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Medicare Cost-Sharing

By December 1, 2011Commentary

Health care spending is the driving factor in federal and state budget deficits and Medicare is the biggest part of federal health spending.  One proposal for helping to rein in Medicare spending growth is to redesign beneficiary cost-sharing in a way that might both discourage unnecessary utilization and provide a cap on out-of-pocket expenses for beneficiaries.  A Kaiser Family Foundation Report examines the likely effects of these proposals on Medicare spending and on various groups of beneficiaries.   (KFF Report)   Currently Medicare beneficiaries have a $1132 deductible for Part A (inpatient), a Part B deductible of $162 and general coinsurance or copayments on other services, but no out-of-pocket maximum.

Many beneficiaries have Medigap insurance or other coverage, such as Medicaid for dual eligibles, which covers much of  their cost-sharing.  Some analysts fear these supplemental coverages may lead to inappropriate utilization.  One proposal, analyzed in the report, would create a combined $550 deductible for Parts A and B, a 20% coinsurance on almost all services, but place a $5500 limit on out-of-pocket expenses.  The Medigap reforms would disallow covering the deductible and would only allow coverage of 50% of other cost-sharing amounts.   Under the Medicare changes alone, 71% of beneficiaries would have an average of $180 higher costs, 24% wouldn’t see much change and 5% would have lower costs, an average of $1570.  Medicare spending would decrease by about $4 billion a year.

If the Medigap restrictions were also implemented, about half of beneficiaries would have higher costs, about a fourth, lower costs and about a fourth no change.  About 20% would see costs decrease by $250 or more, largely because Medigap premiums would decrease more than Medicare out-of-pocket spending rises.  About 14% would see costs increase by $250 or more.  Medicare spending would decline by $8.8 billion a year.  In general, under the proposals, poorer beneficiaries are most likely to benefit.  Seems like a very reasonable and logical approach to addressing Medicare’s spending issues.  Not a cure-all, but a good step.  So the odds of enactment probably aren’t high.

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