A Comprehensive Assessment Tool to Evaluate Medicare Savings Proposals

Although the COVID-19 pandemic is currently the focus in Congress, other health care priorities will soon come to the forefront. Most notably, Medicare will demand attention, as its financial condition is currently in its worst shape since 1997, when Congress enacted the Balanced Budget Act. The Congressional Budget Office (CBO) projects that the Medicare Part A Trust Fund will become insolvent in 2026. Spending per beneficiary is growing more quickly than program revenues and the overall economy. To ensure that Medicare can continue to meet its obligations, Congress will have to reduce spending or increase revenues. At least $700 billion in reductions or revenues will be needed to add 10 years of solvency to the trust fund.

Existing Tools to Assess Savings Proposals Fall Short

When addressing Medicare savings options, Congress generally considers their budgetary impacts; for example, how long the Part A Trust Fund depletion date can be delayed or what will be the reduction in total Medicare program spending. However, those measures fall short because they do not consider other impacts of concern to policymakers. Depending on their design, policies can affect Medicare beneficiaries’ out-of-pocket (OOP) expenses, benefits, and access to Medicare Advantage (MA) plans. Savings measures also can affect health care providers, for instance, by changing payment rates for various services or introducing new program requirements. Rural hospitals and safety-net providers generally serve a higher proportion of Medicare patients and can be especially vulnerable to payment reductions. Thus, a broader lens is useful to policymakers when weighing various options.

Comprehensive Assessment Tool to Address Shortcomings and Evaluate Policies

With support from the Commonwealth Fund, Health Management Associates created a comprehensive assessment tool to evaluate Medicare savings policies across a range of different measures that fall into three domains:

1. Budgetary: Measures typically considered, such as change in trust fund depletion date and total Medicare program spending; these follow generally accepted modeling approaches (i.e., CBO scoring conventions and Medicare trustees’ projection methodologies).
2. Beneficiary: Measures that assess the impact on beneficiaries — for instance, if the policy results in beneficiaries paying more or less for benefits or having restricted access to Medicare Advantage plans.
3. Health system: Measures that assess whether health systems, including rural, teaching, Medicare-dependent¹ and other safety-net hospitals, would fare better or worse.

To illustrate how the assessment tool can be used, we scored three Medicare savings policies that have been discussed frequently by the Medicare Payment Advisory Commission (MedPAC), CBO, and Medicare experts.² We have chosen these policies for illustrative purposes only; we neither endorse nor recommend any policies.

Hospital–physician site of service payment neutrality

This policy would set payment rates for Medicare Part B hospital outpatient services equal to physician office service.

1. Budgetary: Would reduce Medicare spending by $127 billion over 10 years and reduce average annual spending per beneficiary by about 1 percent. However, it would have no impact on the projected Part A Trust Fund insolvency date; it only affects Part B spending.
2. Beneficiary: Total OOP cost burden for Medicare beneficiaries without supplemental coverage would be reduced by $39 on average in 2027; savings would range from $28 for beneficiaries with low incomes to $112 for beneficiaries with high OOP costs and an inpatient stay.³
3. Health system: In 2027, the average hospital margin would decline by a projected –0.9 percent. This change would range from –1.2 percent to –0.3 percent depending on hospital characteristics. The policy would not affect MA enrollment but would reduce the number of beneficiaries enrolled in traditional Medicare who are projected to be attributed to accountable care organizations (ACOs).

Postacute care payment reductions

This policy would reduce payment updates to postacute care providers — home health agencies, inpatient rehabilitation facilities, long-term care hospitals, and skilled nursing facilities — consistent with MedPAC’s most recent recommendations until providers’ margins are reduced to about 1 percent on average.

1. Budgetary: Would reduce Medicare spending by $122 billion over 10 years and average annual spending per beneficiary by about 1 percent. However, it would have little impact on the projected Part A Trust Fund insolvency date.
2. Beneficiary: Would not change Medicare beneficiaries’ total out-of-pocket cost.
3. Health system: Would not change hospitals’ margins significantly, on average, nor would it alter MA enrollment or ACO projected attribution.

Competitively set benchmarks for MA plans

This policy would change the way MA plans are paid by setting benchmarks at the average of all plan bids submitted in each county.

1. Budgetary: Would reduce Medicare spending by $471 billion over 10 years, reduce average annual spending per beneficiary by about 5 percent, and delay the projected Part A Trust Fund insolvency date from 2026 to 2028.
2. Beneficiary: Total OOP cost burden for Medicare beneficiaries without supplemental coverage would increase by about $1,200 in 2027; OOP growth would range from $446 for beneficiaries with multiple chronic conditions to $17,800 for beneficiaries residing in institutions.
3. Health system: Would not change hospitals margins. Would reduce MA enrollment by 14 percent and increase ACO attribution.

Applying the Tool to Support Policy Debate

The tool can assist policymakers and stakeholders who need to weigh important trade-offs and understand the intended and unintended impact of policies, especially for vulnerable beneficiaries and critical safety-net providers. This tool is by no means exhaustive in its measures but includes a wider range of measures than those on which policymakers typically rely. Policymakers may wish to consider additional measures depending on the range of policies considered.

Notes

1. Medicare-dependent hospitals are defined as those where the proportion of total patient discharges attributed to Medicare beneficiaries is equal to 45 percent or more.

2. Health Management Associates built interrelated models that mirror CBO scoring conventions for assessing fiscal impact measures. These models include: 1) a forecast model of the Medicare trust funds incorporating data and assumptions from the 2020 Medicare Trustees Report and CBO; 2) a microsimulation model that measures changes in beneficiary out-of-pocket spending and enrollment; 3) a hospital margins forecast model which draws data from Medicare Cost Reports, and assumptions from CBO and the Medicare Trustees Report to assess the impact of policy change at the individual hospital level. We also made qualitative assessments whether policies would impact participation of providers in alternative payment models, specifically ACOs. In designing these models, we consulted with a technical expert panel of Medicare and modeling experts.

3. A large majority of Medicare beneficiaries have supplemental coverage that shields them to some degree from cost-sharing liability. Therefore, out-of-pocket cost amounts indicated in the comprehensive assessment tool are often passed along to other payers (e.g., state Medicaid programs, Medigap plans) and should be considered by policymakers.