Medicare is Woefully Lacking for Seniors Who Want it Most

Congress should create a comprehensive benefit option for Medicare to reduce administrative costs for beneficiaries and encourage insurers in the Medicare Advantage and Medicare Supplemental Insurance markets to become more efficient.

While Medicare does an excellent job of delivering basic benefits to seniors, beneficiaries who want comprehensive rather than basic coverage are forced to choose between two bad options. Their first option is to receive benefits under traditional Medicare (Parts A and B) and enroll in a private Medicare Supplemental Insurance (or Medigap) plan, which fills the gap between Medicare and full coverage. This option frequently involves unnecessary expense and red tape as a result of managing more than one health care plan; as Commonwealth Fund President Dr. Karen Davis put it, the “patching together of multiple plans creates confusion for beneficiaries; creates the potential for risk selection; and leads to higher administrative expenses.”

Seniors’ other option is to receive all of their care through a Medicare Advantage plan that offers comprehensive benefits. Medicare Advantage Plans are offered through Medicare Part C and allow beneficiaries to receive the same level of coverage offered by traditional Medicare (Parts A and B) through a private insurer. Some insurers offer Medicare Advantage plans that only provide basic coverage, but others offer plans that provide comprehensive benefits by combining Medicare Part C and Medicare Supplemental Insurance in one private plan. For recipients of the latter type of plan, part of their premium is paid for by the government under Medicare Part C. They pay for the remainder through premiums. Unfortunately, these plans are often wasteful and inefficient in comparison to traditional Medicare. Representative Henry Waxman, citing a report issued by the Majority Staff of the House Committee on Energy and Commerce, said that Medicare Advantage insurers “squander billions of dollars on overhead costs.”

The report revealed that less than 85 percent of Medicare Advantage providers’ revenue is used to pay for actual medical expenses – in stark contrast to traditional Medicare, in which more than 98 percent of revenue is used to cover medical expenses.

Analysis

To provide our seniors with a responsible and efficient alternative to these options, Congress should create a comprehensive public benefit option modeled after the Federal Employee Health Benefits Plan. Doing so will provide beneficiaries with an option for quality, affordable, and efficient care. Such a public option would be a program that offers comprehensive benefits to beneficiaries for a price that completely covers the cost of the additional benefits. This program would be administered by the Centers for Medicare and Medicaid Services, using the same provider system for Medicare Parts A and B but offering more benefits. It would be completely funded by premiums paid by beneficiaries for the additional coverage and would be revenue neutral. 

According to the Medicare Payment Advisory Committee, a program offering such a public option “would benefit from reduced insurance administrative expenses.” An analysis of this proposal, based on data from the 2000 Current Medicare Beneficiary Survey and published in Health Affairs by the Commonwealth Fund, found that this option would reduce the average annual amount paid by beneficiaries by $357 and out-of-pocket costs by an average of $60. Such a reduction is no small sum; the overall market savings resulting from such a plan would be more than $5 billion for consumers. It would also substantially increase the quality and value of the care that they receive.6 

Next Steps

Congress should enact legislation that creates a public comprehensive benefit option to ensure that Medicare beneficiaries have access to affordable and quality care. Doing so will make the Medicare market more efficient, improve the quality of care, and reduce costs to beneficiaries.