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Changes to Medicare in 2020
Here’s what you need to know about your 2020 Medicare costs
Key Points
- Certain costs are adjusted yearly by the government and can affect premiums, deductibles and other cost-sharing aspects of Medicare.
- Even though each change doesn’t necessarily involve huge dollar amounts, they can add up and should be factored into your monthly health-care spending.
- Beneficiaries with limited income might qualify for Medicaid or other programs that cover Medicare expenses, while higher-income beneficiaries pay more for some parts of coverage.
The maze that is Medicare includes some higher costs for 2020 that beneficiaries might want to factor into their health-care budgets.
For the program’s 61 million beneficiaries — most of whom are 65 or older — certain costs are adjusted by the government from year to year and can affect premiums, deductibles and other cost-sharing aspects of Medicare. While each of the changes don’t necessarily involve huge dollar amounts, experts say it’s important to plan for how any increases will affect your household spending.
“For someone on a fixed income, all of those little changes really add up,” said Elizabeth Gavino, founder of Lewin & Gavino in New York and an independent broker and general agent for Medicare plans.
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Basic Medicare consists of Part A (hospital coverage) and Part B (outpatient care). About a third of beneficiaries choose to get those benefits delivered through an Advantage Plan, which are offered by private insurers.
Those plans typically also include Part D prescription drug coverage, as well as extras such as dental or vision. They also limit what you pay out of pocket for Parts A and B services.
Other beneficiaries stick with basic Medicare and pair it with a standalone Part D prescription drug plan. About 30% of them also purchase a supplement plan — aka “Medigap” — which picks up some of the costs that come with basic Medicare, such as coinsurance or copays
Overall, your coverage choices can affect how much you pay in premiums, deductibles and copays or co-insurance. And, of course, how often you use the health-care system can contribute to your costs. Your income also is a determining factor. Beneficiaries with limited income might qualify for Medicaid or other programs that cover Medicare expenses. On the other hand, higher-income beneficiaries pay more for certain parts of coverage.
And then, there are those in-between.
“We’ve got a subset of people who aren’t eligible for Medicaid or other types of assistance, but they fall into a category where every penny counts,” Gavino said.
Here are costs that have changed for 2020.
Parts A & B
Most Medicare beneficiaries pay no premium for Part A because they (or their spouse) have enough of a work history — at least 10 years — of paying into the system through payroll taxes to qualify for it premium-free.
If you don’t meet the minimum requirement, though, monthly premiums could be as much as $458 a month, depending on whether you’ve paid any taxes into the Medicare system at all. That maximum is up from $437 in 2019.
And, regardless of whether you pay a premium, there are cost-sharing aspects that go with Part A.
We’ve got a subset of people who aren’t eligible for Medicaid or other types of assistance, but they fall into a category where every penny counts.
Elizabeth Gavino
founder of Lewin & Gavino
For those who don’t have additional coverage beyond basic Medicare, the amount you’d pay when admitted to the hospital will be $1,408 next year, up from $1,364 in 2019. That covers the first 60 days of Medicare-covered inpatient hospital care in a benefit period.
For the 61st through 90th days of a hospitalization, beneficiaries will pay $352 per day, up from $341 in 2019, and then $704 per day for 60 “lifetime reserve” days, up from $682 this year.
Meanwhile, for Part B, the standard premium in 2020 will be $144.60 monthly, up $9.10 from $135.50 in 2019.
Some recipients won’t pay the full standard premium due to a “hold harmless” provision that prevents their Part B premiums from rising more than their Social Security cost-of-living adjustment, or COLA.
Others, however, will pay more than the standard due to income-adjusted surcharges (see tables below).
Keep in mind that the government uses your tax return from two years earlier to determine whether you’ll pay those monthly adjustments. So for 2020, it would be your 2018 return. To request a reduction in that income-related amount due to a life-changing event such as retirement, the Social Security Administration has a form you can fill out.
The annual deductible for Part B will rise to $198, up from $185 in 2019. Once you meet that deductible, you typically pay 20% of covered services. Keep in mind that beneficiaries in Advantage Plans might pay a different amount through copays, and Medigap policies either fully or partially cover that coinsurance.
Also, while Advantage Plan premiums vary among plans — the average for 2020 is $23, down from about $27 this year — any monthly charge would be on top of your Part B premium. And, some of those options either have no monthly charge or will pay your Part B premium.
(If you don’t like your Advantage Plan, you can switch or drop it in the first three months of the year.)
Part D
How much you pay for drug coverage depends partly on the plan you choose, along with your income.
The average monthly premium for a standalone drug plan in 2020 will be $30, according to the Centers for Medicare and Medicaid Services, down from $32.50 in 2019. As with Part B premiums, higher earners pay extra (see chart below).
Those surcharges were adjusted slightly downward: for example, individuals with income above $500,000 (again, based on 2018 tax returns) will pay $76.40 extra each month, vs. $77.40 in 2019.
Be aware that those charges are not tacked on to your plan premium — they either come out of your Social Security check or you get a bill.
Also, while not everyone pays a deductible for Part D coverage — some plans don’t have one — the maximum it can be is $435 in 2020, up from $415 in 2019.
For people with high prescription costs, be aware that the amount that Part D enrollees pay out of pocket before qualifying for “catastrophic coverage” will jump to $6,350 in 2020 from $5,100 this year. In that phase of coverage, your share of prescription costs drops.
Remember, though, there are no out-of-pocket limits when it comes to Part D coverage. Sometimes, you can find medicines at a cheaper cost than through your plan, such as with a free drug-discount card or program, such as GoodRx or Blink Health, Gavino said.
However, she said, if you go this route instead of through your insurance, your plan won’t count the medicine’s cost and your copay toward your deductible or other calculations it uses to determine your share.
Medicare Changes Create Confusion For 2019 OEP
Recent Changes Add Complexity to Medicare’s Fall Open Enrollment Period
Medicare’s Fall Open Enrollment Period (OEP) is a busy time for beneficiaries and those who help them evaluate their health care and prescription drug coverage options. From October 15 to December 7 each year, people with Medicare can make changes to their coverage, such as switching Part D prescription drug plans, or switching between Original Medicare and Medicare Advantage. This annual decision-making process can be complex, and several changes this year are making it even more so.
