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 New Report Puts Focus of Medicare Reform on High Costs to Beneficiaries

​A revamp of how the federal government funds the Medicaid program included in the American Health Care Act has garnered plenty of media coverage as Congress debates the Affordable Care Act replacement bill. But a new issue brief released by the Commonwealth Fund looks instead at how cost sharing works in Medicare, using this as a starting point for what proposed payment reforms in Medicare would mean to beneficiaries who already pay significant amounts for their care.

Although there has been no legislative action on Medicare reform since the Trump administration came to office, it is well established that House Speaker Paul Ryan (R-Wis.) has made the subject a priority. His Medicare plan, included as part of Ryan’s Better Way health care blueprint from June 2016, would eliminate the guaranteed level of coverage that Medicare currently provides to move instead to a voucher system. Through market-based exchanges, beneficiaries could then purchase their health insurance from private carriers.

Ryan and those who back similar Medicare reforms say change is necessary to save the program from its projected insolvency over the next decade. Opponents of vouchers believe the new model would simply move more of the cost of Medicare and its risks to seniors.

For example, in a brief released earlier this year, AARP asked what would happen to seniors if the values of the vouchers called for in the Ryan plan fail to provide beneficiaries with enough to buy the Medicare coverage they have now. The group also asked what happens if the ongoing costs of their coverage top the amount of the vouchers.

“The two choices appear to be a.) either pay more out of their own pocket for the same coverage; or b.) skip the medical care in question,” the AARP brief said.
For its part, the Commonwealth Fund’s issue brief (Medicare Beneficiaries’ High Out-of-Pocket Costs: Cost Burdens by Income and Health Status) looked at beneficiaries’ out-of-pocket costs by income and health status by accessing spending estimates based on the Medicare Current Beneficiary Survey.

What the group found is that more than one-fourth of all Medicare beneficiaries—15 million people—spend 20 percent or more of their incomes on premiums plus medical care, including cost sharing and uncovered services.

“Beneficiaries with incomes below 200 percent of the poverty level (just under $24,000 for a single person) and those with multiple chronic conditions or functional limitations are at significant financial risk,” the brief said. “Overall, beneficiaries spent an average of $3,024 per year on out-of-pocket costs. Financial burdens and access gaps highlight the need to approach reform with caution. Already-high burdens suggest restructuring cost sharing to ensure affordability and to provide relief for low-income beneficiaries.”

Cathy Schoen, senior scholar in residence, New York Academy of Medicine, and one of the brief’s authors, tells Provider that high cost sharing and out-of-pocket costs are part and parcel of the Medicare program’s design from when it was enacted in 1965.

“It followed a private insurance structure so there, for example, was no catastrophic benefit,” she says. “And on out-of-pocket costs, the Medicare program was always focused on acute care by design. It did not, for instance, include drugs until 2006. So, it was never meant to be supportive of long term services and supports, only home health and nursing home care at the point of recovery from an acute episode.”

What this means is that low-income beneficiaries are exposed to costs through out-of-pocket expenses and premiums as the program is structured now, not including possible privatization efforts spelled out in proposals like the one by Ryan.

To make the Medicare program more tenable for beneficiaries, many purchase private supplemental plans to pay for drugs or Medigap coverage. “Even after they pay for supplemental drug and Medigap plans, beneficiaries face the cost of dental, hearing, vision, and long-term services—all excluded from Medicare,” the brief said. “For beneficiaries with multiple illnesses or serious functional limitations, out-of-pocket costs can easily add up to thousands of dollars per year. The resulting out-of-pocket costs for health care and premiums can add up to a substantial share of income, especially for those living on modest or low incomes.”

But even these separate private-plan coverage models are not cheap. The brief noted that Medigap annual premiums average $2,000 per person, “but can be much higher, exceeding $200 a month in areas like New York City.” And increasingly popular are private Medicare Advantage (MA) plans for those who can afford them. “These plans generally have lower cost sharing than traditional Medicare. However, in recent years, MA plan cost sharing has increased substantially,” the brief said.

The Commonwealth Fund, which hopes to use this first brief to inform the discussion on Medicare reform, said it examined the high total cost burden and underinsurance problem areas. For high costs, the brief said spending on insurance premiums plus medical care, including copayments, coinsurance, and uncovered expenses, amounts to 20 percent or more of annual income for Medicare beneficiaries. And underinsurance, which is the spending on medical care, excluding insurance premiums, totals 10 percent or more of annual income.

“The analysis reveals that millions of beneficiaries spend substantial shares of their income on health care costs. Thus, any proposals to change Medicare must proceed with caution. Already-high financial burdens mean any changes to the program must be assessed to safeguard beneficiaries’ access and affordability,” the Fund brief said.
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