Supplemental Insurance Reduces Out-of-Pocket Costs in Medicare Observation Services

Published in: Journal of Hospital Medicine, v. 11, no. 7, July 2016, p. 502-504

Posted on RAND.org on July 14, 2016

by Brian Doyle, Susan L. Ettner, Teryl K. Nuckols

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Research Question

  1. Does the inclusion of supplemental insurance payments in the calculation of out-of-pocket hospital costs change the proportion of beneficiaries incurring excessive out-of-pocket costs?

Including supplemental insurance payments in the calculation of Medicare patients' out-of-pocket costs substantially lowers the proportion that exceed the Part A deductible, in comparison to previous analyses.

Key Findings

  • Prior analyses concluded that 6 to 10 percent of observational hospital stays for Medicare patients resulted in out-of-pocket costs that exceeded the Part A deductible, but these analyses did not include supplemental insurance adjustments or payments in their calculations.
  • About 20 percent of beneficiaries in this study did not have supplemental insurance; their mean out-of-pocket costs were $537.
  • About 80 percent of beneficiaries had supplemental insurance from private or state-based sources; their mean out-of-pocket costs were $45 for private, $168 for state-based supplemental insurance.
  • Factoring in supplemental insurance payments, the percentage of out-of-pocket costs from observational hospital stays exceeding the Part A deductible were 0.3 and 3.5 percent for beneficiaries with private and state-based supplemental insurance, respectively.

Recommendation

Future attempts to estimate Medicare beneficiaries' out-of-pocket costs should include supplemental insurance adjustments or payments.

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