Medicare Cost Sharing and Supplemental Coverage

Topics to be Discussed

• Medicare costs to beneficiaries – Review Medicare premiums and cost sharing – Background on Medicare beneficiary income

• Current role of supplemental coverage • Concerns about impact of supplemental coverage on

Medicare program spending • Policy options

Medicare Premiums and Cost Sharing: Background

Medicare Premiums, 2015

Coverage Monthly Premium Part A – Most beneficiaries Part A – Beneficiaries lacking 40 quarters FICA contributions

$0 $407.00

Part B – standard Income-related premium may also apply

$104.90

Part D Income-related premium may also apply

varies by plan choice

Medicare Advantage varies by plan choice*

4

Notes: A late enrollment penalty applies to the premium for beneficiaries who do not enroll when first eligible. Assistance in paying premiums is available to certain low-income beneficiaries. *The weighted average premium (assuming no plan switching from 2014) for MA plans that also cover Part D benefits is $41. See Kaiser Family Foundation, “Medicare Advantage 2015 Data Spotlight: Overview of Plan Changes,” December 2014 http://kff.org/medicare/issue-brief/medicare-advantage-2015-data-spotlight-overview-of-plan-changes/

Income-Related Part B Premium, 2015

5

File joint tax return

Annual income for 2013 Monthly Part B in 2015

% of standard premium

% of Part B costs

File individual tax return File joint tax return

$85,000 or less $170,000 or less $104.90 100% 25%

above $85,000 up to $107,000 above $170,000 up to $214,000 $146.90 140% 35%

above $107,000 up to $160,000 above $214,000 up to $320,000 $209.80 200% 50%

above $160,000 up to $214,000 above $320,000 up to $428,000 $272.70 260% 65%

above $214,000 above $428,000 $335.70 320% 80%

• Separate thresholds, not shown here, apply to married individuals filing separate returns. • Less than 5% of beneficiaries currently pay an income-related premium.

http://www.hhs.gov/news/press/2014pres/10/20141009a.html Income related premiums began in 2007; original thresholds were indexed to the CPI. The Affordable Care Act eliminated indexing for 2011-2019.

Medicare Part A Cost Sharing, 2015 Services Beneficiary liability

Hospital • $1,260 deductible per benefit period • $0 for the first 60 days of each benefit period • $315 per day for days 61–90 of each benefit period • $630 per "lifetime reserve day" after day 90 of each benefit period (up to a maximum of 60 days over a lifetime

Skilled Nursing Facility • $0 for the first 20 days each benefit period • $157.50 per day for days 21–100 each benefit period • Full costs after day 100 in a benefit period

Home Health $0 for Medicare-approved services 20% of the Medicare-approved amount for durable medical equipment

Hospice • $0 for hospice care • Up to $5 per prescription for outpatient prescription drugs for pain and symptom management • 5% of the Medicare-approved amount for inpatient respite care

6

Source: Medicare.gov http://www.medicare.gov/your-medicare-costs/costs-at-a-glance/costs-at-glance.html#collapse-4808

Medicare Part B Cost Sharing, 2015 Services Beneficiary liability Deductible $147 per year

Medical & most other services, (incudes mental health services and “Part B” drugs provided in physician’s office)

20% of the Medicare-approved amount

Outpatient Hospital (includes “Part B” drugs provided in outpatient hospital setting)

Coinsurance (for doctor services) or a copayment amount for most outpatient hospital services that varies by service to phase down to 20% over time. The copayment for a single service can't be more than the amount of the inpatient hospital deductible.

Home Health $0 for Medicare-approved services

Clinical Lab $0 for Medicare-approved services

7

Source: Medicare.gov http://www.medicare.gov/your-medicare-costs/costs-at-a-glance/costs-at-glance.html#collapse-4808

Cost Sharing in MA and Part D Plans

• Cost sharing varies by plan • MA plans must include an out-of-pocket limit of no more

than $6,700 for Parts A and B benefits • Part D plans must also include a separate out-of-pocket

limit (up to $4,700 for 2015) • For 2015, out-of-pocket limits for MA plans that also

cover Part D benefits average $5,037; 9 percent of plans have a limit of $3,400 or less; half have limits above $5,000*

*Kaiser Family Foundation, “Medicare Advantage 2015 Data Spotlight: Overview of Plan Changes,” December 2014 http://kff.org/medicare/issue-brief/medicare-advantage-2015-data-spotlight-overview-of-plan-changes/

8

Cost-Sharing Liability for Medicare Fee-for-Service Beneficiaries, 2008

$1 to $499, 42%

$500 to $1,999, 36%

$2,000 to $4,999, 16%

$5,000 to $9,999, 4%

$10,000 or more, 2%

9

Note: The amounts reflect Medicare beneficiaries’ liability but do not reflect what Medicare beneficiaries actually paid out of pocket because most beneficiaries have supplemental coverage that covers all or some of their Medicare cost sharing. Source: Medicare Payment Advisory Commission, Report to the Congress: Aligning Incentives in Medicare, June 2010, p. 54, available at http://www.medpac.gov/documents/reports/Jun10_Ch02.pdf?sfvrsn=0.

