Thursday, July 30, 2015
The Commonwealth Fund
July 8, 2015
Modernizing Medicare's Benefit Design and Low-Income Subsidies to Ensure
Access and Affordability
By Cathy Schoen, Karen Davis, Christine Buttorff, and Martin Andersen
Insurance coverage through the traditional Medicare program is complex,
fragmented, and incomplete. Beneficiaries must purchase supplemental
private insurance to fill in the gaps. While impoverished beneficiaries
may receive supplemental coverage through Medicaid and subsidies for
prescription drugs, help is limited for people with incomes above the
poverty level. This patchwork quilt leads to confusion for beneficiaries
and high administrative costs, while also undermining coverage and care
coordination. Most important, Medicare's benefits fail to limit
out-of-pocket costs or ensure adequate financial protection, especially
for beneficiaries with low incomes and serious health problems.
There is a pressing need for reform. An estimated 20 million of
Medicare's 52 million beneficiaries live on incomes below 200 percent of
the federal poverty level. Nine million beneficiaries have complex care
needs with serious functional limitations that hinder their ability to
carry out daily activities. Although the poorest are eligible for
Medicaid to supplement Medicare, under current policies beneficiaries
with low or modest incomes are eligible for only limited help with
paying for premiums or medical care expenses.
The absence of a ceiling on out-of-pocket costs can undermine the
financial security and exhaust the resources of even higher-income
beneficiaries. That's why most beneficiaries supplement Medicare's core
benefits with coverage sold by private insurers, often purchasing
multiple plans. This fragmented coverage is inefficient, generates high
administrative costs, and undermines efforts to improve coordination of
patient care and prevent avoidable hospitalizations.
Current Medicare Benefits and Low-Income Provisions
Medicare has separate deductibles and cost-sharing provisions for Part A
hospital, skilled nursing facility, and home health services and for
Part B physician, lab, and diagnostic benefits, with no limit on annual
out-of-pocket spending for covered services. Part A includes a $1,216
deductible per hospital episode and substantial cost-sharing for
longer-term hospitalization or skilled nursing stays after a
hospitalization. Part B has a $104.90 monthly premium ($1,259 per year
per person), a separate $147 annual deductible, and open-ended
coinsurance of 20 percent for physician services (including surgeons and
other hospital inpatient physicians), therapy, durable medical
equipment, and outpatient services with no limit on out-of-pocket spending.
For prescription drug coverage, beneficiaries must buy a Part D plan
with a separate premium that averages around $440 a year plus a
deductible and cost-sharing that varies across private plans. The
Affordable Care Act (ACA) is phasing out Medicare's gap in drug
coverage—the "doughnut hole"—but beneficiaries requiring specialty drugs
or multiple medications can still face substantial costs.
Supplemental private coverage to fill in Medicare's deductibles and
cost-sharing is costly, with Medigap premiums adding over $2,000 a year,
depending on geographic area. It is also inefficient, with 20 percent of
the premium, on average, going toward administrative costs.
Some low-income beneficiaries are eligible for assistance paying their
Parts A and B cost-sharing and Part B premiums. Medicaid covers Medicare
cost-sharing up to 100 percent of the poverty level and provides
subsidies for Part B premiums up to 135 percent of poverty for those
meeting income and asset tests.6 Personal asset limits for beneficiaries
seeking extra help with Medicare premiums or cost-sharing are $7,160 for
an individual and $10,750 for a couple (in 2014).
In contrast to Medicare, the ACA eliminates asset tests and provides
substantial premium and cost-sharing subsidies up to 200 percent of
poverty for the under-65 population and expands Medicaid to 138 percent
of poverty for participating states.7 ACA provisions exclude Medicare
beneficiaries. As a result, lower-income older adults who age into
Medicare will face increased financial burdens for coverage and care.
Underprotected and Underinsured Medicare Beneficiaries
Facing gaps in benefits and premium costs, an estimated 25 percent of
all beneficiaries and 40 percent with incomes below twice the poverty
level spent 20 percent or more of their income for premiums plus medical
care costs in 2014.
