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Health-care costs: Debt talks boost Medicare reform plans

Health-care costs for seniors have been largely picked up by government. But their health-care costs could rise under various Medicare reform plans.

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At the same time, some medical services covered by Medicare, such as lab work and home health care, still don't require any co-payments, making them effectively free for beneficiaries.

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Conservative economists and policymakers say that encourages overuse of health care services because seniors, particularly those with supplemental insurance plans, don't have to evaluate whether care is worth thecost.

Indeed, some research has found that seniors with so-called medigap supplemental plans use 25 percent more health services than those without such coverage.

"We will do better if people are more involved in making health care choices," said Gail Wilensky, a health economist who oversaw the Medicare program under President George H.W. Bush. "There are few people who are more price sensitive than seniors."

How much more seniors can afford to pay continues to stoke intense debate, however, especially as Medicare beneficiaries are already projected to spend as much as a quarter of their income on health care in 2020, up from around a sixth now.

House Republicans faced a fierce backlash when they proposed replacing Medicare with a system of vouchers for private insurance. That plan would increase the average senior's medical bill by $6,000 in 2022, according to the Congressional Budget Office, or CBO.

None of the proposals that have been discussed in the current debt negotiations would shift costs that dramatically. But some could still push up beneficiaries' bills.

Negotiators have considered charging $530 to seniors who buy the most generous medigap plans. Another proposal to begin charging co-pays for home health services would cost seniors on average $600 more a year in 2013, under one option analyzed by the CBO.

"Some have the impression that seniors are quite wealthy and could afford more premiums," said Tricia Neuman, director of the Medicare Policy Project at the Kaiser Family Foundation. "The numbers tell a different story."

A recent Kaiser analysis showed that half of all Medicare beneficiaries have less than $33,100 in retirements account and other savings.

Neuman and others also warn that increasing co-pays and deductibles may discourage seniors from seeking medical care they need.

Brown University researchers, for example, found that seniors went to the doctor less frequently after their Medicare managed care plans raised co-pays for outpatient visits. At the same time, they ended up spending more time in the hospital.

Because hospital care is so much more expensive, that probably ended up costing Medicare more than the program saved by paying for fewer doctor visits, while also leaving seniors sicker, said Dr. Amal Trivedi, the lead author of the study.

"Policymakers should be very sensitive to adverse and unexpected consequence of increased cost-sharing," Trivedi warned. "It can be a lose-lose proposition."