- Modernizing the Medicare fee-for-service (FFS) cost-sharing design to include features of private plans, such as cost caps, could reduce some of the current uncertainty around beneficiaries’ annual cost-sharing burden, but would involve trade-offs, a new Government Accountability Office report finds.
- GAO looked at four FFS cost-sharing designs to see how modernizing cost-sharing designs would affect beneficiaries’ costs over a period of years.
- Among other things, the analysis showed that capping annual cost-sharing while maintaining Medicare’s aggregate share of costs would require a trade-off between the size of the cap and other cost-sharing responsibilities.
For example, in year one of a design with no deductible, 18% co-insurance and a $10,000 cap, the median annual cost-sharing burden would be $479, well below the current $621, GAO says. In contrast, the cost-sharing burden in a design with a $1,225 deductible, 20% co-insurance and a $3,400 cap would be about $1,486 — 2.4 times higher than the current design. At the end of eight years, the median out-of-pocket costs for the two designs would be 1.1 and 1.6 times higher than the current design.
Out-of-pocket costs are a major barrier to access to care, and those costs rise as people age. According to the Kaiser Family Foundation, half of Medicare beneficiaries in traditional Medicare FFS plans spent at least 14% of their income on out-of-pocket healthcare costs in 2013. That figure rose to 74% for people 84 and older.
The current Medicare FFS cost-sharing design is more than 50 years old and includes no cap on annual out-of-pocket costs. Patients can wind up with catastrophic medical bills that Medicare won’t cover, fueling demand for supplemental insurance.
Besides its direct effects, modernizing the cost-sharing design could change demand for supplemental insurance and alter the way beneficiaries use services. For example, if Medicare capped the cost-sharing responsibility and enough healthy beneficiaries dropped their supplemental insurance, premiums for supplemental plans would likely increase to cover the costs of a sicker member pool.
CMS is also interested in reducing over-utilization. While some proposals suggest uniform co-insurance for all types of services, others would set cost-sharing based on a service’s value. “While a value-based design would specifically target cost-sharing to promote prudent use of health care services, implementing it is challenging in practice and would be more complicated for beneficiaries to understand and for CMS to administer,” the report says.