Medicare Essential: Is it Essential to the Future of Medicare?

Simplicity and efficiency are the goals of the proposed “Medicare Essential” coverage presented in a recent study by Health Affairs. This study addresses the complaints of Medicare beneficiaries about having to juggle hospital, doctor, prescription drug, and supplemental coverage under Medicare, and particularly with the high costs that result from not having supplemental coverage (Medigap and prescription drug coverage) in addition to hospital and physician services coverage. Under the Medicare Essential coverage as proposed, beneficiaries wishing to remain in traditional Medicare would be able to combine all of this coverage into one neat package, while making premiums and out-of-pockets costs more palatable.

The Study and Its Findings

Entitled “Medicare Essential: An Option to Promote Better Care and Curb Spending Growth,” the study was the result of efforts by Karen Davis, Ph.D., director of the Roger C. Lipitz Center for Integrated Health Care at The Johns Hopkins Bloomberg School of Public Health, and Cathy Schoen and Stuart Guterman, researchers from Commonwealth Fund. The impetus of the study was not only the high costs and convoluted coverage, but also that ‘[r]esearch has shown that Medicare beneficiaries are more satisfied with their coverage than are working-age people with employer coverage,” but are concerned with the high costs and inefficiency of managing these types of coverage. The researchers propose that combining the coverage options would not only help beneficiaries, but would also help with the federal budget deficit because it is funded by premiums. Further, providers that are classified as “high-value providers,” providing high-quality, efficient care would be incentivized.

The study suggests that instead of paying a deductible of $1,156 per hospital episode and $140 per year for physician services, beneficiaries would be responsible for merely a $250 deductible, no deductibles for prescription drugs, and an out-of-pocket max of $3,400 per year. The current average amount a beneficiary would spend on premiums and out-of-pocket costs for this coverage is estimated to be $427 per month. Under the Medicare Essential plan, that amount would be reduced to $354, $254 for treatment by high-value providers, a savings of 17 percent and 40 percent, respectively.

Future Savings

Health spending relative to current projects could be reduced by $180 billion under the new Medicare Essential plan, and could reduce employer retiree spending by $90 billion throughout the next ten years. According to the study, “[g]iven its potential, such an alternative should be a part of the debate over the future of Medicare.”

This plan could gain more support in light of the deficit reduction discussions taking place in Congress, as well as the President’s statement that the combination of Parts A and B under one deductible would be considered, according to a recent article appearing in The Hill.