First, people with Medicare must compare more plans than ever before. A new analysis from the Kaiser Family Foundation (KFF) finds the average Medicare beneficiary will have a choice of 28 prescription drug plans (PDPs) in 2020, a 29% increase from just three years ago. And these decisions aren’t getting any easier, as plan premiums continue to vary widely. Among the 20 PDPs available nationwide, average premiums range from $13 to $83 per month.
Second, an unprecedented number of beneficiaries are facing premium increases if they don’t change plans by December 7. According to KFF, two-thirds of Part D enrollees without low-income subsidies—9 million enrollees—will see their monthly premium increase in 2020 if they maintain current coverage. This is largely due to plan changes and consolidations. For example, Humana recently consolidated two of its PDPs (Humana Walmart Rx and Humana Enhanced) into one new plan, Humana Premier Rx, which will carry a $57 monthly premium in 2020. As a result, unless they switch plans, 1.9 million enrollees without low-income subsidies in the Humana Walmart Rx Plan—the third most popular PDP in 2019—will see their monthly premium double in 2020, from $28 to $57.
Third, for this year’s OEP, the Centers for Medicare & Medicaid Services (CMS) redesigned the Medicare Plan Finder (MPF) tool on which millions rely for accurate plan information. Medicare Rights appreciates CMS’s work to modernize MPF; many of the changes are significant improvements. However, we remain concerned that this well-intended revamp may further complicate the plan comparison process for some looking to make plan changes this fall. Specifically, that issues with the new tool’s roll out, content, and functionality could cause beneficiaries to make sub-optimal coverage decisions for 2020, errors they may not discover until well into next year. A recent Health Affairs article underscores this concern, noting that many of the MPF revisions will make the tool more user-friendly—while others may undermine plan selection efforts, including by steering beneficiaries away from lower-cost options.
To mitigate these potential hardships and improve MPF ongoingly, Medicare Rights is working with CMS and other stakeholders to address problems with the tool; we applaud the agency’s responsiveness in quickly adopting many of our initial recommendations. We are also urging CMS to take steps to prevent beneficiaries from experiencing any MPF-related enrollment complications in 2020. We look forward to continuing to work to strengthen this important resource in ways that empower people with Medicare to make informed decisions about their care.
Additionally, amid these trends and changes, Medicare Rights is helping people with Medicare weigh their options. Read more about the services and resources we provide during Fall Open Enrollment, including Medicare Plan Finder appointments, and call our National Consumer Helpline (800-333-4114) today with any questions. We also offer a free, downloadable Fall Open Enrollment guide to connect beneficiaries with accurate, unbiased Medicare information, as well as this online resource to help people get started with the new MPF.
Help Is On The Way To Help Lower The Cost Of Prescription Medications For Seniors On Medicare
Trump to Unveil Order Aiming to Boost Medicare Health Program
(Natalya Buzuevskaya/Dreamstime)
Thursday, 03 October 2019
President Donald Trump will unveil an executive order on Thursday aimed at strengthening the Medicare health program for seniors by seeking to improve its fiscal position and offer more affordable plan options, administration officials told Reuters.
The order, which Trump will discuss during a visit to a retirement community in Florida known as the Villages, is the Republican president’s answer to some Democrats who are arguing for a broad and expensive expansion of Medicare to cover all Americans, plans that Republicans reject.
It follows measures rolled out in recent months by the administration designed to curtail drug prices and correct other perceived problems with the U.S. healthcare system, though policy experts say those efforts are unlikely to slow the tide of rising drug prices in a meaningful way.
The Medicare program covers Americans who are 65 and older and includes traditional fee-for-service coverage in which the government pays healthcare providers directly and Medicare Advantage plans, in which private insurers manage patient benefits on its behalf.
Seniors are a key constituency for Republicans and Democrats, and Florida is a political swing state that both parties woo in presidential elections.
The order is designed to show Trump’s commitment to keeping Medicare focused on seniors, said one administration official who described its contents ahead of the announcement.
The order pushes for Medicare to use more medical telehealth services, which is care delivered by phone or digital means.
The official said that would reduce costs by cutting down on the number of expensive emergency room visits by patients; lower costs would help strengthen the program’s finances.
The order directs the government to work to allow private insurers who operate Medicare Advantage plans to use new plan pricing methods, such as allowing beneficiaries to share in the savings when they choose lower-cost health services.
It also aims to bring payments for the traditional Medicare fee-for-service program in line with payments for Medicare Advantage.
Trump’s plans contrast with the Medicare for All program promoted by Bernie Sanders, a Democratic socialist who is running to become the Democratic Party’s nominee against Trump in the 2020 presidential election.
Sanders’ proposal, backed by left-leaning Democrats but opposed by moderates such as former Vice President Joe Biden, would create a single-payer system, effectively eliminating private insurance by providing government coverage to everyone, using the Medicare model.
The senior Trump administration official said Democrats advancing such ideas were “trying to steal the brand of Medicare and the good reputation it has in order to mask what would be a disastrous healthcare plan.”
He said Trump’s plan sought to modernize the program and preserve it for senior citizens going forward.
The White House is eager to show Trump making progress on healthcare, an issue Democrats successfully used to garner support and take control of the House of Representatives in the 2018 midterm elections. Trump campaigned in 2016 on a promise to repeal and replace the Affordable Care Act, his predecessor President Barack Obama’s signature healthcare law also known as “Obamacare,” but was not successful.
In July, the U.S. Department of Health and Human Services (HHS) said it would propose a rule for imports of cheaper drugs from Canada into the United States. A formal rule has not yet been unveiled.
The administration also issued an executive order in June demanding that hospitals and insurers make the prices they charge patients more transparent, as well as another in July encouraging novel treatments for kidney disease.
Trump considered other proposals that did not reach fruition.
