- Medicare’s fee-for-service (FFS) cost-sharing design requires modernization to protect beneficiaries from catastrophic costs, but changing the current design may bring new financial concerns, a new GAO report found.
In 2015, eighty-one percent of Medicare beneficiaries receiving care in the FFS environment obtained supplemental coverage to avoid burdensome cost-sharing amounts. Beneficiaries are likely to experience financial strain as they begin to pay multiple premiums for multiple health plans.
GAO also found that a lack of cost-sharing spending caps caused a small percentage of beneficiaries to experience significant catastrophic healthcare costs.
“While most beneficiaries had cost-sharing responsibilities under $2,000 in 2014, one percent—over 300,000 beneficiaries—had responsibilities over $15,000, including several hundred beneficiaries with responsibilities between $100,000 and $3 million,” GAO said.
GAO referenced research conducted by Kaiser Family Foundation, MedPAC, and the American Academy of Actuaries which proposed cost-sharing issues could be fixed by revising Medicare’s cost-sharing design.
The proposed revisions include using a single deductible, modifying cost-sharing requirements, and providing an annual cost-sharing cap to address beneficiary cost concerns.
GAO found that while cost sharing in the Medicare FFS environment is financially troublesome for beneficiaries, changes made to the current cost-sharing design would create varying results for members.
Cost-sharing designs that feature relatively low deductibles and higher spending caps would result in median annual beneficiary cost-sharing responsibilities at or below what members pay in the current FFS design.
However, designs with relatively low caps would result in a median annual cost-sharing responsibility above current FFS amounts.
“For example, during year one of a design with no deductible, 18 percent coinsurance, and a cap near $10,000, we found that the median annual cost-sharing responsibility would be $479, which is below that of the current design ($621), despite the addition of a cap,” GAO explains.
“In contrast, during year one of a design with a $1,225 deductible, 20 percent coinsurance, and a cap near $3,400, the median annual cost-sharing responsibility would be $1,486, which is 2.4 times higher than that of the current design,” the organization added.
The cost-sharing responsibilities would decrease within the low spending cap design after an eight-year period, while increasing in the lower deductible design.
“The median annual cost-sharing responsibility under the design with a cap near $10,000 would increase from below that of the current design in year 1 to 1.1 times higher than the current design by the end of 8 years,” GAO said.
“In contrast, the median annual cost-sharing responsibility under the design with the cap near $3,400 would decrease from 2.4 times higher than the current design in year one to only 1.6 times higher by the end of 8 years.”
Modernizing the Medicare FFS structure would likely reduce beneficiaries’ need to purchase supplemental insurance, improve utilization rates, and may eventually drive Medicare members to switch from Medicare Advantage plans to traditional Medicare offerings.
GAO referenced several studies from MedPAC, the National Association of Insurance Commissioners, and the Congressional Budget Office that suggested premiums in supplemental plans would increase for other members as Medicare FFS enrollees dropped coverage.
Changes to FFS cost-sharing design may require a long-term solution developed by several stakeholders in order to lower the chances that Medicare beneficiaries experience catastrophic costs.