Medicare is most commonly known as a health insurance program for people ages 65 and older, but, since 1973, the program has also provided coverage to millions of people with permanent disabilities who are younger than age 65.¹  People under age 65 qualify for Medicare after they receive Social Security Disability Insurance (SSDI) payments for 24 months. Younger adults with end-stage renal disease (ESRD) and amyotrophic lateral sclerosis (ALS) are eligible for Medicare as soon as they begin receiving SSDI benefits. Over time, the share of Medicare beneficiaries under age 65 has more than doubled, from 7% (1.7 million people) in 1973²  to 16% (9.1 million) this year.³ 

Medicare beneficiaries under age 65 with disabilities differ from beneficiaries age 65 and older in several ways.⁴  In 2012, nearly two-thirds of all younger Medicare beneficiaries (65%) had a cognitive or mental impairment, compared to 29% of seniors. Nearly 6 in 10 (59%) reported their health status as fair or poor and almost the same share (58%) reported having one or more limitations in their activities of daily living, compared to 20% and 34% of seniors, respectively. In 2014, half of all Medicare beneficiaries under age 65 lived on income less than $17,050, one third less than median income of $26,150 among beneficiaries age 65 and older.⁵ 

Differences in health status between younger and older Medicare beneficiaries suggest that Medicare spending could also differ for these two groups. In 2014, Medicare beneficiaries under age 65 accounted for 18% of the 38.5 million beneficiaries in traditional Medicare (excluding Medicare Advantage enrollees), and a somewhat higher share (23%) of total traditional Medicare spending that year.⁶  Per capita spending also could vary for these two groups, both overall and by type of service. This data note compares average per capita Medicare spending and service use for beneficiaries under age 65 to spending among those over age 65.⁷  The analysis is based on data from a 5% sample of Medicare claims for services covered under Parts A, B, and D for traditional Medicare beneficiaries from the Chronic Conditions Data Warehouse (CCW) of the Centers for Medicare & Medicaid Services (CMS) from 2000 to 2014. The analysis excludes beneficiaries enrolled in Medicare Advantage because comparable data on Medicare spending by service are not available for these enrollees.^8 ,9 

Findings

Average Medicare per capita spending on Part A and Part B services is only modestly higher for beneficiaries under age 65 than those over 65. Average total spending is higher for beneficiaries under age 65, mainly due to Part D prescription drug spending.

• Medicare per capita spending for beneficiaries younger than age 65 averaged $13,098 in 2014, nearly one third more than average per capita Medicare spending for beneficiaries over age 65 ($9,972) (Figure 1). Excluding Part D drug spending, the difference narrows considerably, to $9,281 for beneficiaries under age 65 and $8,814 for those over age 65, on average.
• Since 2000, per capita spending for Medicare-covered services under Part A and Part B has been similar for beneficiaries under and over age 65. Beginning in 2006, with the start of the Medicare Part D prescription drug benefit, average total per capita Medicare spending for those under age 65 surpassed that of beneficiaries over age 65, due to higher Part D spending among younger beneficiaries. (Figure 2)

  

  

The pattern of spending by type of service is different for beneficiaries under age 65 with disabilities than for those over age 65. On average, beneficiaries under age 65 have higher per capita spending for drugs covered under Part D and for inpatient and outpatient services, but lower spending on post-acute and hospice care than beneficiaries over age 65.

• In 2014, average Medicare per capita spending on outpatient Part D prescription drugs was more than three times larger for beneficiaries under age 65 ($3,817) than for those over age 65 ($1,159).¹⁰  Part B drug spending, however, was somewhat lower among those under age 65 ($287) than those over age 65 ($360). (Figure 3; Table 1) The pattern of much higher Part D drug spending but somewhat lower Part B drug spending by beneficiaries under age 65 compared to those over age 65 could be because a considerable share of total Part B drug spending is for drugs used to treat cancer and its side effects,¹¹  which may be more likely to be used by older beneficiaries.¹² 
• Medicare per capita spending on hospital inpatient and outpatient services was higher among beneficiaries under age 65 ($3,781 and $2,203, respectively) than among older beneficiaries ($3,092 and $1,448) in 2014.
• Conversely, average Medicare per capita spending for post-acute care (skilled nursing facility and home health services) was half as much for younger beneficiaries with disabilities than for those over age 65 in 2014 ($690 versus $1,324). Although a similar share of both groups of beneficiaries used inpatient services in 2014, smaller shares of beneficiaries under age 65 used post-acute care services than those over age 65.¹³ 
• Similarly, average Medicare per capita spending on hospice care was considerably lower for beneficiaries under age 65 than those over age 65 ($85 versus $333). This is partly because the death rate is lower among beneficiaries under age 65 than among those over age 65,¹⁴  and because roughly half as many younger Medicare beneficiaries who died in 2014 used hospice services than older beneficiaries who died that year.¹⁵ 

Part D prescription drug spending accounts for a much larger share of total spending for beneficiaries under age 65 than older beneficiaries, while post-acute care spending accounts for a larger share of spending among beneficiaries over age 65.

• Part D drug spending accounted for 29% of per capita spending among beneficiaries younger than age 65 in 2014, but just 12% of per capita spending for beneficiaries over age 65. (Figure 4; Table 1)
• Post-acute care services (skilled nursing facility and home health services) comprised a much smaller share of total per capita spending for beneficiaries under age 65 than those over age 65 (5% versus 13%).
• Inpatient and outpatient services accounted for similar shares of per capita spending in 2014 for both beneficiaries under age 65 (29% and 17%, respectively) and those over age 65 (31% and 15%, respectively).

Among beneficiaries under age 65, Medicare per capita spending increases with age until beneficiaries reach their 40s and then generally levels off.