A federal judge in July shot down an executive order that would have forced drugmakers to display their list prices in advertisements, and Trump scrapped another planned order that would have banned some of the rebate payments drugmakers make to payers.
The administration is also mulling a plan to tie some Medicare reimbursement rates for drugs to the price paid for those drugs by foreign governments, Reuters reported.
Changes to Medicare for 2020
There are a few changes coming to Medicare in 2020. Here is a great article by Louise Norris that highlights some of the changes.
How are Medicare benefits changing for 2020?
Key takeaways
- The standard Part B premium is projected to increase to $144.30/month.
- The Part B deductible is projected to increase to $197 for 2020.
- Part A premiums, deductible, and coinsurance are projected to be higher in 2020.
- Medigap Plans C and F will no longer be available for purchase by newly-eligible Medicare beneficiaries.
- The Medicare Plan Finder tool has been upgraded for the first time in a decade.
- The income brackets are high-income premium adjustments for Medicare Part B and D will be inflation-adjusted for the first time in 2020; “high-income” will start at $87,000 for a single person, instead of $85,000.
- Medicare Advantage enrollment is expected to continue to increase.
- Part D donut hole will no longer exist after the end of 2019, but a standard plan’s maximum deductible will increase to $435, and the threshold for entering the catastrophic coverage phase (where out-of-pocket spending decreases significantly) will increase to $6,350.
Q: What are the changes to Medicare benefits for 2020?
A: There are several changes for Medicare enrollees in 2020:
Part B premiums
The standard premium for Medicare Part B is $135.50/month for 2019, but it’s projected to increase to $144.30/month in 2020 (this won’t be finalized until the fall of 2020, and as discussed below, higher premiums apply to enrollees with high incomes).
The Social Security cost of living adjustment (COLA) is expected to be about 1.6 percent for 2020, which will increase the average retiree’s total benefit by about $23/month. That’s more than enough to cover the roughly $9 increase in premiums for Part B, which means that the premium increase is likely to apply to nearly all Part B enrollees.
[If a Social Security recipient’s COLA isn’t enough to cover the full premium increase for Part B, that person’s Part B premium can only increase by the amount of the COLA, as Part B premiums are withheld from Social Security checks, and the net check can’t decline from one year to the next.]
Part B deductible
The Part B deductible was $183 in 2017 and it remained at that level in 2018. For 2019, however, it increased to $185. And for 2020, it’s projected to increase to $197, although the exact amount won’t be finalized until the fall of 2019.
Some enrollees have supplemental coverage that pays their Part B deductible. This includes Medicaid, employer-sponsored plans, and Medigap plans C and F. Medigap plans that cover the Part B deductible can only be sold to newly-eligible enrollees through 2019 — after that, people can keep Plans C and F if they already have them, newly-eligible Medicare beneficiaries will no longer be able to buy Medigap plans that cover the Part B deductible. (The impending ban on the sale of Medigap plans that cover the Part B deductible was part of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), in an effort to curb utilization by ensuring that enrollees would incur some out-of-pocket costs during the year.)
Many Medicare Advantage plans have low copays and deductibles that don’t necessarily increase in lockstep with the Part B deductible, so their benefits designs have had different fluctuations over the last few years. (Medicare Advantage enrollees pay the Part B premium, but their Medicare Advantage plan wraps Part A, Part B, and various supplemental coverage together into one plan, with out-of-pocket costs that are different from Original Medicare).
Part A premiums, deductible, and coinsurance
Medicare Part A covers hospitalization costs. For most enrollees, there’s no premium for Part A. But people who don’t have 40 quarters of work history (or a spouse with 40 quarters of work history) must pay premiums for Part A coverage.
Those premiums have trended upwards over time, although they’re lower in 2019 than they were in 2010. They’re projected to increase in 2020, however: The premium for people with 30+ (but less than 40) quarters of work history is projected to be $253/month in 2020, up from $240/month in 2019. And for people with fewer than 30 quarters of work history, the premium for Part A is projected to be $460/month in 2020, up from $437/month in 2019 (these numbers are from the Medicare Trustees’ 2019 report, the exact amounts will be published by CMS in the fall of 2019).
Part A has a deductible that applies to each benefit period (rather than a calendar year deductible like Part B or private insurance plans), and it generally increases each year. In 2019 it is $1,364, but it’s projected to increase to $1,420 in 2020. The increase in the Part A deductible will apply to all enrollees, although many enrollees have supplemental coverage that pays all or part of the Part A deductible.
The Part A deductible covers the enrollee’s first 60 inpatient days during a benefit period. If the enrollee needs additional inpatient coverage during that same benefit period, there’s a daily coinsurance charge. In 2019, it’s $341 per day for the 61st through 90th day of inpatient care, and that’s projected to increase to $355 in 2020. The coinsurance for lifetime reserve days is $682 per day in 2019, and that’s projected to increase to $710 in 2020.
For care received in skilled nursing facilities, the first 20 days are covered with the Part A deductible that was paid for the inpatient hospital stay that preceded the stay in the skilled nursing facility (Medicare only covers skilled nursing facility care if the patient had an inpatient hospital stay of at least three days before being transferred to a skilled nursing facility). But there’s a coinsurance that applies to days 21 through 100 in a skilled nursing facility. In 2019, it’s $170.50 per day, and that’s projected to increase to $177.50 per day in 2020.
[All of these projections are on page 188 of the 2019 Medicare Trustees’ Report; CMS will confirm the official amounts in the fall of 2019.]
Medigap Plans C and F will not be available to newly-eligible enrollees
As a result of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), Medigap plans C and F (including the high-deductible Plan F) will no longer be available for purchase by people who become newly-eligible for Medicare on or after January 1, 2020. People who become Medicare-eligible prior to 2020 can keep Plan C or F if they already have it, or apply for those plans at a later date (medical underwriting applies in most states if you’re switching from one Medigap plan to another after your initial enrollment window ends).