An estimated one of five beneficiaries—11 million people—spent at least
10 percent of their income on medical care alone in 2014, not including
premiums. Despite having Medicare, they were underinsured, spending a
high share of their income on medical care. The risk of being
underinsured was highest for low-income beneficiaries: an estimated
one-third of those with incomes up to 150 percent of poverty, and 30
percent of those with incomes between 150 percent and 200 percent of
poverty were underinsured.
Such high financial burdens undermine access to care, deplete incomes,
and drain resources. Notably, a recent study found that the elderly in
the United States are far more likely to go without care because of the
cost and face problems paying medical bills than their counterparts in
10 other high-income countries. Beneficiaries with complex care needs
are particularly at risk.
Policy Options to Modernize Benefits and Improve Low-Income Protections
To modernize Medicare's core benefits and update policies related to
low-income beneficiaries, the brief discusses two complementary options.
The first would offer a new Medicare-sponsored plan choice. Available
for an extra premium, it would provide an integrated design with
prescription coverage, more-affordable cost-sharing, and a limit on
out-of-pocket costs—making supplemental coverage unnecessary. The second
option would expand subsidies for Medicare's premiums and reduce
cost-sharing for beneficiaries with incomes up to 200 percent of the
federal poverty level in ways that align with the Affordable Care Act's
policies for the under-65 population.
Comment by Don McCanne
At the 50th anniversary of Medicare we can be thankful for the
assistance it has provided to our seniors and those with long term
disabilities in improving access to care and in making health care more
affordable for them. However, Medicare does have significant
deficiencies and this is a good time to look at them and see what we can
do to improve the program.
Probably the most glaring defect is that the coverage is inadequate,
especially for those with modest incomes. Premiums for Parts B and D,
deductibles for Parts A, B and D, 20% coinsurance for Part B, other
forms of cost sharing, and the lack of a ceiling on out-of-pocket costs
all combined can create severe financial hardships for far too many.
Medicare should be structured to ensure health security without
threatening exposure to financial insecurity.
To cover these high out-of-pocket costs, some purchase Medigap plans.
But these plans are overpriced, partly because they consume 20% of the
premiums for administration. Plus they add administrative complexity for
the providers because of having to interact with two payers - Medicare
plus the Medigap plan. Employer-sponsored retiree health plans may
provide wraparound coverage for Medicare, but this is administratively
inefficient as well. More comprehensive coverage by Medicare would
relieve employers of their responsibilities for their retiree health
plans for the Medicare-eligible population, plus it would free up funds
that could be added to retiree pensions. Very low income individuals may
qualify for Medicaid coverage, though these dual-eligible individuals,
to their dismay, are now often being forced into managed care plans
designed for the welfare population. Others select private Medicare
Advantage plans, but the government unfairly pays the private plans more
- two-thirds of which is kept by the insurers instead of going toward
patient benefits. Although Medicare Advantage plans reduce spending for
the beneficiaries, they do so by wasting an inordinate amount of
taxpayer dollars on non-medical administrative excesses and insurer profits.
The authors of this brief do recommend creating a new Medicare option -
"Medicare Essential" - available for an extra premium, which would
integrate more benefits and place a ceiling on out-of-pocket costs,
obviating the need for supplemental coverage. They would also protect
low-income individuals by adding premium subsidies and cost sharing
reductions, based on income, much like the subsidies for the plans in
the ACA exchanges. These changes would certainly reduce the financial
burden that Medicare beneficiaries face, but their analysis of the
impact of these two policies shows that 15 percent of Medicare
beneficiaries would still be paying over 20 percent of their income on
care and premiums.
A better solution would be to go ahead and roll the benefits of these
various supplemental or complementary programs into the traditional
Medicare program so that it could be administered as one single program,
but to also achieve greater efficiency by eliminating all of the
premiums, deductibles, coinsurance and other cost sharing, and instead
funding all care through a single, equitably-funded Medicare risk pool.
Carrying that one step further, the maximum efficiency would be attained
by expanding that risk pool to cover absolutely everyone so that we
would all have prepaid health care whenever we needed it.
After 50 years, it is clear that Medicare needs improvement, though it
still has strong support of the public. The time is ripe for not only
improving it, but also expanding it to cover everyone. Let us hope that
we do not have to wait another 50 years to get it right.
at 9:30 AM