• In 2014, average per capita Medicare spending increased from $7,918 for 25 year-olds to $11,834 for 35 year-olds to $13,578 for 45 year-olds, leveling off at around that amount for beneficiaries between the ages of 45 and 64. (Figure 5; Table 1)
• Both in dollar amounts and as a share of total spending, Medicare per capita spending for inpatient, outpatient, and physician services is similar at different ages among beneficiaries younger than age 65, while per capita Part D prescription drug spending increases modestly but then declines as beneficiaries age. (Figures 6 and 7)
• Average per capita spending on skilled nursing facility, home health, and hospice services increases by year of age among beneficiaries under age 65, but these services account for a very small share of total Medicare spending for younger beneficiaries—ranging from less than 1% to 5% of total per capita spending for skilled nursing facility services, 1% to 3% for home health services, and around 1% for hospice services for beneficiaries as they age from 25 years old to 64 years old.

Among beneficiaries over age 65, Medicare per capita spending is nearly two times higher for those who initially qualified for Medicare before age 65 due to disability or ESRD.

Among beneficiaries over age 65, average Medicare per capita spending is considerably higher for those who originally qualified for Medicare before they turned 65 due to having a permanent disability, ESRD, or ALS, than for older beneficiaries who qualified for Medicare based on age alone. In 2014, 2.6 million traditional Medicare beneficiaries over age 65 (9% of all traditional Medicare beneficiaries over age 65) initially qualified for Medicare due to receiving disability insurance benefits, having ESRD, or both prior to turning age 65¹⁶ ; these beneficiaries had average spending of $17,193, nearly twice the level of average spending among the 26.7 million traditional Medicare beneficiaries over age 65 who first became entitled to Medicare when they turned 65 ($9,278) (Figure 8).

Discussion

Comparing Medicare per capita spending by beneficiaries under age 65 with disabilities and spending by those over age 65 shows a large difference between the two populations, primarily due to substantially higher Part D prescription drug spending for beneficiaries under age 65. Other spending differences by type of service—such as lower spending on post-acute care services and higher spending on inpatient and outpatient services among beneficiaries under age 65 compared to those over age 65—reflect variation in medical needs and treatment among beneficiaries at different years of age.

Contrary to what might be expected based on health status differences between Medicare beneficiaries under age 65 with disabilities and older beneficiaries, average Medicare per capita spending on services covered under Part A and Part B was only moderately higher among those under age 65 than over age 65 in 2014, and was in fact somewhat lower among younger beneficiaries between 2000 and 2011. Total per capita spending began to diverge more widely beginning in 2006 when the Part D prescription drug benefit took effect, with much higher average Part D spending among beneficiaries under age 65. These findings suggest that curtailing rising drug costs would have the effect of reducing the Medicare spending gap between beneficiaries under and over age 65.

While this analysis shows that younger beneficiaries with disabilities have similar spending patterns as older beneficiaries for Medicare-covered hospital and physician services combined, we are unable to examine spending for certain services not covered by Medicare that may be needed and used more often by younger beneficiaries with disabilities, in particular long-term services and supports and dental care. For these services, state Medicaid programs may be playing a much greater role for Medicare beneficiaries with disabilities than older beneficiaries. Addressing gaps in Medicare-covered benefits could help to address unmet needs for long-term services and supports and dental services that both younger and older beneficiaries may face—especially those who are not dually eligible for Medicare and Medicaid—but would also add to Medicare’s bottom line.

 

 

1. This provision was included in the Social Security Amendments of 1972, with Medicare coverage effective July 1, 1973. ↩︎
2. Centers for Medicare & Medicaid Services (CMS), 2013 Medicare & Medicaid Statistical Supplement, Table 2.1 Medicare Enrollment: Hospital Insurance and/or Supplementary Medical Insurance Programs for Total, Fee-for-Service and Managed Care Enrollees as of July 1, 2012: Selected Calendar Years 1966-2012. ↩︎
3. CMS/Office of Enterprise Data and Analysis/Office of the Actuary, CMS Fact Facts, available at https://www.cms.gov/fastfacts/ ↩︎
4. Except as noted, estimates in this paragraph are for 2012 and based on Kaiser Family Foundation analysis of the Medicare Current Beneficiary Survey 2012 Cost and Use file. ↩︎
5. 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://modern.kff.org/medicare/issue-brief/income-and-assets-of-medicare-beneficiaries-2014-2030/. ↩︎
6. Kaiser Family Foundation analysis of a five percent sample of Medicare claims from the CMS Chronic Conditions Data Warehouse, 2014. Total spending for traditional Medicare in 2014 was $390 billion. ↩︎
7. The analysis excludes beneficiaries who are age 65 because some of these beneficiaries are enrolled for less than a full year; therefore, a full year of Medicare spending data is not available for all people at this year of age. ↩︎
8. Medicare spending for Medicare Advantage enrollees takes the form of monthly capitation payments which are not based on actual service utilization. ↩︎
9. As of 2013, the share of beneficiaries enrolled in Medicare Advantage was lower among beneficiaries under age 65 than among older beneficiaries (22% versus 29%); Medicare Payment Advisory Commission, A Data Book: Health Care Spending and the Medicare Program, June 2015, Chart 9-11, available at http://www.medpac.gov/documents/data-book/june-2015-databook-health-care-spending-and-the-medicare-program.pdf. ↩︎
10. Total Part D spending includes payments by Part D plans for covered drugs and Low-Income Subsidy (LIS) payments for cost-sharing subsidies for eligible Part D enrollees. A disproportionate share of LIS subsidy recipients are beneficiaries under age 65. In 2014, three quarters of Medicare beneficiaries under age 65 and enrolled in Part D received LIS (76%), three times the share of those over age 65 and enrolled in Part D receiving LIS (23%) (based on Kaiser Family Foundation analysis of CCW data). ↩︎
11. See Medicare Payment Advisory Commission, A Data Book: Health Care Spending and the Medicare Program, Section 10: Prescription Drugs, Chart 10-2, June 2015; Steven Sheingold, et al., “Medicare Part B Drugs: Pricing and Incentives,” ASPE Issue Brief, Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, March 2016. ↩︎
12. In 2014, 9% of traditional Medicare beneficiaries over age 65 had a diagnosis of breast, colorectal, endometrial, lung, or prostate cancer, compared to 2% of beneficiaries under age 65 (based on Kaiser Family Foundation analysis of CCW data). ↩︎
13. In 2014, 17% of all traditional Medicare beneficiaries under age 65 used inpatient services, 2% used skilled nursing facility services, and 6% used home health services. This compares to 16%, 5%, and 10% (for each type of service, respectively) of beneficiaries over age 65 (based on Kaiser Family Foundation analysis of CCW data). ↩︎
14. In 2014, 2% of all traditional Medicare beneficiaries under age 65 died, compared to 5% of beneficiaries over age 65 (based on Kaiser Family Foundation analysis of CCW data). ↩︎
15. In 2014, 26% of all traditional Medicare beneficiaries under age 65 who died used hospice services, compared to 49% of beneficiaries over age 65 who died that year (based on Kaiser Family Foundation analysis of CCW data). ↩︎
16. Beneficiaries with ALS are included in this group but not separately identifiable. ↩︎

