Health insurers face a conundrum. Increased cost sharing helps to reduce patient utilization of medical resources and–at least inititally–lowers the cost of care. Too much cost sharing, however, can lead to decreased patient adherence. In this case, the patients may get sick and require hospitalization, which will actually increase cost. Cost sharing’s affect on adherence will likely be especially acute for low-income individuals.
To not discourage low-income individuals from receiving the care they need, Medicare significantly reduces the cost sharing provisions for low-income individuals. For example, for Part D drug coverage, most beneficiaries face the following benefit structure as of 2008:
- $275 deductible
- 25% copay up to an initial coverage limit of $2,510
- Doughnut hole coverage between $2,510 and $4050
- Catastrophic coverage above $4050 where he pays the greater of $2.25 for generic, $5.65 for brand drugs, or 5% coinsurance, whichever is greater.
Many low income individuals, however, incur much less cost sharing. Many of these low-income Medicare beneficiaries are known as dual eligibles since they are eligible for both Medicare and Medicaid coverage. “…these beneficiaries—referred to as full subsidy beneficiaries—pay a small copayment (between $1.10 and $6.00 in 2009) and Medicare pays the difference between these amounts and the cost sharing required by the plans.” Thus, by covering most of the cost of these poor, elderly individuals, Medicare hopes to avoid decreased adherence and–in the long run–save money and improve health outcomes.
Before January 2006, State Medicaid plans were responsible for paying for most drug coverage for these beneficiaries. After this date, however, the drug costs for these beneficiaries was transitioned to Medicare’s newly enacted Part D program.