Background: Income and Health Expenditures of Medicare

Beneficiaries

Household Income of the Elderly US Median Household Income, 2013, by Age

All Households

$51,939

Age <65 years

$58,448

Age 65 years and older

$35,611

Source: US Census Bureau, Income, and Poverty in the United States, 2013, September 2014, Table 1.

9.0%

25.6%

34.0%

31.4%

<100%100-199%200-399%≤400%

Source: Federal Interagency Forum on Aging- Related Statistics, Older Americans 2012: Key Indicators of Well-Being, June 2012, Table 8a.

34.6% < 200%

Percent of poverty:

Income distribution of the population age 65 and older, as percent of poverty, 2010

Source: Federal Interagency Forum on Aging-Related Statistics, Older Americans 2012: Key Indicators of Well-Being, June 2012, p. 15 http://www.agingstats.gov/main_site/default.aspx

Note: For married couples, per capita income is estimated by equally diving household income. Source: Kaiser Family Foundation/Urban Institute analysis, 2014. For interactive charts, see http://kff.org/interactive/visualizing-income-and-assets-among-medicare-beneficiaries-now-and-in-the-future/#income/none/2013/25000

Analyses of Medicare Beneficiary Income

NOTES: Includes Medicare Advantage enrollees, and includes institutionalized and non-institutionalized beneficiaries. The 2009 poverty guidelines were $10,830/individual and $14,570/couple. Out-of-pocket spending includes premiums. SOURCE: Kaiser Family Foundation analysis of CMS Medicare Current Beneficiary Survey Cost and Use File, 2009.

Median Out-of-Pocket Health Care Spending As a Percent of Income Among Medicare Beneficiaries,

by Demographic Characteristics, 2009

15.3%

12.7% 13.6%

17.5%

21.3%

11.8%

14.8% 15.7%

17.9% 19.6%

21.4% 20.2%

15.2%

8.0%

OVERALLMEDIAN

<65 65-74 75-84 85+ Excellent Verygood

Good Fair Poor <100% 100-199%

200-399%

400%+

Age % of Federal Poverty Level Health Status

Supplemental Coverage

Sources of supplemental coverage among noninstitutionalized Medicare beneficiaries, 2010

Medigap, 21.6%

Employer sponsored, 29.4%

Medicaid, 13.8%

Other public, 1.0%

Medicare managed care, 23.8%

None, 10.4%

For more information on Medicaid assistance to low income beneficiaries for premiums and cost sharing see Medicare Savings Programs http://www.medicare.gov/your-medicare-costs/help-paying-costs/medicare-savings-program/medicare-savings-programs.html Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file, 2010. From: A Data Book: Health Care Spending and the Medicare Program, June 2014, Chart 3-1.

What is Medigap? • Optional private health insurance available for purchase

by individual beneficiaries (or groups) to cover some or all Medicare cost sharing

• Federal law requires plans to meet standards set by the National Association of Insurance Commissioners (NAIC) under model state law

• Beneficiaries may choose among 10 standardized benefit plans

• Other standards include: – 6-month guaranteed issue period at age 65 – Minimum medical loss ratio of 65% for individual

coverage/75% group

For overview of Medigap, including history of federal legislation see Congressional Research Service, Medigap: A Primer. January 3, 2014 version available at http://greenbook.waysandmeans.house.gov/2014-green-book/chapter-2-medicare/medicare-congressional-research-service-crs-reports

Currently Available Standardized Medigap Plans

19

Benefits A B C D F* G K L M N

Part A Coinsurance ● ●

●

●

●

●

●

●

●

●

Part B Coinsurance ●

●

●

●

●

●

50% 75% ●

●**

Blood ●

●

●

●

● ●

50%

75%

Part A Hospice ●

●

●

●

● ●

50%

75%

●

●

SNF Coinsurance ●

●

● ●

50%

75%

●

●

Part A Deductible ●

●

●

● ●

50%

75%

50% ●

Part B Deductible ●

●

Part B Excess Charges ● ●

Foreign Travel Emergency ●

●

● ●

●

●

* Plan F also offers a high-deductible plan. If a beneficiary chooses this option, she must pay for Medicare-covered costs (coinsurance, copayments, deductibles) up to the deductible amount of $2,180 in 2015 before the Medigap policy pays anything. **Plan N pays 100 percent of the Part B coinsurance, except for a copayment of up to $20 for some office visits and up to a $50 copayment for emergency room visits that do not result in an inpatient admission. *** Plans K and L have out-of-pocket limits for 2015 of $4,940 and $2,470 respectively. Sources: Center for Medicare & Medicaid Services, Medicare & You 2015, Section 6, available at http://www.medicare.gov/medicare-and-you/medicare-and-you.html, Enrollment distribution from America’s Health Insurance Plans, data for 2012. http://www.ahip.org/Trends-Medigap-Coverage-Enroll2012

