Analysts at the U.S. Government Accountability Office say modernizing the traditional Medicare fee-for-service program benefits design could help cut many enrollees’ costs, discourage unnecessary use of care, and reduce demand for Medicare supplement (Medigap) insurance.
About 81% of Medicare fee-for-service enrollees now use some kind of public or private arrangement to cap their maximum out-of-pocket spending, and to cope with ordinary deductible, co-payment and coinsurance bills, according to GAO analysts.
About 31% of Medicare fee-for-service enrollees use Medigap coverage from private insurers, with an average annual premium of $2,400 per enrollee.
If the Medicare fee-for-service program offered enrollees the kind of annual out-of-pocket spending cap that Affordable Care Act-compliant private major medical plans now provide, “the addition of an annual cap would reduce the need of some beneficiaries to purchase supplemental insurance,” James Cosgrove, a GAO director, writes in a new GAO report.
“While beneficiaries who drop their supplemental insurance would then need to pay all their Medicare cost-sharing responsibilities, those might be less than their annual premium for supplemental insurance,” Cosgrove writes.
A copy of the report is available here.
Sen. Orrin Hatch, R-Utah, and three other Republican congressional leaders asked the GAO to look into proposals for making Medicare fee-for-service benefits more like commercial health plan benefits, and more like the benefits typical Medicare Advantage plans already offer.
Congress enacted the first Medicare law in 1965, when private health insurance was much different than it is today.
Enrollees get Medicare coverage from two separate programs: the Medicare Part A hospitalization program, which has a deductible of $1,316 per inpatient deductible, and the Part B outpatient physician services program, which has a $183 annual deductible.
Neither program includes a built-in cap on a patient’s out-of-pocket spending.
The GAO found one Medicare fee-for-service enrollee who ran up $3.8 million in out-of-pocket bills over an eight-year period running from 2007 through 2014.
In theory, the deductibles could curb unnecessary spending, but, in practice, many enrollees have supplemental insurance that eliminates most or all of the enrollees’ “skin in the game,” and that lack of skin in the game leads some supplemental insurance users to get too much care, Cosgrove writes.
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