Tom Conlon
Public
Health Management and Policy
Online Text
Book Chapter
The Medicare Prescription Drug, Improvement and Modernization Act of
2003
Introduction
As noted earlier in this online textbook, Medicare is the United
States federally sponsored health-insurance program for citizens age 65 or
older, some people under age 65 with disabilities and people with End Stage
Renal Disease.
On December 8, 2003 President George W. Bush signed into law
the Medicare Prescription Drug, Improvement and Modernization Act of 2003
(MMA). The MMA makes the most
significant changes in benefits, quality and system design in the 40 years of
Medicare's history. In signing the bill,
President Bush stated that the "goal of MMA is to give the elderly more
choices, better benefits and real savings." The MMA also hopes to allow Medicare services
to:
q be delivered in a more timely manner
q achieve better safety and effectiveness outcomes
q improve the efficiency and reduce waste of services
provided
q increase the productivity of the massive national
infrastructure and support systems that make Medicare work.
There are major elements of MMA that relate only to hospitals,
physicians and Medicare vendors. Those
changes are not addressed here.
This chapter instead focuses on how MMA
most affects Medicare beneficiaries and other health care consumers. The first section describes the most
significant aspect of MMA—the Prescription Drug Benefit that will become
available in 2006. The second section
covers MMA initiatives designed to make Medicare Advantage managed care plans
more accessible and attractive to beneficiaries. The third section looks at other key changes
to Medicare benefits. The fourth section
reviews Health Savings Accounts, which were added to MMA to encourage
non-Medicare beneficiary use of high-deductible health plans. The chapter closes with some cautionary
recommendations for Medicare beneficiaries in a “modernized” Medicare
environment.
1. The Prescription Drug Benefit Program
From inception in the mid-1960s, Medicare
has provided health insurance to elder and certain disabled Americans that
covered hospitalization and physician services. During this time millions of Medicare
beneficiaries developed chronic illnesses such as heart disease, hypertension,
diabetes and various mental disorders.
Numerous drug therapies were developed over the past 30 years to treat
these and other chronic illnesses.1 However Medicare offered no insurance coverage for
these drug treatments. The MMA changed
that by finally bringing prescription drug coverage to elderly Americans.
The prescription drug insurance coverage
will be offered to Medicare beneficiaries by private insurance plans (in much
the same way as auto insurance is offered to drivers by private companies like
State Farm and Allstate).
Enrollment in the Medicare drug plan is
optional. Most beneficiaries will have
two plan options to assess as they decide whether or not to enroll in a
prescription drug program.
One option will be a stand-alone
Prescription Drug Plan (PDP), which is likely to be the most popular choice
among seniors. With PDPs, beneficiaries
will receive drug insurance coverage from private insurers in exchange for
accepting a PDP contract and paying a monthly premium.
For many people, prescription drug
coverage will also be available through a Medicare Advantage managed care
plan. Medicare Advantage plans are
typically health maintenance organizations (HMOs) that coordinate all health
care provided to beneficiaries. Many of
these Medicare Advantage plans will bundle prescription drug insurance coverage
with the primary care, specialty care and hospitalization services that are provided
by the managed care organization.
Drug coverage details for Medicare
Advantage plans will not be presented in this section. Few beneficiaries belong to Medicare
Advantage plans. And while each Medicare
managed care plan offers unique insurance coverage, the drug plans offered
through Medicare Advantage will be very similar to stand-alone PDPs. So this section will focus on reviewing the insurance
features of the stand-alone plans.
The three most important questions
Medicare beneficiaries should answer before joining a stand-alone PDP are:
q Are the drugs that I take covered by the PDP?
q Compared to the price that I would pay as an
individual drug buyer, what are the prices the PDP charges for the drugs that I
take?
q Are the insurance benefits worth the out-of-pocket costs?
How to go about answering
these questions is discussed below.
Are the drugs that
I take covered by the Prescription Drug Plan?
Each Prescription Drug Plan (PDP) will
have a unique list, or formulary, of the drugs that will be covered by their
insurance plan. These competing
formularies will be similar, as Medicare rules have established minimum
standards for what types of drugs must be offered by all plans. But the PDPs will not cover all drugs, nor
will all formularies be the same.
