Medicare Issues GMU

1. Medicare IssuesGMU March 19, 2009 Jack Ebeler

2. Medicare only issues Health reform, insurance coverage Entitlement reform Federal budget Other health care issues (IT, quality….) Medicare improve program partially finance reform, or insurance alternative w/in reform, or save budget dollars, or yield long-term sustainability, or reduce variation, or improve quality, or… All roads lead to Medicare…

3. OUTLINE I. Brief Medicare basics II. Health care costs, federal budget III. Medicare directions

4. I. MEDICARE BASICS

5. Medicare – very basic basics Eligibility • General: age 65, or receipt of disability insurance, ESRD • Part A (HI): eligible for Soc. Sec (paid payroll tax) • Part B (SMI): monthly premium ($96.40) • Part D (Rx Drug): health plan premium Benefits • Acute care benefits, now including drugs, some post-acute • Deductible, cost sharing; no catastrophic limit • Medicare covers about half of total health expenditures • Most beneficiaries supplement coverage to cover cost sharing, other benefits

6. Multiple programs and ways of financing benefits • Traditional fee for service Medicare, parts A and B (hospital, physician, lab, diagnostic technology, post acute SNF, home health, hospice) – not long-term care • Usually with some form of supplemental coverage for cost sharing • Prescription drug program – new part D program– administered through competing private insurers • Medicare Advantage Program – coverage of Medicare A&B benefits, usually part D drugs as well, through a private insurer that is fully capitated

7. Sources and uses of funds, Medicare, 2009 Source: Kaiser Family Foundation Fact Sheet (www.kff.org)

8. Medicare Population About 85 percent of the Medicare population is age 65 and over; the other 15 percent qualify on the basis of disability or ESRD. • About half of the population has income below 200% of the federal poverty level • About one third have 3 or more chronic conditions • Most spending is for those with multiple chronic conditions • More than one-fourth have a cognitive or mental impairment. • Nearly one-fifth are also eligible for Medicaid Most have supplemental benefits of some sort.

9. Income status of Medicare beneficiaries, 2005 Source: MedPAC Data Book, June 2008; In 2005, poverty level $9,367 for individual; $11,815 for couples

10. Medicare has slowly moved to more means-testing of benefits and income-related financing There are now multiple tiers of Medicare beneficiaries: • Poorest – Medicaid/Medicare duals • Above Medicaid but <@150% of FPL: little/no premium or Medicare cost sharing for covered benefits • “Average” beneficiaries: pay part B/D premium (ave. @$130/mo) plus deductibles, copays in parts A, B, D • Higher income beneficiaries • Tax on 35% of SS benefit ->HI: average about $135/mo. • Phasing in higher part B premium – up to 80% • Administration budget proposes higher part D (drug) premium as well

11. Most beneficiaries have coverage that supplements Medicare

12. Spending concentrated among small portion of beneficiaries, 2005 (typical of health insurance) MedPAC Databook, June 2008 (www.MedPAC.gov)

13. II. HEALTH SPENDING, FEDERAL BUDGET

14. Health care spending (both public and private) continues to grow as a share of GDP CBO Long Term Budget Outlook, 2008, Alternative Fiscal Scenario

15. U.S. Health Care Spending Much Higher Than Other Countries Health Spending as a Percent of GDP, 2002 “U.S. Health Spending Habits Grab International Attention,” Health Affairs July/August 2005 Note: Most recent data show that NHE as percent of GDP in the U.S. in 2002 were 15.4% not the 14.6% given in the graph.

16. The federal budget: Medicare and Medicaid account for higher shares of GDP and drive the federal budget up as well CBO Long Term Budget Outlook, 2008, Alternative Fiscal Scenario

17. The big “entitlement reform” issue is not the aging of baby boomers, it is rising health care costs There will be more elderly as baby boomers age. And there will be more of the older elderly (85+) who need even more health care. But health care costs are the main driver of Medicare’s fiscal issues. The “entitlement” debate is not, analytically, an “aging” debate. It focuses on underlying health care cost inflation and its impact on public programs and public finance

18. Growth in federal health spending: “excess cost growth”, not aging, is the issue CBO, November 2007

19. Medicare sources of financing and shortfalls, as percent of GDP, 2000 - 2080

20. Medicare spending per capita varies very significantly Total Medicare spending, and spending for patients in their last six months of life, varies significantly by high and low spending regions. (Lowest) (Highest) Medicare Spending Quintile Fisher, et al., “The implications of regional variations in Medicare spending. Part 1: The content, quality, and accessibility of care.” Annals of Internal Medicine, 2003:138(4)

21. Higher spending is NOT associated with higher quality, satisfaction There is no correlation between higher spending and specific indicators of quality care and service. HEDIS Indicators Medicare Spending Quintile Fisher, et al., “The implications of regional variations in Medicare spending. Part 1: The content, quality, and accessibility of care.” Annals of Internal Medicine, 2003:138(4)

22. Medicare and Medicaid account for higher shares of GDP and drive the federal budget up as well – so? CBO Long Term Budget Outlook, 2008, Alternative Fiscal Scenario

