accept Medicare reimbursement as payment in full) portends continuing increases in beneficiaries' out-of-pocket health

care expenditures.

The third criteria for evaluating a proposal to

change Medicare is whether the proposal contributes toward the development of a more rational, high quality health care delivery system. The elderly and disabled need and use health care services. The imminient bankruptcy of the HI Trust Fund frightens not only this vulnerable population but all Americans deeply concerned about health care for themselves, their children, as well as their parents.

The plain fact of the matter is that the American health care system is priced beyond the reach of those who need it most. Under current law projections, the deficit in the HI Trust Fund will be over $400 billion by the middle of the next decade. Congress and the American people

are facing the collapse of the nation's commitment to accessible, affordable health care for the aged, disabled and poor. Change is unavoidable. The question is whether we have the political will and wisdom to make changes that accommodate the needs of all our people or whether we will relegate the right to health care to the commerce of the marketplace.

Unfortunately, the Administration's proposals simply shift costs away from the federal government to others,

mostly needy program beneficiaries.

The great weakness

of the Adminsitration's budget proposals in Function 550 is the failure to lead the system toward a more rational, affordable, accessible health care system for all our people.

With these standards in mind, the Administration's major proposals to cut Medicare may be evaluated as follows:

Establish Medicare eligibility at the beginning of the first full month after attaining age 65. (Savings: $215 million in 1984)

Under current law, eligibility for Medicare begins on the first day in the month on which an individual's 65th birthday occurs. This proposal would defer eligibility to the first day of the month following the month of the 65th birthday. This proposal could significantly prejudice those who are age 65 and need medical care but are not yet into the month following their 65th birthday. Such a penurious proposal does nothing to address health care inflation but instead places the elderly at risk of being without coverage.

i

Increase in Hospitalization Out-of-Pocket Costs (FY 84 Savings: $710 Million)

Under current law, Medicare Part A pays for all covered hospital services from the 2nd through the 60th day of hospital confinement after payment of the first day deductible of $304. Under Part A of Medicare, the Administration proposes that beneficiaries pay the following new costs:

This is on top of the rise in the Part A deductible automatically scheduled from $304 to $350. Since the average Medicare hospital

stay for an elderly Medicare beneficiary is 11 days, total out-of-pocket expenses for an average hospitalized Medicare beneficiary would increase 107% in FY84

just under Part A.

Medicare recipients, already hard hit by huge increases in Part A and Part B deductibles and co-insurance, simply cannot absorb another precipitous increase in out of pocket costs for Medicare.

The Administration is attempting to sell this "health care incentive proposal by adding a "catastrophic" stop loss provision that would indemnify Medicare beneficiaries for all covered hospital costs beyond 60 days of hospitalization in a single spell of illness. The stop loss protection proposal would benefit only two percent of elderly Medicare patients requiring long term, acute care hospitalization. It does not provide any benefit to the

98 percent of Medicare patients who will be paying huge, additional out-of-pocket costs for hospitalization.

Indeed, someone would have to be hospitalized for 77 days

before they break even under this scheme compared to current

policy.

Medicare Vouchers

Estimated Cost $50 million in FY 1985

The Association is rather cautious about proposals to institute a Medicare voucher system. While we believe that the underlying capitation concept has merit, we are deeply concerned that it will be used merely as a means of budgetary relief. Under the voucher proposal, Medicare beneficiaries would

be given a fixed sum or credit with which to purchase their health insurance in the private insurance market.

The purpose

of the proposal is to restrain the inordinate rate of increase in health care cost by injecting a degree of competition in the choice of a health plan and by making the consumer more sensitive to rising cost by asking them to assume a greater portion of such costs out-of-pocket. As a sweetener, the Medicare voucher proposals usually include a catastrophic stop-loss provision that insures beneficiaries against out-of-pocket losses above a certain amount. However such stop-loss protection means little to Medicare beneficiaries, because it applies only to acute care services and ignores the major source of catastrophic health care cost for the aging

long-term (nursing home) care.

The key to the success of any voucher proposal is informed consumer choice among competing qualified plans. If consumer "cost-consciousness" or cost-sharing is to be an effective means of developing competition and containing cost, consumers must be informed.

It is essential, therefore, that any Medicare voucher plan contain provisions requiring extensive and specific information on the terms and conditions of coverage provided by participating qualified plans. We recognize that this would entail greater promotional and educational costs

which would have to be borne by insurers as higher

administrative costs.

However the success of any voucher

rests on wise consumer choice.

Perhaps the most difficult element of a Medicare voucher proposal is establishing a realistic voucher amount. The Associations believe that the health status of the individual

must be considered in determining a realistic voucher benefit level so that adequate health care coverage can be purchased. Conversely the Association does not support the use of individual health status in setting premiums because those elderly that would have the highest premiums the elderly with the greatest need for health care services are the elderly with the least ability to pay. It is unrealistic to expect the poorest, most vulnerable elderly to pay the highest health care premiums.

The Association is also concerned about the potential problem of adverse selection by insurance providers which could lead to the most vulnerable elderly obtaining the least amount of Explicit safeguards against this practice must be

coverage.

a part of any voucher proposal.

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