Medicare was established in 1965 as the health insurance program for Americans age 65 and over; since 1973, it has also covered people under age 65 who receive Social Security Disability Insurance (SSDI) benefits.¹  To qualify for SSDI, people must be unable to engage in “substantial gainful activity” because of a medically-determined physical or mental impairment expected to last at least 12 months or until death. Medicare also covers certain widows and widowers under age 65 with disabilities, as well as disabled adult children of retired, deceased, or disabled workers. Today, Medicare covers 9.1 million people with disabilities who are under age 65,²  or 16% of the Medicare population, up from 7% (1.7 million people with disabilities under age 65) in 1973.³  When people under age with disabilities on Medicare turn 65, their coverage from Medicare continues.⁴ 

How do people under age 65 with disabilities qualify for Medicare?

People under age 65 become eligible for Medicare if they have received SSDI payments for 24 months. Because people are required to wait five months before receiving disability benefits, SSDI recipients must wait a total of 29 months before their Medicare coverage begins. People under age 65 who are diagnosed with end-stage renal disease (ESRD) or amyotrophic lateral sclerosis (ALS) automatically qualify for Medicare upon diagnosis without a waiting period.⁵  Of those who were receiving SSDI in 2014, 34% qualified due to mental disorders, 28% due to diseases of the musculoskeletal system and connective tissue, 4% due to injuries, 3% due to cancer, and 30% due to other diseases and conditions.⁶ 

What are the characteristics of Medicare beneficiaries under age 65 with disabilities compared to beneficiaries age 65 or older?

Medicare beneficiaries under age 65 with disabilities differ from beneficiaries age 65 or older in several ways, including their demographic, socioeconomic, and health status profiles.

Income: In 2012, a much larger share of beneficiaries under age 65 with disabilities than older beneficiaries had low annual incomes (Figure 1). Nearly one quarter (24%) of younger beneficiaries with disabilities had incomes less than $10,000 per year and two-thirds (67%) had incomes less than $20,000 per year, compared to 13% and 39%, respectively, of older beneficiaries.⁷ 

Race/ethnicity and gender: A larger share of beneficiaries under age 65 than older beneficiaries are black (18% and 8%, respectively) and Hispanic (13% and 9%, respectively), and a larger share are male (53% and 44%, respectively).

Health status: Nearly two-thirds of all younger Medicare beneficiaries (65%) had a cognitive or mental impairment in 2012, compared to 29% of older beneficiaries (Figure 2). This includes memory loss that interferes with daily activity, difficulty making decisions, trouble concentrating, and loss of interest within the past year.⁸  Nearly 6 in 10 (59%) reported their health status as fair or poor and almost the same share (58%) reported having one or more limitations in their activities of daily living, compared to 20% and 34% of beneficiaries age 65 or older, respectively. But roughly the same share of both younger beneficiaries with disabilities and older beneficiaries report having five or more chronic conditions (31% and 28%, respectively).

How do sources of supplemental coverage and prescription drug coverage differ for Medicare beneficiaries under age 65 with disabilities and older beneficiaries?

Supplemental coverage

Most Medicare beneficiaries, including those under age 65 with disabilities, have public or private supplemental insurance to help cover Medicare’s cost-sharing requirements.⁹  A much larger share of beneficiaries under age 65 with disabilities than older beneficiaries rely on Medicaid to supplement Medicare (35% versus 10%) because of their relatively low incomes (Figure 3).¹⁰  Medicaid helps with Medicare premiums and cost-sharing requirements, and covers services needed by many people with disabilities that are not covered by Medicare, particularly long-term services and supports.

A smaller share of beneficiaries under age 65 with disabilities than older beneficiaries have employer-sponsored coverage (14% and 29%, respectively), Medigap (2% and 17%, respectively), or are enrolled in a Medicare Advantage plan (27% and 31%, respectively). A larger share of older beneficiaries have employer-sponsored coverage as a result of having retiree health benefits from former employers or because they are currently working and have Medicare as a secondary payer. The small share of beneficiaries under age 65 with disabilities who report having a supplemental Medigap policy may be largely due to the fact that federal law does not require insurance companies to sell Medigap policies to people under age 65, and while some states do impose this requirement, others do not.¹¹  Insurers also may use medical underwriting in deciding whether to issue a Medigap policy to people with disabilities and how much to charge. By contrast, people who qualify for Medicare when they turn 65 have a six-month open enrollment period when they can purchase Medigap coverage without medical underwriting and regardless of what state they live in or their health status, as well as certain other special enrollment periods.

