or we'll share our diseases before you can feel yours or that of this
increasingly illegitimate republic!

+********** Snail me yer rosehips if you liked this post! ************
*Better Living Thru Better Living!* http://www.***.com/ ~rugosa *

Date: Fri, 12 Mar 1999

                                Families USA

                       The Impact of Medicare Reform
                        on Low-Income Beneficiaries

                                March, 1999

                                  red line

   CREDITS

  INTRODUCTION

   The National Bipartisan Commission on the Future of Medicare is
   considering recommendations to radically restructure Medicare. These
   recommendations are likely to have a particularly profound effect on
   the one out of four Medicare beneficiaries who have low -incomes. The
   proposal under consideration-called "premium support"-could diminish
   significantly affect both the availability and affordability of health
   care for the low-income elderly and disabled.

   In the three decades of Medicare's existence, cost-sharing and
   out-of-pocket spending has increased steadily. The average Medicare
   beneficiary spends about one-fifth of income on out-of-pocket health
   care costs, but those at or below the federal poverty level spend more
   than a third of their incomes on health care. About half of these
   low-income beneficiaries do not have Medicaid coverage, and
   out-of-pocket spending consumes an astounding 50 percent of their
   income.1-2

   Congress has taken a number of steps over the past decade to protect
   low-income beneficiaries from rising costs by paying their Medicare
   premiums and, in some cases, their Medicare cost-sharing. These
   programs have worked imperfectly- they actually reach only about half
   those eligible- -- but have made a significant difference to the
   seniors who have participated in them.

   Now, the Bipartisan Commission is about to propose a significant
   restructuring of Medicare. The proposal under consideration builds on
   a competitive, market-based approach and limits federal fiscal
   responsibilities. If not carefully structured, this proposal could
   further increase the financial burden on beneficiaries-in particular,
   the low-income beneficiaries. The Commission's draft proposal
   addresses low-income issues in only a limited way.3 The proposal calls
   for the continuation of the existing buy-in program that provides
   assistance to low-income beneficiaries but leaves serious questions
   unanswered. No consideration is given to the significant
   administrative obstacles involved in folding the low-income assistance
   program into a premium support model or to the significant reforms
   needed to make it work effectively. To adequately meet the needs of
   low-income people, the Commission's final proposal should include
   these four protections:

    1. Medicare reform should include coverage of Medicare premiums as
       well as realistic, meaningful assistance with deductibles and
       copayments for beneficiaries with low incomes. Eligibility should
       be expanded over time to keep pace with the increasing burden of
       Medicare premiums and cost-sharing.
    2. The plan must ensure that all those eligible for low-income
       protections actually know about the assistance and can easily
       apply for and receive the benefits to which they are entitled.
    3. The plan should assure that low-income people have access to the
       full range of medically necessary services, guaranteed in a
       "defined benefit" package, and that they have a variety of health
       plan choices. They should not be forced into a few segregated
       plans.
    4. The plan should not increase the number of uninsured seniors (as
       will happen if the eligibility age is raised), and it should
       provide opportunities for people below age 65 to buy in to
       Medicare, with adequate subsidies for those with low incomes.

   CURRENT LOW-INCOME PROTECTIONS IN MEDICARE

   As health costs grew in the 1980s along with Medicare cost-sharing,
   Congress recognized the burden on low-income beneficiaries and acted
   to protect those who were particularly hard hit. As a result, a number
   of programs-imperfect, but important nonetheless-now exist to help
   low-income beneficiaries.:

   bullet Under the Qualified Medicare Beneficiary (QMB) program,
       beneficiaries with incomes up to 100 percent of the federal
       poverty level are entitled to full coverage of their Medicare
       premiums, deductibles, and copayments, paid for by the Medicaid
       program.
       bullet Under the Specified Low-Income Beneficiary (SLMB) program,
       those with incomes between 100 and 120 percent of poverty are
       entitled to Medicaid coverage of their Medicare Part B premiums
       (but not their cost-sharing).
       bullet Under the Qualified Individual-1 (QI-1) program, those with
       incomes between 120 and 135 percent of poverty are eligible
       for-but not entitled to-Medicaid coverage of their Part B premiums
       from a pool of limited funding available on a first-come,
       first-served basis.