23. The federal budget: average revenues are about 18-19% of GDP, so the “fiscal gap” is huge Average revenue CBO Long Term Budget Outlook, 2008, Alternative Fiscal Scenario

24. With those deficits, the resulting interest payments would dwarf the rest of the budget – need constraint and new revenue Average revenue CBO Long Term Budget Outlook, 2008, Alternative Fiscal Scenario

25. III. MEDICARE DIRECTIONS

26. Medicare only issues Health reform, insurance coverage Entitlement reform Federal budget Other health care issues (IT, quality….) Medicare improve program partially finance reform, or insurance alternative w/in reform, or save budget dollars, or yield long-term sustainability, or reduce variation, or improve quality, or… All roads lead to Medicare…

27. Medicare directions Problems well known, driven by problems with FFS medicine • Care coordination is all too rare • Specialty care, technology favored over primary care • Quality inadequate and highly variable • Health care costs high, variable and unsustainable Need for fundamental reform to address underlying costs: • Focus of change is improving delivery, focus on value; • Need to define payment and coverage approaches to support/incent the changes Sounds logical: but costs = revenues

28. Medicare: short-term Deal with ongoing, critical issues in context of budget and health care issues: • Set FFS payment updates • Address MD payment levels (SGR), redistribution • Access: begin rebuilding primary care w/pay increases • Reduce Medicare Advantage 14% overpayment; restructure for original purpose – alternative delivery What do about benefits/cost sharing – most beneficiaries buy protection from the cost sharing – which increases Medicare spending?

29. Medicare, long-term vehicle for savings and delivery reform Key conceptual trends (1) • Shift unit of analysis and payment from CPT code transactions to episodes of care and bundling: • Episodes that are clinically and economically relevant, for patient and physician • Look to care across providers and over time • Support chronic care coordination • Re-norm payments from average cost pricing to benchmark providers/areas

30. Medicare, long-term Key conceptual trends (2) • Evidence-based research trends may provide new options: • coverage (comparative effectiveness, coverage with evidence, etc.) • patient cost sharing (differentials) • Migrate care coordination capacity (IT, people) to delivery system to support care, away from vendor management of delivery for payors • Heading to degrees of risk sharing/ provider accountability for some/ or all of a population’s care • Continue income-tiering (already very prevalent in Medicare)

31. Some specific policy recommendations/phases • Initial: • Payment policy – whack-a-mole; slow redistribution to PC • Crosscutting interventions: P4Q; measure, report resource use; comparative effectiveness research, public reporting/transparency • Intermediate: • Medical home for chronically ill – monthly payment • Bundled hospital admission: hospital, MD, 30-day post discharge • start w/data reporting; initial reduction for high readmission rates; • pilot for systems that can implement soon • Better define post-acute coverage, care, payment • Longer-term: Accountability at delivery system for care

32. Framing with health reform complicates, the equation • Two elements of health reform frame/complicate Medicare debate: • Financing: President proposes $630 billion set-aside for health reform (coverage expansion): • @ ½ from savings (mostly Medicare) • @ ½ from expiring tax cuts on higher income • Insurance option: policy alternative for expanding coverage – some type of insurance exchange with: • Competing private insurers, along with • Public program • With those alternatives under debate, you get very different views, positions on Medicare options

33. Medicare only issues Health reform, insurance coverage Entitlement reform Federal budget Other health care issues (IT, quality….) Medicare improve program partially finance reform, or insurance alternative w/in reform, or save budget dollars, or yield long-term sustainability, or reduce variation, or improve quality, or… All roads lead to Medicare…

34. THANK YOU Jack Ebeler 202-669-5444

35. The revenue constraint: Federal spending and revenues as a share of GDP, 1966-2017: average revenue 18.3 percent Projected Actual Average Outlays, 1966-2006 Between 1966-2006, average spending was 20.6% of GDP, while average revenues were 18.3% of GDP. Revenues hit their 40-year low of 16.3% of GDP in 2004. Average Revenues, 1966-2006 Congressional Budget Office. “The Budget and Economic Outlook: FY 2008-2017,” Washington, DC, January, 2007

36. Sources of coverage for <65 population, 1987-2006 Employment-based coverage has slowly declined Public programs have picked up some of the slack, especially for children in low-income families. The individual market has remained small The portion of the population uninsured has slowly increased.

37. SOURCES OF HEALTH INSURANCE COVERAGE, INDIVIDUALS UNDER AGE 65, BY FAMILY INCOME, 2005 The likelihood of employment- based coverage increases with income. The likelihood of public coverage decreases with income. Individual coverage is fairly constant. The likelihood of being uninsured decreases with income.

38. Medicare spending increases as beneficiaries age, 2005 MedPAC Databook, June 2008 (www.MedPAC.gov)

39. Components of federal budget – FY 2009 (Pre- financial meltdown, “rescue” package) Five items constitute 2/3 of the federal budget. Medicare and Medicaid now account for about 19 percent of federal spending – and remain the fastest growing (other than interest) CBO, Budget and Economic Outlook: An Update, September, 2008