Medicare 101

1
Medicare 101
Presented byTricia Neuman, Sc.D. Vice President
and Director,Medicare Policy Project The Henry
J. Kaiser Family Foundation KaiserEDU.org
Tutorial January 2005
2
Overview
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Medicare Today
Exhibit 1

• Enacted in 1965 to provide health and economic
  security to seniors
• Expanded in 1972 to cover younger beneficiaries
  with permanent disabilities
• Covers 41 million people
• 35 million elderly, 6 million under-65 disabled
• Individuals age 65 are entitled to Medicare
  (Part A) if they are eligible to receive Social
  Security
• Contribute portion of payroll tax throughout
  working lives to get Medicare
• Pay monthly premium for Medicare Part B
• Individuals eligible without regard to income or
  medical history
• Program now has parts A,B,C by 2006, a new part
  D
• Part A Hospital and skilled nursing care
• Part B Physician and outpatient hospital care
• Part C HMOs/Medicare Advantage
• Part D Outpatient prescription drug coverage
  begins January 2006
• Medicare is a popular program enjoys broad
  public support and high satisfaction levels among
  seniors

4
The Medicare Population
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Medicare Covers a Population with Diverse Needs
and Significant Vulnerabilities
Exhibit 2
Percent of total Medicare population
Low Income (lt150 FPL or less than 13,965, 2004)
1 Functional Limitation
Fair/Poor Health
Rural
Cognitive Impairment
Under-65 Disabled
Nursing Home/ Assisted Living Resident
SOURCE Medicare Current Beneficiary Survey,
1997-2002 Low-income estimate from Urban
Institute based on March 2003 Current Population
Survey.
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A Small Share of Beneficiaries Account for
Majority of Medicare Expenditures (1999)
Exhibit 3
Percent of Beneficiaries
Percent of Expenditures
15
75
Note Totals exclude Medicare beneficiaries with
no expenditures in 1999 and beneficiaries
enrolled in MedicareChoice plans and payments
made on their behalf. SOURCE CMS, Medicare and
Medicaid Statistical Supplement, 2001.
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Medicare Benefits, Spending, and Financing
8
Medicare Benefit Payments, by Type of Service, FY
2004
Exhibit 4
5
5
39
Part A Part B Parts A and
B
26
5
4
14
2
Total 295 billion
Note Does not include administrative expenses.
Excludes Part D low-income subsidy
payments. SOURCE CBO, Medicare Baseline, March
2004.
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Sources of Medicare Revenue, Parts A and B, 2003
Exhibit 5
Part A and B 291.6 billion Combined Revenues
Part A 175.8 billion Hospital Insurance Trust
Fund
Part B 115.8 billion Supplementary Medical
Insurance Trust Fund
Additional 2 of Part A income attributed to
premiums, general revenue, and other. Note
Numbers may not total 100 due to
rounding. SOURCE 2004 Annual Report of the
Boards of Trustees of the Federal Hospital
Insurance and Federal Supplementary Medical
Insurance Trust Funds.
10
Medicare Represents 13 Percent of the Federal
Budget
Exhibit 6
Total Federal Budget 2.3 Trillion, FY 2004
Includes net interest on the federal
governments debt minus fees and other
charges that are collected without annual
appropriations action. SOURCE Congressional
Budget Office, September 2004 Baseline Budget
Projections.
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Gaps in Coverage, Benefits, and Out-of-Pocket
Spending
12
Gaps in Medicare Coverage
Exhibit 7

• Benefit Gaps
• No outpatient drug benefit (until 2006)
• Limited long-term care
• No hearing aids, eyeglasses, or dental care
• High cost-sharing requirements
• Part A deductible (912/benefit period in 2005)
• Part B monthly premium (78.20/month in 2005)
• Income-relating the Part B premium (beginning in
  2007)
• Medicare pays for about half of all beneficiary
  health care spending
• Nearly 9 in 10 rely on supplemental insurance to
  fill gaps

13
Most Medicare Beneficiaries Have Some Form of
Supplemental Coverage
Exhibit 8
Medicare HMO 13
Total 39.6 million non-institutionalized
Medicare beneficiaries in 2002
Note Estimates are based on aged and disabled
Medicare beneficiaries living in a community
setting. Individuals with both
employer-sponsored coverage and
individually-purchased Medigap policy are
classified as having employer-sponsored coverage.