In assessing PDPs, the most important
first step for Medicare beneficiaries is to compare the prescription drugs that
they take to the list of drugs covered by PDPs.
Beneficiaries should only assess further those PDPs that cover all or
most of the drugs they are taking.
Is the Prescription
Drug Plan offering better drug prices than I can obtain on my own?
The principal reason why private companies
will provide the drug benefit is that Congress and the Bush Administration
believed that through competition, private insurers would negotiate comparable
or lower prices with drug suppliers than the government could negotiate on its
own. Medicare expects that the price
discounts and cost management techniques that drug plans implement will result
in savings to beneficiaries of 15% in 2006, 17% in 2007, 19% in 2008, 21% in
2009 and 23% in 2010.2
PDPs will make many claims about the drug
price discounts they have obtained from pharmaceutical suppliers. The amount of these discounts will typically
be relative to drug manufacturers’ listed retail or average wholesale drug
prices. These prices are like the
retail list price of a new car. Often
the “list” drug price is artificially high, as the expectation is that the
price bargaining begins from this
Many people buying prescription drugs are
already receiving senior citizen, state pharmacy plan, Canadian pharmacy or
other group discounts off the drug “list” price already. So be careful. The PDP-stated drug discounts may be of
little value to people who are already receiving substantial drug discounts off
the retail list price.
For example, The Wall Street Journal
reported on February 15, 2005 that an individual buying certain prescriptions
directly from Costco found better pricing than General Motors negotiated on
behalf of its entire workforce. The Journal
reported that ninety pills of a common generic anti-ulcer medicine cost GM
employees $181, while the same drug could be purchased for $22 at Costco's
online service. Also, a generic form of
Prozac cost GM workers more than one dollar a pill but was only $.23 to an
individual buying at a retail store.3
The best way to assess PDP discount
promises is to compare the prescription drug prices that you pay now to the
prices for equivalent drugs offered by the PDPs.
Is the drug
insurance benefit worth the cost?
Here's how PDPs will work in 2006. The basic monthly premium to join a plan will
be about $37 and the annual deductible will be $250. After the deductible is met, the PDP pays 75%
of the beneficiary’s drug costs up to $2,250.
No insurance coverage is provided for expenditures between $2,250 and
$5,100 (the “Doughnut Hole”-see below).
Ninety-five percent of a beneficiary’s drug costs above $5,100 are paid
by the PDP.1
Like the Medicare Part B plan that covers
physician services, the premium for the standard Medicare drug benefit is
heavily subsidized by the federal government.
The total annual premium for the drug plan is expected to be about
$1,740 per beneficiary in 2006. The
federal government will pay 75%—or about $1,300—of this premium, while the
Medicare beneficiary picks up the remaining 25% of premium cost—or about $440
($37 per month).1
Let's look at an example for a
hypothetical enrollee to see how a PDP plan works. Say the beneficiary expects to have $1,500 in
prescription drug expenses in 2005—or about $125 a month. Let's assume the same drug expenses for
2006—the first year of the prescription drug program—and that she has no access
to any other drug discount program.
If this person joined a PDP on January 1,
2006, she would pay about $37 a month in insurance premiums. The first $250 worth of drugs purchased in
2006 would apply to the deductible, meaning the beneficiary pays this entire
amount. Once the annual deductible is
satisfied, the beneficiary would pay 25% of the $1,250 ($1,500 annual cost-$250
deductible) in additional drug costs incurred—or about $313. Assuming she had not received any drug
discounts before being in the PDP, the plan would save her $554—or about 37% of
the out-of-pocket costs if the beneficiary had no prescription drug insurance.
