The nation's Medicare program may have been the single most-debated program during the recent Congressional talks about our national debt ceiling. Certainly, it was a key cause of stonewalling by legislators on both sides of the Congressional aisle, as neither party wants to be associated with anything which potentially hurts our Medicare beneficiaries. They are, after all, one of the nation's largest voting blocks, and already radio and TV commercials are resounding about protecting the rights of senior citizens to continue their current Medicare program.

Many of the debt reduction proposals put forth by Congress, the White House and various independent, bipartisan groups include reducing the growth in Medicare spending over time. In the final debt-ceiling deal, Congress spared Medicare from immediate cuts. But they'll be back for round two this fall, and nothing is certain.

Most important to watch will be the powerful new congressional “super committee” created as part of the debt agreement. These 12 delegates will be tasked with scouring the national budget for savings in the next several months. Since Medicare makes up nearly 23 percent of the federal budget, the committee's final recommendations are almost certain to contain some modifications to the program.

As the committee works to achieve a likely unobtainable $1.5 trillion target in budget cuts by Thanksgiving, agents and their Medicare clients need to be aware proposals that were avoided the first time could reappear overnight.

Here are some of the most potentially significant Medicare changes which have been suggested as part of overall deficit and debt reduction proposals:

Limit federal spending

What is it/how it would work:

A number of proposals would cap our annual growth in Medicare expenditures in relation to our gross domestic product. In general, proposals call for limiting the growth in federal support per Medicare enrollee to no more than GDP + 1% per beneficiary. Our debt-to-GDP ratio would be analyzed for stability, and if spending exceeds the proposed limits, action would be required by Congress and the president. In simpler terms, this strategy shifts Medicare from what is now a defined benefit program to more of a “defined contribution” program. Cuts in benefits would almost surely follow.

Bottom line: When benefits cuts are required, neither political party will want to be responsible for actually enforcing it. This would result in savings that are only theoretical.

Raise the eligibility age

What is it/how it would work:

Several of the reform proposals include raising Medicare's eligibility age from 65 to 67 as early as 2014. A study by the Kaiser Family Foundation predicts this measure would generate an estimated $5.7 billion in net savings to the federal government, but also would result in an estimated net increase of $3.7 billion in out-of-pocket costs for 65 to 66-year-olds, and $4.5 billion in employer retiree health care costs. This potential change draws some of the most intense backlash, since it could possibly force some individuals into working longer than anticipated before retirement or increase the number of uninsured individuals if the 2010 health care reform legislation is repealed, changed or overturned in court.

Bottom line: Though feared by Americans who'll age into Medicare in the next decade, this proposal is a simpler form of change, and could be gradually phased in over a period of years, giving consumers time to prepare. Should Obamacare be enacted in 2014 as currently written, those affected would still have guaranteed access to care until they reach age 67.

Change to a premium support program

What is it/How it would work:

This measure would transition the Medicare program, where the government directly pays the medical bills, into a “premium support” or voucher program, in which the government would supply a defined sum to each beneficiary to purchase a health plan of his choice. Market competition would work to keep plan premiums competitive, but as with most health insurance, plans with higher cost-sharing required from the insured individual would offer the lowest premiums. Compared to our current Medicare program, a premium support program would likely leave beneficiaries footing the bill for higher deductibles, co-insurance and co-pays. Furthermore, if national costs grew faster than the established allowable limits, then beneficiaries could expect to see higher premiums.

Bottom line: Even under the current program, there's an enormous lack of awareness in the general public about what Medicare doesn't cover. If pursued, it's likely that we'll see tens of thousands of beneficiaries aging-in each year that are entirely financially unprepared for the Medicare cost-sharing they are expected to shell out.

