Hypothetical Mean

Commentary from an Actuarial and Economic Perspective

Equity between Medicare Beneficiaries

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The Center on Budget and Policy Priorities echos MedPAC’s call for “Equity between sectors and among plan types”. It’s a worthy goal. However, their proposals fall far short.

Medicare Advantage Private Fee For Service plans are relatively popular with low-income seniors because they offer greater benefits than traditional Medicare at little or no extra cost. One reason this happens is that these plans enjoy higher reimbursement rates than other Medicare Advantage plan types or traditional Medicare. On April 25, Richard Foster, Medicare’s Chief Actuary, testified that this greater expense causes Part B premiums to increase — for all seniors who buy Part B, not just those on PFFS Medicare Advantage plans. Therefore, some lower income seniors benefit, while all seniors on Part B pay more. As the CBPP notes, this is not equitable.

But eliminating this differential will not restore equity. Here’s why.

Traditional Medicare leaves seniors exposed to high coinsurance, deductible, and copays. As William J. Scanlan for the GAO testified in 2002:

In Medicare, the lack of dollar limits on beneficiaries’ cost-sharing obligations—deductibles, coinsurance, and copayments—puts beneficiaries with extensive health care needs at risk for very large expenses for Medicare-covered services.

To compensate for the cost-sharing provisions in antiquated Medicare benefit designs, millions of wealthier seniors augment traditional Medicare with private industry supplement plans, called Medigap plans. Many of these plans, in turn, provide for “first-dollar” coverage which eliminates incentives for efficient utilization. As the GAO noted in July, 2001:

One study found that Medicare beneficiaries with Medigap insurance had 28 percent more outpatient visits and inpatient hospital days

By increasing utilization, these costs make Medicare itself more expense. According to a GAO study in 1998, the cost impact to Medicare may be as high as $2,000 per beneficiary. Increased Medicare Part A utilization shortens the life of the Hospital Insurance trust fund; increased Part B utilization leads to higher tax contributions from general revenue and higher premiums for everyone.

The Medicare Advantage Private Fee For Service arrangement is simply an extension of what the government has done for years — subsidized seniors who purchase alternative benefit packages. A proposal to eliminate or reduce the implied subsidy to Medigap plans would be political suicide, since affluent seniors would rise in revolt. Apparently, Congress has no such fear of seniors with limited budgets who choose to augment their Medicare coverage through Medicare Advantage.

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Written by Victor

August 21, 2007 at 1:50 am

Posted in Health Insurance

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