Medicare(History and Financing)

Yale Forman, MDBrown University

*Agenda - ObjectivesWhatever you want it to be.Medicare overviewMedicare Part A, B, D, and CUnderstand FinancingUnderstand political and policy implications

*Brief History of MedicareEnacted in 1965Patterned after private insurance productstraditional indemnity2 partsHospital Insurance (Part A)Supplemental Medical Insurance (Part B and now Part D)

*Medicare (Total) Highlights TR 200743.2 million people (36.3 M aged; 7 M disabled) Total Benefits - $402 BillionTotal Expenditures - $ 408 BillionTotal Income - $437 BillionTotal Assets - $ 339 Billion

*Medicares Dedicated Financing SourcesPayroll taxes to the HI Trust Fund; Income from the taxation of Social Security benefits that is transferred to the HI Trust Fund; Part A*, Part B, and Part D premiums; State transfers for the Medicare prescription drug benefit; and Gifts to the trust funds

*Financing Part A1.45% Payroll tax on total income, matched by employerNo limitMoney flows into trust fundThere are no restrictions on spending (from current income and trust fund)Changes in medical practice may result in huge increases (or, theoretically decreases) in spending which have no influence on budgeting of any given yearIn theory, no access to any funds other than trust fund and current payroll tax revenue

*Trust FundSpecial US treasury securitiesReally an accounting procedure where one arm of the government lends another cash, in exchange for a promise of principal plus appropriate interestWhy does this ultimately matter?

*HI-Medicare Part AHospice care (since 1982)Inpatient Hospital servicesSkilled nursing facility care (after a 3 day hospital stay)Why?Who (what?) pays for the majority of SNF bed-days in this country?22% of beneficiaries actually received HI services in 2002 (slight increase from 1993, when figure was ~ 20%)Average expenditure per enrollee increased by 3.3 %; Now $4410 (2006)

*Part A Financing (2007 figures, except where indicated)65 years and older and eligible for any type of SS benefit automatically entitled. Requires 40 quarters of Medicare-covered employment; sliding scale for those with less.Non-entitled may pay ($410/month; increased from $393)Co-pay is $248 per hospital day Deductible is $992 Co-pay does not kick in until day 61 and then has to be paid for up to 30 more hospital daysIf hospital stay is longer than 90 days, the co-pay rises to $496 per day for a lifetime reserve of 30 more days, when you assume all fiscal responsibilityLong hospitalization can have substantial costs to an elderly patient (if no medi-gap (or RHB) insurance is owned).Skilled Nursing Facility Care: Totally covered for the first 20 days and then the patient covers $124 per day for days 21 100. No further Medicare benefit.

*Part A Financing1966 - Deductible was $402007 - Deductible is $992 (increased from $952; 4.4%)Benefits and administrative costs are paid from a trust fund financed by payroll taxes1966, payroll tax basis was $6600 max. and rate was 0.35%Now, tax basis is infinite (since 1993) and rate is 2.9%

*TR, 2007

*TR, 2007

*TR, 2007

*TR, 2006

*Medicare Part B - Supplemental Medical InsurancePhysician servicesHome HealthcareDurable medical equipment (DME)Outpatient medical servicesClinical lab tests; Imaging PT/OTEmergency Room serviceAmbulance; Hep B, Flu, Pneumococcal vaccinesScreening: Pap smear, mammography, colon; cholesterol; Diabetes; Glaucoma; Prostate cancerPrescription drugs which can not be self-administered including certain anti-cancer drugs

*SMI Part B/2006 Highlights94 % of the 42.9 Million Medicare enrollees are enrolled in Part B95+% of enrollees received services (2000 data)Administrative costs are 2.1% of program costs, compared with 1.7% for HIAverage benefit per enrollee is $4121, increasing 9.6 % in past year

*Part B FinancingVoluntaryOpen to all Part A enrollees and most Americans over 65Annual deductible$50 in 1966$60 in 1973$75 in 1982$100 in 1991 $124 in 2006$131 in 2007If it had kept pace with actual charges, more than $2000 now! Co payments - 20% of allowed charges1966 - $3/monthUntil 1976, premium rate was set to cover 50% of program costsSince that time and until 1983, the premium rate has been allowed to increase at same rate as SS benefits (Inflation) which is substantially lower than health care inflation

*Part B FinancingSince health care costs have been rising much faster than inflation - - -premiums covered only 25% by 1983In 1984, congress tried to fix system and tried to decrease the trendBy 1995, since health care costs had slowed their increases, the monthly premium of $43.80 covered 25% of actual program costs.BBA-1997 - Permanently established that premium be 25% of program expenditures. 2003 - $58.70/month (8.7% increase); 2004 - $66.60 (13.5% increase); 2005 - $78.20 (17.4 % increase); 2006 - $88.50 (13.2%); 2007 - $93.50**(5.6%)During the past five years, Medicare SMI has grown MUCH faster than the economy as a whole.SMI outlays were less than 1.1% of GDP last year and will be 4.2% of GDP in 2077; Intermediate assumptions

*** Income related premiumsInitial Threshold set at $80K for individual and $160K for coupleFinal Threshold set at $200K for individual and $400K for coupleCURRENTLY indexed to inflation

*Standard Drug Benefit (2007)Deductible $265; $27.33 monthly premium (average)25% co-insurance for next $2135 in drug spending No coverage for next $3051 in drug spending Then 5% coinsurance for non-poor and less for poor ($2/$5 for

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*Drug BenefitRequirement that each beneficiary have access to one Prescription Drug Benefit Plan and one Integrated Plan (or two Prescription Drug Benefit plans, if no integrated plan is offered)Dual Eligibles are mandated by Federal Benefit but 75% supported by state contributionSubsidy to employers to keep coverage

*TR, 2007

*Part B Financing- Premium as Share of Cost (prior to BBA- 1997)

*TR 2007

*TR, 2007

*TR, 2007

*TR, 2007

*TR, 2007

*Medicare AdvantageLocal HMOs, PPOs and Provider-Sponsored (IPAs) organizations (PSOs)Private Fee-for-service plansMuch like POS plansNo required to establish a provider networkNot required to report quality measuresLess CMS oversiteVery small, but fastest growing component

*Medicare AdvantagePreviously 95% of regional FFS rateNow competitively bidBid against county benchmarksAdjustments made for enrollee risk profileCurrent data suggests that plans are receiving rates that are greater than 100% of risk-adjusted FFS beneficiariesWhy would federal government allow for this?In some cases, the beneficiaries are getting more coverage than in the FFS plans

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