MedPAC met about a month ago and I’ve been promising a post since well before then. Out of all the sessions at that meeting I think the one on benefit redesign is of the most interest. The full agenda is here and if there’s another issue you’d like to know more about, let me know.
Under the current cost sharing system, in 2009, about 40 percent of Medicare beneficiaries had cost sharing liabilities of less than $500. Six percent of beneficiaries had cost sharing liabilities of more than $5000 and two percent of beneficiaries had cost sharing liabilities of $10,000 or more. These amounts represent the liabilities for the beneficiaries and not actual out-of-pocket expenses, which may have been covered in whole or in part by supplemental insurance. MedPAC will be presenting data on how Medigap effects cost sharing at its next meeting, which is Thursday.
The staff presented a number of alternatives benefit designs to address the flaws in the current benefit structure.
One alternative, called the “coinsurance package” would combine the Part A and B deductible into a single $500 deductible along with 20 percent coinsurance on all Medicare services, including hospital services. Based on a simulation that used data from more than 20 million beneficiaries, the staff concluded that such a benefit structure would raise the average cost sharing liability from $1350 to $1550.
A second option and third options presented are based on a copayment approach. The first approach based on Medicare Advantage features a $5000 out of pocket maximum and a $750 Part A and Part B combined deductible. The other option has a $5000 out of pocket maximum and a $500 deductible. Both of these packages include a $600 copayment per hospital stay, a $20 copayment for physician visits, a $100 copayment for outpatient visits, and a $100 per day copayment for skilled nursing. The options also include a 20 percent coinsurance on durable medical equipment and 5 percent coinsurance on home health.
Because of the out-of-pocket maximum, most beneficiaries would have their liabilities change by less than $500 compared to the current system, while some beneficiaries would have liabilities either increase or decrease by $1,000. For the next MedPAC meeting, the staff will present data on the effect of supplemental coverage on cost sharing liabilities for the alternative benefit models.
This is a key point and one the commissioners spent a great deal of time discussing. There was pretty broad support for changing the overall benefit structure and even more support for reforming Medigap, which is at both times incredibly popular with beneficiaries and typically held responsible for hiding and shifting costs.
It creates a catch-22. Beneficiaries are concerned about the potential for high out-of-pocket coinsurance requirements under the standard Medicare plan, so they buy supplemental policies that help hide that cost, but they pay for it in higher premiums. Paying more to save more — but maybe not.
The other interesting thing that happened was one of the commissioners made the point that health insurance is a financial product. This just isn’t really discussed. “If you’ve got nothing to protect … you don’t buy insurance.” He added that “nothing about insurance makes any sense if you don’t have anything to protect.” But, the reason people are buying these polices and paying the premium is that it gives them the ability to plan and some protection against the unlimited costs they could incur under the traditional fee-for-service Medicare benefit. This came up in focus groups that MedPAC conducted. People liked being about to plan their expenses and the theoretical unlimited cost sharing requirement is of concern. While only 2 percent of the Medicare population incurred liabilities of $10,000 or more, that’s almost 10 million people. I expect to have data on their actual expenses by the end of the week.
My thinking on this is that traditional fee-for-service Medicare is not a system worth defending. In the past one of the commissioners called it “chintzy.” By not offering true protection, it forces those with the ability to buy supplemental policies, which in turn shift care costs around and helps drive utilization. Those who would “end Medicare as we know it” should embrace that.
The slides used during this presentation are here.
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