Modifying Medicare's Benefit Design: What's the Impact on Beneficiaries and Spending?

Executive Summary
  1. A Better Way: Our Vision for a Confident America, June 22, 2016, available at http://abetterway.speaker.gov/_assets/pdf/ABetterWay-HealthCare-PolicyPaper.pdf.

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  2. In this report, the word ‘poverty’ is used to refer to the federal poverty guidelines.

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  3. Kaiser Family Foundation/MedPAC, "An Analysis of the Share of Medicare Beneficiaries Who Would Benefit from an Annual Out-of-Pocket Maximum under Traditional Medicare Over Multiple Years," June 2013, available at https://www.kff.org/medicare/issue-brief/analysis-of-share-of-medicare-beneficiaries-who-would-benefit-from-out-of-pocket-maximum-over-multiple-years/.

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Introduction
  1. A Better Way: Our Vision for a Confident America, June 22, 2016.

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  2. An alternative approach would add enhanced Medicare benefits as a separate part of the program, sometimes referred to as Medicare Part E, Medicare Extra, or Medicare Essential. See, for example, Karen Davis et al., “Medicare Essential: An Option to Promote Better Care and Curb Spending Growth,” Health Affairs, May 2013.

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  3. Gretchen Jacobson, Christina Swoope, Tricia Neuman, and Karen Smith, “Income and Assets of Medicare Beneficiaries, 2014-2030,” Kaiser Family Foundation, September 2015, available at https://www.kff.org/medicare/issue-brief/income-and-assets-of-medicare-beneficiaries-2014-2030/.

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  4. Juliette Cubanski, Tricia Neuman, Zachary Levinson, Monica Brenner, and James Mays, Restructuring Medicare’s Benefit Design: Implications for Beneficiaries and Spending, Kaiser Family Foundation, November 2011, available at https://www.kff.org/medicare/report/restructuring-medicares-benefit-design/.

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  5. See, for example, Medicare Payment Advisory Commission (MedPAC), June 2012 Report to the Congress: Medicare and the Health Care Delivery System, Chapter 1: Reforming Medicare's Benefit Design, June 2012, available at http://www.medpac.gov/documents/reports/jun12_ch01.pdf.

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  6. See, for example, Moment of Truth Project, A Bipartisan Path Forward to Securing America’s Future, April 2013, available at http://www.momentoftruthproject.org/sites/default/files/Full%20Plan%20of%20Securing%20America's%20Future.pdf; Jonathan Gruber, “Restructuring Cost Sharing and Supplemental Insurance for Medicare,” in 15 Ways to Rethink the Federal Budget, The Hamilton Project, February 2013, available at http://www.hamiltonproject.org/assets/legacy/files/downloads_and_links/THP_15WaysFedBudget_Prop3.pdf.

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  7. See, for example, Bipartisan Policy Center, A Bipartisan Rx for Patient-Centered Care and System-Wide Cost Containment, April 2013, available at http://bipartisanpolicy.org/wp-content/uploads/sites/default/files/BPC%20Cost%20Containment%20Report.pdf.

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  8. See, for example, Bipartisan Policy Center, A Bipartisan Rx for Patient-Centered Care and System-Wide Cost Containment, April 2013.

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  9. MedPAC, Reforming Medicare’s Benefit Design, June 2012.

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  10. The actuarial value of the modified benefit design under Option 1 is roughly equivalent to the actuarial value of the current law benefit design under traditional Medicare. The per capita reimbursement is $10,149 under current law and $10,050 under Option 1, a difference of about -1 percent. Dividing benefits per capita by the associated covered charges, which change slightly from current to future law, the actuarial values for both Option 1 and Medicare’s current law benefit design are 85 percent.

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  11. The combined deductible for Part A and Part B services would be lower than the current-law deductible for Part A services but higher than the current-law deductible for Part B services.

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  12. This cost-sharing structure is similar to the illustrative benefit design put forward by MedPAC, based on the cost-sharing structure of Medicare Advantage plans. The cost-sharing amounts shown in Table 1 are not the same as suggested by MedPAC because they have been updated using trends in reimbursement by type of service to 2018 levels and to ensure cost-sharing neutrality under the modified benefit design, as under the MedPAC illustrative option. See MedPAC, Reforming Medicare’s Benefit Design, June 2012.

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  13. Beginning in 2020, MACRA prohibits the sale of Medigap policies that cover the Part B deductible for newly-eligible Medicare beneficiaries. In the 2015 Medicare Trustees report, the Part B deductible was projected to be $196 in 2020. Existing enrollees or currently eligible beneficiaries may keep or continue to be offered policies that cover the Part B deductible.

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  14. Hereafter, we use the word ‘poverty’ to refer to the federal poverty guidelines.

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  15. Each program has specific income and asset eligibility requirements. In some states, beneficiaries with incomes above 150 percent of poverty are eligible for SLMB.

