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Health Insurance II: Medicare, Medicaid, and Health Care ReformFERNANDO QUIJANO AND SHELLY TEFFTP R E P A R E D B Y

16.1 The Medicaid Program for Low-Income Mothers and Children16.2 What Are the Effects of the Medicaid Program?16.3 The Medicare Program16.4 What Are the Effects of the Medicare Program?16.5 Long-Term Care16.6 Lessons for Health Care Reform in the United States16.7 Conclusion

1Medicare Federal program, funded by a payroll tax, that provides health insurance to all elderly over age 65 and disabled persons under age 65. Medicaid Federal and state program, funded by general tax revenues, that provides health care for poor families, elderly, and disabled. Public Finance and Public Policy Jonathan Gruber Third Edition Copyright 2010 Worth Publishers216.1The Medicaid Program for Low-Income Mothers and ChildrenHow Medicaid WorksMedicaid, like unemployment insurance (UI), is a program that is federally mandated but administered by the states.Who Is Eligible for Medicaid?Childrens Health Insurance Program (CHIP) Program introduced in 1997 to expand eligibility of children for public health insurance beyond the existing limits of the Medicaid program, generally up to 200% of the poverty line. All individuals age 18 or younger are eligible for Medicaid or CHIP up to 100% of the poverty line. Children under age 6 and pregnant women are covered up to 133% of the poverty line. In most states, eligibility extends further for both children and pregnant women: a typical state covers both groups up to 200% of the poverty line.316.1The Medicaid Program for Low-Income Mothers and ChildrenWhat Health Services Does Medicaid Cover?While federal Medicaid rules require states to cover major services, such as physician and hospital care, they do not require states to pay for optional services, such as prescription drugs or dental care.How Do Providers Get Paid?States can also regulate the rate at which health service providers are reimbursed.In most states, Medicaid reimburses physicians at a much lower level than does the private sector, which often leads physicians to be unwilling to serve Medicaid patients.416.2What Are the Effects of the Medicaid Program?The goal of this large and rapidly growing program is to provide health insurance coverage to low-income populations who cannot afford private coverage and thereby improve their health.How Does Medicaid Affect Health? A Framework

5How Does Medicaid Affect Health? Evidence16.2What Are the Effects of the Medicaid Program?Take-UpIn 1982, 12% of individuals nationwide aged 18 or under were eligible for public insurance under Medicaid. By 2000, 46% of individuals in that age group were eligible.There was a parallel rise for pregnant women, with some small increase for parents of eligible children in selected states that chose to expand to that population.Crowd-OutUnlike people who prefer to hold on to their private health insurance, some individuals might find it attractive to leave private insurance for public insurance because the Medicaid insurance package is much more generous.This is another example of the ways government intervention can crowd out private provision, as we saw with fireworks, education, and social insurance. 6How Does Medicaid Affect Health? Evidence16.2What Are the Effects of the Medicaid Program?Health Care Utilization and HealthEven at the largest estimates of crowd-out, expanding Medicaid still substantially reduces the number of uninsured, so expansions may affect the utilization of health care services.Cost-EffectivenessFindings suggest that investing in low-income health care may be a cost-effective means of improving health in the United States. 716.2What Are the Effects of the Medicaid Program?M P I R I C A L E V I D E N C EEUSING STATE MEDICAID EXPANSIONS TO ESTIMATE PROGRAM EFFECTSAn important feature of the Medicaid expansions is that they occurred at a very different pace across the states and at a different pace for different age groups of children within states.Studies can compare outcomes (such as degree of illness) in the treatment states, those that expand eligibility more, to outcomes in the controls, those that expand it less.

Over the 19822000 period, Medicaid eligibility rose much more in Missouri than in Michigan (top panel). There were also dramatic differences in eligibility growth within states: eligibility rose much more for 13-year-olds in Washington, D.C. than for 0-year-olds (bottom panel).816.3The Medicare ProgramThe largest public health insurance program in the United States is Medicare.

