Medicare’s Push for More “Skin in the Game” : Page 2 of 3

June 15, 2012

Patients’ Skin in the Game

One of the areas where there is a significantly high level of moral hazard is in the Medicare Part B space. Medicare Part B covers physician services, diagnostic testing, and medications purchased and administered by providers. Medicare pays 80% of the cost of Medicare Part B services, while the remaining 20% is the responsibility of patients. This is blocked, however, by Medigap insurance. Medigap is possessed by the majority of Medicare beneficiaries and covers the additional 20%, eliminating any patient out-of-pocket expenses for any Part B service. When patients incur no out-of-pocket expenses, they have no financial incentive to forego a service. To put this issue into perspective, consider a diagnostic radiopharmaceutical indicated for positron emission tomography (PET) imaging to detect beta-amyloid aggregates in the brain. A negative florbetapir-PET scan is clinically useful in ruling out the presence of pathologically significant levels of beta-amyloid in the brain; thus, this test could be used to directly detect the hallmark pathology of Alzheimer’s disease. Although the test costs thousands of dollars, it could be offered at no cost to the millions of Medicare beneficiaries at risk for dementia, costing Medicare several billion dollars.

To prevent such scenarios, several proposals are under consideration to control the growth in Medicare spending, with most proposals advocating higher cost-sharing for patients. One such proposal attempts to achieve savings by restricting coverage under Medigap plans to require enrollees to pay a larger share of the costs of Medicare-covered services.7 In 2008, about one in six Medicare beneficiaries, which equates to more than 7 million people, had purchased a Medigap supplemental insurance policy and had no other source of supplemental coverage. Medigap policies cover some or all of Medicare’s cost-sharing requirements. Medigap coverage provides “first dollar” coverage, which is the type of an insurance policy feature that provides full coverage for the entire value of a loss without a deductible. Some analysts contend that comprehensive “first dollar” coverage from Medigap leads enrollees to obtain unnecessary services because of a moral hazard and lack of skin in the game, resulting in excess Medicare spending.8 The Congressional Budget Office (CBO) has proposed a plan that would prohibit Medigap policies from paying the first $550 of enrollees’ cost-sharing and require that they cover no more than half of Medicare’s additional required cost-sharing up to a fixed out-of-pocket limit.9 CBO estimates that this approach would produce savings of $3.7 billion in 2013 and $53.4 billion over a 9-year period from 2013 to 2021.

Another way that CMS is forcing patients to have more skin in the game is through the use of least costly alternatives (LCAs). The rationale behind LCAs is that Medicare should not pay more for a service when a similar service can be used to treat the same condition and produce the same outcome at a lower cost.8 This has led to Medicare setting a reference price for a particular product or service. Beneficiaries can still obtain the more costly item, but they must pay the difference between the approved payment amount for the reference item and the amount for the one they choose. This approach enables Medicare to control utilization of items outside of the referenced item by forcing patients to have skin in the game when they select a more expensive service. Without such restrictions in place, there would be no incentive for a patient to choose the referenced item over a more expensive alternative.

This approach may eventually be applied to physician services, which can also affect patients’ skin in the game. In a letter issued to the US Senate and House of Representatives by MedPAC in October 2011, MedPAC recommended a 5.9% annual reduction on all non–primary care provider reimbursement over a 3-year period as a way to reduce provider payments. In making recommendations to correct the sustainable growth rate formula, MedPAC has suggested that more physicians may move to nonparticipating status with Medicare. This status enables providers to charge more directly, with patients being responsible for the difference between the Medicare allowable charge and the physicians’ fee.

Of course, the “skin in the game” concept requires two important ingredients: health literacy and consumers who can pay for services. Health literacy is “the degree to which individuals can obtain, process, and understand the basic health information and services they need to make appropriate health decisions.”10 It represents a constellation of skills necessary for people to function effectively in the healthcare environment and act appropriately on healthcare information. These skills include the ability to interpret documents, read and write prose (print literacy), use quantitative information (numeracy), and speak and listen effectively (oral literacy). Health literacy is essential because healthcare decisions are often complex, and making a determination on whether the benefits outweigh the risks can be difficult, if not impossible. In addition, even when benefits and risks are accurately assessed, many seemingly intelligent consumers forgo the facts and move instead based on emotion. In highlighting the impact of low health literacy, a systematic evidence review by the Agency for Healthcare Research and Quality (AHRQ) discovered a relationship between low health literacy and poor health outcomes.11 Using reading skills as a measure of health literacy, the AHRQ found specific correlations between individuals’ health literacy levels and their ability to comprehend health-related information, which also affected various global health measures and rates of hospitalization and of some chronic diseases.12

Consumers who can pay for services, the aforementioned second ingredient for more skin in the game, are becoming scarce because of a poor economy. Confused and cash-strapped consumers who are faced with decisions that may involve more of their skin in the game may decrease their use of needed services, a decision that may both affect their quality of life and cause an increased financial burden in the future. To prevent such scenarios, a careful balance on the part of payers is required to ensure that patients do not inappropriately decrease their healthcare use.