Critiquing Project 2025: Medicare

July 13, 2024

Project 2025 Mandate for Leadership: The Conservative Promise
April 2024
The Heritage Foundation & partner organizations
Chapter 14: Department of Health and Human Services

Medicare (p. 463-469)

Medicare should be reformed according to four goals and principles:

      > Increase Medicare beneficiaries’ control of their health care. Patients are best positioned to determine the value of health care services, working with their health care providers. They also benefit from increased choice of doctors, hospitals, and insurance plans. Access to reliable information with respect to physicians, hospitals, and insurers is therefore essential.
          HJM comment: Choice of provider, yes! However, it’s a debunked myth that valuing health care is like valuing cars or phones. Health care is complex and often emotionally fraught. It’s unsuited for a free market approach (Ken Arrow got a Nobel for this insight). Let’s stop pretending that a “free market” can fix health insurance.

     > Ensure sustainability and value for beneficiaries and taxpayers. Prices are best for patients when determined by economic value rather than political power and when they are known in advance of the receipt of services. Government’s use of non-market-based methods to determine reimbursement leads to overspending on low-value services and products and underpayment for high-value services and products, stifles beneficial innovation, and because of Medicare’s size distorts payments throughout the health care system. Intermediate entities that can manage financial risk and ensure quality of care are important in transitioning to value-based care within the Medicare program.
          HJM comment: With a free market not up to the task, the government has a key role to play. Indeed, there are proven methods to assure both sustainability and value – used in 32 other wealthy nations. In contrast, “Intermediate entities” – Medicare Advantage plans and direct contracting entities like ACO REACH – shift funds from care to profits and increase costs for taxpayers, with a mixed record on quality.

     > Encourage more direct competition between Medicare Advantage and private plans. Medicare Advantage (MA), a system of competing private health plans, is the major alternative to traditional Medicare for America’s large and growing cohort of seniors. The program provides beneficiaries with a wide range of competitive health plan choices—a richer set of benefits than traditional Medicare provides and at a reasonable cost. Equally as important, the MA program has been registering consistently high marks for superior performance in delivering high-quality care. Critical reforms are still needed to strengthen and improve the program for the future. Specifically:

     > Make Medicare Advantage the default enrollment option.
> Give beneficiaries direct control of how they spend Medicare dollars.
> Remove burdensome policies that micromanage MA plans.
> Replace the complex formula-based payment model with a competitive bidding model.
> Reconfigure the current risk adjustment model.
> Remove restrictions on key benefits and services, including those related to prescription drugs, hospice care, and medical savings account plans.
          HJM comment: We’ve written extensively about problems with Medicare Advantage (MA). It incurs > $100 billion per year in excess costs for CMS and beneficiaries, and has a mixed effect on quality (with some distortion by bias). MA plans already have a marketing edge over traditional Medicare; don’t boost that. MA needs more, not less, management. The current payment bidding incorporates, in a complex way, competitive elements. Overall, we need less MA, not more. And ultimately, no MA – no for-profit intermediaries!

Legacy Medicare Reform. Legislation reforming legacy (non-MA) Medicare should:

     > Replace the bureaucrat-driven fee-for-service system with value-based payments to empower patients to find the care that best serves their needs.
> Codify price transparency regulations.
> Restructure 340B drug subsidies toward beneficiaries rather than hospitals.
> Repeal harmful health policies enacted under the Obama and Biden Administrations such as the Medicare Shared Savings Program and Inflation Reduction Act.
          HJM comment: Value-based payments (e.g., ACOs) have not worked to reduce net costs or improve quality; they should be dropped. Price transparency efforts have failed mainly due to complexity; again, medical care is not a viable free market, and our fragmented insurance system undermines even good ideas like price transparency. The other points are too in the weeds or vague. “Legacy” i.e., traditional, fee-for-service Medicare has much to recommend it, most of all free choice of providers and avoiding insurer risk gaming. It’s the foundation for an improved Medicare-for-All single payer system.

Medicare Part D Reform. The Inflation Reduction Act (IRA) created a drug price negotiation program in Medicare that replaced the existing private-sector negotiations in Part D with government price controls for prescription drugs. These government price controls will limit access to medications and reduce patient access to new medication.

This “negotiation” program should be repealed, and reforms in Part D that will have meaningful impact for seniors should be pursued. Other reforms should include eliminating the coverage gap in Part D, reducing the government share in the catastrophic tier, and requiring manufacturers to bear a larger share. Until the IRA is repealed, an Administration that is required to implement it must do so in a way that is prudent with its authority, minimizing the harmful effects of the law’s policies and avoiding even worse unintended consequences.
          HJM comment: Ironically, this section undermines the one free market tool that could work in our dysfunctional system: direct price negotiations for a discrete product, medications. Private sector negotiations fail because the sellers (Pharma) have too much power. Further, the medication supply line is distorted by a superfluous profiteering intermediary, pharmacy benefit managers. Although these price efforts are baby steps, they are in the right direction. Other nations negotiate drug prices, as would single payer. The last sentence implies subverting the law’s intent. P.s., on a positive note, I agree with closing the Part D coverage gap!

Comment by: Jim Kahn

The Project 2025 Medicare vision focuses on free-market ideas like price transparency and the interaction of supposedly well-informed consumers and providers. This falls way short in light of many decades of evidence that a free-market approach fails in medical care, because it is unlike other goods and services. Kenneth Arrow was the first to point this out, for which he received the Nobel Prize. Others have written similarly. We see repeatedly how our fragmented system, attempting to use free market ideas despite the evidence, costs too much and provides too little care.

Project 2025 would have us believe that further steps in the free-market direction would remove the glitches. But they will not. The one free market strategy that would work – negotiating prices for a standard commodity (drugs) – is rejected by Project 2025.

As seen in wealthy nations around the world, the solution lies in a single insurance plan for everyone with no profit-making insurers, and national oversight. Health care is too complex logistically and emotionally to work like other parts of the economy.

See my detailed point-by-point critique above. The report also offered a couple of good ideas, e.g., reducing regulatory burden on doctors and gaming of payment rates, but these do not mitigate the serious harms which would accrue from the overall approach.

In coming days, I’ll concisely summarize my recent 3 critiques of Project 2025 (Medicaid, Private Insurance, and Medicare).