Report examines the benefits and costs of adding a spending cap to traditional health insurance
Earlier this month, the Urban Institute released a report that investigated the addition of a $5,000 disbursement limit to Original Medicare (OM) and the limitation of specific payer spending, including disbursements from beneficiaries, the Supplemental Coverage Plan, and Medicaid. The report found that such a change would reduce spending for beneficiaries, as well as for Medicaid and supplemental insurance like Medigap, while increasing spending on the Medicare program.
Currently, people in OM and those with Part D prescription drug coverage have no limit on their potential annual medical costs. This sets this coverage apart from individual Marketplace plans, Medicare Advantage, and most employer-based coverages. It also jeopardizes the financial security of registrants. The absence of a disbursement limit may expose recipients to unmanageable expenses. While low-income beneficiaries may be able to enroll in Medicaid or Medicare Savings Programs (MSPs) which reduce their expenses and others may have access to retirement plans or may purchase Medigap plans to help cover Medicare costs, many have no one to turn to for help.
Urban is investigating what the effect would be of instituting a $5,000 cap in OM, including Parts A (hospital coverage), B (outpatient coverage), and D (drug coverage on arrangement). The report shows that currently, most OM beneficiaries, 32.6 million, face costs below $5,000 per year. These expenses are usually covered by out-of-pocket expenses or by supplements like Medicaid or Medigap. About 4.5 million have expenses over $5,000: 3 million face costs between $5,000 and $10,000, 800,000 between $10,000 and $15,000, and 800,000 over $15,000.
The researchers estimate that a $5,000 cap would halve out-of-pocket, Medicaid and Medigap expenses for high-cost beneficiaries. Medicare would cover the difference. This would increase Medicare spending for this population by about $8,500 (12.9%) per year. Across the entire OM population, this cap would reduce their cost sharing by 27.6%, split between out-of-pocket expenses, Medicaid, and Medigap, and increase Medicare program expenses by about $1,000. per person (7.8%). Part D of this change would be substantial. Out-of-pocket Part D spending would decrease by $1 billion (11.4%) while Medicare program spending for OM Part D enrollees would increase by 13.1%.
Urban is also investigating two other alternatives: adding a $2,000 cap to Part D in addition to a general cap of $5,000, and modeling a cap of $7,550, which matches the Medicare (MA) benefit in the network. maximum for 2022. Adding the Part D cap would benefit an additional 200,000 beneficiaries and add $2 billion to Medicare spending. Using the higher MA cap would cost about $14 billion less, but benefit 2 million beneficiaries less than the standalone cap of $5,000.
This report shows the significant benefits and costs of adding a cap to Original Medicare. At Medicare Rights, we support limiting beneficiary outlays program-wide, including in Part D. This cap should also apply and be lower than the current MA limits, which are too high. These updates would dramatically improve access and affordability for millions of people.
We will continue to urge Congress and the administration to advance such a proposal in their continued efforts to better protect the health, financial security, and well-being of all who depend on the program.
Read the report.