Why shouldn’t traditional Medicare have an out-of-pocket cap? It would eliminate the need for people in traditional Medicare to have supplemental coverage and it would put traditional Medicare on a more level playing field with commercial Medicare Advantage plans, which have an out-of-pocket cap. A Commonwealth Fund report by Cathy Schoen et al. proposes an out-of-pocket cap in traditional Medicare that members of Congress would be wise to consider.
An out-of-pocket cap in traditional Medicare would simplify things for enrollees significantly as they would not need Medicare supplemental insurance (“Medigap”) to protect themselves from financial risk, if they did not have retiree wrap-around coverage or Medicaid. And, the report authors find that a $3,500 cap–half the amount of the maximum cap in Medicare Advantage plans–would cost about $428 a year ($36 a month), far less than the cost of a Medigap plan. (The average out-of-pocket cap in Medicare Advantage plans is $5,332.)
The report authors posit that a $10 a month or so increase in the Medicare Part B premium coupled with less than a 1 percent increase in the payroll tax (0.3-0.4 percent) would cover that additional $500 cost. And, with this cap, people in traditional Medicare could choose to drop their Medigap at a savings of $1,500-$2,000 a year, on average.
Taxpayers and people still wanting Medigap coverage would all benefit from this out-of-pocket cap. Both Medicaid and Medigap costs would come down. The report authors estimate a savings to Medicaid of $2.8 billion a year, for the federal government and states together.
And, businesses paying for retiree coverage that supplements Medicare would also see a reduction in their costs. The report authors estimate $6.8 to $7.3 billion dollars in annual savings for these businesses. Moreover, people with disabilities, who are sometimes unable to buy Medigap coverage, would have greater financial security.
Other proposals to redesign traditional Medicare, particularly Republican proposals, raise out-of-pocket costs for people with Medicare. Some propose to raise the deductible. Others prevent Medigap plans from covering as much of people’s out-of-pocket costs as they currently do. The goal of these proposals is to save the government money.
The report authors also propose to eliminate the high deductible people needing hospital services must pay under Medicare Part A–$1,350–instead requiring people to pay a less costly copayment of either $100 or $350 for each hospitalization.
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