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Adding an Out-of-Pocket Spending Maximum to Medicare: Implementation Issues and Challenges

Issue Brief
  1. Kaiser Family Foundation,” How Does the Benefit Value of Medicare Compare to the Benefit Value of Typical Large Employer Plans: A 2012 Update,” April 2012.

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  2. Estimates from Kaiser Family Foundation analysis of the Centers for Medicare & Medicaid Services Medicare Current Beneficiary Survey 2010 Cost and Use file.

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  3. Marsha Gold, Gretchen Jacobson, Anthony Damico and Tricia Neuman, "Medicare Advantage 2014 Spotlight: Plan Availability and Premiums," Kaiser Family Foundation, November 2013, http://kff.org/medicare/issue-brief/medicare-advantage-2014-spotlight-plan-availability-and-premiums.

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  4. Kaiser Family Foundation, "Medicaid’s Role for Dual-Eligible Beneficiaries," August 2013, http://kff.org/medicaid/issue-brief/medicaids-role-for-dual-eligible-beneficiaries/.

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  5. For an overview of recent Medicare deficit reduction proposals, see Kaiser Family Foundation, “Medicare and the Federal Budget: Comparison of Medicare Provisions in Recent Federal Debt and Deficit Reduction Proposals,” October 2013, http://www.kff.org/medicare/issue-brief/medicare-and-the-federal-budget-comparison-of-medicare-provisions-in-recent-federal-debt-and-deficit-reduction-proposals/. For an analysis of the distributional implications of a restructured Medicare benefit design, see Kaiser Family Foundation, “Restructuring Medicare’s Benefit Design: Implications for Beneficiaries and Spending,” November 2011, http://www.kff.org/medicare/report/restructuring-medicares-benefit-design/.

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  6. Congressional Budget Office, Options for Reducing the Deficit: 2014 to 2023, November 2013, http://www.cbo.gov/budget-options/2013/44687.

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  7. A Medicare benefit redesign that puts in place a limit on combined Parts A and B cost sharing would also need to address the treatment of individuals who are not enrolled in both Parts A and B. Currently, about 4.2 million, or 8.3% of beneficiaries have Part-A only coverage and 330,000 or 0.6% have Part B only coverage.  Individuals who are enrolled in Part A only often have employer-based coverage that is primary to Medicare. Unless all Medicare beneficiaries were treated as if they are enrolled in both parts, different out of pocket maximum amounts would need to be applied to these individuals.  Data on numbers of enrollees from CMS, Medicare and Medicaid Statistical Supplement, 2013 Edition, “Table 2.1: Medicare Enrollment: Hospital Insurance and/or Supplementary Medical Insurance Programs for Total, Fee-for-Service and Managed Care Enrollees as of July 1, 2012,” http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareMedicaidStatSupp/2013.html.

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  8. Even if the out of pocket maximum for traditional Medicare was not applied to the Medicare Advantage program, changes would be needed to account for the increased actuarial value of the Part A and Part B benefit packages. This is because Medicare Advantage plans must provide benefits that are equal to those benefits.

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  9. A higher “combination” amount of $10,000 applied in 2013 in the case of Medicare Advantage plans that are not closed network HMOS where beneficiaries may obtain covered services from out of network providers.

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  10. Medicare Advantage plans cannot count Medicaid coverage of cost sharing towards the spending limit, meaning that enrollees with such coverage rarely reach the limit.  Whether the limit applies to all Medicare Part A or B services received out-of-network as well as in-network depends on the type of Medicare Advantage plan.

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  11. The Medicare Advantage annual maximum spending limits are based on a beneficiary-level distribution of Parts A and B cost sharing for individuals enrolled in traditional Medicare. The mandatory spending limit represents approximately the 95th percentile of projected beneficiary out-of-pocket spending for Calendar Year (CY) 2013. That is, five percent of traditional Medicare beneficiaries are expected to incur $6,700 or more in Parts A and B deductibles, copayments and coinsurance in CY 2013. The CY 2013 voluntary spending limit is $3,400. This level is based on the 85th percentile of projected traditional Medicare out-of-pocket costs. “Announcement of Calendar Year (CY) 2013 Medicare Advantage Capitation Rates and Medicare Advantage and Part D Payment Policies and Final Call Letter”, Centers for Medicare & Medicaid Services, April 2012, http://cms.gov/medicare/health-plans/healthplansgeninfo/downloads/2013-call-letter.pdf.

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  12. Marsha Gold et al., “Medicare Advantage 2013 Spotlight: Plan Availability and Premiums,” December 2012 http://kff.org/medicare/report/medicare-advantage-2013-plan-availability-and-premiums/.

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  13. Kaiser Family Foundation/Medicare Payment Advisory Commission, “An Analysis of the Share of Medicare Beneficiaries Who Would Benefit from an Annual Out-of-Pocket Maximum Over Multiple Years,” June 2013.

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  14. For example, the modified adjusted gross income definition used for determining eligibility for a premium tax credit under the ACA counts all Social Security benefits. (See Internal Revenue Code §36B(d)(2)(B).) This is not true of the definition of adjusted gross income used for income tax reporting, or for the modified adjusted gross income definition used to determine Medicare’s income-related premium.  In those definitions, some or all Social Security benefits are excluded, depending on the individual’s income level.  At most, 85 percent of benefits are counted as income for these purposes. See Internal Revenue Service, “Are Your Social Security Benefits Taxable?”, http://www.irs.gov/uac/Are-Your-Social-Security-Benefits-Taxable%3F.

