Unformatted text preview: Health Policy Health Policy Government Involvement in the Government Involvement in the Health Care Market
• As health insurer As direct provider of services • Government Involvement in the Health Care Market
• Financier of research and monitoring public health Tax policy • Government Involvement in the Health Care Market
• Regulator Government Involvement in the Health Care Market On what grounds is On what grounds is it justified? Justification Justification
• Externalities Market failures Income (resource) distribution • • If the government does get If the government does get involved in the health care market….. For what purpose? PUBLIC HEALTH If the government does get If the government does get involved in the health care market….. What are inputs to public health? Determinants of Health Determinants of Health
• Lifestyle • • • Public health Medical care Random effects • Risk perceptions • Risky behaviors Three goals of a public Three goals of a public health delivery system • • • Right amount of care To right amount of people Costs equitably distributed Trends in Health Coverage for the Nonelderly Population, 2002 and 2003 Source: Kaiser Family Foundation, Health Insurance Coverage in America, 2003 Data Update, November 2004, Table 1, p.28 U.S. Health Dollar Where it came from 2004 Source: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group National Health Expenditures as a Percent of GDP Source: Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group Annual Increase in National Health Expenditures Per Capita In 2004, per capita health spending growth dropped to 6.8% after peaking at a 12year high of 8.0% in 2002, while CPI growth rose from 1.6% in 2002 to 2.7% in 2004.
Source: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group Distribution of National Health Expenditures, by Type of Service, 1994 and 2004 Source: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group Relative Contributions of Different Types of Health Services to Total Growth in National Health Expenditures, 19942004 Source: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group Hospital Care Inflation Rate Compared to Health Care and CPI 19982003 Annual Percentage Change in National Spending for Selected Health Services, 19942004 Source: Kaiser Family Foundation calculations using NHE data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group Number of Non Elderly Uninsured, 19942003 Source: Kaiser Family Foundation, Health Insurance Coverage in America, 2003 Data Update, November 2004, Figure 1, p.11 Age Distribution: Changes in Health Insurance Coverage Rates, Children and Nonelderly Adults, (Percentage Point Differences), 20022003 Source: Kaiser Family Foundation, Health Insurance Coverage in America, 2003 Data Update, November 2004, Figure 22, Table 2 and Table 3 Health Insurance Coverage of the Nonelderly by Poverty Level, 2003 Source: Kaiser Family Foundation, Health Insurance Coverage in America, 2003 Data Update, November 2004, Figure 2, p. 11 Distribution by Race Hourly Wage Summary Facts: Summary Facts:
• • Government provides ~44.4% of all health care in the U.S. In 2004 national health care expenditures made up approximately 16% of GDP, up from 13.7% in 1994 Medical care cost have been increasing at an alarming rate Hospital costs make up the largest percent (30.4%) of national health care expenditures Inflation in the health care sector has far exceeded CPI for the past 10 years – primarily driven by inflation in the inpatient hospital care sector and prescription costs • • • Summary Facts:
• • Approximate 12.2% of the population are uninsured and 7.8% of children The majority of these individuals (45.5%) are 1824 years, members of minority groups, employed less that 35 hours per week, earning less than $10.00 per hour, What has accounted for the increase in What has accounted for the increase in per capita medical care expenditures?
• Demographics (2%) Income (5%) • • Spread of insurance (13%) “Cost disease” in services sector (5%) • What has accounted for the increase in per capita medical care expenditures?
• Administrative expenses (13%) Inflation in factor prices or “economic rents” (3%) New technologies and resulting over consumption of medical care (59%) • • Diffusion of new technologies Diffusion of new technologies
• New and better treatment options Diffusion of new technologies Change in treatment options: • • What is the marginal value of What is the marginal value of more health care? Do people who receive more care live longer and fare better than those who don’t? Is new technology resulting in better outcomes? Do people who receive more care live longer and fare Do people who receive more care live longer and fare better than those who don’t?
• • • Comparison studies of “insured” and “uninsured” patients Comparison studies of “private” and “state” physician care Comparison studies of “more intensive” and “less intensive” treatment options Is new technology resulting in better outcomes? The value of new technologies The value of new technologies
• • Average value of technology Marginal value of technology
• • • Is technology on net valuable? • What is the impact of more care on mortality and morbidity?
