An Analysis of the Share of Medicare Beneficiaries Who Would Benefit from an Annual Out-of-Pocket Maximum under Traditional Medicare Over Multiple Years

This memorandum, prepared in response to a request from Chairman Kevin Brady, Subcommittee on Health, Committee on Ways and Means, U.S. House of Representatives at a Feb. 26, 2013 hearing, analyzes some of the effects of adding a limit on out-of-pocket spending to traditional Medicare.  Traditional Medicare’s current benefit structure does not provide such an out-of-pocket limit.  The Kaiser Family Foundation worked with the Medicare Payment Advisory Commission (MedPAC) to provide an estimate of the share of Medicare beneficiaries in traditional Medicare who would benefit from an annual out-of-pocket maximum over multiple years.

The analysis finds that adding a $5,000 (indexed) out-of-pocket maximum to the Medicare benefit package would protect a small percentage of beneficiaries against very high levels of cost sharing in a single year (6.5%), but nearly a third of beneficiaries would reach the maximum one or more times over a 10-year period. The analysis also explores the concept of a “true” out-of-pocket maximum, which would exclude cost-sharing payments made by supplemental insurers, such as Medicaid, employer-sponsored retiree health plans and Medigap, on behalf of enrollees.  In this scenario, a much smaller share of beneficiaries in traditional Medicare would reach the maximum in a single year (less than 1%) and over a 10-year period (3%).

Memorandum (.pdf)