Medicare is funny insurance in that its benefit design does not cap off maximum exposure. This is true in Medicare Parts A and B. And it is true in Medicare Part D. People can buy Medi-gap or Medicare Advantage plans to limit their maximum exposure, but this is a weakness in Medicare.
Kaiser Family Foundation has a good description of the benefit structure for 2018:
In 2018, the Part D standard benefit has a $405 deductible and 25% coinsurance up to an initial coverage limit of $3,750 in total drug costs, followed by a coverage gap. During the gap, enrollees are responsible for a larger share of their total drug costs than in the initial coverage period, until their total out-of-pocket spending in 2018 reaches $5,000
And it can lead to conversations like the following from one of the nation’s leading experts on drug pricing and Medicare had with her father….after enrollees reach the catastrophic coverage threshold, Medicare pays for most (80%) of their drug costs, plans pay 15%, and enrollees pay either 5% of total drug costs or $3.35/$8.35 for each generic and brand-name drug, respectively.
I told him those are the drugs I study
His reply was no way could he afford that. He would just have to die.
— Stacie Dusetzina (@DusetzinaS) October 23, 2017
This is a problem.
We are seeing more high and super high cost drugs being approved. For people who don’t receive the Low Income Subsidy (LIS) extra help, they are on the hook for 5% of the catastrophic costs. This means people who were to receive the recently approved CAR-T treatment for blood cancer may be on the hook for $15,000 or more in out of pocket costs. It may mean future retirees living with Cystic Fibrosis (a phrase that was nonsensical a decade ago), could see annual $10,000 to $12,000 co-payments just for one drug that works for them.
The long term answer is to find ways to bring down drug costs. The short term answer is to recognize that this is a problem with traditional Medicare. It provides no baseline cap to catastrophic costs. Beneficiaries can see their costs capped if they buy a Medicare Supplemental plan or Medicare Advantage plan but the basic design of Medicare does not limit absolute losses to a patient.
There are ways that Medicare benefit designs can be modified to put a cap on total exposure while holding actuarial value constant. That is a mechanical decision where healthier people pay a bit more to limit the total cost of the expensive or the ill. If Congress was to increase deductibles or co-pays on common services, this would hold actuarial value constant while paying for a maximum out of pocket limit. It is a trade-off. Do we ask more from relatively healthy/inexpensive people in most years to provide protection for sick or expensive people in a bad year?
This is one of the trade-offs that people who are thinking about Medicare for All need to think about. Most years, most people have below average costs. That will influence the loss aversion dynamics of changing benefit structure even while holding actuarial value constant. There will be a few people who are much better off and a lot of people slightly worse off.