Medicare is Lousy Health Insurance

John C. Goodman

7/3/2011 12:01:00 AM - John C. Goodman

How many people do you know who pay three health insurance premiums to three plans? The only ones I know have gray hair.

They pay one premium to Medicare itself, another for Medigap insurance (to plug many of the holes in Medicare), and a third for drug coverage (Part D).

Even after all that, senior citizens still do not have the health insurance coverage the average person under age 65 has. The elderly and the disabled on Medicare potentially face bankrupting medical bills if they need expensive drugs or if they have a long hospital stay.

One unsuspecting victim of Medicare’s byzantine reimbursement formulas is Rita Moore, a 65-year-old kidney cancer patient. She was stunned when a pharmacist told her that a month’s supply of chemotherapy pills would cost her $2,400. That’s more than her income!

Moore is not alone. One recent study found that one in every six beneficiaries is not filling a prescription. All too often these are not drugs for which it is appropriate for patients to exercise discretion; instead, they are the treatment of choice for life-threatening conditions. Consider that:

• While almost 16 percent of Medicare beneficiaries do not fill their initial oral cancer drug prescriptions, the figure is only 9 percent for patients with private insurance.

• While 46 percent of Medicare beneficiaries face drug copayments of $500 or more, only 11 percent of privately insured patients face copayments that high.

• And, among all patients with $500 or higher out-of-pocket charges, one in four cancer patients do not fill their prescriptions!

Three developments in health policy make this condition especially surprising:

• First, remember when President Obama encouraged everyone to send the White House their horror stories about insurance company abuses? That invitation apparently didn’t apply to Medicare.

• Second, remember Barack Obama’s promise that Americans will no longer have to live in fear of bankruptcy from crushing medical bills? Turns out, that promise also only applied to young people.

• Third, the administration has missed no opportunity to remind everyone that the Affordable Care Act (ObamaCare) added new Medicare benefits (a free annual checkup, other preventive tests, etc.) that almost all seniors could easily afford to pay for out of pocket. Yet the act did nothing about their vulnerability to tens of thousands of dollars of catastrophic costs.

Take cancer patients who need very expensive drugs to survive. If the drugs are obtained from a pharmacy, they may fall under a special provision of the Part D program that requires patients to pay 25 to 35 percent of the cost. Out-of-pocket spending can easily reach $6,000 a year — even with Medigap insurance and Part D drug insurance firmly in place.

If the drugs are administered intravenously — say, at a hospital or doctor’s office — they fall under a special provision of the Part B program. Here, the patient can get hit with 20 percent of the bill with no out-of-pocket maximum. This means Medicare cancer patients can be forced to pay tens of thousands of dollars every year for the care they need.

In addition to anticancer drugs, seniors face “specialty tier” copayments for drugs that treat multiple sclerosis, rheumatoid arthritis and hepatitis C. Private Medicare Advantage plans (serving about one-fourth of Medicare enrollees) also mimic these out-of-pocket requirements — probably to keep from adversely attracting costly patients from the regular Medicare program.

It gets worse. In general, the Medicare (Part D) drug program won’t pay for “off label” uses of drugs. Instead, these drugs fall under Part B, with the unlimited 20 percent copayment. If that doesn’t immediately knock your socks off, you need to know that more than half of all cancer drugs being used today are “off label.”

Basically, the Federal Food and Drug Administration (FDA) approves drugs for uses they have been tested for. But once a drug is on the market, doctors can discover it has other (maybe even more valuable) uses. They write journal articles about their discoveries and other doctors begin taking advantage of the new uses as well. This is the case for over half of all drugs used in cancer care. They were approved for some other purpose before they were discovered to have cancer-fighting properties.

Most private insurers pay for these treatments without imposing extra patient charges, and for good reason. Off label cancer fighting drugs represent the state of the art in the war on cancer. Unfortunately, the Medicare bureaucracy doesn’t see things that way.

If you think that Medicare’s approach to prescription drugs is strange, its treatment of hospital stays is even more bizarre:

• A Medicare patient with a hospital stay of less than 60 days would only pay a deductible of $1,132.

• A patient hospitalized for 90 days would owe a copayment of $9,622.

• An additional month would cost a Medicare patient $16,980 in copayments.

• Medicare patients are responsible for 100% inpatient charges after the 150th day in the hospital.

In other words, Medicare pushes the highest cost sharing onto the sickest patient. As in the case of drug coverage, this design violates all the principles of sound insurance. People should pay out-of-pocket for those services for which it is appropriate and possible for patients to exercise discretion. Third party insurance should pay the bill for services whose costs are prohibitively expensive and where patient discretion is not appropriate in any event.

So what’s the answer? For starters, we do not need to spend any more taxpayer money. Instead, we need to allow seniors access to the same insurance designs that are routinely available to the rest of the population.

For the same money we are now spending, a study by Milliman shows we could provide every senior with comprehensive, catastrophic insurance — paying all expenses in excess of $2,500. Seniors could pay one premium to one plan to get this coverage. They could take money they now spend out-of-pocket and put $2,500 every year into a Roth-type Health Savings Account (after tax deposits and tax-free withdrawals).

If you agree with me on this, let your representatives in Congress know how you feel. Before they cut Medicare benefits any more, they should consider some win-win reforms that would help seniors and taxpayers.