Protecting Low Income Medicare Beneficiaries, Marilyn Moon, Crystal Kuntz, and Laurie Pounder, The Commonwealth Fund, December 1996
In 1996, Medicare contributed nearly $4,700 per capita towards the cost of health care for elderly persons. But even with this federal contribution, the cost of Medicare premiums, deductibles, and coinsurance—along with other out-of-pocket health expenditures and premiums for supplemental insurance—results in substantial burdens for beneficiaries. Excluding the costs of institutional care, Medicare beneficiaries will spend an average of $2,605 per person on their own health care in 1996, representing 21 percent of their family income. The percentage of family income devoted to health spending is even higher for poorer individuals: 30 percent for beneficiaries with incomes below the federal poverty level and 31 percent for beneficiaries between 100 and 125 percent of poverty. Even those with higher incomes (above 400 percent of the federal poverty level) devote 11 percent of their incomes to health expenses. The Medicaid program helps to alleviate some of these costs for persons with the lowest incomes. In addition to comprehensive coverage offered to a portion of those below the official poverty thresholds, state Medicaid plans have been required since 1988 to pay Medicare's premiums and cost-sharing for all beneficiaries below 100 percent of poverty (called Qualified Medicare Beneficiaries, or QMBs). In 1993, states were also required to pay Medicare's premium for those between 100 and 110 percent of poverty (Specified Low-Income Medicare Beneficiaries, or SLMBs). The SLMB program was expanded to 120 percent of poverty in 1995.
In 1996, only 63 percent of those eligible for QMB benefits and only 10 percent of those eligible for SLMB benefits participate. These rates are low for several reasons, including the fact that many eligible QMB beneficiaries may not be aware the program exists and states may not be aggressive about enrolling eligible people and incurring high state budget costs. In addition, SLMB rates may be low because the program is relatively new and because income eligibility was just expanded to include those up to 120 percent of poverty in 1995. Even though participation in the QMB and SLMB programs may continue to increase as more beneficiaries become aware of the programs, these programs are increasingly vulnerable in an environment where states are looking for ways to scale back their Medicaid programs. To address this vulnerability and increase participation in the programs, several options for reforming QMB and SLMB could be explored. Federalization of QMB and SLMB would likely increase participation in the program and alleviate states of substantial expenditures. Federalization would likely mean that more of those who need protection would receive it, thus treating equals more equally than at present and reducing some of the disparities that currently exist across states.
Federal action to reform the QMB and SLMB programs could extend protections to a larger share of low income Medicare beneficiaries. But shifting these programs to Medicare would add costs at a time when most of the political discussion concerns reducing spending. If the changes were fully implemented in 1996, net new costs to the federal government would likely range from $3.8 billion to as much as $5.4 billion, depending on what happens to participation rates in the programs. Net costs to the federal government could be reduced if the basic premium were increased from 25 percent to 30 percent of Part B spending. Under such a scenario, the net impact of these two changes would be $2 billion dollars or less in additional federal expenses, depending on the participation rates assumed. If an expansion of SLMB to 150 percent of poverty were added into the picture, net new costs would total $3.0 billion.
While states would benefit from these options, making a case for new federal spending that merely offsets public spending elsewhere may be difficult politically. Other less comprehensive options could also be pursued, such as federalizing only the premium piece of QMB and SLMB or discounting the amount of the premium that states must pay. When new revenues from an increase in the premium to 30 percent of costs are factored in, these options would result in federal savings of between $.9 billion and $2.3 billion.
Because there are likely to be further requirements on Medicare beneficiaries to pay higher costs in the form of increased premiums or higher copayments, additional protections for the most vulnerable beneficiaries make good sense. Some or all of the costs of these new low-income protections could be absorbed by other changes in Medicare, but some may also appropriately come out of general revenue if this is a high priority.