July 22, 2011
Senator Max Baucus, Chairman
Senator Orrin Hatch, Ranking Member
Senate Finance Committee
United States Senate
Dramatic cuts to the Medicare program have been proposed to address the nation’s growing deficit. California Health Advocates is very concerned that these proposals could shift billions of dollars in out-of-pocket costs to seniors and people with disabilities. California Health Advocates (CHA) is an independent, non-profit organization dedicated to education and advocacy efforts on behalf of California’s Medicare beneficiaries. We provide support, including technical assistance and training, to the network of California’s Health Insurance Counseling & Advocacy Programs (HICAP). HICAP is California’s federally funded State Health Insurance Assistance Program (SHIP) that assists California’s Medicare beneficiaries and their families. Our experience with many health insurance related issues is based on our close work with the HICAPs and other consumer assistance programs, social and legal services agencies, and other professionals that are on the front line assisting older consumers and their families with questions about Medicare, retiree benefits and Medigap insurance.
Each of these proposals would force Medicare beneficiaries to pay more of their own medical costs and forbid the purchase of Medigap benefits for out-of pocket costs, known as “first dollar” coverage. The impetus for many of these changes is the unsubstantiated belief that Medicare beneficiaries who have supplemental coverage are receiving care that is not medically necessary because they receive more medical care than those without supplemental coverage. This belief is justified by comparing data showing reduced health care costs when cost sharing is imposed on non-elderly insured’s, and extrapolated to be the cause of higher Medicare spending by people with with supplemental coverage without regard to the medical necessity of any additional care or services received. It should be noted that Medigap coverage is not free, people pay a premium for this coverage. Just as people who buy fire insurance don’t generally burn down their own homes, it remains unproven that people who have a Medigap policy use more medical services just because they have insurance to cover their costs.
While proposals to combine Parts A and B deductibles is a laudable goal, adding significant up-front costs to medical care and services is a misguided approach and likely to result in many elders and people with disabilities delaying or not getting the medical care they need. For instance, only the frailest of Medicare beneficiaries use skilled nursing and home care. Imposing copayments for home care services could affect the ability of frail elders or people with disabilities to remain in their own home and force a premature move to an institutional setting and the potential subsequent depletion of their assets. Several studies point to the detrimental effect of increased cost-sharing on older consumers, including avoidance of preventive and necessary health care services, the potential for cost-shifting from outpatient care to more expensive inpatient care, and the danger of increased mortality.( 1 )
The introduction of extensive copayment requirements will also create billing problems for providers who must try to collect payments that may have been automatically paid in the past. Medicare payments and reconciliation of deductibles and copayments lag behind the monthly billing systems providers use. Medicare beneficiaries will have to manage and coordinate costs that are likely to be spread out over many providers and many months, all demanding payment that may or may not be due them.
Capping annual out-of-pocket costs is also a laudable goal, but setting that threshold at $5,000 or $7,500 as some have proposed could easily result in early impoverishment for many moderate income Medicare beneficiaries, more than half of whom have incomes below $22,000 and can ill afford costs of this magnitude. If excess charges are not included in the annual cap Medicare beneficiaries are likely to have much higher out-of-pocket costs than has been predicted, and providers who encounter billing problems may refuse to accept assignment or refuse to see Medicare patients altogether.
Further, forbidding beneficiaries the right to buy insurance to cover half or less of such high, unpredictable amounts, or taxing them if they do so, will be seen as some sort of punishment inflicted on people who are only trying to preserve their assets through the purchase of insurance that in most cases would cost less than these proposed amounts.
While the Congressional Budget Office (CBO) calculated savings of $53 billion over 10 years, those figures may include an assumption that all Medigap coverage, existing and newly issued, will be subject to any new cost-sharing requirements. Savings of that amount could then only be achieved if Congress is willing to tell 10 million Medicare beneficiaries with a Medigap policy that they cannot keep their current benefits, and is willing to tax them if they do.
Federal changes to Medicare are always used to solicit beneficiaries to buy, change, replace, or upgrade their coverage. If beneficiaries cannot keep their current benefits that will create utter turmoil in the Medigap market and provide sales and marketing opportunities for replacement and misrepresentation. An avalanche of sales and marketing materials could publicize the danger of being exposed to the full cost of the annual out-of-pocket cap and lament the federal prohibition on more complete coverage.
