MedicareMedicare
Professor Vivian Ho
Health Economics
Fall 2009
TopicsTopics
Coverage Financing Case Study
The Medicare ProgramThe 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
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
1966 1.8
1980 37.2
1990 109.5
1995 182.4
2000 225.2
2003 283.8
2006 408.3
2008 468.0
Medicare CostsMedicare Costs
Total Expenditures ($ billions)
Medicare Financing - Part AMedicare Financing - Part A
Funding Sources 2.9% payroll tax shared equally by
employers and employees Federal Hospital Insurance Trust Fund Enrollee deductibles and copayments
Part A Trust FundPart A Trust Fund($ millions)($ millions)
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
Year Income Disbursements Balance
Part A Patient Cost SharingPart A Patient Cost Sharing
No hospital inpatient coverage after 90 days Except for 60-day lifetime reserve Medicare offers no coverage in
“catastrophic circumstances.”
Part A Patient CostsPart A Patient Costs
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
Year Days 1-60 Days 61-90 After 90 DaysDeductible Daily Coinsurance
Medicare Part B FinancingMedicare Part B Financing
Funding sources Monthly premium payments Contributions from general revenue of the
U.S. Treasury
Part B Trust FundPart B Trust Fund
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
Year Income Disbursements Balance
Part B Patient CostsPart B Patient Costs
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
YearAnnual
DeductibleCoinsurance
RateMonthly Premium
Medicare Part CMedicare 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
Medicare Part C: Medicare+ChoiceMedicare Part C: Medicare+Choice
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
Medicare Part C: Medicare+ChoiceMedicare Part C: Medicare+Choice
Medicare Part C: Medicare+ChoiceMedicare Part C: Medicare+Choice
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
Medicare Part A Provider Medicare Part A Provider ReimbursementReimbursement
1983, Prospective Payment System Medicare patients were classified by
principal diagnosis into 1 of 470 Diagnosis Related Groups (DRGs)
sAdjustment
Hospitalx
Payments
Outlier
sAdjustment
gionalx
weight
DRGx
payment
basePP 1
Re
DRG weight - index # reflecting relative cost of care
Examples from 2003:
DRG 33 - concussion, age<18, weight=.2072
DRG 103 - heart transplant, weight=20.5419
Impact of PPSImpact 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
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
Are higher costs “worth it”?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
Regional comparisons paint a different Regional comparisons paint a different picturepicture
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
Medicare Part B Provider Medicare Part B Provider ReimbursementReimbursement
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
3) Strict limits on balance billing Additional fees physicians can charge to
Medicare patients above Medicare reimbursement rates
Physician Prospective Payment SystemPhysician Prospective Payment System
Pre 1992, Medicare reimbursed physicians retrospectively Physicians were paid lowest of bill
submitted, physician’s customary charge, or area’s prevailing rate for that service
Physicians had incentives to raise charges, in order to raise future rates
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 GP’s rose 10%, specialty surgeons experienced an 8% fall
2003 Medicare Modernization Act2003 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. PPO’s or HMO’s
2003 Medicare Modernization Act2003 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 > $5100
‘catastrophic coverage’
2003 Medicare Modernization Act2003 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
2003 Medicare Modernization Act2003 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
2003 Medicare Modernization Act2003 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 > $10,000 is growing
Numerous regulations restrict price competition
Limited penalties for cost over-runs Insurers reimbursed 80% of costs if > 2.5%
of projected costs
Medicare CostsMedicare Costs
Projected Medicare cost increases are alarming
costs must be paid for w/ taxes or 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