Medicare (History and Financing) by historyman

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									   Medicare
(History and Financing)
         Agenda - Objectives
•   Whatever you want it to be….
•   Medicare overview
•   Medicare Part A, B, D, and C
•   Understand Financing
•   Understand political and policy
    implications

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    Brief History of Medicare
• Enacted in 1965
• Patterned after private insurance
  products
  – traditional indemnity
  – 2 parts
     • Hospital Insurance (Part A)
     • Supplemental Medical Insurance (Part B and
       now Part D)

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      Medicare (Total) Highlights – TR
                   2007


• 43.2 million people (36.3 M aged; 7 M
  disabled)
• Total Benefits - $402 Billion
• Total Expenditures - $ 408 Billion
• Total Income - $437 Billion
• Total Assets - $ 339 Billion



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Medicare’s “Dedicated Financing
            Sources”
• Payroll taxes to the HI Trust Fund;
• Income from the taxation of Social
  Security benefits that is transferred to
  the HI Trust Fund;
• Part A*, Part B, and Part D premiums;
• State transfers for the Medicare
  prescription drug benefit; and
• Gifts to the trust funds
                                             5
              Financing Part A
• 1.45% Payroll tax on total income, matched by
  employer
   – No limit
   – Money flows into trust fund
• There are no restrictions on spending (from current
  income and trust fund)
   – Changes in medical practice may result in huge increases
     (or, theoretically decreases) in spending which have no
     influence on budgeting of any given year
   – In theory, no access to any funds other than trust fund and
     current payroll tax revenue


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              Trust Fund
• “Special” US treasury securities
• Really an accounting procedure where
  one arm of the government lends
  another cash, in exchange for a promise
  of principal plus appropriate interest
  – Why does this ultimately matter?



                                        7
               HI-Medicare Part A
• Hospice care (since 1982)
• Inpatient Hospital services
• Skilled nursing facility care (after a 3 day hospital
  stay)
   – Why?
   – Who (what?) pays for the majority of SNF bed-days in
     this country?
• 22% of beneficiaries actually received HI services
  in 2002 (slight increase from 1993, when figure was
  ~ 20%)
• Average expenditure per enrollee increased by 3.3
  %; Now $4410 (2006)
                                                            8
                           Part A Financing
                (2007 figures, except where indicated)

• 65 years and older and eligible for any type of SS benefit
  automatically “entitled.” Requires 40 quarters of Medicare-covered
  employment; sliding scale for those with less.
• Non-entitled may pay ($410/month; increased from $393)
• Co-pay is $248 per hospital day
• Deductible is $992
• Co-pay does not “kick in” until day 61 and then has to be paid for up to
  30 more hospital days
• If hospital stay is longer than 90 days, the co-pay rises to $496 per
  day for a lifetime reserve of 30 more days, when you assume all fiscal
  responsibility
• Long hospitalization can have substantial costs to an elderly patient (if
  no medi-gap (or RHB) insurance is owned).
• Skilled Nursing Facility Care: Totally covered for the first 20 days and
  then the patient covers $124 per day for days 21 – 100. No further
  Medicare benefit.

                                                                      9
            Part A Financing
• 1966 - Deductible was $40
• 2007 - Deductible is $992 (increased from $952;
  4.4%)
• Benefits and administrative costs are paid from a
  trust fund financed by payroll taxes
• 1966, payroll tax basis was $6600 max. and rate
  was 0.35%
• Now, tax basis is infinite (since 1993) and rate is
  2.9%

