Medicare Coverage Less Generous Than Coverage In Large Employer Plans, When Available

For individuals ages 65 and older, Medicare fee-for-service coverage, even including the Part D prescription drug benefit, continues to less generous on average compared with preferred provider option (PPO) coverage in the standard Federal Employee Health Benefit Plan (FEHBP) and in the typical large employer plan, a new Kaiser Family Foundation report reveals. The average benefit value of Medicare for a person age 65 or older in 2011 is 97 percent of the FEHBP Standard Option benefit value and 93 percent of the typical large employer PPO benefit value, the study, conducted by Aon Hewitt for Kaiser, found. Medicare coverage likely is more favorably comparable with coverage provided in small and mid-size firms, the study added.

This analysis updates a 2008 Kaiser Family Foundation report that found Medicare’s benefit package to be less generous than the comparison employer plans, largely due to a higher deductible for inpatient care, the absence of a limit on out-of-pocket spending, a less generous prescription drug benefit, and a lack of dental coverage. Overall, the study found the following:

• Relative to the typical large employer PPO plan, Medicare provides somewhat more generous benefits for low-cost individuals ages 65 and older because of the relatively low Part B deductible for individuals who do not use inpatient care; however, Medicare is less generous than the typical large employer PPO plan for seniors with moderate and high costs. Similarly, relative to the FEHBP Standard Option (a national Blue Cross Blue Shield PPO that covers 44percent of all Federal employees), Medicare is slightly better for low-cost individuals ages 65 or older, but is notably less generous for moderate-cost individuals and somewhat less generous for high-cost individuals.
• Medicare’s average benefit value relative to the comparison employer plans has improved since Aon Hewitt last conducted the analysis in 2007, largely because of the 50 percent discount on brand-name drugs in the Part D “doughnut hole” included in the 2010 health reform law, and also because the actuarial value of the FEHBP Standard Option has contracted over the past few years due to changes in its benefit design (mainly, the increase in the limit on out-of-pocket spending).

Main differences between coverage in Medicare fee-for-service and in the two large employer plans reviewed were identified in the following categories:

1) Deductibles and coinsurance. Medicare requires multiple deductibles and coinsurance based on service type, whereas a typical large employer plan requires a single deductible for all medical services and the FEHBP standard plan requires a deductible of $350 for outpatient services and a $250 copayment for each hospital admission. In 2011, for an inpatient hospital stay Medicare required a $1,132 deductible and no coinsurance for the first 60 days, whereas the typical large employer plan required 20 percent coinsurance beginning from the first day.

2) Out-of-pocket limits. Medicare has none except for Part D; other plans have limits, but the typical large employer plan has not limits on prescription drug expenses.

3) Prescription drug “doughnut hole.” Medicare has such a spending gap but it is being reduced over time as provided by the Patient Protection and Affordable Care Act (ACA; see Report 324.4.-9). Other plans do not have such a gap.

4) Dental coverage. Medicare offers no coverage for dental services; other plans offer it. However, the Mercer annual National Survey of Employer-Sponsored Health Plans for 2010, found that nearly half of large employers that provide retiree medical benefits offered dental coverage for Medicare-covered retirees, but most required retirees to pay the entire cost of the coverage.

5) Separate network copayments. Medicare does not require different copyments based on in-or out-of-network services, while other plans required smaller copayments for in-network services.

This comparison does not account for changes between the 2007 and 2011 report periods studied of workers in the private plans shifting into other coverages, notably high-deductible health plans which saw a substantial increase from 4% of enrollees to 15%, and in the average increase by about 50 percent in enrollee premium contributions from $717 to $1,077 for the typical large plan and from $1,489.80 to $2,246.16 for the standard FEHBP plan. When these changes are taken into account, it just maybe that, at least for now, the good, old, reliable Medicare still is a better option than the ever-diminishing and ever more expensive employer-provided coverage or no coverage at all. Can Medicare for all be the answer to the nation’s growing uninsurance problem?