Proposed 'Medicare Essential' plan estimated to save $180 billion over 10 years

May 6, 2013, Commonwealth Fund

Combining Medicare's hospital, physician, and prescription drug coverage with commonly purchased private supplemental coverage into one health plan could produce national savings of $180 billion over a decade while improving care for beneficiaries, according to a new study by researchers at The Johns Hopkins Bloomberg School of Public Health and The Commonwealth Fund published today in the May edition of Health Affairs. Under the proposed plan, called "Medicare Essential," Medicare beneficiaries could save a total of $63 billion between 2014 and 2023, with total premium and out-of-pocket costs for beneficiaries estimated to be 17 percent to 40 percent lower than current costs.

Private employers enrolled in retiree plans could save an estimated $90 billion, while savings for state and local governments are projected to be $27 billion over 10 years. The savings would come from simplifying administrative costs and rewarding the delivery of high-quality, high-value care.

In Medicare Essential: An Option to Promote Better Care and Curb Spending Growth, Karen Davis, Ph.D., director of the Roger C. Lipitz Center for Integrated Health Care at The Bloomberg School of Public Health, and researchers Cathy Schoen and Stuart Guterman, detail their proposal for a new plan choice that would simplify Medicare and improve its efficiency. By offering a comprehensive set of benefits that includes medications and lower deductibles, the Medicare Essential plan would offer beneficiaries better financial protection, a limit on out-of-pocket spending, and the opportunity for additional savings in premiums and out-of-pocket expenses for those who select high-value and hospitals that are able to provide quality care while keeping down costs.

"This plan builds on traditional Medicare, which beneficiaries are more satisfied with than ," said Davis. "But Medicare is overly complex, and it fails to protect beneficiaries against high costs unless they buy supplemental coverage. Medicare Essential would simplify and modernize Medicare for beneficiaries and help keep premiums and out-of-pocket costs reasonable."

Health Care Improvements

As envisioned by the authors, Medicare Essential would create financial incentives for beneficiaries to select high-quality, cost-effective health care services—also known as value-based benefit design. Beneficiaries would be encouraged to choose a primary care physician and providers who meet standards of high value. Beneficiaries selecting such providers would pay lower deductibles and co-pays.

Beneficiaries who select lower-cost, higher-value providers would also benefit from enhancements like patient-centered medical homes, which offer around-the-clock access to a health care provider, stronger support for people with multiple chronic conditions, and help with coordinating the services provided by all the hospitals and specialists caring for a patient.

Financial Benefits

According to the article, Medicare Essential's focus on high-value care and simplified design could substantially reduce spending for beneficiaries. Under Medicare's current design, in 2014 a typical traditional Medicare beneficiary will spend an estimated $427 a month on premiums for Medicare Parts B and D, supplemental private Medigap Plan F coverage, and out-of-pocket costs. Under Medicare Essential, beneficiaries would spend an average $354 for the same services―a savings of 17 percent compared to current Medicare plus private supplemental insurance coverage. Those enrolled in Medicare Essential who use high-value providers would spend an estimated $254 a month, for a savings of 40 percent.

Medicare Essential's comprehensive benefits would substantially reduce the amount beneficiaries pay toward their Medicare plans and services and would feature an annual cap on out-of-pocket costs, which Medicare does not currently have. In addition, a single $250 deductible would replace deductibles of $1,156 for each hospital episode and $140 annually for Part B services in effect in 2012. Prescription medications would be included among Medicare Essential's comprehensive benefits with no deductible, and preventive care would be fully covered. Medicare Essential's design would eliminate the need to buy expensive supplemental coverage.

According to the report, Medicare Essential would not add to the Federal budget deficit, because its enhanced benefits are financed by premiums, which would be substantially lower than current premiums for Medigap and drug coverage. The savings come partly from lower administrative costs compared to supplemental coverage purchased in the private insurance market, where administrative costs range from 10 percent to 20 percent, compared to 2 percent for traditional Medicare. As a result, total Medicare costs (premiums and cost-sharing) would be lower for beneficiaries as well as for private employers who opt to buy Medicare Essential, rather than private supplemental coverage, for their retirees.

"As baby boomers reach retirement age, we need a high-quality, affordable, and sustainable Medicare program," said Commonwealth Fund president David Blumenthal, M.D. "Improvements we can make to Medicare now to pay for value, simplify and enhance benefits for consumers, and reduce administrative waste will protect and its beneficiaries far into the future."

Explore further: New study: Elderly Medicare beneficiaries most satisfied with their health insurance

More information: content.healthaffairs.org/cont … nt/32/5/900.abstract

Related Stories

New study: Elderly Medicare beneficiaries most satisfied with their health insurance

July 18, 2012
Elderly beneficiaries enrolled in Medicare plans are more satisfied with their health insurance, have better access to care, and are less likely to have problems paying medical bills than people who get insurance through ...

Drug coverage of Medicare beneficiaries with kidney failure -- some surprising findings

March 8, 2012
The majority of Medicare beneficiaries with kidney failure participate in Medicare's Part D prescription drug coverage program, and most of these receive a low-income subsidy from the program, according to a study appearing ...

Health care law boosts savings on meds for medicare recipients

December 7, 2012
(HealthDay)—Savings on prescription drugs related to the Affordable Care Act have reached $5.1 billion, according to a Dec. 3 news release from the U.S. Department of Health and Human Services.

CMS proposes payment and policy updates for 2014

February 22, 2013
(HealthDay)—Payment and policy updates have been proposed for 2014, according to the Centers for Medicare and Medicaid Services (CMS) Advanced Notice and draft Call Letter published Feb. 15.

Recommended for you

Wine is good for you—to a point

January 18, 2018
The Mediterranean diet has become synonymous with healthy eating, but there's one thing in it that stands out: It's cool to drink wine.

Sleep better, lose weight?

January 17, 2018
(HealthDay)—Sleeplessness could cost you when it's time to stand on your bathroom scale, a new British study suggests.

Who uses phone apps to track sleep habits? Mostly the healthy and wealthy in US

January 16, 2018
The profile of most Americans who use popular mobile phone apps that track sleep habits is that they are relatively affluent, claim to eat well, and say they are in good health, even if some of them tend to smoke.

Improvements in mortality rates are slowed by rise in obesity in the United States

January 15, 2018
With countless medical advances and efforts to curb smoking, one might expect that life expectancy in the United States would improve. Yet according to recent studies, there's been a reduction in the rate of improvement in ...

Teens likely to crave junk food after watching TV ads

January 15, 2018
Teenagers who watch more than three hours of commercial TV a day are more likely to eat hundreds of extra junk food snacks, according to a report by Cancer Research UK.

Can muesli help against arthritis?

January 15, 2018
It is well known that healthy eating increases a general sense of wellbeing. Researchers at Friedrich-Alexander-Universität Erlangen-Nürnberg (FAU) have now discovered that a fibre-rich diet can have a positive influence ...

0 comments

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.