By Cathy Schoen, Karen Davis, Christine Buttorff, and Amber Willink
The Commonwealth Fund, October 24, 2018
Issue: Out-of-pocket expenses are capped for enrollees in Medicare Advantage (MA) plans but not for beneficiaries in traditional Medicare, which also requires a high deductible for hospital care. The need for supplemental Medigap coverage adds to traditional Medicare’s complexity and administrative costs. Shortfalls in financial protection also make it difficult to offer traditional Medicare as a choice for people under age 65, as some have proposed.
Goals: Describe alternative benefit designs that would limit out-of-pocket costs for traditional Medicare’s core services, assess their cost, and illustrate financing mechanisms.
Methods: Analysis of a $3,500 ceiling on annual out-of-pocket expenses for Parts A and B benefits and options for replacing Part A hospital cost-sharing with a $350 or $100 copayment per admission.
Key Findings: Estimates of the costs of the reforms are $36–$44 per beneficiary per month, assuming no behavioral or supplemental coverage changes. This could be financed by a $9–$11 increase in premiums combined with a 0.3-to-0.4-percentage-point increase in the Medicare payroll tax (split between employer and employees). Medicaid costs would decrease, while employers, retirees, and Medigap enrollees would see reduced premiums.
Conclusion: The reforms would improve affordability and put traditional Medicare on a more equal footing with MA plans. They would also make it easier to open traditional Medicare to people under age 65.
From the Conclusion of the Full Report
Implementing a ceiling on liability for traditional Medicare’s benefits would provide greater financial protection to people covered by Medicare only, while also reducing the costs of supplemental coverage for other beneficiaries — making all better off. If financed by a mix of premiums and payroll taxes, the savings from these reforms could be substantial. Because we did not offset the costs of an out-of-pocket limit with increased cost-sharing for other services, such an approach could gain beneficiaries’ support and make it possible for many to rely on Medicare alone for their health care coverage needs.
Improving Medicare’s core benefit design also could make it easier to offer Medicare as a coverage option to people under age 65 who are not eligible for the program. The marketplace for individual coverage nationwide is currently plagued by risk selection, premium instability, and the withdrawal of private insurers. Many markets also lack affordable plan choices: prices paid by private plans to hospitals and physicians for care continue to increase at rates much faster than Medicare, driving up premiums.
One option for ensuring more affordable plan choices to people under age 65 would be to offer an improved traditional Medicare plan in the private insurance market. Such a plan also could be offered in the small-group market. Medicare has the strong advantages of low administrative costs and broad provider networks. Improving traditional Medicare thus could help stabilize the insurance market for those seeking individual coverage or small-employer groups who are not yet eligible for Medicare. This could be especially attractive to older adults who are preparing for coverage under Medicare when they retire.
A viable Medicare option in the individual and small-business markets with predictable and affordable benefits would put pressure on private plans to generate value for the coverage they offer. A further step would be to require Medicare Advantage insurers to offer plans in individual marketplaces where they have substantial networks, bringing both their provider networks and ability to pay providers at near-Medicare rates. The enhanced leverage in negotiating provider payment rates, given the alternative of using Medicare provider payment rates for in-network and out-of-network providers, would help counter rising health care prices and costs.
A better Medicare benefit package, therefore, is an investment in more affordable coverage as well as lower health care costs across insurance markets. Not only would it ensure that beneficiaries can access the care they need, it also would simplify coverage choices and remove waste from the health system.
Issue Brief (PDF):
By Don McCanne, M.D.
The Abstract defines the issue covered in this report: “Out-of-pocket expenses are capped for enrollees in Medicare Advantage (MA) plans but not for beneficiaries in traditional Medicare, which also requires a high deductible for hospital care. The need for supplemental Medigap coverage adds to traditional Medicare’s complexity and administrative costs.”
Simply stated, the marketing appeal of the private Medicare Advantage plans (MA) is that Congress and HHS have used our tax funds to pay the private MA plans enough extra so that they can cap the out-of-pocket costs and sharply reduce or eliminate the cost sharing – deductibles and coinsurance. If Congress truly believed in fairness and competition, then for the traditional Medicare program they would reduce the cost sharing requirements and place a cap on out-of-pocket spending. Why should we pay taxes for extra benefits for those in the MA plans, benefits that we are deprived of?
The differences are great enough such that those enrolled in traditional Medicare must obtain a Medigap plan, especially because of the potential for catastrophic losses (unless they have other additional coverage such as dual Medicaid coverage or a retiree plan). When we already have egregiously excessive administrative costs and complexity, why should we increase our administrative waste by adding another superfluous private plan – Medigap. Besides, if traditional Medicare had the same support as the private MA plans, then there would be no reason to have to put up with the narrow networks and extra administrative waste of the private plans.
For those who would like to see the addition of the choices of lowering the age for Medicare eligibility, or buying into Medicare, then it is almost imperative that a cap be established and cost sharing adjustments be made, otherwise the out-of-pocket costs would create too great of a financial burden for the new Medicare enrollees.
Incrementalists should be doing all they can to improve the traditional Medicare program if they truly believe in a Medicare buy-in or in lowering the age of Medicare eligibility. Those who wave the banner of Medicare for All but actually support incremental steps should be front and center in support of the proposals here.
That said, those of us who understand that incremental approaches are inadequate because they unnecessarily prolong suffering and financial hardship for those whose reforms are postponed until some unspecified future date, should continue to fight for uncompromising reform. An improved Medicare should eliminate all cost sharing and, instead, be fully funded through equitable tax policies. The other policies of the PNHP model of single payer reform also should be enacted and implemented as soon as possible.
It has been over fifty years since completing the first incremental step of enactment of Medicare with the intent of expanding it soon thereafter. Half a century! What moral basis is there for continuing on the incremental pathway when people are facing bankruptcy or suffering physically or even dying, when all we have to do is immediately take that last giant step to health care nirvana – enacting and implementing a well designed, single payer, improved Medicare for All?
For you incrementalists, Cathy Schoen and her colleagues are shining the light on the moral pathway to reform. But please excuse us when we pass you on the way there as we move forward immediately toward the full package of reform. We don’t want to stop you in case we stumble temporarily, but likewise we hope you’ll join us when you see that we are well on our way there. In fact, why delay? Join us now. We’ll get there faster.
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