Just over 1 in 5 (21%) beneficiaries under age 65 has no supplemental coverage, compared with 12% of those age 65 or older. Lack of supplemental coverage among Medicare beneficiaries is associated with higher rates of access problems, but rates of access problems are higher among younger beneficiaries with disabilities who lack supplemental coverage than among older beneficiaries, including not seeing a doctor for a health problem when they think they should (31% and 10%, respectively) and having trouble getting needed health care (17% and 5%, respectively).¹²  Regardless of whether or not they have supplemental coverage, however, a larger share of younger beneficiaries with disabilities than older beneficiaries experience access and cost-related burdens (see discussion under “Access to Care and Cost-Related Problems” below).

Prescription drug coverage

The Medicare Part D drug benefit, which offers outpatient prescription drug coverage through private stand-alone prescription drug plans (PDPs) or Medicare Advantage drug plans (MA-PDs), is the primary source of drug coverage for all Medicare beneficiaries, but covers a larger share of those under age 65 with disabilities than older beneficiaries.

Three-fourths (75%) of Medicare beneficiaries under age 65 are enrolled in a Part D drug plan, either a stand-alone prescription drug plan (PDP) (52%) or a Medicare Advantage drug plan (24%), compared to roughly two-thirds (63%) of older beneficiaries enrolled in Part D (Figure 4). Reflecting their lower incomes and higher rate of Medicaid enrollment, more than half of all Medicare beneficiaries under age 65 (55%) receive the Part D Low-Income Subsidy (LIS), compared to just 16% of beneficiaries age 65 or older.

Roughly the same share of younger beneficiaries with disabilities and older beneficiaries have no reported source of creditable drug coverage (12% and 14%, respectively). Creditable coverage is drug coverage that is at least equal in value to the standard Part D benefit and can include, for example, coverage from employer-sponsored retiree health benefits, the Department of Veterans Affairs, and TRICARE.

How do Medicare spending and use of services differ for beneficiaries under age 65 with disabilities and older beneficiaries?

Medicare per capita spending

Average total Medicare spending is higher for traditional Medicare beneficiaries under age 65, mainly due to higher Part D prescription drug spending.¹³  Medicare per capita spending for beneficiaries younger than age 65 averaged $13,098 in 2014, nearly one third more than average per capita spending for beneficiaries over age 65 ($9,972).¹⁴  Excluding Part D drug spending, the difference narrows considerably to $9,281 for beneficiaries under age 65 and $8,814 for those over age 65, on average. On average, beneficiaries under age 65 have higher per capita spending for drugs covered under Part D and for inpatient and outpatient services, but lower spending on post-acute and hospice care than beneficiaries over age 65 (Figure 5; Table 1).

Use of medical services

Among beneficiaries in traditional Medicare in 2012,¹⁵  a somewhat smaller share of younger beneficiaries with disabilities than older beneficiaries had an office visit (66% and 77%, respectively), but a somewhat larger share of younger beneficiaries than older beneficiaries had an emergency department visit (19% and 14%, respectively) (Table 3). A smaller share of younger beneficiaries with disabilities than older beneficiaries used dental services (35% and 49%, respectively), and, as might be expected, use of post-acute care services, including skilled nursing facility stays and home health visits, was also lower among those with disabilities. But the same share of both groups had a hospital stay (18%) and the vast majority of both groups used prescription drugs (88% and 90%, respectively).

How do beneficiaries’ out-of-pocket spending and access to care differ for those under age 65 with disabilities and those age 65 and older?

Out-of-pocket spending

Although total Medicare per capita spending is higher for Medicare beneficiaries under age 65 with disabilities than for older beneficiaries, younger beneficiaries in traditional Medicare spend significantly less out of pocket, on average. This is likely due to the fact that a greater share of younger beneficiaries with disabilities than older beneficiaries have Medicaid coverage (35% and 10%, respectively¹⁶ ), as well as Part D Low-Income Subsidies (55% and 16%, respectively), that help cover their premiums and cost sharing. Overall, out-of-pocket spending by younger beneficiaries with disabilities is 40% less than that of older beneficiaries (averaging $3,706 and $6,146, respectively) (Table 2). Younger beneficiaries have lower average out-of-pocket spending than older beneficiaries for insurance premiums ($1,383 and $2,979, respectively) and for medical and long-term care services combined ($2,324 and $3,167, respectively).

On average, in 2012 beneficiaries in traditional Medicare with disabilities spent the largest share of their total non-premium out-of-pocket costs on medical providers (29%), followed by prescription drugs (26%) and long-term care facility costs (20%). These services also were the top three in terms of out-of-pocket costs for older beneficiaries, but in a different order: older beneficiaries spent the largest share of their out-of-pocket costs on facility costs (31%), followed by medical providers (24%) and prescription drugs (17%).

Access to care and cost-related problems

Access to care is generally good for a majority of Medicare beneficiaries overall across a number of standard measures, but a larger share of younger beneficiaries with disabilities than older beneficiaries report experiencing a range of access problems, often due to the cost of care. In 2013, nearly one quarter (23%) of younger beneficiaries with disabilities reported that they had a health problem they think a doctor should see but didn’t see a doctor about, compared to 8% of older beneficiaries. And of those not seeing a doctor, 25% of beneficiaries with disabilities cited cost as the main reason they didn’t see a doctor, compared to 14% of older beneficiaries. Also in 2013, 1 in 6 (16%) beneficiaries under age 65 with disabilities reported that they had trouble getting needed health care, compared to only 4% of beneficiaries age 65 or older. Among those reporting trouble getting care, close to half (45%) of younger beneficiaries with disabilities reported that it was because they did not have enough money or the cost was too high, compared to 31% of older beneficiaries (Figure 6).

The fact that a majority of both younger Medicare beneficiaries with disabilities and older beneficiaries have some source of drug coverage does not mean that the two groups are alike in the shares facing access and cost-related problems in obtaining medications. A larger share of beneficiaries under age 65 than older beneficiaries report that they often or sometimes: decided not to fill a prescription because of cost (22% and 7%, respectively); spent less money to save for needed prescriptions (22% and 5%, respectively); delayed getting a prescription because of cost (21% and 5%, respectively); took smaller doses of prescriptions (18% and 5%, respectively); and skipped doses to make prescriptions last longer (15% and 4%, respectively) (Figure 7).

