Medicare's Home Health Benefit: Cost Sharing Issues and Options

Publication Date: October 2002

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Health

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Abstract:

Cost sharing is a key element in the design of any health insurance plan and is used primarily to control utilization by making covered individuals aware of the cost of care. In addition, patients' cost sharing payments offset plan costs. Currently, home health care is the only Medicare-covered service, except for clinical laboratory tests, for which beneficiaries have no cost sharing.

Medicare's home health benefit has been subject to criticisms of inappropriate and over-utilization, particularly since home health spending began to rise rapidly in the late 1980s. Moreover, some questioned if rising utilization was due to the program's financing a substantial amount of long-term personal care by home health aides rather than medically necessary care by skilled practitioners as the law intends. Utilization and spending dropped dramatically as a result of a 1997 change to Medicare's home health payment system, but volatility in the program has evoked the suggestion that beneficiary cost sharing should be implemented as an additional tool for controlling program utilization.

Utilization control through implementation of cost sharing for Medicare home health services may be stymied by two factors: third party insurance that would insulate some beneficiaries from actually having to pay cost sharing (arguably those who are financially better off), and implementation in FY2001 of a home health prospective payment system (PPS), one objective of which was to curtail provision of unnecessary services by home health aides. Arguments in favor of cost sharing include consistency within the Medicare program, consistency with private health insurance policies, and generation of revenues to offset taxpayers' costs for Medicare. Opponents of cost sharing point out that beneficiaries who use home health services are atypically low income, elderly, with chronic health problems and limited ability for daily self care. Respondents to those arguments say that no other component of Medicare takes socioeconomic or self care status into consideration for cost sharing.

If Congress were to mandate cost-sharing for Medicare home health services, it would be important to design a system that did not create financial disincentives for beneficiaries to step down in a typical continuum in the cost of care, from inpatient hospital care, to skilled nursing facility care, to home health care. Requiring beneficiary cost sharing only for the first 60-day episode of care, or for all episodes of care, or only for second and subsequent episodes might depend on whether the PPS encourages home health agencies (HHAs) to provide unnecessary continuing episodes of care. Cost sharing amounts could be calculated in a variety ways, but considerations include balancing the affordability of out-of-pocket costs with consistency in cost sharing amounts for other Medicare services. This report will not be updated.