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Government Health Care Programs

Chapter 23

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Chapter Outline

• MEDICAID • MEDICARE• CHILD HEALTH INSURANCE PROGRAM• PATIENT PROTECTION AND AFFORDABLE CARE ACT

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You Are Here

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Medicaid

• covers health care for the poor• was established in 1964• was in full force in 1967• part of President Johnson’s Great Society

Programs• paired with Medicare (which covers health

care for those over 65)• is a state-administered program with federal

matching funds.

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The Who’s

• Covers• 30 million children • 25 million adults• 60% are female (70% of adults are women)• 42% white; 23% black; 24% Hispanic

• Children are eligible if• they are under 19 and in households with income less than 133%

of the poverty rate.• they are under 1 and in households with income less than 185% of

the poverty rate

• Adults are eligible if they qualify for• TANF (Temporary Assistance to Needy Families)• SSI (Supplemental Security Income)

• Not all poor are covered• 50% of those who live in households with income below 150% of

the poverty line are not covered.

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Spending

• The federal government pays states a matching grant (ranging from 50% to 70%) that depends on the income of the state.

• The total federal government obligation is $220 billion• The total state obligation is $109 billion

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More Details

• States establish reimbursement rates for procedures• rates must be high enough so that patients have

adequate coverage.• States may choose to exclude some

procedures• most states choose not to cover abortions.

• Doctors and hospitals may choose not to accept Medicaid patients• If they accept any patients for any procedure they

must accept all patients for all procedures. It is an “all-or-nothing” proposition.

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Why Medicaid Costs So Much

• Per patient expenditures per year on Medicaid are higher than non-Medicaid patients.

• In part, this is a feature of the clientele • The poor tend to be less healthy and need more expensive

treatments.• Medicaid pays for nursing home expenses of the poor.

• Lets see this in a picture

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P

Q

Demand for the Poor

Demand for the Nonpoor

Total demand

But now suppose the price of health care forthe poor is zero

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Medicaid and the Elderly

• Medicare is the program for the elderly. • Medicaid is the program for the poor.• If a patient is poor and over 65, Medicaid pays for

Medicare premiums, deductibles and most of the co-payments.

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Expenses by Age Group

• Medicaid expenses per patient • overall $7,000• Children under 5 $2,650• Elderly 65 and over $14,797

• Children make up half the Medicaid population and account for 15% of expenses.• Those over 65 make up less than 10% of the

Medicaid population and account for 24% of expenses.

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Getting Medicaid to Pay for Nursing Homes

• People have to show very little income and have very few assets in order for Medicaid to pay for nursing home care.

• To determine Medicaid eligibility, the government looks at financial records going back 2 years to ensure that the person did not give away their assets so that Medicaid would pay.

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Cost Saving Measures in Medicaid

• Medicaid costs were rising 10% per year in the 1990s• HMOs• Medicaid has increased it use of HMO’s from 5% coverage in 1990 to

50% by 1998.

• Primary Care Physicians were established to minimize inappropriate emergency room use by Medicaid patients.

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Medicare

• covers health care for those over 65• was established in 1964• was fully in force in 1967• part of President Johnson’s Great Society

Programs• paired with Medicaid (which covers health

care for the poor)• is a federally-administered program

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Public Insurance and the Elderly: Why It Is Needed

• A private insurance market for the elderly is likely to fail because of Adverse Selection–Lack of a group

•As we talked about, most private health insurance is obtained through employers and a group is formed to overcome the problem of adverse selection. Because most Medicare recipients are retired, there is no group.

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•Those over 65 have a poverty rate that is typically 2-3 percentage points lower than the rest of the nation.•The cost-split was intended to be 50-50 with the taxpayer and recipient paying roughly equal shares. Today that split is 75-25 with taxpayers carrying the larger share.

Public Insurance and the Elderly:

Who Should Pay?

