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Fixing Problems with Medicare and Medicaid

Paragon Newsletter
President at Paragon Health Institute
Brian Blase, Ph.D., is the President of Paragon Health Institute. Brian was Special Assistant to the President for Economic Policy at the White House’s National Economic Council (NEC) from 2017-2019, where he coordinated the development and execution of numerous health policies and advised the President, NEC director, and senior officials. After leaving the White House, Brian founded Blase Policy Strategies and serves as its CEO.

Today’s newsletter highlights recent Paragon research on two well-intentioned but ultimately harmful government policies: Medicare’s system for paying doctors and easy access to Medicaid long-term care. The research also contains recommendations for how Congress can fix these problems.

Escaping from Medicare’s Flawed Physician Payment System

This morning, Paragon published a report from senior policy analyst Joe Albanese on the problems with how Medicare pays doctors. The main problem is that rates are set through a political process that distorts the health care sector since Medicare’s prices are disconnected from value.

Joe found that Medicare policies enacted in recent decades have helped to contain costs by slowing the growth of payment rates. Yet, expenditures have continued to grow from a higher volume of physician services and with rapidly rising spending on other Part B services. While there is a theoretical concern that low payment levels could discourage doctors from participating in Medicare and thereby compromise access to care for seniors, physician participation in Medicare has never been higher. On the other hand, excessive payments directly increase costs borne by patients and their families while also undermining the fiscal sustainability of the Medicare program for taxpayers and future beneficiaries.

As Congress considers Medicare payment policy, Joe offers several recommendations:

  • Tie increases to physician payment to other policy changes to contain overall Part B spending. These can include reducing overpayments on outpatient hospital services, Part B drugs, clinical laboratory services, and durable medical equipment.
  • Reform the Physician Fee Schedule to improve the appropriateness of payment rates, including by incorporating market-based pricing and strengthening budget-neutrality requirements.
  • Eliminate or significantly reform failed efforts to promote value-based care through the Merit-Based Incentive Payment System and financial enticements to participate in advanced alternative payment models.
  • Setting payment rates to an external measure of inflation without these other changes would increase costs and do nothing to ensure the appropriateness of payment rates.

How Medicaid Drives the Long-Term Care Financing Crisis

In a new Washington Times op-ed, Stephen Moses and I discuss America’s long-term care crisis. This piece, as well as Steve’s Paragon reports on both the LTC problem and the LTC solution, are essential reading given how the mainstream media, evidenced by The New York Times recent series Dying Broke, misdiagnose the problem.

Here are some relevant excerpts from our op-ed:

To solve the nation’s looming long-term care financing crisis, policymakers must deal with one key fact. Most people do not consume their life savings paying for long-term care (LTC).

People believe this fallacy of impoverishment because so many elderly end up on the Medicaid welfare program, often in nursing homes. But the truth is most people can easily access Medicaid when they have LTC needs. There are income and asset tests to gain eligibility for Medicaid LTC, but for most people the income test is irrelevant, and the asset test is easily satisfied. …

On the asset test, most seniors’ wealth is exempt. This includes most home equity, IRAs, a business, one vehicle, prepaid burial expenses, personal belongings, and home furnishings. Medicaid applicants can reduce non-exempt wealth by purchasing exempt assets, such as a new car, or having their home remodeled. There is an army of elder law attorneys who specialize in helping clients arrange assets to qualify for Medicaid. The attorneys are often hired by heirs to preserve their inheritances.

The data proves this story. Americans spent $530 billion on LTC in 2021, but little was from people spending down their life savings. In fact, only about 12 percent was out-of-pocket personal expenditures, or people spending their income or savings. …

The easy availability of Medicaid to pay for LTC creates a moral hazard that discourages responsible LTC planning early in life. Why save, invest or insure for LTC when you don’t know if you’ll need it and, if you do, the government pays anyway? It also perpetuates a long-standing bias toward low-quality nursing home care caused by Medicaid’s meager payment rates, which is the root of why nursing homes can’t find enough quality staff to take care of residents.

To improve LTC for those who need it, Medicaid needs significant reform. In Long-Term Care: The Solution, Steve lays out a plan for making Medicaid harder to access and uses a plethora of data to demonstrate that most Americans can finance a significant part of their LTC expenses. Private financing flowing into LTC’s service delivery system is the key to improving access, quality, and staffing.

In closing, as will not surprise you, government programs often fail to deliver on the lofty promises of politicians who enact them. If you have a few minutes, I encourage you to read a new article from Dr. Joel Zinberg, the director of Paragon’s Public Health and American Well-being Initiative, on one of the most profound recent failures, that of the Center for Medicare and Medicaid Innovation. Understanding these failures is the first step toward not repeating them.

All the best,

Brian Blase
President
Paragon Health Institute

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