SOURCE
Medicare Beneficiary Survey, Cost and Use File,
2002.
14
Medicare HMO Enrollment Has Waxed and Waned,
with Some Uncertainty About the FutureNumber
of Medicare Advantage Plans, 1992-2013
Exhibit 9
32
13
Actual
Projected
Note All actual data are from December of the
given year, except 2004 from March. SOURCE
Actual CMS, Medicare Managed Care Contract
(MMCC) Plans Monthly Summary Report. Projections
CBO testimony before the Committee on Ways and
Means, US House of Representatives, March 24,
2004.
15
Prescription Drugs and the MMA
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Context for New Medicare Drug Law
Exhibit 10

• Seniors rely heavily on prescription drugs
• 98 of seniors nationwide take prescription drugs
• Nearly half of seniors (46) take 5 or more
  prescriptions per month
• Many lack prescription drug coverage
• 43 lack drug coverage for the full year or part
  year
• Drug coverage matters
• Among seniors with heart failure, diabetes, or
  hypertension, those without drug coverage skip
  doses of medicine at twice the rate of those with
  drug coverage
• Annual Medicare beneficiary out-of-pocket drug
  spending has been rising
• 600 in 2000, 999 in 2003, and an estimated
  1,457 in 2006

SOURCES Stuart and Briesacher, estimates based
on 2000 MCBS Kaiser/Commonwealth/Tufts-New
England Medical Center 2003 National Survey of
Seniors and Prescription Drugs Out-of-pocket
spending data for 2006 from Congressional Budget
Office, July 2004.
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Overview of Medicare Prescription
DrugImprovement, and Modernization Act of 2003
(MMA)
Exhibit 11

• Phase 1 2004 and 2005
• Medicare-approved discount drug cards
• 600 annual drug subsidy for low-income seniors
  (lt135 poverty or 12,569/year)
• Phase 2 Begins in 2006
• Drug benefit to be offered by private plans
• Beneficiaries expected to have choice of 2
  plans
• May sign up beginning November 15, 2005
• Plans provide standard benefit or actuarial
  equivalent. In 2006 250 deductible, 25
  coinsurance up to 2,250 in total Rx costs 100
  coinsurance up to 5,100 in total Rx costs, then
  5 coinsurance
• Premium estimated to be 35/month in 2006
• Formularies, cost-sharing structure, premiums
  expected to vary
• Generous subsidies for low income

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Key Questions About New Drug Law
Exhibit 12

• Who will sponsor new private drug-only plans,
  where, and for how long?
• What will Medicare prescription drug benefit
  packages look like, which drugs will be covered,
  and how much will monthly premiums be?
• Will beneficiaries sign up for Part D? Will
  seniors with low-income apply for (and receive)
  subsidies?
• Can the new benefit be implemented -- without
  major glitches given the magnitude of changes
  that need to occur between now and January 1,
  2006?

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Future Challenges
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The Medicare Population Will Nearly Double in
Next Quarter of Century
Exhibit 13
Millions of Beneficiaries
SOURCE CMS, Office of the Actuary, January 2003.
21
Prescription Drugs Represent a Relatively Small
Share of Beneficiaries Out-of-Pocket Spending
Exhibit 14
Private Health Insurance Premium 21
Dental 10
Long-Term Care 41
Home Health 1
Prescription Drugs 21
Inpatient Hospital/SNF 4
Medicare Part B Premium 15
Physician/ Supplier 18
Outpatient Services 5
Total Out of Pocket Spending, 1999 115 billion
For home health services not covered by
Medicare. Data are for both fee-for-service and
MedicareChoice enrollees. Total per capita
out-of-pocket spending (excluding Part B premiums
and private health insurance premiums) is 1,825.

SOURCE Medicare Beneficiary Survey, Cost and
Use File, 1999
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Major Policy Challenges Facing Medicare
Exhibit 15

• Implementing the new Medicare prescription drug
  benefit by 2006
• Strengthening protections for low-income,
  chronically ill, and otherwise vulnerable
  beneficiaries
• Setting fair payments while serving as a fair and
  reliable business partner for health plans and
  providers
• Securing Medicare financing for future
  generations
• While keeping health care affordable for seniors
  and beneficiaries with disabilities who rely on
  the program