Talk to CURFA 10/18/06

Stuart A. Schneck. M.D.

I trust that those of you in the CU Medicare Supplement Plan are not unhappy with having had your premiums significantly reduced since July 1. Please don't count on this windfall happening again next year. I also trust that you have been notified by Great West Healthcare of your new individual identification number. UBAB and PBS have spent several years trying to get them to change from Social Security numbers as the ID, and we have finally been successful. New ID cards will soon be issued with these new numbers. Remember to give the new number to all pharmacies when filling prescriptions, as well as to all physicians and hospitals.

Chuck Howe asked me to speak to you about recent changes in Medicare. I will repeat and expand upon some of what I said at the April meeting. Let me start with Part B, which helps to cover payments for physician's services and outpatient care, for some services of physical and occupational therapists, and for some medically necessary home health care.

In 2007, for individuals on Medicare whose annual income is below $80,000 or for couples with an annual income below $160,000, Part B premiums are expected to rise 5.7% to $93.50/month. This increase is due to a surge in costs related both to greater usage and to greater complexity of services, as well as to a decision by Congress to postpone a reduction in physician reimbursement that had been scheduled to occur in 2006. If Congress blocks this reduction in physician reimbursement for 2007, Part B premiums will probably rise 7.4% to $95.00/month. In addition, beginning in 2007, between 1.5 and 3 million high-income individuals or couples will pay a greater portion of the total Part B premium cost than will the majority of Medicare enrollees.

It is not yet clear just how the Part B income category of an individual or couple will be determined, but it may be based on a modification of the adjusted gross income reported on tax returns 2 years previously. Currently, those of us on Medicare pay a monthly Part B premium that is 25% of the total premium cost. Due to shortfalls in the Medicare Trust Funds, beginning in 2007 monthly Part B premiums for an individual in the $80,000 - $100,000 income category or for couples in the $160,000 - $200,000 category will be increased to 27% of the total premium cost, followed in each of the next 4 years by a further 2%/month annual increase. Thus, by 2011, those in this category wilI pay 35%/month of the total premium cost For higher income individuals or couples, the change in premium cost will be greater. For example, individuals with an annual income greater than $200,000 or couples with an annual income over $400,000 will, in 2011, pay 80% of the total premium cost per month. I am only using percentages because the actual dollar amount of premium increase for 2007 has not yet been announced. In December, the Social Security Administration will notify us of our exact 2007 payments.

There are to be other Part B changes. By 2010, there is supposed to be a 6-city trial of a partly privatized Medicare system. In each so-called "competitive area", Medicare would provide seniors with a defined contribution payment. This money could then be used either to enroll in the traditional fee-for-service Part B program or in a private managed care plan. If the cost of the option chosen is more expensive than the defined contribution payment, seniors would have to pay the difference themselves. Some worry that the payment might be set so low that it would not cover the entire cost of traditional Part B, thus forcing some seniors into low-cost managed care plans. Other concerns are that this program might eventualIy cause wide variation in Part B premium rates across the country, or even within some states. Another fear is that private plans might mainly enroll healthier Medicare recipients, leaving the sicker ones for the traditional plan.

The annual Part B deductible will also continue to increase. It was $100 from 1991 - 2004, was $110 in 2005, is $124 this year, and it will increase in subsequent years by the same percentage used to update the monthly Part B premium for most enrollees. I will now speak briefly about Part 0, the prescription drug plan, even though few of us have elected to enroll in it. Beginning October I, insurers began advertising next year's prescription drug plans, for which open enrollment will last from November 15 to December 3 I. Confusion may again appear during this enrollment period, as it did last year, since the number of national plans has increased from 9 to 15, and the number of Colorado plans is now 55. More plans have omitted deductibles, and many will now cover generic drugs in the so-called "doughnut hole", which 1 will discuss in a moment.

What I told you in April was that some companies that manage prescription drugs for health insurance carriers, the so-called Pharmacy Benefit Managers, have "hidden contracts with drug companies to move market share to their products". Last week, Congressman Pete Stark noted that administrative costs for Part D's private plans "average 12%, 6 times Medicare's historic 2%" administrative cost. It is not widely known that the government is paying subsidies to large employers to encourage them to continue private prescription coverage for their retired workers, because eliminating this coverage would likely increase the number of enrollees in, and hence the cost of, Part D. For example, IBM estimates that it will receive a $400 million subsidy for this reason during a 6-year period beginning in 2006.

