When it comes to Medicare, a fundamental question still begs an answer: If seniors are forced to use more of their own money to pay for their care, will they scale back on unnecessary doctor visits and other medical services that needlessly increase Medicare spending? In other words, with more “skin in the game” would Medicare spending really go down?

As Congress works on coming up with ways to cut the federal budget deficit, Medicare is clearly in the crosshairs. Proposals are circulating that would introduce more cost-sharing for seniors—including having wealthier seniors chip in more for their care and reducing coverage for specific services like home health care or expensive cancer drugs. Cost sharing is used in most Medicare Advantage plans in the form of tiering; by giving patients an incentive to use preferred providers in a particular network.

But the most recent proposals are geared toward increasing cost-sharing in fee-for-service Medicare Part B, which covers out-patient care—i.e. doctor visits and other services received outside of the hospital. The rationale is that if seniors have to pay more out of pocket in terms of deductibles and co-payments, they will be less likely to seek out “inappropriate” or unnecessary care.

The problem is that there is scant evidence that having more “skin in the game” would cause seniors to suddenly become active “consumers” of health care—using the same skills they deploy when hunting for bargains in grocery stores to avoid useless doctor visits and medical services. There is some evidence that cost-sharing can reduce inappropriate care for relatively healthy, non-poor, younger individuals, but the data is out-of-date and can not be extrapolated to the Medicare population. According to advocates for seniors, when researchers looked at how cost-sharing affected the most vulnerable in these studies—those who were poor and chronically ill and, therefore, most similar to the highest utilizers of Medicare—increased cost had a negative effect, reducing access to needed care.

This issue is emerging right now on two key fronts. First of all, the debt ceiling super-committee charged with reducing the budget deficit by $1.5 trillion will no doubt consider increasing Medicare cost-sharing as a way to cut spending. Secondly, the Affordable Care Act specifically instructs the National Association of Insurance Commissioners (NAIC) to add “nominal cost sharing to encourage the use of appropriate physician services” to the two most popular private Medicare supplemental insurance or Medigap plans that cover millions of seniors. The new Medigap benefit packages are scheduled to go into effect starting January 1, 2015.

Both of these efforts are grounded in an expectation of savings calculated in a March report by the Congressional Budget Office. The CBO considered several proposals for reforming Medicare—including legislation introduced by Sen. Joe Lieberman (I-CT) and Tom Coburn (R-OK) that would increase Medigap cost-sharing and make other structural changes to Medicare that the agency predicted would cut $53 billion from the deficit over 10 years by strengthening incentives “for more prudent use of medical services.” This $53 billion figure has become part of the deficit-reduction lexicon, but according to Guenther Ruch, an administrator at Wisconsin’s insurance department and subgroup chair of the NAIC subcommittee charged with reforming Medigap, “Decision-makers may be making decisions based on numbers that can’t really be verified.”

Bonnie Burns, Training and Policy Specialist at California Health Advocates and also a member of the NAIC subcommittee agrees, “we have been unable to get the data on which CBO based their cost sharing savings. That number has been circulating since sometime in the early 2000's and no one knows how they arrived at that number.”

Burns, along with a diverse group of 32 other insurance commissioners, consumer advocates, and health insurers that make up the NAIC subcommittee recently expressed resistance to the cost-sharing task assigned them by Congress and the ACA. According to Ruch, the committee's worry is that although the government might save money by increasing out-of-pocket costs for Medicare recipients; "There may be seniors who would forego medically necessary care because they can't afford it — even though they have a Medigap policy.”

Despite what many people believe, traditional fee-for-service Medicare does not cover all health care costs for seniors. Seniors are responsible for monthly premiums, co-payments of 20 percent of allowed charges for doctor's visits, and co-insurance for lengthy hospital stays, among other costs. These can add up to a significant—even overwhelming—financial burden, especially for the sickest and poorest of beneficiaries. Consequently, some 80% of Medicare beneficiaries have supplemental policies to cover the majority of these costs, including through employer-sponsored plans, Medicaid, enrollment in Medicare Advantage or, for some 7 million seniors, privately-purchased Medigap policies.