Medigap Plans C and F cover the Part B deductible ($185 in 2019; projected to be $197 in 2020) in full, whereas other Medigap plans require enrollees to pay the Part B deductible themselves. The idea behind the change is to discourage overutilization of services by ensuring that enrollees have to pay at least something when they receive outpatient care, as opposed to having all costs covered by a combination of Medicare Part B and a Medigap plan.
Because the high-deductible Plan F is being discontinued for newly-eligible enrollees, there will be a new high-deductible Plan G available instead.
Upgraded Medicare plan finder tool
CMS announced in August 2019 that the Medicare Plan Finder tool had been upgraded for the first time in a decade. Both the old and new plan finder tool are available through the end of September 2019; after that, only the new tool will be available. The new tool includes a wide range of improvements and automation, and keeps up with the increasing tech-savviness of new Medicare enrollees.
But some brokers and enrollment assisters have concerns about the new tool and the fact that it’s being rolled out right before open enrollment — this letter from a Medicare broker has more details. In order to have the new system save the medication information you enter (so that you can come back to it later without having to enter it all again), you have to log into your MyMedicare account; this is causing concerns about privacy in situations where a beneficiary needs assistance with the plan comparison and enrollment process, and will make it more difficult for people who are approaching Medicare eligibility to accurately compare their plan options before enrolling in Medicare.
Although the new tool has more capabilities than the old one, it will also take time for people to get used to it if they were already accustomed to the old tool. It’s a good idea to carefully compare your plan options during open enrollment, and Medicare’s plan finder tool is an excellent resource. But beneficiaries will want to allow a little extra time this year to acclimate themselves to the new tool in order to take full advantage of all that it has to offer.Inflation adjustments for the high-income brackets
Medicare beneficiaries with high incomes pay more for Part B and Part D. But what exactly does “high income” mean? Since the income brackets were introduced (in 2007 for Part B, and in 2011 for Part D), the threshold has been set at $85,000 ($170,000 for a married couple). But starting in 2020, the income brackets will be adjusted for inflation. A high-income premium surcharge will apply to Medicare beneficiaries who earn at least $87,000/year as of 2020 ($174,000 for a married couple).
For high-income Part B enrollees (income over $85,000 for a single individual, or $170,000 for a married couple), premiums in 2019 range from $189.60/month to $460.50/month, depending on income. For 2020, these amounts are projected to range from $202/month to $490.50/month, and will apply to people earning at least $87,000 for an individual, or $174,000 for a married couple.
As part of the Medicare payment solution that Congress enacted in 2015 to solve the “doc fix” problem, new income brackets were created to determine Part B premiums for high-income Medicare enrollees, and they took effect in 2018, bumping some high-income enrollees into higher premium brackets.
And for 2019, a new income bracket was added on the high end, further increasing Part B premiums for enrollees with very high incomes. Rather than lumping everyone with income above $160,000 ($320,000 for a married couple) into one bracket at the top of the scale, there’s now a new bracket for enrollees with income of $500,000 or more ($750,000 or more for a married couple). People in this category pay $460.50/month for Part B in 2019, and their estimated premium will be $490.50/month in 2020. That top bracket — income of $500,000+ for a single individual or $750,000 for a couple — will remain unchanged in 2020, but the thresholds for each of the other brackets will increase slightly (starting with the lowest bracket increasing from $85,000 to $87,000, and so on; a similar adjustment applies at each level except the highest one).
Medicare Advantage enrollment expected to continue to increase
CMS has not yet announced average Medicare Advantage (Medicare Part C) premiums for 2020, although average premiums have been declining for the last several years. (Note that Medicare Advantage premiums are in addition to Part B premiums; people who enroll in Medicare Advantage pay their Part B premium and whatever the premium is for their Medicare Advantage plan, and the private insurer wraps all of the coverage into one plan.)
For perspective, a Kaiser Family Foundation analysis found that across Medicare Advantage plans with integrated Part D prescription coverage (MA-PDs), the average premium in 2019 is about $29/month, but that includes the fact that more than half of Medicare Advantage enrollees are in plans that have no premium at all. Among people who do pay a premium for their Advantage plan in 2019, the average monthly premium is $65.
About 22 million people have Medicare Advantage plans in 2019; enrollment in these plans has been steadily growing for the last 15 years. The total number of Medicare beneficiaries has been steadily growing as well, but the growth in Medicare Advantage enrollment has far outpaced overall Medicare enrollment growth. In 2004, just 13 percent of Medicare beneficiaries had Medicare Advantage plans. That had grown to 34 percent by 2019, and the new Medicare Plan Finder tool is designed in a way that could accelerate the growth in Advantage enrollment.
Part D donut hole will be fully closed as of 2020 (enrollees in standard plans will pay 25% of costs)
For stand-alone Part D prescription drug plans, the maximum allowable deductible for standard Part D plans will increase to $435 in 2020, up from $415 in 2019. And the out-of-pocket threshold (where catastrophic coverage begins) will increase significantly, from $5,100 in 2019 to $6,350 in 2020 (the copay amounts for people who reach the catastrophic coverage level will also increase slightly in 2020).
The good news is that the Affordable Care Act has been gradually closing the donut hole in Medicare Part D. As of 2020, there will no longer be a “hole” for brand-name or generic drugs: Enrollees in standard Part D plans will pay 25 percent of the cost (after meeting their deductible) until they reach the catastrophic coverage threshold. Prior to 2010, enrollees paid their deductible, then 25 percent of the costs until they reached the donut hole, then they were responsible for 100 percent of the costs until they reached the catastrophic coverage threshold.
That amount has been gradually declining over the last several years, and the donut hole closed one year early — in 2019, instead of 2020 — for brand-name drugs (so enrollees in standard plans paid 25 percent of the cost of brand-name drugs from the time they met their deductible until they reached the catastrophic coverage threshold). Enrollees pay 37 percent of the cost of generic drugs while in the donut hole in 2019, but that will also drop to 25 percent in 2020.