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Why Medicare’s Costs Are High

• The elderly are susceptible to much more costly illnesses and treatments for these illnesses are expensive.• Costs to patients are relatively low so there is

the problem of the Third Party Payer • when someone other than the producer or

consumer pays the costs of a good or service and as a result neither is cost conscious

• New treatments are available for ailments that in prior times would have led to the patient dying. These treatments are expensive.

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Costs of Medicare

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Retrospective Payments

• Most payments for services are made after the service has been rendered. • When there are third-party payments this can

inflate costs.•Gatekeepers can be used to limit these costs.• doctors who treat general afflictions and who are

charged with referring patients to specialists

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Medicare Nuts and Bolts

•Medicare Part A•Pays for hospital care•Mandatory•Medicare Part B•Pays for doctor visits•voluntary

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Provider Types

•Health Maintenance Organizations (HMOs)•Non-HMOs Fee-for-service

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Medicare, Part A

• Premiums• In 2009 • No premium for people who work ten years before reaching 65• For everyone else the premium charged for Medicare Part A differs

depending on how long they worked

• Deductible• In 2009• $1,068 for first the first day in the hospital

• After the first day • Medicare pays all • of the next 60 days• But $267 per day from 60-90 days• But $534 per day from 90 days on until reserve days are gone.• There is a 60 day reserve

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Prospective Payments and the DRG

• All incidents are categorized by Diagnosis Related Groups (DRGs).

• There are more than 500 DRGs

• Hospitals receive payment from Medicare based on the DRG not costs.

• Prospective payments are designed to keep costs down.

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Medicare, Part B

• Premium• In 2009 $96.40 per month (much lower than

market prices)• Deductible• In 2009 $135 per year (also much lower than

market alternatives.)• Subsidy• General tax revenues make the program 75% paid

by taxpayers and 25% paid by recipients.

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No Prospective Payments

• Because it would be impossible to track expenses for Part B by individual provider prospective payments are not attempted in Part B.

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Medicare HMOs

• Health Maintenance Organizations are offered as an option for Medicare, Part B.

• Many HMO’s stopped covering Medicare patients in 2000.

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No Coverage

• Long Term Care• Nursing Homes• Hospice

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Prescription Drug Coverage

• Coverage began in 2006• Many program varieties• Premiums• Deductibles• Donuts (gaps in coverage)• Copays

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Medicare Trust Fund

• Like Social Security, the Trust Fund is made up of bought-back government debt.

• Depending on assumptions, the trust funds will be out of bonds to sell in 2025 under their “intermediate” assumptions

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Trust Fund Estimates

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The Relationship Between Medicare and Medicaid

• Medicare– Part A is mandatory and has premiums, deductibles

and co-payments. – Part B is voluntary and has premiums, deductibles and

co-payments.• When the person is eligible for both Medicare

and Medicaid, states choose to have their Medicaid programs pay the Medicare premiums, deductibles and most of the co-payments for both Part A and Part B.

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Child Health Insurance Program

• Passed in 1997• Covers children in families with incomes under 200% of the

poverty line• State administered-Federally funded• Low Premiums (as low as $20 per month in many states)• Costs $8 billion per year

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Health Care REform

• On March 23, 2010 the President signed the “Patient Protection and Affordable Care Act”

• 7 days later he signed the “Health Care and Education Reconciliation Act of 2011”

• Extremely Political• Its a bit early to say exactly what they will do• There are constitutionalilty questions about the legislation• Until it is put into operation, it is not clear exactly how it will be

implemented

• It did a whole bunch of different things, I just want to hit some of the main things (and they also come into play at different points in time)

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• Medicaid expanded to 133% of Poverty line ($22,050 for a family of four)

• Subsidies to families and individuals making more than that up to 400% of the poverty line (gradually decreasing)

• Health Insurance Exchanges for uninsured, self-employed, and small businesses to buy insurance

• Insurance Regulations• Cover children until age 26• Can not deny coverage for preexisting conditions• Can not kick sick people off

• Individual Mandate pay a fine of $695 per year if you do not have insurance

• Employer Mandate pay a fine if you have over 50 employees but do not offer health insurance

• There some other cost controls as well• Taxes on “cadillac plans”