Medicare

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Medicare

• Professor Vivian Ho
• Health Economics
• Fall 2009

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Topics

• Coverage
• Financing
• Case Study

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The Medicare Program

• Target population - individuals 65, certain
  disabled people, and people with kidney failure
• Part A - Hospital Insurance program (compulsory)
• Inpatient hospital services
• Skilled nursing care
• Home health care
• Hospice care
• 19.1m enrollees in 1966 44.9m in 2008

Source www.cms.hhs.gov
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• Part B - Supplemental Medical Insurance program
  (voluntary)
• Physician services
• Outpatient care
• Emergency room services
• 17.7m enrollees in 1966, 41.7m in 2008

Source www.cms.hhs.gov
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Medicare Costs
Total Expenditures ( billions)
1966 1.8 1980 37.2 1990 109.5 1995 1
82.4 2000 225.2 2003 283.8 2006 408.3 2008
468.0
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Medicare Financing - Part A

• Funding Sources
• 2.9 payroll tax shared equally by employers and
  employees
• Federal Hospital Insurance Trust Fund
• Enrollee deductibles and copayments

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Part A Trust Fund ( millions)
Year
Income
Disbursements
Balance

• 1967 3,089
• 1975 12,568
• 1980 25,415
• 1985 50,933
• 1990 79,563
• 1995 114,847
• 2000 159,681
• 2005 196,921
• 2008 230,815

• 2,597 1,343
• 10,612 9,870
• 24,288 14,490
• 48,654 21,277
• 66,687 95,631
• 114,883 129,520
• 130,284 168,084
• 184,142 277,723
• 235,556 321,270

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Part A Patient Cost Sharing

• No hospital inpatient coverage after 90 days
• Except for 60-day lifetime reserve
• Medicare offers no coverage in catastrophic
  circumstances.

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Part A Patient Costs
Deductible
Daily Coinsurance
Year
Days 1-60
Days 61-90
After 90 Days

• 1966 40
• 1975 92
• 1980 180
• 1985 400
• 1990 592
• 1995 716
• 2000 776
• 2005 912
• 2009 1068

• 10 ---
• 23 46
• 45 90
• 100 200
• 148 296
• 179 358
• 194 388
• 228 456
• 267 534

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Medicare Part B Financing

• Funding sources
• Monthly premium payments
• Contributions from general revenue of the U.S.
  Treasury

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Part B Trust Fund
Year
Income
Disbursements
Balance

• 1967 1,285
• 1975 4,322
• 1980 10,275
• 1985 24,577
• 1990 46,138
• 1995 58,169
• 2000 89,239
• 2005 151,307
• 2008 200,623

• 799 486
• 4,170 1,424
• 10,737 4,532
• 22,730 10,646
• 43,022 14,527
• 65,213 13,874
• 88,992 45,896
• 151,536 16,885
• 183,303 59,382

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Part B Patient Costs
Annual Deductible
Coinsurance Rate
Monthly Premium
Year

• 1966 50
• 1975 60
• 1980 60
• 1985 75
• 1990 75
• 1995 100
• 2000 100
• 2005 110
• 2009 135

• 20 3.00
• 20 6.70
• 40 8.70
• 20 15.50
• 20 28.60
• 20 46.10
• 20 45.50
• 20 78.20
• 20 96.40

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Medicare Part C

• Since the 1980s, the aged could voluntarily
  enroll in Medicare HMOs
• HMO receives capitated payment based on Part A
  and B beneficiary costs adjusted for age, sex,
  region, etc.
• HMO can provide lower copays and outpatient drugs
  not covered by Medicare Part B

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Medicare Part C MedicareChoice

• 1997 BBA increased the variety of managed care
  plans under Medicare
• PPOs - physician networks
• PSOs - owned by hospitals and physicians
• POS - extra fee for out-of-network care
• Private FFS
• no limits on premiums charged to beneficiaries
• MSAs
• Turnover reduced by requiring enrollment for at
  least 1 year

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Medicare Part C MedicareChoice
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Medicare Part C MedicareChoice

• Enrollment and plan participation has varied over
  time, but shows a strong net gain
• Plans are putting more limits and copays for
  prescription drug coverage
• Most elderly have access to a plan with no
  premiums, but the share is falling

