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Study: Creating Medicare 'Part E' Would Provide Better Coverage at Less Cost

OCTOBER 4, 2005 -- A study published Tuesday concludes that creating a new Medicare "Part E" would eliminate the need for beneficiaries to pay more for supplemental coverage and would ease confusion over the new drug benefit.

The proposal also would give employers a more affordable alternative to current retiree health plans, according to the study paid for by The Commonwealth Fund, a health care think tank. The study goes on to say the federal government would not be burdened with any additional cost because "Medicare Extra" would be financed by monthly premiums costing less than beneficiaries now pay for supplemental Medigap coverage.

"Medicare Extra would create greater simplicity, efficiency, and value for beneficiaries and for Medicare," Commonwealth Fund President Karen Davis, lead author of the study, said in a news release. "With more affordable cost-sharing, Part E has the potential to reduce barriers to essential care for beneficiaries."

The study was published Tuesday as a Health Affairs "Web exclusive."

Davis and her co-authors say "Part E" would provide better drug coverage than the new Part D benefit because it would have no gap in coverage and would include a $3,000 cap on total out-of-pocket expenses, including prescription drugs. The new drug benefit requires beneficiaries to pay $3,600 out-of-pocket before catastrophic drug coverage takes effect.

Bush administration officials have said Medicare beneficiaries will have a wide array of choices for drug and health plan coverage under the new law. And last week they assured beneficiaries they would have access to prescription drug plans that fill the so-called "doughnut hole" in coverage—one of the most criticized aspects of the prescription drug law (See CQ HealthBeat, Sept. 30).

The "Medicare Extra" proposal would contain the same package of benefits generally featured in employer plans, particularly those in the Federal Employees Health Benefits Program. Medicare beneficiaries now enrolled in Medigap plans would save $357 per year and typical out-of-pocket costs would drop to $873 from $933 a year.

And "Medicare Extra" would offer employers a package of benefits that would have lower administrative costs—about 2 percent compared with the 10 percent to 15 percent of administrative costs for retiree plans—which could give employers an incentive to continue to offer retiree health coverage, the authors wrote.

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