The USC-Brookings Schaeffer Initiative for Health Policy recently posted an analysis entitled Options for containing the cost of a new Medicare dental, hearing, and vision benefit by Matthew Fiedler, Ph.D. (September 2021).
Noting the potential cost of adding dental, hearing and vision coverage to Medicare, as Congress is currently considering doing as part a potentially historic reconciliation package, Dr. Fiedler’s analysis outlines “two ways that policymakers could reduce the cost of adding this new coverage to Medicare without reducing the generosity of that coverage.” He also outlines a combination of both approaches. Each approach is briefly outlined below.
Option 1: Exclude new benefit from MA benchmarks
Dr. Fiedler proposes to exclude
what traditional Medicare spends on the new benefits from the “benchmarks” that Medicare uses to determine payment rates for private Medicare Advantage (MA) plans. I estimate that this step would reduce the fiscal cost of introducing a benefit similar to the one in the 2019 House bill by 41% [the 2019 bill is H.R. 3, as discussed in this CMA Alert]. This is because federal payments to MA plans would rise only modestly if the benchmarks excluded the new benefits, whereas they would rise substantially if the benchmarks included them. The effect on federal costs is so large because of the large and growing share of Medicare enrollment accounted for by MA. I estimate that this step would also modestly reduce the Medicare Part B premium relative to what it would be if these costs were included in the benchmarks.
The analysis notes that this approach “would not prevent MA enrollees from receiving those benefits, which MA plans would be required to provide regardless. Rather, I estimate that MA plans would accept lower profit margins (or reduce their costs) if benchmarks excluded the new benefits, whereas those margins (or costs) would rise modestly if benchmarks included the new benefits […] Additionally, I estimate that MA plan spending on supplemental benefits other than dental, hearing, and vision coverage would change little relative to the status quo if benchmarks excluded the new benefits.”
Option 2: Include new benefit in Part B premium calculations
This option would “include the new benefits in the calculation of the Medicare Part B premium, just like other Part B benefits. […] I estimate that applying the usual Part B premium rules to the new benefit would reduce the fiscal cost of creating the new benefit by 22%.”
Option 3: Do both
Including the new benefits in the calculation of the Part B premium, “just like other Part B benefits,” together with excluding the new benefit from MA benchmarks, “would reduce the fiscal cost of the new benefit by 64%. Notably, across all policy scenarios I consider, the increase in benefit spending on behalf of enrollees would greatly exceed the increase in premium payments—both in traditional Medicare and MA. This strongly suggests that the new coverage would make Medicare beneficiaries better off even if the usual Part B premium rules apply.”
As of publication of this CMA Alert, negotiations continue on the reconciliation package, including whether to scale back the entire package and what proposals might remain. In short, an expansion of dental, hearing and vision benefits in traditional Medicare – an important, but still incomplete, step towards leveling the playing field between MA and traditional Medicare – is in jeopardy. So far, there is no indication that policymakers are considering addressing MA overpayments as a way to offset some of the costs of Medicare expansion, nor do they appear to be considering excluding the new benefit from MA benchmarks as proposed in this analysis, which, by itself, would reduce the cost of the expansion of benefits by 41%. The Center for Medicare Advocacy urges policymakers to address wasteful overpayments to MA plans, particularly if failing to do so leads to squandering a rare opportunity to make significant improvements to the program that will benefit everyone with Medicare.
October 7, 2021 – D. Lipschutz