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Medicare

Medicare. Professor Vivian Ho Health Economics Fall 2007. Topics. Coverage Financing Case Study. The Medicare Program. Target population - individuals 65+, certain disabled people, and people with kidney failure Part A - Hospital Insurance program (compulsory)

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Medicare

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  1. Medicare Professor Vivian Ho Health Economics Fall 2007

  2. Topics • Coverage • Financing • Case Study

  3. The 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; 42.9m in 2006 *Source: www.cms.hhs.gov

  4. Part B - Supplemental Medical Insurance program (voluntary) • Physician services • Outpatient care • Emergency room services • 17.7m enrollees in 1966, 40.3m in 2006 *Source: www.cms.hhs.gov

  5. Medicare Costs Total Expenditures ($ billions) 1966 1.8 1980 37.2 1990 109.5 1995 182.4 2000 225.2 2003 283.8 2006 408.3

  6. Medicare Financing - Part A • Funding Sources • 2.9% payroll tax shared equally by employers and employees • Federal Hospital Insurance Trust Fund • Enrollee deductibles and copayments

  7. 1967 $ 3,089 1975 12,568 1980 25,415 1985 50,933 1990 79,563 1995 114,847 2000 159,681 2003 175,813 2006 211,516 2,597 1,343 10,612 9,870 24,288 14,490 48,654 21,277 66,687 95,631 114,883 129,520 130,284 168,084 153,792 251,127 191,932 305,352 Part A Trust Fund Year Income Disbursements Balance

  8. Part A Patient Cost Sharing • No hospital inpatient coverage after 90 days • Except for 60-day lifetime reserve • Medicare offers no coverage in “catastrophic circumstances.”

  9. 1966 $ 40 1975 92 1980 180 1985 400 1990 592 1995 716 2000 776 2005 912 2007 992 10 --- 23 46 45 90 100 200 148 296 179 358 194 388 228 456 248 496 Part A Patient Costs Deductible Daily Coinsurance Year Days 1-60 Days 61-90 After 90 Days

  10. Medicare Part B Financing • Funding sources • Monthly premium payments • Contributions from general revenue of the U.S. Treasury

  11. 1967 $ 1,285 1975 4,322 1980 10,275 1985 24,577 1990 46,138 1995 58,169 2000 89,239 2005 151,307 2006 177,317 799 486 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 16,885 169,001 32,325 Part B Trust Fund Year Income Disbursements Balance

  12. 1966 $ 50 1975 60 1980 60 1985 75 1990 75 1995 100 2000 100 2005 110 2007 131 20 3.00 20 6.70 40 9.60 20 15.50 20 28.60 20 46.10 20 45.50 20 78.20 20 93.50 Part B Patient Costs Annual Deductible Coinsurance Rate Monthly Premium Year

  13. Medicare 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

  14. Medicare 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

  15. Medicare Part C: Medicare+Choice http://www.agingstats.gov/agingstatsdotnet/Main_Site/Data/2006_Documents/OA_2006.pdf

  16. Medicare 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

  17. Medicare Part A Provider Reimbursement • 1983, Prospective Payment System • Medicare patients were classified by principal diagnosis into 1 of 470 Diagnosis Related Groups (DRGs)

  18. 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

  19. Impact 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

  20. 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

  21. 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

  22. Regional comparisons paint a different picture • 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

  23. Medicare Part B Provider Reimbursement • 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

  24. 3) Strict limits on balance billing • Additional fees physicians can charge to Medicare patients above Medicare reimbursement rates

  25. Physician 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

  26. 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

  27. 2003 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

  28. 2003 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’

  29. 2003 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

  30. 2003 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

  31. 2003 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

  32. Medicare Costs • Projected Medicare cost increases are alarming • h costs must be paid for w/ h taxes or i 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

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