Costs Rising for Those in Private Medicare Plans

The average person enrolled in a Medicare+Choice plan — most of which are health maintenance organizations, or HMOs — will spend $1,964 of his or her own money to cover medical costs. Beneficiaries in poor health bare the brunt of these costs and will spend an average of $5,305 to cover their medical bills in 2003. That is an increase of 140 percent over the past four years.

The role of these private health plans may be expanded when the House and Senate reconvene in the fall. Both houses of Congress passed bills that would add a prescription drug benefit to Medicare. These bills, to differing degrees, would also expand the role that private health plans play in Medicare.

Both proposed programs would give seniors more choices of private health plans than they have now, including HMOs and more flexible networks known as preferred provider organizations, or PPOs. However, the House bill gives much stronger incentives for people to switch to private plans while the Senate version balances new private options and the traditional, government-run Medicare program.

Rob Sweezy, director of public affairs at the Centers for Medicare and Medicare services, told the Online NewsHour that the agency has asked Congress for more money to fund Medicare+Choice. Increased funds allocated to Medicare+Choice would be used to increase reimbursement to the private insurers in the program, and that would translate into lower out-of-pocket costs for those enrolled, Sweezy said.

The authors of the Commonwealth Fund argued that their findings should be taken into account as Congress considers changes to Medicare.

“As Congress debates the role of private plans in the future of the Medicare program, it should consider the eroding financial protection experienced under Medicare+Choice,” said study co-author Gold.

Beyond the cost increases for those enrolled in Medicare+Choice, the study also found that those in private Medicare PPOs are saddled with high costs. Out-of-pocket costs will average $2,884 in 2003 for those enrolled in one of some 30 PPOs taking part in a demonstration program the Centers for Medicare and Medicaid Services began in the beginning of the year. Premiums for those PPOs average $1,075, compared to $447 for Medicare+Choice.

The high costs for those in PPOs may keep them from being a lower cost option for those eligible for Medicare. Those in Medicare+Choice, however, continue to enjoy lower out-of-pocket costs than those only enrolled in traditional Medicare.

The largest component of the out-of-pocket costs paid by the average person in Medicare+Choice is the $704 that covers the Medicare Part B premium that all beneficiaries pay. Those in Medicare+Choice also pay $447 for the Medicare+Choice premium, $301 for their share of doctor and hospital bills and $512 towards their presciption drug costs.

Estimated out-of-pocket spending for prescription drugs in 2003 increased 10 percent over one year for those in good health and 12 percent for those in fair or poor health. The study reported that many plans had imposed limits on their drug benefits in 2002, making the remaining option for controlling their costs a shift to coverage of just generic drugs.