   Collectively, these programs are referred to as the Medicare buy-in.

   The Medicare buy-in has helped millions of seniors afford the health
   care they need, but obstacles to participation have prevented millions
   more from receiving the help to which they are entitled. About 45
   percent of the 8 million individuals who are eligible for QMB and SLMB
   benefits-about 3.5 million people-are not receiving their benefits.
   The result is that these eligible individuals are paying about $2
   billion annually in Medicare Part B premiums through inappropriate
   deductions from their Social Security checks. Another 1.6 million
   individuals are eligible for assistanceare under QI-1 but only a
   fraction of them currently receive assistance. All told, there are now
   more than 5 million Medicare beneficiaries who need, but do not
   receive, Medicare cost-sharing assistance.

   One obstacle to full participation in the buy-in is that many
   different entities are responsible for the program, and each appears
   to "pass the buck" to others. The Social Security Administration
   (SSA), the Health Care Financing Administration (HCFA), and state
   social service agencies are all involved. SSA deducts Part B premiums
   from Social Security checks, but to date SSA has had no consistent
   role in administering the buy-in. HCFA oversees the buy-in but does
   not directly implement it.

   Currently, Medicare beneficiaries sign up for Medicare Part B benefits
   when they apply for Social Security at local SSA offices. However,
   beneficiaries cannot apply for buy-in benefits at the same time.
   Instead, they must go to a state social services office to apply. Many
   beneficiaries are never told by Social Security personnel that they
   may be eligible for of the buy-in and have little or no experience
   with social services offices. Unfamiliarity with social services
   offices and the inconvenience of traveling to another location deter
   some beneficiaries from applying. Other beneficiaries are discouraged
   by the complex application processes at social services departments.
   In some states, social service agencies require buy-in applicants to
   complete the same time-consuming application required of Medicaid
   clients; these forms often ask difficult and involved financial
   questions. Additionally, social service workers are ill-informed about
   the buy-in program and its procedures, which delays the application
   process. In some cases, social service workers have denied the
   existence of the program and turned applicants away.

   Another obstacle to full participation is that states have to pay part
   of the costs. Under the buy-in program, Medicare premiums and
   cost-sharing are paid for by the Medicaid program; states, on average,
   pay, 45 percent of the cost of Medicaid. Thus, states have a
   disincentive to improve the application process and increase
   enrollment.

   Even if there were no impending changes in Medicare, the buy-in
   program should be redesigned so that all eligible beneficiaries
   actually receive the protections to which they are entitled. Several
   steps should be taken:5

     * First, the program should be administered fully by the federal
       government. The Social Security Administration, which already
       determines Medicaid eligibility for beneficiaries of the
       Supplemental Security Income (SSI) program in 32 states, should
       take all applications for the Medicare buy-in program.
     * Second, all Social Security personnel should be knowledgeable
       about the program and, as a matter of protocol, should discuss the
       buy-in program and the individual's potential eligibility when
       taking applications for Social Security and Medicare. Personnel
       should encourage applicants to apply and should help them with
       their applications.
     * Third, the buy-in program should be funded fully by the federal
       government. The buy-in program is essentially a Medicare benefit,
       not a Medicaid benefit. Requiring states to pay for what is
       essentially a federal program is unreasonable and, as experience
       has shown, unworkable. With full federal funding and
       administration, the buy-in program stands a better chance of
       reaching Medicare beneficiaries who are entitled to its benefits.