Eliminate first-dollar coverage

What is it/How it would work:

The idea for eliminating first-dollar coverage Medigap plans, like the current Medigap Plan F, stems from the same idea that drove consumer-directed health care plans into play. Proponents of this change argue if the beneficiary had a bit more skin in the game, they wouldn't be as likely to over-utilize their health care benefits. Proposals suggested prohibiting Medigap insurers from covering the first $500 or so in expenses, and then limiting the insurer's coverage of the next $2750-$7500 to only 50 percent. Beneficiaries on fixed incomes would be less likely to run to the doctor for every cough or sneeze when doing so would absolutely mean at least some dollars out of their own pockets.

Bottom line: Considering the success of consumer driven-health care programs in the under-65 market, it's likely this proposal would be effective in reducing Medicare spending. It remains to be seen, however, whether either political party would be able to garner support for a move that prohibits beneficiaries who can afford to purchase richer coverage from actually doing so.

Restructure cost-sharing

What is it/How it would work:

Some proposals called for a simplification of the beneficiary's cost-sharing under the current Medicare program. This would be achieved by unifying Medicare Part A & B (and possibly even D) deductibles into one deductible, after which the beneficiary would pay 20 percent of remaining Medicare-approved costs. A maximum annual out-of-pocket would be instituted and reviewed annually for needed increases. The major way this proposal would affect beneficiaries would be that it will create cost-sharing in areas where none exist currently, such as in home health care or the first 20 days of a skilled nursing facility stay.

Bottom line: While this move would perhaps reduce some infrastructure costs within Medicare, opponents question whether any significant savings would result. Since Medigap plans would likely be revised to offer coverage of the combined deductible, beneficiaries who buy Medigap plans won't be motivated to use their benefits any less.

Cut expenditures by changing the Part D drug benefit

What is it/How it would work:

Several reforms called for savings by requiring Medicare to use its federal purchasing power to further negotiate reduced prices for prescription drugs and to push pharmaceutical manufacturers for faster availability of generic alternatives. Lower drug pricing in the form of discounts or rebates would theoretically lead to lower costs for Part D, both for consumers and for the federal government, which subsidizes a large portion of the cost of the popular prescription drug program. At least one proposal called for the establishment of a federally administered Part D plan which would be available for purchase by all beneficiaries. Another suggested the repeal of the Affordable Care Act's timeline to close the Part D coverage gap.

Bottom line: Federally-negotiated drug discounts are fine but a federally-administered Part D plan would be a beneficiary's worst nightmare. Throwing consumers to the mercy of a 1-800 line where they reach an hourly government employee in a department that is likely to be woefully understaffed would result in chaos.

Increase advisory board power

What is it/How it would work:

The PPACA legislation has been much criticized over its creation of the Independent Payment Advisory Board for fear of public rationing of health care. Though the board doesn't yet exist and isn't likely to until after the next presidential election, several deficit-reduction proposals suggested authorizing the board to control excessive Medicare spending. The board would review Medicare's benefit structure every few years and recommend reforms to lower spending. Though Obamacare law prohibits rationing, the very idea of this panel has been widely denounced by many senior citizen groups, who fear older Americans will be the first people to lose care whenever health care spending increases.

Bottom line: Anything that looks like Big Brother will be viewed with fear and disdain by consumers. Expect the “let's kill granny” debate to reappear on the national scene.

During the summer debt ceiling stalemate over proposals like these, we also saw legislation introduced which targets Medigap insurance carriers. Sen. John Kerry, D-Mass., and House Rep. Pete Stark, D-Calif., co-sponsored a bill in late July that would increase Medigap minimum loss ratios to 80 percent for the individual market and 85 percent for the group Medigap market. The Medigap Medical Loss Ratio Improvement Act would basically be an attempt to make the MLR for Medicare supplement products consistent with other insurance products which were affected by the PPACA legislation.

But many think the bill doesn't focus on the real issue with Medicare. “There has been one central problem with MLRs from the get-go: They don't work; they don't mean anything,” says Lee Manross, a lobbyist for the Texas Association of Health Underwriters. “They're a very poor measure of a carrier's efficiency or performance for its policyholders.”

