Citation URL: http://www.urban.org/MatthewStoreygard

This policy brief considers how to structure a Medicare prescription drug benefit and what trade-offs will need to be made in the context of financial limitations. It discusses three potential approaches, each of which employs a different cost/payment structure and benefits one group while neglecting another. Nonetheless, it suggests that it is possible to craft a drug benefit that would preserve universal coverage by protecting low-income beneficiaries and placing a cap on high costs. [View press release]

The question of the financial health of the Medicare program is important to the debate over how the program should change in the future. There are many possible ways of examining Medicare's financial issues, and the choice of which to use is often made on the basis of politics and spin that a particular measure can create. This paper examines different ways to look at Medicare's financial status and the implications each may hold. It offers a number of alternatives and distinguishes between issues of "solvency" and "affordability," offering a broader perspective on the issue of Medicare's future

Medicare spending on Part B rehabilitation services rose 15 percent per year on average in the early and mid-1990s. The 1997 Balanced Budget Act required that the program replace cost-based payments with a fee schedule and apply coverage limits to the services. This study analyzes Part B rehabilitation spending during this period of policy change—1998 to 2000. In 1999 (during fee schedule payments and coverage limits), aggregate and per user payments declined by more than 30 percent. In 2000 (during a coverage limit moratorium) payments rose about 35 percent, placing spending at near-1998 levels. Decompositions of per user payments suggest that up to two-thirds of the 1999 decline was attributable to payment rate reductions, rather than coverage limits. The study also found that provider type is a substantial predictor of annual payments per user, controlling for diagnosis, type of therapy used, payment method, and coverage policy. Published by the Health Care Financing Administration; 2001 September 2001.

Medicare spending on Part B rehabilitation services rose 15 percent per year on average in the early and mid-1990s. The 1997 Balanced Budget Act required that the program replace cost-based payments with a fee schedule and apply coverage limits to the services. This study analyzes Part B rehabilitation spending during this period of policy change—1998 to 2000. In 1999 (during fee schedule payments and coverage limits), aggregate and per user payments declined by more than 30 percent. In 2000 (during a coverage limit moratorium) payments rose about 35 percent, placing spending at near-1998 levels. Decompositions of per user payments suggest that up to two-thirds of the 1999 decline was attributable to payment rate reductions, rather than coverage limits. The study also found that provider type is a substantial predictor of annual payments per user, controlling for diagnosis, type of therapy used, payment method, and coverage policy. Published by the Health Care Financing Administration; 2001 September.

This paper discusses the policy implications of Medicare reform on beneficiaries with cognitive and physical difficulties. Elderly and disabled persons are more likely to suffer from these disabilities; in 1997, almost one-third of Medicare beneficiaries had either a physical or cognitive problem, and almost 13% had both types of afflictions. Beneficiaries with physical and cognitive difficulties spent considerably more on health care, and thus are classified as being at risk to Medicare reform proposals that contain significant cost-sharing increases. Additionally, Medicare HMOs have historically been successful in enrolling healthier beneficiaries. Therefore, any reform that includes reliance on the private sector must incorporate an appropriate risk adjustment mechanism to protect the physically and cognitively vulnerable beneficiaries.

Approximately a third of all Medicare beneficiaries have either substantial physical or cognitive problems. As a result, these beneficiaries have substantially higher medical care costs and substantially higher out of pocket spending than do other beneficiaries. This is particularly true for those with physical problems. This subgroup of the Medicare population is much less likely to enroll in the Medicare + Choice plan, and the higher overall age of these beneficiaries combined with lower incomes make them particularly vulnerable to the high costs of health care. (Published by The Commonwealth Fund; 2001 August.)

Given limits on how much the federal government will likely spend on a prescription drug benefit, this paper examines how costly a comprehensive drug benefit limited to persons with incomes below 175 percent of poverty would be. Details of any proposal clearly matter, including how comprehensive the benefits would be, how the benefit would be integrated with Medicaid and existing state pharmacy programs, and whether the design encourages participation by those with low incomes (e.g. stringency of reporting requirements, how individuals have to apply). The intermediate estimate assumed that participation would be just a bit over 50 percent and even then the ten year cost of a benefit would be $331 billion. A catastrophic benefit for higher income beneficiaries was also considered. The costs would vary greatly depending upon how the eligibility limit would be and on the rules regarding increasing the limit over time. (Published by the Kaiser Family Foundation; 2001 May.)

This paper analyzes an illustrative range of conservative and expansive options to modernize the Medicare benefit package. The most generous option modeled would eliminate all Medicare deductibles and coinsurance except for a $200 annual Part B deductible, and would introduce a $105 monthly Part B premium to offset the increase otherwise occurring in Federal spending. Assuming the elderly would drop their Medigap policies because of the benefit expansion, this option would reduce average out-of-pocket spending by 24 percent. A Medicare prescription drug benefit similar to many Congressional proposals also was modeled. A mandatory drug benefit with a 50 percent coinsurance requirement, a $2,500 beneficiary cost-sharing limit, and a $26 monthly premium would increase Federal spending by 6 percent in 2000. (Published by the Commonwealth Fund; 2001 May.)

This paper compares Medicare cost-sharing requirements with those of private health plans insuring the non-elderly, and simulates the impact on Federal and beneficiary spending of several modest Medicare cost-sharing changes. Options modeled include stop-loss limits, combined ("Parts A and B") deductibles, and others that mimic a combined deductible within Medicare’s two-part structure. The most costly option modeled is an introduction of a $3,000 cost-sharing limit. This would increase Federal spending by 3 percent; reduce the elderly’s average Medicare cost-sharing by 14 percent; and reduce their actual out-of-pocket spending on average by 2 percent to 8 percent, depending on subsequent Medigap purchasing behavior. A $13.83 monthly increase in the Part B premium or a $200 annual increase in the Part B deductible would offset the additional Federal spending otherwise needed to fund the stop-loss. Assuming the premium or deductible increase, average out-of-pocket spending would decline by 2 percent to 4 percent, depending on Medigap purchasing behavior. (Published by The Commonwealth Fund; 2002 October.)

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