   HOW MEDICARE REFORMS AFFECT THE LOW-INCOME

   The Medicare Commission's draft recommendations call for transforming
   Medicare into a "premium support" program and for making major changes
   in traditional fee-for-service Medicare. These recommendations could
   leave low-income beneficiaries with increased cost-sharing. To see why
   this is true, it is necessary, to outline understand the proposed
   reforms.

   bullet The Impacts of the Premium Support Model
   The premium support model proposed by the Commission is patterned on
       the Federal Employees Health Benefits Program. The Commission's
       model works like this:6
         1. A new "Medicare Board" will takes premium bids from health
            plans, including the traditional Medicare program.
         2. The Board will negotiates with the health plans on the price
            and scope of benefits. A precise benefit package with
            specific cost-sharing limits is not required.
         3. The Board will average the agreed-upon premium prices from
            the different plans in each market to determine a "benchmark"
            premium for each market.
         4. The federal government will pays an average of 88 percent of
            the benchmark premium toward the cost of the health plan
            chosen by each beneficiary. Beneficiary contributions will be
            income-related. This means that beneficiaries with incomes
            below 135 percent of poverty (if the proposal maintains
            consistency with current law, as it says it will) will pay no
            premium; beneficiaries with incomes between 135 and 300
            percent of poverty will pay about 12 percent of the benchmark
            premium (plus any additional premium required if they select
            a higher cost plan); and beneficiaries with incomes above 300
            percent of poverty will pay a surcharge according to a
            graduated scale ranging from 1.5 percent to 15 percent of the
            premium amount. The funds from income-relating premiums will
            be used to augment low-income protections above those that
            exist now. As possible low-income expansions, the proposal
            cites "support for prescription drug coverage, efforts to
            expand participation in assistance currently offered, and
            extending assistance to the near poor."
       How would the premium support model affect low-income
       beneficiaries?
       Premium Assistance under the Premium Support Model
       All Medicare beneficiaries currently pay a Medicare Part B premium
       of $546 a year. The Medicare buy-in program covers pays this
       premium for beneficiaries with incomes below 135 percent of
       poverty. The Commission projects that an average premium under its
       proposal would be about $5,700 with a beneficiary contribution of
       about $708.7 This average beneficiary share of premium ($708) is
       $162 higher than the current share.
       The Commission's proposal includes premium and cost-sharing
       assistance for low-income beneficiaries. However, the proposal
       does not explicitly define "low-income;." nor does it describe the
       assistance that will be provided to low-income beneficiaries.
       Instead, the proposal refers only to extending buy-in protections
       "as under current law." If people at or below 135 percent of
       poverty are included, as under the current QMB/SLMB/QI-1 programs,
       these low-income beneficiaries would remain eligible for premium
       assistance. However, if the income threshold is set below 135
       percent, millions of people currently eligible for buy-in
       protection could lose it and would be required to pay a
       potentially unaffordable premium.
       Since the Commission's estimate of the average premium is about
       the same as the current per capita cost of the traditional
       Medicare program, the projected premium does not allow for any new
       benefits. If benefits-such as prescription {*filter*}- are added,
       premiums would have to increase further to cover the additional
       cost.
       The Breaux proposal raises a host of questions about how premium
       assistance for low-income beneficiaries will be implemented in a
       premium support model.
          Who will be eligible? How will they find out about the
            assistance?
          What exactly will low-income people get premium assistance for?
            Will it be the beneficiary premium for the traditional
            fee-for-service plan, the average-cost plan, or a lesser
            amount? (Since there will be one national premium for the
            traditional Medicare plan, but the amount provided towards
            each beneficiary's premium will be based on regional costs,
            beneficiaries who live in low-cost areas may not receive
            enough to make the traditional Medicare plan affordable.)
          How will low-income beneficiaries know how much assistance they
            will get when they choose a health plan?
          How will the Medicaid program administer an assistance program
            that provides different amounts of assistance for different
            people?
       Cost-sharing Assistance Uunder the Premium Support Model
       The premium amount for which low-income beneficiaries would be
       liable is only one concern. Of equal concern is how the proposed
       low-income assistance would cover cost-sharing responsibilities.
       These questions remain to be answered:
          The Commission's proposal allows each health plan to vary the
            scope and duration of benefits, as well as the amount of
            cost-sharing. Exactly how much support will low-income people
            get to cover their cost-sharing? Will it be tied to the
            traditional fee-for-service plan, the average-cost plan, or a
            less expensive plan?
          Who will decide what cost-sharing low-income people actually
            get? Will it be the state Medicaid program, the Medicare
            Board, or the Health Care Financing Administration? How will
            a program that pays varying amounts in cost-sharing be
            administered effectively?
       However these questions are answered, it is crucial that
       low-income beneficiaries' out-of-pocket requirements be realistic
       and that assistance be sufficient to ensure that needed health
       services remain affordable in the full spectrum of health plans.