Under current law, Medicare supplement carriers must keep the MLR to 65 percent in the individual Medigap market, and 75 percent in the group Medigap market. Nonetheless, the 2010 NAIC supplement experience exhibit approximated that many carriers are already experiencing a 79 percent loss ratio on these plans. We see evidence of this all the time as carriers have a rate increase at least annually to try to keep up. Squeezing up to 15 percent more out of the carrier's overhead needed to run all the administrative functions would likely push smaller carriers out of the market entirely, leaving less choices for the more than 9 million Medicare beneficiaries covered under a Medigap policy. For those players remaining in the game, agent commissions will be the most likely target of the expense cuts necessary to achieve the new MLR.

It's similar to the kind of thinking behind PPACA—that removing insurance agents from the equation somehow better protects the public. Yet hundreds of thousands of beneficiaries seek out insurance agents who specialize in Medicare each year because they find Medicare itself to be so confusing that they can't even begin to tackle the idea of how to financially protect themselves from the catastrophically large holes in Medicare.

Ron Iverson, president and executive director of the National Association of Medicare Supplement Advisors, stresses that cutting agent commissions will ultimately only hurt the Medicare beneficiaries, who rely on agents to help them navigate Medicare. “There are several problems here, the most important being that we know our value to our clients, who may range from age 65 to 100-plus. Few people can explain the benefits of their own policies, let alone understand the underlying benefits of Medicare. As producers, that is our job, and one which we value highly,” he says.

In fact, Iverson says, many producers work overtime explaining and simplifying Medicare and Medicare products. The obligation begins with those turning 65, and increased with the longevity of most clients. “No older person should be expected to remember everything they need to know about Medicare and their own plan—that's why we, as producers, are employed by them,” he says. “We are the first line of underwriting, explanation, policy delivery, solving confusing issues, and finally, any changes in Medicare or their own policies. Older people do not call companies—they call their agent.”

Kasey Buckner, a veteran Texas insurance agent agrees that, if passed, this bill would leave beneficiaries out in the cold. “It would mean nothing more than slashing of agent commissions, thus driving many out of business, and driving the masses to the government for help.”

In a nutshell, if agents specializing in the Medicare market felt that we had escaped the MLR rules of PPACA, we apparently haven't. The legislation has considerable backing as well, having been endorsed by organizations such as AARP, the Alliance for Retired Americans, the Center for Medicare Advocacy, the National Council on Aging and numerous other associations.

As the ongoing national debate over deficit-reduction continues, advocates in many sectors are already preparing for the fight to contain or delay the potential cuts that affect them. Taxpayers can be relatively sure if the budget super committee either fails to meet its obligation or makes recommendations that lawmakers ultimately cannot agree upon, then tax increases are sure to be back on the table as the next means of reducing the deficit.

To be sure, these items leave a lot of opportunity for our lawmakers to squeeze deficit savings out of the Medicare program, and it will be interesting to watch how it all plays out this fall. Perhaps the scariest is that if the debt committee comes to loggerheads and lawmakers are unable to vote on a proposed constitutional balanced-budget agreement, then the existing deal calls for automatic widespread spending cuts to take effect. While Medicare and Social Security would be exempt from these cuts, Medicare providers and private Medicare health plan insurers would not, and the cuts would be in addition to those already enacted by the Obamacare legislation. As a result, we could expect to see quite a few physicians stop seeing new Medicare patients at a time when Medicare providers are often already hard to find.

As the ongoing national debate over deficit-reduction continues, advocates in many sectors are already preparing for the fight to contain or delay the potential cuts that affect them. Taxpayers can be relatively sure that if the budget super committee either fails to meet its obligation or makes recommendations that lawmakers ultimately cannot agree upon, then tax increases are sure to be back on the table as the next means of reducing the deficit.

Danielle Kunkle is vice president of Boomer Benefits, an independent insurance agency specializing in Medicare-related products, based in Benbrook, Texas. She is president of the Fort Worth Association of Health Underwriters, and is a frequent speaker on Medicare topics.

Instant Insights /

Medi-Scare: The Sequel

More From HR Executive

Related Stories

Recommended For You