In recent years, Congress has tried to encourage seniors to pay more of these out-of-pocket medical costs by introducing various proposals and legislation. For example, in 2008, the federal Medicare Improvement Act required Medigap insurers to offer several new policies that have lower premiums but increase cost-sharing. The idea is that without “first-dollar” coverage, seniors would be less likely to make wasteful visits to doctors or demand inappropriate services. These less comprehensive Medigap policies haven’t sold well to seniors; by far the most popular policies (Medigap C and F) continue to be the ones that cover the majority of a Medicare beneficiary’s out-of-pocket expenses.

That turn of events compelled Congress to instruct—through the health law—the NAIC to consider adding more cost-sharing to Medigap C and F plans. And it also has made reforming Medigap coverage a key consideration for the super-committee.

Of course, only about 19% of Medicare subscribers have private Medigap plans. But as Bonnie Burns told me, Medigap is the easiest target for regulators because the plans are sold by private insurance companies. Proposals to eliminate first-dollar coverage from other supplemental plans like employer-sponsored retiree coverage and TriCare (for government employees) are also under consideration, but will likely be dealt with separately through the tax code.

But here is where we get to the fundamental evidence problem. Legislators and some policy wonks are quick to cite figures, like the $53 billion CBO deficit reduction estimate, that point to cost-sharing as spurring a decrease in unnecessary medical care—yet virtually none of this data comes from studies of senior citizens. On Lieberman’s site, for example, a description of his “Proposal to Save Medicare” legislation includes the following; “Because Medigap plans cover all of the ‘gaps’ in an enrollee’s Medicare coverage, policyholders use up to 25% more services than Medicare participants who have no supplemental coverage, even though numerous studies have indicated that this increase in utilization does not lead to better health care outcomes.”

Where is Lieberman getting his figures from? The truth is that the Senator, like many other supporters of increased cost-sharing in Medicare, is mixing apples with oranges. Yes, Medigap policyholders as a group do use more services than those who have no supplemental coverage. But, according to Burns, they also happen to be sicker than the majority of Medicare recipients, which is why they bought the coverage in the first place. Furthermore, the NAIC subcommittee reviewed a range of research on how utilization of care affects health outcomes and found little support for Lieberman's assertions that seniors with Medigap coverage don't benefit from improved acces to care.

First of all, it’s important to point out that the seminal study advancing the idea that cost-sharing reduces utilization and health spending without impacting care was completed by RAND in 1982. Besides the fact that the data is now almost 30 years old, the RAND study did not include any participants over the age of 61. Yet according to RAND, The Health Insurance Experiment (HIE), (as the study is known) “remains the only long-term, experimental study of cost sharing and its effect on service use, quality of care, and health.”

The basic findings of the HIE study, which randomly assigned families to one of four different health plans that ranged from completely free care to moderate cost-sharing to a plan that resembles today’s high deductible policies, were summed up recently by the research firm in an explanation of how they relate to the current health reform:

“Reduced use of services resulted primarily from participants deciding not to initiate care. Once patients entered the health care system, cost sharing only modestly affected the intensity or cost of an episode of care.” (i.e. once patients were hospitalized or under a physician’s care, the choices about the kind of treatments or cost of treatments they received were no longer in their control.)

“The analysis found that cost sharing reduced the use of effective and less-effective care across the board…For hospitalizations and prescription drug use, cost sharing likewise reduced more-effective and less-effective care in roughly equal amounts for all participants. The proportion of inappropriate hospitalizations was the same (23 percent) for cost-sharing and free-plan participants, as was the inappropriate use of antibiotics.” (Cost-sharing did nothing to cut down on inappropriate hospitalization, which at 23% represents a significant share of health care costs. For seniors, this figure is probably higher.)

“In general, the reduction in services induced by cost sharing had no adverse effect on participants’ health. However, there were exceptions. The poorest and sickest 6 percent of the sample at the start of the experiment had better outcomes under the free plan for 4 of the 30 conditions measured.” (control of hypertension, vision services, dental services, “serious symptoms”)

“Finally, the experiment examined whether shouldering more of their own health care costs leads people to take better care of themselves. It did not. Risky behaviors were not affected — rates of smoking and obesity, for instance, did not change.” (This is a downer for all those politicians who make the case that if Americans paid more for their care out of pocket, they would practice “personal responsibility”—smoke less, lose weight, and make other lifestyle changes.)