9Even Bigger Mess: MedicareCongressional efforts for Social Security reform ended with 2006 electionCurrent health care reform debate has shifted focus to MedicareMuch bigger financial problemSame concerns about aging with little control on benefit costsServes as an example of government-run health careConsidered in Affordable Care Act mostly as a source of fundsMedicare definedMedicare is publicly-provided health insurance for the elderlyMedicaid is publicly-provided health insurance for low income uninsuredFour partsPart A: Hospital Insurance (HI)Part B: Supplemental Medical Insurance (SMI)Part C: Medicare Advantage is alternative to A&B Part D: Prescription DrugsWho is covered?Elderly, 65+ (83.6% of beneficiaries)Everyone automatically covered by HI, must sign up for SMI (95% do)38.7 million beneficiaries in 2009Disabled eligible after two years receiving DI benefits7.6 million beneficiaries in 2009End stage renal disease (kidney dialysis)12What is covered?HI covers inpatient hospital care, skilled nursing facilities, home health services, and hospice careSMI covers doctor visits, lab tests, and outpatient hospital carePart D covers prescription drugs (w limits some removed as part of ACA)Does NOT cover nursing homes13Medicare is a fee-for-service insurance program Government dictates the payments to the providersAlso tried HMO structure in recent years to attempt to introduce the benefits of private competition

Note that drugs not a large part of health care in 1965, bureaucratic system slower to change than private health plans How is Medicare financed?HI financed through payroll taxes1.45% (3.9%) on all earnings (HI Trust Fund)SMI and Part D financed through monthly premiums (25%) and general revenuesSMI $96.40-369.10 (2011) each monthmeans-tested premiumPart D varies by plan Deducted from Social Security checks Also co-pays and deductibles 14Medicare in financial troubleDramatic growth in the program1980: $37 Billion2009: $502 Billion ($40 Billion 1-yr increase)Similar to Social Security, Medicare has a bleak financial futureBaby boomers start reaching 65 7,000 per dayPeople living longerHealth costs rising faster than economy as a wholeExcess Cost GrowthGrowth in spending per beneficiary that exceeds growth in per capita GDP3.0 percent over 1970-20052.1 percent over 1990-2005Captures both policy changes and residual growthAssumption going forward dramatically alters projections of program growthSame issues for Medicaid (program for poor jointly funded by the states)Medicare and Medicaid Spending as Share of GDP: Excess Cost Growth??

17so federal budget in troubleHI Trust Fund, currently in surplus, is projected to be exhausted in 2029 as costs rise Improved by ACA changes to spendingSMI will squeeze other federal spending as the Part B costs rise 75% from current taxpayersPart D cheaper so far, but cries to expand coverage may raise costs Estimated to cost $400 B over 10 years18Your future retirement?Health care diminishing as private retirement benefit

Reliance on Medicare also uncertain

Health care likely to undergo major changes in next few years as costs rise

Economics informs us solution is politicalObama Rejects Governors Plan to Overhaul Medicaid

Topics: Politics, Health Reform, MedicaidBy Merrill Goozner Mar 01, 2011This story comes from our partner The recession-fueled state budget crisis has turned Medicaid into the next battleground in the ongoing war over President Obamas signature health care reform law.

Medicare Reform OptionsIncrease Medicare RevenuesIncrease HI payroll taxMake HI tax progressiveIncrease general revenue spendingIncrease beneficiary premiumsInvestment of trust fund assetsOptions to Reduce Medicare SpendingReduce provider and plan paymentsSlow the growth of provider paymentsReduce payments to Medicare Advantage Plans

Benefit Cuts/Increase costs to beneficiariesIncrease eligibility ageIncrease beneficiary cost share requirementsEliminate 1st dollar coverageReduce/eliminate some covered servicesSavings, contd.Improve delivery efficiency/quality-Capture delivery management efficiencies (PartD drugs)-incorporate pay for performanceDefined contribution approachSet funding, find service levelsCurrent fee for serviceHigh deductiblesTwo-tier Medicare optionsAutomatic adjustment to Revenue and spendingEffective Medicare reform options What incentives could be usedReducing moral hazard?16.6Lessons for Health Care Reform in the United StatesRising Health Care CostsSince 1950, the Consumer Price Index for medical care has risen by 1.8 percentage points more per year than the Consumer Price Index for all items in the U.S. economy.Fundamental cost control in the United States is difficult: There is an enormous amount of waste in our medical system.We could produce similar health outcomes with much less spending.Much of what has driven the rapid rise in health care spending in the United States has been quality-improving technological change in the delivery of health care. 3216.6Lessons for Health Care Reform in the United StatesThe UninsuredPoolingEfficient provision of insurance requires large pools of participants that are created independently of health status.Solving the problem of the uninsured requires developing some new pooling mechanism, either through government insurance or through private insurance pools.AffordabilityHealth insurance is expensive. For example, the average cost of employer-provided insurance in 2008 is $4,704 per year for individuals and $12,680 for families.Individual Mandatesmandate A legal requirement for employers to offer insurance or for individuals to obtain some type of insurance coverage. 33