Perhaps related to their higher likelihood of experiencing cost-related access problems, a much larger share of beneficiaries with disabilities than older beneficiaries report worrying about their health more than others their age (63% and 18%, respectively), trying to keep their illnesses to themselves when they get sick (50% and 35%, respectively), and doing almost anything to avoid going to the doctor (38% and 27%, respectively).

Discussion

Since 1973, Medicare has been an important source of health insurance for people with disabilities who are under age 65. More recently, the Affordable Care Act (ACA) of 2010 improved access to health insurance and coverage of benefits under Medicare, improvements which could be especially helpful for people with disabilities. Specifically, the law expanded access to health insurance coverage through expansion Medicaid or Marketplace plans, which could be especially helpful for SSDI recipients in the 24-month Medicare waiting period. Prior to the ACA, many people with disabilities in the waiting period for Medicare faced difficulties obtaining or affording health insurance in the private market.¹⁷ 

For all people on Medicare, including those under age 65 with disabilities and older beneficiaries, the ACA also has helped to alleviate out-of-pocket spending burdens by phasing out the Part D coverage gap and by eliminating cost sharing for certain preventive services. Filling the coverage gap could be especially helpful for younger beneficiaries with disabilities due to their higher prescription drug costs than older beneficiaries. And for those beneficiaries who are dually eligible for Medicare and Medicaid, which includes a disproportionate share of younger beneficiaries with disabilities, the law expanded coverage of home- and community-based care, and created a new federal office to help coordinate benefits and coverage under the two programs.

Yet despite broader access to public and private coverage and improvements in Medicare benefits brought about by the ACA, people with disabilities are likely to face ongoing challenges if their coverage, including Medicare, does not provide the services and supports they need to live as independently and productively as possible. Evidence points to a consistent pattern of differences in the health care experiences of younger beneficiaries with disabilities and those of older Medicare beneficiaries, with younger beneficiaries encountering significantly more cost-related barriers to care than older beneficiaries. Given high rates of health problems and relatively low incomes among Medicare’s beneficiaries under age 65 with disabilities, the needs of this relatively vulnerable population require careful attention in ongoing Medicare policy discussions.

 

 

 

 

1. This provision was included in the Social Security Amendments of 1972, with Medicare coverage effective July 1, 1973. ↩︎
2. Centers for Medicare & Medicaid Services (CMS), Office of Enterprise Data and Analysis, Office of the Actuary, CMS Fact Facts, available at https://www.cms.gov/fastfacts/. ↩︎
3. CMS, 2013 Medicare & Medicaid Statistical Supplement, Table 2.1 Medicare Enrollment: Hospital Insurance and/or Supplementary Medical Insurance Programs for Total, Fee-for-Service and Managed Care Enrollees as of July 1, 2012: Selected Calendar Years 1966-2012. ↩︎
4. In 2014, 4.5 million people on Medicare age 65 or older (10% of all beneficiaries age 65 or older) initially qualified for Medicare due to receiving disability insurance benefits, having end-stage renal disease, or both prior to turning age 65; based on Kaiser Family Foundation analysis of a five percent sample of 2014 Medicare claims from the CMS Chronic Conditions Data Warehouse. ↩︎
5. In 2014 0.3 million people on Medicare under age 65 (3% of all beneficiaries under age 65) qualified for Medicare due to having ESRD (separate estimates for ALS are not available); based on Kaiser Family Foundation analysis of a five percent sample of 2014 Medicare claims from the CMS Chronic Conditions Data Warehouse. ↩︎
6. U.S. Social Security Administration, Office of Retirement and Disability Policy, Office of Research, Evaluation, and Statistics, Annual Statistical Report on the Social Security Disability Insurance Program, 2014, November 2015, Table 6: Beneficiaries in Current-Payment Status, Distribution, by sex and diagnostic group, December 2014, available at: http://www.socialsecurity.gov/policy/docs/statcomps/di_asr/2014/. ↩︎
7. We scaled respondents’ income estimates reported in the Medicare Current Beneficiary Survey to match income distribution estimates from The Urban Institute’s 2012 Dynamic Simulation of Income Model (DYNASIM). ↩︎
8. This applies to Medicare beneficiaries residing in the community; for facility residents, the definition of cognitive/mental impairment also includes ability to recall names and faces, current season, location of nursing home, and room. ↩︎
9. We assign supplemental coverage in the following order: Medicare Advantage, Medicaid, employer, Medigap, other, none. Beneficiaries with multiple sources of coverage are assigned to the highest category in the ordering. ↩︎
10. Our methodology of assigning supplemental coverage in a hierarchical manner understates the share of beneficiaries with Medicaid, since those who also have Medicare Advantage are included in that coverage group. In 2012, a total of 45% of beneficiaries under age 65 with disabilities and 14% of beneficiaries age 65 or older were dually-eligible for Medicare and Medicaid. ↩︎
11. See https://www.medicare.gov/supplement-other-insurance/when-can-i-buy-medigap/when-can-i-buy-medigap.html; see also Kaiser Family Foundation, “Medigap: Spotlight on Enrollment, Premiums, and Recent Trends,” April 2013, available at https://modern.kff.org/medicare/report/medigap-enrollment-premiums-and-recent-trends/. ↩︎
12. Kaiser Family Foundation analysis of the Medicare Current Beneficiary Survey 2013 Access to Care file. ↩︎
13. Analysis of per capita Medicare and out-of-pocket spending among beneficiaries enrolled in Medicare Advantage plans is not possible due to lack of or insufficient data. ↩︎
14. Juliette Cubanski, Tricia Neuman, and Anthony Damico, “Similar But Not the Same: How Medicare Per Capita Spending and Service Use Compares for Younger and Older Beneficiaries,” Kaiser Family Foundation, August 2016, available at https://modern.kff.org/medicare/issue-brief/similar-but-not-the-same-how-medicare-per-capita-spending-compares-for-younger-and-older-beneficiaries. ↩︎
15. Analysis of service use among beneficiaries enrolled in Medicare Advantage plans is not possible due to lack of data. ↩︎
16. Irrespective of the supplemental coverage hierarchy, these estimates are 45% and 14%, respectively. See endnotes 9 and 10. ↩︎
17. Juliette Cubanski and Tricia Neuman, “Medicare Doesn’t Work As Well for Younger, Disabled Beneficiaries As It Does for Older Enrollees,” Health Affairs, September 2010, vol. 29 no. 9 1725-1733. ↩︎

