Out-of-pocket spending cap would make Medicare more affordable, Urban Institute says

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A policy that caps cost sharing at $5,000 for traditional health insurance would reduce cost sharing for enrollees with the greatest health care needs by about 53%, according to data released this week by the ‘Urban Institute.

This comes with a trade-off: The same cap would increase per capita spending on Medicare by 1,000, or 7.8%, on average over the current law. Combined, that would cost about $39 billion in 2023. And Medicare spending on Part A services would increase by $9 billion, or about 4.2%.

But there would also be benefits for high-spending registrants. For this group, it would reduce current spending by about 51%, reduce supplemental plan spending by about 51%, and reduce Medicaid spending by about 58%.

While reductions in out-of-pocket expenses would directly benefit enrollees, reductions in supplemental health payments would reduce the need to purchase such policies or significantly reduce their premiums. Cutting Medicaid spending, meanwhile, would offset some of the federal cost of the cap and generate savings for state governments, the report said.

WHAT IS THE IMPACT

Medicare spending, according to the Urban Institute, is very skewed. More than 9% of traditional Medicare beneficiaries have cost-sharing expenses over $5,000. And they have average total health insurance expenses of about $76,900, indicating they are a group with serious health issues.

Of this amount, Medicare pays about $66,400. The rest, about $10,500, is paid out of pocket or paid for by supplemental health insurance or Medicaid.

The proposed cap of $5,000 would not come without some associated costs. Medicare Part A, for example, does not require most beneficiaries to pay premiums and instead is funded almost entirely by the Medicare Hospital Insurance Trust Fund, which in turn is funded primarily by payroll taxes. For this reason, a cap of $5,000 would likely require an increase in payroll taxes unless another source of funding is provided.

But the Medicare Hospital Insurance Trust Fund is already expected to be depleted by 2026 under current law; any increase in payroll taxes, or other source of funding, should be levied in addition to such revenue increases, or expenditure reductions, necessary to maintain the solvency of the trust fund.

At the same time, Medicare Part B spending for traditional Medicare enrollees would increase by $23 billion, or 9.7%, under a cap of $5,000. Medicare Part D spending would increase by $7 billion, or 13.1%. Expenditures for Parts B and D are funded by a combination of enrollment premiums and general federal revenue. For this reason, increased expenses for Part B and D services below the $5,000 cap would likely result in increased sign-up bonuses for Part B and D services. Other possibilities could include changes in deductibles or coinsurance so as to provide offsetting savings.

Per capita spending for Part A and B services would increase by 7.1%, which the report said would put upward pressure on the spending benchmarks against which Medicare Advantage plans are bidding; this would potentially allow MA plans to provide more benefits to enrollees or provide savings to MA enrollees in the form of premium discounts.

As modeled for 2023, the $5,000 spending cap would directly affect 12% of traditional Medicare beneficiaries. But over time, the percentage of enrollees who would benefit would increase significantly, according to UI, unless the cap was indexed to growing Medicare costs. Even in the short term, all Medicare beneficiaries, not just the highest spenders, would benefit from reduced supplemental insurance costs.

THE GREAT TREND

Administrators of the Social Security and Medicare Trust Funds have found that Medicare and Social Security both face long-term funding shortfalls within the scope of currently scheduled benefits and funding. . Medicare costs are projected to rise faster than GDP through the late 2070s due to projected increases in the volume and intensity of services provided.

The Supplementary Medical Insurance (SMI) Trust Fund, on the other hand, is adequately funded for the indefinite future as current law provides for funding from general revenue and beneficiary premiums each year to meet costs. planned for the following year.

Because of these funding arrangements and its rapidly growing costs, the SMI will place increasing demands on taxpayers and beneficiaries, the administrators noted.

And for the sixth year in a row, they are releasing a determination of projected excess funding of general Medicare revenue, as required by law whenever the annual tax and premium revenues of the combined Medicare funds will be less than 55% of expenditures. combined annuals projected over the next seven fiscal years.

Twitter: @JELagasse
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