The Basics of Medicare and Medicaid

1. The Basics of Medicare and Medicaid Judith R. Lave University of Pittsburgh

2. Medicare Eligibility • Individuals age 65 or over • Individuals who have been on Social Security Disability for two years. • Individuals with End Stage Renal Disease (Kidney Failure) -2 year waiting period does not apply

3. Medicare is Made Up of Four Parts • Medicare Part A • HI- hospital insurance • Medicare Part B • SMI – Supplemental Medical Insurance • Medicare Part C • Medicare Advantage • Medicare Part D • Medicare Drug Coverage

4. Medicare Part A • Helps pay For • Inpatient hospital care (all types) • Skilled nursing care • Hospice Care • Limited home health (up to 100 days post hospital discharge ) • People are entitled to Part A if they or their spouse have paid payroll taxes for 40 quarters or more

5. Medicare Part A • Part A is funded primarily by a dedicated tax of 2.9% of earnings (no limit) paid by employers and employees (1.45% each) • Paid into a dedicated Trust Fund • There is some cost-sharing (2007) • Hospital: $992 deductible per spell of illness; $248 per day for days 61-90; $286 per day for days 91 – 150, 100% after day 150 • Skilled Nursing Home: $124 per day 21 through 100 each benefit period.

6. Medicare Part B • Pays for • Physician services, outpatient hospital services, certain home health services and durable medical equipment • Cost Sharing (2007 • Deductible of $131.00 per year • 20% of approved charges after deductible • No cost sharing on home health

7. Medicare Part B • Medicare Part B is financed through premiums (about 25%) and general revenues • 2007 Premium was $93.50 a month • Premium is higher if income is above $80,000 (individuals) or $160,000 (families)

8. Medicare Part C Part C provides care through managed care plans, regional PPOs and private fee for service plans. It is called Medicare Advantage About 20% of Medicare beneficiaries are currently in Medicare Advantage

9. Note People who do not enroll in a Medicare Advantage Plan are said to stay in Traditional Medicare or Fee-for-service Medicare

10. Part C • Plans must cover the same services as Part A and Part B • It is financed by fixed payments from CMS tied to the gov’t cost of traditional Medicare. • People in Part C must be enrolled in both Parts A&B.

11. An Issue of Controversy MA plans receive a capitated payment that is higher than the government’s average cost of covering Medicare beneficiaries that stay in traditional Medicare by about 10% These additional payments increase attractiveness of MA plans by allowing them to reduce cost-sharing or offer additional benefits.

12. Part D • Voluntary drug program • Provided by private stand-alone drug plans or Medicare Advantage plans • Subsidies for individuals with low income and assets • Financed by beneficiary premiums of about $22 per month, general revenues and state payments (state clawbacks) • Complicated cost-sharing structure – plans may offer actuarial equivalent coverage

13. Exhibit 8 Standard Medicare Drug Benefit, 2006 Beneficiary Out-of-PocketSpending 5% Catastrophic Coverage Medicare Pays 95% $5,100 in Total Drug Costs** $2,850 Gap: Beneficiary Pays 100% No Coverage (the “doughnut hole”) $2,250 in Total Drug Costs* Partial Coverage up to Limit Medicare Pays 75% 25% $250 Deductible $386 average annual premium*** *Equivalent to $750 in out-of-pocket spending. **Equivalent to $3,600 in out-of-pocket spending.***Based on $32.20 national average monthly beneficiary premium (CMS, 8/2005). SOURCE: KFF analysis of standard drug benefit described in Medicare Modernization Act of 2003. Return to KaiserEDU.org

14. Exhibit 11 Part A Part B Parts A and B Part D Medicare Benefit Payments By Type of Service, 2006 (KFF) Low-Income Subsidy Payments3% Payments to Union/Employer-Sponsored Plans 1% Payments to Drug Plans4% Other Facility Services5% Hospital Inpatient34% Hospital Outpatient5% Physician and Other Suppliers24% Skilled Nursing Facilities5% Hospice 2% Home Health3% Managed Care (Part C)14% Total = $374 billion Note: Does not include administrative expenses such as spending forimplementation of the Medicare drug benefit and the Medicare Advantage program. SOURCE: Congressional Budget Office, Medicare Baseline, March 2006.

15. KFF –Kaiser Family Foundation These slides were downloaded from tutorials on the Kaiser Family Foundation Web-site. www.KFF.org

16. Exhibit 13 Ten Percent of All Medicare Beneficiaries Account For More than Two Thirds of Medicare Spending (KFF) 6% 10% 2002 average = $5,370 per capita 69% Total Number of Beneficiaries: 41.8 million Total Medicare Spending: $224.5 billion SOURCE: Kaiser Family Foundation analysis of the Medicare Current Beneficiary Survey 2002 Cost and Use File.

