2014
Most private health insurance uses and has always used deductibles and coinsurance. Today, all the plans offered through the Affordable Care Act exchanges utilize these provisions. No insurance provides first dollar coverage; auto, homeowner, liability insurance all employ deductibles. Their purpose is to avoid minor claims and to assure the policyholder has some financial stake in the risk being insured.
For some reason when it comes to Medicare all that logic is out the window. So one day a person has a deductible and perhaps 20% coinsurance and when they turn 65, they buy more insurance to cover the Medicare deductibles and coinsurance. This means between the Part B premium and the Medigap premium the typical beneficiary is paying $329 a month or $3948 per year; many pay more.
One study reports the presence of this Medigap coverage adds 22% to the cost of Medicare. This is based on the idea that lack of cost sharing increases utilization. Keep this study in mind.
However, there is one big difference between Medicare and other health insurance. Medicare does not have an out-of-pocket limit whereas by law all other insurance does. Naturally seniors are afraid of the potential unlimited liability and thus buy Medigap coverage often more coverage than necessary. Buying this coverage with ones own money may well generate an attitude saying why shouldn’t I use it, I pay for it. Although the idea of wanting to be in the health care system beyond what is necessary escapes me.
Medigap plans are standardized. You have a choice among nine plans most of which pay 100% of Medicare deductibles and co-insurance.
Given the need to control health care costs, a proposal offered by the Obama Administration would add a Part B premium surcharge equivalent to 15% of the average Medigap plan premium for those who choose Medigap plans with low cost-sharing requirements. Like the Bowles-Simpson idea, this plan saves dollars merely by forcing beneficiaries to pay more.
We have to wonder if it would be more efficient and perhaps less costly for beneficiaries if Medicare was redesigned to include an out-of-pocket limit. The Part B deductible should be raised and the Part B premium would increase, but the need to pay a Medigap premium would decline or disappear. Medigap insurance could be simplified to only offer coverage between an initial out-of-pocket limit and a new Medicare limit. Health Savings Accounts could be used to accumulate funds used in later life to help pay for Medicare out-of-pocket costs.
Obviously, Medicare rights groups are opposing any change to the status quo.
Keep an eye on this one. Sooner or later Medicare beneficiaries will have more costs shifted to them.
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