The blog of the Urban Institute
March 19, 2020

COVID-19 Treatment Costs Could Hit Some Medicare Beneficiaries with High Out-of-Pocket Expenses

As of yesterday, the Centers for Disease Control and Prevention (CDC) has recorded 7,038 coronavirus cases nationwide, and the caseload is rapidly increasing. We don’t yet know how many people will be affected, but some experts estimate that 40 percent of all adults will contract the virus.

But we do know the virus has more severe effects on older adults and people with health problems. In the US, the federal Medicare program is the largest insurer of this population, covering 62.1 million people older than 65 and those younger than 65 with long-term disabilities.

Although most Medicare beneficiaries have supplemental coverage to fill gaps in Medicare’s benefits, an estimated 11.8 million Medicare beneficiaries without supplemental coverage could face very high out-of-pocket costs if they were hospitalized and treated for COVID-19.

What are the COVID-19 costs for Medicare beneficiaries?

In calculating potential costs for Medicare beneficiaries with COVID-19, there are a few categories to consider.

There are costs for the diagnostic test itself, which Medicare Part B will cover and many private health insurers have agreed to waive.

There are questions about the potential affordability of COVID-19 vaccines, once they are widely available for use in roughly a year or so. Medicare will cover COVID-19 vaccine costs through Part D. Without additional government action, the estimated 12 percent of beneficiaries (PDF) who don’t have any creditable drug coverage could find the vaccine unaffordable.

The biggest potential cost, though, is the treatment itself, which could include doctor visits, extended hospital stays, pharmaceuticals covered under Parts B and D, and follow-up care. Recent estimates from the CDC show that hospitalization for COVID-19 is common among older adults, with a lower-bound estimate of about 30 percent of adults older than 65 ending up in the hospital.

Under traditional Medicare in 2020, beneficiaries face an inpatient hospital deductible of $1,408 for up to a 60-day stay, a Part B deductible of $198, and Part B coinsurance of 20 percent for physician services.

Looking at diagnoses similar to COVID-19 (PDF), according to CDC coding guidance, an older person who requires hospitalization might expect to stay for four to five days. These estimates are likely very conservative—evidence from China shows the median hospital stay there for COVID-19 was 12 days and anecdotal evidence from “hot spot” hospitals in the US shows stays of about three weeks, meaning average length of stay and total hospital costs could be much higher.

In traditional Medicare, beneficiaries would pay the standard deductible for the hospital-related part of their stay, and the coinsurance for numerous physician encounters over the course of their hospitalization related to COVID-19 could add up, particularly if the length of stay is much longer.

Unlike Medicare Advantage (MA), which covers about a third of Medicare beneficiaries, traditional Medicare does not cap out-of-pocket expenses beneficiaries could face. The cost-sharing requirements for beneficiaries with MA will vary based on their plan’s specific benefit package, but the maximum out-of-pocket limit in MA is $6,700, and plans may set lower limits.

It’s also worth noting that uninsured people could potentially face the full hospital charge—more than $68,000 for adults ages 18 to 44, as shown above; privately insured people with high-deductible health plans or limited provider networks could also face high out-of-pocket costs.

What about supplemental coverage?

Many beneficiaries in traditional Medicare have supplemental coverage to help defray their out-of-pocket costs. Medicaid provides wraparound coverage and cost-sharing assistance to people with lower incomes, and most higher-income Medicare beneficiaries have individually purchased Medigap plans or retiree coverage.

But about 30 percent of beneficiaries in traditional Medicare—11.8 million people—don’t have any additional coverage. They are more likely to have moderate incomes between 200-400 percent of the federal poverty level (about $35,000 to $67,000 for a family of two in 2020), too high for Medicaid eligibility but not high enough to make privately purchased supplemental coverage affordable.

These beneficiaries would be the most exposed to high out-of-pocket costs related to COVID-19. The average traditional Medicare beneficiary without supplemental coverage already pays $2,399 out of pocket for covered health services.

Table of Medicare fees, income

What are potential policy solutions?

The potential financial burden of these out-of-pocket costs was recognized in a recent proposal by leading public health, medical, legal, and policy experts that would waive all cost sharing for treatments related to COVID-19 among all Medicare beneficiaries.

In practice, providers will need a diagnostic code for COVID-19 (which possibly won't be added to the US ICD-10 code set until October) so payers can distinguish treatment for this particular virus from other coronavirus or pneumonia treatments.

Another option would be to add a long-proposed cap on out-of-pocket costs in traditional Medicare. In a previous analysis, we found that adding a $6,700 out-of-pocket cap and a lower inpatient deductible, along with higher Part B coinsurance, would lower out-of-pocket spending by nearly 20 percent for beneficiaries with no supplemental coverage, particularly those with high medical spending. Lower out-of-pocket maximums, like $5,000 or $3,000, would have an even greater impact.

An out-of-pocket maximum on its own would provide protection against very high medical bills but would leave beneficiaries exposed to high cost sharing up to the level of the cap.

But without any of these actions, it is clear that Medicare beneficiaries who contract COVID-19 would face not only serious health risks but also substantial financial risks, especially those without supplemental coverage.

A healthcare worker screens a patient for COVID-19 at a drive-through coronavirus testing site on March 18, 2020 in Arlington, Virginia. (Photo by Drew Angerer/Getty Images)

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