16.6Lessons for Health Care Reform in the United StatesNational Health Insurancenational health insurance A system whereby the government provides insurance to all its citizens, as in Canada, without the involvement of a private insurance industry. While public expenditures would rise dramatically, there would be a large reduction in private insurance expenditures. Thus, the rise in total social costs of health care would be small compared to the actual costs to the government. First, there may be a deadweight loss arising from the need to increase government revenues. Second, moving from private financing of health insurance through employer expenditures to public financing is like moving from a hidden tax to an explicit tax. 3416.6Lessons for Health Care Reform in the United StatesThe Massachusetts Experiment with Incremental UniversalismAPPLICATIONIncremental reform is not necessarily inconsistent with universal coverage. In 2006, Massachusetts introduced a plan that filled in the holes in its existing system of private and public coverage to move toward universal coverage:

A new program was established (Commonwealth Care) to provide free insurance coverage for all residents below 150% of the poverty line and heavily subsidized coverage for those up to 300% of the poverty line.

While there were no subsidies available above 300% of the poverty line, there were major changes to improve the insurance market.

The law specified that all adults in the state must be covered by health insurance, but only to the extent that such insurance was deemed affordable.

The Massachusetts reform has successfully achieved its goals. Yet while it decreased the numbers of uninsured, it did not explicitly address the more difficult issue of cost control, and health care costs continue to rise faster than personal incomes in the state.35Reform Efforts in 200916.6Lessons for Health Care Reform in the United StatesAs of August 2009, Congress had agreed on several principles to guide reform.

There are a number of contentious problems that remain before reform can become reality:

Financing.

The role of the public option.

The importance of long-term cost control, referred to as bending the cost curve downward.

One of the major difficulties facing health reformers is how much they can count on new ideas to deliver the savings that are needed to finance expanded coverage. 3616.7ConclusionThe Medicare and Medicaid programs play a central and growing role in the delivery of health care in the United States.Two lessons are apparent that can help guide health care reform efforts:Expanding health insurance to those without coverage can increase medical utilization and improve health in a cost-effective manner.More wide-ranging efforts are necessary to control health care costs.37Public Finance and Public Policy Jonathan Gruber Third Edition Copyright 2010 Worth Publishers39 of 35How American Health Care Killed My Father

Illustration by Mark Hooper

The Atlantic Sept. 2009by David Goldhill URL for this page is http://www.theatlantic.com/doc/200909/health-care < Problems with Current effortsNot following a rational business modelReform is only targeting incremental change-extending insurance benefits-using bureaucratic rules to control costs

Need to deal with incentives40 of 35Foundation of the health care problemA problem with incentivesNeed to:-reduce (not expand) role of insurance-focus government role on things such as safety net, catastrophic coverage, enforce standards, competition-stop Ponzi scheme financing, hidden subsidies, unclear pricing,-focus on consumer drivenHealth Insurance is not health careHealth insurance used for major illnesses and health care expensesHealth care began as non wage benefit during WWIIMoral Hazard issues are HUGE-changes behavior of insuree and HC providers-insured consume more HC-HC providers provide more-HC demand has no limitSpend other peoples money differently than your ownHard to control costs in this arrangement Problems with current Health care system, contd.Uncompetitive (hospital regulated)Medicare costs are running awayConsumers dont know price of what they are buying Benefits of new Technology not passed on

43 of 35Potential problems of comprehensive health care reformMoral hazardDistorted incentivesBias toward treatmentLack of transparencyCurbs on competition44 of 35How to address Health Care reformMove away from comprehensive health insurance modelAddress universal coverage by subsidizing insurance for low incomeConsumer-focused health care reform-cash pay for routine health care expenses-HSA for major medical issues-offer catasrophic health care policies-more transparency in feesFinancing reform-capture the $1.7 million of lifetime health care costs--subsidize low income

g45 of 35Issues in shifting to a consumer-focused systemShifting from health industry-complex to a consumer-basedPolitics of transitioning46 of 35