Private Health Insurance Patients Are Paying 2.4% More Than Medicare Patients
RAND Study: Hospitals Charging The Privately Insured 2.4 Times What They Charge Medicare Patients
For generations, the prices that hospitals charge patients with private insurance have been shrouded in secrecy. An explosive new study has unlocked some of those secrets. It finds that employers and their insurers are failing to control hospital costs, increasing calls for transparency into insurer-hospital agreements.
Growing frustrations with employer-based insurance
The rising interest in single-payer health care can be explained by a simple fact: the cost of private, employer-sponsored health insurance keeps going up. The original sin of the American health care system—the exclusion from taxation of employer-sponsored insurance—has created all sorts of incentives for hospitals, drug companies, and other health care industries to keep raising their prices, knowing that patients are several middlemen removed from the cost and value of the care they receive.
Employers have been reluctant to control costs, because workers often get upset if a favored—but costly—hospital or doctor is excluded from the employers’ plan. The end result has been a passive-aggressive approach in which deductibles have tripled over the last decade, and wage growth has been suppressed.
The biggest driver of these problems is the high cost of hospital care. Hospital care represents more than one-third of the cost of health insurance.
Hospitals are exploiting the weakness of employer-based insurance
One study, published in Health Affairs in 2015, found that the cost of a hospital stay increased by more than 50 percent, in inflation-adjusted dollars, for the privately insured between 1996 and 2012. Over the same period, hospital costs for Medicare patients remained stable. By 2012, the average privately-insured patient was being charged 1.9 times what the average Medicare patients was for a hospital stay.
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This week’s new analysis, by Chapin White and Christopher Whaley of the RAND Corporation, finds that things are worse: hospitals, in their study, are charging the privately insured 2.4 times what they charge Medicare patients, on average.
The RAND analysis—encompassing hospitals in 25 states—is in some ways the most important analysis of hospital prices ever done, because White and Whaley were able to access the actual contracted prices used by employers representing 4 million workers.
Normally, these contracts between insurers and hospitals are a closely guarded secret. Hospitals don’t want anyone to know about the anti-competitive practices and pricing strategies that are often embedded in these contracts. And insurers have convinced themselves that their negotiations with hospitals are trade secrets that give them an advantage against their competitors.
The RAND scholars penetrated this veil of secrecy with the cooperation of business groups, such as the Employers’ Forum of Indiana and the Economic Alliance for Michigan; and state databases of insurer claims, called all-payer claims databases. (Some states have enacted rules requiring all state-regulated insurers to publicly disclose how much they are paying each health care provider for their services. These rules exempt employers who self-insure under ERISA, however, and thereby don’t provide a complete picture of hospital prices.)
The result is a uniquely detailed look at the pricing practices of specific hospitals in 25 states. RAND’s summary:
On average, case mix-adjusted hospitals were 241 percent of Medicare prices in 2017. Reducing hospital prices to Medicare rates over the 2015-2017 period would have reduced health care spending by about $7.7 billion for the employers included in this study. In 2017, reducing prices from the 75th to the 25th percentile price could reduce spending for those employers by $1.4 billion per year, which is approximately 40 percent of 2017 hospital spending.
Debunking the ‘cost-shifting’ myth
The hospital industry defends its escalating price hikes for the privately insured by claiming that hospitals lose money caring for Medicare patients: what wonks call the “cost-shifting” theory, the idea being that hospitals shift the cost of caring for Medicare patients onto the privately insured.
Austin Frakt of Boston University, at his blog The Incidental Economist, has for years compiled the research that has shown that “cost-shifting” is a myth:
Indeed, one recent study found that from 1995 to 2009, a 10 percent reduction in Medicare payments was associated with a nearly 8 percent reduction in private prices. Another study found that a $1 reduction in Medicare inpatient revenue was associated with an even larger reduction — $1.55 — in total revenue. This would be impossible if hospitals were compensating for lower Medicare revenue by charging private insurers more.
Private prices go down when Medicare rates go down: not the sort of thing that would happen if cost-shifting is real. What’s actually happening is something much simpler: monopoly exploitation.
In regions of the country where hospital markets are highly concentrated—with one or two major players—prices are substantially higher than where several hospitals compete against each other on quality and price.
John Bardis founded MedAssets, a company that provided cost management services to hospitals. In a recent speech at the West Health Healthcare Costs Innovation Summit, Bardis lambasted the way hospitals essentially invent their cost figures in order to justify the prices they charged health insurers:
Hospitals…have been incented to take advantage of the cost-based, fee-for-service channel to inflate certain costs to justify charges to pay for things such as executive compensation, capital expenditures and to finance future acquisitions—acquisitions that give them even more leverage to push back against employer and private plan payment negotiators.
How do health systems get away with pricing their services at such high rates—for services and products that have little to no relationship to their actual costs? And why haven’t these excessive pricing practices led to reform? As someone who has provided coding and payment guidance to hospitals and health systems to maximize revenue, I can tell you that it is as simple to do as it is as complicated to defend—and for most purchasers to wade through. That is the point, after all.
At MedAssets, we…digitized a mathematic formula for creating costs specifically designed to fill the gap between the revenue the hospital desired with what Medicare and Medicaid payment rates allow. This, in effect, created a cost-based justification for negotiating much higher rates from private sector payors to include insurance providers and employers. This also led to the creation of extraordinarily high list prices. List prices which in many cases are three and four times higher than the best commercial rate.
I call these formulas “rate creators.” The broader health system inflated the prices of virtually every product and service to the level of revenue the health system wanted. This design helped pay for compensation, capital expenditures, acquisition and bad debt. The culture of cost creation which has fully permeated the healthcare system does not sit by itself within provider-based operations. It has permeated the entire economic and clinical infrastructure of American healthcare.
So, when large health systems tell you that their margins are low and need higher payment rates, it is hard to hear when they are increasing their so-called “costs” by inflating their expenditures.
It’s time for transparency in hospital contracting
Hospitals take advantage of the secrecy of their contracts with insurers to make all sorts of anti-competitive demands on insurers. As the RAND report notes: “Some hospitals have instituted ‘all-or-nothing’ clauses, which require all hospitals to be in [an insurer’s network] if a single hospital is in the [network].”
