9. Creating Catastrophic Health Insurance Coverage for the Elderly

Problem: The Medicare program pays too many small medical bills which the elderly could easily afford to pay out-of-pocket, but it leaves Medicare beneficiaries exposed to the risk of a catastrophic medical event – such as Alzheimer's disease, requiring an expensive nursing home stay.

Solution: Private insurers should be given the opportunity to repackage Medicare benefits and compete for customers based on the package of benefits they offer.

A major reason why Congress was unable to solve the problem of catastrophic coverage for the elderly was the fact that Medicare is a one- size- fits- all insurance policy designed for a very diverse group of people. Since the elderly who have few assets would be on Medicaid anyway, if faced with a catastrophic health care bill these people are far more interested in coverage for small medical bills. The elderly who have substantial assets are capable of paying several thousand dollars of small medical bills each year, but need catastrophic coverage in case a large medical bill threatens to take all their assets.

Private health insurers should have the opportunity to repackage Medicare benefits by offering private policies as an alternative to Medicare. The only required benefit would he catastrophic hospital insurance. If an elderly person chooses a private insurer, the insurer would receive 95 percent of the actuarially fair value of Medicare insurance. For example, a private insurer might offer Medicare beneficiaries a policy with a $2,000 hospital deductible, a $2,000 physician deductible and a combined deductible of $3,000. In return for these higher deductibles, the insurer might offer immediate nursing home coverage for Alzheimer's disease and an expanding nursing home benefit for other illnesses, depending on the number of years of coverage. [37]

Under this proposal, private insurers would have the option of reimbursing hospitals under Medicare's fixed DRG rates. But they would also have the option of finding less expensive ways to deliver medical care .