   bullet The Impacts of a Reconfigured Traditional Medicare Program
   Cost-sharing is also a serious concern in traditional Medicare as
       reconfigured in the Commission's proposal, which contains these
       changes:
         1. Like private health plans, traditional Medicare will submit a
            premium bid to the Medicare Board. The rules governing
            premium contributions will be the same as for private health
            plans, described above.
         2. Beneficiaries will pay a combined deductible of $350.
            Currently, the deductible for Part A (hospital services) is
            $768, and the deductible for Part B (out-patient services) is
            $100.
         3. Coinsurance of 10 percent will be required for home care and
            in-patient hospital care.8 In the current program, there are
            no co-payments are required for home care or for the first 60
            days of hospital care.
       The combination of two deductibles into one means that most
       beneficiaries-the 80 percent who are not hospitalized in a given
       year-will have higher out-of-pocket costs up front. Even if the
       current cost-sharing protections for low-income beneficiaries
       eligible for QMB benefits (those underwith incomes below 100
       percent of poverty) are continued as under current law,
       beneficiaries currently eligible for SLMB and QI-1 benefits (those
       with incomes between 100 percent and 135 percent of poverty) will
       be responsible for a $350 deductible before Medicare coverage
       applies-$250 more than the deductible they pay today. This new
       burden will deter these low-income seniors from securing the
       health care they need.
       Just as troubling are the provisions that establish 10 percent
       copayments for home health care and hospitalization. If current
       law is continued, low-income people currently eligible for SLMB
       and QI-1 benefits (those with incomes between 100 percent and 135
       percent of poverty) who need hospital and home care would
       experience a dramatic increase in out-of-pocket costs. Low-income
       people, whose health is generally worse than average, are at
       greater risk of needing home care and hospitalization than other
       income groups.

   WHAT LOW-INCOME PEOPLE NEED IN MEDICARE REFORM

   Medicare reform should include coverage of Medicare premiums as well
   as and realistic, meaningful assistance with deductibles and
   copayments beneficiaries with low incomes. Eligibility should be
   expanded over time to keep pace wiith the increasing burden of
   Medicare premiums and cost sharing.

   A premium support system in Medicare must contain buy-in protections
   that cover not only premiums but cost-sharing a realistic package of
   benefits that includes prescription {*filter*}.

   Under current law, beneficiaries with incomes up to 100 percent of
   poverty are eligible for full cost-sharing protection, but those
   eligible for the SLMB and QI-1 benefits are not eligible for
   cost-sharing. A restructured program should explicitly provide
   subsidies for these low-income individuals. The precise income levels
   that determine eligibility should be legislatively guaranteed and not
   contingent on cost-savings expected from Medicare reform.

   If, as expected, health care costs again begin to increase faster than
   inflation, the income ceiling for buy-in protections must increase
   accordingly and more beneficiaries should be eligible for buy-in
   protection. Medicare reforms should include effective mechanisms to
   raise the ceiling of buy-in eligibility in accordance with increases
   in Medicare premiums and out-of-pocket costs.

   Medicare reform should ensure that all those eligible for low-income
   protections actually know about the assistance and can easily apply
   for and receive the benefits to which they are entitled.

   The Commission proposal calls for extending the current buy-in program
   - a program that is inherently unworkable. In the current program,
   around 5 million people-about half of those eligible-are not receiving
   their benefits due to its complex application requirements and faulty
   administrative structure. The proposal fails to explain how the
   premium support model will fix the buy-in program so that all those
   eligible actually receive benefits.

   As part of reform, the low-income protection program should should be
   redesigned so that all beneficiaries who are entitled to the benefit
   actually receive it. It is not unreasonable to expect that the
   participation rate in the buy-in program be the same as in
   Medicare-about 98 97 percent.

