Recommendations to Medicare: Defined Contribution, No Home Health Co-Pay

In the last few days, CMS has received recommendations from the American Medical Association (AMA) regarding the overall set up of providing health benefits under the Medicare program and from the Partnership for Quality Home Healthcare (Partnership), on whether Medicare should impose a co-payment on home health benefits. The AMA’s policy recommendation concerns a set of principles regarding a Medicare defined contribution system that would enable beneficiaries to purchase the coverage of their choice from among competing health insurance plans, including traditional Medicare. The Partnership contends that imposing a co-payment on beneficiaries receiving the home health benefit “could lead some low-income beneficiaries to forego needed home health services and end up in an institutional setting as a result, where the cost to Medicare and taxpayers would be higher.”

AMA’s Policy

The policy was discussed and adopted by the AMA at its semi-annual policymaking meeting this week. “The defined contribution framework described by the policy would be similar to the health insurance program for federal employees, including members of Congress. Traditional Medicare, with improvements like caps on out-of-pocket spending, would remain an option for all Medicare beneficiaries,” according to the AMA news release.

The AMA explained that competing private plans would be subject to regulations to ensure beneficiaries were protected from eroding benefits and increasing out-of-pocket costs and would have access to reliable and meaningful health insurance coverage. Private plans would be required to (1) provide coverage that is at least the actuarial equivalent of the traditional Medicare benefit package; and (2) meet guaranteed issue and guaranteed renewability requirements. Defined contribution amounts would be set at the value of the government’s contribution under traditional Medicare; however, lower income and sicker beneficiaries would receive larger defined contributions to ensure affordability of coverage for all beneficiaries. Contribution amounts would be adjusted annually based on changes in health care costs and the cost of obtaining health insurance so that the value of a Medicare defined contribution remains stable over time, the AMA said.

The Home Health Co-pay

According to the Partnership, Medicare has been considering re-introducing a co-payment for the home health benefit. Proponents of re-introducing the co-pay believe that requiring beneficiaries to pay for the benefit would put them in “skin in the game.” The Partnership defines “skin in the game” as the full scope of costs that a beneficiary bears as an integral part of receiving Medicare-covered services.  The Partnership contends that Medicare home health beneficiaries have significant out-of-pocket spending on housing and other living expenses, which allow them to receive services in the home rather than in higher-cost institutional settings. Moreover, the Partnership states that although beneficiaries’ living expenses are lower when they receive treatment in an institutional setting instead of in their home, the Medicare program and taxpayer costs are higher when beneficiaries are served in institutional settings instead of in their home. In addition, the authors estimated that the cost of additional hospitalizations exceeded the savings from the decrease in outpatient visits. The Partnership noted that among the copayment related issues that policymakers should consider are:

  • (1) the extent to which home health beneficiaries have “skin in the game”
  • (2) the savings that Medicare realizes when seniors receive care in their homes
  • (3) the higher costs that Medicare could bear if a copayment were re-introduced, and
  • (4) whether an additional cost burden on Medicare beneficiaries could lead to increased costs for the Medicare program.