Here at the Cato Institute, we are marking National Health Care Quality Week by shining a light on something health-services researchers have long lamented: Medicare’s negative impact on health care quality.
Signing Medicare into law in 1965, President Lyndon Johnson vowed, “No longer will older Americans be denied the healing miracle of modern medicine.” In “Would ‘Medicare for All’ Mean Quality for All?” (forthcoming in the Quinnipiac Health Law Journal), Jacqueline Pohida and I explain that Medicare doesn’t just fail to ensure the “healing miracle” part. Medicare actually rewards low-quality and harmful care, while punishing high-quality care.
The Medicare Payment Advisory Commission explains that Medicare’s fee-for-service payment systems pay providers “more…when complications occur as the result of error” and pay providers less when they implement steps that prevent medical errors.
As a result, Medicare creates disincentives for providers to invest in cost-saving preventive services or processes that avoid misdiagnoses, iatrogenic injuries, medical errors, and other forms of low-quality care.
We tie these perverse incentives to the quality deficits health-services researchers identify in Medicare:
In the 1990s and 2000s, studies identified persistent underuse of highly effective, low-cost treatments among Medicare patients with acute myocardial infarction “even in the absence of discernible contraindications,” and underuse of dozens of other effective treatments for more than a dozen various acute and chronic conditions…
A 2003 study found Medicare fared poorly relative to the Veterans Health Administration on a series of quality indicators…
“Medicare enrollees in regions with a high-intensity pattern of practice have slightly worse access to care, no better satisfaction with care, and receive lower-quality care than those in regions with the more conservative practice patterns…In other words, when comparing identical patients in high- and low-spending regions, those in high-spending regions spent more time in the hospital and saw more physicians (more frequently) but received lower-quality care and achieved worse health outcomes [including] a higher risk of death over time.”
While technocrats claim “value-based payments” would eliminate these perverse incentives — we call this “the siren song of the perfect payment system” — we explain no single payment system can correct this problem:
One consequence of the mind-boggling complexity of medical care is that no single method of paying providers is capable of rewarding all dimensions of quality. Promoting all dimensions of quality requires open competition on a level playing field between different payment rules. Heavily favoring just one method of payment predictably and persistently rewards certain forms of low-quality care and discourages improvement on those dimensions of quality. Whereas an alternative subsidy structure could have encouraged quality improvement, Congress’ decision to tie traditional Medicare’s subsidies to a single set of payment rules undermined quality improvement.
To reverse Medicare’s negative impact on quality, we propose the novel solution of applying traditionally Democratic “public option” principles to the program.
Public-option advocates argue robust competition between government and private health plans — on a level playing field, with no favoritism toward any competitor — would deliver greater efficiency. Public-option principles would certainly promote quality by allowing open competition between different payment rules.
Advocates typically propose creating a public option to compete with private insurers in the non-Medicare market. We argue Medicare offers a better opportunity to test the concept:
Medicare already boasts an established if imperfect public option (traditional Medicare) that competes against private insurers (Medicare Advantage plans) to cover a large population of patients with experience choosing between a government-run plan and private plans. Medicare already offers “what is essentially a risk-adjusted voucher program” where enrollees choose between these options. Unlike proposals to create a public option in the non-Medicare market, applying public-option principles to Medicare would not require new government spending and could even reduce government spending…Finally, unlike creating a public option to compete in the non-Medicare market, applying public-option principles to Medicare could garner support from both major political parties.
We detail the steps Congress must take to level the playing field between traditional Medicare and private insurers. They include subsidizing enrollees directly, making enrollees fully cost-conscious, removing regulations that encourage excessive and/or low-quality coverage, and eliminating other forms of preferentialism.
Both Republicans and Democrats will find much to like in the proposal. Republicans will appreciate that public-option principles require eliminating quality-suppressing regulations Medicare imposes on private insurers, and restrictions Medicare imposes on enrollee choice. Democrats will appreciate how public-option principles would end Medicare’s practice of offering enrollees bigger subsidies (average: 4 percent larger) if they choose private Medicare Advantage plans.
The negative impact that expanding or replicating traditional Medicare would have on quality should give the staunchest “Medicare for All” advocates pause. Applying public-option principles to Medicare, and giving enrollees a true choice between traditional Medicare and private options, can provide the quality upgrade Medicare enrollees need.
