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Contact Us Spring 2001; Volume 2, Number 1
Features: Medicare Symposium
 
Medicare from the Beneficiaries' Eyes
Marsha Gold, Sc.D.
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In the context of the United States healthcare system, the Medicare program has many unique features, as Dr. Vladeck points out. His article, however, focuses for the most part on how Medicare has operated historically as a program, rather than on how healthcare coverage looks to Medicare beneficiaries now. In this Commentary, I present basic data on this subject, drawing on results of a recent national survey of Medicare beneficiaries conducted between March-June 2000 with support from the Robert Wood Johnson Foundation (Gold et al 2001).1 I highlight four "facts" about the Medicare population and its insurance options that are important to consider in thinking about whether and what future reform of the Medicare program is warranted. My basic conclusion is that while the debate over restructuring the Medicare program to encourage a fixed contribution with competition among many diverse plans may have merit as a vehicle for reconciling diverse philosophical views about the role and desirable structure of social insurance, the impetus for such a debate stems from politics and philosophy rather than from beneficiaries, most of whom are relatively satisfied with their coverage. What many beneficiaries want is a simpler set of choices that are affordable, provide them with financial protection, and address the limitations in Medicare's current set of benefits.

Fact # 1
 
The Medicare population is less healthy than the general population, with generally low to moderate incomes and diverse healthcare needs.

Medicare aims to provide acute care coverage to the elderly and to some individuals under the age of 65 who qualify for the program by virtue of their disability or particular medical needs (Kaiser Family Foundation 2000). Almost thirty-six percent of beneficiaries characterize their health status as fair or poor, including 62 percent of those who are under 65 and disabled. Almost half (48 percent) of all Medicare beneficiaries have had a condition lasting at least three months that has resulted in their seeing a physician more than two times in the past year and has also led to taking medication for at least three months. Fourteen percent have a condition or impairment that creates a need for help with personal care, 30 percent need help with routine activities (for example, household chores, shopping), and 29 percent report having conditions they say seriously interfere with their independence, participation in the community, or quality of life. Medicare beneficiaries vary widely even within particular subgroups. For example, among those 85 and older, 15 percent rate their health status as excellent, while 37 percent say it is only fair or poor (the rest -48 percent- say it is very good or good).

These characteristics mean that Medicare beneficiaries use, on average, substantially more healthcare resources than other Americans. As a result, Medicare beneficiaries are likely to be concerned both about their average anticipated healthcare expenses, as well as the risk of unanticipated larger expenses. But most beneficiaries have only moderate incomes: more than a quarter (27 percent) have household incomes of $10,000 or less annually. Seventy-nine percent have incomes of $35,000 or less. Only 10 percent have incomes of more than $50,000. Low-to-moderate incomes limit beneficiaries' ability to finance healthcare coverage. Thus, payments for healthcare services are likely to have to compete with other basic needs.

The characteristics and healthcare needs of the Medicare population are extremely varied. When Medicare beneficiaries are offered multiple coverage options, individual products may draw an unrepresentative mix of beneficiaries. When this biased selection occurs, payments for individual products are likely to be inequitable unless they are adjusted to reflect differences in the anticipated healthcare utilization of those who join. Yet, available techniques for making such adjustments are highly limited and unsatisfactory. Selection is more likely to be "skewed" when the benefits offered in different options vary dramatically, particularly since Medicare beneficiaries often have chronic conditions that mean they can predict to some extent the use of services, especially in the near future. Thus, risk selection is a serious issue, especially in considering proposals to reform Medicare by offering premium support for a more varied set of health coverage options in the private market.

Fact # 2
 
Medicare remains a complex program for beneficiaries to understand.

From its beginning in 1965, Medicare has been a complicated system for beneficiaries to understand and to navigate, even though in some ways it is less complex than other forms of coverage, as Dr. Vladeck notes. It is a public program with claims administered by private carriers; it has been divided into two "Parts" (A and B), each covering different types of healthcare providers and relying on different financing; and it has been supplemented by optional private insurance covering some of the medical services that Medicare does not cover. This includes substantial cost sharing on hospital stays (the deductible and annual day limit), coinsurance requirements that effectively equal 20 percent or more of the costs of most services, and the exclusion of coverage for most outpatient drugs. Beyond these exclusions, there is also a focus on acute care, which means that most long-term care services are not covered either.

Even before the recent changes in the Balanced Budget Act of 1997 which expanded choices for Medicare beneficiaries, studies showed that beneficiaries had only a poor understanding of the Medicare program (Blendon et al 1995; Hibbard and Jewett 1998; and Murray and Shatto 1998). Although considerable attention has focused on Medicare's exclusions - such as pharmaceutical benefits or certain kinds of nursing home and home health services - only 68 percent of the beneficiaries we surveyed in 2000 knew that Medicare does not pay for all of enrollees' healthcare costs. Seventy-five percent knew beneficiaries could get additional insurance to pay for some things Medicare does not, but only 60 percent had heard of Medicare supplemental insurance (sometimes called Medigap). And only 58 percent of beneficiaries had ever heard of a Medicare HMO, including only 62 percent of those who reside in counties where such options exist. This means that before Medicare beneficiaries can consider their choices, they first need to understand their basic benefits under Medicare.

Fact # 3
 
The use and structure of supplemental coverage substantially complicates choice.

Although policymakers tend to think of Medicare as a uniform program, the use of supplemental coverage to compensate for Medicare's excluded benefits means that Medicare beneficiaries face different choices depending on their circumstances. Consequently, supplemental coverage options complicate Medicare beneficiaries' choice of coverage. The following are outlines of various forms of supplemental coverage and their characteristic populations.

About a third of Medicare beneficiaries now have some form of group coverage through their (or their spouse's) former employer/union based. When they so qualify, individuals often have access to a relatively comprehensive set of benefits that supplement Medicare, often at a reduced cost because the former employer subsidizes all or part of the premium. But individuals seeking to benefit from supplemental insurance are constrained by the health plan options offered by their employer. Beneficiaries need to understand, for example, that if they want these benefits they can only join an HMO offered through their subsidized employer's plan. While they could, in theory, join any Medicare+Choice (M+C) plan offered by Medicare, if they join as an individual they may be forced to forego the supplementary benefits offered by their former employer if that coverage is not set up to integrate with the M+C plan.

Most other Medicare beneficiaries basically have a choice between a Medicare HMO, if one is offered where they live, or one of the ten subsidized Medigap options if they qualify. In 2001, 63 percent of beneficiaries reside in counties where a M+C managed care plan choice is offered, down from 72 percent in 1999 (Gold 2000). For the most part, choice of a Medicare HMO exists only in urban areas. The vast majority of Medicare HMO members come from the pool of individuals who don't have access to employer-subsidized coverage. These persons are attracted to Medicare HMOs because, historically, they have offered an attractive package of supplementary benefits for no additional cost, or for only a small premium. Beneficiaries, many of whom have low to moderate incomes, have been willing to restrict their choice of provider to gain such benefits because the alternative form of coverage through Medigap is relatively expensive, even for a plan which excludes valued benefits such as prescription drugs. Though there are exceptions, individuals seeking Medigap coverage also may face a health screening. Recently, however, beneficiaries have had to contend with both a reduced number of HMO offerings and less generous packages for those that remain (though they still are a good value compared to Medigap coverage) (Cassidy and Gold 2000).

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