Money Down the Drain

This month, the Commonwealth Fund, a private foundation that supports independent research on the health care system, released a report on just how much Medicare beneficiaries pay out of pocket for health care. The news is sobering: on average, they spend $3,024 and that doesn’t include what they pay for premiums.

I’m not sure why premiums are considered separately, but they’re pricey, too. While Medicare part A (hospital coverage) is free for almost everyone over age 65, Medicare part B (doctors’ fees, outpatient care, and lab tests) costs $134 per person per month. That is, if you’re single and earned less than $85,000 in 2015, or married and jointly earned no more than $170,000. After those thresholds, the premium rises steeply, first to $187 per person per month (for joint incomes of up to $214,000) and then on up to a maximum of $429 for the most affluent. Then there’s part D for medications. The average monthly cost for a drug plan this year is $42 per person. And finally, there are Medigap plans if people want coverage for their deductibles and co-pays—the national average for those plans is $183 per person per month.

Looking at averages is not terribly enlightening, but fortunately, the report delves far deeper. It turns out that among  people with three or more chronic medical conditions (30 million of the 56 million people enrolled in Medicare), 29 percent spent at least 20 percent of their incomes on out-of-pocket medical care plus premiums. Among the nearly 14 million people with a serious physical and/or cognitive impairment, 38 percent spent at least 20 percent of their incomes on out-of-pocket medical care plus premiums. The poorest people are particularly hard hit: among the 17 million people with three or more chronic conditions or functional limitations whose incomes is less than 200 percent of the federal poverty level, 42 percent spend at least 20 percent on medical expenses.

After reading the report, I had two questions. First, how do Medicare beneficiaries in Medicare Advantage plans fare compared to those in conventional, fee-for-service Medicare? They pay part B premiums plus a part C premium—which is instead of Part D but also includes more comprehensive coverage with fewer co-pays and deductibles. The actual part C premiums vary tremendously, both within a given insurance company (in Massachusetts, for example, Blue Cross offers 6 different Medicare Advantage plans, with monthly premiums ranging from 0 to $295 per person; a middle-of-the-road plan costs $79 per month) and across companies. My suspicion is that people with multiple chronic conditions or functional impairment are less likely than their healthier peers to choose Medicare Advantage—but that they would have lower out-of-pocket costs if they did. Someone should do the analysis.

Second, how would the ACA-Repeal-and-Replace bill passed by the House of Representatives affect Medicare? The answer seems to be that it would only affect it indirectly, mainly by  cutting federal spending on Medicaid by $880 billion over ten years. This would profoundly impact the 11 million people who are currently enrolled in both Medicare and Medicaid. It would also worsen the overall solvency of the Medicare program. The ACA levies an extra payroll tax of 0.9 percent on individuals earning over $200,000 a year ($250,000 for couples), a tax that is due to expire in 2018. The new bill would end the payroll tax a year early—thus ensuring that the Medicare trust fund, which pays for part A, will run out of money before 2025.

The take home message? Find out if there’s a good Medicare Advantage program available to you and what it costs. It just might be a better deal than regular Medicare. And lobby your senators to make sure that any new variant of repeal-and-replace doesn’t gut Medicaid or bankrupt Medicare.

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