17. Number of Medicare Beneficiaries 2005 • Total: 42,394,929 • % disabled (age < 65): 15.8% (Note % disabled is increasing over time: 1980, 10.4%, 1995, 11/7%) http://www.cms.hhs.gov/MedicareEnrpts/

18. Value of Medicare Pays for the majority of health care services for people 65 and over and the disabled. Leads to an increase in life expectancy Leads to an increase in quality of life Trusted Program

19. Problems With Medicare • Medicare does not cover many services – long term care, vision, hearing • Average Medicare beneficiary has out of pocket expenditures of $3,765, Medicare paid for 46% of health care expenditures for elderly. • Payment system needs to be revised – major changes in hospital payments this year • Medicare payments per beneficiary vary widely dramatically geographically with no measurable affects on health

20. Some Challenges Improve payment system to promote quality and increase efficiency • Improve coverage for the chronically ill and address long term care problems • Determine balance between Traditional Medicare and Medicare Advantage • Should Medicare Advantage be Subsidized?

21. MAJOER CHALLENGE Medicare’s Cost Pressures

22. Exhibit 12 Composition of Federal Spending in FY 2007 Medicare14% Social Security21% Medicaid and SCHIP7% Defense Discretionary19% Other12% Net Interest9% Nondefense Discretionary18% 2007 Total Outlays = $2.77 trillion SOURCE: OMB, Fiscal Year 2007 Budget, February 2006. Return to KaiserEDU.org

23. Medicare Expenditures1998-2005 NOTE: Per capita amounts based on July 1 Census resident based population estimates for each year. Numbers and percents may not add to totals because of rounding. $ amounts shown are in current dollars. SOURCE: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group; U.S. Bureau of the Census.

24. Exhibit 15 Historical and Projected Number of Medicare Beneficiaries and Number of Workers Per Beneficiary Number of beneficiaries (in millions) Number of workers per HI beneficiary 78.6 4.0 3.9 2.4 42.7 SOURCE: 2001 and 2006 Annual Reports of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. Return to KaiserEDU.org

25. Key Dates for Medicare Part A Trust Funds First year outgo exceeds Income excluding interest 2007 First year outgo exceeds Income including interest 2011 Year Trust Funds are Exhausted 2019

26. Medicare Expenditures as a % of GDP

27. WHY ARE WE FOCUSING ON MEDICARE AND NOT SOCIAL SECURITY?

28. Social Security and Medicare Cost as a Percent of GDP

29. Why is Medicare Growing So Much faster than Social Security • Technological change in the absence of any effective restraining mechanism Technological change – which both increases the number of people who can get a given treatment (i.e. bypass) and the treatments available lead to increasing costs.

30. Questions? • Does Society want to allocate such a high proportion of its GDP to Medicare (note its somewhat limited benefits) • Does Society want to raise taxes to enable Medicare beneficiaries to get these services • Does Society want to allocate such a high proportion of its overall resources to the health of the elderly.

31. Medicaid • Established in 1965 • States manage the program subject to Federal guidelines • States must cover certain groups (defined by age, disability and income) and may cover other groups • State must cover certain services and may cover other services.

32. Medicaid Financing • The federal government shares in the cost of the Medicaid. • The Federal Match varies across the states from 50% to 78% • Federal Match in PA is 54.39%

33. Medicaid Eligibility & Benefits for Medicare Beneficiaries, 2005 Mandatory Populations: (Medicaid 101. ww.kaiser.edu)

34. Medicaid Eligibility & Benefits for Medicare Beneficiaries, 2005(cont’d) Optional Populations *Medicaid benefits may be more limited than for SSI.

35. Eligibility and Covered Services for PA M Costlow and J. lave, Faces. www.PAMedicaid.pitt.edu

36. Federal Poverty Level 2007 Persons in Family Guideline 1 $10,210 2 13,690 3 17,170 4 20,650

37. Medicaid Benefits “Mandatory” Items and Services “Optional” Items and Services • Physician services • Laboratory and x-ray services • Inpatient hospital services • Outpatient hospital services • Early and periodic screening, diagnostic, and treatment (EPSDT) services for individuals under 21 • Family planning • Rural and federally-qualified health center (FQHC) services • Nurse midwife services • Nursing facility (NF) services for individuals 21 or over • Prescription drugs • Clinic services • Dental services, dentures • Physical therapy and rehab services • Prosthetic devices, eyeglasses • Primary care case management • Intermediate care facilities for the mentally retarded (ICF/MR) services • Inpatient psychiatric care for individuals under 21 • Home health care services • Personal care services • Hospice services

38. Medicaid Status of Medicare Beneficiaries, FFY 2002 Total Medicare Beneficiaries = 40 million Total Duals = 7.2 million SOURCE: KCMU estimates based on CMS data and Urban Institute analysis of data from MSIS.