Plan F has 53% of Medigap enrollees; another 13% in Plan C

Exhibit 20

$140

$169 $177 $187

$175 $181 $169

$186 $196 $195

A B C D E F G H I J

NOTE: Analysis excludes California, as the majority of health insurers do not report their data to the NAIC. Analysis includes standardized plans A-J; excludes plans K-L because of the small number of policyholders enrolled in these plans; excludes policies existing prior to federal standardization; excludes plans in Massachusetts, Minnesota, and Wisconsin; excludes plans that identified as Medicare Select; excludes plans where number of covered lives was less than 20. SOURCE: K. Desmond, T. Rice, and Kaiser Family Foundation analysis of 2008-2009 National Association of Insurance Commissioners (NAIC) Medicare Supplement data. See “Medigap Reform: Setting the Context for understanding Recent Proposals,” January 2014, available at http://kff.org/medicare/issue-brief/medigap-reform-setting-the-context/

Distribution of Monthly Medigap Premiums, Plans A – J, 2010

90th percentile

National average

premium

10th percentile

10th percentile $89 $130 $161 $149 $145 $155 $140 $149 $151 $157

90th percentile $168 $198 $213 $205 $206 $197 $195 $208 $215 $211

Does First-Dollar Supplemental Coverage Affect Medicare Spending?

21

• Concern that prevalence of first-dollar Medigap coverage contributes to higher Medicare spending – View that beneficiaries with “no skin in the game” are insensitive

to cost of care and may over-use services – Is higher spending due to Medigap (“insurance effect”) or are

individuals with higher health needs more likely to obtain Medigap (“selection effect”)?

• Literature shows that imposing cost sharing lowers use of services, but disagreement as to health effects – Some individuals may forgo needed care – Lower-income individuals more sensitive to cost sharing – MedPAC summary of literature (June 2012 report)

22

Total = $15,971

Total = $9,263

Medigap in the Affordable Care Act

• Secretary directed to request that NAIC update the standards for Plans C and F to include “nominal cost sharing” for physician services based on peer reviewed literature and experience with integrated health plans

• In December 2012 response, NAIC recommends no change to these plans – Cites lack of directly relevant literature, concern about

discouraging use of needed care, and availability of new plans “M” and “N”

23

Policy Options for Limiting First-Dollar Coverage/Modifying Medicare Cost-Sharing

Source Change to Medigap Change to Medicare Savings (over 10 yrs) National Commission on Fiscal Responsibility and Reform (Simpson-Bowles) December 2010

•No coverage for the first $500 •Maximum 50% coverage of the next $5,000 •(Effective $3,000 out-of-pocket maximum)

Replace existing cost-sharing rules with universal deductible, single coinsurance rate, and catastrophic cap for Medicare Part A and Part B.

$38 Billion

CBO Options November 2014

•No coverage for the first $650 •Maximum 50% coverage of the next $5,850

(Effective $3,575 out-of-pocket maximum)

None in this estimate, but could be paired with options to restructure Medicare cost sharing for greater savings ($111 billion total)

$53 billion

The President’s Budget for FY 2016

Unchanged Surcharge (~30% of Part B premium) on new enrollees who purchase Medigap with “particularly low cost sharing”, beginning in 2019.

$4 billion

MedPAC June 2012

Additional charge on supplemental insurance

Redesign Medicare to include out-of-pocket cap; Parts A/B deductible(s); copayments that may vary by type of service/ provider; give Secretary authority to link cost sharing to evidence of service value.

Not available

113th Congress: S. 11 (Corker/Alexander)

No new Medigap enrollees after 2016; prohibit Medigap coverage of certain out-of-pocket expenses (deductible, 50% cost sharing)

Simplify Medicare cost-sharing to combine Parts A and B deductibles and add catastrophic cap

Not available

24

Considerations in Limiting Medigap

• Are Medigap changes in context of broader Medicare cost-sharing restructuring, e.g., adding out-of-pocket cap?

• Would changes apply to new beneficiaries (less savings) or extend to everyone?

• What happens to retiree health plans? • What are implications for beneficiaries of less predictable

health care spending? • What are distributional effects on beneficiaries? (health

status, income)

25

Questions?

26