   To accomplish this, buy-in protections must be administered and funded
   by the federal government, as outlined above. Low-income beneficiaries
   should be able to apply for and receive buy-in protections from
   agencies that are knowledgeable and helpful. Many eligible
   beneficiaries have never been to a social services office; the
   inconvenience and the lack of familiarity with welfare agencies
   discourages beneficiaries from applying for buy-in benefits. The
   Social Security Administration, which administers Part B Medicare
   applications, would be the more appropriate agency to administer the
   buy-in program.

   Medicare reform should assure that low-income people have access to
   medically necessary services guaranteed in a "defined benefits"
   package, and that they have a variety of health plan choices. They
   should not be forced into a few segregated plans.

   Under the current Medicare program, beneficiaries are guaranteed a
   defined set of benefits, and all beneficiaries, regardless of income,
   have access to these benefits. The Commission's draft proposal would
   reduce or eliminate this guarantee. It would allow health plans to
   determine the scope, duration, and dollar limits on specific health
   benefits, possibly resulting in less health coverage than in
   Medicare's current "defined benefit" system. Beneficiaries would have
   no guarantee that a specific uniform set of benefits would be
   available in every health plan. As a result, the cost of needed health
   benefits might be shifted onto the backs of low-income beneficiaries.

   The absence of comprehensive standard benefits would pose several
   specific problems for low-income people: First, Beneficiaries
   beneficiaries would have to pick up the costs of excluded services-a
   financial burden that cost-sharing protections do not address. Second,
   low-income beneficiaries would becould become unfairly restricted to
   choosing from those health plans offering less valuable benefits to
   keep premiums low. With restricted choices, low-income beneficiaries
   would become segregated into certain plans. This would inevitably lead
   to a two-tiered health system, with low-income beneficiaries receiving
   second class service and coverage.

   For low-income people to be assured access to necessary services, all
   health plans must offer a defined, comprehensive set of guaranteed
   benefits. This package should include existing Medicare benefits, plus
   prescription drug coverage and protection against catastrophic
   expenses-two of the most glaring gaps in Medicare's current benefit
   package. A health plan, if it desired, could offer additional optional
   benefits in a supplementary package for a separate premium.

   An increase in the age for Medicare eligibility will cause many
   seniors to become uninsured and will cause greater hardship to
   low-income seniors. A buy-in program, with adequate subsidies for the
   poor and near-poor, should be established for people under 65 years of
   age.

   If the eligibility age for the Medicare participation increases form
   65 to 67 years of age as proposed by the Bipartisan Commission, a
   significant increase is likely to occur in the number of seniors who
   are uninsured. Increasing the eligibility age in such a manner could
   result in as many as 1.7 million seniors becoming uninsured or
   seriously underinsured.9 Seniors would have to fend for themselves in
   procuring health coverage in the individual insurance marketplace, and
   many would find that health coverage, if available, is unaffordable.
   This would be especially be true for sick and frail elders in an
   insurance marketplace where premiums are based on individual health
   history.

   At the same time that the Commission is contemplating increasing
   Medicare's eligibility age, seniors are losing access to
   employer-subsidized retiree health benefits. During this decade,
   employer-provided retiree health coverage dropped steadily and
   significantly. A recent survey of large employers (those with more
   than 500 workers) found that 40 percent offered retiree health
   benefits in 1993 but only 31 percent did so in 1997.10 This trend is
   likely to continue in the future on as employers strive to contain
   health care spending.

   To protect seniors who have not yet reached the eligibility age for
   Medicare, a program must be established that allows them to buy in to
   Medicare and that includes meaningful subsidies for low-income
   seniors. These seniors have had a tenuous connection to the job market
   throughout their lives; old age and health problems further weaken the
   connection. The failure to provide a subsidized buy-in assistance will
   leave these seniors without the means to obtain health coverage.

