Sunday, May 19, 2019

Seniors' costs under Medicare for America, continued

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In my last post I noted that while the revamped and expanded Medicare available to all under the Medicare for America Act of 2019 would serve most Americans very well, some people who turn 65 after full enactment would pay more in premium than they would today for traditional Medicare Parts B and D, or comparably priced Medicare Advantage.

They would get far more for the money -- most notably, long-term care insurance, dental, visual and hearing coverage, and 100% coverage for a host of vital services like chronic disease management, addiction and mental health treatment, and care for the medically frail. Still, higher premiums for seniors with incomes above about $50,000 for an individual or $80,000 for a couple is a political problem that needs to be thought out.  Here, I have a bit more data to sketch in.

I noted in the prior post that about 40% of the population overall is in households with incomes over 400% of the Federal Poverty Level, i.e. about $50,000 for an individual or $68,000 for a couple in 2019. Medicare for America premiums would exceed current Medicare premiums at incomes a bit above that threshold. I don't know the percentage of the over-65 population with incomes above 400% FPL. I did find via census figures that the percentage of the elderly population with income up to 200% FPL, 30%, is virtually identical to the percentage of the overall population above that threshold.  That doesn't mean that the percentage of seniors with incomes over 400% FPL is comparable to the percentage of the general population above that level, however.

A Kaiser Family Foundation analysis estimates that in Medicare households, medical care accounts for about 14% of total household spending, a percentage that rises with age and is highest for middle income households. Spending, it should be noted, does not equal income, and spending on non-medical expenses decreases with age, but spending is far lower in Medicare households than in non-Medicare households ($38,000 vs. $59,000). [See update below.]

Medicare for America caps premiums at 8% of income and caps annual out-of-pocket maximums at the highest income levels at $3,500 for an individual and $5,000 for a family, e.g. a couple. OOP maxes are lower at lower incomes --- zero up to 200% FPL -- but the sliding scale is left to HHS to fill out.  An enrollee hardest hit by a relatively high premium -- say, with an income of $54,630, or 450% FPL -- would at most pay another 6.4% of income for out-of-pocket costs ($3,500), if the top OOP max applies at that income level. Thus the percentage of income spent on medical care would top out at a bit over 14% -- high, but considerably less than many seniors -- particularly at older ages --  now pay.  Again, however, the Kaiser study measures medical expense as a percentage of spending, not income.

Let's consider the financial fortunes of an affluent but not super-rich elderly couple under the two systems -- current Medicare and Medicare for America. Their income from Social Security and assets comes to $115,000 per year, about 700% FPL. That's low enough that they pay the same premium under current Medicare as 95% of the population, about $180 per month each for Parts B and D combined. Top-drawer Medigap policies cost them a bit over $200 per month each. They have almost unlimited choice of providers, and, through nearly two decades of good health, pay very little out of pocket for medical expenses.

Under Medicare for America, this couple would pay the top premium -- 8% of income. That comes to  $768 per month -- nearly identical to what they now pay for Medicare + Medigap.  They would have to pay 20% of most medical bills, up to a yearly out-of-pocket maximum of $5,000. On the other hand, they have coverage for dental, vision and hearing care, which they make good use of.

Through their long years of good health, the couple pays less under current Medicare than they would under Medicare for America. As they advance into their 80s, however, the woman is gradually disabled by dementia. For many years, her husband takes care of her, helped increasingly over time by the couple's children. After several years, the couple engages an aide to help with washing and dressing in the mornings, at a cost of about $1000 per month, which they pay out of pocket.

One day, shortly after his 92nd birthday, the man falls and breaks his hip. Following the operation he has a minor stroke and suffers some mental confusion thereafter. Several months later he has another fall and another operation and loses further mental capacity. He comes home after several months of rehab, covered by Medicare. Now the couple needs an aide 24/7, with extra help in the mornings -- and Medicare does not cover the cost.

Now $15,000 per month is going out the door.  The federal government offers a discount of sorts, in that the healthcare bills wipe out the couple's tax liability -- to the tune of some $25,000 per year. But they are still paying the whole home health bill out of pocket. If they both go into full nursing home care, they'll pay still more. They live for several years in a kind of equilibrium, with long-serving aides and help from their children.

