Karen Davis, Cathy Schoen, Stuart Guterman
Researchers propose a new coverage option for Medicare beneficiaries that would provide comprehensive benefits, protection from catastrophic costs, and incentives for choosing high-quality, high-value care. Combining hospital, physician, and prescription drug coverage, the “Medicare Essential” option could save $180 billion in national health spending in the next decade while also improving care.
Research has shown that Medicare beneficiaries are more satisfied with their coverage than are working-age people with employer coverage. Medicare, however, fails to protect beneficiaries against high out-of-pocket costs, unless they purchase two private supplemental policies—a Medigap plan to cover items like copayments and deductibles, and a Medicare Part D plan for prescription drug costs. Karen Davis, of Johns Hopkins Bloomberg School of Public Health, and Commonwealth Fund researchers Cathy Schoen and Stuart Guterman propose a new “Medicare Essential” option that eliminates this complexity by rolling hospital, physician, prescription drug, and supplemental coverage into one health plan. The plan would offer better financial protection than traditional Medicare does, including a limit on out-of-pocket spending. Beneficiaries could see additional cost savings by selecting medical providers that deliver high-value care.
Medicare Essential would not add to the federal budget deficit, because its enhanced benefits are financed by premiums, which would be substantially lower than current payments for Medigap and Part D drug plans. The savings come partly from lower administrative costs compared with supplemental coverage purchased in the private insurance market, where administrative costs range from 10 percent to 20 percent, versus 2 percent for traditional Medicare.
To draft the proposed benefit design, the authors used modeling by Actuarial Research Corporation (ARC) to estimate the potential 10-year impact on premiums and out-of-pocket costs. ARC compared projected costs to estimated costs for people enrolled in both traditional Medicare and supplemental private coverage, assuming the new Medicare Essential option would be available starting in 2014.
Combining Medicare hospital, physician, prescription drug, and supplemental coverage into a single health plan could save $180 billion in overall health spending over the next decade while reducing out-of-pocket costs for beneficiaries and improving care.