NCPA - National Center for Policy Analysis

How Seniors Can Get Better Benefits

March 16, 2000

Prescription drugs may be about the best buy in the medical marketplace. For instance, a 1996 study by the National Bureau of Economic Research shows that every dollar spent on prescription drugs is associated with a decrease of four dollars in hospital expenses.

Seniors in Medicare, the government health insurance program for the elderly, could have better health care coverage -- including prescription drug benefits -- if they were allowed to combine their Medicare funds with the money they currently spend on private insurance and pay one premium into a comprehensive private plan.

On average, Medicare will spend about $5,800 on each beneficiary this year. Add to that about $1,600 -- the amount seniors already pay for the most popular supplemental (Medigap) policy -- and the combined sum should buy health insurance coverage comparable to policies for the nonelderly, including drug coverage. That's the conclusion of a study for the National Center for Policy Analysis by Milliman & Robertson, Inc. For example:

  • With the money Medicare would have spent plus the cost of the most popular Medigap policy, plus another $150 a year, an average senior could get comprehensive coverage from a Health Maintenance Organization comparable to what nonelderly HMO members have (see figure
  • With small copayments to discourage abuse, seniors could save about $500 a year in out-of-pocket costs while avoiding potentially unlimited out-of-pocket expenses under the current system.
  • Seniors could also enroll in a high deductible plan with a Medical Savings Account, and their out-of-pocket cost should average about $1,500 a year.
  • On the average, seniors who choose a private fee-for-service plan over the current arrangement would save more than $1,000 a year in out-of-pocket costs.

Source: John C. Goodman (president, NCPA) and Sean R. Tuffnell (communications manager, NCPA), "Prescription Drugs and Medicare Reform," Brief Analysis No. 314, March 16, 2000, National Center for Policy Analysis, 12655 N. Central Expwy., Suite 720, Dallas, Texas 75251, (972) 386-6272.

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