Let me now discuss the infamous "doughnut hole" in Part D. This gap. which seemed straightforward initially, was said to require that enrollees pay 100% out-of pocket for drug costs between $2,250 and $3,600, after which they would pay only 5% of costs above $3,600. It is now clear that the size of the "doughnut hole" is not $1,350 but is actually $2,850, extending not to $3,600 but to $5,100. Moreover, it turns out that the entry number of $2,250 is not figured on the basis of out-of-pocket spending, but is reached more quickly because it is figured on the undiscounted cost of medications. For example, one might spend $20 out-of-pocket for a drug, but if its cost is figured by the plan as an undiscounted $100, that is what is used to add up to the $2,250. Thus, an enrollee can get to the $2,250 quite quickly. However, the "doughnut hole" size is not figured this way, but is calculated in terms of actual out-of-pocket costs. Thus, an enrollee might get out of the "doughnut hole" at $5,100 quite slowly. Lastly, only drugs bought from a plan's in-network phannacies count towards the $5,100 out-of-pocket expense limit. This is a reversal of a policy stated by Medicare 1 year ago in response to a specific question from the AARP.

There are some other potential problems with Medicare that, if they come about, might affect all Medicare enrollees. The American Medical Association Newsletter reported recently that "nearly half of physicians plan to accept fewer new Medicare patients or stop seeing new Medicare patients altogether if Medicare physician payments are reduced 5% as scheduled in 2001". Medicare plans to cut almost 40% over the next 9 years from physician payments, while physician costs are expected to increase by about 20%. Let me give you an example of current Medicare reimbursement so that you might understand why so many physicians feel this way. A physician I know charges $1,100 to perform a colonoscopy. Medicare pays him $233 for this, or 21%, while the CU Medicare Supplement policy plus the patient pay only an additional total of $58. The doctor's total reimbursement, then, is only 26.5% of his initial charge. Some retirement communities are beginning to experience a physician shortage because of this current low Medicare reimbursement rate.

Another problem, not generally known, is that fewer newly graduated physicians are entering the adult primary care fields of family medicine and general internal medicine. A major reason is that the average debt of graduating medical students is approximately $120,000 from a state school, and $150,000 from a pri vate school. Since primary care physicians are among the lowest earners, young doctors are going where the money is, namely, to the surgical specialties, radiology and anesthesiology. Another reason for fewer primary care doctors has to do with life style. More young physicians today want defined hours, rather than the erratic work schedules endured by primary care doctors. Additionally, as you know, not only is the U.S. population growing, it is aging. Older people require more medical care, often because of not one but several chronic illnesses. The average patient over age 66 makes at least 6 trips annually to see a physician. The number of medical school graduates has not kept pace with our population increase, and hence a significant shortage of physicians is projected to occur by the year 2020. That is the reason that CU, as well as many other medical schools, has increased class size by 20 - 30%. Add a potential physician shortage to the economic and lifestyle factors that may cause doctors to avoid Medicare patients, and a very severe problem for seniors may occur in the near future.

Finally, I am sure that you have all heard about the epidemic of obesity in the U.S. Obesity may be a prime culprit behind the recent sharp increase in Medicare spending. As you know, older, heavier people are more likely to have serious illnesses. In the 15 years between 1987 and 2002, the number of obese Medicare recipients nearly doubled, and the cost of treating them nearly tripled. In 1987, 31 % of obese Medicare patients received treatment for 5 or more chronic conditions, and this rose to over 50% in 2002. Obese patients used over 75% of Medicare spending in 2002 compared to only 52% in 1987. By contrast, the number of Medicare patients whose weight was normal, but who were also being treated for 5 or more medical conditions, rose from only 11.5% in 1987 to 16% in 2002. Almost half the Medicare population meets the clinical definition of what is called the "metabolic syndrome" - a collection of unhealthy factors that include high blood pressure, cholesterol abnormalities, elevated blood sugar, and waist circumference of over 40 inches in men and 35 inches in women. These people have an increased risk of coronary heart disease. A real effort to reduce obesity, as was done for smoking, would greatly benefit the finances of Medicare.

Again, that is the end of all my good news about Medicare.