Health care stakeholders complain that some of Medicare’s benefit structure is still stuck in the 1960s, when the program was created. As lawmakers search for ways to reduce government spending, many are looking to find savings by bringing all of Medicare into the current century.
One way to update Medicare would be to create a combined deductible for Medicare Parts A and B, an idea that comes up from time to time. The Obama administration and Republicans both have shown support for it, although early takes on the president’s budget, to be released Wednesday, suggest he’s not putting it on the table just yet.
Unlike almost all private insurance plans, Medicare currently has separate deductibles for different kinds of medical services. That can be confusing for beneficiaries and does not encourage them to get the most efficient care.
Creating a single uniform deductible for services under Parts A and B would modernize Medicare and make it easier for beneficiaries to get cost-effective care, supporters of the idea say.
“It’s not a major item, but if you’re trying to modernize Medicare, the fact that we have two separate deductibles for Part A and Part B is just something that seems like that it would be simpler if we didn’t,” said Alice Rivlin, a former Clinton budget director and co-chairwoman of the Bipartisan Policy Center’s Debt Reduction Task Force.
But how much would such a move save Medicare? What are the odds that lawmakers would rally behind it? And what do these different parts cover anyway?
What Are the Programs?
Medicare Part A covers inpatient hospital services, while Part B covers outpatient and physician services. Almost all Medicare beneficiaries are enrolled in both parts, with about 7 percent participating in only one, according to the Medicare Payment Advisory Commission.
Currently, the programs have two separate deductibles, as well as different copayments and cost-sharing charges. The deductible for Part A services is relatively high and was $1,156 in 2012, according to MedPAC. For Part B, the deductible was a relatively low $140 in 2012.
The separate deductibles make Medicare different from most private insurance plans, which now have a single deductible for medical services. Medicare, on the other hand, reflects the insurance industry norms of the era when it was created.
“This structure of having two distinct parts is mainly historical, reflecting the structure of private insurance as it existed in the 1960s,” MedPAC said in a June 2012 report.
Rivlin said that creating a single combined deductible for medical services would be “fixing a problem that shouldn’t have occurred.”
Who Supports the Change?
Several deficit reduction proposals have included the combined deductible idea, including ones from President Barack Obama’s National Commission on Fiscal Responsibility and Reform, the Bipartisan Policy Center’s Debt Reduction Task Force, and then-Sen. Joseph I. Lieberman, I-Conn., and Sen. Tom Coburn, R-Okla.
This year, House Majority Leader Eric Cantor, R-Va., and Senate Finance ranking Republican Orrin G. Hatch of Utah both suggested making a combined deductible part of a Medicare system change.
How Would It Affect Beneficiaries?
Supporters say a uniform, combined deductible would make things simpler for beneficiaries and help them track all their medical services.
But some beneficiaries could wind up paying more out of pocket, depending on where the deductible is set and what other benefit structure changes come along with it.
The Kaiser Family Foundation ran a model with a single deductible of $550 for services under Parts A and B, a uniform 20 percent coinsurance rate and a $5,500 limit on out-of-pocket spending — the benefit changes most commonly grouped together in the deficit reduction proposals.
Under that model, 71 percent of beneficiaries would have higher out-of-pocket spending, 5 percent would have lower, and the rest would have no or nominal changes. The design also would decrease Medicare spending by $4.2 billion in 2013, while beneficiaries’ aggregate spending would rise by $2.3 billion.
Supporters argue that while beneficiaries might pay more, they would also have less reason to buy supplemental coverage through Medigap plans and would probably get a cap on out-of-pocket spending for the first time.
“We can create reasonable and predictable levels of out-of-pocket expenses without forcing seniors to rely on Medigap plans,” said Cantor, when advocating for the benefit structure change.
G. William Hoagland, senior vice president at the Bipartisan Policy Center and a former top GOP Senate aide, emphasized the importance of the structural changes happening together.
“I don’t think you do this in isolation of other changes within the system,” Hoagland said of making a combined deductible for Parts A and B.
He noted that most proposals that feature a combined deductible also include some kind of catastrophic coverage provision, which Medicare currently lacks. As it stands now, beneficiaries have no limit on their out-of-pocket spending under Medicare.
Rivlin said that getting that catastrophic coverage is one of the main reasons beneficiaries buy Medigap insurance. But when they have Medigap coverage, people generally receive more services than they would otherwise, which raises the cost of Medicare overall, she said.
“If you had a simpler, easier-to-understand deductible, and the catastrophic coverage, you might discourage people from buying Medigap insurance,” she said.
What About Savings?
Changing the Medicare benefit structure could save the federal government money, but it really depends on where the deductible is set. Opponents of the move note that any savings to the government would mostly come from beneficiaries paying more out of their own pockets, such as under the Kaiser model.
MedPAC noted that the combined deductible would affect individual beneficiaries’ cost-sharing differently depending on which services they use. Most beneficiaries in a given year use only Part B services, and they would have their low deductibles increase. But the 20 percent of beneficiaries who use Part A hospital services each year would see lower deductibles there.
Most cost-sharing changes are meant to encourage beneficiaries to be choosier and find the most efficient, best quality health services. MedPAC says the current system fails at that because the health services that are generally optional are covered under Part B and so have a low deductible.
Hoagland said a combined deductible would have only a limited effect on making beneficiaries more aware of their health spending.
“It could have some behavioral impact, except, Part A, you really don’t have much choice,” he said. “If you have hospitalization, you have hospitalization.”
Rivlin noted that in most deficit reduction plans, changes to the Medicare benefit structure are done in a benefit-neutral way — and aren’t as focused on finding big savings.
Any Problems With This Idea?
Opponents of the combined deductible plan worry that seniors will carry the burden by paying more so the federal government can pay less money. Even those seniors who wind up paying lower deductibles may not actually pay less overall, as was found in the Kaiser Foundation model.
“Because the role of a deductible is to reduce the cost of other aspects of the benefit package — such as premiums, copayments, and coinsurance — a lower deductible would not necessarily lower total costs for a given beneficiary,” MedPAC explained.
There could also be a problem with instituting the single combined deductible. Parts A and B have different funding sources. Part A is funded through the Hospital Insurance Trust Fund, which gets much of its funding through a payroll tax and premiums from some beneficiaries. Part B benefits are funded through a different trust fund, which gets some of its funding from premiums paid by people for Part B and Medicare Part D, which covers prescription drugs.
If the programs are combined and have a single deductible, with uniform cost-sharing, that would confuse what money goes into which trust fund.
“I have yet, to be honest with you, yet to see anybody that’s said: Once we combine A and B, what do we do about the trust funds?” Hoagland said.