The Centers for Medicare & Medicaid Services (CMS) used the events or incidents of health care usage reported by individual people with Medicare from the Medicare Current Beneficiary Survey (MCBS). Each person included in the MCBS self-reported their health status, and health care utilization. We also matched the reported use of health care to the individual claims history to make sure we included Medicare covered services as well as services not covered by Medicare. CMS combined 2005 and 2006 MCBS data to create statistically valid and reliable cost estimates. Data from both years was combined to create a nationally representative cohort of people with Medicare.
We excluded individuals for certain reasons including if they did not participate in both Medicare Parts A & B for the full 12 months of the year or if they were in a long-term care facility for any part of the year. We wanted to focus on people in Original Medicare so that we could link both MCBS survey results and the Medicare claims data for the same period. We also excluded certain categories of individuals whose claims are paid differently or for whom we would not have a full complement of data. We created three health status categories (excellent, good, and poor). We also created three high cost diagnostic conditions: diabetes, congestive heart failure, heart attack.
For each of the three health status categories and three diagnostic conditions we calculated estimated average monthly out-of-pocket costs for health plan. CMS used the actual Medicare claims payment experience and the MCBS self-reported health care utilization to determine total health care utilization for each of the people with Medicare. CMS then computed the out-of-pocket costs based on the benefits covered and co-payments/coinsurance for each health care service. For the Medicare Advantage out-of-pocket costs projections, CMS used the data entered into the Plan Benefit Packages (PBP) to compute out-of-pocket costs. For the Original Medicare Plan and Medigap, CMS applied coinsurance and deductibles to Medicare payment amounts.
CMS made the following basic assumptions related to the out-of-pocket cost estimates for the Original Medicare Plan and Medicare Advantage Plans: Original Medicare, People with Medicare:
- Do not have any other insurance other than Medicare (no supplemental insurance).
- Enrolled in Part B when first eligible.
- Go to providers who accept Medicare assignment.
- People with Medicare have Original Medicare and the selected Medigap policy. Only include the standardized policies at the State level. (Medicare SELECT is not included.) Use exempted State policies offered by Massachusetts, Minnesota, and Wisconsin.
- Using industry representative and most recently available Medigap premiums.
Medicare Advantage Plans
- Use Calendar Year 2011 Plan Benefit Packages to define the out-of-pocket cost estimates.
- Use cost shares for in-network physicians.
- Use minimum co-payments if stated as a minimum/maximum range.
- Use deductibles and plan maximum limits, as applicable.
- Costs for Optional Supplemental benefits are not included.
- Prescription drugs:
- MCBS drug events are mapped into RXCUI codes to apply a particular plan’s tier-formulary based cost sharing. Use Prescription Drug Event (PDE) claims data (2009) for average drug prices. Relevant deductibles and premiums are also taken into account.
- For Medicare Medical Savings Account Plans (MSA plans)–the CMS annual contribution amount is assumed to be used for Medicare-covered expenses towards meeting the deductible. Any remainder is applied to Medicare eligible expenses (non-covered inpatient or SNF care, dental, and/or prescription drugs). Cost shares are zero once the deductible is met—except for any remaining non-covered expenses.
Medicare and Non-Medicare covered services in the out-of-pocket cost calculations for Original Medicare, Medigap and Medicare Advantage Plans are
- Inpatient Hospital Acute Care,
- Inpatient Psychiatric Hospital/Facility,
- Prescription Drugs,
- Dental, and
- Skilled Nursing Facility.
For Original Medicare, Medigap, and Medicare Advantage Plans without prescription drug coverage, full drug costs assuming no insurance, are calculated. The calculations also use PDE coverage prices.
Medicare covered services only included in the out-of-pocket cost calculations for Original Medicare, Medigap and Medicare Advantage Plans are:
- Ambulatory Surgical Center,
- Cardiac Rehabilitation,
- Comprehensive Outpatient Rehabilitation Facility,
- Diagnostic Radiological Service,
- Durable Medical Equipment,
- Emergency Care,
- End-Stage Renal Dialysis,
- Eye Exams,
- Hearing Exams,
- Home Health,
- Inpatient Hospital Services including Acute,
- Inpatient Psychiatric Hospital,
- Mammography Screening,
- Mental Health Specialty – Non-Physician,
- Medicare-Covered Dental,
- Medicare-Covered Part B Prescription Drugs,
- Occupational Therapy,
- Outpatient Diagnostic Tests,
- Outpatient Hospital,
- Outpatient Lab,
- Outpatient X-Ray,
- Other Health Care Professionals,
- Pap Smears and Pelvic Exams Screening,
- Physical Therapy and Speech-Language Pathology,
- Physician Specialist,
- Primary Care Physician Services,
- Preventive and Comprehensive Dental,
- Prosthetics, Orthotics, and Other Medical Supplies,
- Skilled Nursing Facility (SNF),
- Therapeutic Radiation,
- Part D Drugs
Some services are excluded from the out-of-pocket cost calculations. For example, some Medigap policies cover additional benefits that were not included in the out-of-pocket cost estimates such as:
- Foreign Travel Emergency to cover emergency medical care when you travel outside the United States (Medigap policies: B, C, D, F, and G).
- Medicare Part B Excess Charges to cover the difference between the doctor’s actual charge and Medicare’s approved amount. This would apply if you go to a doctor who does not accept assignment and bills you more than Medicare’s approved amount. (Medigap policies: F and G).
Medicare Advantage plans offer a wide range of benefits, some of which were not included in the out-of-pocket costs estimates. Some examples of benefits not included in the out-of-pocket cost estimates for Medicare Advantage plans are:
- Foreign Travel Emergency to cover emergency medical care when you travel outside the United States.
- Routine physical exams.
- Hearing services not usually covered by Medicare.
- Vision services not usually covered by Medicare.
- Prevention screening services not covered by Medicare.
- Chiropractic services not usually covered by Medicare.
- Podiatry services not usually covered by Medicare.
Note to Researchers, Medicare providers, and Others: A more in-depth explanation of the exact methodology is available on www.medicare.gov.