Premium support is a general term used to describe an approach to reform Medicare that aims to reduce the growth in Medicare spending by increasing competition among health plans and providing a stronger incentive for beneficiaries to be cost-conscious in their plan selection.  On June 22, 2016, the House Republicans included in their health care reform plan a proposal to gradually transform Medicare into a system of premium supports, building on proposals of the Speaker of the House, Paul Ryan, when he was Chair of the House Committee on Budget, as well as the proposals of many other policymakers.¹ 

These FAQs raise and discuss basic questions about the possible effects of a premium support system.  Many proposals advance the concept of premium support without providing all of the details needed to assess the possible effects of the proposal on key stakeholders.  Other proposals are more detailed, although they differ markedly in their specific policy features, and these differences have important implications for Medicare beneficiaries, the federal budget, health care providers, and private health plans.²    This issue brief is intended to highlight some of the key questions that could be considered once proposals’ details emerge.

1) What is premium support?

In a premium support system, the federal government would provide a payment on behalf of each Medicare beneficiary toward the purchase of a health insurance plan – either a private plan, similar a Medicare Advantage plan, or traditional Medicare.  This approach is sometimes called a defined contribution or voucher approach.  Under a premium support system, health plans would compete for enrollees and people on Medicare would choose among plans for their coverage – an approach that sounds similar to the current system, but is not the same.  A key difference is that payments for services provided to beneficiaries in traditional Medicare would be capitated rather than the current approach that generally ties payments to the specific services that beneficiaries use.³ 

A number of premium support proposals have been introduced in recent years; these proposals are similar in their general approach, but often differ in key policy parameters, and some are more specific than others.  Premium support proposals vary in several ways, including:  the role of traditional Medicare in the new system, the extent to which benefits would be defined, the rules for health insurers, and the methodology used to set payments to plans, including traditional Medicare. For example, some proposals would base the federal payment to plans on the average bid (the cost to the plan of providing all Medicare-covered services) submitted by plans in a given area while other proposals would base federal payment on the second lowest plan bid. These policy specifications have important implications for federal savings, beneficiaries’ costs, the viability of private plans in markets across the country, and the sustainability of traditional Medicare.

Typically, premium support proposals would affect services covered under Medicare Parts A and B, but not Part D.

2) How could a premium support system for Medicare affect beneficiaries’ premiums and out-of-pocket costs?

Beneficiaries’ premiums and out-of-pocket costs could rise or fall, relative to current law, depending on a number of factors, including the overall design of the new system, the response of plans to a different payment policy, and the role of traditional Medicare.  In contrast to the current system, in which Medicare Part B premiums are generally the same for all beneficiaries regardless of which plan they select,⁴  premiums for Medicare-covered services would be expected to vary from one part of the country to another, and from one plan to the next, under a premium support system.⁵ 

According to the Congressional Budget Office (CBO), if the federal payments to plans were tied to the average plan bid, then beneficiaries’ total out of pocket costs (including premiums) generally would decrease, but if the federal payment was tied to the second lowest plan bid, then beneficiaries’ total out of pocket costs generally would increase.⁶  However, even in a situation where average premiums go down in the aggregate, some beneficiaries would pay higher premiums while others would pay less.  According to the CBO, most beneficiaries who choose to remain in traditional Medicare would pay higher premiums than they would under current law, regardless of whether the federal payment was tied to the second lowest plan bid or tied to the average plan bid.⁷ 

Under any premium support scenario, though, the change in out of pocket costs for beneficiaries would vary depending on where beneficiaries live and which plan they choose.  In areas with high medical costs, beneficiaries would pay more to stay in traditional Medicare than they would under the current system; in contrast, in areas with lower medical costs, beneficiaries would likely pay more to be in a private plan.⁸ 

3) What could a premium support system mean for Medicare benefits?

Under the current system, all Medicare beneficiaries are generally entitled to the same set of benefits whether they are in traditional Medicare or Medicare Advantage plans. Medicare Advantage plans currently have some flexibility to modify cost-sharing requirements, but are required to cover, at a minimum, the same benefits as traditional Medicare.  It is not clear whether this requirement would be maintained under a premium support system.

Some proposals would only require plans to provide benefits that are actuarially equivalent to the benefits provided under traditional Medicare.  A policy such as this could give plans the freedom to modify cost-sharing and benefits in order to tailor their benefit package to the needs of their enrollees. A disadvantage, some have argued, is that this approach could unravel the promise of a guaranteed set of benefits under Medicare.  Further, without careful oversight, a system without clearly defined benefits could potentially result in plans offering benefits that appeal more to healthier, lower-cost enrollees than to sicker, higher-cost enrollees. Wide variations in benefits and cost sharing requirements across plans could also make it more difficult for beneficiaries to compare plans.

4) Could a premium support system reduce federal spending on Medicare?

A primary goal of many premium support proposals is to reduce long-term federal spending on Medicare, and a premium support system has the potential to reduce future, federal spending on Medicare if it increases competition among plans, decreases premiums, and provides stronger incentives for beneficiaries to be cost-conscious in their plan selection.

