Medicare Costs, Premiums, and Alternatives

 Related Topics:
Hospitals' Financial Data
Medicare Payment Formula for Hospitals

Patients' premiums depend on income and what coverage they want.

Glossary of health insurance terms.

Government Approaches which Could Save Money Include: ​

• Learn from other countries, which vary widely in the effectiveness and government share of their health spending.
  
• Cover hospital stays abroad, at lower cost than in the US, by 80%.
• Help patients find the least expensive options for tests, as NPR and Vitals describe.
• Concentrate each elective surgical procedure among as few surgeons as possible, so they steadily become more expert.
  
• Provide patient-education fliers, especially in emergency rooms, telling patient families about efforts to reduce readmissions and asking what they need, so families know the risks and work for better transitions. It is strange that the most powerful people, patients and their families, get the least information about readmission risks. Provide fliers on a wide range of exercise and diet options, not just the ideal ones. 
• Assign process researchers to see how hospitals help and harm patients (monitoring, awakening, transfers, therapy, intravenous drugs), how much could be done at home with intense support, how patients could be treated better or less expensively in hospitals or at home.
• Give Medicare power to suspend hospital personnel who make egregious errors, rather than suspending the whole hospital or depending on state license suspensions for individuals. SEC can suspend financiers and accountants. Medicare needs similar power.
• Follow Inspector General recommendations to reduce costs, with examples as high as $6 billion. Spend more on fraud prevention, which returns $1 billion for each $125 million spent.
• Describe procedures, not just date and code numbers, on patients' Explanations of Benefits, and explain how to report discrepancies, so patients can report for example doctors who see the patient for 10 minutes and bill 40 minutes.
• Offer an option with higher premiums or copays in order to be free of penalties and cost-saving limits, or to have higher limits, like car or house insurance. Participants would pay the full extra cost of the extra coverage. People are used to the idea of paying more for more coverage.
• Reduce coverage for readmissions (rather than imposing a delayed large penalty). For example people know there are limits on hospital and nursing home days, and therapy hours, so patients limit use, have other insurance, or pay directly, and Medicare still saves money. Medicare could limit coverage to 2 days of readmission per year.
• Raise the copay for readmissions. Charging $1,000 copay for every readmission would raise $250 million per year, comparable to the $227 million direct income from penalties (760,000 readmissions in 3 years, or 250,000 per year). Presumably this would improve self-care and discourage readmissions at least as much as the penalties imposed on largely powerless hospitals, thus saving the same $1.5 billion in readmissions. It makes the patient think hard about staying out of hospitals, and if s/he decides to return, the hospital itself is not at risk of penalties, so it can give full care rather than push cheaper, riskier comfort care. It puts decisions about the level of care to seek in the right hands, the patient's. Research shows that higher copays for hospitals may or may not reduce use, depending on the detailed situation. (Higher copays for office visits do reduce preventive office visits, and therefore increase hospital use.)
• An extra 0.9% tax on wages and self-employment income started in 2013, for income over $250,000 per year (couples) or $200,000 (individuals). The rate could be raised and/or the starting point lowered.
• 3.8% tax on investment income (including capital gains) started in 2013, for the lesser of net investment income or the excess of modified Adjusted Gross Income over $250,000 per year (couples) or $200,000 (individuals). The rate could be raised and/or the starting point lowered.
• Charge Part A premiums for higher income families. They currently pay nothing, having accrued coverage if they worked enough quarters. The fact that the trust fund is expected to run out of money indicates that not enough was collected during working years.
• Make it easier to drop Part B. People with good health plans rarely benefit from Part B. The government payments simply reduce what the private plan has to pay. Medicare makes it needlessly hard to drop Part B.
• Raise Part B premium for higher income families. The current Part B premium is the higher of $105 per month or about 2% of income. There are various proposals:

The government pays a lot for people at all income levels. Medicare Part B (doctors) and Part D (drugs), are not paid by the payroll tax, and are paid by premiums and government aid. (Part A, hospitals, is paid by the payroll tax.) Currently the Part B premium is $105 per month per person, and the cost is 4 times as much, $420 per month, so taxpayers pay a 75% subsidy. Premiums go up with income and subsidy is reduced, in several bands of income, but even the highest income participants get 20% subsidy.

The current premium is about 2% of income (red line above). It is

• 1.5% to 2.5% of income between $101,000-$537,000 for couples
• 1.5% to 2.5% of income between $50,000-$270,000 for individuals.

People below that pay more; people at the top pay less (in percentage). The advantage of bands is that premiums generally do not change for small changes of income, simplifying administration a little.

The Bipartisan Policy Center recommends starting bands at lower incomes (p.59 of full report), which result in higher premiums (and lower subsidies - green dashes above):

• 2.3% to 4.1% of income between $62,000-$349,000 for couples
• 1.7% to 3.1% of income between $41,000-$233,000 for individuals

People below that pay more; people at the top pay less. The plan would raise $6 billion per year.

Kaiser summarizes a variety of 2014 Budget proposals involving 15% increases in the premiums paid by high income participants, starting the first band lower, and slowly lowering all bands by not adjusting for inflation for several years (red dots above). Premiums would be:

• 1.6% to 2.7% of income between $93,000-$576,000 for couples
• 1.6% to 2.7% of income between $47,000-$288,000 for individuals
  

People below that pay more; people at the top pay less.

A Tucson blogger recommends charging 5% of income, up to the full cost (purple line above). Dots show bands of income, where people pay

• 4.25% to 5.75% of income between $44,000-$237,000 for couples
  
• 4.25% to 5.75% of income between $22,000-$118,000 for individuals
  

People below that pay more; people at the top pay less. She does not estimate the savings. A spreadsheet here estimates the savings from this proposal at $19 billion per year, using IRS counts of people by income, and consistent assumptions.

This option charges low income people the current $105, since Medicaid already pays the premium for most of them. Dropping the premium to 5% for low income people would cost Medicare more, but save an equivalent amount in Medicaid assistance, so the $19 billion overall savings would remain. It is far more than the $1.5 billion saved by the readmission penalty. Incomes can be adjusted for cost of living (purchasing power parity) by using US government locality pay. AARP presents arguments for and against basing premiums on income.

In the spreadsheet you can try different percentages and bands. A 3% charge could have bands of income where people pay

• 2.5% to 3.5% of income between $72,000-$402,000 for couples
  
• 2.5% to 3.5% of income between $36,000-$201,000 for individuals

People below that pay more; people at the top pay less. The plan would raise $6 billion per year.

The graphs show subsidies people would receive from various proposals. The current Medicare subsidy is large, even at incomes well over $100,000. The government does not subsidize food or housing for people at those incomes. The highest income limit on Food Stamps is $15,000 for one person, $20,000 for two; in subsidized housing it is $55,000 for one, $63,000 for two (Honolulu). Housing tax benefits do go to higher incomes, but people still have to pay the basic cost themselves. Why does the government make such large direct payments for health insurance for people with incomes over $100,000?