Medicare Plus Choice Enrollees Face Rising Out-Of-Pocket Costs; Those In Poor Health Hardest Hit

Enrollees Likely To Have Less Prescription Drug Coverage While Paying Higher Premiums

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Two new reports from The Commonwealth Fund reveal that Medicare+Choice enrollees paid nearly 50% more in out-of-pocket costs for their health care in 2001 than they did in 1999, and those in poor health had even greater cost increases. Enrollees faced increased premiums and cost-sharing burdens and reduced coverage of prescription drugs during the three-year period. The reports, by Lori Achman and Marsha Gold of Mathematica Policy Research, Inc., point to weaknesses in the Medicare program that have a disproportionate impact on the sickest beneficiaries, who are also more likely to have low incomes. "Medicare was set up to protect the elderly and disabled from financial ruin because of heavy medical expenses," said Gold, senior fellow at Mathematica. "But gaps in coverage mean that the average beneficiary still pays a lot out-of-pocket and those in poorer health pay even more. The situation is likely to get worse in 2002 as many plans cut back on Medicare+Choice benefits as a result of minimal increases in reimbursements to providers during a time of health care cost inflation." In Out-of-Pocket Health Care Expenses for Medicare HMO Beneficiaries: Estimates by Health Status, 1999-2001, Achman and Gold analyze the effect of shrinking managed care benefits on enrollees by examining trends in estimated out-of-pocket costs from 1999 to 2001. Enrollees in poor health not only paid more out of pocket than those in good health, they also experienced the highest rate of growth in out-of-pocket costs, 62%, in the three-year period. In contrast, those in good health experienced a 43% increase in out-of-pocket expenses between 1999 and 2001. In 2001, enrollees in poor health spent about three times as much as those in good health ($3,578 vs. $1,195 annually). Differences in out-of-pocket costs for those in poor health were most striking in prescription drug spending. In 2001, Medicare+Choice enrollees in poor health spent an average of $2,088 out of pocket for prescription drugs—a 56% increase from 1999. In comparison, those in good health spent an average of $158, a 47% increase from 1999. Despite the increases in costs, Medicare+Choice plans are still a good value for beneficiaries compared with Medigap supplemental insurance. Previous studies of costs for beneficiaries in traditional fee-for-service Medicare have estimated average out-of-pocket costs were $3,142, considerably higher than the 2001 average estimate for Medicare+Choice beneficiaries of $1,438. However, Achman and Gold conclude that limitations in the Medicare benefit package—especially the exclusion of drug coverage and the absence of a catastrophic limit on total out-of-pocket spending—will mean even greater cost burdens as market forces continue to pressure health plans to increase premiums and reduce benefits. In a separate report, Medicare+Choice 1999–2001: An Analysis of Managed Care Plan Withdrawals and Trends in Benefits and Premiums, Achman and Gold analyze trends in Medicare+Choice benefits and premiums from 1999 to 2001. They found that average monthly premiums went from $14.43 in 2000 to $22.94 in 2001, and the proportion of enrollees with prescription drug coverage fell from 78% in 2000 to 70% in 2001. Rural beneficiaries have few options, higher premiums, and less-generous coverage. Many Medicare+Choice enrollees also experienced increases in copayments in 2001: one-third were charged a copayment for an outpatient visit in 2001, compared with just 13 percent in 2000. Health plans that left the Medicare market in 2001 were also more likely to have had lower enrollments, higher premiums, (average premiums about twice as high) and less-generous benefit packages than those that remained in the market, indicating possible competition problems. The findings support previous studies concluding that plans withdrew from markets where they had failed to attract enrollees or where they faced larger competitors. The enactment of the Benefits Improvement and Protection Act of 2000 (BIPA) has not shored up the Medicare+Choice program. Plans that remain reduced benefits while slightly increasing premiums and cost-sharing. BIPA did not achieve its goals of reducing the geographical disparity in benefits between low- and high-payment counties, encouraging plans to reenter the program, or rolling back reductions in benefits. Only four plans covering about 13,000 enrollees that had dropped out reentered the market as a result of BIPA. Most plans used the BIPA payment increase to enhance provider networks. Only 6 percent of enrollees were in managed care organizations that used the funds only to reduce premiums and/or cost-sharing. Achman and Gold conclude that while Medicare+Choice provides affordable supplemental coverage for some beneficiaries, it is not the only solution to Medicare's problems. Policymakers seeking to ensure that Medicare fulfills its mandate to provide affordable and equitable access to health care for older Americans cannot rely on Medicare+Choice, but must focus on reforming the entire benefit package. "Increasing payments to health plans alone will not solve the problems of the Medicare program," said Karen Davis, president of The Commonwealth Fund. "We should consider modernizing Medicare's basic benefit package to meet the health care needs of our growing population of older Americans in the 21st century."

Publication Details

Publication Date:
February 14, 2002

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