Medicare is the Leader in Health Insurance Innovation

In it’s effort to keep a public health insurance plan option from being created to compete with private insurers, the industry’s lobbying arm, America’s Health Insurance Plans (AHIP), is claiming [1] Medicare "has had virtually zero innovation since its inception."

A look at the facts, however, shows that Medicare leads and private insurers follow.

As the Center for Budget and Policy Priorities explains [2]:

“As the largest U.S. purchaser and regulator of health care, Medicare exerts a major influence on the rest of the health care system. As a purchaser, Medicare provides health coverage to 45 million people age 65 and over or with disabilities, or 1 out of every 7 Americans. Its reimbursement and coverage policies have been widely adopted by private insurers and other public programs.”

A Commonwealth Fund survey [3] found that health care opinion leaders agree. Majorities of the health care opinion leader survey respondents said Medicare has been successful in accomplishing several goals, including spreading new medical technologies and improving quality of care:

One example of how Medicare has led the way in access to quality care and in medical innovations is research [4] (PDF) that has found the introduction of Medicare was associated with increased adoption of cardiac technologies.

Another example [5] is how Medicare has led the way in reducing racial and ethnic disparities:

“Its leverage was demonstrated in 1966 — the year of Medicare’s inception — when hospitals desegregated as a condition for receiving Medicare reimbursement. Since then, Medicare has contributed to dramatic improvement in the health of the elderly and disabled minority population.”

In addition, according to the Center for Budget and Policy Priorities:

“In its regulatory role, Medicare influences the provision of care through its conditions of participation for hospitals and health plans, reporting requirements, claims review practices, and other administrative procedures.”

Medicare leads the way in coverage decisions. According to [6] The New York Times, “Private insurers tend to follow the government’s lead in matters of coverage.”

Jacob Hacker, Professor of Political Science at Yale University and Resident Fellow at the Institution for Social and Policy Studies, agrees [7] (PDF):

“Commercial insurers also look to Medicare to make initial technology approval decisions and to initiate more-aggressive payment denials—for example, for ‘never’ events and medically ineffective treatments.”

In fact, Medicare coverage is vital to the success of new technologies. As an article in the American Journal of Roentgenology explains [8]:

“Introducing promising, innovative technologies into medical practice and achieving their maximum clinical impact require more than solid concepts, good science, and United States Food and Drug Administration (FDA) marketing approval. In an age in which high technology frequently means high cost, it is crucial that physicians and the institutions in which they practice receive appropriate reimbursement from third-party payers for new technologies. Arguably the most important of these entities is the Health Care Financing Administration (HCFA) [now CMS], which administers the federal Medicare program and is the largest such payer. As such, HCFA's coverage and reimbursement decisions are often followed by other government and private third-party payers. Understanding how HCFA makes its coverage decisions is critical to developing strategies that will result in the timely, appropriate reimbursement of new medical therapies, ultimately achieving improved patient care.” [Emphasis added]

Medicare also leads the way in payment innovations. Health policy experts looking into health care payment system reforms have found private insurers follow Medicare’s example.

As Rick Mayes, associate professor of public policy in the University of Richmond’s Department of Political Science and a faculty research fellow at the Petris Center on Healthcare Markets & Consumer Welfare at the University of California, Berkeley, makes clear [9]:

“The biggest and most intense battle within the U.S. health care system during the past two decades has been over two inter-related questions: (1) who will control the manner in which medical care is paid for and, (2) how much will it cost? … [T]he private sector neither initiated this battle nor provided the critical innovation that transformed health care in the U.S. Instead, it was Medicare’s transition to a prospective payment system (PPS) that both triggered and repeatedly intensified the economic restructuring of the U.S. health care system… Roughly akin to Wal-Mart, in terms of purchasing power, the key to Medicare’s role as the leading catalyst for change in the U.S. health care system is the program’s immense size and influence. As the single largest individual buyer of health care and the ‘first mover’ in the annual payment game between those who provide medical care and those who pay for it, Medicare invariably drives the behavior of both medical providers and private payers.” [Emphasis added]

Jacob Hacker reiterates that point:

“Over the last two decades, moreover, Medicare has increasingly emphasized improved payment methods and rigorous reviews of technology and treatment, and it has made increasing investments in quality monitoring and improvement. Revealingly, private plans generally use the public Medicare plan’s criteria for covering treatments as their standard of medical necessity, and they have adopted many of Medicare’s innovations in payment methods. As Robert Berenson and Bryan Dowd note in a recent Health Affairs article, ‘Traditional Medicare has been the source of important payment innovations, moving many payment systems away from fee-for-service to prospective payment, such as the diagnosis-related group (DRG) prospective payment system (PPS) for inpatient services. The resource-based relative value scale (RBRVS) for physician fees, despite its flaws, has been adopted widely by private plans.’” [Emphasis added]

Even the health insurance industry has admitted it looks to Medicare when making payment policy decisions. As The New York Times reports [10]:

“Medicare will no longer pay the extra costs of treating preventable errors, injuries and infections that occur in hospitals, a move they say could save lives and millions of dollars. Private insurers are considering similar changes, which they said could multiply the savings and benefits for patients… Susan M. Pisano, a spokeswoman for America’s Health Insurance Plans [AHIP], a trade group, said, ‘Private insurers will take a close look at what Medicare is doing, with an eye to adopting similar policies.’” [Emphasis added]

What can be discerned from Medicare’s history as an industry leader is that a large, national — not state-based [11] — public health insurance plan [12], competing with private insurers, will lead the way in quality and payment innovations that will help ensure we all have access to quality affordable health care.

Is it any wonder AHIP is trying to make us believe Medicare "has had virtually zero innovation since its inception"? I don’t know about you, but I smell desperation [13] in the air as insurers struggle to discredit the idea of creating a public health insurance plan option.