Medicare: The EssentialsMedicare: The Essentials

Juliette Cubanski, Ph.D.Juliette Cubanski, Ph.D.Principal Policy AnalystPrincipal Policy Analyst

Kaiser Family FoundationKaiser Family Foundation

forfor

Alliance for Health ReformAlliance for Health ReformWashington, D.C.Washington, D.C.March 16, 2009March 16, 2009

Medicare Past and PresentMedicare Past and Present

Enacted in 1965 to provide health and economic Enacted in 1965 to provide health and economic security to seniors age 65 and oldersecurity to seniors age 65 and older

Expanded in 1972 to cover younger beneficiaries with Expanded in 1972 to cover younger beneficiaries with permanent disabilitiespermanent disabilities

Now covers 45 million people, including about 7 million Now covers 45 million people, including about 7 million under-65 disabledunder-65 disabled

Covers individuals and spouses without regard to Covers individuals and spouses without regard to income or medical historyincome or medical history

Benefits include hospital visits and physician services, Benefits include hospital visits and physician services, and prescription drugs through private plansand prescription drugs through private plans

Private plans have been playing an increasingly larger Private plans have been playing an increasingly larger role in the delivery of Medicare benefitsrole in the delivery of Medicare benefits

Exhibit 1

Percent of total Medicare population:Percent of total Medicare population:

NOTE: ADL is activity of daily living. NOTE: ADL is activity of daily living. SOURCE: Income data for 2007 from U.S. Census Bureau, Current Population Survey, 2008 Annual Social and SOURCE: Income data for 2007 from U.S. Census Bureau, Current Population Survey, 2008 Annual Social and Economic Supplement. All other data from Kaiser Family Foundation analysis of the Centers for Medicare & Economic Supplement. All other data from Kaiser Family Foundation analysis of the Centers for Medicare & Medicaid Services Medicare Current Beneficiary Survey, Access to Care file, 2006.Medicaid Services Medicare Current Beneficiary Survey, Access to Care file, 2006.

Income <200% FPL Income <200% FPL ($20,800 in 2008)($20,800 in 2008)

Cognitive/Mental Cognitive/Mental ImpairmentImpairment

Long-term Care Long-term Care Facility ResidentFacility Resident

3+ Chronic Conditions3+ Chronic Conditions

Under-65 DisabledUnder-65 Disabled

Medicare covers a population with diverse Medicare covers a population with diverse needs and significant vulnerabilitiesneeds and significant vulnerabilities

Age 85+Age 85+

2+ ADL Limitations2+ ADL Limitations

5%

12%

16%

17%

29%

38%

46%

Exhibit 2

Medicare Part A – Hospital Insurance ProgramMedicare Part A – Hospital Insurance Program Inpatient hospital, skilled nursing facility, home health, and hospice Inpatient hospital, skilled nursing facility, home health, and hospice

carecare Cost-sharing requirements:Cost-sharing requirements:

$1,068 deductible for hospital stays, plus daily copayments after 60 days$1,068 deductible for hospital stays, plus daily copayments after 60 days Daily copayments for skilled nursing facility staysDaily copayments for skilled nursing facility stays

Entitlement to Part A after 10+ years of payroll taxesEntitlement to Part A after 10+ years of payroll taxes

Medicare Part B – Supplementary Medical InsuranceMedicare Part B – Supplementary Medical Insurance Physician visits, outpatient hospital, preventive services, home health Physician visits, outpatient hospital, preventive services, home health Cost-sharing requirements:Cost-sharing requirements:

$96.40 monthly premium (income-related)$96.40 monthly premium (income-related) $135 deductible $135 deductible 20% coinsurance for physician visits, outpatient hospital services, and 20% coinsurance for physician visits, outpatient hospital services, and

some preventive servicessome preventive services 50% coinsurance for mental health services (phasing down to 20% in 50% coinsurance for mental health services (phasing down to 20% in

2014)2014) Enrollment in Part B is voluntary, with automatic enrollment at age Enrollment in Part B is voluntary, with automatic enrollment at age

65 for Social Security recipients (but can opt out)65 for Social Security recipients (but can opt out)

Exhibit 3

Benefits Covered by “Original” Benefits Covered by “Original” Fee-for-Service MedicareFee-for-Service Medicare

An alternative to Original An alternative to Original Medicare; beneficiaries can enroll Medicare; beneficiaries can enroll in a private plan to receive all in a private plan to receive all Medicare-covered benefits and Medicare-covered benefits and (often) extra benefits(often) extra benefits

Includes HMOs, PPOs, and private-Includes HMOs, PPOs, and private-fee-for-service (PFFS) plansfee-for-service (PFFS) plans

The government pays private The government pays private insurers a fixed amount per insurers a fixed amount per enrolleeenrollee

Medicare pays private health Medicare pays private health plans on average 14 percent more plans on average 14 percent more than traditional Medicare coststhan traditional Medicare costs

Medicare Advantage enrollees:Medicare Advantage enrollees: generally pay the Part B premiumgenerally pay the Part B premium sometimes pay a supplemental sometimes pay a supplemental

premium for additional benefits premium for additional benefits (e.g., vision, dental)(e.g., vision, dental)

typically receive drug coverage typically receive drug coverage (Part D)(Part D)

Exhibit 4

Medicare Advantage (Part C)Medicare Advantage (Part C)

6.96.1

5.36.1

8.7

10.8

1999 2001 2003 2005 2007 2009

Medicare Advantage Enrollment Medicare Advantage Enrollment (in millions)(in millions)