39. Medicaid Payments Per Enrolleeby Acute and Long-Term Care, 2003 $12,800 $12,300 Long-Term Care Acute Care $1,900 $1,700 SOURCE: KCMU estimates based on CBO and Urban Institute data, 2004.

40. Some PA Data • Medicaid covers about 14.8% of Pennsylvanians on an average month • Medicaid covers 44% of all children • Medicaid expenditures are = $14.4 billion dollars ($7.6 Billion Federal) • It accounts for 19% of general fundspending

41. Figure 5: Percent of Pennsylvania Citizens Enrolled in Medicaid by Age September 2006 Note. Data provided by PA DPW: Commonwealth of Pennsylvania, Department of Public Welfare (PA DPW). (2006). Medical Assistance Eligibility Statistics, (PA DPW). Provided to authors by Director, August–December 2006.

42. Figure 4: Distribution of Pennsylvania Medicaid Recipients and Expenditures by Broad Eligibility Category in 2005 Note. Data provided by PA DPW: Commonwealth of Pennsylvania, Department of Public Welfare, Office of Medical Assistance Programs. (2006). 2005/2006 Annual Report. Retrieved February 22, 2007, from http://www.dpw.state.pa.us/Resources/Documents/Pdf/AnnualReports/OMAP05-06AnnualReport.pdf.

43. Figure 6: The Proportion of Medicaid Recipients to Pennsylvania County Populations in 2006 Note. Data Provided by PA DPW. Other information from U.S. Census Bureau, 2006.[1]Pennsylvania map provided via 'Do It Yourself' Color-Coded State Maps, http://monarch.tamu.edu/~maps2/, Texas A&M University System. Commonwealth of Pennsylvania, Department of Public Welfare (PA DPW). (2006). Medical Assistance Eligibility Statistics, (PA DPW). Provided to authors by Director, August–December, 2006. and U.S. Census Bureau. (2006). State and County QuickFacts. Retrieved November 15, 2006, from http://quickfacts.census.gov/qfd/states/42000.html

44. Figure 3: Pennsylvania Medicaid Recipients from 1997–2005 Note. Data provided by PA DPW: Commonwealth of Pennsylvania, Department of Public Welfare (PA DPW). (2006). Medical Assistance Eligibility Statistics, (PA DPW). Provided to authors by Director, 1997–2006.

45. COST PROBLEMS COME TO MEDICID

46. Medicaid Expenditures1998-2005 NOTE: Per capita amounts based on July 1 Census resident based population estimates for each year. Numbers and percents may not add to totals because of rounding. $ amounts shown are in current dollars. SOURCE: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group; U.S. Bureau of the Census.

47. Underlying Growth in State Tax RevenueCompared with Average Medicaid Spending Growth, 1997 - 2005 NOTE: State Tax Revenue data is adjusted for inflation and legislative changes. Preliminary estimate for 2005. SOURCE: KCMU Analysis of CMS Form 64 Data for Historic Medicaid Growth Rates and KCMU / HMA Survey for 2005 Medicaid Growth Estimates; Analysis by the Rockefeller Institute of Government for State Tax Revenue.

48. Exhibit 12 Composition of Federal Spending in FY 2007 Medicare14% Social Security21% Medicaid and SCHIP7% Defense Discretionary19% Other12% Net Interest9% Nondefense Discretionary18% 2007 Total Outlays = $2.77 trillion SOURCE: OMB, Fiscal Year 2007 Budget, February 2006. Return to KaiserEDU.org

49. Changes in Medicaid • Medicaid is changing due in part to the addition flexibility given to the states under the Deficit Reduction Act. • Trend did turn down this year.

50. What’s at Stake in Medicaid Reform (KFF) Health Insurance Coverage 25 million children and 14 million adults in low-income families; 6 million persons with disabilities Assistance to Medicare Beneficiaries 7 million aged and disabled — 18% of Medicare beneficiaries Long-Term Care Assistance 1 million nursing home residents; 43% of long-term care services MEDICAID Support for Health Care System 17% of national health spending State Capacity for Health Coverage 43% of federal funds to states