Message to the Congress Transmitting Proposed Catastrophic Health Insurance Legislation

To the Congress of the United States:

I am pleased to transmit today for your immediate consideration and enactment the "Medicare Catastrophic Illness Coverage Act." This landmark legislation would provide protection under the Medicare program for elderly and disabled Americans who suffer an acute care catastrophic illness. The legislation would help provide peace of mind for 30 million Americans without adding to the tax burden of their children.

We all know family, friends, or neighbors who have suffered a devastating acute care illness that has destroyed their financial security. A catastrophic acute care illness requires treatment so costly that families can only pay for it by impoverishing themselves. A catastrophic illness is financially devastating and requires personal sacrifices that can haunt families for the rest of their lives.

Elderly Americans require more medical care than younger persons. Average health care spending for an elderly person in 1984 was $4,200, compared to $1,100 for a person under 65.

Virtually all the elderly have acute care insurance protection under Medicare. About two-thirds also have private supplementary insurance, or Medigap. These two types of insurance together still have some significant limitations in coverage. As a result, unpredictable health care expenses loom large in the personal budgets of the elderly.

There are gaps in Medicare as currently structured for acute care expenses. Hospital coverage is limited. After 60 days of hospital care, a Medicare patient begins to make increasingly costly payments—rising from $130 per day for days 61 through 90, to $260 per day for days 91 through 150, to the full cost of care for more than 150 days in the hospital. On top of this, there is a required 20 percent co-payment for all physician services covered by Medicare. The Medicare program, then, requires the greatest payments from those with the most serious health problems.

About 13 percent of the elderly are also covered by Medicaid, a health program for the poor. Medicaid is State-operated, and many States limit the amount and kind of services they will pay for under the program.

The proposed "Medicare Catastrophic Illness Coverage Act" would provide improved acute care coverage for the elderly and disabled by restructuring the Medicare program. The proposal would set an annual limit on out-of-pocket expenses for approved charges, with the additional coverage financed by a modest additional premium to be paid by beneficiaries.

Under the proposed legislation, a $2,000 out-of-pocket limit for Medicare-proposed expenses would be established. Beneficiaries would be assured that once they had incurred out-of-pocket expenses of $2,000 for approved charges, the Medicare program would pay for all remaining covered services.

As part of the added protection, all hospital and skilled nursing facility coinsurances would be eliminated. Further, no beneficiary would ever pay more than two hospital deductibles in any year. Skilled nursing facility care would be fully covered for 100 days each year. The complicated "spell-of-illness" concept would be eliminated. The current deductible and coinsurance for physician-related services would not be changed until the $2,000 limit was reached.

The proposal would be completely financed by a modest addition to the existing monthly Supplementary Medical Insurance (part B) premium. Any beneficiary electing the optional part B would be automatically covered for catastrophic expenditures. The catastrophic expense cap would be adjusted annually to reflect changes in program costs. The new premium would cover the full costs of the catastrophic illness benefit in an actuarially sound manner. Consequently, this new benefit would not require the infusion of additional general revenues nor exacerbate the current budget deficit.

The legislation that we are advancing today addresses a fundamental gap in the health insurance protection of the elderly and disabled. I am asking the Congress to give elderly Americans a health insurance plan that fights the fear of catastrophic acute care illness. For too long, many of our senior citizens have been faced with making an intolerable choice—a choice between bankruptcy and death. This proposed legislation would help solve this tragic problem. I urge you to join me in facing the challenge before us and to consider favorably our approach to catastrophic illness protection under Medicare.

RONALD REAGAN

The White House,

February 24, 1987.