All of the savings achieved by these changes rely on forcing Medicare beneficiaries to use fewer medical services by increasing their costs to discourage utilization, without any evidence that the services used now are not medically necessary. MedPac’s own study points out that while there is evidence that those with supplemental coverage use more medical services, the report also points out that further study is required to determine the value and medical necessity of those services.( 2 )
It is important to note that medical necessity determinations can only be made by Medicare. Medigap carriers are required by law to pay benefits if Medicare pays and there can be no separate medical necessity determination by Medigap carriers. If in fact Medicare beneficiaries are receiving medically unnecessary care that would seem to be a Medicare fraud issue, and payments by both Medicare and supplemental carriers should be recoverable and fines imposed on providers delivering unnecessary care.
Just over a year ago, 2 new Medicare Supplement (Medigap) policies went on the market with substantial changes mandated by federal law. Two new benefit packages, M and N, were added to the 10 standard plans, each containing two new methods of cost-sharing. The industry has commented at NAIC meetings that their early experience with these plans is that at least some insureds appear to be switching from the more expensive Plan F to the new Plan N with modest cost-sharing requirements and lower premiums. With the addition of these 2 new plans, 8 of the 10 standardized plans and one rider now require modest to significant cost-sharing as part of those benefit packages.
In addition, the Affordable Care Act (ACA) tasked the NAIC with another set of mandated changes to Medigap policies that will require cost-sharing in the 2 most popular Medigap benefit packages, Plans C and F, by 2015. The NAIC has appointed a statutory working group that has already met several times to begin the work of redesigning these two plans. We believe that these two federally mandated changes give consumers the opportunity to share more of the cost of their own care, and that older, sicker beneficiaries should continue to be allowed to budget for their out-of-pocket costs through the premium cost of a Medigap policy.
According to a 2008 AHIP study, many people with Plan F have annual incomes below $10,000 and almost a third have incomes of $20,000 or less.( 3 ) Our experience in California is that some low-income Medicare beneficiaries have a Medigap policy to avoid the potential risk of Medicaid, and are able to pay a small predictable monthly premium in exchange for avoiding large unpredictable medical costs during a month or year. Some who have already become eligible for Medicaid continue to pay for a Medigap policy, or their families do, because their medical providers will not accept Medicaid patients.
Current proposals will force these beneficiaries and others of modest incomes and assets to pay much more in annual medical costs than the premiums they now pay for a Medigap policy, many of whom are older than average and with more difficult or complex or chronic health care conditions.( 4 )
These proposals, while forcing Medicare beneficiaries to pay thousands of dollars annually for their medical care, may have other unintended consequences for individuals, and for all third party payers such as state Medicaid programs, employer sponsored secondary coverage, and Medigap carriers. Medicare beneficiaries may delay or go without necessary care when faced with large out-of-pocket expenses, waiting until treatment is unavoidable thus shifting what would have been out-patient care to more costly in-patient services. Forced payment of thousands of dollars annually may push more people into state Medicaid programs as those out-of-pocket costs outstrip their ability to pay and health conditions worsen. And lastly, providers may incur significant business costs attempting to collect amounts that in the past may have been paid automatically based on Medicare’s payment.
We urge you to reject these proposals that would transfer billions of dollars of health care costs to Medicare beneficiaries, discourage them from seeking necessary medical care and push more beneficiaries into state Medicaid programs.
Elaine Wong-Eakin, Executive Director
Bonnie Burns, California Health Advocates Policy Specialist
- Increased Ambulatory Care Copayments and Hospitalizations Among the Elderly, Amal N. Trivedi, Husein Moloo, Vincent Mor (New England Journal of Medicine, January 2010).
Effects of Cost Sharing on Care Seeking and Health Status: Results from the Medical Outcomes Study, Mitchell D. Wong, Ronald Anderson, Cathy D Sherbourne, Ron D. Hays, and Margin F. Shapiro (American Journal of Public Health, November 2001).
Supplemental Insurance and Mortality in Elderly Americans: Findings From a National Cohort, Mark P. Doescher, MD, MSPH; Peter Franks, MD; Jessica S. Banthin, PhD; Carolyn M. Clancy, MD Arch Fam Med. 2009;9:251-257
- Improving Traditional Medicare’s Benefit Design, Chapter 6, MedPac Report to Congress – Improving Incentives in the Medicare Program, June 2009.
- Low Income and Rural Beneficairies with Medigap Coverage, AHIP Center for Policy and Research, 2008
- Kaiser Family Foundation, Medicare Chartbook, Fourth edition, 2010.