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Too Much Coverage?
June 18, 2009 • Volume 9, Issue 24
The Medicare Payment Advisory Commission (MedPAC) issued a report this week showing that people with Medicare who have Medigap supplemental insurance use more medical care than people who have only Medicare coverage and pay all Medicare’s deductibles and coinsurance out of pocket.
People with Medigap plans had more elective procedures in the hospital, underwent more imaging tests (MRIs, etc.) and saw more specialists than people with no supplemental coverage.
People with Medigap plans also used preventive services at twice the rate of people with Medicare only. And almost 20 percent of people with Medicare only report that they avoided seeing a doctor because of the costs, five times the rate for people with Medigap plans.
The MedPAC report makes no judgment as to whether the additional medical care used by people with Medigap plans was necessary or wasteful. Most consumers, as President Obama told the American Medical Association, do what their doctor tells them (if they can afford it.).The key to reining in health care costs, most analysts agree, is to find ways to pay doctors and hospitals for providing the right care, rather than more care.
But Medicare’s benefit structure could also play a role, according to MedPAC. Copayments for services can be set to encourage people to use services that have proven effective in keeping people well and out of the emergency room, and discourage treatments that have been shown to be less effective and more expensive than alternatives. (We also need much more research to tell the two apart.)
Reforming Medicare’s benefit structure could also provide greater financial protection for older adults and people with disabilities who need high-cost care. Because Medicare does not limit out-of-pocket spending on medical care, people without supplemental coverage pay a huge share of their income when they fall sick and need expensive treatment. People without supplemental coverage but with the highest medical expenses spent about 35 percent of their income on medical care, premiums and prescription drugs (the research predates the start of the drug benefit in 2006). Medigap enrollees with similar medical needs also pay a lot—between 20 percent and 25 percent of their income—but a greater proportion goes toward premiums and prescription drugs.
One reform option mentioned in the MedPAC report would offer supplemental coverage, including an annual out-of-pocket limit on medical expenses, through the Medicare program itself. This supplemental coverage would require people with Medicare to pay reasonable copays for doctor visits and hospitals stays. People with Medicare would pay the full cost of supplemental coverage, but the premiums would be lower than those charged by private Medigap plans.
The MedPAC research found that, when people with Medicare have a supplemental plan that requires them to pay at least 5 percent of costs (that is, Medicare and supplemental insurance together cover no more than 95 percent of costs), they use no more services than people who pay all of Medicare’s deductibles and coinsurance out of their own pockets.
The health reform legislation drafted by Senator Edward Kennedy, Democrat of Massachusetts, would give people under 65 access to a benefit package that, on average, covers 93 percent of medical costs, with an annual out-of-pocket limit for deductibles and copayments of less than $1,000. (By contrast, Medicare, including the Part D drug benefit, covers just 76 percent of costs on average, and there is no out-of-pocket limit for medical services.) Kennedy’s bill is designed to ensure that people earning less than 200 percent of the federal poverty level ($21,660 for an individual, $29,140 for a couple) can afford this level of coverage. People with Medicare—almost half of whom live below 200 percent of the federal poverty level—should be able to enroll in a Medicare-run plan with benefits like those offered under Senator Kennedy’s health reform bill.
Under such a plan, the level of out-of-pocket spending required is high enough (7 percent of medical costs on average) to discourage the additional use of services that MedPAC found among enrollees in Medigap plans that cover all Medicare cost-sharing. But the cost-sharing is low enough to ensure affordable access to care for people with limited incomes and to provide protection against financial disaster when they fall ill. Americans have the right to such coverage under health reform. Older adults and people with disabilities have the same right to such coverage from Medicare.
“Beneficiaries need more financial protection from their out-of-pocket health care costs than is currently provided by Medicare. This population has higher than average health care needs, and almost half live on an income that is at or below 200 percent of the federal poverty line. Beneficiaries’ out-of-pocket expenses have climbed to 16 percent of income, creating a serious barrier to care. . . . We believe Medicare beneficiaries should receive a benefit package which—at least—compares in value to the medium level of benefits provided through a health insurance exchange.” (Letter from Labor Union and Health Advocates to Senate, June 2009)
“Policy makers could use Medicare’s cost-sharing requirements as a tool to steer beneficiaries toward care of better value—charging higher copays for certain discretionary imaging services and lower copays for primary care visits. In this way, Medicare cost-sharing would serve as a tool to reinforce broader payment system reforms focused on attaining greater value for dollars spent.” (Improving Traditional Medicare’s Benefit Design, Medicare Payment Advisory Commission, June 2009)
“The Committee may want to consider proposals to simplify Medicare beneficiary cost-sharing obligations and make them more consistent with benefits that are available in the private sector. This might be accomplished by making changes to Medicare’s cost-sharing requirements while simultaneously placing certain restrictions on Medigap policies.” (Financing Comprehensive Health Care Reform: Proposed Health System Savings and Revenue Options, Senate Finance Committee, May 2009)
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