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MedPAC Backs Cap on Out-of-Pocket Costs, Fee on Supplemental Insurance

By Rebecca Adams, CQ HealthBeat Associate Editor

April 5, 2012 -- Medicare beneficiaries would be protected from never-ending out-of-pocket costs under a recommendation the Medicare Payment Advisory Commission approved this past week.

Funding for capping catastrophic expenses would come partly from an additional charge on supplemental insurance plans, such as Medigap policies. Most seniors have some supplemental insurance to pay for medical costs that Medicare doesn't cover.

The proposal is expected to be included in the panel's June report to Congress.

The unanimous MedPAC recommendation said that Congress should tell the Health and Human Services secretary to develop and implement a new fee-for-service benefit design to replace the current one. Commissioners recommended that the plan include an out-of-pocket cap on expenses; a combined deductible for Part A inpatient and Part B outpatient services; and co-pays that may vary by the type of service and provider, instead of the current coinsurance that requires patients to pay a percentage of costs. HHS officials should have the authority to change or get rid of cost-sharing for high-value services, said the commissioners.

But the overall value of the total benefit package should not decline, said the recommendation.

"If anything, the existing Medicare benefit package is too lean, not too rich, particularly given the population covered by the program," said MedPAC Chairman Glenn Hackbarth. "We recognize, however, that there are fiscal constraints."

The commission has been kicking around ideas for changing Medicare's cost-sharing structure for years. However, it is unclear when or if lawmakers would advance the plan on Capitol Hill.

Commissioner Michael Chernew of Harvard Medical School said that unlike some proposals to change Medicare that have been advanced by lawmakers or health policy experts, the commission's desire is not just to save money but "to have a benefit package that works for beneficiaries."

The plan is intended to discourage seniors and other beneficiaries from getting unneeded or inefficient care. Supplemental insurance shields patients from the true costs of medical treatments and gives them little incentive to question whether all of the care is needed. Commissioners said that some of the plans, particularly those that give beneficiaries low cost-sharing, are driving up overall Medicare spending in part because the patients are not careful about limiting their use of services. The commission discussed the possibility of a 20 percent fee on plans, although the recommendation did not include a specific amount.

The change would have a major impact on Medigap supplemental insurance plans. Beneficiaries might switch plans or look for other alternatives that would help cover their costs. One commissioner, University of Maryland expert Bruce Stuart, predicted, "This is very likely to push the market toward MA [Medicare Advantage] plans."

Medicare is somewhat unusual in its lack of a cap on out-of-pocket costs. Many large employer-sponsored plans have a catastrophic limit. In the late 1980s, Congress passed a catastrophic cap but repealed it just a year later in the face of concerns from seniors, especially wealthier beneficiaries, who were concerned about new fees to pay for it.

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