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4/7/2015 1 1 A Brief Introduction to Medicare Health Economics Bill Evans 2 Introduction Social insurance Government run insurance programs – Typically have subsidized premiums have redistributive component Type of social insurance Poverty programs Old age (Social Security) – Disability Health care/insurance – Unemployment 3 Definitions • Entitlements Available to all who quality For example, if you quality for Medicaid (and enroll), you receive benefits In contrast, federally subsidized housing has a limited number of units, once units are gone, ‘benefit’ used up Mean tested Eligibility is determined by income/asset limits 4 Federal government is the largest single provider of health insurance in the country – Medicare – Medicaid Veteran’s Benefits Military Insurance In these next 2 weeks, we will discuss the first two Size of these programs make them important to consider
Transcript

4/7/2015

1

1

A Brief Introduction to Medicare

Health Economics

Bill Evans

2

Introduction

• Social insurance– Government run insurance programs

– Typically

• have subsidized premiums

• have redistributive component

• Type of social insurance– Poverty programs

– Old age (Social Security)

– Disability

– Health care/insurance

– Unemployment

3

Definitions

• Entitlements– Available to all who quality

• For example, if you quality for Medicaid (and enroll), you receive benefits

– In contrast, federally subsidized housing has a limited number of units, once units are gone, ‘benefit’ used up

• Mean tested– Eligibility is determined by income/asset limits

4

• Federal government is the largest single provider of health insurance in the country– Medicare

– Medicaid

– Veteran’s Benefits

– Military Insurance

• In these next 2 weeks, we will discuss the first two

• Size of these programs make them important to consider

4/7/2015

2

5

• Medicare – insurance for – Elderly

– Disabled

– End stage renal disease (dialysis)

• Medicaid -- Insurance for people with medical needs and limited income – Poor and their children/ pregnant women

– Low income elderly

– Blind/Disabled

– Long term care

6

Political Economy

• Long fought battles – Medicare originally proposed by Truman in 1945

– Medicaid was originally proposed to be part of original Social Security act of 1935

• Was opposed by medical groups and private insurers

• Successful adoption as part of Johnson’s ‘war on poverty’– Medicare signed into law July 31, 1965

– Medicaid Established in 1965

7 8

Importance of M&M

• Large fraction of Federal/State spending

• Large fraction of Health care spending

• Large Fraction of all people with insurance

4/7/2015

3

9 10

11 12

4/7/2015

4

Structure of Medicare

• Part A– Hospitalizations, short-term rehab, hospice: mandatory

– Funded by payroll tax, general revenues

• Part B– Outpatient charges: voluntary (most people purchase)

– Funded by premiums, general revenues

• Part D– Prescription drug, voluntary

– Funded by premiums, general revenues

13 14

Medicare Advantage

• Created in 1997

• Alternative to traditional A+B/D coverage

• Private insurance companies cover seniors/reimbursed at fixed rates for coverage

– Companies paid per enrollee per month

– Must take ‘all comers’ in a county

• Usually HMO type coverage with some prescription drug plan

• Has higher deductibles and copays than traditional A+B coverage

15 16

Cost sharing in Medicare, 2014

• Part A– $1,216 deductible (1st day of hospital stay)– Days 1-60 no copay, 61-90 $304 copay, $608 for days 91-15, Zip after 150

days– Pay all SNF costs for 1st 20 days, $152/day for 21—100, nothing after

100 days>• Part B

– Monthly premium of $104.90 (higher for high income)– $147 annual deductible– 20% coinsurance on physician services, outpatient care, ambulatory

surgical, preventive– No coinsurance on lab services

4/7/2015

5

17

Does the structure, the items covered, and the coinsurance rates in Medicare make

ECONOMIC sense?

18

19

Medicare payroll tax

• 2.9% of all earnings • Employers/employees share equally (1.45%)

• Changes due to ACA– Tax raises to 2.35% on employees for

• Single > $200,000 in taxable income

• Married couple > $250,000 in taxable income

– High income people also subject to 3.8% tax on investment income

20

4/7/2015

6

21

Medicare Presc. Drug Improvement and Modernization Act 2003

• Signed 12/8/2003

• Effective 1/1/2006

• Voluntary drug plan – ‘Part D’

• 1st time Rx were part of Medicare

• Coverage provided by private entities– Stand alone if meet certain criteria

– As part of Part A/B coverage (Medicare Advantage plans)

– Gov’t fall back plan in areas without choice

22

Motivation for Part D

• Rx important in medical treatment of elderly– Seniors represent 13% of the population– 1/3 of all scripts– 42% of spending on Rx drugs

• Among the elderly, 85% receive a Rx during the year• Growing fraction w/ Rx Coverage• Purchased through

– Retiree benefits– Medigap policy

23

Top 5 drugs among the elderly (2003)

Drug What it treats? Annual cost

Lipitor Cholesterol $871

Novasc Calcium $549

Fosamax Bone density $894

Prilosec Anti-ulcer $1,684

Celebrex Rheu. Arth. $2,102

24

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7

25 26

27

Costs?

