News Release

Modifying Traditional Medicare’s Benefit Design Could Reduce Federal Spending But With Cost Tradeoffs Between Beneficiaries and The Federal Government

Revamping traditional Medicare’s benefit design and restricting “first-dollar” supplemental coverage could reduce federal spending, simplify cost sharing, protect against high medical costs, decrease out-of-pocket spending for many beneficiaries, and provide more help to those with low incomes — but would be unlikely to achieve all of these goals simultaneously, finds a new analysis by the Kaiser Family Foundation.

The analysis, which draws upon policy parameters put forth by the Congressional Budget Office, the Medicare Payment Advisory Commission and other organizations, examines a general approach to reforming Medicare that has been a focus of Congressional hearings and featured in several broader debt reduction and entitlement reform proposals, including the House GOP health plan released last week.

The Foundation’s new report models four different options for a modified benefit design, rather than a specific existing proposal. Each of the four options includes a single deductible, modified cost-sharing requirements, a new cost-sharing limit, and a prohibition on first-dollar Medigap coverage. The analysis projects how spending by beneficiaries, Medicare, Medicaid, and other payers would change under each option, if implemented in 2018. The results shed light on the policy tradeoffs inherent in alternative approaches to modifying deductibles and cost-sharing requirements under traditional Medicare, particularly in the context of budget discussions. Among the findings from analysis of the four options:

  • The impact on federal spending ranges from an estimated $5.5 billion in savings in 2018 under one option to $8.8 billion in additional spending under another option.
  • Beneficiaries collectively would save under all four options, but the option with the largest aggregate beneficiary savings ($3.8 billion in 2018) triggers the biggest increase in federal spending.
  • Under each option, some beneficiaries would be expected to pay less relative to current law in 2018, while others would pay more. The share expected to pay less ranges from 21 percent to 44 percent, while 25 percent to 35 percent would be expected to pay more, depending on policy choices, such as the level of the deductible and cost-sharing limit. The rest would see no change.
  • Policy options that provide additional assistance to some low-income beneficiaries are unlikely to simultaneously produce meaningful federal savings, and could generate higher federal costs depending on how many low income beneficiaries are made eligible for new cost-sharing assistance.

The analysis was conducted by researchers at the Kaiser Family Foundation and Actuarial Research Corporation and is part of ongoing work by the Foundation to examine the effects of proposed Medicare changes on the program’s beneficiaries, the federal budget and other stakeholders.

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