Table 1 below estimates the savings a
beneficiary would achieve given various estimated annual drug costs. This table may be useful in helping Medicare
beneficiaries decide whether or not to join a PDP. For example, if one expects to have less than
$1,000 in prescription drug costs, there is little benefit—and it may even be
more costly—to join a PDP. For people
who expect
|
Table
1. Estimated beneficiary costs and
savings for various annual drug costs. |
|||||||
|
Retail cost of drugs purchased by
an individual not in a drug plan |
Drug discount rate negotiated by Drug Plan |
Retail costs paid by an individual
in a drug plan |
Benficiary Share of Drug Costs |
Annual Insurance Premium |
Total Payment by Benefic-iary |
Savings (Loss) |
Savings % |
|
$500 |
15% |
$425 |
$294 |
$440 |
$734 |
($234) |
No Savings |
|
$750 |
15% |
$638 |
$347 |
$440 |
$787 |
($37) |
No Savings |
|
$1,000 |
15% |
$850 |
$400 |
$440 |
$840 |
$160 |
16% |
|
$1,200 |
15% |
$1,020 |
$443 |
$440 |
$883 |
$318 |
26% |
|
$1,500 |
15% |
$1,275 |
$506 |
$440 |
$946 |
$554 |
37% |
|
$1,800 |
15% |
$1,530 |
$570 |
$440 |
$1,010 |
$790 |
44% |
|
$2,400 |
15% |
$2,040 |
$698 |
$440 |
$1,138 |
$1,263 |
53% |
|
$3,000 |
15% |
$2,550 |
$1,050 |
$440 |
$1,490 |
$1,510 |
50% |
|
$4,000 |
15% |
$3,400 |
$1,900 |
$440 |
$2,340 |
$1,660 |
42% |
|
$5,100 |
15% |
$4,335 |
$2,835 |
$440 |
$3,275 |
$1,825 |
36% |
|
$6,000 |
15% |
$5,100 |
$3,600 |
$440 |
$4,040 |
$1,960 |
33% |
|
$7,500 |
15% |
$6,375 |
$3,664 |
$440 |
$4,104 |
$3,396 |
45% |
|
$8,500 |
15% |
$7,225 |
$3,706 |
$440 |
$4,146 |
$4,354 |
51% |
|
$10,000 |
15% |
$8,500 |
$3,770 |
$440 |
$4,210 |
$5,790 |
58% |
|
$15,000 |
15% |
$12,750 |
$3,983 |
$440 |
$4,423 |
$10,578 |
71% |
|
$20,000 |
15% |
$17,000 |
$4,195 |
$440 |
$4,635 |
$15,365 |
77% |
|
Tom Conlon 2005 |
|||||||
more than $1,000 in
drug costs in 2006, joining a PDP may make sense. Given various annual drug costs and retail
discount estimates, beneficiary savings range from 20% to more than 70%. But remember, these savings assume the
beneficiary has received no previous drug discounts.
The "Doughnut
Hole"
The "Doughnut Hole" is the gap
in coverage for the Medicare prescription drug plans. As noted above, this means that no insurance
coverage exists for out-of-pocket expenditures between $2,250 and $5,100. For example, say a beneficiary has $3,250 in
drug costs in 2006. After paying the
$250 deductible, the beneficiary will pay 25% of the cost of their prescription
drugs up to $2,250. The beneficiary
would then pay 100% of the costs above the $2,250 threshold—in this case $1,000
($3,250-$2,250). The $1,000 represents
the hole in the doughnut—the amount of drug costs not covered at all by the
PDP.
The coverage gap was designed to help
lower the federal cost of the prescription drug plan, which as currently
designed is expected to cost $82 billion dollars in 2006—or approximately $2,196
per Medicare beneficiary. The per
beneficiary cost is projected to increase to $3,830 in 2014. Total Medicare prescription drug cost from
2005-2014 is projected to be $1.1 trillion.
The federal government will cover about $850 billion of this total.4
Keep two things in mind about the
“Doughnut Hole”. One is that, even with
the gap, if you have more than $1,000 in annual drug costs, the plans may be
worth joining—even with the hole in the middle of the coverage (See Table
1). Secondly,
substantial cash outlays will still be required for those beneficiaries
incurring between $2,250 and $5,100 (or about $190-$425 per month)—though
overall this expense would be less than if the beneficiary had no drug insurance
coverage or had no access to drug discount programs.
Substantial
Support for People with Low Incomes and Limited Assets
Of the estimated 43 million Medicare
beneficiaries projected for 2006, approximately 14.4 million—about one
third—are low income beneficiaries eligible to participate in the prescription
drug benefits low income subsidy program.
