Average out-of-pocket health care costs for Medicare+Choice enrollees increase 10 percent in 2003.

M edicare reform is one of the top issues on the domestic policy agenda, and the role of private plans in that reform is one of its critical dimensions.The Medicare experience with private plans has been principally through the Medicare+Choice (M+C) program. M+C plans, primarily HMOs, receive capitated payments from Medicare and provide coverage for Medicare-covered services.To the extent that plans have any savings left over, they offer additional benefits as well. Because Medicare requires substantial cost-sharing by its beneficiaries and excludes coverage for important elements of care, such as prescription drugs, the extra benefits provided by M+C plans have played an important role in reducing the out-of-pocket liability of its enrollees. In the past few years, however, that role has been eroding. The average Medicare enrollee in an M+C plan is spending about $1,964 out-of-pocket this year, rising 10 percent from last year and doubling from four years ago. An M+C enrollee in relatively poor health spends considerably more—$5,305—and has experienced an even greater increase over the past four years—140 percent. A new preferred provider organization (PPO) option was introduced this year on a demonstration basis. Out-of-pocket spending is substantially higher, on average, for those in PPO demonstration plans than for those in managed care plans authorized under the regular M+C program ($2,884 versus $1,964). This issue brief provides data for 2003 on out-of-pocket spending by Medicare beneficiaries in M+C and other private plans, including the PPO demonstrations. It is part of an ongoing analysis of the experience of private plans in the M+C program and updates earlier Commonwealth Fund reports on this topic. Those earlier analyses found that out-of-pocket spending by Medicare+Choice enrollees can be substantial and varies significantly by health status and supplemental coverage source. The Commonwealth Fund is a private foundation supporting independent research on health and social issues.The views presented here are those of the authors and should not be attributed to The Commonwealth Fund or its directors, officers, or staff.