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  15. Laura Summer, Jack Hoadley, and Elizabeth Hargrave, “The Medicare Part D Low Income Subsidy Program, Experience to Date and Policy Issues for Consideration,” The Henry J. Kaiser Family Foundation, September 2010, http://kff.org/medicare/issue-brief/the-medicare-part-d-low-income-subsidy.

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  16. Laura Summer, Jack Hoadley, and Elizabeth Hargrave, “The Medicare Part D Low Income Subsidy Program, Experience to Date and Policy Issues for Consideration,” The Henry J. Kaiser Family Foundation, September 2010, http://kff.org/medicare/issue-brief/the-medicare-part-d-low-income-subsidy.

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  17. A report by the U.S. Government Accountability Office (GAO) examining requirements to increase enrollment in the Medicare Savings Programs (MSPs) for low-income beneficiaries cited the historically low level of participation in MSPs, attributable to lack of awareness about the programs and cumbersome enrollment processes through state Medicaid programs.  The GAO report suggested that differences in how income and assets are counted for Medicare's LIS and MSPs can require additional work by implementing agencies at the state and federal level and can present a hurdle to applicants. See Medicare Savings Programs: Implementation of Requirements Aimed at Increasing Enrollment, September 2012, http://www.gao.gov/products/GAO-12-871.

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  18. Other thresholds may apply.  See Internal Revenue Service, “Exemptions, Standard Deduction, and Filing Information For use in preparing 2013 Returns”, Publication 501, Dec 3, 2013. http://www.irs.gov/pub/irs-pdf/p501.pdf.

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  19. Oral Statement of Danny Werfel, Principal Deputy Commissioner, on the Affordable Care Act Before the House Ways and Means Committee, August 1, 2013. http://www.irs.gov/uac/Newsroom/Oral-Statement-of-Danny-Werfel,-Principal-Deputy-Commissioner,-on-the-Affordable-Care-Act-Before-the-House-Ways-and-Means-Committee.

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  20. Jonathan Gruber, “Proposal 3: Restructuring Cost Sharing and Supplemental Insurance for Medicare,” The Hamilton Project, 15 Ways to Rethink the Federal Budget, February 26, 2013.

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  21. In Part D, costs paid by a beneficiary or on behalf of the beneficiary by certain entities count towards TrOOP, but not payments by group health plans or other forms of insurance.  For more information about how TrOOP works in Part D, see Centers for Medicare & Medicaid Services, “Understanding True Out-of-Pocket Costs,” November 2012, http://www.cms.gov/Outreach-and-Education/Outreach/Partnerships/downloads/11223-P.pdf.

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  22. For additional detail about coordination of benefits and the TrOOP facilitation process in Part D, see Centers for Medicare & Medicaid Services, “Medicare Prescription Drug Benefit Manual, Chapter 14 – Coordination of Benefits,” http://www.cms.gov/Medicare/Prescription-Drug-Coverage/PrescriptionDrugCovContra/downloads/PDMChapt14COB.pdf.

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Appendix
  1. CMS, CMS Data Compendium, 2011, “Table VI.7: Medicare Assigned Claims Selected Fiscal Years” http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/DataCompendium/2011_Data_Compendium.html.

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  2. A Medicare beneficiary who has a Medigap policy may authorize a Medicare-participating physician, provider, or supplier of services to file a claim on his or her behalf and to receive payment directly from the insurer instead of through the beneficiary.

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  3. Gretchen Jacobson, Tricia Neuman, and Anthony Damico, “Medicare’s Role for Dual Eligible Beneficiaries,” Kaiser Family Foundation, April 2012, http://kff.org/medicare/issue-brief/medicares-role-for-dual-eligible-beneficiaries.

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  4. However, Plan C doesn’t pay the 15% cost sharing that some providers charge over and above the Medicare-approved charge.  See Jennifer T. Huang et al., “Medigap: Spotlight on Enrollment, Premiums and Recent Trends,” Kaiser Family Foundation, April 2013, http://www.kff.org/medicare/issue-brief/medicares-role-for-dual-eligible-beneficiaries.

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  5. For most retiree plans, the carve-out method has replaced the standard coordination of benefits method used in the past under which retirees would generally pay no cost sharing. Under the standard method, the plan pays the balance due the provider after Medicare has paid, up to a limit equal to the total the plan would ordinarily pay. Of the 57% of retiree plans that pay claims directly, only 5% use the standard coordination of benefit method; 53% use the carve-out method and 1% use the exclusion method, under which the retiree obligation falls somewhere in between. Other forms of employer retiree coverage include providing Medigap plans (25%), Medicare Advantage plans (7%), individual plans (3%), and health care accounts (6%). See Dale H. Yamamoto, “Employer-Sponsored Retiree Health Coverage,” April 2013, http://nhpf.org/uploads/Handouts/Yamamoto-slides_04-12-13.pdf.

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  6. To appeal a SSA determination related to the income-related monthly adjustment amount (IRMAA), the beneficiary or his or her representative must file a request for reconsideration within 60 days of receipt of an IRMAA determination notice. For requests received outside of the allowable timeline, SSA or HHS (for appeals beyond reconsideration) determines whether to establish good cause for late filing.  Social Security Online, Overview of the Appeals Process for the Income-Related Monthly Adjustment Amount, https://secure.ssa.gov/apps10/poms.nsf/lnx/060114000.

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  7. 42 CFR 423.773(b)(2)(ii).

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