Restructuring Medicare’s Benefit Design: Implications for Beneficiaries and Spending

Several deficit-reduction plans have proposed combining Medicare’s separate deductibles for hospital and physician services, standardizing cost sharing across types of benefits, and establishing a new limit on annual out-of-pocket costs for beneficiaries. A new Kaiser Family Foundation study examines the potential implications of proposals to revamp Medicare’s cost-sharing requirements as a way of reducing federal spending.

The analysis projects what would happen if Medicare’s current benefit design were replaced with a unified deductible of $550; 20 percent coinsurance on most Medicare-covered services; and a $5,500 annual limit on out-of-pocket spending. This benefit structure is similar to a recommendation made by the National Commission on Fiscal Responsibility and Reform (Bowles-Simpson).

The Kaiser study shows that restructuring Medicare’s cost sharing is expected to raise costs for most beneficiaries but reduce spending for some of the sickest. The study also illustrates how changes in out-of-pocket spending are greatly influenced by beneficiaries’ medical needs and supplemental coverage.

The study also examines the expected impact of two variations of this proposal. The first looks at a higher or lower out-of-pocket spending limit, and illustrates how raising the limit would increase beneficiary costs while reducing Medicare spending, while a lower limit would do just the opposite. The second variation examines the effect of combining the alternative benefit design with restrictions on Medigap coverage, another frequently mentioned approach to achieving Medicare savings.

The study is authored by researchers from the Kaiser Family Foundation and the Actuarial Research Corporation. It is one in a Kaiser Family Foundation series examining the effects of proposed Medicare changes on the program’s beneficiaries, the federal budget and other stakeholders, as part of the Kaiser Project on Medicare’s Future.

Report (.pdf)

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