Health Care Finance Medicare

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Health Care Finance Medicare

• Developed and narrated by
• C. A. Galeener, PhD

This module is provided by the Texas Public
Health Training Center in part through a grant
supplied by the Public Health Training Center
Program, Health Resources and Services
Administration, U.S. DHHS.
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Preamble
This module is part of the Health Care Finance
course that provides an intermediate level of
competence in the Financial Planning and
Management Skills competency domain for public
health professionals. The material presented is
at the level of graduate Healthcare Finance
classes. At the end you can test yourself on the
key concepts. The module should take about 60
minutes to complete.
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Objectives

• Understand Medicare
• History and Parts
• Spending levels
• Who/ what is covered
• How Medicare is funded
• Spending trends and long term financing issues

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(No Transcript)
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How much is that in real money?

• B
• HI  
  SMI Tot.
• Income during 2005 199.4   158.1 357.5
• Outgo during 2005  182.9   153.5 336.4

Is Medicare financially healthy?
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Why Medicare?

• U.S. employer-sponsored health insurance -- an
  accident of history
• Market failure
• Adverse selection
• Insurance did not develop for elderly/ disabled
• Public response Medicare

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What are the Medicare Parts?

• Some terminology
• Part A Hospital Insurance
• Part B Supplemental Medical Insurance
• Part C Medicare Choice
• Part D Prescription Drug Coverage

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Medicare (SS Title XVIII)

• 1965 Passage under LBJ
• 1966 19M initial enrollment
• Elderly
• Blind
• Low income children w/o parental support
• Elderly with disabilities
• Program structured as fee for service

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Medicare Extended -- 1972

• Under-65 with disabilities
• ESRD
• Demonstration projects
• HMO payments authorized
• Supplemental Security Income (SSI)

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Medicare continues to evolve

• 1983 Prospective payment system (PPS)
• 1988 Medicare Catastrophic Coverage/
  prescription benefits (repealed 1989)
• 1992 Physicians paid on fee schedule
• 1997 Medicare Advantage
• 2000 PPS for outpatient / home health
• 2003 Medicare Prescription Drug Improvement and
  Modernization Act (MMA)

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Benefits also grow over time

• 1972 Some chiropractic, speech therapy, and
  physical therapy
• 1982 Hospice benefits -- temporary
• 1986 Hospice benefits -- permanent
• 1988 Routine mammography
• 1989 Pap smears
• 2003 MMA hospice provisions
• Incremental with punctuated equilibrium

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Medicare Hospital Insurance Part A
99 of enrollees receive Part A without paying a
premium Buy-in allowed under certain
conditions Covers inpatient, SNF care, hospice,
some home health care
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Medicare HI eligibility

• Citizens / permanent residents 65 and over
• People under 65 with certain disabilities
• Those with End Stage Renal Disease
• May be able to buy-in
• Some states pay buy-in for very poor

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Medicare Part A coverage highlights

• For each benefit period
• Pays all covered costs after deductible (952 in
  2006) for first 60 hospital days
• Copayment for days 61 to 90
• Lifetime reserve days 91 to 150 with higher
  copayment
• Pays all costs for each day beyond 150 days
• Skilled Nursing Facility coinsurance
• No payment for custodial care.
• Medicare secondary payment (MSP) vs. Medigap

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How is Part A financed?

• Primary payroll tax
• employees and employers
• each pay 1.45 of payroll
• self-employed pay 2.9

How else is HI funded?
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Sources of fundsHI
B (2005)
Source Summary of the SS and Medicare Boards of
Trustees 2006 Annual Reports http//www.ssa.gov/O
ACT/TRSUM/trsummary.html
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Uses of funds HI institutional reimbursement .
Source 2006 Annual Report of the Federal
Hospital Insurance and Federal Supplementary
Insurance Trust Funds
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Pricing and payment concepts

• An administered price
• Prospective payment
• Diagnosis Related Groups (DRGs)
• - History
• - Practice of upcoding
• - Provider assumes some risk

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Taking a DipTotal of community hospitals/ beds

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Medicare profit margins
Source Medicare Payment Advisory Commission
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Supplemental Medical Insurance Part B
Covers doctors visits, outpatient care Premium
(2006) 88.50 / month Annual deductible (2006)
124
After deductible, co-insurance is 20 of
fee Premium rises if Part B not elected when
eligible Premium assistance for low income
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Sources of fundsSMI
B (2005)
Source Summary of the SS and Medicare Boards of
Trustees 2006 Annual Reports http//www.ssa.gov/O
ACT/TRSUM/trsummary.html
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Uses of funds SMI reimbursement .

• Also an administered price
• Resource-Based Relative Value Scale (RBRVS)
• - Physician work effort
• - Practice costs
• - Liability costs
• Adjusted for geography
• Cf. http//www.aap.org/visit/rbrvsbrochure.pdf

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Medicare Advantage

• Part C successor to Medicare Choice
• Enrollee pays Part B premium to Medicare
• Plans may be
• Managed care
• PPO
• Private FFS
• Specialty plans
• Tradeoffs

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Part D -- Prescription Drug Benefit

• Medicare-qualified drug benefits available
• Under standalone Medicare Prescription Drug Plan
• As part of a Medicare Advantage Plan
• Creditable coverage from employer/ union,
  Federal retirement, VA, IHS, other
• Dually-eligible automatically enrolled
• Dually-eligible and some other low income persons
  qualify for free or discounted premiums
• Addl info http//www.medicare-partd.com/PartD-H
  istory-MedicarePartD-ProgramPDP.php

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Prescription Drug Coverage Part D
Those not dually eligible must
enroll Premiums, deductibles/ co-pays and
formulary vary by plan Premium may increase if
do not elect when eligible
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Model Part D plans

