MedPAC Considers Options for Medicare Supplemental Policies

Members of the Medicare Payment Advisory Commission (MedPAC) at their November meeting discussed a combination of higher deductibles and an out-of-pocket cap on beneficiaries’ Medicare spending as a way of both controlling Medicare spending and protecting beneficiaries from high, unexpected medical spending. (MedPAC is an independent congressional agency charged with making nonbinding suggestions to Congress on issues affecting the Medicare program.)

Currently, there is no cap for out-of-pocket Medicare spending under traditional fee-for-service Medicare. MedPAC member Julie Lee noted that under the current fee-for-service benefit design, “a small group of people [owe] most of the cost-sharing, and most people get supplemental insurance to cover their liability, but it’s often expensive and not always available.”  Lee further noted that the most common Medicare supplementary insurance plans fill in all of Medicare’s cost-sharing, which “hides the prices and leads to higher use of the services, both the necessary and not necessary.”

She said, “most research has found that those with the supplemental coverage tend to have a higher service use and spending.” Lee presented a possible new supplemental plan that would provide for a cap of $5,000 on out-of-pocket expenses, but also include a $750 deductible for combined Part A and Part B services. Lee noted that while “cost sharing decreases the use of both the effective and ineffective services . . . increased cost-sharing had no adverse affect on most participants, although there were exceptions among the poorest and sickest.”

Another option discussed by commission members would leave the structure of supplemental plans the same, but apply a graduated excise tax on both supplemental insurance plans and employer-sponsored retiree health plans. The tax would go based on the generosity of the plans’ benefits.

The November discussion was a continuation of a discussion on changes in Medicare’s benefit design that started in October. The commission took no votes on recommendations either in October or November, but may make a recommendation 2012 in time for its annual report to Congress.