In conclusion, the RAND summary adds: “The study suggested that cost sharing should be minimal or nonexistent for the poor, especially those with chronic disease.”

It turns out that Medicare recipients who buy the most comprehensive Medigap policies often are low-income and in fact, many do suffer from chronic disease. So, although it might be true (as Lieberman suggests), that seniors with “first-dollar” coverage utilize more health care, it’s because they are also sicker than the average Medicare beneficiary.

According to a report released in May by the industry group America’s Health Insurance Plans, some 33 percent of all Medigap policyholders had annual incomes under $20,000. Nearly 54 percent had annual incomes below $30,000. In rural areas, some 62% of seniors with Medigap policies had incomes below $30,000.

In fact, standard Medicare can leave the sickest elderly exposed to considerable out-of-pocket expenses. "Most Medicare beneficiaries on are fixed incomes," says Toby Edelman, a senior policy attorney at the Center for Medicare Advocacy.

 “And while the public perception may be that Medicare covers everything, it doesn't.” As an example, Edelman points to the case of an elderly man who qualifies for nursing home care; "the first 20 days could be paid in full, but starting on day 21 there's a very, very large copayment of at $141.50 per day," she noted. "That's a big chunk of money."

The same is true for longer-term hospitalization. The AHIP report on Medigap found that “After 60 days, [Medicare beneficiaries are] on the hook for a $283 per day charge. And they could face a deductible of as much as $1,132 for any stay shorter than that.”

In a report on several options for increasing cost-sharing for Medigap policy-holders, the Kaiser Family Foundation found that for relatively healthy seniors, the lower price of the new, less generous policies would offset the increase in out-of-pocket spending. But, the report concludes, “Medigap reforms would have a disproportionately negative impact on enrollees with modest incomes, in relatively poor health, and those with any inpatient hospital utilization. [A] greater share of beneficiaries reporting fair or poor health than those in better health would experience an increase in total out‐of‐pocket costs, because their premium savings would not be enough to offset their new spending for direct cost‐sharing.”

It is increasingly clear that requiring seniors to have more “skin in the game” could reduce their use of medical services. But limited evidence tends to suggest that some of these seniors will be prevented from accessing services they need—with  a subsequent decline in health. California Health Advocates’ Burns, for one, “strongly questions the idea that beneficiaries need an incentive not to use services. After all, physicians are the ones who order services, not the beneficiaries.”

“To suggest that Medicare beneficiaries overutilize services on a whim because they don’t have ‘skin in the game,’ is pretty disturbing,” Burns told Kaiser Health News.

The RAND study makes this point about the real drivers of Medicare costs too: “[C]ost sharing may not address the principal causes of cost growth. Cost sharing cuts expenditures by reducing visits but has little effect on the cost of treatment once care is sought. If, as is widely believed, cost increases are driven by treatment expense and new technologies, cost sharing can contribute to reducing costs at each point in time but may have little effect on the overall rate of cost growth.”

Medicare will not be immune to cuts as federal deficit reduction efforts hit high gear. The good news is that there is evidence, described by Maggie in her latest post here, that Medicare spending has already begun to slow. “So far this year, Medicare inflation is running a little under 4 percent,” she writes, “Yet Medicare has not sliced benefits for seniors, nor has it trimmed payments to providers in any significant way.” Maggie continues, “Zeke Emanuel, a White House health care adviser during the first part of the Obama administration, and his boss at the time, Peter Orszag, former director of the Office of Management and Budget (OMB), agree that many health care providers are trying to rein in costs as they prepare for full implementation of the Affordable Care Act in 2014.”

It seems clear that significant Medicare savings will need to come from structural changes like paying providers more for evidence-based, coordinated care and lowering reimbursement for treatments and procedures that are clearly wasteful or even detrimental. Savings will also come from preventing hospital readmissions by improving post-discharge coordination of care and reducing errors and repetition of care. These are practices that have good data from demonstration projects and other research efforts to back up their potential for Medicare cost savings. Forcing seniors to pay more out-of-pocket for their care in hopes that they will use less of it may lead to some short-term savings—but in the long run it will limit access to needed care and increase health disparities for some of our most vulnerable citizens.