Eligibility for the subsidy is determined by the income and assets a
person or married couple has. The low
income support program offers substantial cost relief and nearly 11 million
beneficiaries are expected to enroll in the subsidy program.5
People who have incomes below 150% of the
Federal Poverty Level ($14,355 for an individual and $19,245 for a couple in
2005) and who have limited assets (up to $10,000 for individuals, $20,000 if
married) are eligible to receive subsidized drug benefits. The assets qualifying for this determination
are limited, including checking and savings accounts, stocks, bonds and other
assets that can be quickly converted to cash.
A family home, personal car and other personal property do not count
toward the asset determination. The
benefits include waving or substantially reducing the premiums, deductibles and
co-payments, and a limitation of the “Doughnut Hole”. For qualifying individuals the plans pay
between 80% and 100% of all drug costs from the first prescription.5
Here are some hypothetical examples Medicare
has provided on how beneficiaries benefit from the low income program.5
Example 1
Mrs. Smith is an 80 year old widow. She has an annual income of $9,000 and no countable assets. She is a Medicare and Medicaid (“dual eligible”) individual and her annual drug costs are $750. In 2006, she will be eligible for the new Medicare prescription drug benefits low income subsidies. She will pay no premium, no deductible and will have no gap in coverage. She will pay either $1 dollar or $3 dollars for each prescription depending on whether she uses generic or non-preferred drugs. Under the Medicare prescription drug program Mrs. Smith will pay only about $20 a year for her drug costs.
Example 2
Mr. and Mrs. Jones are retired Medicare beneficiaries. As a married couple they have annual income of $16,000 with countable assets valued at less than $9,000. Mr. Jones has annual drug spending of $1,250 while Mrs. Jones spends $750. Currently they have no drug coverage. In 2006 the Joneses will be eligible for the new Medicare prescription drug benefit and subsidies. They will pay no premium, no deductible and will have no gap in coverage. They will have co-payments of $2 or $5 dollars for each prescription. Under the Medicare prescription drug program, Mr. Jones will pay about $57 a year for his drug costs and Mrs. Jones will pay about $34. Both will achieve about 95% savings on their current drug spending.
Example 3
Mr.
Other Prescription
Drug Plan Features
The Medicare prescription drug plans have
no annual or lifetime spending limits.
Each plan must offer enrolled beneficiaries nationwide coverage. Drug discount cards were established for 2004
and 2005 as a temporary benefit prior to the full program launch in 2006; the
card discount program ends on December 31, 2005.
Out-of-pocket costs will increase
annually, with the amount tied to the increase in drug costs. Since drug costs are projected to
substantially outpace Social Security cost-of-living adjustments, the standard
drug benefit plans as currently designed will become less and less attractive
over time. Especially for chronically
ill people just above the income and asset levels that allow for low income
subsidies. See Table 2 for the
Congressional Budget Office estimate of the projected out-of-pocket increases
for 2006-2013. The increases are mostly between
7-10% per year.
|
Table
2. Projected Change in Key Program
Elements 2006-2013. |
|||||
|
Year |
Average Monthly Premium |
Deductible |
Main Benefit Limit |
Catastrophic Limit |
Coverage Gap (“Donut Hole”) |
|
2006 |
$35 |
$250 |
$2,250 |
$5,100 |
$2,850 |
|
2007 |
$37 |
$275 |
$2,470 |
$5,596 |
$3,126 |
|
2008 |
$41 |
$300 |
$2,710 |
$6,158 |
$3,448 |
|
2009 |
$43 |
$325 |
$2,920 |
$6,596 |
$3,676 |
|
2010 |
$47 |
$350 |
$3,170 |
$7,165 |
$3,995 |
|
2011 |
$49 |
$380 |
$3,400 |
$7,715 |
$4,315 |
|
2012 |
$54 |
$410 |
$3,690 |
$8,360 |
$4,670 |
|
2013 |
$58 |
$445 |
$4,000 |
$9,068 |
$5,068 |
|
|
|
Chart by The
Congressional Budget Office |
|||
|
Note:
When this chart was created in 2003, the 2006 premium estimate was $35. Since that time, CMS has revised the
projected 2006 premium estimate to about $37.
|
|||||
Anyone who is entitled to Medicare Part A
(hospitalization) and is enrolled in Medicare Part B (physician services) is
eligible for the drug benefit—which is labeled Part D. The drug benefit programs begin coverage on
January 1, 2006. Enrollment is
voluntary, which means people must “opt in” to a program by completing an
enrollment form. The initial enrollment
period begins on November 15, 2005 and runs for six months ending May 15,
2006. For people
enrolling by December
31, 2005, coverage begins on January 1, 2006.