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Medicare Part A Provider Reimbursement

• 1983, Prospective Payment System
• Medicare patients were classified by principal
  diagnosis into 1 of 470 Diagnosis Related Groups
  (DRGs)

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• DRG weight - index reflecting relative cost of
  care
• Examples from 2003
• DRG 33 - concussion, agelt18, weight.2072
• DRG 103 - heart transplant, weight20.5419

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Impact of PPS

• 1) Costs
• Cost growth has slowed periodically, but they
  continue to grow in some periods
• Hospitals may have learned to game the system

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• 2) Patient Outcomes
• No evidence that quality of care changed for
  Medicare patients as a result of PPS
• However, hospital admissions and length of stay
  declined
• 3) Hospitals
• Profits from Medicare patients initially fell,
  but some hospitals still very profitable

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Are higher costs worth it?

• Life Expectancy and Costs for Medicare Patients
  w/ a new heart attack
• Year Life Exp. Costs (1991)
• 1984 5 2/12 11,175
• 1986 5 4/12 11,998
• 1988 5 6/12 12,725
• 1990 5 9/12 13,623
• 1991 5 10/12 14,772
• Higher costs improve outcomes

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Regional comparisons paint a different picture

• 1995 average inpatient expenditures for Medicare
  patients in the last 6 months of life were 2
  times higher in Miami vs. Minneapolis
• 25.4 specialist visits in Miami 4.7 in
  Minneapolis
• Regional survival rates for AMI, stroke, GI
  bleeds not correlated with higher health care
  spending

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Medicare Part B Provider Reimbursement

• 1989 Omnibus Reconciliation Act
• 1) Prospective payment system for physicians
• 2) Limits on total growth in Medicare Part B
  expenditures by Congress
• Volume Performance Standards

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• 3) Strict limits on balance billing
• Additional fees physicians can charge to Medicare
  patients above Medicare reimbursement rates

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Physician Prospective Payment System

• Pre 1992, Medicare reimbursed physicians
  retrospectively
• Physicians were paid lowest of bill submitted,
  physicians customary charge, or areas
  prevailing rate for that service
• Physicians had incentives to raise charges, in
  order to raise future rates

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• 1992-96, Gradual phase-in of Resource-Based
  Relative Value Scale
• Fee schedule based on estimated time, effort,
  resources required for various physician services
• Favors evaluation and management services (e.g.
  office visits w/ established patients over
  technical medical procedures)
• e.g. 1992 Average fees for GPs rose 10,
  specialty surgeons experienced an 8 fall

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2003 Medicare Modernization Act

• Created Medicare Part D
• Prescription Drug Benefit- Jan 2006
• Private insurers offer drug plans subsidized by
  CMS
• Drug-only insurance plans
• Medicare Advantage comprehensive plans
• eg. PPOs or HMOs

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2003 Medicare Modernization Act

• All private insurers must include certain
  features in their policies
• 250 deductible for drug purchases
• 25 copay for the next 2000
• 100 copay for purchases from 2250 to 5100
• the donut hole
• 5 copay for purchases gt 5100
• catastrophic coverage

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2003 Medicare Modernization Act

• Plans may compete for customers based on
• premium price
• formularies for which drugs are covered
• drug prices they negotiate with drug
  manufacturers
• disease management services

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2003 Medicare Modernization Act

• CMS pays insurers a subsidy equal to 75 of the
  expected costs of all accepted plans
• Insurers bid for access to the Medicare market
  before they know their actual costs

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2003 Medicare Modernization Act

• Initial cost impact of MMA may be low, because
  copayments are so high
• But the number of highly effective, high-cost
  drugs gt 10,000 is growing
• Numerous regulations restrict price competition
• Limited penalties for cost over-runs
• Insurers reimbursed 80 of costs if gt 2.5 of
  projected costs

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Medicare Costs

• Projected Medicare cost increases are alarming
• h costs must be paid for w/ h taxes or i other
  spending
• Part B D premiums are set to cover 25 of costs
• 2003 Part B premiums 15 of average SS benefit
• Part B D premiums expected to 35 of average
  SS benefit in 2010, 50 by 2030