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TR, 2007   11
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TR, 2007
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TR, 2007
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TR, 2006
    Medicare Part B - Supplemental Medical Insurance
•    Physician services
•    Home Healthcare
•    Durable medical equipment (DME)
•    Outpatient medical services
     – Clinical lab tests; Imaging
     – PT/OT
     – Emergency Room service
• Ambulance;
• Hep B, Flu, Pneumococcal vaccines
• Screening: Pap smear, mammography,
  colon; cholesterol; Diabetes; Glaucoma;
  Prostate cancer
• Prescription drugs which can not be self-      15
  administered including certain anti-cancer
SMI – Part B/2006 Highlights
• 94 % of the 42.9 Million Medicare
  enrollees are enrolled in Part B
• 95+% of enrollees received services
  (2000 data)
• Administrative costs are 2.1% of
  program costs, compared with 1.7% for
  HI
• Average benefit per enrollee is $4121,
  increasing 9.6 % in past year
                                       16
                       Part B Financing
• Voluntary
• Open to all Part A enrollees and most Americans over 65
• Annual deductible
     –   $50 in 1966
     –   $60 in 1973
     –   $75 in 1982
     –   $100 in 1991
     –   $124 in 2006
     –   $131 in 2007
     –   If it had kept pace with actual charges, more than $2000 now!
•   Co payments - 20% of allowed charges
•   1966 - $3/month
•   Until 1976, premium rate was set to cover 50% of program costs
•   Since that time and until 1983, the premium rate has been allowed to
    increase at same rate as SS benefits (Inflation) which is substantially
    lower than health care inflation
                                                                         17
               Part B Financing
• Since health care costs have been rising much faster than
  inflation - - -premiums covered only 25% by 1983
• In 1984, congress tried to fix system and tried to decrease
  the trend
• By 1995, since health care costs had slowed their
  increases, the monthly premium of $43.80 covered 25% of
  actual program costs.
• BBA-1997 - Permanently established that premium be
  25% of program expenditures.
• 2003 - $58.70/month (8.7% increase); 2004 - $66.60
  (13.5% increase); 2005 - $78.20 (17.4 % increase); 2006 -
  $88.50 (13.2%); 2007 - $93.50**(5.6%)
• During the past five years, Medicare SMI has grown
  MUCH faster than the economy as a whole.
• SMI outlays were less than 1.1% of GDP last year and will18
  be 4.2% of GDP in 2077; Intermediate assumptions
  ** Income related premiums




Initial Threshold set at $80K for individual and $160K for
couple
Final Threshold set at $200K for individual and $400K for
couple                                                       19
    Standard Drug Benefit (2007)
• Deductible $265; $27.33 monthly premium (average)
• 25% co-insurance for next $2135 in drug spending
• No coverage for next $3051 in drug spending
• Then 5% coinsurance for non-poor and less for poor
  ($2/$5 for <135% and 0 for < 100% FPL)
• This is a competitively bid product with some
  government “reinsurance”
• Low Income provisions
    – <135% FPL – No Premium; $1/$5 cost-sharing
    – 136-150% FPL – Reduced Premium; $50 deductible; 15%
      cost-sharing
• Average Per beneficiary expense for 2006 - $1690

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             Drug Benefit
• Requirement that each beneficiary have
  access to one Prescription Drug Benefit Plan
  and one Integrated Plan (or two Prescription
  Drug Benefit plans, if no integrated plan is
  offered)
• Dual Eligibles are mandated by Federal
  Benefit but 75% supported by state
  contribution
• Subsidy to employers to keep coverage
                                             22
           23
TR, 2007
Part B Financing- Premium as Share of Cost
            (prior to BBA- 1997)




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TR 2007
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TR, 2007
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TR, 2007
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TR, 2007
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TR, 2007
      Medicare Advantage
• Local HMOs, PPOs and Provider-
  Sponsored (IPAs) organizations (PSOs)
• Private Fee-for-service plans
  – Much like POS plans
  – No required to establish a provider network
  – Not required to report quality measures
  – Less CMS oversite
  – Very small, but fastest growing component

                                              30
       Medicare Advantage
• Previously 95% of regional FFS rate
• Now competitively bid
  – Bid against county benchmarks
  – Adjustments made for enrollee risk profile
• Current data suggests that plans are
  receiving rates that are greater than 100% of
  risk-adjusted FFS beneficiaries
  – Why would federal government allow for this?
• In some cases, the beneficiaries are getting
  more coverage than in the FFS plans

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