• The benefit value of Medicare

    The Kaiser Family Foundation has a report out, “How Does the Benefit Value of Medicare Compare to the Benefit Value of Typical Large Employer Plans?: A 2012 Update“. It’s a bit dense, so I’m not going to tell you to go read the whole thing. But the key findings are worth a minute:

    For individuals ages 65 and older, Medicare is less generous on average than the comparison large employer plans.  The average benefit value of Medicare for a person age 65 or older in 2011 is 97 percent of the FEHBP Standard Option benefit value and 93 percent of the typical large employer PPO benefit value.

    Remember – Medicare is extremely popular. And, it turns out, it’s less generous than what you’d get if you bought a private plan! Now you’d have to be crazy to think that an individual over the age of 65 could go buy such a plan on the individual market at any reasonable price, but it’s interesting to note that this beloved program isn’t a ticket to “free” health care.

    Relative to the typical large employer PPO plan, Medicare provides somewhat more generous benefits for low-cost individuals ages 65 and older because of the relatively low Part B deductible for individuals who do not use inpatient care; however, Medicare is less generous than the typical large employer PPO plan for seniors with moderate and high costs. Similarly, relative to the FEHBP Standard Option, Medicare is slightly better for low-cost individuals ages 65 or older, but is notably less generous for moderate cost individuals and somewhat less generous for high cost individuals.

    So if you’re healthy and a senior, Medicare is a great deal because Part B (outpatient care) rocks. The other aspects aren’t so generous. So it’s better than private plans for healthy people and somewhat less so for sick people.

    Medicare’s average benefit value relative to the comparison employer plans has improved since we last conducted this analysis in 2007, largely because of the 50 percent discount on brand-name drugs in the Part D “doughnut hole” included in the 2010 health reform law, and also because the actuarial value of the FEHBP Standard Option has contracted over the past few years due to changes in its benefit design (mainly, the increase in the limit on out-of-pocket spending).

    It turns out that Medicare has been looking better recently. Why? Because the prescription drug coverage has improved immensely since they started closing the “doughnut hole“. What did that, you might ask. Why the Affordable Care Act, of course.

    So here is an immensely loved program which no one wants to think about touching for current beneficiaries. It’s this beloved even though it provides less benefits than comparable private plans (although at significantly lower premiums). And the big thing that’s been making it better will be yanked away if the law is repealed or struck down.

    Should be an interesting year.


    • When looking at the benefit value of an insurance policy, we hear a lot about premiums and out of pocket costs.
      We rarely hear the amount of benefits paid put by the insurer.
      Lert’s assume one’s costs, including health insurance premiums, are $25,000.
      His medical benefits received are $100,000.
      Is this a good value for the insured?
      Don Levit

    • I remember being at one hearing on actuarial value. Some staffer from Sen. Grassley asked a pointed question, the gist of which was, how can we trust a public plan when all the government run programs have such skimpy benefits?

      Indeed, I believe that Glenn Hackbarth, the head of MedPAC, has said that the current benefit package is too skimpy (i.e. too much cost sharing). If not for fiscal constraints, it should probably be increased.

      That said, the fiscal constraints are very real. Right now, cost sharing is one of the most reliable ways we know to keep insurance costs low – the other is paying providers less. So, we’re stuck where we are. Most retirees have supplemental coverage, like Medigap, employer-sponsored plans or Medicaid. But a handful don’t.

      To Don Levit, my understanding (I’m recalling a CBO publication on the subject from the last few years) is that Medicare beneficiaries generally ‘get’ far more than they’ve paid in from premiums. That’s mainly because healthcare costs have grown so fast. And Americans have been very averse to raising taxes. Of course, we cannot solve our healthcare cost problem by raising Medicare premiums.

    • Medicare is a great deal for seniors because other people pay for most of it.

      • @ alex

        true, if you some how avoided 45 years of the 3% Medicare tax, qualify for the low income benefits that pay your Part B and D premiums (and sometimes a Medigap policy) once you tur 65, and live to 90

        @ weiven

        the study on people getting more in Medicare benefits than paid in applies to those that started working before the 3% Medicare tax began (of course, you would expect more pay out than collected in premiums in an insurance program but Medicare is not an insurance program–is only positioned as one if it suits the politician at the time)

    • It’s very interesting to see the comparative analytics between Medicare and Employer based insurance plans. With regards to value of coverage vs. OOPE ( out of pocket expenses) like premiums, co-pays etc., it is very hard to compare. Medicare beneficiaries have been taxed on every paycheck since they’ve started working. Over the years that percentage has fluctuated so it’s a bit difficult to determine exactly how much each Medicare beneficiary has paid for their “entitled coverage.” In order to receive Part A benefits an individual must work at least 40 quarters or ten yrs on the books. If they haven’t met these parameters then they must pay a premium for their Part A benefits, in addition to its $1280 deductible in 2012. Every senior 65 and older has a different financial situation regarding their OOPE and the care they receive; ie MAPDs vs Medicare Supplement plans.
      That being said, now trying to compare Employer plans can be tricky. The value of coverage, based solely on OOPE for coverage, may benefit the employee because the premiums are lower due to risk being spread throughout the group. Plus the coverage they may receive is just as good as Medicare but if they have only been working a short time the value to them is greater….similar benefits but the employee has paid less for it over time.