Do You Have Skin in the Medicare Game? ~ a commentary by Bonnie Burns


The term “skin in the game” was used frequently in Congressional Medicare hearings last year and continues again this year.  It means that Medicare beneficiaries should pay more of their own medical expenses.  It was used again during a recent hearing on changing the way doctors are paid by Medicare and how to pay for those changes.

The thinking behind “skin in the game” is that Medicare beneficiaries are protected from the cost of medical care when they buy insurance to supplement their Medicare, a Medigap policy, that pays their out of pocket costs.  Many policymakers and members of Congress believe that beneficiaries use medical services they don’t really need because Medicare and their Medigap pay those costs.  Their solution then is to ban this type of coverage, increase their premium for Part B, or tax anyone who buys a Medigap policy.

At a recent House Energy and Commerce Health Sub-committee hearing, former Senator Joe Leiberman and former Congressional Budget Office Director Alice Rivlen supported changes to Medicare that would force beneficiaries to pay more for their medical care.  One of those changes would combine Parts A and B with a single annual deductible of more than $1,000.  Another would create a $7,500 annual cap on out of pocket costs but prohibit any Medigap payment of most of that capped amount.  Others would increase Medicare’s copayments for certain high cost services, raise Medicare premiums starting at annual incomes of $40,000 or $50,000, and add copayments to the home health care benefit.

While combining Medicare Parts A and B with a single deductible is appealing, as Kaiser Family Foundation noted last year, a small number of beneficiaries who have a hospital stay during a year might benefit from a combined deductible but a much larger number of people using only out-patient doctor and hospital services and would pay much more.  For the average middle class beneficiary a deductible could take a healthy bite of their annual income.

Many studies have shown that copayments do discourage people from getting medical care.  The more money people have to pay when they get care, the less likely they are to get any kind of medical care, even preventive care that doesn’t have a copayment. But those same studies warn about increasing costs for emergency and hospital care when medical care has been delayed or not received at all.  If Medicare beneficiaries start considering cost before deciding to see their doctor, Medicare costs could shift rapidly away from outpatient care to more expensive types of care.

Higher income Medicare beneficiaries already pay more for Medicare in several ways.  Their incomes were higher while working and they likely paid more tax towards Medicare. Beneficiaries with higher incomes starting at 85,000 for individuals and $170,000 for couples also already pay higher premiums for Medicare Parts B and D.  Since these amounts are not indexed for inflation more beneficiaries over time will begin paying these higher premiums even without establishing a lower threshold.  It’s interesting to note that “high income” threshold for retirees is set at a much lower amount than for younger people where the threshold is $250,000.

Creating an annual cap on Medicare’s out of pocket expenses would be a big step forward for beneficiaries, but the amount Medicare beneficiaries would have to spend in a year before meeting that cap is an important factor.  Combining these changes with limiting or prohibiting coverage of out-of-pocket costs could result in beneficiaries paying much more for medical care, especially for those with one or more chronic conditions.  If those out-of-pocket costs apply in the same amounts to each spouse, one couple could be exposed to amounts that consume half or more of their annual income.

A Medigap policy is not free.  Beneficiaries pay premiums for this coverage.  That cost is a known amount, usually paid on a monthly basis that allows beneficiaries to budget their health care expenses and protect themselves from an unknown, catastrophic cost.  A retiree health plan provides similar benefits and protection, and most retirees pay at least some premium cost for their retiree benefits.

Neither of these supplemental programs encourages beneficiaries to misuse Medicare benefits since those benefits are only paid after Medicare has determined the medical necessity of a particular medical service and initiated payment.  None of the studies done on the higher costs of beneficiaries with these benefits has ever found that the services beneficiaries used were not medically necessary.  More recent studies have found that as beneficiaries age, they are more likely to have a Medigap policy than a Medicare Advantage plan.  And that may be because an older beneficiary is more likely to have multiple chronic conditions and is seeking more freedom in their choice of a doctor or hospital.

The skin in the game myth persists in Congressional circles and fuels efforts to ban, tax, or limit Medigap policies.  While there is a similar concern about retiree plans, those cannot so easily be legislated away since those plans are connected to employers.  But Congress already has military retirees under the microscope and has begun to look for ways to limit the military’s TriCare for Life benefits that supplement Medicare.

The Congressional Budget Office has projected approximately $130 billion in Medicare savings could be achieved by prohibiting Medigap policies.  Some in Congress have proposed to use this savings number to offset a different Medicare cost.  That cost is known as the “doc fix,” and has a projected cost of $144 billion.

The doc fix, or Sustainable Growth Rate (SGR), is a formula for Medicare payments to doctors that Congress has “patched” each year without correcting the formula.  The House Energy and Commerce Health Sub-committee heard testimony on the doc fix and how to pay for it in the same hearing last week.  The most recent “patch” will expire by April, reducing Medicare payments to doctors by 21% unless Congress acts.  Many observers believe Congress will do another patch to avoid the reduction, and then create a different payment method for doctors for the future.

The doc fix and redesign of the Medicare program seem now to be inexorably intertwined because Congress needs to find a way to pay for any changes they make to doctor’s payments.  One payment method would be to offset the higher cost of those payments by increasing the costs Medicare beneficiaries pay out of their own pocket.

Karen Fletcher

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