People considerably wealthier than this couple would fare better financially under the current system than under Medicare for America. Some 7 million Americans do have commercial LTC insurance, dysfunctional and high-priced as that market is. Not everyone needs nursing care, of course, or needs it for long. The much higher premiums the truly wealthy would pay under Medicare for America constitute a political problem. That's true even though the vast majority of elderly -- as well as a large share of the under-65 population --  would fare better than under the current system.

I do think that Medicare for America needs an absolute dollar cap on premiums, as in current Medicare. About $800 per month would be comparable to the current top rate for Medicare Parts B and D -- plus about $200/month for long term care insurance. Perhaps there could be an opt-out for the LTC.  Perhaps, too, there should be a step-down in required percentage of income for premiums at age 65, or age 67. Of course, all these changes would cost -- and so require more taxes.

UPDATE, 5/20: According to the Census' American Housing Survey (via its table creator), the median household income for people aged 65-74 up is $43,210, and for people 75 and over, $28,200.  Approximately 4 million households with residents over age 65 have incomes over $100,000, representing about 13% of households above that age threshold;  about 17% of households in the 65-74 age bracket have incomes over $100k. About 2.7 million senior households have incomes over $120,000.  Average household size at age 65+ is 1.4, according the Bureau of Labor Statistics. As suggested in this post and the prior one, some fraction of them would pay more for Medicare for America than for FFS Medicare + top-line Medigap (see the premium comparison charts in the prior post). A much larger group would pay more for M4America than for a Medicare Advantage plan -- while also, again, getting considerably more comprehensive coverage.

Thanks to Chris Pope of the Manhattan Institute and Larry Levitt of the Kaiser Family Foundation for pointing me to the Census' table creators.

More on Medicare for America
If Medicare for America passes, some seniors will pay more
Would Medicare for America phase out employer-sponsored insurance?
A major fix in Medicare for America 2.0
Which healthcare reform bills offer the most affordable coverage to the most people?


  1. Thanks for the research, but your sample couple could be a little different, in this respect:
    Say that they pay for part B, $140 a month each, and then get a Medicare Advantage plan for $50 a month each. This Advantage plan includes drug coverage, and has modest deductibles such as $1,500 for a hospital stay.
    So they are looking at $380 a month today.

    The new Medicare for America program bumps them to $768 a month, and the 20% copayments might be worse than what they face today.

    One thing we learned from the ACA was that the protests from new plan losers had more political resonance than the quiet thanks from new plan losers. Seniors feel that they have paid their dues and deserve better health plans than working Americans, unfair as that is.

    Of course, if your sample couple is also currently paying $1,000 a month for an unreliable long term care policy, then the new Medicare will be great news for them. That is a thin reed to hang onto for mass acceptance, though.

    I would favor doing what I believe Germany did about 20 years ago-- i.e. add about 2-3 per cent to the payroll tax and just cover long term care as social insurance.

    1. Bob, I agree with you about the political problems -- the main point of the prior post that this follows up on -- and on the potential for savings in Medicare Advantage plans. But I think most affluent seniors go for Medigap -- at least the ones I know do. If you can afford it, Medigap gives the keys to the U.S. healthcare kingdom.

  2. If a couple makes $115K, they pay $135.50 for B. So are we assuming $50 for D? And does the $5K OOP apply to pharmacy, also? I'm 100% on board with raising the Medicare tax to cover LTC, dental, vision and hearing. Long term, this is going to work. But there are a lot of holes still to plug.

    1. Yes, the OOP cap applies to pharma, and the bill's creators are counting on Medicare authority to negotiate drug prices to keep them down. I guess I tacked about $45/person onto the couple's current premiums for Pard D -- a bit high? Perhaps $170-175 for B and D would be a bit closer to norm.

  3. A bit high, but not enough to matter. There's zero chance that Medicare will be able negotiate rates on say...Restasis at $500/per month. What will happen is that anything expensive won't be covered. More importantly, there will no longer be an incentive for R&D. With RX included in the $5K, the numbers still aren't working for me, but I'm far from an actuary. Plus, I watched a woman cry today because she's on a $0 premium MAPD and needed to pay 20% for her back procedure. She didn't have the $175. Made me sick to my stomach. Our seniors often don't have $5K a year, so is there something in there if you are under X of FPL? Will they have the ability to have a lower OOP?

  4. My sympathies go out to the person who cannot afford what is (sadly) a pretty low copayment for any back procedure.
    Does this person have any children? or a credit card?

    If your income is very low, a senior can get Medicaid along with Medicare and face no copayments.

    I come from a large and generous family, so I under-estimate just how isolated some people are.