For those enrolling from January 1-May 15, drug coverage starts on the
first day of the month following an enrollment.
In later years open enrollment will run from November 15 to December
31. Once a beneficiary chooses a drug
plan they must generally remain in that program for the year. However in the first six months of 2006 and
in the first three months of 2007, enrollees will have options to move to a
different program after January.6
Closing Thoughts
on the PDPs
The prescription drug plan program is primarily
a catastrophic insurance plan for Medicare beneficiaries who do not qualify for
the low income subsidy programs. While
most of these seniors will now have lower drug costs, the greatest benefit is
for those who have very high drug costs—say about $600 a month or $7,200 a
year. If you incur these types of costs,
this insurance plan can supply substantial savings.
And if you do qualify for the low income
subsidy, the prescription drug plan offers significant benefits if no previous
low income support was provided.
2. Medicare + Choice
Expanded, Renamed Medicare Advantage
Medicare offers two
health plan choices. The Original
Medicare Plan is a fee-for-service plan, which means a fee is charged for each
health care service or supply a beneficiary receives.7 Eighty-eight
percent of Medicare beneficiaries (over 36 million people) have their health
bills paid by the original fee-for-service program.8
Approximately 11%
Medicare beneficiaries are covered by managed-care plans.8 These
offerings were formerly known as "Medicare + Choice Plans". The MMA renamed the managed-care offerings
"Medicare Advantage".
Enrollment in
Medicare managed-care plans was 4.6 million in 2004, down from 6.3 million in
2000—a drop of 27%. This drop is largely
attributed to beneficiary dissatisfaction with increases in out-of-pocket costs
and perceived reductions in benefits.
The decline was also driven by a steep reduction in available
plans. In 2004, 145 plans offered
Medicare managed-care, down from 346 in 1998.
The vast majority of beneficiaries belong to Medicare health maintenance
organization (HMO) plans. More than 25%
of Medicare managed-care enrollees live in California, where residents are well
accustomed to health maintenance organizations.8
Medicare wants to make
managed-care services more accessible and affordable to beneficiaries. Medicare believes that people joining
Medicare Advantage plans often receive more benefits than is offered in Original
Medicare, such as access to preventative and wellness services, disease
management programs and dental and vision care.
These plans may also offer less paperwork than Original Medicare. Medicare also claims that Medicare Advantage
members incur lower out-of-pocket costs, suggesting the average beneficiary
saves $700 per year. Beneficiaries in
poor health achieve nearly $2,000 in annual savings.9 Over the
long-run, many policy makers believe that Medicare Advantage plans will slow
the rate of growth of Medicare expenditures, although that has not been the
case so far with the Medicare+Choice plans.10
The MMA seeks to
boost access and affordability by providing private insurers numerous financial
incentives to offer new managed care plans to Medicare beneficiaries. One change beneficiaries will see as a result
of MMA is new regional preferred provider organization plans (PPOs) that will
be available in 2006. PPOs are networks
of doctors and hospitals that contractually agree to provide health services at
a specified rate, but which allow beneficiaries to go outside the network for
health care if desired, albeit at a higher cost. PPOs may benefit Medicare enrollees,
especially those in rural areas, by providing access to more health care
providers and services, by lowering out-of-pocket costs while also allowing
options to see alternative providers.9
MMA also offers
insurers financial incentives to expand their HMOs so that beneficiaries have
more access to these types of coordinated care plans. Finally, MMA extends incentives to insurers
to add the prescriptions drug program to their managed care offerings.
All Medicare
Advantage plans are different, meaning beneficiaries must carefully evaluate
plan benefits rules and costs. For
example, beneficiaries should understand which doctors and hospitals will
provide most of their care, how disease management programs function and how
the prescription drug benefit plan is designed.
This process may be familiar to beneficiaries who made health insurance
plan choices offered by an employer.
However beneficiaries not accustomed to understanding managed-care
products may find the process daunting.
In either case, beneficiaries should seek help in making the important
decision on which type of Medicare plan to join.
