Medicare

(HistoryandFinancing)

YaleForman,MD
BrownUniversity

AgendaObjectives

Whateveryouwantittobe.
Medicareoverview
MedicarePartA,B,D,andC
UnderstandFinancing
Understandpoliticalandpolicy
implications
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BriefHistoryofMedicare
Enactedin1965
Patternedafterprivateinsuranceproducts
traditionalindemnity
2parts
HospitalInsurance(PartA)
SupplementalMedicalInsurance(PartBandnow
PartD)

Medicare(Total)HighlightsTR2007

43.2millionpeople(36.3Maged;7Mdisabled)
TotalBenefits$402Billion
TotalExpenditures$408Billion
TotalIncome$437Billion
TotalAssets$339Billion

MedicaresDedicatedFinancing
Sources
PayrolltaxestotheHITrustFund;
IncomefromthetaxationofSocialSecurity
benefitsthatistransferredtotheHITrust
Fund;
PartA*,PartB,andPartDpremiums;
StatetransfersfortheMedicareprescription
drugbenefit;and
Giftstothetrustfunds
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FinancingPartA
1.45%Payrolltaxontotalincome,matchedbyemployer
Nolimit
Moneyflowsintotrustfund

Therearenorestrictionsonspending(fromcurrentincome
andtrustfund)
Changesinmedicalpracticemayresultinhugeincreases(or,
theoreticallydecreases)inspendingwhichhavenoinfluenceon
budgetingofanygivenyear
Intheory,noaccesstoanyfundsotherthantrustfundandcurrent
payrolltaxrevenue

TrustFund
SpecialUStreasurysecurities
Reallyanaccountingprocedurewhereone
armofthegovernmentlendsanothercash,
inexchangeforapromiseofprincipalplus
appropriateinterest
Whydoesthisultimatelymatter?

HIMedicarePartA
Hospicecare(since1982)
InpatientHospitalservices
Skillednursingfacilitycare(aftera3dayhospitalstay)
Why?
Who(what?)paysforthemajorityofSNFbeddaysinthis
country?

22%ofbeneficiariesactuallyreceivedHIservicesin
2002(slightincreasefrom1993,whenfigurewas~20%)
Averageexpenditureperenrolleeincreasedby3.3%;
Now$4410(2006)
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PartAFinancing
(2007figures,exceptwhereindicated)

65yearsandolderandeligibleforanytypeofSSbenefitautomatically
entitled.Requires40quartersofMedicarecoveredemployment;sliding
scaleforthosewithless.
Nonentitledmaypay($410/month;increasedfrom$393)
Copayis$248perhospitalday
Deductibleis$992
Copaydoesnotkickinuntilday61andthenhastobepaidforupto30
morehospitaldays
Ifhospitalstayislongerthan90days,thecopayrisesto$496perdayfora
lifetimereserveof30moredays,whenyouassumeallfiscalresponsibility
Longhospitalizationcanhavesubstantialcoststoanelderlypatient(ifno
medigap(orRHB)insuranceisowned).
SkilledNursingFacilityCare:Totallycoveredforthefirst20daysandthenthe
patientcovers$124perdayfordays21100.NofurtherMedicarebenefit.

PartAFinancing
1966Deductiblewas$40
2007Deductibleis$992(increasedfrom$952;
4.4%)
Benefitsandadministrativecostsarepaidfromatrust
fundfinancedbypayrolltaxes
1966,payrolltaxbasiswas$6600max.andratewas
0.35%
Now,taxbasisisinfinite(since1993)andrateis2.9%
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TR,2007

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TR,2007

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TR,2007

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TR,2006

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MedicarePartBSupplementalMedicalInsurance

Physicianservices
HomeHealthcare
Durablemedicalequipment(DME)
Outpatientmedicalservices
Clinicallabtests;Imaging
PT/OT
EmergencyRoomservice

