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Medicaid clearly helps to reduce financial burdens for those who are covered. The poor elderly population covered by Medicaid had out-of-pocket expenses of $287 per year in 1989 in contrast to expenses exceeding $1,000 for the poor and near-poor without Medicaid coverage (Figure 16). Poor elderly people without Medicaid coverage paid twice as much for prescription drugs and four times more for cost-sharing and uncovered services than the poor with Medicaid (Table 13). Medicaid coverage of prescription drugs helps reduce the economic barriers that impede

•Income of $10,000 or less

SOURCE: Feder, Moon, and Scanlon, 1987 based on analysis of the 1980 National Medical Care Utilization and Expenditure Survey.

The greatest savings for those fortunate enough to have Medicaid coverage come from reduced premium payments. Those without Medicaid coverage pay more out-of-pocket in premium costs than their Medicaid covered counterparts pay in total. The elderly poor who have buy-in coverage but are not entitled to full Medicaid benefits pay more out-of-pocket ($433), but are still better off than those who are Medicare only or privately insured.

For many near-poor elderly people medical expenses can reduce their meager incomes to levels that in effect shift them into poverty. A single elderly person with an income of $7,500 is technically not poor. However, if that individual had out-of-pocket expenses for cost-sharing and prescription drugs that exceeded $1,500, those expenses would reduce the income available for daily living expenses to below

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Medicaid coverage has also been shown to ease financial burdens significantly. Poor elderly people with Medicaid coverage spend less than $300 per year out-of-pocket compared to over $1,000 per year for the uncovered poor and near-poor elderly population. Much of the difference in out-of-pocket spending is due to premium payments and out-of-pocket spending for drugs by those without Medicaid. Payment of Medicare premiums and elimination of the need to purchase private coverage is, in fact, Medicaid's greatest contribution to easing financial burdens for medical care among the low-income population.

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Medicaid currently operates as the safety-net Medigap plan for two million poor and near-poor Medicare beneficiaries, but Medicaid's reach is limited. Nearly 10 million low-income elderly people are not assisted by Medicaid and are left on their own to pay Medicare and insurance premiums and cover cost-sharing. When the Medicare buy-in provision of the Medicare Catastrophic Coverage Act is fully implemented in 1992, states will be required to pay the Medicare premium and cost-sharing requirements for all beneficiaries with incomes below the poverty level. However, some poor elderly people will not qualify because their assets exceed the permissible level of $4,000 for Medicaid eligibility and the provision does not extend to the near-poor elderly population.

The scope of Medicaid protection should be broadened to pay Medicare premiums and cost-sharing and cover prescription drugs for all low-income elderly people with incomes below 200 percent of the Federal poverty level (roughly 12,000 in 1989). On a per capita basis, the average cost of these benefits is estimated at about $1,250 in 1990 including $343 for the Medicare Part B premium, $500 for cost-sharing under Part A and B, and $425 for the prescription drug benefit.

For the 3.5 million elderly people living on incomes below the poverty level, Medicaid would cover the full cost of these benefits without cost-sharing. The 8.2 million near-poor elderly people with incomes between 100 and 200 percent of the poverty level would receive comparable assistance from Medicaid, but would contribute to premium and cost-sharing obligations and prescription drug costs on a sliding scale. Those with incomes from 100-149 percent of poverty would pay 25 percent of the cost and those with incomes from 150 to 200 percent of poverty would contribute 50 percent.

Eligibility for Medicaid assistance would be determined solely on the basis of income, without regard to asset levels. Currently, individuals with assets in

excess of $4,000 and couples with assets above $6,000 are generally ineligible for Medicaid coverage. Eliminating the asset test will simplify the eligibility process and remove some of the welfare stigma of Medicaid. It should help increase participation in Medicaid by low-income elderly people.

This proposal would expand coverage to 9.9 million low-income elderly people currently without Medicaid coverage (Table 15). Improved protection would be provided to 2.5 million poor elderly people. Although many of these people became eligible for buyin assistance as a result of the Medicare Catastrophic Coverage Act, this proposal would expand Medicaid protection to also include coverage of prescription drugs. In addition, those previously excluded from buy-in assistance under MCCA as a result of the asset restrictions would now be eligible for Medicaid coverage. The largest group of beneficiaries are the 7.4 million near-poor elderly people who would be newly eligible for assistance with Medicare premiums and cost-sharing and coverage of prescription drugs under the Medicaid program.

The cost of this proposal is estimated to be $2.4 billion in additional Federal revenues in 1990 (Table 16). State matching expenditures are estimated at $2.0 billion, for a total cost of $4.4 billion in 1990. Within this plan, one-third of expenditures would be for improved protection of the poor elderly and the remainder would be directed toward expanding coverage to the near-poor elderly population. As a result, Medicaid buy-in assistance and prescription drug coverage would be available to supplement Medicare for all 11.7 million low-income elderly Americans.

Table 15 Number of New Eligibles Assisted by Proposal to Expand Medicaid Coverage of the Low-Income Elderly Population, 1990

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Note: Buy-in assistance includes the Medicare Part B premium and cost-sharing for hospital and physician services. On a per capita basis, the cost of the total benefit package, including prescription drugs, is estimated to be about $1,250.

Cost estimates assume a full year of implementation and a participation rate of 100 percent for poor elderly who would be eligible to receive a fully subsidized benefit package and 50 percent for the near-poor elderly who would be required to make a sliding scale contribution based on income. Those with incomes between 100 and 149 percent of poverty would contribute 25 percent of the total benefit cost and those with incomes between 150 and 200 percent of poverty would contribute 50 percent.

SOURCE: Author's estimates based on Christensen, S., "Estimates for Aged Medicare Enrollees, 1990."

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Improving Medicaid's assistance to low-income elderly people builds on the Medicare Catastrophic Coverage Act's expansion of buy-in protection to Medicare beneficiaries with incomes below poverty, but broadens the scope of protection to include prescription drugs and offer assistance to the near-poor population. The administrative structure for eligibility determination and payment of premiums and costsharing is already in place in most states and can be used as the foundation for expanded coverage. With buy-in coverage plus prescription drug coverage, Medicaid will provide substantial relief from the premiums and out-of-pocket financial burdens now faced by low-income Medicare beneficiaries. In addition, states should also be encouraged to expand coverage to other services generally provided by Medicaid, such as dental care and vision and hearing services,

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