The "Medicare
Personal Plan Finder" on the CMS Web site offers some help for
beneficiaries to compare plan features and estimate out-of-pocket costs. The "Medicare Personal Plan Finder" can
be accessed at http://www.medicare.gov/MPPF/home.asp.
However this information may be less
informative than tailored estimates provided by the private insurance plan.11 Family members, senior citizen service agencies and
primary care providers are other sources that can help beneficiaries make the best
Medicare plan choice.
3. Other
Key MMA Changes for Beneficiaries
The MMA added
coverage for a number of preventative services, made changes to the Part B (physician
services) deductible and premiums and modified Medigap rules.
An initial preventative
medical examination is now offered within six months of when a beneficiary
first becomes enrolled in Medicare Part B.
Screening blood tests for the early detection of cardiovascular disease
are added, as are diabetes tests for those people most at risk for that disease.
The MMA also adds disease management
programs to manage and promote health for those with chronic illnesses.12
The Part B deductible
will increase from $100 to $110 for 2005 and then increase annually by the same
percentage as the Part B premium increase.
MMA also introduces means testing for the Part B premium subsidy
beginning in 2007. Currently 75% of the
Part B premium is paid by the federal government and 25% is paid by the
Medicare beneficiary. Beginning in 2007
and phased in over the five-year period, higher income people will have the
Medicare Part B subsidy reduced as follows:
|
Income |
Part B |
|
|
Single |
Married |
Premium Paid By Medicare |
|
Less
than $80,000 |
Less
than $160,000 |
75% |
|
$80-$100,000 |
$160-$200,000 |
65% |
|
$100-$150,000 |
$200-$300,000 |
50% |
|
$150-$200,000 |
$300-$400,000 |
35% |
|
Over
$200,000 |
Over
$400,000 |
20% |
According to the
Henry J. Kaiser Family Foundation, about 3% of Medicare beneficiaries will be
subject to this means testing in 2007, growing to 6% of enrollees in 2013.8 (The Part B annual
premium is $936 in 200513). What's
significant about this initiative is not the subsidy savings that Medicare will
achieve. Rather, this is the first time
higher income beneficiaries will receive benefits that are means tested. This theme will likely recur in future
Medicare cost containment debates and legislation.
Medigap plans are
insurance policies sold by private insurance companies to fill "gaps"
in Original Medicare Plan coverage. Two
new Medigap plans will be added in 2006 to help beneficiaries with
out-of-pocket costs; these plans have not yet been defined. Also, no new Medigap policies with drug
coverage may be sold, issued or renewed to beneficiaries who have enrolled in a
Part D prescription drug plan. This
restriction does not apply to policy renewals for beneficiaries who do not
enroll in a Part D drug plan.
4. Health Savings
Accounts
Health Savings
Accounts (HSAs) were literally tacked on to the end of the Medicare
Modernization Act despite having little to do with the Medicare program. HSAs are savings accounts designed to
encourage the use of high-deductible health plans. High-deductible health plans should first be
understood before examining HSAs.
High-deductible
health plans (HDHPs) are insurance plans that have a deductible of at least
$1,000 for individuals and $2,000 for families.
Proponents of HDHPs believe such plans lower overall health care costs
by making consumers more cost conscious of their health care choices and make
health insurance more affordable for the uninsured. Others believe there is little advantage
gained by increasing incentives for purchasing HDHPs, as health premiums still
remain too costly for most low income people and that altering incentives for
health spending below the deductible level has little affect on overall health
spending. Opponents also believe that high-deductible
health plans lead to underutilization of needed care.14
The MMA created
Health Savings Accounts to encourage greater use of high-deductible health
plans. HSAs are savings accounts that
have tax advantages but are only available to people who have enrolled in a
HDHP. Funds placed in HSAs are intended
to cover out-of-pocket medical expenses.
