Medicare Benefits Could Be Expanded Without Significant Rise in Federal Costs, Commonwealth Fund Report States

A new report from the Commonwealth Fund, "Reforming Medicare's Benefit Package: Impact on Beneficiary Expenditures," finds that expanding Medicare's benefit package "would enhance equity of coverage among beneficiaries" and reduce out-of-pocket costs. As reported in the May 10 edition of the Kaiser Health Policy Report, Commonwealth Fund President Karen Davis on May 9 presented the findings of a new report at a House Ways and Means Health Subcommittee hearing. The report found that as many as 90% of Medicare beneficiaries purchase supplemental insurance, which study authors offer as proof that the Medicare benefit package is "inadeqa[te]." According to study authors, while this additional coverage has proved successful at ensuring consistent coverage for enrollees in the past, "recent trends" have indicated such coverage, usually employer-sponsored or private Medigap coverage, is becoming "less reliable" and "relatively costly." Therefore, the report proposes four options to reform the current system, reducing the need for supplemental coverage and lowering the economic burden on beneficiaries. The first three proposals attempt to reduce costs for beneficiaries by restructuring premiums and deductibles, and the fourth plan adds a prescription drug benefit to Medicare. While the first three plans may be substituted for one another, the report says that the prescription drug benefit may be combined with any of the other options. The proposals are detailed below:

Option 1: This plan eliminates the current separate deductibles for Part A and Part B and creates a single annual deductible of $400. In addition, the plan includes a $3,000 annual beneficiary limit on deductibles and cost sharing.
Option 2: This plan would reduce the Part A deductible from $776 per "spell of illness" to $200 per "spell of illness" and increase the annual Part B deductible from $100 to $200. Home health services would be subject to a 10% coinsurance requirement and beneficiaries' expenses would be capped at $2,000 a year.
Option 3: This plan would eliminate the Part A deductible, Part A coinsurance and Part B coinsurance. However, the Part B deductible would be increased to $200 and the Part B premium would be dropped in favor of a combined premium of $105 per month.
Option 4: This option would add a prescription drug benefit to Medicare that would include a 50% coinsurance requirement and would cap cost sharing expenses for beneficiaries at $2,500 a year. While the plan includes a $26 monthly premium, it would be waived for those under 135% of the federal poverty level and would be based on a sliding scale for those between 135% and 150%.

Federal spending for Medicare is impacted differently for each of the plans, the report notes. While expenditures would increase 1.3% under option 1, the second option is estimated to "substantially" increases federal costs by 6.8%. Under the third plan, federal costs would remain constant, as the premium is calculated to offset the reduced liability of the beneficiaries. The report also estimates that adding a drug benefit as proposed in the study would increase Medicare's costs 5.8%. The report concluded that restructuring Medicare in a "budget-neutral" fashion would benefit patients and taxpayers, as the elderly would "enjoy" greater benefits while the federal and state governments would experience "some fiscal relief" from increased efficiencies (Reforming Medicare's Benefit Package, May 2001). Of the report, Davis said, "Medicare beneficiaries include many who are older widows living alone, some in nursing homes, some terminally ill, and some on modest incomes. All of their experiences must be taken into account when we discuss modernizing Medicare. By improving Medicare's benefit package we can reduce costs for all beneficiaries through the efficiencies of Medicare" (Commonwealth Fund release, 5/9). To access the report online, click here. To view a Healthcast of the hearing at which Davis testified, click here. This is part of the Morning Briefing, a summary of health policy coverage from major news organizations. Sign up for an email subscription.

Medicare Benefits Could Be Expanded Without Significant Rise in Federal Costs, Commonwealth Fund Report States

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