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Managing Medicare's Costs

Comprehensive Medicare supplements encourage unnecessary treatments

If you are in good health, the simplest way to cut your health care costs is to avoid comprehensive supplemental coverage. And if you have Medicare, that means staying away from most Medigap and some employer plans. These kinds of policies, which are sometimes referred to as first-dollar coverage, are so comprehensive that they fill all or almost all of Medicare’s gaps.

Here’s a question. Unless you have a serious chronic illness or expect to have surgery in the next year, why would you pay top dollar for insurance that’s best suited for people who expect to use a substantial number of medical services?

Besides being expensive, comprehensive policies encourage overuse. They fully cover just about every test and treatment, and so seniors can use as much health care as they desire without concern about cost. Likewise doctors can recommend more procedures than are really needed with the knowledge that patients won’t have to pay anything.

Added to that, patients often assume that extra tests and procedures provide greater protection and that expensive treatments are superior to cheaper ones. In their view a magnetic resonance imaging (MRI) exam is always better than an x-ray.

This preference for pricey procedures – the MRI over the simple x-ray – is one reason premiums for comprehensive policies are high. In HMO’s, costly procedures are rarely prescribed unless they are medically necessary. And in less-comprehensive plans and most PPO’s, cost-sharing requirements serve to slow the use of discretionary treatments. But in comprehensive fee-for-service plans, there are no brakes.

The bias toward expensive medical services can be seen in the health statistics compiled by the Organization for Economic Cooperation and Development (OECD). The U. S. has the world’s highest rates of knee replacements, hysterectomies, and MRI exams. It ranks second in computer tomography (CT) scans.

In many instances these procedures are medically necessary, but dozens of studies indicate that they are used too often. Meanwhile this country ranks only 27th in the world in the less expensive but more important metric of doctors’ office visits and consultations.

The high-tech da Vinci machine is an example of a big-ticket medical service that’s used too much. The number of da Vinci-assisted surgeries has tripled during the past five years, but despite its clear-cut superiority for certain operations, this robotic device is often used in cases where it is not appropriate.

One study compared hysterectomies performed by the da Vinci machine to those done by traditional laparoscopic surgery. The study’s authors found that, over a three-year period, surgeries done using the da Vinci machine cost an extra $2,000, or one-third more than those performed with traditional methods, but had no additional benefit.

Last month the Journal of the American Medical Association published a study that examined the use of 26 medical tests and procedures shown to have little or no value. The authors found that in 2009 at least one in four Medicare beneficiaries had been given one or more of these tests. One example was imaging tests for back pain, which have not been shown to have any benefit. Even so, for every 100 Medicare enrollees who saw a doctor for back pain in 2009, 12 were given imaging tests.

Why are imaging tests for back pain considered a low-value procedure? Consumer Reports cited a 2010 study which found that back-pain sufferers who had an MRI exam did not recover any faster than those who did not. Yet those who had the MRI were eight times more likely to have surgery, saw a five-fold increase in their medical costs, and were exposed to radiation between 100 and 1,000 times greater than they would have been with an x-ray.

Neither has the country’s preoccupation with expensive procedures had a discernible effect on longevity. We rank 25th in the world in average remaining life expectancy for a 65-year-old — just behind Slovenia, Ireland, and Greece. And over the last 20 years, the U. S. has actually slipped in the longevity rankings.

Physicians generally agree that too many tests and procedures are being used. Last year 17 medical specialty groups drew up a list of 90 overused procedures. These include routine EKG’s when there are no indications of heart trouble and CT scans when given simply because a person has fainted. The full list will be periodically updated as part of a project named Choosing Wisely, a joint effort of the American Board of Internal Medicine Foundation and Consumer Reports.

One cause of overuse is the defensive medicine sometimes practiced by doctors as protection against malpractice claims. In a survey of 600 physicians, the Choosing Wisely project found that more than one-half of the doctors said that malpractice issues were the major reason they order unnecessary tests.

The survey also indicated that patients often request expensive procedures because they believe them to be better. A Florida internist told the New York Times that patients sometimes said to him, “I need an MRI,” adding that he always gave the test when someone requested it. Almost one-half of the doctors in the Choosing Wisely survey said that their patients ask for an unnecessary test or procedure at least once a week, and 30% of the doctors said it happens several times a week.

You may not be guilty of overuse, but if you have comprehensive health insurance you are paying for the overuse of others. How much more are you paying? Between 20% and 30% of currently provided health care services are unnecessary, according to the Dartmouth Atlas of Health Care. Which means that comprehensive plan premiums are between 20% and 30% higher than they otherwise would be. The Congressional Budget Office has said that the U. S. spends $700 billion a year on questionable medical treatments – or about one-fourth of the country’s total healthcare bill. That amount is in the same ballpark as McKinsey and Company’s $650 billion price tag for unnecessary medical services.

For healthy seniors wanting to avoid the excesses of comprehensive coverage, the most cost-effective insurance will usually be a Medicare Advantage HMO plan. Ideally the plan should have an out-of-pocket limit no greater than $3,400, which is Medicare’s recommended amount.

An added benefit is that your odds of getting high quality care are greater in Advantage HMO’s than in other types of Advantage plans. Researchers in one large study examined seven years of health records and millions of claims by people enrolled in Advantage HMO plans. They found that Advantage HMO plans successfully controlled the use of most discretionary services. Adjusted for their health status, the HMO enrollees had lower rates of hospitalizations, knee replacements, and stents. That in turn led the authors to conclude that Medicare Advantage HMO enrollees might be experiencing a “more appropriate use of services than enrollees in traditional Medicare.”

But what about managed care plans’ financial incentive to limit care, even when it’s needed? Over the past three years Medicare has tried to offset that incentive by giving handsome bonuses to plans that demonstrate high quality care. Seeking to earn larger bonuses based on quality, most Advantage plans have improved their scores each year. While it’s too soon to say for certain, the bonuses may be effective offsets to managed care plans’ natural tendencies to ration care.

If you are among the estimated 10 million Medicare beneficiaries who live outside of the metropolitan areas, there may not be any good Advantage HMO plans available where you live. Then your choices are to enroll in a Medicare Advantage PPO plan, which will likely have a high out-of-pocket limit, or to purchase a Medigap policy.

Here your best option may be to purchase Medigap plan that is not overly comprehensive – Plan L in particular has solid but not too-comprehensive benefits. Unless you are in poor health or are contemplating surgery, you’ll save money if you bypass a comprehensive Medigap policy like Plan C or Plan F. These two pricey plans account for more than one-half of currently owned Medigap policies.

Comprehensive plans can make financial sense for seniors with serious pre-existing conditions, who can sidestep medical underwriting by buying them during the six-month period after they first enroll in Medicare. People who expect to have a knee or hip replacement, for example, should almost always choose a comprehensive plan. After their surgeries, they can switch to Medicare Advantage plans during the next open enrollment period. ◊◊

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