How does the benefit value of Medicare compare to the benefit value of typical large employer plans?  A 2012 update

Prepared by Frank McArdle, Ian Stark, Zachary Levinson, and Tricia Neuman

Kaiser Family Foundation, April 2012

Key findings from this report include:

* For individuals ages 65 and older, Medicare is less generous on average than the comparison large  employer plans. The average benefit value of Medicare for a person age 65 or older in 2011 is 97 percent of the FEHBP Standard Option benefit value and 93 percent of the typical large employer PPO benefit value.

* Relative to the typical large employer PPO plan, Medicare provides somewhat more generous benefits for low-cost individuals ages 65 and older because of the relatively low Part B deductible for individuals who do not use inpatient care; however, Medicare is less generous than the typical large employer PPO plan for seniors with moderate and high costs. Similarly, relative to the FEHBP Standard Option, Medicare is slightly better for low-cost individuals ages 65 or older, but is notably less generous for moderate-cost individuals and somewhat less generous for high-cost individuals.

* Medicare’s average benefit value relative to the comparison employer plans has improved since we last conducted this analysis in 2007, largely because of the 50 percent discount on brand-name drugs in the Part D “doughnut hole” included in the 2010 health reform law, and also because the actuarial value of the FEHBP Standard Option has contracted over the past few years due to changes in its benefit design (mainly, the increase in the limit on out-of-pocket spending).

From the Discussion

Medicare’s benefit value has nonetheless begun to approach the value of the comparison large employer plans, due in large part to the 50 percent discount on brand name drugs in Medicare brought about by health reform, as well as the contraction of the comparison employer plans’ benefit designs. The gap between Medicare and large employer plans could continue to narrow in the future as the health reform law phases in coverage in the “doughnut hole” or if employer coverage continues to erode.

Adding a limit on out-of-pocket spending for inpatient and outpatient services and reducing deductibles would help to bring the Medicare benefit design in line with private large employer plans. The reverse is also true: increasing Medicare beneficiaries’ out-of-pocket costs – an idea floated during recent discussions about the national debt as a way achieve federal savings – could further widen the gap between Medicare and large employer plans and contribute to beneficiaries’ out-of-pocket spending burden.

By Don McCanne, MD

Supporters of a single payer national health program often refer to the model as “Improved Medicare for All.” This report demonstrates one of the more important reasons why we say that it needs to be improved. Medicare provides less value than the typical large employer PPO plan or the FEHBP Standard Option (the federal employees’ plan).

The largest difference is in the out-of-pocket spending. That difference is diminishing partly because of the increase in out-of-pocket costs for large employer and FEHBP plans (plus an improvement in the Medicare drug benefit). From a policy perspective, we are moving in the wrong direction. Deductibles and coinsurance should be eliminated from Medicare, and private plans, including FEHBP, should be eliminated altogether.

There are other reasons that Medicare needs to be improved. For example, it should be administered on a regional or state basis (with the support of federal funds) rather than by the federal government so that it is more responsive to local needs. The private Medicare Advantage plans should be eliminated because they reduce choice and waste funds. The Private Part D drug plans should be eliminated for the same reasons, folding the benefits into the publicly-administered program.

Incrementalists would suggest reducing deductibles and putting a limit on maximum out-of-pocket spending under Medicare, but if we’re going to fix Medicare, why not go for broke – an improved Medicare for everyone.

Re-posted with permission from