Medicare Cost Sharing and Supplemental Coverage

Lisa Potetz, MPP

Health Policy Alternatives, Inc.

National Health Policy Forum Friday, February 8, 2013

Topics to be Discussed

• Medicare costs to beneficiaries – Review Medicare premiums and cost sharing – Background on Medicare beneficiary income – Health care costs as share of beneficiary income

• Current role of supplemental coverage • Concerns about impact of supplemental coverage on

health costs • Policy options under discussion

Medicare Premiums and Cost Sharing: Background

Medicare Premiums, 2013

Coverage Monthly Premium Part A – Most beneficiaries Part A – Beneficiaries lacking 40 quarters FICA contributions

$0 $441.00

Part B – standard Excludes income-related premium

$104.90

Part D varies by plan choice

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Income-Related Part B Premium

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File joint tax return

Annual income for 2011 Monthly Part B in 2013

% of standard premium

% of Part B costs

File individual tax return File joint tax return

$85,000 or less $170,000 or less $104.90 100% 25%

above $85,000 up to $107,000 above $170,000 up to $214,000 $146.90 140% 35%

above $107,000 up to $160,000 above $214,000 up to $320,000 $209.80 200% 50%

above $160,000 up to $214,000 above $320,000 up to $428,000 $272.70 260% 65%

above $214,000 above $428,000 $335.70 320% 80%

• Income related premiums began in 2007; original thresholds were indexed to the CPI. The Affordable Care Act eliminated indexing for 2011-2019.

• In 2010, 5% of beneficiaries paid an income-related premium; projected to grow to 14% by 2019. (From Kaiser Family Foundation, “Income-Relating Medicare Part B and Part D Premiums: How Many Medicare Beneficiaries Will Be Affected?” December 2010)

Medicare Part A Cost Sharing, 2013 Services Beneficiary liability

Hospital • $1,184 deductible per benefit period • $0 for the first 60 days of each benefit period • $296 per day for days 61–90 of each benefit period • $592 per "lifetime reserve day" after day 90 of each benefit period (up to a maximum of 60 days over a lifetime

Skilled Nursing Facility • $0 for the first 20 days each benefit period • $148 per day for days 21–100 each benefit period • Full costs after day 100 in a benefit period

Home Health $0 for Medicare-approved services

Durable Medical Equipment

20% of the Medicare-approved amount

Hospice • $0 for hospice care • Up to $5 per prescription for outpatient prescription drugs for pain and symptom management • 5% of the Medicare-approved amount for inpatient respite care

6 Source: Medicare.gov, “Medicare costsU.S. Department of Health and Human Services, available at www.medicare.gov/cost/.

Medicare Part B Cost Sharing, 2013 Services Beneficiary liability

Deductible $147 per year

Medical & other services, (incudes “Part B” drugs provided in physician’s office)

20% of the Medicare-approved amount

Outpatient Hospital (includes “Part B” drugs provided in outpatient hospital setting)

Coinsurance (for doctor services) or a copayment amount for most outpatient hospital services that varies by service to phase down to 20% over time. The copayment for a single service can't be more than the amount of the inpatient hospital deductible.

Mental Health 40% of the Medicare-approved amount for most outpatient mental health care

Home Health $0 for Medicare-approved services

Durable Medical Equipment 20% of the Medicare-approved amount

Clinical Lab $0 for Medicare-approved services

7 Source: Medicare.gov, "2012 Medicare Costs," U.S. Department of Health and Human Services, available at www.medicare.gov/cost/.

Cost-Sharing Liability for Medicare Fee-for-Service Beneficiaries, 2008

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Note: The amounts reflect Medicare beneficiaries’ liability but do not reflect what Medicare beneficiaries actually paid out of pocket because most beneficiaries have supplemental coverage that covers all or some of their Medicare cost sharing. Source: Medicare Payment Advisory Commission, Report to the Congress: Aligning Incentives in Medicare, June 2010, p. 54, available at www.medpac.gov/ chapters/Jun10_Ch02.pdf.

Income of Medicare Beneficiaries: Background

25% had incomes below $14,000

50% had incomes below $22,500

5% had incomes above $88,900

NOTE: Figures are not household income. Total household income for couples is split equally between husbands and wives to estimate income for married beneficiaries. SOURCE: Urban Institute analysis of DYNASIM for the Kaiser Family Foundation, “Income-Relating Medicare Part B and Part D Premiums Under Current Law and Recent Proposals: What are the Implications for Beneficiaries?” February 2012.

Distribution of Medicare Beneficiaries by Income Level, 2012

Household Income and the Elderly US Median Household Income, by Age

2010 2011

All Households

$50,831 $50,054

Age <65 years

$56,850 $55,640

Age 65 years and older

$32,454 $33,118

Source: US Census Bureau, Income, Poverty, and Health Insurance Coverage in the United States, 2011, September 2012, Table 5.

9.0%

25.6%

34.0%

31.4%

<100%100-199%200-399%≤400%

Source: Federal Interagency Forum on Aging- Related Statistics, Older Americans 2012: Key Indicators of Well-Being, June 2012, Table 8a.

34.6% < 200%

Percent of poverty:

Income distribution of the population age 65 and older, as percent of poverty, 2010

Source: Federal Interagency Forum on Aging-Related Statistics, Older Americans 2012: Key Indicators of Well-Being, June 2012.

NOTES: Includes Medicare Advantage enrollees, and includes institutionalized and non-institutionalized beneficiaries. The 2009 poverty guidelines were $10,830/individual and $14,570/couple. Out-of-pocket spending includes premiums. SOURCE: Kaiser Family Foundation analysis of CMS Medicare Current Beneficiary Survey Cost and Use File, 2009.