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Findings
  1. Beneficiaries with higher incomes (more than $85,000 for individuals and $170,000 for married couples) pay a higher percentage of Part B program costs, ranging from 35 percent to 80 percent, depending on their incomes.

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  2. Supplemental insurance typically covers a portion of Medicare’s cost-sharing requirements, thereby reducing the additional costs that beneficiaries would otherwise pay when they seek medical care.

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  3. The model does not incorporate potential savings to Medicare associated with possible reductions in disproportionate share hospital (DSH) payments that might be made under current law on behalf of some low-income beneficiaries who would benefit from the cost-sharing subsidies under Option 3, due to the difficulty in estimating the possible magnitude of this effect.

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Limitations and Assumptions
  1. For a review of research on this subject, see Katherine Swartz, Cost-Sharing: Effects on Spending and Outcomes, Robert Wood Johnson Foundation, December 2010, available at http://www.rwjf.org/en/library/research/2011/12/cost-sharing--effects-on-spending-and-outcomes.html.

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  2. Amal Trivedi, Husein Moloo, and Vincent Mor, “Increased Ambulatory Care Copayments and Hospitalizations among the Elderly,” New England Journal of Medicine, January 2010.

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  3. Amitabh Chandra, Jonathan Gruber, and Robin McKnight, “Patient Cost-Sharing, Hospitalization Offsets, and the Design of Optimal Health Insurance for the Elderly,” National Bureau of Economic Research Working Paper Series, March 2007.

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  4. Kaiser Family Foundation/MedPAC, "An Analysis of the Share of Medicare Beneficiaries Who Would Benefit from an Annual Out-of-Pocket Maximum under Traditional Medicare Over Multiple Years," June 2013, available at https://www.kff.org/medicare/issue-brief/analysis-of-share-of-medicare-beneficiaries-who-would-benefit-from-out-of-pocket-maximum-over-multiple-years/.

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  5. See the American Academy of Actuaries, “Medical Savings Accounts: Cost Implications and Design issues,” May 1995, Table II-2A, available at http://www.actuary.org/pdf/health/msa_cost.pdf. We used a slightly more conservative estimate for inpatient care (0.2 instead of 0.3).

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Discussion
  1. Kaiser Family Foundation/MedPAC, "An Analysis of the Share of Medicare Beneficiaries Who Would Benefit from an Annual Out-of-Pocket Maximum under Traditional Medicare Over Multiple Years," June 2013, available at https://www.kff.org/medicare/issue-brief/analysis-of-share-of-medicare-beneficiaries-who-would-benefit-from-out-of-pocket-maximum-over-multiple-years/.

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  2. In an analysis not presented in this report, we modeled the addition of a 20 percent Medigap premium surcharge paid by policyholders in combination with the modified Medicare cost-sharing parameters under Option 1. The analysis showed that the surcharge would generate an estimated $3.0 billion in revenues in 2018, and, in conjunction with other changes to Medicare’s benefit design, would produce federal savings of $8.1 billion, relative to current law. Federal savings would be higher than under Option 1, which includes a restriction on Medigap coverage of the deductible, solely due to the surcharge revenues. In fact, Medicare savings are modestly lower with a Medigap premium surcharge than with Medigap coverage restrictions, because a coverage restriction is expected to lead Medigap policyholders to reduce their service use somewhat, but this would be less of a factor with a premium surcharge.

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  3. Juliette Cubanski, Tricia Neuman, and Zachary Levinson, “Adding an Out-of-Pocket Spending Maximum to Medicare: Implementation Issues and Challenges,” Kaiser Family Foundation, February 2014, available at https://www.kff.org/medicare/issue-brief/adding-an-out-of-pocket-spending-maximum-to-medicare-implementation-issues-and-challenges/.

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  4. Medicare Payment Advisory Commission, Report to the Congress: Medicare Payment Policy, Chapter 5, “Increasing Participation in the Medicare Savings Programs and the Low-Income Drug Subsidy,” March 2008, available at www.medpac.gov/documents/mar08_ entirereport.pdf.

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Appendix: Methodology
  1. Congressional Budget Office, An Update to the Budget and Economic Outlook: 2015 to 2025, August 2015, available at https://www.cbo.gov/publication/50724.

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  2. Congressional Budget Office, “March 2015 Medicare Baseline,” March 9, 2015, available at https://www.cbo.gov/sites/default/files/51302-2015-03-Medicare.pdf.

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  3. 2015 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, July 2015.

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  4. Centers for Medicare & Medicaid Services, Medicare & Medicaid Statistical Supplement, 2013 Edition, available at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareMedicaidStatSupp/2013.html.

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  5. Current per 2013 Medicaid 64 (CMS administrative data).

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  6. Based on CBO estimates, we assume that federal Medicaid spending covers 57 percent of Part B premiums on behalf of Medicaid enrollees and states pay the rest. This is the same assumption we make about cost-sharing coverage.

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