Overprovision of care? Root problem in health care cost inflation? Explanations for overuse of health care Explanations for overuse of Explanations for overuse of health care
• • New technologies available • New technologies and medical ethics • Genetic testing? Demandside explanation • Moral hazard and over insurance: patients are sufficiently well insured, they pay very little for additional care and therefore consume medical care until the net marginal benefit is zero. Explanations for overuse of health care
• Supplyside explanation • Supplier induced demand and the “medical arms race” • Providers wish to maximize their income and therefore induce excessive amounts of care • Threat of medical malpractice suits Solutions to over consumption of Solutions to over consumption of medical care?
Basic problem is one of separation of insurance and provision of care
Providers decide on treatment Insurers pay the bills Solutions to over consumption of Solutions to over consumption of medical care?
If patients and providers could agree on prices and limits to their care use BEFORE they were sick they would only contract for socially desirable amounts of care No knowledge of probability of illness Socially desirable optimal insurance coverage Attaining optimal insurance Attaining optimal insurance markets in the health care industry How does insurance work in other markets? Optimal health insurance Optimal health insurance markets?
• Optimal insurance markets • But, adverse selection can occur in health care markets • Risks are large enough, and neither the insurer or insured know the individual’s probability of experiencing a particular medical condition • Selection of health insurance based on prior knowledge of risk condition; • sick find more generous health insurance policies more attractive and drive prices up; • healthy individuals seek policies with less complete coverage and lower premiums. Optimal health insurance Optimal health insurance markets?
• But, experience rating, risk selection, and market failure • Occurs when insurers know much more about an individual’s expected spending than the person does (family history screening, required medical screening, insurance history) • Resulting price discrimination based on expected costs of care • Possible refusal of care Solutions to health insurance Solutions to health insurance market failures Three solutions to the problem of Three solutions to the problem of risk selection:
• • • Contracts for more than one year Mandatory pooling on a basis other than risk, e.g., employer or state of residence Risk adjustment policies • Taxes on, or rebates to, insurers who insure “healthier” or “sicker” individuals so that incentives to select individuals based on health risks are minimized Solutions to overprovision of care
Logic: Increase the choice that people have over different insurance policies, particularly policies that will limit the amount of care provided, and increase the financial returns from choosing less expensive health insurance. Cost containment in health care Healthcare Costs Healthcare Costs
• Premium • Deductible • Payment for insurance policy on a per month basis (withheld from Social Security for Medicare) • The amount annual medical expenses that a health plan member must pay before the plan will begin to cover expenses
• • Copay Example: $500 deductible you pay the first $500 of medical expenses before health plan begins paying the expenses • A dollar amount which is applied per service rendered
(per office visit, per confinement, per emergency room visit) Cost containment in health care Cost containment in health care
• • Health Maintenance Organizations (HMOs) • Care supplied by a group of affiliated physicians; • Patients who use HMOs physicians get care at some minimal copay; • No reimbursement for using providers outside HMO Preferred Provider Organizations (PPOs) • Wider network of physicians; • Patients pay minimal copay if they stay within the PPO; • Patients get reimbursed at a significantly lower rate if they go outside the network. Solutions to overprovision of care Point of Services Plans (POSs) Point of Services Plans (POSs)
• When you enroll in a POS plan, you are required to choose a primary care physician to monitor your health care. This primary care physician must be chosen from within the health care network, and becomes your "point of service". The primary POS physician may then make referrals outside the network, but then only some compensation will be offered by your health insurance company. • Point of Services Plans (POSs) Point of Services Plans (POSs)