Ambulance;
HepB,Flu,Pneumococcalvaccines
Screening:Papsmear,mammography,colon;cholesterol;Diabetes;Glaucoma;Prostatecancer
Prescriptiondrugswhichcannotbeselfadministeredincludingcertainanticancerdrugs

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SMIPartB/2006Highlights
94%ofthe42.9MillionMedicareenrollees
areenrolledinPartB
95+%ofenrolleesreceivedservices(2000
data)
Administrativecostsare2.1%ofprogram
costs,comparedwith1.7%forHI
Averagebenefitperenrolleeis$4121,
increasing9.6%inpastyear
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PartBFinancing
Voluntary
OpentoallPartAenrolleesandmostAmericansover65
Annualdeductible

$50in1966
$60in1973
$75in1982
$100in1991
$124in2006
$131in2007
Ifithadkeptpacewithactualcharges,morethan$2000now!

Copayments20%ofallowedcharges
1966$3/month
Until1976,premiumratewassettocover50%ofprogramcosts
Sincethattimeanduntil1983,thepremiumratehasbeenallowedtoincreaseatsamerateas
SSbenefits(Inflation)whichissubstantiallylowerthanhealthcareinflation

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PartBFinancing
Sincehealthcarecostshavebeenrisingmuchfasterthaninflation
premiumscoveredonly25%by1983
In1984,congresstriedtofixsystemandtriedtodecreasethetrend
By1995,sincehealthcarecostshadslowedtheirincreases,themonthly
premiumof$43.80covered25%ofactualprogramcosts.
BBA1997Permanentlyestablishedthatpremiumbe25%ofprogram
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%)
Duringthepastfiveyears,MedicareSMIhasgrownMUCHfasterthanthe
economyasawhole.
SMIoutlayswerelessthan1.1%ofGDPlastyearandwillbe4.2%ofGDP
in2077;Intermediateassumptions

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**Incomerelatedpremiums

InitialThresholdsetat$80Kforindividualand$160Kforcouple
FinalThresholdsetat$200Kforindividualand$400Kforcouple
CURRENTLYindexedtoinflation

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StandardDrugBenefit(2007)

Deductible$265;$27.33monthlypremium(average)
25%coinsurancefornext$2135indrugspending
Nocoveragefornext$3051indrugspending
Then5%coinsurancefornonpoorandlessforpoor($2/$5
for<135%and0for<100%FPL)
Thisisacompetitivelybidproductwithsomegovernment
reinsurance
LowIncomeprovisions
<135%FPLNoPremium;$1/$5costsharing
136150%FPLReducedPremium;$50deductible;15%costsharing

AveragePerbeneficiaryexpensefor2006$1690

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DrugBenefit
Requirementthateachbeneficiaryhaveaccessto
onePrescriptionDrugBenefitPlanandone
IntegratedPlan(ortwoPrescriptionDrugBenefit
plans,ifnointegratedplanisoffered)
DualEligiblesaremandatedbyFederalBenefit
but75%supportedbystatecontribution
Subsidytoemployerstokeepcoverage

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TR,2007

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PartBFinancingPremiumasShareofCost(prior
toBBA1997)

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TR2007

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TR,2007

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TR,2007

TR,2007

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TR,2007

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MedicareAdvantage
LocalHMOs,PPOsandProvider
Sponsored(IPAs)organizations(PSOs)
PrivateFeeforserviceplans

MuchlikePOSplans
Norequiredtoestablishaprovidernetwork
Notrequiredtoreportqualitymeasures
LessCMSoversite
Verysmall,butfastestgrowingcomponent
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MedicareAdvantage
Previously95%ofregionalFFSrate
Nowcompetitivelybid

Bidagainstcountybenchmarks
Adjustmentsmadeforenrolleeriskprofile

Currentdatasuggeststhatplansarereceivingrates
thataregreaterthan100%ofriskadjustedFFS
beneficiaries
Whywouldfederalgovernmentallowforthis?

Insomecases,thebeneficiariesaregettingmore
coveragethanintheFFSplans
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