Traditional Medicare Beneficiary Coinsurance for Hospital Outpatient Services

Background

A loophole in MedicareMedicare is the federal health insurance program for people who are age 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease (ESRD), (permanent kidney failure requiring dialysis or a transplant). law related to hospital outpatient services (such as diagnostic tests, radiology, and certain surgeries) had subjected beneficiaries to much higher cost-sharingThe share of insurance-covered costs that a person pays out of pocket, including deductibles, coinsurance, and copayments. It does not include premiums, balance billing amounts for non-network providers, or the cost of non-covered services. than the standard 20 percent. Nearly 50 percent was not uncommon. The increased cost resulted from basing the coinsuranceA form of health care cost sharing in which a percentage of covered expenses must be paid by the insured. In contrast, a copayment is a specific dollar amount that must be paid for a specific service. on 20 percent of hospital charges, rather than on the amount MedicareMedicare is the federal health insurance program for people who are age 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease (ESRD), (permanent kidney failure requiring dialysis or a transplant). approved.

Since 2000, Congress has mandated that beneficiary coinsuranceA form of health care cost sharing in which a percentage of covered expenses must be paid by the insured. In contrast, a copayment is a specific dollar amount that must be paid for a specific service. as a share of payments for hospital outpatient services be reduced each year through a “buy-down” provision. Its intent is to cut beneficiary coinsuranceA form of health care cost sharing in which a percentage of covered expenses must be paid by the insured. In contrast, a copayment is a specific dollar amount that must be paid for a specific service. payments to 20 percent of total payments for outpatient services. In 2014, beneficiaries’ copayments accounted for 22 percent of total payments.

Recently the MedicareMedicare is the federal health insurance program for people who are age 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease (ESRD), (permanent kidney failure requiring dialysis or a transplant). Payment Advisory Commission and the Centers for MedicareMedicare is the federal health insurance program for people who are age 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease (ESRD), (permanent kidney failure requiring dialysis or a transplant). & MedicaidA joint federal/state program that provides health care and LTSS. However, to qualify for Medicaid LTSS, people must have extremely low assets and income, or they have to “spend down” most of their assets. Services noted a rise in the number and length of hospital “observation” stays. Patients in observation statusA designation hospitals use to distinguish patients who are not formally admitted to the hospital as inpatients even though they may in the hospital for several days. Cost-sharing for patients in observation status is higher than for inpatients. are classified as hospital outpatients, not inpatients, even if they are in a hospital setting for more than 24 hours and are using a hospital bed. The consequences and costs of this classification can be significant. For an observation stay, beneficiaries must pay a percentage of the allowed charge for each outpatient service, including observation. There is no cap on how much they may owe for multiple outpatient services. As an inpatient, their costs would be limited to the inpatient deductibleThe amount that individuals must pay for services covered under an insurance plan before the insurer pays benefits. Not all out-of-pocket spending counts toward the deductible. amount ($1484).

Additionally, Part B does not cover the cost of self-administered drugs provided to outpatients. Beneficiaries under observation are typically responsible for the full hospital charges for these drugs, which are often many times the cost of buying the same drugs in a nonhospital pharmacy (e.g., $209 for drugs that cost $43 outside the hospital).

These out-of-pocket costs can quickly add up, in particular for beneficiaries on fixed incomes. Finally, time spent under observation does not count toward the three-day prior inpatient stay required for MedicareMedicare is the federal health insurance program for people who are age 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease (ESRD), (permanent kidney failure requiring dialysis or a transplant). to cover subsequent skilled-nursing facility services. Therefore, someone who needs this postacute care may not qualify for coverage, despite spending more than three days in the hospital under observation (see also Traditional Medicare Provider Payment—Postacute Care).

TRADITIONAL MEDICARE BENEFICIARY COINSURANCE FOR HOSPITAL OUTPATIENT SERVICES: Policy

TRADITIONAL MEDICARE BENEFICIARY COINSURANCE FOR HOSPITAL OUTPATIENT SERVICES: Policy

Decreasing outpatient coinsurance

The Centers for MedicareMedicare is the federal health insurance program for people who are age 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease (ESRD), (permanent kidney failure requiring dialysis or a transplant). & MedicaidA joint federal/state program that provides health care and LTSS. However, to qualify for Medicaid LTSS, people must have extremely low assets and income, or they have to “spend down” most of their assets. Services should ensure that the phase-down of beneficiary coinsuranceA form of health care cost sharing in which a percentage of covered expenses must be paid by the insured. In contrast, a copayment is a specific dollar amount that must be paid for a specific service. for outpatient hospital care continues as rapidly as possible.

Federal policymakers should accelerate the buy-down of beneficiary coinsuranceA form of health care cost sharing in which a percentage of covered expenses must be paid by the insured. In contrast, a copayment is a specific dollar amount that must be paid for a specific service. for all outpatient services to the appropriate level of 20 percent of MedicareMedicare is the federal health insurance program for people who are age 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease (ESRD), (permanent kidney failure requiring dialysis or a transplant). ’s approved amount as quickly as feasible.

Congress should limit the maximum amount of beneficiary copayments for each outpatient service to one-half of the hospital inpatient deductibleThe amount that individuals must pay for services covered under an insurance plan before the insurer pays benefits. Not all out-of-pocket spending counts toward the deductible. .

Federal policymakers should prohibit hospitals from billing beneficiaries who stay in the emergency room or under observation beyond a maximum length of time (such as 24 or 48 hours) as outpatients, whether or not they are subsequently admitted as inpatients.

Congress should allow any days spent in observation statusA designation hospitals use to distinguish patients who are not formally admitted to the hospital as inpatients even though they may in the hospital for several days. Cost-sharing for patients in observation status is higher than for inpatients. to be counted toward the current three-day hospital stay requirement to qualify for skilled-nursing facility coverage (see also Traditional Medicare Provider Payment—Postacute Care for related policy).