Why does Medicare Spend $1,628 Less per Senior Without Medigap Coverage?
While some partisans are licking their chops over the opportunity to rain political fire from seniors down on President Bush’s long-term Medicare reform, the adults in Washington, D.C. know that reforms of Medicare are desperately needed, or the program will have catastrophic reform forced upon itself by the crush its financial obligations. Notwithstanding the headlines that the President wants to cut $200 billion from Medicare, most are watching to see if the partisans will win or the adults will win.
One adult solution to the run-away obligations Medicare is imposing on the U.S. taxpayer and the U.S. government is to install mandatory $500 dollar deductibles for every Medigap policy sold to those seniors who are not low income or on Medicaid. The savings would be $200 billion a year.
Here is how and why this idea will work. To illustrate that the law that raising the insurance deductible will make the cost of health care drop will work in Medicare, here are two simple and astounding facts:
In 1999, those senior citizens without a Medigap policy (Medigap insurance policies pay the Medicare Part A deductible for hospital services) cost Medicare $1,400 less money per year than those who had a Medigap policy.
In 2003, the next and most recent data available tells the same story: those seniors without Medigap insurance cost Medicare $1,628 dollars a year less than those with Medigap policies.
Medigap policies make sure there is no deductible for the 90% of seniors who buy Medigap policies.
If Congress mandated, for example, that every Medigap policy must have a $500 deductible, Medicare would save, easily, $800 per senior, per year.
If you excluded those seniors who were low income and on Medicaid, and applied this to 25 million seniors (out of the 32 million in Medicare) the savings to Medicare would be on the order of $800 x 25 million seniors equals $18,400,000,000.
Just a simple $500 deductible, for the seniors that can afford it, will save the Medicare system $92 billion over five years and extend the live of a system that seniors depend on.
Furthermore, this is the direction that Medicare must go in, setting a line below which seniors pay out of their pocket, and above which Medicare pays.
This is the only way Medicare will remain solvent over the long-term.