procedure across the entire Medicare population.

Although I have not read the Ryan Voucher Plan proposal, I suspect the $6000 out of pocket, projected to be cost shifted to beneficiaries, is likely based upon the amount of money the providers are denied during routine Medicare reviews of utilization. Of course, it's unlikely a gall bladder surgery procedure will be denied under a review, but, certain medical tests associated pre or post operative care might be denied. On the other hand, if a beneficiary's Voucher Plan does not provide for the gall bladder procedure, it won't be covered at all.  Under any Medicare plan offered today, a cholecystectomy (gall bladder removal) would be covered, but under a Voucher system, the cost of this procedure would be capped. Moreover, it's quite likely the beneficiary would be charged for any cost over the cap.

What's worrisome is that the $6000 figure is based upon retrospective data and does not allow for inflation.

As beneficiaries age, the cost of care will likely exceed the amount of money they each may select for their Voucher Plan, thereby risking even more out of pocket expenses than the projected $6000, especially when adjusted for increasing cost of care and inflation.

A question not currently being asked is how much such an extraordinary change in the Medicare benefit, from the current system of reimbursement to Voucher, would cost the federal government.  

Mr Barbella is checking with other data sources to verify how the Medicare program will be impacted by a Voucher System and I'm looking forward to responding to his future questions.  







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