Transcript Medicare and Medicaid, Part II

Medicare
Professor Vivian Ho
Health Economics
Fall 2007
Topics
Coverage
 Financing
 Case Study

The Medicare Program


Target population - individuals 65+, certain
disabled people, and people with kidney
failure
Part A - Hospital Insurance program
(compulsory)
Inpatient hospital services
Skilled nursing care
Home health care
Hospice care

19.1m enrollees in 1966; 42.9m in 2006
*Source: www.cms.hhs.gov

Part B - Supplemental Medical
Insurance program (voluntary)
Physician services
Outpatient care
Emergency room services

17.7m enrollees in 1966, 40.3m in 2006
*Source: www.cms.hhs.gov
Medicare Costs
Total Expenditures ($ billions)
1966
1.8
1980
37.2
1990
109.5
1995
182.4
2000
225.2
2003
283.8
2006
408.3
Medicare Financing - Part A

Funding Sources
2.9% payroll tax shared equally by
employers and employees
Federal Hospital Insurance Trust Fund
Enrollee deductibles and copayments
Part A Trust Fund
Year
Income
Disbursements
1967
1975
1980
1985
1990
1995
2000
2003
2006
$ 3,089
12,568
25,415
50,933
79,563
114,847
159,681
175,813
211,516
2,597
10,612
24,288
48,654
66,687
114,883
130,284
153,792
191,932
Balance
1,343
9,870
14,490
21,277
95,631
129,520
168,084
251,127
305,352
Part A Patient Cost Sharing

No hospital inpatient coverage after 90
days
Except for 60-day lifetime reserve
Medicare offers no coverage in
“catastrophic circumstances.”
Part A Patient Costs
Deductible
Year
1966
1975
1980
1985
1990
1995
2000
2005
2007
Days 1-60
$ 40
92
180
400
592
716
776
912
992
Daily Coinsurance
Days 61-90
10
23
45
100
148
179
194
228
248
After 90 Days
--46
90
200
296
358
388
456
496
Medicare Part B Financing

Funding sources
Monthly premium payments
Contributions from general revenue of the
U.S. Treasury
Part B Trust Fund
Year
Income
Disbursements
Balance
1967
1975
1980
1985
1990
1995
2000
2005
2006
$ 1,285
4,322
10,275
24,577
46,138
58,169
89,239
151,307
177,317
799
4,170
10,737
22,730
43,022
65,213
88,992
151,536
169,001
486
1,424
4,532
10,646
14,527
13,874
45,896
16,885
32,325
Part B Patient Costs
Year
Annual
Deductible
Coinsurance
Rate
1966
1975
1980
1985
1990
1995
2000
2005
2007
$ 50
60
60
75
75
100
100
110
131
20
20
40
20
20
20
20
20
20
Monthly
Premium
3.00
6.70
9.60
15.50
28.60
46.10
45.50
78.20
93.50
Medicare Part C

Since the 1980s, the aged could
voluntarily enroll in Medicare HMOs
HMO receives capitated payment based
on Part A and B beneficiary costs adjusted
for age, sex, region, etc.
HMO can provide lower copays and
outpatient drugs not covered by Medicare
Part B
Medicare Part C: Medicare+Choice

1997 BBA increased the variety of
managed care plans under Medicare
PPOs - physician networks
PSOs - owned by hospitals and physicians
POS - extra fee for out-of-network care
Private FFS

no limits on premiums charged to beneficiaries
MSAs

Turnover reduced by requiring
enrollment for at least 1 year
Medicare Part C: Medicare+Choice
http://www.agingstats.gov/agingstatsdotnet/Main_Site/Data/2006_Documents/OA_2006.pdf
Medicare Part C: Medicare+Choice
Enrollment and plan participation has
varied over time, but shows a strong net
gain
 Plans are putting more limits and
copays for prescription drug coverage
 Most elderly have access to a plan with
no premiums, but the share is falling