Anna Wilde Mathews of the Wall Street Journal uncovered contracts showing that hospitals were prohibiting insurers from sending patients to “less expensive or higher-quality health care providers.”
These abuses are not only hidden from the public’s view, but also the view of regulators, who lack the practical means to subpoena every hospital-insurer contract in order to find the ones engaging in illegal behavior. We need a new approach.
The good news is that a new approach may be coming soon. The Trump administration has proposed a requirement that all hospitals disclose the prices they secretly negotiate with insurers. This requirement, in combination with a national all-payer claims database, would make available to the public for the first time what hospitals actually charge insurers for their services.
Curtail the power of hospital monopolies
Two bills introduced into this Congress—The Hospital Competition Act of 2019 by Rep. Jim Banks (R., Ind.) and the Fair Care Act of 2019 by Rep. Bruce Westerman (R., Ark.)—would end the ability of hospital monopolies to charge exploitative prices, by requiring them to accept rates no higher than Medicare’s from private payers, unless they divest their holdings and restore a competitive hospital market.
In recent years, Republicans have been reluctant to take on monopoly power, on the premise that doing so requires government intervention, government intervention being bad. Democrats, on the other hand, have largely ignored the problem of hospital monopolies, on the premise that three-fourths of hospitals are non-profits, naively believing that non-profits are always the good guys.
Both sides, for their own reasons, are going to have to take on the scourge of hospital monopolies if they want their ideas to win. If Republicans want to fend off a government takeover of health insurance, they’ll need to give private insurers the tools to take on hospital monopolies. And if Democrats want the math to work on single-payer health care, they’ll need to fund their proposal by ending the pricing power of hospitals.
Thus far, it’s Republicans who have been more willing to take on hospital monopolies. As the Democratic presidential contest gets underway, will that change?
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UPDATE: In the Fort Wayne Journal Gazette, Mike Packnett, CEO of Indiana hospital Parkview Health, and Brian Tabor, president of the Indiana Hospital Association, attempted—unsuccessfully—to defend Indiana’s high hospital prices as revealed by the RAND study.
Tabor attributed Parkview’s high costs to Indiana being “near the top of the list when it comes to the percentage of smokers, cancer deaths, and the obesity rate.” But the RAND study took population health into account, by measuring hospital prices as adjusted for both the severity of an individual patient’s case, and the cost of a particular health care service relative to others. Hence, the higher rate of smoking in Indiana had no effect on RAND’s conclusions.
Packnett defended the fact that his hospital was listed as charging among the nation’s highest prices—four times Medicare—by describing the RAND study as “very complex.” According to the Journal Gazette, Packnett also expressed concerns that “of more than 400 insurance contracts in Indiana, only two were included in the study…and only three northeast Indiana employers shared data.” This is a non-sequitur. If Packnett wants the public to analyze the prices they charged to all insurers in Indiana, all Parkview has to do is disclose them. Instead, hospitals have fought transparency tooth and nail, because they know transparency will expose their egregious pricing strategies. Parkview, for its part, claims that insurers are responsible for the confidentiality of contracts, not hospitals. The truth is that both are to blame, and that Parkview could easily insist on opening those contracts to the public if it wanted to.
Insulin Use Among Medicare Eligible Is Skyrocketing
Insulin use is increasing a significant rate here is a great article by KFF.
How Much Does Medicare Spend on Insulin?
The rising cost of prescription drugs is currently a major focus for policymakers. One medication that has come under increasing scrutiny over its price increases is insulin, used by people with both Type 1 and Type 2 diabetes to control blood glucose levels. Among people with Medicare, one third (33%) had diabetes in 2016, up from 18% in 2000. The rate of diabetes is higher among certain groups, including more than 40% of black and Hispanic beneficiaries. Although not all people with diabetes take insulin, for many it is a life-saving medication and essential to maintaining good health. Three companies—Eli Lilly, Novo Nordisk, and Sanofi—manufacture most insulin products, and there are no generic insulin products currently available, despite the fact that insulin was discovered in the 1920s. Committees in both the House and the Senaterecently convened hearings on prescription drug costs that focused on rising insulin prices and affordability concerns for patients, and congressional investigations are underway.
This data note examines spending on insulin by Medicare and beneficiaries enrolled in private Part D drug plans, based on data from the Centers for Medicare & Medicaid Services (see Data and Methods). Because drug-specific rebate data for Medicare are proprietary, the analysis examines Medicare spending without rebates, but also uses average Part D rebates reported by Medicare’s actuaries to illustrate the potential effects on total Part D insulin spending. While rebates may help to lower Part D premiums, they do not lower enrollees’ out-of-pocket drug costs, which are based on list prices.
Key Findings
- Total Medicare Part D spending on insulin increased by 840% between 2007 and 2017, from $1.4 billion to $13.3 billion (Figure 1)—including what Medicare, plans, and beneficiaries paid.
Figure 1: Total Medicare Part D spending on insulin increased 840% between 2007 and 2017, from $1.4 billion to $13.3 billion
- With rising prices and the introduction of more costly insulin products over time, average total Medicare Part D spending per user on insulin products increased by 358% between 2007 and 2016, from $862 to $3,949.
- Aggregate out-of-pocket spending by Part D enrollees on insulin quadrupled between 2007 and 2016, from $236 million to $968 million, reflecting both an increase in the number of users and price increases for insulin. Among enrollees without low-income subsidies, average per capita out-of-pocket spending on insulin nearly doubled between 2007 and 2016 (from $324 to $588; an increase of 81%).
- Among all insulin products, Lantus Solostar, a long-acting insulin manufactured by Sanofi, accounted for the largest share of both total Part D spending and out-of-pocket spending by enrollees who used insulin. Spending on Lantus Solostar, which was used by 1.1 million Part D enrollees in 2017, accounted for 20% of total Part D spending on insulin therapies in 2017 and 25% of out-of-pocket spending on insulin by non-low income subsidy enrollees in 2016.
