The panic-mongering, as usual, has no basis in reality. We should at the outset remember some things President Obama has already done as part of health reform to increase benefits for those on Medicare:
- Collapsed, eventually completely closing the Part D prescription drug donut hole.
- While the donut hole is being shrunk over time, seniors in that gap get a 50% discount.
- Medicare (Part B) recipients now have free preventive care, eliminating copays for them under the old system.
In his press conference on July 15, the President alluded to just what sort of reforms he might be looking at:
And so what we’ve said is a lot of the components of Bowles-Simpson we are willing to embrace -- for example, the domestic spending cuts that they recommend we’ve basically taken.Oh noes! The dreaded Catfood CumishunTM! Everyone start screaming and yelling uncontrollably! Well, I am sure I am the naive one here - and President Obama, and if not me, definitely him - but I think it's worth looking at the Fiscal Commission's final report and actually analyze their recommendations on Medicare and compare it with the current system. In it are cuts to provider payments, as well as payments to drug companies. But unless the crybabies are shilling for the pharmaceutical industry or the AMA or the hospital industry, I have to assume that their "concerns" revolve around the following parts:
3.3.2 Reform Medicare cost-sharing rules.Look bad? Okay, let's tackle these one by one. First, cost sharing, the concept of a universal deductible and so forth. As anyone who is on Medicare knows, it already has a system of premiums, copays, and so forth, which should take away the pretense that any cost sharing at all is a "benefit cut" in Medicare. First of all, in the current Medicare system, there is no limit to one's out-of-pocket expenses. Let's see how Medicare works right now and how it compares and contrasts with what is being proposed by the Commission report.
(Saves $10 billion in 2015, $110 billion through 2020)
Currently, Medicare beneficiaries must navigate a hodge-podge of premiums, deductibles, and copays that offer neither spending predictability nor protection from catastrophic financial risk. Because cost-sharing for most medical services is low, the benefit structure encourages over-utilization of health care. In place of the current structure, the Commission recommends establishing a single combined annual deductible of $550 for Part A (hospital) and Part B (medical care), along with 20 percent uniform coinsurance on health spending above the deductible. We would also provide catastrophic protection for seniors by reducing the coinsurance rate to 5 percent after costs exceed $5,500 and capping total cost sharing at $7,500.
3.3.3 Restrict first-dollar coverage in Medicare supplemental insurance.
(Medigap savings included in previous option. Additional savings total $4 billion in 2015, $38 billion through 2020.)
The ability of Medicare cost-sharing to control costs – either under current law or as proposed above – is limited by the purchase of supplemental private insurance plans (Medigap plans) that piggyback on Medicare. Medigap plans cover much of the cost-sharing that could otherwise constrain over-utilization of care and reduce overall spending. This option would prohibit Medigap plans from covering the first $500 of an enrollee’s cost-sharing liabilities and limit coverage to 50 percent of the next $5,000 in Medicare cost-sharing. We also recommend similar treatment of TRICARE for Life, the Medigap policy for military retirees, which would save money both for that program and for Medicare, as well as similar treatment for federal retirees and for private employer-covered retirees.
Here is how the Medicare Part A and B cost sharing currently works. Here is Medicare's cost-sharing under the current system.
Part A – Hospital Insurance Premiums, Deductibles & CoinsuranceSo what kind of cost sharing do people on Medicare currently actually go through? The average out-of-pocket expense (adjusted for inflation from 2006 numbers) is just under $5,000, and the older you are, the more your OOP expense grows. The Kaiser Family Foundation has a chart to demonstrate:
If You Have In 2011, You Will Pay a Monthly Premium of 0-29 quarters of Social Security credits $450 30–39 quarters of Social Security credits $248 40 or more quarters of Social Security credits $0 Inpatient Hospital Deductible $1,132 Inpatient Hospital Coinsurance $283 per day for days 61–90
$566 per day for days 91-150
Skilled Nursing Facility Coinsurance $141.50 per day for days 21-100 Service Provided Medicare Pays You Pay Hospital Inpatient Days 1-60 100% after deductible $1,132 deductible Days 61-90 100% after copayment $283 per day copayment 60 Reserve Days1 100% after copayment $566 per day copayment After 150 Days 0% 100% for each day Psychiatric Hospital Same as hospital inpatient (see above) with a 190-day lifetime limit 100% after 190 days Skilled Nursing Facility (SNF)
(if daily skilled care is needed after a 3-day hospital stay)
Days 1-20 100% 0% Days 21-100 100% after copayment $141.50 per day copayment After 100 Days 0% 100% Home Health Care 100% minus 20% of covered medical equipment 20% of Medicare-approved amount for medical equipment Hospice Care 100% minus $5 per prescription; 95% of Medicare-approved payment for respite care per day Copayment of $5 per prescription; 5% of Medicare-approved payment for respite care per day, not to exceed $1,132 Blood (received during hospital or SNF stay) 100% after first 3 pints of blood First 3 pints of blood each year1 Each of the 60 reserve days may be used only once during an individual's lifetime.