• POS plan attempts to combine the freedom of a PPO with the lower cost of an HMO. • You are not limited to only HMO network providers, but copayments for nonnetwork care are high, and there is a deductible for nonnetwork care • For network care, copayments are low & there is no deductible • Annual outofpocket costs are limited • Getting referrals for specialists may be difficult Costs increase Health Maintenance Organization (HMO) Point-of-Service Plan (POS) Preferred Provider Organization (PPO/Indemnity) Hospitalization Copayments $0-$200 Depending on the treatment $0-$200 if you use an HMO provider 10%- 50% of the bill Deductible None None for HMO For PPO and Indemnity options, between 10%-50% For HMO: Primary Care Physician (PCP) from the network For PPO: Any network provider Annual Deductible Doctor Primary Care Physician (PCP) from the HMO network’s provider Any PPO network provider Physician Copayments $5 to $15 depending on the HMO plan. $5 to $15 if you use a network (HMO or PPO) physician $10 to $40 depending on the PPO plan Specialists Referral Referral You may choose any PPO network specialist These plans are gaining in These plans are gaining in popularity Evidence of the effectiveness of Evidence of the effectiveness of managed care in limiting costs Evidence of the effectiveness of Evidence of the effectiveness of managed care in limiting costs Shortrun effects 10% cost saving Slower cost growth Fee for service lowercompetitive effects No evidence of health impact Longrun effects No evidence of longterm cost savings No evidence of health impact Government involvement with the Government involvement with the health care market
For the Poor (means tested) For the Elderly (entitlement program) Public Health Care Programs Public Health Care Programs
Medicaid Medicare Medicaid Medicaid
Dominant public program for financing basic health and longterm care services for lowincome Americans Medicaid Entitlement Program Medicaid Entitlement Program
• • • • Jointly funded by federal and state funds • Rich states 50/50 cost sharing • Poor states 80/20 cost sharing Administered by the states Eligibility not tied to TANF benefit receipt State flexibility: • Eligibility criteria • Benefit package • Payment policies Medicaid Entitlement Program
• Covers only 46% of poor and near poor • Half Medicaid beneficiaries are children • Most generous states cover 60% of their low income population • Less generous states cover 40% of their low income population Medicaid Enrollees and Expenditures on Benefits, by Eligibility Category, 2003 Children historically represent the largest eligibility group of Medicaid beneficiaries. Source: Kaiser Commission on Medicaid and the Uninsured estimates based on Congressional Budget Office and Office of Management and Budget data, 2004. Table 3.32 Medicaid Beneficiaries by Age, Sex, and Race, 1998
Medicaid beneficiaries are disproportionately female and non-white. Age
Unknown 7.4% 21-64 29.9% 65 and Over 11.5% Sex
Unknown 8.7% White 43.1% Race
Asian 2.5% Black 24.2% Under 21 51.2% Male 36.2% Female 55.1% Native American .8% Unknown 15.5% Hispanic 15.6% FY 1998 Note: Percentages may not sum to 100 because of rounding. Source: CMS, Office of Research, Development and Information: Data development by Planning and Policy Analysis Group. Personal Health Expenditures by Type of Service and Percent Medicaid Paid, 2000
Total personal health spending in 2000 was $1,130.4 billion; Medicaid accounted for 17% percent. $412 Billion Medicaid pays 17% $286.4 Billion Medicaid pays 7% $121.8 Billion Medicaid pays 17% $92.2 Billion Medicaid pays 48% $60.0 Billion Medicaid pays 4% $39 Billion Medicaid pays 4% $36.7 Billion Medicaid pays 65% $32.4 Billion Medicaid pays 18% $31.2 Billion Medicaid pays 0% $18.5 Billion Medicaid pays 0% Source: CMS, Office of the Actuary, National Health Statistics Group. Medicaid Entitlement Program
• • • • Covers only 46% of poor and near poor Half Medicaid beneficiaries are children • Only 23% are adults in families with children Distribution of beneficiaries does not match distribution of expenditures • 67.7% goes to the elderly and disabled • Mainly acute and longterm care Expenditures dominated by hospital and longterm care facility expenditures Medicaid Spending Growth Medicaid Spending Growth
→1988-1992 saw an increase in Medicaid spending of 22% per year →1992+ this growth slowed somewhat →2000+ has taken off again What accounted for Medicaid What accounted for Medicaid Spending Growth 19881992?
• Enrollment Growth • Delinking of eligibility AFDCMedicaid
• • 1988 Medical Catastrophic Act • Late 1980s legislation • Expansion of SSI eligibility
• low income elderly and disabled • Recession
• Learning disabled, AIDS, substance abuse, etc. More low income individuals Medicaid Payment per Enrollee by Acute and LongTerm Care, 2003 Source: Kaiser Commission on Medicaid and the Uninsured estimates based on Congressional Budget Office and Urban Institute data, 2004. Medicaid Spending for Long-Term Care, 1992-1998
Home and community-based services are a growing share of Medicaid’s long term care spending.
