A $5,000 cap on out-of-pocket costs could reduce Medicare expenses for enrollees with the most healthcare needs by more than 50%, a new study found.
The study, conducted by the Urban Institute, aims to implement cost-saving measures into traditional Medicare, which does not have a cap compared with private Medicare Advantage plans. However, any cap would increase Medicare spending and could lead to lower enrollment on MA plans.
“The benefit design in Medicare has failed to keep up with commercial health insurance, where out-of-pocket caps are standard,” said Katherine Hempstead, senior policy adviser with the Robert Wood Johnson Foundation, which funded the study.
Urban’s researchers conducted a simulation to determine estimated 2023 Medicare costs and out-of-pocket spending.
It found that more than 4.5 million Medicare enrollees—12% of all enrollees—will spend more than $5,000 out-of-pocket next year. The $5,000 cap would decrease costs for high-spending enrollees by 51% and reduce supplementary plan spending by roughly 51%.
However, it would also increase Medicare spending by $38.8 billion in 2023 relative to current law.
The cap also would reduce premiums for supplementary insurance payments, “premiums for Medigap plans and federal Medicaid expenditures for enrollees dually covered by Medicare and Medicaid,” the study said.
Overall supplementary and Medigap plan spending would fall by $12.3 billion under the cap, leading to lower premiums for plans.
The study was created in part to address how to level the playing field between MA plans and traditional Medicare, as enrollment in MA has surged in recent years.
MA enrollment has grown to an estimated 45% of total Medicare enrollment this year, according to data from the Chartis Group. Other estimates project that MA enrollment will make up a majority of all Medicare in the coming years.
But the installation of a $5,000 out-of-pocket cost cap could be a mixed bag for private MA plans, an increasingly lucrative market for insurers.
On the one hand, the installation of a cap could drive more beneficiaries away from MA as they would have lower premiums for Medigap plans that cover benefits and costs that traditional Medicare doesn’t, said Anuj Gangopadhyaya, senior research associate at the Urban Institute, in an interview with Fierce Healthcare.
But Gangopadhyaya said that MA plans could also benefit from a spending cap.
Payments to MA plans are tied to benchmarks that are calculated from traditional Medicare spending in a certain area.
An out-of-pocket cost cap could increase traditional Medicare spending and put an “upward pressure on those benchmarks,” Gangopadhyaya said. “That could lead to increased payments for MA plans.”
So far, there has not been much movement to install a full out-of-pocket cap in Congress. There was movement to include a $2,000 cap on Medicare Part D costs as part of the Build Back Better Act, but that effort has stalled with the collapse of the massive $1.75 trillion package.