GAO Sees Tradeoffs in Medicare FFS Cost-sharing Updates

Congress asked GAO to examine the effects on beneficiaries' costs if Medicare's fee-for-service cost-sharing included a single deductible, uniform coinsurance above the deductible, and an annual cap.

Modernizing and simplifying Medicare fee-for-service cost-sharing designs so that they resemble private plans is doable, but it comes with trade-offs, a Government Accountability Office study shows.

Congress asked GAO to examine the annual and multiyear effects on beneficiaries' costs if Medicare FFS cost-sharing included a single deductible, uniform coinsurance above the deductible, and an annual cap.

GAO calculated the distribution of 28 million beneficiaries’ one-year, four-year, and eight-year annual cost-sharing responsibilities—including the median and maximum responsibility—under the current cost-sharing design and each of the four illustrative designs, compared these distributions, and found that:

• During year one, the cost-sharing designs that feature relatively low deductibles and relatively high caps would result in a median annual beneficiary cost-sharing responsibility that is close to the current design.
   
• In contrast, designs with relatively low caps provide greater beneficiary protection from catastrophic costs, but would increase annual cost-sharing levels above the existing design.
   
• After eight years, there would still be differences in the median annual beneficiary cost-sharing responsibility across different designs, but they would be less pronounced.

Modernizing Medicare's cost-sharing design would have both direct and indirect effects on beneficiaries’ costs, GAO said in the study.

"The direct effect would be how the revised design would change beneficiaries' cost-sharing responsibilities for a given set of services," GAO said.

"The indirect effect would be that the altered incentives under a revised design would trigger behavioral responses, such as changes in beneficiaries' utilization of healthcare services, enrollment in supplemental insurance to help cover their Medicare cost-sharing responsibilities, or enrollment in Medicare FFS or Medicare Advantage."

Medicare's existing cost-sharing design is largely unchanged since the program was created in 1965. As a result, GAO notes, concerns have been raised that FFS design is confusing to beneficiaries, and leads to overuse of some services. In addition, the lack of an annual co-pay cap exposes some beneficiaries to catastrophic costs that can exceed tens of thousands of dollars each year.

As an example of the potential for confusion under the existing cost-sharing design, GAO noted that Medicare includes two separate deductibles: a relatively high deductible under Part A for hospital services, which are usually not discretionary and are less likely to be influenced by cost-sharing requirements, and a relatively low deductible for Part B outpatient services, which are more often discretionary and likely to be influenced by cost-sharing requirements.