Total Medicare Part D Spending on Insulin
According to our analysis, total Medicare Part D spending on insulin increased by 840% between 2007 and 2017, from $1.4 billion to $13.3 billion—including what Medicare, plans, and beneficiaries paid. In light of rising prices for existing insulin products and the introduction of more costly insulin therapies over time, average annual total Part D spending on insulin products per user increased by 358% between 2007 and 2016—from $862 to $3,949—while average total Medicare Part D spending per insulin prescription increased by 280% over these years—from $96 to $363 (Figure 2).
Figure 2: Average annual total Medicare Part D spending on insulin products per user increased 358% between 2007 and 2016
The total number of Part D enrollees using any insulin therapy nearly doubled between 2007 and 2016, from 1.6 million enrollees to 3.1 million—a much smaller increase in percentage terms (86%) than the percent increase in total Part D spending on insulin over the 2007-2016 period (753%) (Table 1). The total number of insulin prescriptions covered by Part D also increased over these years (from 14.8 million in 2007 to 33.3 million in 2016), but the percentage increase (125%) was also substantially lower than the percent increase in total insulin spending.
Total Part D spending on top insulin therapies. In 2017, the top five insulin therapies covered under Part D accounted for 62% of total Part D spending on insulin, or $8.2 billion out of the $13.3 billion total spending on insulin (Figure 3). Among all insulin products, Part D spending was highest for Lantus Solostar, a long-acting insulin manufactured by Sanofi, with $2.6 billion in Part D spending in 2017. This one drug alone, used by 1.1 million Part D enrollees in 2017, accounted for 20% of total Part D spending on insulin that year. Lantus Solostar was also among the top five drugs overall in terms of total Part D spending in 2017.
Figure 3: The top 5 insulin products accounted for 62% of total Medicare Part D spending on insulin in 2017
Average total Part D per capita costs for insulin therapy in 2017 ranged from $693 for Humulin R, a short-acting regular insulin manufactured by Eli Lilly—used by 102,000 Part D enrollees in 2017—to $10,014 for Humulin R U-500, a concentrated regular insulin for people who need large doses of insulin, also manufactured by Eli Lilly—used by 14,500 beneficiaries in 2017.
Total Part D spending by insulin manufacturer. In 2017, total Part D spending on all of the different insulin products from the three main manufacturers was $5.5 billion for Novo Nordisk, $4.8 billion for Sanofi, and $3.0 billion for Eli Lilly (Figure 4). Between 2007 and 2017, spending on insulin therapies from all three manufacturers increased dramatically. Over this time period, cumulative total Part D spending was $27.0 billion for insulin products from Novo Nordisk, another $27.0 billion for Sanofi, and $15.0 billion for Eli Lilly.
Figure 4: In 2017, total Medicare Part D spending on insulin from the three main manufacturers was $5.5 billion for Novo Nordisk, $4.8 billion for Sanofi, and $3.0 billion for Eli Lilly
Trends in insulin spending per dosage unit. Of the 22 insulin therapies listed in the CMS Part D drug spending dashboard in both 2013 (the first year of dashboard data) and 2017 (the most recent year), 19 products had increases of more than 10% in annual Part D spending per dosage unit between 2013 and 2017, according to CMS estimates (Table 2). Six insulin products had increases of more than 10% in average spending per dosage unit between 2016 and 2017 alone (Figure 5).
Figure 5: For six insulin products, average Medicare Part D spending per dosage unit increased by more than 10% between 2016 and 2017
These percentage increases in average spending per dosage unit for insulin products represent price increases that can translate to large increases in total spending per claim over time—even if the change in average spending per dosage unit measured in dollars may be relatively low—since there are typically multiple dosage units associated with each claim. For example, while Afrezza has the lowest average spending per dosage unit in 2017 of all the insulin products in the CMS dashboard data ($3.54), the 2016-2017 change of 21.6% was the largest in percent terms—and it translates into a large difference in spending per claim for Afrezza between 2016 and 2017—from $566 per claim in 2016 to $690 per claim in 2017, a $124 increase (Table 2).
Out-of-Pocket Spending on Insulin by Medicare Part D Enrollees
Part D enrollees’ total annual out-of-pocket costs for insulin. Since Medicare Part D plans cover a portion of enrollees’ total drug costs, enrollees pay less than the retail price of drugs covered by their plan, and those who receive Part D low-income subsidies (LIS) face relatively low out-of-pocket costs. Still, in the aggregate, out-of-pocket spending among all Part D enrollees on insulin quadrupled between 2007 and 2016, from $236 million to $968 million, reflecting both an increase in the number of users and price increases for insulin (Figure 6). Between 2007 and 2016, Part D enrollees spent a combined $5.5 billion out of pocket on insulin therapy.
Figure 6: In the aggregate, Medicare Part D enrollees’ out-of-pocket spending on insulin quadrupled between 2007 and 2016—from $236 million to $968 million
Part D enrollees’ average per capita out-of-pocket costs for insulin. Among Part D enrollees who did not receive LIS, average per capita out-of-pocket spending for insulin alone was $588 in 2016, but including costs for all other prescriptions, total per capita out-of-pocket spending among those who used insulin was $1,334. Non-LIS enrollees’ average per capita out-of-pocket spending on insulin in 2016 was nearly double the amount in 2007 ($324; an increase of 81%).
For several insulin products, average per capita out-of-pocket spending by non-LIS enrollees increased by more than 100% between 2007 and 2016; for example, average per capita out-of-pocket spending on Lantus Solostar increased by 291% from $106 to $413 (Figure 7).
Figure 7: Average per capita out-of-pocket spending by non-LIS Medicare Part D enrollees for certain insulin products more than doubled between 2007 and 2016
In 2016, average annual per capita out-of-pocket spending by non-LIS enrollees who used insulin therapies ranged from $110 for Levemir Flexpen, a long-acting insulin manufactured by Novo Nordisk, to $822 for Humulin R U-500 (Table 3).
