How Medicare benefit design changes would affect beneficiaries, spending

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Modifying Medicare’s benefit design could provide better financial protections for beneficiaries and reduce spending by other payers, the federal government and employers--yet “it will be difficult for policymakers to achieve all of these ends simultaneously,” according to a new analysis.

The analysis, from the Kaiser Family Foundation, models the effects of four proposals to alter Medicare’s benefit design:

  • Option 1: Establish a single $650 deductible for Medicare Part A and Part B services, modify cost-sharing requirements, add an annual $6,700 cost-sharing limit to traditional Medicare and limit the extent to which Medigap plans could cover the deductible. This option would reduce net federal spending by an estimated $5.5 billion and state Medicaid spending by $2.1 billion, and reduce beneficiary spending by $0.7 billion in 2018.
  • Option 2: Further lessen the spending burden on beneficiaries by reducing the deductible to $400 and the cost-sharing limit to $4,000. This would produce net savings of $3.8 billion for beneficiaries and for state Medicaid programs, but would substantially increase net federal spending by an estimated $8.8 billion in 2018.
  • Option 3: Give low-income beneficiaries better financial protection by providing them with full Medicare cost-sharing subsidies under the modified benefit design. This would result in aggregate savings of $1.9 billion for beneficiaries, but produce net federal savings of just $0.6 billion and state Medicaid savings of $2 billion.
  • Option 4: Make the modified benefit design more progressive by income-relating the deductible and cost-sharing limit. This option would reduce total beneficiary spending by an estimated $0.9 billion, while modestly increasing net federal spending by $0.3 billion in 2018 and reducing state Medicaid spending by $4.4 billion.

Of all the options, the first would produce the most federal savings, while the second option would offer greater financial protections for beneficiaries, the analysis says. Under each option, some beneficiaries would be better off relative to current policies while others would fare worse.

House Republicans, meanwhile, included Medicare benefit design reform proposals in their recently unveiled plan to repeal and replace the Affordable Care Act. Those proposals, combined with a new report from the Medicare trustees, are likely to make Medicare reform a bigger issue in the 2016 election.

- read the analysis