• Original CBO estimates (Costs – revenues) – $495 billion in 2004-2013

• Second set of numbers– $593 billion in 2004-2013

• Third set of estimates– $640 billion in 10 years

• Actual numbers were $410 billion

Savings?

• Increased use of generics

• Reduced growth of Rx prices

• Competition?– Part D is primarily provided by private providers

28

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8

Offsets?

• Virtually all seniors now have Rx coverage

• Rx use way up

• Has access to Rx coverage reduced hospitalization rates?

• CMS has reduced Medicare’s 10-year projected costs by $137 billion – Much of it due to Medicare part D

29 30

31 32

The Future of Medicare

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Medicare

• 2010

• 47 million recipients

• $524 bill. exp.

• 3.2% of GDP

• 16% of fed. budget

• 2040

• 87 million recipients

• 6% of GDP

33 34

35

Future problems

• Rising costs

• Rising number of elderly

• People are living longer– Older people spend a lot more on health care

• Falling fraction of people to tax

• Growing share of disabled on program

36

4/7/2015

10

37 38

39 40

4/7/2015

11

41

13.9 14.315.2

16.417.2

18.018.7

10.410.9 11.0 11.2 11.3 11.4

12.0

6

8

10

12

14

16

18

20

1950 1960 1970 1980 1990 2000 2005

Rem

ain

ing

Ye

ars

Year

Remaining Life Years at Ages 65 and 75

At age 65

At age 75

35% ↑

15% ↑

42

9.2% 9.9%11.3%

12.6% 12.4% 13.0%

16.1%

19.3% 20.0% 20.2%

0.52% 0.74% 0.99% 1.24% 1.51% 1.85% 1.93% 2.34%3.50% 4.34%

0%

5%

10%

15%

20%

25%

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Axi

s T

itle

% of Population by Age Group

65 and over 85 and over

43

16.620.1

25.531.2

35.040.2

54.8

72.1

81.288.5

0.9 1.5 2.2 3.1 4.2 5.8 6.6 8.714.2

19.0

0

10

20

30

40

50

60

70

80

90

100

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Popu

latio

n in

Mill

ions

Population by Age Group(in millions)

65 and over 85 and over 44

$3,638 $4,422

$8,370

$15,857

$34,783

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

0-18 19-44 45-64 65-84 85+Age Group

Medical Expenditures per Person, by Age, 2010

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12

45

5.5

4.74.5 4.3

4.0

3.2

2.6 2.5

0

1

2

3

4

5

6

1970 1980 1990 2000 2010 2020 2030 2040

Ratio

Year

Ratio:  20‐64 Population/Medicare

46

Policy Options

• Raise eligibility age 65-67– Reduce spending by $113 billion over 10 years

– Only $11.3 billion/year

• Raise Part B and D premiums– Raise enrollees’ share of costs from ~25 to 35%

– Save $241 billion over 10 years

47

• Increase Medicare payroll tax– Increase from 2.9 to 3.9 percent for all, with an additional 0.9

percent tax for high wage earners (>$200K for individuals, $250K for couples)

– Raise $651 billion over 10 years

48

4/7/2015

13

Medicare Sustained Growth Rate

• Passed as part if 1997 Balanced Budget Act

• Set targets for Medicare growth

• Reimbursement rates in year t+1 adjusted based on how far off expenditure growth was in year t

• GDP growth + 1%

• 1997-2001, modest increases in fees

• 2002, physician fees reduced 4.8%

49

• Tremendous political pressure from providers

• Every year since, Congress has passed legislation delaying the fee cuts

• Result – has fallen further and further behind the stated targets

• The cumulative effect has been that to be in compliance with SGR, cost would be $300 billion over 10 years

50

• Proposal – reset SGR target to 2011 level and constrain growth at GDP+1%

• Cost would be $314 billion over 10 years

51


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