Hit by the Fine Print: Three Ways the Debt Deal Could Hurt Seniors on Medicare

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Medicare turned 46 last week, but instead of celebrating its major accomplishment — keeping millions of older Americans healthy — it finds itself under siege. The program appears to have squeaked through unscathed in the debt deal, but changes are likely to surface when the new bipartisan committee tasked with finding an additional $1.5 trillion in cuts goes to work. The committee will consider entitlements and is on a fast track to produce a report by the end of November with Congress voting on it shortly afterward.

“You can use the word cut,” says Douglas Holtz-Eakin, former director of the Congressional Budget Office and now head of the center-right-leaning American Action Forum, of the direction the committee is likely to go.

Cuts tend not to be characterized as such, however. Here are three innocuous-sounding potential policy changes that, in fact, are likely to cause senior expenses to increase.

1) Simplification: Cuts often masquerade under the label “Medicare benefit simplification,” a term that sounds oh-so positive. But benefit simplification is not so simple and will probably result in seniors paying more for their health care.

Under the “simplification” plan advanced by Sen. Joe Lieberman (I-Conn.), and Sen. Tom Coburn (R-Okla.), for example, seniors would pay a single deductible of $550 for all Medicare services. Currently, seniors pay a separate hospital deductible — this year it’s $1,132 — and a $162 medical deductible for doctors’ services.

If the single deductible sounds like a great idea, think again, advises Joe Baker, who heads the Medicare Rights Center, a New York advocacy group. It would raise out-of-pocket costs for millions of beneficiaries who don’t use hospital services during the year, he says. Nearly all seniors, though, go to the doctor, and they would pay $550 instead of the $162 they pay now.

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2) Medigap limits: The 10 million seniors who buy Medigap policies to cover these deductibles and plug other holes in Medicare benefits would also have to dig deeper in their pockets. There’s a push in Congress to reduce the amount of coverage Medigap insurance can provide. The Kaiser Family Foundation estimates that by shifting more costs to beneficiaries the federal government could save between $1.5 billion and $4.6 billion in a single year. Given the furor over government spending this is mighty tempting.

The idea behind limiting Medigap policies is to make seniors have more “skin in the game” by paying a greater portion of their medical expenses. The theory is that by paying more of their own money, they will make wiser choices about care. Never mind that a recent study by the RAND Corporation found that consumers who had policies with high deductibles often chose not to seek care — even potentially cost-saving preventive care — that was covered by the policies.

3) Out-of-pocket spending limits: The plan would also cap out-of-pocket spending at $7,500 for those with low and middle incomes. This, too, sounds better than it is, says Baker. Sellers of Medigap policies could cover only half that amount, meaning that seniors would have to pay $3,750 right off the bat before their insurance kicks in. Those with higher incomes would have to pay a lot more. Someone with an income of $85,000 would have to pay $12,500 out-of-pocket.

Few seniors know that the health reform law already calls for Medigap policies to cover less. Most seniors who choose Medigap insurance buy Plans F and C, two of the standardized Medigap policies that pay all of the 20 percent coinsurance that Medicare requires seniors to pay for services like doctors and hospital outpatient care. That coinsurance can amount to thousands of dollars if someone is seriously ill. In the next few years, those two Medigap plans will cover a much smaller portion of those expenses. The takeaway for those who now own Plans C and F: Think now about how you will cover those costs and budget accordingly.

(MORE: Turning 65: Taking Care of Prescription Medicare Coverage)

The Kaiser study noted that those with modest incomes and those in poor health will be hit the hardest by Medigap “reforms” under consideration. In other words, those who are sick and have little money to pay for their care will pay more. That’s what Medicare was created to prevent — forty-six years ago.

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