Combining Medicare, Medigap Coverage Could Save $180 Billion Over 10 Years

Combining hospital, physician, prescription drug, and Medigap coverage into a “Medicare Essential” plan could save $180 billion in health spending over the next 10 years while also improving care, according to a report released May 6 by the Commonwealth Fund.

Under the proposal, Medicare beneficiaries could save $63 billion between 2014 and 2023, with total premium and out-of-pocket costs for beneficiaries estimated to be 17 percent to 40 percent lower than current costs.

Private employers enrolled in retiree plans could save about $90 billion, and savings for state and local governments could total $27 billion over 10 years, the report said. The savings would come from simplifying administrative costs and rewarding delivery of high-quality, high-value care, according to the report, Medicare Essential: An Option to Promote Better Care and Curb Spending Growth.

Medicare Essential would not add to the federal budget deficit because its enhanced benefits are financed by premiums, which would be substantially lower than current premiums for Medigap and drug coverage, the report said.

Lower Administrative Costs
The savings come partly from lower administrative costs, compared with supplemental coverage purchased in the private insurance market, where administrative costs range from 10 percent to 20 percent, compared with 2 percent for traditional Medicare, according to the report.

It said Medicare fails to protect beneficiaries from high out-of-pocket costs unless they purchase a Medigap plan to cover expenses such as copayments and deductibles and also buy a Medicare Part D plan for prescription drug coverage.

The combined coverage “would offer better financial protection than traditional Medicare does, including a limit on out-of-pocket spending,” the report said. “Beneficiaries could see additional cost savings by selecting medical providers that deliver high-value care.”

“This plan builds on traditional Medicare, which beneficiaries are more satisfied with than private coverage,” Karen Davis, director of the Roger C. Lipitz Center for Integrated Health Care at the Bloomberg School of Public Health, and one of the report’s authors, said in a press release.

Overly Complex System
“But Medicare is overly complex, and it fails to protect beneficiaries against high costs unless they buy supplemental coverage,” Davis said. “Medicare Essential would simplify and modernize Medicare for beneficiaries and help keep premiums and out-of-pocket costs reasonable.”

The report is the latest in a series to be released by researchers and policymakers on health care reform, including ways to improve Medicare.

Under the Commonwealth proposal, a single $250 deductible would replace deductibles of $1,156 for each hospital episode and $140 annually for Part B services that were in effect in 2012. Prescription medications would be covered with no deductible, as would preventive care.

The plan would establish an out-of-pocket maximum of $3,400 a year to protect against catastrophic costs.

Physicians and hospitals that agree to be reimbursed through innovative payment methods designed to foster the delivery of high-quality, efficient care would be designated as “high-value providers,” and beneficiaries choosing such providers would save money through reduced cost sharing, the report said.

Under Medicare Essential, a beneficiary would spend an average of $354 monthly on premiums and out-of-pocket costs, including prescription drugs. This represents a savings of 17 percent, compared with a person who currently has traditional Medicare plus Part D and Medigap Part F supplemental plans.

Medicare Essential enrollees who use high-value providers would save even more: They would spend an estimated $254 a month, for a savings of 40 percent, the report said.

A summary of the report is at www.commonwealthfund.org/Publications/In-the-Literature/2013/May/Medicare-Essential.aspx.

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