Comprehensive Part B (Medical Insurance) Costs
Part B – Medical Insurance Deductibles & Premiums Your Annual Income Your Monthly Premium For 2011*
- Single: up to $85,000
- Couple: up to $170,000
- Single: $85,001 to $107,000
- Couple: $170,001 to $214,000
- Single: $107,001 to $160,000
- Couple: $214,001 to $320,000
- Single: $160,001 to $213,000
- Couple: $320,001 to $426,000
- Single: $213,001 and over
- Couple: $426,001 and over
$369.10 Service Medicare Pays You Pay Annual Deductible $162/yr. Physician Costs 80% of approved amount 20% of Medicare-approved amount, plus up to an additional 15% of the approved amount if the doctor or supplier does not accept assignment Outpatient Hospital Care 80% of approved amount $1,132 maximum Clinical Lab Services Approved amount $0 Medical Equipment/Supplies 80% of approved amount All other costs Certain Preventive Services (depending on the service, some are covered at certain intervals, such as once per year) 80% or 100% 20% of approved amount or $0, depending on the service Mental Health Services
Days 1-60: 100% after deductible
Days 61-90: 100% after copayment
60 Reserve Days1: 100% after copayment
After 150 Days: 0%
Days 1-60: $1,132 deductible
Days 61-90: $283 per day copayment
60 Reserve Days: $566 per day copayment
After 150 Days: 100% for each day
Outpatient 55% of approved amount 45% of approved amount* Premium is per person
1 Each of the 60 reserve days may be used only once during an individual's lifetime.
2 73% of beneficiaries in this income category will not pay the increased premium. They will continue to pay the Part B premium they paid in 2010 ($110.50) or the premium they paid in 2009 ($96.40). The other 27% will pay the new amount. See the note in our section on Medicare Part B for more info.
The distribution is obviously slanted more towards sicker people who pay a lot more in out of pocket expenses - 5% of Medicare recipients pay more than $5,000 a year in out-of-pocket costs account for 35% of total cost-sharing liability under Medicare (data from CMS). As you can see from the above chart, older seniors - who are also at the greatest risk of running out of their savings - have a much higher average out-of-pocket expenses. Because those with the highest costs are probably also the most struggling with their costs, a catastrophic cap ($7,500) should actually help those most in need.
All in all, for the vast majority of people, in terms of benefits, these changes won't make that much of a difference. It is difficult to say exactly for whom the out-of-pocket expenses will increase or decrease, of course, since it will depend on the individual, their health conditions and habits, and the services they use.
Medigap reform: Now, let's come to the changes proposed in the Medigap plans. Often called Medicare Supplement insurance, these plans cover expenses that Medicare won't, and/or only partially cover. What the Commission report is talking about is eliminating first dollar coverage - prohibiting Medigap plans from covering the first $500 and any more than 50% of the next $5,000 in Medicare cost-sharing. The rationale is that that coverage encourages overuse of medical services. It's important to remember that when we are talking about over-utilization, for the most part, we are not talking about "greedy" seniors who see their doctor "too much." No, we're talking about test-happy doctors and institutions, and for-profit device manufacturers fraudulently pushing "power-chairs" to people who do not need them, and overcharging for people who do. This is something I don't think most people having a cow every time someone talks about over-utilization understand.
But even if one does not accept that argument - or is ideologically duty-bound not to accept that argument - here is one thing about Medigap: The average Medigap plan costs $2,329 in premiums per year, making sure only relatively well-off seniors can buy them. If anything, this reform saves costs on the end of physicians and medical facilities that who will be more careful about procedures and equipment to order, which might even improve, rather than degrade, quality of care by focusing on health and wellness and care and not as many procedures and equipment as can be paid for.
In fact, A KFF study (which I will cover in detail later in another post) finds that even with these reforms, seniors on Medigap would pay less in Medigap premiums and cost-sharing than under the current system.
As we discuss the future of Medicare, we also need to remember a critical reality: According to the latest Trustee report, Medicare's trust fund starts running a deficit in 2024. Without any reform, every single current Medicare recipient who plans on living at least another 13 years will get an automatic and immediate cut in benefits.
So... yeah. I have got a better idea than "everybody freak out!" I think everyone should calm down, study the issue, learn something before they start going fever pitch. The reforms being proposed, along with the Affordable Care Act and further reforms in prescription drug and provider payment schedules, are actually substantive ideas that preserves and strengthens Medicare, and our health care system as a whole.