Nearly a quarter of all Nearly a quarter of all Medicare beneficiaries are Medicare beneficiaries are

enrolled in Medicare enrolled in Medicare Advantage plans in 2009Advantage plans in 2009

Medicare Part D – Prescription Drug BenefitMedicare Part D – Prescription Drug Benefit

Part D is a voluntary benefit offered through private plansPart D is a voluntary benefit offered through private plans Stand-alone prescription drug plans to supplement Original Medicare Stand-alone prescription drug plans to supplement Original Medicare Medicare-Advantage prescription drug plansMedicare-Advantage prescription drug plans

Beneficiaries in each state have a choice of at least 45 stand-alone Beneficiaries in each state have a choice of at least 45 stand-alone drug plans and multiple Medicare Advantage drug plansdrug plans and multiple Medicare Advantage drug plans

The government defined a “standard” benefit, but allows plans to The government defined a “standard” benefit, but allows plans to vary benefit design, covered drugs, and cost sharingvary benefit design, covered drugs, and cost sharing

$30.36 average monthly premium (range $10.30-$136.80)$30.36 average monthly premium (range $10.30-$136.80) $295 deductible; 25% coinsurance; $3,454 coverage gap; catastrophic coverage$295 deductible; 25% coinsurance; $3,454 coverage gap; catastrophic coverage

Additional subsidies for people with low incomes and modest Additional subsidies for people with low incomes and modest assetsassets

9.6 million receiving low-income subsidies in 2009, while 2.6 million low-income 9.6 million receiving low-income subsidies in 2009, while 2.6 million low-income beneficiaries are estimated to be eligible but not receiving extra subsidiesbeneficiaries are estimated to be eligible but not receiving extra subsidies

90% of beneficiaries now have drug coverage, up from 66% in 200490% of beneficiaries now have drug coverage, up from 66% in 2004 26.7 million out of 45.2 million beneficiaries are enrolled in a Part D plan (two-26.7 million out of 45.2 million beneficiaries are enrolled in a Part D plan (two-

thirds in stand-alone drug plans)thirds in stand-alone drug plans) 7.9 million with employer coverage and 6.2 million with other sources of coverage7.9 million with employer coverage and 6.2 million with other sources of coverage

4.5 million (10%) lack drug coverage4.5 million (10%) lack drug coverage

Exhibit 5

Home Health

Physicians and Other Suppliers

Medicare Advantage

Hospice2%

Skilled Nursing Facilities

Hospital Inpatient

Hospital Outpatient/ Other

Part B

Outpatient Prescription

Drugs

Total Benefit Payments = $477 billionTotal Benefit Payments = $477 billion

NOTE: Does not include administrative expenses such as spending to administer Part C and Part D. NOTE: Does not include administrative expenses such as spending to administer Part C and Part D. SOURCE: CBO Medicare Baseline, March 2008.SOURCE: CBO Medicare Baseline, March 2008.

Medicare Benefit Payments, by Type of Medicare Benefit Payments, by Type of Service, Service, in 2009in 2009

Part A

Part B

Part A and B

Part D

17%

4%

24%

5%

29%

11%

8%

Exhibit 6

8%3%6%

12%

12% 25% 9%

39%

73%79%

41%

85%

5% 2%

1%

1%

Payroll Taxes

General Revenue

BeneficiaryPremiums

Payments fromStates

Taxation ofSocial SecurityBenefitsInterest andOther

Medicare’s Funding Sources in FY2009Medicare’s Funding Sources in FY2009

SOURCE: 2008 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal SOURCE: 2008 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds.Supplementary Medical Insurance Trust Funds.

PART APART A$244 Billion$244 Billion

PART DPART D$61 Billion$61 Billion

PART BPART B$202 Billion$202 Billion

TOTALTOTAL$507 Billion$507 Billion

Exhibit 7

Medicare offers important benefits, Medicare offers important benefits, but there are gaps in coveragebut there are gaps in coverage

Medicare pays less than half (45%) of beneficiaries’ Medicare pays less than half (45%) of beneficiaries’ total health and long-term care spendingtotal health and long-term care spending

Medicare does not cover all medical benefitsMedicare does not cover all medical benefits No coverage for hearing aids, eyeglasses, or dental careNo coverage for hearing aids, eyeglasses, or dental care Generally does not pay for long-term care Generally does not pay for long-term care

Medicare has high cost-sharing requirementsMedicare has high cost-sharing requirements Monthly premiums for Part B, Part C, and Part DMonthly premiums for Part B, Part C, and Part D Deductibles for Part A, Part B, and Part DDeductibles for Part A, Part B, and Part D Part D coverage gap (“doughnut hole”)Part D coverage gap (“doughnut hole”)

No limit on out-of-pocket spending for benefitsNo limit on out-of-pocket spending for benefits Median out-of-pocket spending as a share of income rose Median out-of-pocket spending as a share of income rose

from 11.9% in 1997 to 16.1% in 2005from 11.9% in 1997 to 16.1% in 2005

Exhibit 8

Most Medicare beneficiaries have supplemental coverage (as of 2006)

35%

19%

18%

16%

11%

1%

Medicare Medicare AdvantageAdvantage

Employer-Employer-sponsoredsponsoredMedicaidMedicaid

Medigap Medigap

NONE NONE Original Medicare onlyOriginal Medicare only

OtherOther

SOURCE: Kaiser Family Foundation analysis of the CMS Medicare Current Beneficiary Survey Access to Care file, 2006.SOURCE: Kaiser Family Foundation analysis of the CMS Medicare Current Beneficiary Survey Access to Care file, 2006.

Exhibit 9