RAND Study Finds Hmos Protect Medicare Beneficiaries From High Out Of Pocket Medical Costs

Health Maintenance Organizations (HMOs) do a better job than other widely available supplemental health insurance plans in protecting Medicare recipients from high out-of-pocket medical expenses, according to a report released today by RAND Health researchers.

The detailed study of seniors' medical spending showed that people who enroll in senior-focused HMOs to supplement their basic Medicare coverage had the lowest out-of-pocket costs in nearly every circumstance examined by researchers. This was particularly the case among those seniors who used the most health services, according to findings that appear in the May edition of the journal Health Affairs.

So-called “Medigap” insurance—sold by traditional insurance plans to supplement Medicare—did little to insulate seniors from high medical bills, the RAND study found. The best protection came from employer-provided supplemental plans, which are predominant among the more affluent, and Medicaid for the very poor.

“Medicare beneficiaries are at significant risk for large out-of-pocket expenses if they don't have supplemental insurance benefits,” said Dana Goldman, the primary author of the report and director of health economics at RAND.

Goldman and RAND colleague Julie Zissimopoulos examined the amount people spent on health care and compared it with the type of supplement they purchased. The researchers also looked at whether out-of-pocket expenses were different depending on their levels of health and income or wealth. The project was supported by the National Institute on Aging.

“We found that Medicare HMOs are a good option to insulate yourself from financial risks, and they are particularly valuable for less-affluent seniors,” Goldman said. “The tradeoff is that you lose some of your choices and face more administrative constraints in order to protect yourself against high out-of-pocket costs.”

The findings show that seniors who were enrolled in Medicare HMOs, employer-sponsored supplemental insurance and Medicaid—the federal insurance program for the poor—generally were protected against having to pay very large out-of-pocket medical expenses.

Overall, seniors who had Medigap coverage had the highest out-of-pocket expenses, spending an average of $2,585 in the two-year study period on items such as co-payments and prescriptions. Those with no supplemental coverage averaged $2,431 in costs over two years, followed by those with HMOs, who spent an average of $1,738. Those enrolled in employer-sponsored plans spent an average of $1,676 and those with Medicaid spent an average of $963.

Among seniors who reported having fair or poor health, those enrolled in the HMOs had lower costs than their peers enrolled in other types of plans, excluding Medicaid. Among seniors who used the most medical services, HMOs provided significant cost savings compared with other commercially available health plans.

“We were surprised how important the HMOs are for the poorest Medicare recipients and the sickest Medicare recipients,” Zissimopoulos said. “These are the two groups that really rely on and benefit from the Medicare HMOs.”

The RAND study is the first detailed examination of the out-of-pocket expenses paid by Medicare beneficiaries in relation to the type of supplemental coverage they choose. The findings may help guide policymakers as they search for ways to limit Medicare costs and make changes to the standard benefits, Goldman said.

The researchers examined information collected in 1998 from the U.S. Health and Retirement Study, a national effort that surveys a representative sample of the nation's elderly and near-elderly every two years about a wide range of health issues.

The more wealth people reported, the more likely they were to have supplemental insurance, according to researchers. Nearly one-fourth of the low-wealth seniors had no supplemental coverage, while just 7 percent of the wealthiest group did not buy coverage.

RAND researchers found the most popular insurance option for senior citizens is coverage offered by former employers. Just over 32 percent of seniors reported such coverage, which cost an average of $519 per year. Just slightly less popular was Medigap insurance sold to cover costs not paid by Medicare. Nearly 32 percent of the seniors in the study had Medigap insurance, which cost an average of $1,459 per year.

About 15 percent of the seniors were enrolled in Medicare HMOs, which cost an average of $238 per year. About 8 percent of the seniors were enrolled in Medicaid, the government insurance plan for the poor. About 14 percent of the seniors had no supplemental Medicare coverage.

The study found that a few seniors account for much of the out-of-pocket spending, which drives the average spending estimates higher. About 10 percent of the seniors spent $4,800 or more over two years and the top 1 percent spent more than $15,000 over the period.

Out-of-pocket medical expenses for most seniors probably have increased since the survey was completed, according to Goldman and Zissimopoulos.

Federal payments to Medicare HMOs have been trimmed in recent years, causing some plans to increase co-payments, reduce benefits, raise enrollment fees and, in some instances, leave the market. Other research has shown that fewer Medicare supplements now offer prescription drug benefits and many have limited the types of medicines covered.

In addition, fewer employers are offering low-cost supplemental health benefits to their retirees. Higher costs and changing corporate accounting rules have caused many employers to drop this benefit, a trend expected to continue.

Nearly all U.S. seniors qualify for Medicare, federal health insurance that covers both hospital costs and fees for services from doctors and other health professionals. However, Medicare does not cover prescriptions, and includes substantial deductibles and cost sharing for most medical services. Most seniors buy additional insurance coverage to guard against large out-of-pocket expenses.

RAND Health is the nation's largest independent health policy research organization, with a broad research portfolio that focuses on medical quality, health care costs and delivery of health care, among other topics.