Healthcare Revenue Cycle Management, ICD-10, Claims Reimbursement, Medicare, Medicaid

Policy & Regulation News

Can Cost Sharing Models Improve Medicare Spending Issues?

By Sara Heath

Although Medicare is reportedly fiscally solvent until 2030, some researchers say the program contributes to healthcare industry woes at a large extent. According to Devon M. Herrick, PhD, Health Economist and Senior Fellow at the National Center for Policy Analysis (NCPA), Medicare spending may eventually “crowd out” the rest of government spending. As reported by, Herrick suggests cost-sharing models and more price sensitivity to help improve the issue.

Stating that within the next decade Medicare per capita spending is expected to reach $19,000, Herrick’s report emphasizes the need for Medicare reform. Herrick states that increased Medicare spending may actually be the fault of many Medicare incentives. He explains that spending is continually increasing because Medicare provides no incentive for patients to seek cost-saving care and physicians see no incentive to provide cost-saving care.

“Beneficiaries bear little of the cost if they are wasteful and benefit little when they consume care prudently,” Herrick confirms. “In addition, Medicare providers have few financial incentives to control costs and keep beneficiaries out of the hospital.”

Herrick also states that because many Medicare reform models are top-down, savings have been very little. Instead, Herrick suggests a reform at the patient and provider level. Reform should stem from patients monitoring their own spending rather than from policymakers putting caps on Medicare reimbursements, Herrick maintains.

One reform Herrick suggests is prefunding Medicare expenses. Prefunding entails workers and employers setting aside up to a combined 4 percent of each paycheck. Workers would then use that money to pay for medical expenses once they reach retirement age. This could function similarly to an increased payroll tax, but be controlled by the beneficiary for his or her healthcare needs. The end result of this, Herrick states, would potentially be that beneficiaries actually pay out of pocket for a majority of their Medicare costs. This might also benefit seniors because the money in the prefunded account could carry over throughout the senior’s life.

Studies show that a prefunding plan would produce substantial Medicare savings. According to a Milliman Inc. actuarial analysis of Herrick’s proposal, this plan could save approximately $2.4 trillion by 2053. Approximately $430 billion of this savings would come from more effective incentives. Additionally, over $780 billion would come from less consumer benefits use, and $651 billion would come from more consumer cost-sharing.

Herrick also explains cost-cutting proposals that involve incentives for seniors to search for cost-effective treatment methods. For example, Herrick explains that seniors could receive a cost-sharing reduction for working closely with care coordinators. Additionally, seniors could receive copay reductions for being closely involved with their patient-centered medical homes and asking about medical tests, prescription drug vendors, and urgent care.

Herrick’s report provides valuable research into the issues regarding the Medicare system, posing suggestions for serious consideration. As more people enroll in the Medicare program, it will perhaps become increasingly important to take a closer look at the program’s logistics to ensure Medicare is as efficient as possible.


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