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Restructuring Medicare's Cost-Sharing

The message is loud and clear: ""Medicare is in trouble—the system is going bankrupt."" Americans read it in their newspapers, watch it on their televisions, and hear it from their elected officials. The only missing ingredient in the national debate has been a calm and informed discussion of options and solutions.

Marilyn Moon, senior fellow at the Urban Institute, provides a starting point in her new study, Restructuring Medicare’s Cost-Sharing. Supported by The Commonwealth Fund, her analysis focuses on one of the options for reducing federal spending on Medicare: asking beneficiaries to contribute more to the costs of their own care through increased premiums, deductibles, or coinsurance.

While those who advocate this course believe it will expand revenues and reduce unnecessary use of services, Moon’s analysis questions these predicted outcomes.

The problem with the cost-sharing proposal, she contends, is that it would place the greatest burden on the 10 percent of beneficiaries who consume 70 percent of Medicare dollars: the oldest and sickest elderly people.

Low income beneficiaries are particularly at risk because they are most likely to rely on Medicare only, and when they do purchase private Medigap coverage, that premium alone can create financial burdens.

Even though all Medicare beneficiaries with incomes below poverty are eligible for Medicaid assistance in paying Medicare premiums and cost-sharing, fewer than two-thirds participate--often because they are unaware they are eligible. This assistance is not available to beneficiaries with incomes above $7,000 for individuals or $9,000 for couples—incomes sufficiently low to make out-of-pocket costs a major barrier to care.

Moon concludes that cost-sharing could be done in a ""budget-neutral"" way that protects the most vulnerable beneficiaries. She also suggests that the program could be simplified and made more consistent with insurance for the under-age-65 population

Facts and Figures

  • Medicare recipients pay yearly deductibles of $736 for Part A and $100 for Part B coverage.

  • Medicare does not offer ""stop loss"" protection; the out-of-pocket costs for very sick individuals continue to mount indefinitely. Consequently, it makes sense to consider ways to restructure beneficiary payments in a more reasonable way.

  • After 60 days in the hospital, Medicare beneficiaries are required to pay coinsurance of $184 for each additional day they are hospitalized; after 90 days the cost rises to $368 per day.

  • Medigap insurance, which supplements Medicare, usually costs at least $1,000 per year.

  • The sickest 10 percent of Medicare beneficiaries average $36,957 in Medicare spending each year and pay $5,594 out-of-pocket; the healthiest 20 percent incur no Medicare expenses.

Publication Details



Restructuring Medicare's Cost-Sharing, Marilyn Moon, The Commonwealth Fund, December 1996