The Costs, Financing, and Distributional Effects of a Catastrophic Supplement to Medicare

Compares two catastrophic plans to supplement Medicare benefits. One limits cost-sharing to a fixed dollar amount; the other varies the limit as a function of family income. Either will increase Medicare program costs slightly more than $1 billion. The total budgetary increase will be only $700 to $800 million, however, because the costs of other health-financing subsidy programs will decrease. Financing the plans would require premiums of $3.50 per enrollee per month, an increase in personal income taxes of 0.55 percent, an increase in payroll taxes of 1 percent, or increases in the current Medicare deductible or coinsurance rate. A major finding is that the type of catastrophic limit and the choice among the five financing methods have only a small effect on the amount and distribution of expected real income changes among the aged; however, the choice of parameters affects the post-illness distribution of income.