Impose Cost Sharing for the First 20 Days of a Stay in a Skilled Nursing Facility Under Medicare

For enrollees who have been hospitalized and need continuing skilled nursing care or rehabilitation services on a daily basis, Medicare currently covers up to 100 days of care in a skilled nursing facility (SNF) for each episode of care. There is no deductible for SNF care and no copayment for the first 20 days of each stay. A daily copayment is required for days 21 through 100; that copayment is set at 12.5 percent of the hospital inpatient deductible and is projected to be about $148 in 2013. A substantial share of Medicare SNF stays are shorter than 20 days and therefore do not require any copayment. The Congressional Budget Office projects that total Medicare spending for SNF services will rise from about $30 billion in 2012 to $60 billion in 2021.

Beginning in 2013, this option would impose a copayment for each of the first 20 days of care in a skilled nursing facility equal to 5 percent of the inpatient deductible; that copayment is projected to be about $59 per day in 2013. The maximum additional liability for each SNF stay would thus equal the inpatient deductible, which CBO projects will be $1,184 in 2013. Imposing that copayment would reduce federal outlays by about $8 billion over the 2012-2016 period and by $21 billion over the 2012-2021 period.

The effect of this option on the use of SNF services and on beneficiaries' out-of-pocket payments would depend on whether participants had supplemental coverage. Most individual medigap policies include full coverage of current SNF copayments, so most beneficiaries with such policies would be insulated from the direct impact of the

higher copayments--but they would face higher medigap premiums to reflect the average cost of covering those payments. Employers' spending on supplemental coverage for their retirees would also probably increase, and those costs could be passed on to enrollees in the form of higher premiums. This option would not directly affect Medicare beneficiaries who receive full Medicaid benefits or those considered qualified Medicare beneficiaries because Medicaid would be responsible for the additional copayments under this option. The savings shown in this option are net of the additional federal Medicaid spending that would occur as a result.

An argument in favor of this option is that it would discourage some use of Medicare-covered SNF services that may have limited value. For those beneficiaries who would incur higher out-of-pocket costs under this option, the absence of cost sharing under current law for the first 20 days of SNF care encourages additional use of those services, some of which may not be clinically necessary.

One argument against this option is that the added copayment could lead some beneficiaries to forgo services that would help avoid further complications from surgery or improve their health in other ways. Some beneficiaries would probably choose instead to receive similar services through other benefits in Medicare, such as the home health care benefit, that currently have no cost sharing and would not have any cost sharing under this option. In addition, expenditures for states would rise as a result of the increase in copayments that Medicaid would cover.