Matthew Holt at TheHealthCareBlog.com raises a good question about Medicare’s renewed effort to offer medical savings accounts to beneficiaries:

Those taxpayers who can do basic math might wonder why you’d want to to give healthy Medicare beneficiaries cash for health services that they’re not going to use, while taking that cash away from the pot that pays for the sick beneficiaries that do use said services. But we’ve asked that question so many times before and no one on the free market side dare answer it. And I guess you might say, why not give the taxpayers money straight to the “healthys” instead of laundering it through Medicare Advantage plans as we’re doing it now so that they can hand out free gym memberships to seniors and boost their executives’ stock holdings.

But given that risk adjustment is coming to Medicare Advantage, it may be that that gravy train is ending.

The Medicare MSA concept raises some interesting problems. Fortunately, Holt solves them — though I’m not sure he knows it.

A bit of background: The Medicare Advantage program currently pays private health insurers a flat amount for each senior those plans cover. As Holt notes, that encourages the plans to seek out the seniors whose medical bills will be less than that flat amount. Thus some plans “hand out free gym memberships to seniors” as a way to attract the healthy, profitable ones and avoid the unprofitable sick ones. That can end up costing taxpayers more than if those healthy seniors just stayed in traditional Medicare. 

But as Holt says, Medicare is working on adjusting those payments according to each beneficiary’s health risk. Instead of some flat amount per beneficiary, insurers would receive a payment from Medicare that better reflects each individual enrollee’s expected medical expenses. That way, health plans would have less reason to cater to the healthy or to avoid the sick. 

But once Medicare risk-adjusts those payments, why should the insurance companies get that money? As Holt postulates and Mike Tanner and I discuss in Healthy Competition, why not give it to the beneficiary? Confine it to health care uses, if you like. Healthy people would get smaller payments; sicker seniors would get larger ones. That would enable each to purchase health coverage (high-deductible or whatever) and still have some money left over for their out-of-pocket expenses. Seniors would get more control over their health care and coverage; they would make much smarter cost-benefit decisions than they do now; and Congress could limit the burden that Medicare imposes on taxpayers.

Is the point of the program to help insurers? Or providers? Or seniors? To whom do we want insurers and providers to be responsive?