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Medicare (History and Financing). Yale Forman, MD Brown University. Agenda - Objectives. Whatever you want it to be…. Medicare overview Medicare Part A, B, D, and C Understand Financing Understand political and policy implications. Brief History of Medicare. Enacted in 1965
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Medicare(History and Financing) Yale Forman, MD Brown University
Agenda - Objectives • Whatever you want it to be…. • Medicare overview • Medicare Part A, B, D, and C • Understand Financing • Understand political and policy implications
Brief History of Medicare • Enacted in 1965 • Patterned after private insurance products • traditional indemnity • 2 parts • Hospital Insurance (Part A) • Supplemental Medical Insurance (Part B and now Part D)
Medicare (Total) Highlights – TR 2007 • 43.2 million people (36.3 M aged; 7 M disabled) • Total Benefits - $402 Billion • Total Expenditures - $ 408 Billion • Total Income - $437 Billion • Total Assets - $ 339 Billion
Medicare’s “Dedicated Financing Sources” • Payroll 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 A • 1.45% Payroll tax on total income, matched by employer • No limit • Money flows into trust fund • There 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 year • In theory, no access to any funds other than trust fund and current payroll tax revenue
Trust Fund • “Special” US treasury securities • Really an accounting procedure where one arm of the government lends another cash, in exchange for a promise of principal plus appropriate interest • Why does this ultimately matter?
HI-Medicare Part A • Hospice care (since 1982) • Inpatient Hospital services • Skilled 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 days • If 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 responsibility • Long 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 Financing • 1966 - Deductible was $40 • 2007 - Deductible is $992 (increased from $952; 4.4%) • Benefits and administrative costs are paid from a trust fund financed by payroll taxes • 1966, payroll tax basis was $6600 max. and rate was 0.35% • Now, tax basis is infinite (since 1993) and rate is 2.9%
Medicare Part B - Supplemental Medical Insurance • Physician services • Home Healthcare • Durable medical equipment (DME) • Outpatient medical services • Clinical lab tests; Imaging • PT/OT • Emergency Room service • Ambulance; • Hep B, Flu, Pneumococcal vaccines • Screening: Pap smear, mammography, colon; cholesterol; Diabetes; Glaucoma; Prostate cancer • Prescription drugs which can not be self-administered including certain anti-cancer drugs
SMI – Part B/2006 Highlights • 94 % of the 42.9 Million Medicare enrollees are enrolled in Part B • 95+% of enrollees received services (2000 data) • Administrative costs are 2.1% of program costs, compared with 1.7% for HI • Average benefit per enrollee is $4121, increasing 9.6 % in past year
Part B Financing • Voluntary • Open to all Part A enrollees and most Americans over 65 • Annual deductible • $50 in 1966 • $60 in 1973 • $75 in 1982 • $100 in 1991 • $124 in 2006 • $131 in 2007 • If it had kept pace with actual charges, more than $2000 now! • Co payments - 20% of allowed charges • 1966 - $3/month • Until 1976, premium rate was set to cover 50% of program costs • Since 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 Financing • Since health care costs have been rising much faster than inflation - - -premiums covered only 25% by 1983 • In 1984, congress tried to fix system and tried to decrease the trend • By 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 premiums Initial Threshold set at $80K for individual and $160K for couple Final Threshold set at $200K for individual and $400K for couple CURRENTLY 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 <135% and 0 for < 100% FPL) • This is a competitively bid product with some government “reinsurance” • Low Income provisions • <135% FPL – No Premium; $1/$5 cost-sharing • 136-150% FPL – Reduced Premium; $50 deductible; 15% cost-sharing • Average Per beneficiary expense for 2006 - $1690
Drug Benefit • Requirement 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 contribution • Subsidy to employers to keep coverage
Part B Financing- Premium as Share of Cost (prior to BBA- 1997)
Medicare Advantage • Local HMOs, PPOs and Provider-Sponsored (IPAs) organizations (PSOs) • Private Fee-for-service plans • Much like POS plans • No required to establish a provider network • Not required to report quality measures • Less CMS oversite • Very small, but fastest growing component
Medicare Advantage • Previously 95% of regional FFS rate • Now competitively bid • Bid against county benchmarks • Adjustments made for enrollee risk profile • Current data suggests that plans are receiving rates that are greater than 100% of risk-adjusted FFS beneficiaries • Why would federal government allow for this? • In some cases, the beneficiaries are getting more coverage than in the FFS plans
