This is the third of a series of occasional “Medicare Uncovered” posts that will look at how the media are covering Medicare, the nation’s vast and publicly accountable health system for the elderly, and a political target in ongoing discussions about the deficit.
The Dollar-for-Dollar Act, introduced by Tennessee Sen. Bob Corker in mid-December, aims to reduce the deficit by $1 trillion—by cutting the same amount from Medicare, Social Security, and Medicaid. Some of the bill’s provisions would significantly alter those programs.
While Congress may not pass this bill, parts of it, which have been floated by members of Congress and others, may well have legs when Beltway politicos get serious about spending priorities in coming weeks. Studying the Corker bill may help journalists get ahead of the curve. Pencils ready?
At the heart of Corker’s Medicare proposals is the goal of reducing Medicare’s costs without capping the amount the program spends overall. In other words, it would not cap spending on treatments and care. However, the burden would fall on the consumer, who will be encouraged to use fewer medical services. That means lowering costs rests on the backs of seniors who need the benefits. “All of these proposals focus on increasing out-of-pocket costs” for seniors, says Bonnie Burns, an insurance expert with California Health Advocates. “They all rest on the premise that people get too much healthcare because they don’t pay enough for it.”
Wonks who subscribe to this premise speak of making people have more “skin in the game,” making them pay more, in other words, for medical services, on the grounds that they’ll then use less of them. The National Association of Insurance Commissioners, in a recent letter to Health and Human Services Secretary Kathleen Sebelius, took a stand against the idea that seniors use more medical care when it is cheaper and recommended against making seniors pay more out-of-pocket. But the “more skin in the game” idea remains alive and well.
Those who are trying to lower Medicare’s overall costs speak of several routes to that goal. One option is to make seniors wait longer to qualify for benefits by gradually increasing the age of eligibility from 65 to 67. While they wait, seniors will have to pay for their care out-of-pocket, or buy other insurance like those offered in their Obamacare state insurance exchanges, or stay on the job longer if they can. Employers would be faced with keeping older employees and retirees on their plans longer until they can qualify for Medicare.
Another option is to make more seniors pay higher premiums for their Part B benefits that cover doctors’ visits, hospital outpatient services, and lab tests. When his bill debuted, Corker said that seniors with incomes of around $50,000 would pay higher premiums. The Obama administration embraced this general idea, floating a plan that would change the rules for determining who is eligible for the higher premiums. Under that arrangement, about 25 percent of all those on Medicare would pay more. Right now, only about five percent are paying more for Medicare. According to the Kaiser Family Foundation, Obama’s idea could mean those with incomes around $45,000 in 2012 dollars would pay more when the new rules are phased in. Now only individuals with incomes over $85,000 and couples with $170,000 pay more.
A third route to reduced Medicare costs under discussion is to eliminate the protection offered by Medigap policies that will increase the costs for those who have those plans. Again, a “skin in the game” idea. Some nine million seniors buy insurance to cover gaps in Medicare benefits. (Other seniors have similar gap coverage through retiree plans, the military, or Medicaid.) Medicare’s gaps include hospital and medical deductibles and the 20 percent coinsurance, the percentage of the bill seniors must pay.
That last one, the coinsurance, is particularly important to understand, since coinsurance is based on a percentage of what Medicare pays, not a defined dollar amount, when you use a medical service. Many people misunderstand the difference between these two methods of cost-sharing, and a percentage of the bill can result in a very large and unexpected medical expense. This is very unlike a co-payment, which is a set amount you know in advance.
Here’s what Corker has in mind:
All people on Medicare would pay what’s called a “unified deductible”—the amount a patient pays before insurance kicks in—of $550 instead of a the current separate hospital deductible ($1,184 this year) and a separate medical deductible (now $147). The new deductible would mean that people using medical services—which most do—will be exposed to an out-of-pocket cost four times higher than they have now before Medicare pays for their care.
What about having your Medigap policy cover these gaps, as they have been doing? Not under Corker’s plan they won’t. His bill prohibits any Medigap from paying this new unified deductible. More “skin in the game.” And in future years Corker would like to prohibit seniors from buying Medigap insurance altogether, exposing them to the full cost of coinsurance as well as the deductible.
Seniors would face additional out-of-pocket costs once they satisfy the unified deductible, too, under Corker. They would then pay 20 percent of all Medicare-covered services, including home healthcare and the first 60 days of a hospital stay that are not now subject to any coinsurance—in effect expanding the services subject to cost-sharing.
After seniors pay all of the deductible and the amount of coinsurance they’ve paid hits $5,500, Corker would allow the amount of the coinsurance to drop to five percent for any of the remaining bills, until they’ve reached the yearly maximum—$7,500. Corker then restricts Medigap payment to half of the 20 percent coinsurance amount (50% of $4,950). (The bill is unclear about coverage for the 5 percent co-insurance between $5,500 and $7,500.)
It’s complicated, but the takeaway is that it is expensive. A senior would be faced with paying the first $550 of their medical expenses, $2,250 of their coinsurance, plus the premium for their Medigap policy. A couple without a Medigap policy would pay all of those out of pocket costs —$15,000. That could be quite tough for many seniors, especially those whose only income is from Social Security.
Consider: since half of all Medicare beneficiaries have incomes of $24,000 or less, those with even moderate medical expenses might have to tap assets to cover the higher costs, apply for Medicaid, or choose another option for getting Medicare benefits. Corker and others have proposals for new options, which I’ll discuss in a future column.
Reporters wading into the weeds here will have to look beyond the carefully crafted press release language, which won’t fully describe the impact of the proposed changes—whether Corker’s or anyone else’s. His bill summary that says the legislation would “update cost-sharing requirements to reflect 21st century health insurance practices” sounds benign enough, but it hardly begins to tell the whole story.
Medicare Uncovered: Corker and his bill