How We Calculate the Out-of-Pocket Costs (OOPC) Data
The Centers for Medicare & Medicaid Services (CMS) used the events or incidents of health care usage reported by individual people with Medicare from the Medicare Current Beneficiary Survey (MCBS). Each person included in the MCBS self-reported their age, health status, and health care utilization. We also matched the reported use of health care to the individual claims history to make sure we included Medicare covered services as well as services not covered by Medicare.
CMS combined 2003 and 2004 MCBS data to create statistically valid and reliable cost estimates. Of the 12,486 people with Medicare in the 2003 MCBS file, information for 7,078 was used in calculating out-of-pocket costs. Of the 11,117 people with Medicare in the 2004 MCBS file, information for 6,823 was used in calculating out-of-pocket costs. Data from both years was combined to create a nationally representative cohort of 13,901 people with Medicare.
We excluded individuals for certain reasons including if they did not participate in both Medicare Parts A & B for the full 12 months of the year or if they were in a long-term care facility for any part of the year. We wanted to focus on people in Original Medicare so that we could link both MCBS survey results and the Medicare claims data for the same period. We also excluded certain categories of individuals whose claims are paid differently or for whom we would not have a full complement of data. We created 30 age/health status categories based on the following groupings: five health status categories (excellent, very good, good, fair, poor) and six age categories (under 65, 65-69, 70-74, 75-79, 80-84, 85+). We also created 3 diagnostic conditions: diabetes, congestive heart failure, heart attack. We then divided the 13,901 individuals from the MCBS into one of the 30 age/health status categories based on their MCBS self-reported age and health status. We also identified individuals who fell into one or more of the 3 diagnostic categories.
For each of the 30 age/health status categories and 3 diagnostic conditions we calculated estimated average monthly out-of-pocket costs for each health plan option. CMS used the actual Medicare claims payment experience and the MCBS self-reported health care utilization to determine total health care utilization for each of the 13,901 people with Medicare. CMS then computed the out-of-pocket costs based on the benefits covered and co-payments/coinsurance for each health care service. For the Medicare Advantage out-of-pocket costs projections, CMS used the Adjusted Community Rate Proposals and Plan Benefit Packages (ACRP/PBP) to compute out-of-pocket costs. For the Original Medicare Plan and Medigap, CMS applied coinsurance and deductibles to Medicare payment amounts.
CMS made the following basic assumptions related to the out-of-pocket cost estimates for the Original Medicare Plan and Medicare Advantage Plans:
Original Medicare:
People with Medicare:
- Do not have any other insurance other than Medicare (no supplemental insurance).
- Enrolled in Part B when first eligible.
- Go to providers who accept Medicare assignment.
Medigap:
- People with Medicare have Original Medicare and the selected Medigap policy.
- Only include the standardized policies A through J and K and L at the State level. (Medicare SELECT is not included.) Use exempted State policies offered by Massachusetts, Minnesota, and Wisconsin.
- Using industry representative and most recently available Medigap premiums
Medicare Advantage Plans:
- Use Calendar Year 2009 Plan Benefits Packages to define the out-of-pocket cost estimates.
- Use cost shares for in-network physicians.
- Use minimum co-payments if stated as a minimum/maximum range.
- Use deductibles and plan maximum limits, as applicable.
- Costs for Optional Supplemental benefits are not included.
- Prescription drugs:
- MCBS drug events are mapped into NCD codes to apply a particular plan’s tier-formulary based cost sharing. Use industry wholesale prices with average discounts. Relevant deductibles and premiums are also taken into account.
- For Medicare Medical Savings Account Plans (MSA plans)--the CMS annual contribution amount is assumed to be used for Medicare-covered expenses towards meeting the deductible. Any remainder is applied to Medicare eligible expenses (non-covered inpatient or SNF care, dental, and/or prescription drugs). Cost shares are zero once the deductible is met—except for any remaining non-covered expenses.
Medicare and Non-Medicare covered services in the out-of-pocket cost calculations for Original Medicare, Medigap and Medicare Advantage Plans are:
- Inpatient Hospital Acute Care,
- Inpatient Psychiatric Hospital/Facility,
- Prescription Drugs,
- Dental, and
- Skilled Nursing Facility.
For Medicare Advantage Plans with prescription drug coverage, out-of-pocket costs for that plan under its Part D coverage are calculated. The calculations use industry wholesale prices with average discounts (10% brand, 32% generics). For Original Medicare, Medigap, and Medicare Advantage Plans without prescription drug coverage, full drug costs assuming no insurance, are calculated. The calculations use industry wholesale prices with average discounts (10% brand, 30% generics).
Medicare covered services only included in the out-of-pocket cost calculations for Original Medicare, Medigap and Medicare Advantage Plans are:
- Durable Medical Equipment (Prosthetics/Orthotics),
- Ambulance,
- Ambulatory Surgical Center,
- Cardiac Rehabilitation,
- Chiropractic,
- Diagnostic Lab,
- Comprehensive Outpatient Rehabilitation Facility,
- Emergency Room,
- Eye Exams and Eye Wear,
- Hearing Exams,
- Immunizations,
- Medical Supplies,
- Mental Health,
- Occupational Therapy,
- Outpatient Hospital,
- Other Health Care Professionals,
- Pap Smears,
- Physical Therapy,
- Physician Specialist,
- Primary Care Physician Services,
- Podiatry,
- Psychiatry,
- Renal Dialysis,
- Radiation Therapy,
- Screening Mammography,
- Substance Abuse,
- Therapeutic Radiation,
- Urgent Care,
- X-Rays and complicated X-Ray procedures such as MRI.
Some services are excluded from the out-of-pocket cost calculations. For example, some Medigap policies cover additional benefits that were not included in the out-of-pocket cost estimates such as:
- Foreign Travel Emergency to cover emergency medical care when you travel outside the United States (Medigap policies: B, C, D, E, F, G, H, I, and J).
- At-Home Recovery to cover the cost of at-home help with daily activities like bathing and dressing if you are already getting Medicare-covered home health visits. Also includes up to 8 weeks of at-home help after skilled care is no longer needed. (Medigap policies: D, G, I , J).
- Medicare Part B Excess Charges to cover the difference between the doctor's actual charge and Medicare's approved amount. This would apply if you go to a doctor who does not accept assignment and bills you more than Medicare's approved amount. (Medigap policies: F, G, I, and J).
- Preventive Care not covered by Medicare such as routine yearly check-ups, serum cholesterol screening, hearing tests, diabetes screening, and thyroid function test. (Medigap policies: E, J, K, and L.)
Medicare Advantage plans offer a wide range of benefits, some of which were not included in the out-of-pocket costs estimates. Some examples of benefits not included in the out-of-pocket cost estimates for Medicare Advantage plans are:
- Foreign Travel Emergency to cover emergency medical care when you travel outside the United States.
- Routine physical exams.
- Acupuncture.
- Hearing services not usually covered by Medicare.
- Vision services not usually covered by Medicare.
- Prevention screening services not covered by Medicare.
- Chiropractic services not usually covered by Medicare.
- Podiatry services not usually covered by Medicare.
Note to Researchers, Medicare providers, and Others: More in depth explanation of the exact methodology are available on our professional website, www.cms.hhs.gov. Click here to view more information.
Page Last Updated: November 13, 2008
Top of page