Cost-Shifting to Medicare Beneficiaries: A Route to Decreased Access and Increased Cost

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1 Cost-Shifting to Medicare Beneficiaries: A Route to Decreased Access and Increased Cost Jeanne L. Rupert DO PhD Health Policy Fellowship Class of 2014

2 Medicare Pressure on the Federal Budget Medicare is a large basket which holds almost all Americans age 65+ Aging of Baby Boomer demographic will increase total Medicare expenses Controlling Medicare expenses is a major budget target

3 Medicare Pressure on the Federal Budget

4 Vulnerability of Medicare Beneficiaries Chronic health conditions 69% have 2 or more 1 Lack of financial resources 50% have income under $22,500 per yr 2 Gender and race 43% of Black & Hispanic women over 65 live on less than $10,000 per year 3

5 Income and Wealth Disparities among Medicare Beneficiaries Medicare Beneficiary Groups Average Income per year per individual Average Wealth (all assets) Those with no savings (% of individuals) White $24,800 $85,950 5% Black $15,250 $11,650 20% Hispanic $13,800 $12,050 20% Source: Jacobson G, Huang J, Neuman T and Smith K. Wide Disparities in the Income and Assets of People on Medicare by Race and Ethnicity: Now and in the Future. Menlo Park, CA: Kaiser Family Foundation, September 2013.

6 Seniors Health Expenses Average out-of-pocket in 2012 was $4722, or 13.9% of annual budget Health insurance premiums 2/3 of total Households between 100% and 200% of the Federal Poverty Level spent 15.7% of income on health care, highest of any group 4 1/3 of all Medicare beneficiaries in this segment 5

7 Seniors Health Expenses Medicare covers about 62% of seniors health care costs, excluding long-term care, per Employee Benefits Research Institute study 6 Only 28% of U.S. employers offer retiree health benefits 7 For 25% of seniors, final expenses exceed the total value of their remaining assets 8 In 2012, 43% of those over 65 delayed health care due to cost 9

8 Impact of Increased Cost-sharing Robert Wood Johnson Foundation study (2010) found that: Patients are not able to discern which choices in their care are inappropriate Vulnerable populations shift types of services used, which increases overall expenditures Increases in cost-sharing for elderly may result in higher Medicare program costs 10

9 Vulnerability in the Federal Health Care budget Seniors who are impoverished qualify for Medicaid assistance Dual eligibles were 14% of all Medicare beneficiaries in 2010, and accounted for approximately 1/3 of all Medicaid & Medicare spending 11

10 Stakeholders in Medicare revision proposals Current and soon-to-be seniors, and their families Federal budget officials, both elected and employed Hospitals and nursing homes All health care providers Senior advocacy organizations Organizations concerned with social and economic equity Organizations concerned with fiscal stability of the federal budget

11 President s 2015 Medicare Budget Proposals 12 Key changes Increase part B and part D premiums for top 25% of income Increase part B premiums for new beneficiaries starting in 2018 Raise co-pays for name brand drugs for lowincome seniors Home health co-payment Impact on access/ affordability Likely small to none Potential decrease Likely decrease Likely decrease Opponents AARP; National Committee to Protect Social Security and Medicare; Medicare Rights Center; National Association of Insurance Commissioners; Center for Medicare Advocacy Supporters Bipartisan Policy Center; Center for American Progress; Moment of Truth Project Tax on Medigap plans Potential decrease

12 Sen. Paul Ryan s Budget Proposal Voucher support for Medicare Very likely decrease access and affordability for vulnerable beneficiaries Supported by fiscal conservatives Opposed by broad base of consumer and senior advocacy organizations 13

13 Re-framing the Discussion Current strategies do not address the fundamental structural problem of Medicare insurance, which is its exposure to socioeconomic externalities Externality is a consequence not captured by usual pricing mechanisms 14 Medicare absorbs: income and wealth differences race and gender differences prior health status differences prior health care access differences disconnect between pre-65 and post-65 insurance

14 Ways to Recapture Externalities Rebate system aimed at states and/or insurers who deliver healthier people to Medicare at age 65 o allows for innovation of care models o fits with ACO structures Reward individuals for better choices o rebates for achieving health targets o premium credits for community support Income-related deductibles o reward those who use fewer resources o subsidize those who need more care

15 Recommendations The multitude of proposals presently focus on costs and deficits Shifting the focus to health outcomes will have beneficial fiscal effects Incentives should be designed to match desired outcomes Putting health first will protect the Federal budget

16 Notes 1. Reports/Chronic-Conditions/Downloads/2012Chartbook.pdf 2. Jacobson G, Huang J, Neuman T and Smith K. Wide Disparities in the Income and Assets of People on Medicare by Race and Ethnicity: Now and in the Future. Menlo Park, CA: Kaiser Family Foundation, September Many Older Women on Medicare are Impoverished, Kaiser Family Foundation slide based on the Medicare Current Beneficiary Survey Access to Care file, Accessed at: 4. Cubanski, J., T. Neuman, G. Jacobson, and K. Smith, Raising Medicare Premiums for Higher-Income Beneficiaries: Assessing the Implications. Menlo Park, CA: Kaiser Family Foundation, January Umans B and Nonnemaker K. The Medicare Beneficiary Population. Washington: AARP Public Policy Institute, Accessed at 6. Fronstin, P., D. Salisbury, and J. VanDerhei, Amount of Savings Needed for Health Expenses for People Eligible for Medicare: More Rare Good News. EBRI Notes, Vol. 34 No. 10. Washington DC: Employee Benefit Research Institute, October McArdle, F., T. Neuman and J. Huang, Retiree Health Benefits at the Crossroads. Menlo Park, CA: Kaiser Family Foundation, April Graham, J. (2012, September 21). The High Cost of Out-of-Pocket Expenses. New York Times. Accessed at: newoldage.blogs.nytimes.com/2012/09/21/the-high-cost-ofout-of-pocket-expenses

17 Notes (continued) 9. Kaiser Family Foundation poll, conducted May Data accessed at: update.pdf 10. Swartz, K. Cost Sharing: Effects on Spending and Outcomes. Research Synthesis Report No. 20. Princeton, NJ: Robert Wood Johnson Foundation, Dec Jacobson, G., T. Neuman and A. Damico. Medicare s Role for Dual Eligible Beneficiaries. Menlo Park, CA: Kaiser Family Foundation, April Van de Water, P. Medicare in Ryan s 2014 Budget Washington: The Center on Budget and Policy Priorities, March 15,