Medicare: The Essentials

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Medicare The Essentials

• Juliette Cubanski, Ph.D.
• Associate Director, Medicare Policy
• Kaiser Family Foundation
• for
• Alliance for Health Reform
• Washington, D.C.
• March 11, 2011

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Medicare past and present
Exhibit 1

• Enacted in 1965 to provide health and economic
  security to seniors age 65 and older
• Expanded in 1972 to cover younger beneficiaries
  with permanent disabilities
• Now covers more than 48 million people, including
  8 million under-65 disabled
• Covers individuals and spouses without regard to
  income or medical history
• Benefits include hospital visits and physician
  services, and prescription drugs through private
  plans
• Private plans have been playing an increasingly
  larger role in the delivery of Medicare benefits

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Exhibit 2
Medicare covers a population with diverse needs
and characteristics
Percent of total Medicare population
Income lt200 FPL (21,780 in 2011)
3 Chronic Conditions
Cognitive/Mental Impairment
Fair/Poor Health
Under-65 Disabled
2 ADL Limitations
Age 85
Long-term Care Facility Resident
NOTE ADL is activity of daily living. SOURCE
Income data for 2009 from U.S. Census Bureau,
Current Population Survey, 2010 Annual Social and
Economic Supplement. All other data from Kaiser
Family Foundation analysis of the Centers for
Medicare Medicaid Services Medicare Current
Beneficiary 2008 Access to Care file.
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Exhibit 3
Benefits covered by original fee-for-service
Medicare

• Medicare Part A Hospital Insurance Program
• Inpatient hospital, skilled nursing facility,
  home health, and hospice care
• 2011 cost-sharing requirements
• 1,132 deductible for hospital stays, plus daily
  copayments after 60 days
• Daily copayments for skilled nursing facility
  stays after 20 days
• Entitlement to Part A after 10 years of payroll
  taxes
• Medicare Part B Supplementary Medical Insurance
• Physician visits, outpatient hospital, preventive
  services, home health
• 2011 cost-sharing requirements
• 115.40 monthly premium (income-related)
• 162 deductible
• 20 coinsurance for physician visits, outpatient
  hospital services, and some preventive services
• 45 coinsurance for mental health services
  (phasing down to 20 in 2014)
• Enrollment in Part B is voluntary, with automatic
  enrollment at age 65 for Social Security
  recipients (but can opt out)

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Exhibit 4
Medicare Advantage (Part C)

• An alternative to Original Medicare
  beneficiaries can enroll in a private plan to
  receive all Medicare-covered benefits and (often)
  extra benefits
• Includes HMOs, PPOs, and private-fee-for-service
  (PFFS) plans
• The government pays private insurers a fixed
  amount per enrollee
• Medicare pays private health plans on average 9
  percent more than traditional Medicare costs
• Medicare Advantage enrollees
• generally pay the Part B premium
• sometimes pay a supplemental premium for
  additional benefits (e.g., vision, dental)
• typically receive drug coverage (Part D)

Medicare Advantage Enrollment (in millions)
A quarter of all Medicare beneficiaries are
enrolled in Medicare Advantage plans in 2011
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Medicare Part D Prescription drug benefit
Exhibit 5

• Part D is a voluntary benefit offered through
  private plans
• Stand-alone drug plans to supplement Original
  Medicare or Medicare-Advantage drug plans
• Beneficiaries in each state have a choice of at
  least 29 stand-alone drug plans
• Plans can offer a standard benefit, but most
  offer an equivalent alternative design
• 32.34 average monthly premium (range
  14.80-133.40)
• Additional subsidies for people with low incomes
  and modest assets
• 87 of beneficiaries have drug coverage in 2011,
  up from 66 in 2004
• More than 29 million out of 48 million
  beneficiaries are enrolled in a Part D plan
  (almost two-thirds in stand-alone drug plans)
• Nearly 5 million (10) lack drug coverage

2011 Part D Standard Benefit
Catastrophic Coverage Limit 6,448 in
TotalDrug Costs
CATASTROPHIC COVERAGE
Brand-name drugs Enrollee pays 50 50
manufacturer discount Generic drugs Enrollee pays
93 Plan pays 7
COVERAGE GAP
Initial Coverage Limit 2,840 in Total Drug
Costs
Plan pays 75
Enrolleepays 25
INITIAL COVERAGE PERIOD
310 Deductible
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Medicare benefit payments, by type of service, in
2010
Exhibit 6
Part A Part B Part A and
B Part D
11
6
27
13
5
10
23
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Total Benefit Payments 509 billion
NOTE Does not include administrative expenses
such as spending to administer Part C and Part D.
SOURCE CBO Medicare Baseline, August 2010.
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Estimated sources of Medicare revenue, 2010
Exhibit 7
PART A 218 billion
PART D 63 billion
PART B 219 billion
TOTAL 499 billion
SOURCE 2010 Annual Report of the Boards of
Trustees of the Federal Hospital Insurance and
Federal Supplementary Medical Insurance Trust
Funds.
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Medicare offers important benefits, but there are
gaps in coverage
Exhibit 8

• Medicare does not cover all medical benefits
• No coverage for hearing aids, eyeglasses, or
  dental care
• Generally does not pay for long-term care
• Medicare has high cost-sharing requirements
• Monthly premiums for Part B, Part C, and Part D
• Separate deductibles for Part A, Part B, and Part
  D
• Part D coverage gap (doughnut hole) phasing
  down from 100 in 2010 to 25 in 2020
• No limit on out-of-pocket spending for benefits
• Median out-of-pocket spending as a share of
  income rose from 11.9 in 1997 to 16.2 in 2006
• Part B and Part D premiums and cost sharing are
  more than 25 of average Social Security benefit
• Medicare pays less than half (48) of
  beneficiaries total health and long-term care
  spending

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Most Medicare beneficiaries have supplemental
coverage, 2008
Exhibit 9
SOURCE Kaiser Family Foundation analysis of the
CMS Medicare Current Beneficiary Survey Access to
Care file, 2006.
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The 2010 health reform law included numerous
changes to Medicare
Exhibit 10

• Benefit improvements
• Gradually closes Medicare prescription drug
  coverage gap (doughnut hole)
• New annual wellness visit with personalized
  prevention plan
• Eliminates cost sharing for prevention services
• Boosts payments for primary care
• Delivery system reforms
• New Center for Medicare and Medicaid Innovation
• New Coordinated Health Care Office for dual
  eligibles
• Numerous programs, pilots, demonstrations to
  improve quality and efficiency (e.g., ACOs)
• Medicare savings
• Reduces payments to Medicare Advantage plans
• Reduces payments for hospitals and other medical
  providers (not physicians)
• New Independent Payment Advisory Board
• New revenues
• Income-related premiums
• Increase in payroll tax
• Fee on drug manufacturers
• Net effect
• Reduces net Medicare spending by 424 billion
  over the next decade