Part D enrollees’ out-of-pocket spending on top insulin therapies. In 2016, the top five insulin therapies accounted for 67% of aggregate out-of-pocket spending on insulin by non-LIS enrollees that year, or $0.6 billion out of the $0.9 billion in out-of-pocket spending on insulin by non-LIS enrollees (Figure 8). Aggregate out-of-pocket spending was highest for Lantus Solostar, accounting for 25% ($230 million) of non-LIS enrollees’ total out-of-pocket spending on insulin therapy in 2016.
Figure 8: The top 5 insulin products accounted for 67% of non-LIS Medicare Part D enrollees’ out-of-pocket spending on insulin in 2016
Illustrating the Potential Effect of Rebates on Total Insulin Spending
Our analysis is based on retail claims data and aggregated spending data that do not take into account manufacturer rebates and discounts to plans, which are considered proprietary and therefore not publicly available. There is data suggesting that insulin manufacturers have provided large rebates and discounts to payers that have produced net prices that are significantly lower than the high list prices that have attracted public scrutiny. Regardless of the magnitude of rebates for insulin products, however, rebates do not help to lower enrollees’ out-of-pocket costs for insulin. This is because the amount that enrollees pay out of pocket is either a flat dollar copayment (depending on their plan’s cost-sharing design) or, if they are paying full cost in the deductible phase or a coinsurance amount, their cost is based on pre-rebate list prices rather than post-rebate net prices.
Because CMS does not disclose drug-specific rebates, we are unable to know exactly the degree to which our estimates of total Part D spending on insulin therapy might overstate actual costs to Medicare and plans. We can approximate the potential effect of rebates on total Part D spending by assuming that all Part D plans had received for all insulin products the average rebate reported by Medicare’s actuaries each year between 2007 and 2017. Based on this assumption, insulin spending would have increased from $1.3 billion in 2007 (applying the 9.6% average rebate in 2007) to $10.3 billion in 2017 (applying the 22.8% estimated average rebate in 2017). This amounts to a 702% increase in total Part D spending on insulin between 2007 and 2017, compared to an 840% increase based on the pre-rebate total spending amounts ($1.4 billion and $13.3 billion, respectively). If actual rebates for insulin products were larger than these averages, total spending would be lower than these estimates.
Implications
Rising prices for insulin have attracted increasing scrutiny from policymakers in recent months. Our analysis demonstrates that rising insulin prices since 2007 have translated into significantly higher out-of-pocket spending for beneficiaries in Medicare Part D plans and higher spending for the program overall (not taking into account rebates). The number of people Medicare covers for insulin therapy has increased as the number of Medicare beneficiaries with diabetes has risen. Average annual total Part D spending per insulin user increased by 358% between 2007 and 2016, while average out-of-pocket costs for insulin by non-low income subsidy Part D enrollees nearly doubled.
Members of Congress and the Trump Administration have introduced several proposals that could help to address concerns about rising prices for insulin products and affordability concerns for patients, including banning rebates from drug manufacturers unless they are shared directly with patients at the point of sale, taking steps to increase the availability of generic products, allowing Medicare to negotiate drug prices, and allowing patients to import drugs from other countries. Rising prices for insulin therapy in recent years and the resulting increases in Medicare Part D and beneficiary out-of-pocket spending illustrate why the cost of prescription drugs is an ongoing concern for patients and public and private payers, and a pressing issue for policymakers
CMS Approves More Options For Emergency Care
Great News!!!
CMS Announces New Model to Reduce Unnecessary Emergency Department Use
Today, the Centers for Medicare & Medicaid Services (CMS)—the agency that oversees the Medicare program—announced a new model within traditional Medicare that could help people with Medicare avoid unnecessary trips to the Emergency Department. This new model would allow emergency transportation services to take individuals to their primary care doctor or urgent care, or to deliver treatment in place, when the person does not need to be seen in an emergency room.
Currently, most emergency transportation after a 911 call is limited to taking the patient to the Emergency Department of a nearby hospital. This can mean that Medicare beneficiaries are exposed to the expense and stress of an emergency room visit when they may really need to see their primary care doctor or to receive limited treatment in their homes. The Emergency Triage, Treat and Transport (ET3) model would allow participating ambulance suppliers and providers to partner with providers to deliver treatment in place when appropriate. This could be either on-the-scene or through telehealth. When such treatment is not appropriate but the condition does not require immediate transportation to an Emergency Department, the model would allow the ambulance to deliver the patient to alternative destination sites such as primary care doctors’ offices or urgent-care clinics.
The details of such models are extremely important and CMS must ensure that people with Medicare receive appropriate care when they face a medical emergency. We welcome efforts to keep people out of the Emergency Department when safe and feasible, though we cannot be sure yet if this model will have the necessary safeguards.
We will continue to monitor this model and other models CMS publishes to ensure they support high-quality, affordable care for people with Medicare.
Medicare Advantage Plan Open Enrollment Period Has Been Extended For 2019 And Going Forward
Changes to the Medicare Advantage Open Enrollment Period in 2019
The typical Medicare Advantage Disenrollment Period (January 1 – February 14 every year) will be replaced with a different arrangement in 2019. This will be effective starting in 2019, according to the Centers for Medicare & Medicaid Services.
The Medicare Advantage Disenrollment Period allows you drop your Medicare Advantage plan and return to Original Medicare. It also allows you sign up for a stand-alone Medicare Part D Prescription Drug Plan.
What’s the new Medicare Advantage Open Enrollment Period?
In 2019, a new Medicare Advantage Open Enrollment Period will run from January 1st – March 31st every year. If you are enrolled in a Medicare Advantage plan, you’ll have a one-time opportunity to:
- Switch to a different Medicare Advantage plan
- Drop your Medicare Advantage plan and return to Original Medicare, Part’s A and B
- Sign up for a stand-alone Medicare Part D Prescription Drug Plan . Most Medicare Advantage plans include prescription drug coverage already. Usually you can’t enroll in a stand-alone Medicare Prescription Drug plan if you already have a Medicare Advantage plan, but there are some situations where you can. Please contact us at 855-830-6099 if you have any questions on how these changes will impact you.