by Bob Rosenblatt
Medicare has been considered the blue-ribbon, A-plus health insurance plan since its inception in 1966, when it began covering millions of disabled and elderly.
But this perception may change in a big way on Jan. 1, 2014, when the Affordable Care Act (ACA) brings a new protection to consumers covered by private coverage. These policies will have annual out-of-pocket spending limits, offering protection for those facing big medical bills. The average maximum annual amount will be $6,400 for a single person and $12,800 for a family.
Suddenly, Medicare will be the lone health insurance policy without any protection on the catastrophic end, meaning there is no limit to the amount a patient may be forced to pay out-of-pocket.
This is already sparking a new policy debate on what sort of protections should be offered to Medicare beneficiaries against the threat of huge financial losses from medical bills. This question is becoming entangled with the discussion of Medicare’s fiscal future and the desire to slow its spending.
Debate “over these changes will be contentious,” warned the Kaiser Family Foundation in a recent study.
A Medicare beneficiary may face severe financial risk from medical costs. For a hospital stay, there is a deductible of $1,184 for a hospital stay of 1-60 days; $296 per day for days 61 to 90; $592 per day for days 91 through 150; and all costs for each day beyond 150. For outpatient visits to a doctor under Part B, there is a $147 annual deductible, and then a 20 percent co-payment for further expenses. In addition, there is the cost of the Part B premium at $104.90 per month (higher for individuals with income over $85,000 a year), and another premium if drug coverage under Part D has been selected. In addition, many beneficiaries also buy Medicare supplementary insurance, known as Medi-gap, back-up insurance to help with co-payment costs.
Add together the co-payments, deductibles and premiums, and it can become a financial struggle for many people, Kaiser Family Foundation Vice President Tricia Neuman told a Congressional health subcommittee of the House Ways and Means Committee in February, in a report titled, “Changing Medicare’s Benefit Design: Implications For Beneficiaries.”
“Even with Medicare, and supplemental insurance, beneficiaries tend to have relatively high out-of-pocket health costs,” she said. “In 2009, half of all Medicare beneficiaries spent 15 percent or more of their income on health-related expenses, including premiums, cost sharing for Medicare-covered services, and services not covered by Medicare; more than one-third of all beneficiaries (39%) spent at least 20 percent of their income on medical expenses that year.”
The majority of people on Medicare derive their income from their monthly Social Security check. Social Security’s annual cost-of-living increase is pegged to the general rate of inflation in the economy. This provision, in effect since 1974, is designed to provide a measure of income security over time, so that the value of a retiree’s check keeps pace with expenses.
But the flaw here is that the cost of medical care is rising faster than the general rate of inflation, and thus it is eroding the value of the Social Security check. According to a 2011 Kaiser Family Foundation report, “Medicare the expense of Medicare—the total cost of the monthly premiums, the deductibles and co-payments—was equal to 27 percent of the average Social Security retirement check in 2010. By the year 2030, the report says, Medicare costs will consume 36 percent of the average Social Security check.
“The benefit structure has long been criticized for being too complex, and for promoting overutilization of care which, in turn, translates into higher costs for seniors,” Sen. Orrin Hatch (R-Utah) said in a recent call for a cap on out-of-pocket costs. “Streamlining the cost-sharing will make it easier for seniors to navigate Medicare more efficiently while also reducing costs. Most importantly, it will give seniors financial security in cases of high out-of-pocket costs.”
He sought to bring back into the debate the proposal put forth by the deficit reduction Simpson-Bowles Commission, which had been appointed by President Obama. In 2010, the commission called for a combined annual deductible of $550, instead of the separate Part A and Part B deductibles. It also called for a 20 percent co-payment schedule, and an annual out-of-pocket limit of $7,500. This would have saved the federal government approximately $110 billion over a 10-year period.
Putting an annual limit on financial exposure would save money for some of the sickest people on Medicare, but it would force nearly everyone else to pay more, Neuman said in the Congressional hearing.
She also said that a variation of the Simpson-Bowles plan would have offered some beneficiaries a 5 percent savings (an average of $1,570 a year) but 71 percent would have faced larger bills (an average increase of $180 a year).
The views of these proposals depend on politics. Conservatives, who worry about the deficit, say measures are needed to slow down Medicare’s growth, while limiting the financial threat to the Medicare beneficiaries with the biggest bills.
Liberals oppose any measure they say would shift expenses to already hard-pressed beneficiaries.
Liberals want more affluent people to pay more. The liberal Center for American Progress has offered this proposal: the out-of-pocket maximum should be $5,000 a year for those with incomes below 400 percent of the federal poverty level; $7,500 a year for people with income between 400 percent and 600 percent of the poverty standard; and $10,000 when income exceeds 600 percent of the poverty level.
AARP, the powerful lobby on behalf of those ages 50 and older, has been studiously neutral in discussions of this issue, offering ammunition to both sides of the argument in a brief by its Public Policy Institute.
“If an annual out-of-pocket spending cap were included in this redesign, Medicare beneficiaries—particularly those with high utilization—would have more financial protection from expenses caused by severe and often unexpected illnesses,” AARP said. “In addition, increased cost-sharing could make beneficiaries more price- sensitive in using health care services, resulting in lower utilization and greater Medicare savings. These savings would improve the long-term stability of the Medicare program for both current and future beneficiaries.”
Then, arguing for the other side, the AARP analysis said, “Medicare beneficiaries, especially those with modest incomes or no supplemental coverage, could find it difficult to afford these cost-sharing requirements. These beneficiaries may decide not to get the medical care that they need in order to avoid paying coinsurance or deductible amounts, which could lead to poorer health outcomes and higher Medicare costs in the long run.”
With AARP viewing the issue as an on-the-one-hand, on-the-other hand hard choice, Congress and the president are certain to tread delicately as they maneuver around this politically explosive issue.