The CBO has said that a premium support system could save the federal government money, although the magnitude of savings would depend on the details of the proposal.  Some of the critical details in premium support proposals that are important for assessing the potential for federal savings include how the federal payments are set initially and over time, the rules with respect to plan bids, whether traditional Medicare is included as an option, how and when the program is phased-in and whether current beneficiaries are “grandfathered,” the amount of financial assistance provided to low-income beneficiaries, and the extent of price competition among plans.

The CBO has said that including traditional Medicare as an option would increase federal savings because the rates that traditional Medicare pays providers would help to hold down the rates paid by private plans and thereby hold down the bids of private plans.  Additionally, in some regions, the traditional Medicare program would be the lowest-bidding plan and therefore could lower the amount the federal government pays to private plans.⁹ 

It is also possible that a premium support system could be budget neutral or even increase costs for the federal government, depending on the details of the system.  For example, federal spending could rise under a premium support system, if political pressure resulted in higher payments to plans.

Under some premium support proposals, federal spending on Medicare would be constrained by a back-stop spending cap – a feature of some older premium support proposals, but not more recent proposals.  Such a feature would make federal spending more predictable, but could shift costs onto beneficiaries.

5) How could a premium support system affect traditional Medicare?

Most of the recent premium support proposals would include traditional Medicare and treat it in a similar manner as private plans. This means that the federal government would make a capitated payment on behalf of each beneficiary enrolled in traditional Medicare, just as it would make to a private plan.  This would be a significant change from the current system under which traditional Medicare generally makes payments to hospitals, doctors and other health care providers generally based on the services provided.

A number of questions would need to be sorted through, if traditional Medicare were to compete toe-to-toe with private plans in a premium support system, including: whether traditional Medicare would be administered as a national plan or separate regional/local plans, whether its benefits and premiums would change or vary by locale, how it would pay providers, and whether it would establish provider networks, among others.  Each of these policy decisions could have important implications for the sustainability of traditional Medicare over time, the viability of private plans in Medicare, and the impact on beneficiaries, health care providers, and federal savings.

The long term sustainability of traditional Medicare could be affected by whether it disproportionately attracts sicker beneficiaries (risk selection), as a result of its expansive provider network, or other factors.  While risk adjustment of the payments to plans and traditional Medicare should help to account for the higher health care costs of sicker people, no risk adjustment system is perfect and the system would likely not fully account for their higher costs.  As a result, if sicker people disproportionately enroll in traditional Medicare, premiums in traditional Medicare could rise, potentially leading to what’s known as a “death spiral.”

As noted below, some proposals would “grandfather” current beneficiaries and create a new system for people who are younger than age 55 and not yet eligible for Medicare, essentially creating two separate traditional Medicare programs that may operate under different rules, with different premiums, benefits, participating providers, and long-term financial challenges.

6) What could be the implications of “grandfathering” current beneficiaries while phasing in a premium support system?

Typically, premium support proposals would “grandfather” current Medicare beneficiaries.  That is, the new system would only apply, for example, to people under age 55, while current Medicare beneficiaries could continue to receive their Medicare benefits as they do today and would not need to enroll in the premium support system.  Dividing Medicare beneficiaries in this manner could create some logistical issues.  For example, there could be two sets of private Medicare plans – Medicare Advantage plans for “grandfathered” beneficiaries and premium support plans for others – with potentially different rules that apply to each.

Similarly, there could be two so-called traditional Medicare programs – one for “grandfathered” beneficiaries and another for beneficiaries integrated into the premium support system – both administered by the federal government but simultaneously operating with different benefits and premiums. In addition to administrative challenges, premiums could rise for people on Medicare who are “grandfathered” if younger, lower-cost beneficiaries are enrolled in a separate traditional Medicare program.

7) How could a premium support system affect low-income Medicare beneficiaries?

It is unclear how people with low incomes would be affected by a premium support system.  Some proposals would provide additional subsidies to low-income beneficiaries.  However, an open question is whether the additional subsidies would enable low income beneficiaries to enroll in a plan other than the cheapest plan, and if not, how the federal government would ensure that the cheapest plan provides high quality of care to its enrollees.  Depending on whether the market is stable or not, low income beneficiaries may also need to switch plans fairly frequently (churning) to continue to receive low-income subsidies and avoid a major hike in premiums and other costs.¹⁰ 

8) How could a premium support system affect private Medicare plans?

A major change for plans under a premium support system would be how they are paid.  Under the current system, plans submit bids based upon their costs of providing care, but the amount that the plan receives from the federal government is independent of the bids submitted by other plans in the area.  Under a premium support system, plans would be paid based on the average plan bid or the second lowest plan bid in their area – a change that could create greater financial uncertainty for insurers.

Another major change from the current system is that private plans could be competing more directly with traditional Medicare; however, traditional Medicare could be expected to be a stronger competitor in some areas of the country than in others. The presence of a public plan competing directly with private plans would influence the level of payments plans receive and the competitive dynamics among plans, with uncertain effects on premiums, plan stability, and benefits, and variation in all of the above in communities across the country.

An important issue for plans (and consumers) is how the Medicare marketplace would be governed.  In many proposals for a premium support system, it is unclear how the marketplace would be regulated or even which federal agency would regulate it.  Many premium support proposals would maintain an annual open enrollment period, guaranteed issue requirements, and some form of risk adjustment.  However, other factors that affect plans would change or are not specified.  For example, many proposals do not specify whether premiums would be community rated or age-rated, or whether plans would be required to offer Medicare benefits.  Many proposals would also “grandfather” current beneficiaries (not requiring them to enroll in the premium support system) which would create two separate systems – one for beneficiaries who are “grandfathered” and a separate system for new enrollees aging onto the program – and insurers could be required to maintain plans that operate under two different sets of rules and payments.

9) How could a premium support system affect the implementation of payment and delivery system reforms in traditional Medicare?

