New York City, November 1, 2002—Medicare+Choice plans cut back on benefits such as prescription drug coverage in 2002 while enrollees faced a 40 percent rise in monthly premiums and substantial cost-sharing increases for their health care, according to two new reports from The Commonwealth Fund. The increases weighed most heavily on those in poor health, whose out-of-pocket costs are estimated to rise 34 percent in 2002, compared with a 20 percent increase for those in good health. The authors, Marsha Gold and Lori Achman of Mathematica Policy Research, Inc., analyze the continuing trend of increased costs and reduced benefits in the Medicare+Choice program from 1999-2002, concluding that plans cover less of Medicare's cost sharing and that coverage for Medicare's excluded benefits—such as pharmacy care—also is shrinking. As a result beneficiaries seeking such coverage at an affordable price find it harder to obtain, a challenge particularly relevant to those with lower incomes or poorer health status.
"Medicare's goal is to protect the nation's elderly and disabled from the bankrupting costs of prolonged or serious illness," said Karen Davis, president of The Commonwealth Fund. "However, Medicare's benefit package is outdated, and Medicare+Choice and other supplemental products leave many beneficiaries, especially the poorest and sickest, without adequate protection. Policymakers can address these limitations by modernizing the current Medicare benefit."
"While plans initially responded to financial stress by adding or increasing premiums, they now tend to rely much more on benefit cuts. Beneficiaries who started under a plan with nominal cost-sharing may now incur substantial out-of-pocket expenses in the event of a major illness," said Gold. "The net effect of these cuts is to dramatically lessen the financial protection Medicare+Choice provides to vulnerable Medicare beneficiaries who are sick and tend to use more care."
Out-of-Pocket Costs Continue to Rise
The first report, Average Out-of-Pocket Health Care Costs for Medicare+Choice Enrollees Increase Substantially in 2002, by Gold and Achman, finds that in 2002 average out-of-pocket costs for Medicare+Choice enrollees will be $1,786, up 24 percent from $1,438 in 2001 and 83 percent from $976 in 1999, with enrollees in poor health facing the steepest cost increases. Out-of-pocket costs for an enrollee in good health will rise 20 percent in 2002, to $1,430. Costs for an enrollee in poor health will rise 34 percent, to $4,783. Since 1999, out-of-pocket costs for Medicare+Choice enrollees in poor health have increased 116 percent, compared with 71 percent for those in good health.
As Medicare+Choice plans raise point-of-service costs to beneficiaries for medical care and pharmacy benefits, the shift places a greater burden of costs on frequent users. Cost-sharing for hospital services places a larger burden on enrollees in poor health, who are most likely to use inpatient services. The authors conclude that Medicare+Choice cannot be counted on to reduce the financial risk for the sickest Medicare beneficiaries, and therefore policymakers need to address the limitations of Medicare's benefit package.
Premiums and Cost-Sharing Increased, Drug Coverage Cut Back
The second report, Trends in Medicare+Choice Benefits and Premiums, 1999-2002, by Achman and Gold, found that in 2002, average monthly premiums increased from $25 in 2001 to $32 in 2002. The percentage of enrollees in a plan requiring hospital cost-sharing more than doubled, from 33 percent in 2001 to 78 percent in 2002, and copayments for physician office visits also increased. Pharmacy benefits were also cut in 2002-many plans reduced or eliminated coverage for brand-name or off-formulary drugs.
The report documents the continued erosion of Medicare+Choice plans' ability to address the benefit limitations of Medicare. What began as nominal cost-sharing at the start of the program has now become sufficiently extensive under Medicare+Choice that the program cannot necessarily protect beneficiaries from high out-of-pocket costs for major illnesses.