Median Out-of-Pocket Health Care Spending As a Percent of Income Among Medicare Beneficiaries,

by Demographic Characteristics, 2009

Age % of Federal Poverty Level Health Status

Supplemental Coverage

Sources of supplemental coverage among noninstitutionalized Medicare beneficiaries, 2009

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file, 2009. From: Data Book: Health spending and the Medicare Program, June 2012.

Distribution of Income of Medicare Beneficiaries, by Source of Supplemental Coverage, 2007

SOURCE: Kaiser Family Foundation analysis of the CMS Medicare Current Beneficiary Survey Cost and Use File, 2007, “Medigap Reform: Setting the Context,” September 2011.

What is Medigap?

• Optional private health insurance available for purchase by individual beneficiaries (or groups) to cover some or all Medicare cost sharing

• Federal law requires plans to meet standards set by the National Association of Insurance Commissioners (NAIC) under model state law

• Beneficiaries may choose among 10 standardized benefit plans

• Other NAIC standards include: – 6-month guaranteed issue period at age 65 – Minimum medical loss ratio of 65% for individual coverage/75%

group

Currently Available Standardized Medigap Plans

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Benefits A B C D F* G K L M N

Part A Coinsurance ● ●

●

●

●

●

●

●

●

●

Part B Coinsurance ●

●

●

●

●

●

50% 75% ●

●**

Blood ●

●

●

●

● ●

50%

75%

Part A Hospice ●

●

●

●

● ●

50%

75%

●

●

SNF Coinsurance ●

●

● ●

50%

75%

●

●

Part A Deductible ●

●

●

● ●

50%

75%

50% ●

Part B Deductible ●

●

Part B Excess Charges ● ●

Foreign Travel Emergency ●

●

● ●

●

●

* Plan F also offers a high-deductible plan. If a beneficiary chooses this option, she must pay for Medicare-covered costs (coinsurance, copayments, deductibles) up to the deductible amount of $2,000 in 2011 before the Medigap policy pays anything. **Plan N pays 100 percent of the Part B coinsurance, except for a copayment of up to $20 for some office visits and up to a $50 copayment for emergency room visits that do not result in an inpatient admission.

Source: Center for Medicare & Medicaid Services, Medicare & You 2012, p. 67, available at ww.medicare.gov/publications/pubs/pdf/10050.pdf.

Plan F has 44% of Medigap enrollees; another 15% in Plan C.

2010 Monthly Medigap Premiums, National Average, State High and Low

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Source: Kaiser Family Foundation Program on Medicare Policy, “Medigap Reform: Setting the Context,” September 2011, Available at http://www.kff.org/medicare/upload/8235-2.pdf

Does First-Dollar Supplemental Coverage Affect Medicare Spending?

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• Concern that prevalence of first-dollar Medigap coverage contributes to higher Medicare spending – View that beneficiaries with “no skin in the game” are insensitive

to cost of care and may over-use services – Is higher spending due to Medigap (“insurance effect”) or are

individuals with higher health needs more likely to obtain Medigap (“selection effect”)?

• Literature shows that imposing cost sharing lowers use of services, but disagreement as to health effects – Some individuals may forgo needed care – Lower-income individuals more sensitive to cost sharing – MedPAC summary of literature (June 2012 report)

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Total = $13,414

Total = $10,068

Medigap in the Affordable Care Act

• Secretary directed to request that NAIC update the standards for Plans C and F to include “nominal cost sharing” for physician services based on peer reviewed literature and experience with integrated health plans

• In December 2012 response, NAIC recommends no change to these plans – Cite lack of directly relevant literature, concern about

discouraging use of needed care, and availability of new plans “M” and “N”

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Recent Proposals to Limit First-Dollar Coverage/Modify Medicare Cost-Sharing

Source Change to Medigap Change to Medicare Savings (over 10 yrs) National Commission on Fiscal Responsibility and Reform (Simpson-Bowles) December 2010

•No coverage for the first $500 •Maximum 50% coverage of the next $5,000 •(Effective $3,000 out of pocket maximum)

Replace existing cost-sharing rules with universal deductible, single coinsurance rate, and catastrophic cap for Medicare Part A and Part B.

$38 Billion

CBO Options March 2011

•No coverage for the first $550 •Maximum 50% coverage of the next $4,950 (Effective $3,025 out of pocket maximum)

None in this estimate, but could be paired with options to restructure Medicare cost sharing for greater savings ($93 billion total)

$53 billion

The President’s Budget for FY 2013

Unchanged 30% Part B premium surcharge on new enrollees who purchase “near” first dollar Medigap policies, including “C” and “F”, beginning in 2017.

$2.5 billion

MedPAC June 2012

Additional charge on supplemental insurance

Redesign Medicare to include out-of-pocket cap; Parts A/B deductible(s); copayments that may vary by type of service/ provider; give Secretary authority to link cost sharing to evidence of service value.

Not available

Senator Hatch January 2013

Limit Medigap coverage of initial out-of-pocket expenses

Simplify Medicare cost-sharing to combine Parts A and B deductibles and add catastrophic cap

Not available

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Considerations in Limiting Medigap • Are Medigap changes in context of broader

Medicare cost-sharing restructuring, e.g., adding out of pocket cap?

• Would changes apply to new beneficiaries (less savings) or extend to everyone?

• What happens to retiree health plans? • What are implications for beneficiaries of less

predictable health care spending? • What are distributional effects on beneficiaries?

(health status, income) 24

Questions?

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