For Professionals: Medicare and Other Health Insurance

Lawmakers Propose Cuts to Medicare and Medigap Coverage

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Published: July 27, 2011

As part of the negotiations to raise the federal debt ceiling, numerous proposals have been made to reduce Medicare costs, primarily by increasing the amount beneficiaries have to pay before Medicare will pay. This is a quick snap shot of a few of the lesser known cuts that are being proposed by Senators Leiberman and Coburn and House Majority Leader Eric Cantor, and others that have gained in popularity among members of Congress.

Changes to Medicare Costs

The Leiberman/Coburn and Cantor approach is to combine the deductibles for Medicare A and B into a single annual deductible of $550. After the deductible is met, a 20% copayment for all Medicare covered services would be required, even for Medicare services such as the first day of receiving hospital, skilled nursing and/or home health care. Currently none of these services have such a copayment requirement. Under these proposals, deductible and copayments amounts would be capped at one large annual out-of-pocket amount of $7,500.

Changes to Medigap and Other Supplemental Benefits and Costs

Many Medicare beneficiaries today have some form of supplemental coverage, either as a retiree or from a privately purchased Medicare Supplement policy (Medigap). In some cases a retiree plan or a Medigap policy pays most of the costs after Medicare pays. The Leiberman/Coburn and Cantor proposals would limit what a Medigap plan could pay by prohibiting benefits for the combined deductible and the first $3,750 (50%) of the annual out of pocket costs. This means that a Medigap policy could only pay benefits after the insured person had paid $4,300 ($550 + $3,750) of their own money each year. Setting out-of-pocket costs this high would cause Medicare beneficiaries to pay more for their care than they currently pay annually for their Medigap premiums. It essentially weakens the protection Medigap policies have given beneficiaries from costs of this magnitude.

Under these proposals, it is not clear if Medicare beneficiaries would have the option to keep their current policies with their current cost sharing structure, or if all policies would change, including new and existing policies. Proposals have also been discussed that would extend the same high deductible requirements to the Federal Employee Health Benefit Plans that supplement Medicare, and end tax deductions for employer retiree plans for Medicare beneficiaries that don’t have a deductible.

The savings calculated by the Congressional Budget Office (CB0) for these changes to Medigap policies, estimated to be $53 billion over 10 years, assumes that no Medigap would pay the new out-of-pocket costs specified in the Leiberman/Coburn and Cantor proposals. To achieve that amount of savings, Congress would have to be willing to tell 10 million Medicare beneficiaries that they couldn’t keep their existing Medigap policies under a new federal law. Medigap benefit packages would have to be redesigned to only pay after a deductible of $4300 has been met.

If these proposed changes are not included in the deficit reduction negotiations, some alternative proposals to be considered would impose an estimated excise tax of $530 annually on anyone who has a Medigap policy that does not currently have a deductible. It isn’t clear how much that deductible would have to be to escape this tax.

Contact Congress to Oppose these Changes

These proposed changes haven’t been well publicized and many Medicare beneficiaries are unaware of them. This lack of knowledge leads Congressional leaders to assume that there is no opposition because they have not heard any concern expressed by their constituents. If these changes are not included when the debt ceiling issue is resolved by August 2nd they will undoubtedly be part of ongoing Congressional action in the future.

California Health Advocates opposes these proposed changes and sees them as again shifting costs from the government to people who can least afford it, namely the elderly and disabled. While some argue that beneficiaries should pay more of their health care costs, the fact is that Medicare beneficiaries already pay 15% of their incomes on health care. This is well above the level paid by non-Medicare households. And while the proposals would cap maximum annual spending per beneficiary to about $7,500, that is a lot of money for someone making $22,000, the median household income for those on Medicare.

Also, a potential consequence of such high out-of-pocket costs is that Medicare beneficiaries may delay or go without necessary care, waiting until treatment is unavoidable and 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 well.

We are closely watching Congressional action to implement these proposed changes and will keep you updated on any changes. We encourage you to contact your State Senators and the federal Senate Committee on Finance to voice your opposition.

Here’s also a letter from Bonnie Burns, our Training and Policy Specialist, addressed to Senators Max Baucus and Orrin Hatch on this issue.

Here are the links to contact your:

See our Medigap section for more information on the current policies and cost sharing structure.

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