   CONCLUSION

   Advocates of the premium support model for Medicare expect the model
   to produce savings by making beneficiaries more cost-conscious in
   purchasing health care, presumably more cost-conscious than they are
   under Medicare's current system of copayments and deductibles.
   However, by its design, premium support is also a mechanism for the
   government to lower its financial risk and shift more risk to
   beneficiaries.

   Supporters and opponents both agree that any savings from premium
   support will be too little to cover the bulging Medicare population in
   coming years. Under the model proposed by the Commission, the Medicare
   Board would have the authority to shape benefits and negotiate bids.
   As medical costs rise, the Board will have an incentive to allow plans
   to reduce benefits, raise premiums, and increase cost-sharing in order
   to limit the government's exposure to rising costs. Under the
   Commission's model, these decisions could be made without
   congressional approval. Therefore, low-income beneficiaries would be
   at greater risk of going without crucial health benefits or having to
   pay out of pocket for those benefits.

   For a premium support model to work for all the nation's elderly,
   low-income beneficiaries must have the certainty of a good uniform
   benefits package and federally funded wraparound protections that
   cover premiums and cost-sharing. These protections must be designed
   and administered so that all eligible low-income beneficiaries
   actually receive the wraparound benefits to which they are entitled.
   Furthermore, the program design must be flexible so that wraparound
   subsidies can be modified to meet the rising costs of health care
   premiums and cost-sharing over time. Because premium support shifts a
   portion of the government's financial burden to beneficiaries,
   well-defined protections for low-income people are vital.

                                  ENDNOTES

   1 David Gross, Lisa Alecxih, et al., "Out-of-Pocket Health Spending by
   Medicare Beneficiaries Age 65 and Older: 1997 Projections"
   (Washington, DC: AARP Public Policy Institute and the Lewin Group,
   1997).

   2 Marilyn Moon, Crystal Kuntz, and Laurie Pounder, "Protecting
   Low-Income Medicare Beneficiaries" (New York: The Commonwealth Fund,
   1966). Moon's estimate of Medicare out-of-pocket spending is 21
   percent for all non-institutionalized beneficiaries, and the
   AARP/Lewin estimate is 19 percent. The Moon estimate projects from the
   National Medical Expenditure Survey of 1987 and includes home care,
   while the AARP projection uses data from the 1993 Medicare Current
   Beneficiary Survey and excludes home care.

   3 National Bipartisan Commission on the Future of Medicare,
   "Preliminary Staff Estimate: Senator Breaux's Medicare Proposal"
   (Washington, DC: February 16, 1999); "Draft Working Document"
   (Washington, DC: January 22, 1999).

   4 Families USA, Shortchanged: Billions Withheld from Medicare
   Beneficiaries (Washington, DC: Families USA, 1998).

   5 Ibid.

   6 National Bipartisan Commission on the Future of Medicare, op. cit.

   7 Ibid.

   8 Memorandum from Sen. John Breaux to the Medicare Commission,
   February 23, 1999, "Premium support estimate from the HCFA Actuary."
   The reform package scored by the HCFA Actuary contains the provision
   for 10 percent hospital coinsurance under a chart labeled, "Draft
   Medicare legislative package introduced by Senator Breaux at January
   26 Commission meeting."

   9 Timothy Waidman, "Potential Effects of Raising Medicare's
   Eligibility Age," Health Affairs, Vol 17, No. 2, 1998, 156:64; John
   Sheils, David Stapleton, Jessica Graus, Andrea Fishman, "Rethinking
   the Medicare Eligibility Age" (Washington, DC: The Lewin Group, for
   the National Coalition on Health Care, June 1998.).

   10 Paul Fronstin, "Features of Employment-Based Health Plans," Issue
   Brief No. 201 (Washington, DC: Employee Benefits Research Institute,
   September 1998).

                                  red line

   CREDITS

   This report was written by:
   Kathleen Haddad, Director of Health Policy, Families USA

   The following Families USA Foundation staff contributed to the
   preparation of this report:

   Ron Pollack, Executive Director
   Peggy Denker, Director of Publications
   Judy Waxman, Director of Government Affairs
   Vyda Stewart-Stancell, Administrative Assistant
   Justine Zabala, Administrative Assistant

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