As described in recent premium support proposals, a premium support system would likely have no direct effect on most payment and delivery system reform models being implemented in traditional Medicare, such as Accountable Care Organizations or bundled payments; however, it could add some uncertainty for providers involved in the reforms.  Additionally, if enrollment greatly declined in traditional Medicare under a premium support system, then providers may have less of an incentive to voluntarily participate in future reform efforts and pilot programs in traditional Medicare.

10) How could a premium support system affect hospitals and other providers that currently receive additional payments under the traditional Medicare program?

For teaching hospitals, rural hospitals, and other providers that are subsidized by the Medicare program, it is unclear whether these providers would continue to receive this financial support from Medicare, and if so, how such payments would be financed under a premium support system.

11) How could a Medicare premium support system differ from the ACA marketplaces?

A major difference between a premium support system for Medicare, as described in most premium support proposals, and the ACA marketplaces is the presence of a dominant public plan (traditional Medicare) and the lack thereof in the ACA marketplaces. The presence of a public plan competing toe-to-toe with private plans in Medicare would influence the competitive dynamics among plans, with uncertain effects on premiums, plan stability, and benefits.  This is not an issue for the ACA marketplaces.

A premium support system for Medicare also differs from the ACA marketplace in its primary objective.  For Medicare, a premium support system is motivated by fiscal and philosophical aims.  A key objective is to slow the growth in federal spending. Another goal, at least for some, is to expand the role of private plans and minimize the role of a public program.  The ACA marketplaces are designed mainly to provide health insurance for people who would otherwise be uninsured – a non-issue for people on Medicare given the universal nature of the program, by design.

12) What does the public think about premium support?

Turning Medicare into a premium support system would represent a fairly major change to Medicare and at least so far, most Americans oppose such a change.  According to a recent survey, the majority (70%) of people support keeping Medicare as it is today, with only 26 percent supporting a shift to premium support.¹¹   This finding is fairly consistent across political party lines with 21 percent of Democrats and 31 percent of Republicans supporting the idea.¹²   Medicare continues to be a highly popular program and is particularly popular among seniors, with only 18 percent of seniors supporting the idea of turning Medicare into a premium support system.

Discussion

While these questions demonstrate the large impact that a premium support system could have upon beneficiaries, health care providers, private plans, and the federal budget, the actual impact on each of these depends on specific policy decisions.  Such policy choices include: how Medicare would set payments to plans; whether traditional Medicare would be sustained and if so, how would it differ in the future; whether Medicare would continue to be a program with guaranteed benefits; how and when a new system would be phased in and administered in tandem with the current system; how a new system would affect other programs currently supported by Medicare, such as graduate medical education and rural hospitals; and how a premium support system would affect beneficiaries with low incomes and complex care needs.  Turning Medicare into a premium support system would be a significant transformation for the Medicare program and have implications for many parts of the health care system.

1. Kaiser Family Foundation. Comparison of Medicare Premium Support Proposals. July 2012. Available at: https://modern.kff.org/medicare/issue-brief/comparison-of-medicare-premium-support-proposals/ ↩︎
2. Fuchs B and Potetz L. The Nuts and Bolts of Medicare Premium Support Proposals. Kaiser Family Foundation, June 2011. Available at https://modern.kff.org/medicare/issue-brief/the-nuts-and-bolts-of-medicare-premium/ ↩︎
3. Increasingly, traditional Medicare is adopting incentives to encourage greater efficiencies (e.g., bundled payments and Accountable Care Organizations) and tie payments to quality (e.g., penalties for preventable readmissions). ↩︎
4. A small share of Medicare beneficiaries with higher incomes pay higher premiums, and beneficiaries with low incomes who qualify for the Medicare Savings Programs have their premiums paid by their state’s Medicaid program. ↩︎
5. Premiums for Medicare Advantage plans currently include extra benefits and prescription drug coverage. ↩︎
6. Congressional Budget Office. A Premium Support System for Medicare: Analysis of Illustrative Options. September 2013. Available at: http://www.cbo.gov/sites/default/files/cbofiles/attachments/09-18-PremiumSupport.pdf ↩︎
7. Congressional Budget Office. A Premium Support System for Medicare: Analysis of Illustrative Options. September 2013. Available at: http://www.cbo.gov/sites/default/files/cbofiles/attachments/09-18-PremiumSupport.pdf ↩︎
8. Jacobson G, Neuman T, and Damico A. Transforming Medicare into a Premium Support System: Implications for Beneficiary Premiums. Kaiser Family Foundation. September 2012. Available at: https://modern.kff.org/medicare/report/transforming-medicare-into-premium-support/ ↩︎
9. Congressional Budget Office. A Premium Support System for Medicare: Analysis of Illustrative Options. September 2013. Available at: http://www.cbo.gov/sites/default/files/cbofiles/attachments/09-18-PremiumSupport.pdf ↩︎
10. Hoadley J, Summer L, Hargrave E, et al. To Switch or Be Switched: Examining Changes in Drug Plan Enrollment Among Medicare Part D Low-Income Subsidy Enrollees. Kaiser Family Foundation, July 2015. Available at: https://modern.kff.org/medicare/report/to-switch-or-be-switched-examining-changes-in-drug-plan-enrollment-among-medicare-part-d-low-income-subsidy-enrollees/ ↩︎
11. Norton M, DiJulio B, and Brodie M. Medicare and Medicaid At 50. Kaiser Family Foundation. July 2015. Available at: https://modern.kff.org/medicaid/poll-finding/medicare-and-medicaid-at-50/ ↩︎
12. Altman D. Will House Republican Health Proposal and Trustees’ Report Make Medicare a Factor in Election? Wall Street Journal. June 24, 2016. Available at: http://blogs.wsj.com/washwire/2016/06/24/will-house-republican-health-proposal-and-trustees-report-make-medicare-a-factor-in-election/ ↩︎