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MedPAC Sketches Out Plan to Discourage Medigap Plan Use

By Rebecca Adams, CQ HealthBeat Associate Editor

June 15, 2012 -- Medicare beneficiaries would get a cap on out-of-pocket spending and supplemental insurance plans would face an additional charge under recommendations included in the June report to Congress by the Medicare Payment Advisory Commission (MedPAC).

About 90 percent of seniors currently buy supplemental plans such as Medigap but would be less likely to do so if Congress adopted the proposal. The recommendation also suggests that Congress should replace the current coinsurance—which is a percentage of a beneficiary's medical costs—with fixed-dollar copayments.

The commission did not recommend a specific dollar amount for the new fixed copayments. But under an illustrative example, an additional 20 percent charge would be added to supplemental plans and seniors' costs would be capped at $5,000. The net savings to Medicare would be roughly 0.5 percent of the program's costs, or about $2.7 billion under the current $550 billion entitlement program, according to the report.

The effects on seniors would depend on whether or not they adjusted their supplemental insurance coverage. Dropping the Medigap plans would save most people money. If most beneficiaries kept their Medigap plans, about 70 percent of them would face higher costs of more than $250 a year. But if all beneficiaries dropped their supplemental coverage, about 32 percent of them would still face higher costs of $250 or more because they would have to pay for some medical costs that the gap insurance covered; 31 percent would see little change in their costs; and 37 percent would see a decrease in their bills of $250 or more.

Congress does not have to accept MedPAC's recommendations, but in the current budget climate, lawmakers are looking for proposals that could reduce costs.

The report said that the value of beneficiary's benefit package should not decline if the cap on their out of pocket costs is added.

"At the same time, in recommending an additional charge on supplemental insurance, we maintain that it is reasonable to ask beneficiaries to pay more when their decision to get supplemental coverage imposes additional costs on the program that are not fully reflected in their supplemental premiums," said the report. "Those costs are currently paid for by all Medicare beneficiaries through higher Part B (outpatient) premiums and taxpayers."

America's Health Insurance Plans released a survey just before the MedPAC report was unveiled, showing that 79 of beneficiaries say their policy provides excellent or good value, and that 91 percent would recommend Medigap.

The MedPAC report also includes recommendations affecting care coordination for people in fee-for-service Medicare and those who are dually eligible for both Medicare and Medicaid, the federal-state program for the low-income. It also includes information about risk adjustment in the Medicare Advantage private plans, rural medical providers and home infusion therapy.

The chapter on rural beneficiaries' care shows that there are major costs differences between different regions of the country but that costs within a certain region do not vary much between rural and urban settings.

The MedPAC report was released the same day that the Medicaid and CHIP Payment and Access Commission (MACPAC) provided its own report to Congress. The study analyzed data from the National Health Interview Survey and the Medical Expenditure Panel Survey. The findings show that adults in Medicaid said that they have better access to care than similar uninsured adults. When compared to people with employer-provided insurance, Medicaid beneficiaries tended to use the emergency room more often and have delayed care because of other reasons besides the medical costs, such as a lack of transportation to get to a medical provider. They were about as likely as people with employer-sponsored insurance to have had an outpatient visit and to have a regular provider.

"Assuring appropriate access to care and prudent payment policies that promote access to high quality and effective care for Medicaid and CHIP beneficiaries are MACPAC priorities," said Diane Rowland, chair of the commission. "Understanding whether access to necessary care needs to be improved – by how much, for which populations, for what services, in which delivery arrangements and under what payment approaches – helps to shape purchasing strategies and attain better health outcomes for beneficiaries and better value for the programs."

The report also includes new statistics about the Medicaid program.

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