• What is the purpose of the model plan?
• Model Prescription Drug Plan schedule (2006)
• - 250 deductible
• - 25 coinsurance between
• 251 and 2250
• - Plan pays 0 for next 2850
• - User pays 5 (or 2 generics-5 brand
  copay)
• for prescription bills over 5,100

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Actual plans vary greatly

• Some do not have a deductible
• Some do not have a donut hole
• Plans must meet minimum requirements
• Some employer retiree plans may purchase
  standalone Medicare plans and wrap around Part
  D

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Prescription Coverage as of April, 2006
Source CMS
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Examples of drug plan offerings
Source http//www.medicare.gov/medicarereform/ma
pdpdocs/PDPLandscapetx.pdf
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Trends and Issues
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Total Medicare Spending, 1966-2005( in
billions figures for 2003 and beyond are
projections)
Source CMS
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Medicare PHI 1970 2003
9.0 10.11970 1993 10.7
12.01993 1997 6.5
2.61997 1999 1.2 3.51999
2003 5.9 8.8
Average Annual Rate Growth
Over long haul, rates tend to track closely.
Source CMS, http//www.cms.hhs.gov/statistics/nhe
/historical/t12.asp
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Medicare Spending by Service Type (1993 vs. 2003)
()/ (-) as of Total
- Hosp. inpatient Other FFS Managed care
Home health
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Medicare Enrollment U.S. (M)HI and/ or SMI
2005 HI Aged 35.6M 2005 HI Disabled 6.7M
(15.8) 2005 HI and SMI 39.3M Source CMS
Medicare Enrollment Reports
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Factor Analysis Medicare Increase (1993 2003)

• Total s 148.3 280.9
  89
• Per enrollee s 4167 7061 69
• Enrollees (HI) 35.6M 40.7M 14
• General inflation (CPI) factor 1.31
• Medical inflation factor
  1.29

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Medicare Financial Outlook

• Medicare's financial difficulties come
  sooner-and are much more severe-than those
  confronting Social Security.
• 2006 Trustees Report

First year outgo gt income ex interest 2006 HI
Trust Fund assets negative 2018 Medicare is
2.7 of GDP in 2005 11 in 2080
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Medicare Expenditures Non-Interest Income by
Source as of GDP
Source A Summary of the 2006 Annual Reports
Social Security and Medicare Trustees
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What is next?
Medicare Future?
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Test yourself on the material

• Select the best answer by clicking on the box.
  You will then find out if you were correct and
  the reasoning behind the correct answer.

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Joe Smith is retired. He is coming up on his
65th birthday. He will be automatically enrolled
in Medicare.
True
False
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Joe Smith is just retired. He is coming up on
his 65th birthday. He will be automatically
enrolled in Medicare Part A.
True
False
Joe has to take action to enroll in Medicare,
even though Part A is free to the insured. A
failure to take action timely can result in a
coverage gap and paying higher premiums for his
Part B coverage.
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Medicare was first implemented
As part of FDRs New Deal
As a fee for service program
During Kennedys first term
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Medicare was first implemented
As part of FDRs New Deal
As a fee for service program
During Kennedys first term
Medicare (Parts A and B) was implemented under
Lyndon Baines Johnson in the mid 1960s as a fee
for service program. This is now known as
traditional Medicare. President Kennedy did
not complete his elected term of office.
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The Medicare HI (Part A) deductible is
Annual
Based on each benefit period
Doubled for custodial care
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The Medicare HI (Part A) deductible is
Annual
Based on each benefit period
Doubled for custodial care
The Medicare HI deductible applies to each
benefit period this is best thought of as
separate hospitalizations. Medicare does NOT pay
for custodial care.
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Supplemental Medical Insurance is funded
By the federal government
By the federal government and the states
By the federal government and beneficiary premiums
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Supplemental Medical Insurance is funded
By the federal government
By the federal government and the states
By the federal government and beneficiary premiums
SMI, Medicare Part B, is funded roughly ¾ by
federal government and the remainder primarily by
beneficiary premiums.
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Which of these statements is false?
Medicare and Medicaid are both parts of Social
Security.
Medicare and Medicaid spend about the same in
total.
You can be covered by both Medicare and Medicaid.
Medicaid is funded partly through the Medicare
payroll tax.
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Which of these statements is false?
Medicare and Medicaid are both parts of Social
Security.
Medicare and Medicaid spend about the same in
total.
You can be covered by both Medicare and Medicaid.
Medicaid is funded partly through the Medicare
payroll tax.
The Medicare payroll tax funds are not used for
Medicaid. The other statements are all true.
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When he is first eligible for Medicare Joe Smith
decides to stay with his former employers
retiree drug plan. Which of these statements is
true?
Joe is precluded from ever signing up for Part D
Joe can sign up but there may be a penalty.
Joe can sign up only for the model plan.
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When he is first eligible for Medicare Joe Smith
decides to stay with his former employers
retiree drug plan. Which of these statements is
true?
Joe is precluded from ever signing up for Part D
Joe can sign up but there may be a penalty.
Joe can sign up only for the model plan.
Joe can sign up for Part D rather than staying
with his plan and there will be no penalty IF the
prior plan was determined to be creditable
coverage.
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Medicare Advantage is NOT
A nation-wide managed care health insurance run
by the government
An alternative to traditional Medicare
Market-based insurance
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Medicare Advantage is NOT
A nation-wide managed care system run by the
government
An alternative to traditional Medicare
Market-based insurance
Medicare Advantage is an option to traditional
Medicare in which the individual can choose to
obtain coordinated care from market-based
insurance providers. These plans may reduce
copayments and coinsurance or provide other
advantages.
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Thank you