Alternative Benefit Design for Medicare

Restructuring the Medicare benefit design and placing a limit on beneficiary cost-sharing for Medicare-covered services in 2013 could lead to savings for Medicare and a minority of beneficiaries with high medical spending, but it could also mean higher costs for the majority of beneficiaries with modest medical spending, according to Restructuring Medicare’s Benefit Design: Implications for Beneficiaries and Spending, a new analysis from the Henry J. Kaiser Family Foundation. A reconfiguration of the Medicare benefit design is being evaluated as a possible way to reduce federal spending and the national debt, and has been discussed by various entities including the National Commission on Fiscal Responsibility and Reform, the Congressional Budget Office, and the Bipartisan Policy Center’s Debt Reduction Task Force. In this report, the Kaiser Family Foundation assessed the impact of altering the current Medicare fee-for-service (FFS) benefit design by combining the deductible for Parts A and B, offering uniform coinsurance on nearly all Medicare-covered services, and placing a new limit on beneficiaries’ out-of-pocket spending—all elements found in several recent deficit-reduction proposals. Specifically, the study examined the effect of using a $550 combined deductible, a 20% coinsurance on virtually all services, and a $5500 limit on cost-sharing. They also evaluated the impact of restricting first-dollar Medigap coverage, along with increasing or decreasing the limit on cost-sharing. The model assumed full implementation in 2013 with no changes to supplemental coverage that year other than restrictions to the first-dollar Medigap coverage. Kaiser found that altering the Medicare FFS benefit design based on their parameters would increase out-of-pocket spending—including premiums and cost-sharing for Medicare-covered services—for 71% of Medicare beneficiaries in 2013. Out-of-pocket spending would decrease for 5% of beneficiaries and stay about the same for another 24%. They noted that beneficiaries who had lower utilization of Medicare services, or those with only a few physician visits and no inpatient care, would generally have higher costs due to a higher uniform deductible, while those with higher utilization of services could be more likely to benefit from changes to the current structure. Of the 29 million beneficiaries who were predicted to have increased out-of-pocket costs in 2013 if the Medicare benefit design were revised, the average increase was estimated at $180. However, nearly 5 million were expected to see an increase of ≥$250, with an average increase of $660. According to the study, the 2 million beneficiaries who would likely see a decrease in out-of-pocket spending would see an average reduction of approximately $1600 in 2013 and would most likely be beneficiaries who used both inpatient and postacute care. Medicare would also see a decrease in spending under the report’s alternative benefit design. Based on the findings, Medicare and Medicaid spending combined would decrease by $4.3 billion when compared with the current law, while the aggregate spending is expected to increase for beneficiaries ($2.3 billion), employers ($0.6 billion), TRICARE ($0.2 billion), and other payers ($0.4 billion). The Kaiser Foundation also assessed the impact of an alternative benefit design if the cost-sharing limit was altered. They found that if the limit was increased from $5500 to $7500, the percentage of beneficiaries who would see a spending increase would not change significantly but the number of individuals estimated to have an increase of ≥$250 would jump from 12% to 39%. Federal spending would decrease by $13.2 billion with the $7500 limit compared with current law. However, if the limit were lowered to $4000, they found that 30% of beneficiaries would see a decrease in their out-of-pocket spending. Under this option, federal spending would increase by $5.1 billion compared with current law. Beneficiaries could also see changes if the Medicare benefit design placed restrictions on Medigap first-dollar coverage. For example, if there were no coverage in the first $550 in costs and no more than 50% coverage of cost-sharing up to the out-of-pocket limit, half of all FFS beneficiaries would be expected to have higher out-of-pocket costs including premiums. However, more beneficiaries would see cost decreases (24%) to out-of-pocket spending with an alternative benefit design with Medigap restrictions than without the restrictions (5%). According to the report, the federal savings would also increase with the Medigap restrictions. Based on the findings, the federal government would see $8.8 billion in savings with the restrictions in place compared with $4.1 billion in savings without the Medigap restrictions.