HSAs have three tax advantages: (1) contributions to the accounts are
tax-free; (2) buildup in the account is tax-free; and (3) distributions from
the account are tax-free. Distributions
can be used for any un-reimbursed medical expenses, including retiree health
insurance, Medicare expenses, prescription drug costs and many other health
items.12
HSA contributions can
be made by individuals, their employers and family members—all on a tax-free
basis. Up to 100% of the health plan
deductible may be saved annually, with a maximum of $2,600 for individual plans
and $5,150 for family plans. Individuals
age 55-65 can make additional tax-free contributions of up to $1,000 per year.12
HSAs became available
in 2004 and are related to health reimbursement arrangements (HRAs) and Medical
Savings Accounts (MSAs) created in the mid-late 1990s. HRAs and MSAs also provided tax incentives to
encourage the use of high-deductible health plans, but these incentives were
not highly successful. Only about 8% of
privately insured adults aged 19 to 64 (about 7 million people) had deductibles
of $1,000 or more in 2002.14
Two factors suggest
that HSAs and HDHPs will be favored more by higher income people than lower
income people. One, higher income people
are more likely to have cash available to place in a tax advantage savings
account than lower income people. Two,
higher income people have higher tax rates, making the tax savings incentive
more meaningful to them compared to lower income people. HSAs and HDHPs may also be more attractive to
healthier people compared to chronically ill people. Healthier people will incur lower
out-of-pocket health expenditures than chronically ill people, making the
accumulation and returns from the tax advantage HSA higher than if the account
is depleted every year, as would likely occur for chronically ill people.
When you think about
Health Savings Accounts, always think too about high-deductible health plans. They are inextricably linked. HSAs and HDHPs are likely to remain health
coverage options that will be used by a small minority of American, unless
employers make HDHPs the primary or only insurance plan offered to their
employees. Stay alert to this possible
development, as HDHPs may offer employers substantial health-insurance savings,
which is a goal of the majority of American businesses today.
Medicare Modernization—Some Cautions for Beneficiaries
The Medicare
Modernization Act adds many important and potentially valuable options for
Medicare beneficiaries. The most
important being the offer of prescription drug insurance coverage for over 40
million Americans.
MMA substantially
expands the use of private insurance plans in Medicare. Private plans deliver the prescription drug
programs and receive incentives to increase the number and type of Medicare
Advantage managed-care services available.
Proponents of private plans believe that market-based competition will
give beneficiaries more access and higher quality services, while lowering the
overall costs to the Medicare program.
This may turn out to be true. It
will certainly be what's promised.
But Medicare
beneficiaries must be cautious as they consider the prescription drug programs
and evaluate Medicare Advantage plans.
The prescription drug plans and Medicare Advantage are similar to and
build upon the private insurance model that Medicare+Choice plans were based
upon. The experience with private
sector-led Medicare + Choice delivery has not led to improved access and
quality and has in fact increased costs to Medicare. And Medicare beneficiaries have been very
dissatisfied with the private insurer health care delivery model.10
Beneficiaries and
their supporters should stay alert to three key factors as they manage their
Medicare benefits in the years to come.
One, private sector Medicare plans have a history of instability. Beneficiaries have seen significant changes in
premiums and benefits and many plans have entered and left the market quickly.10 Beneficiaries
should carefully assess the stability of their private plans and closely watch
plan changes that affect their out-of-pocket costs and benefits.
Two, Medicare private
insurance plans have historically enrolled healthier beneficiaries than those
in Original Medicare.10 Chronically
ill beneficiaries must be particularly careful when selecting drug or
managed-care plans to ensure that the benefits offered satisfy their chronic
health care needs.
The third factor is
the most important. All private
prescription drug and managed-care plans will be different, which makes
decision-making very complicated. This
will be especially true for urban beneficiaries where many plans will be
available.
This complicated
system is of greatest concern to 50% of the Medicare population that does not
have the consumer skills to compare basic information on health plans.15, 16 Studies have also shown that the elderly:
q are vulnerable to making poor purchasing decisions
when insurance options are confusing17
q are reluctant to change insurers, even when it is in
their economic benefit to do so.17 This is a
special concern given the substantial out-of-pocket increases expected after
2006 (see Table 2)
q find too many choices immobilizing18
q with low education levels or poor English skills have
particular difficulty in making insurance decisions19
Most beneficiaries
will be confronted with complicated, risky decisions in this modernized
Medicare world. And many beneficiaries
will not be able to navigate this decision-making maze.
Medicare beneficiaries
must receive ongoing help from family, friends, government agencies and other support
sources to help them make the best informed choices for their health care
needs.