Medicare Part A Provider
Reimbursement

1983, Prospective Payment System
Medicare patients were classified by
principal diagnosis into 1 of 470 Diagnosis
Related Groups (DRGs)
 DRG
base
Re gional  Outlier  
Hospital 
 

PP 
x 
x
 x1 
payment  weight Adjustments  Payments  Adjustments 
DRG
weight - index # reflecting relative
cost of care
Examples
from 2003:
DRG
33 - concussion, age<18,
weight=.2072
DRG
103 - heart transplant,
weight=20.5419
Impact of PPS
1) Costs
Cost growth has slowed periodically, but
they continue to grow in some periods
 Hospitals
may have learned to game
the system
2) Patient Outcomes
No evidence that quality of care changed
for Medicare patients as a result of PPS
However, hospital admissions and length
of stay declined
3) Hospitals
Profits from Medicare patients initially fell,
but some hospitals still very profitable
Are higher costs “worth it”?
Life Expectancy and Costs for Medicare
Patients w/ a new heart attack:
Year
Life Exp.
Costs ($1991)
1984
5 2/12
$11,175
1986
5 4/12
11,998
1988
5 6/12
12,725
1990
5 9/12
13,623
1991
5 10/12
14,772
 Higher costs improve outcomes
Regional comparisons paint a different
picture

1995 average inpatient expenditures for
Medicare patients in the last 6 months
of life were 2 times higher in Miami vs.
Minneapolis
25.4 specialist visits in Miami; 4.7 in
Minneapolis

Regional survival rates for AMI, stroke,
GI bleeds not correlated with higher
health care spending
Medicare Part B Provider
Reimbursement
1989 Omnibus Reconciliation Act
1) Prospective payment system for
physicians
2) Limits on total growth in Medicare Part
B expenditures by Congress

Volume Performance Standards
3) Strict limits on balance billing
Additional fees physicians can charge to
Medicare patients above Medicare
reimbursement rates
Physician Prospective Payment System

Pre 1992, Medicare reimbursed
physicians retrospectively
Physicians were paid lowest of bill
submitted, physician’s customary charge,
or area’s prevailing rate for that service
Physicians had incentives to raise
charges, in order to raise future rates

1992-96, Gradual phase-in of
Resource-Based Relative Value Scale
Fee schedule based on estimated time,
effort, resources required for various
physician services
Favors evaluation and management
services (e.g. office visits w/ established
patients over technical medical
procedures)
e.g. 1992: Average fees for GP’s rose
10%, specialty surgeons experienced an
8% fall
2003 Medicare Modernization Act

Created Medicare Part D
Prescription Drug Benefit- Jan 2006

Private insurers offer drug plans
subsidized by CMS
Drug-only insurance plans
Medicare Advantage comprehensive plans
 eg. PPO’s or HMO’s
2003 Medicare Modernization Act

All private insurers must include certain
features in their policies:
$250 deductible for drug purchases
25% copay for the next $2000
100% copay for purchases from $2250 to
$5100
 the “donut hole”
5% copay for purchases > $5100
 ‘catastrophic coverage’
2003 Medicare Modernization Act

Plans may compete for customers
based on:
premium price
formularies for which drugs are covered
drug prices they negotiate with drug
manufacturers
disease management services
2003 Medicare Modernization Act
CMS pays insurers a subsidy equal to
75% of the expected costs of all
accepted plans
 Insurers bid for access to the Medicare
market before they know their actual
costs

2003 Medicare Modernization Act
Initial cost impact of MMA may be low,
because copayments are so high
 But the number of highly effective, highcost drugs > $10,000 is growing
 Numerous regulations restrict price
competition
 Limited penalties for cost over-runs

Insurers reimbursed 80% of costs if > 2.5%
of projected costs
Medicare Costs

Projected Medicare cost increases are
alarming

h costs must be paid for w/ h taxes or i other

spending
Part B & D premiums are set to cover 25% of
costs
2003 Part B premiums = 15% of average SS
benefit
Part B & D premiums expected to = 35% of
average SS benefit in 2010, 50% by 2030