Several Medicare reform proposals have concentrated on realigning financial incentives within Medicare’s provider payment and delivery system to improve program cost-effectiveness and quality, a key health policy challenge. There have been calls to modernize Medicare’s fee-for-service (FFS) benefit design and address other beneficiary incentive issues as a means of accomplishing this objective.

A new American Academy of Actuaries issue brief, Revising Medicare’s Fee-For-Service Benefit Structure, expands on analysis presented in AAA’s Medicare Steering Committee report, An Actuarial Perspective on Proposals to Improve Medicare’s Financial Condition. This includes a closer look at the analysis of Medicare’s FFS benefit design and potential changes including value-based insurance design (VBID).

The brief identifies several shortcomings inherent in Medicare’s current FFS cost-sharing requirements including its:

  • Lack of a cost-sharing limit, which potentially places a beneficiary at risk of catastrophic health cost.
  • Low cost-sharing requirements for supplemental coverage, which may not incentivize beneficiaries to seek cost-effective care.
  • Cost-sharing structure, which is not the best model for influencing customer behavior.

As a short-term approach, beneficiaries could be incentivized to seek cost-effective care if FFS cost-sharing features were restructured to unify Medicare Part A and B deductibles and include a cost-sharing limit as protection against catastrophic illness cost. This might also involve changes to Medicare supplemental coverage. Value-based insurance design, paired with payment and delivery restructuring, provides a longer-term Medicare solution.

To read or download the full issue brief, click here (PDF).