$70 Home and Community Care Spending $60 Real Spending in Billions
$59.1 Institutional Care Spending $50
$49.1 $52.8 $40 $30 $20 $10 $43.8 14.9% 18.6% 20.5% 25.3% $0 1992 1994 1996 1998 Selected Fiscal Year
Notes: The data are expressed in 1998 dollars. Total Medicaid LTC expenditures consist of spending on institutional LTC and home and community care. Institutional LTC spending includes expenditures for nursing facilities, and public and private intermediate care facilities for the mentally retarded. Home and community care spending consists of expenditures for personal care, home health, and home and community-based waivers. The percentages (e.g., 14.9 percent, 18.6 percent, etc.) represent the proportion of total Medicaid LTC spending that is home and community care spending. Source: CMS, Office of Research, Development and Information: Data development by Planning and Policy Analysis Group, data from 1992, 1994, 1996, and 1998 HCFA 64, 2000. Medicaid Spending Growth Medicaid Spending Growth
• Utilization Growth • Disproportionate Share Hospital (DSH) Payments Other Factors • Population growth • Expansion of services covered • Subsidy of hospital to cover indigent population health care costs • Inflation in health care prices pushing up Medicaid reimbursement rates • Growth in nursing homes and longterm care needs of the elderly • Why the expenditure slowdown Why the expenditure slowdown in 1992?
Medicaid growth averaged only 9.5% per year from 1992-1995 Medicaid Expenditure Slowdown Medicaid Expenditure Slowdown
• • DSH Payments • 1991 and 1993 legislation • Capping DSH payments • Setting reimbursement rates Other Factors • Slowing in medical price inflation Medicaid Expenditure Slowdown Medicaid Expenditure Slowdown
• • Enrollment • TANF rolls declined Spending per enrollee • Managed care? Dimensions of Medicaid as of 2005 Dimensions of Medicaid as of 2005
• • • • Medicaid is still America’s Largest Single Health and Longterm Care Program $329 billion in 2005 2.6 percent of US GDP Coverage for over 53 million low income persons Dimensions of Medicaid as of 2005 Dimensions of Medicaid as of 2005
• Medicaid enrollment has increased by one third from 2000 through 2004 Dimensions of Medicaid as of 2005 Dimensions of Medicaid as of 2005
• Major Challenges
• • • • Spending is expected to increase a least 7.6 percent to 8.4 percent over the next decade
Enrollment Demographic changes Medical inflation • Effects on States vs. State Fiscal Capacity • Eligibility rules outdates and complex Dimensions of Medicaid as of 2005 Dimensions of Medicaid as of 2005
• Guiding Principles for Reform
• • • • • Modernization Personal Responsibility Embrace Market Solutions Create alternatives for long term care Focus on Sustainability and Affordability Medicare Program Medicare Program
Major public health care program for the elderly (1965), the disabled, and people with endstage renal disease (1972) Medicare Financing Medicare Financing
• • Part A (Hospital Insurance) Accounts for 2/3rds of the program costs • • • Funded by “Hospital Insurance Trust Fund” Hospital Insurance Trust Fund funded by a 2.9% payroll tax on all wage/salary income CAPPED Entitlement program: All 65+ elderly are eligible to receive benefits if they (or their spouse) are on Social Security • Inpatient care, skilled nursing, home health care, hospice Medicare Financing
• • Part B (Supplemental Medical Insurance) Accounts for 1/3rd of program costs
• Physicians, outpatient, lab services, ambulatory care • • Funded by “Supplemental Medical Insurance Trust Fund” Supplemental Medical Insurance Trust Fund is funded by beneficiaries and general revenues
• Beneficiary premiums approximately $50/month Medicare Financing Medicare Financing
• Part D (Prescription Drug Coverage)
Voluntary Prescription Drug Program • Prescription drug, biological product, or insulin product Paid through premiums and general tax revenue Costs • Premium of $35/month, Deductible $250 annually Reduction in Drug Costs • 25% off costs from $251 to $2250, 100% annual drug costs from $2251 to $5100, copayment of $2 for generic drugs and $5 for brandname prescriptions • • • Medicare Medicare
Part A: Hospital Insurance (2/3rds) Hospital insurance trust fund – capped payroll tax Part B: Supplemental Medical Insurance (1/3rd) Supplemental medical insurance trust fund – contributions + general funds Part D: Supplemental Prescription Drug Coverage Beneficiary Premiums + general funds Medicare: Medicare: Characteristics of Program Allows beneficiaries unrestricted choice of providers: 90% are open enrolled, 10% have opted for managed care Is it like private insurance? Medicare v. Private Insurance Medicare v. Private Insurance
• Private Insurance
• • • • • • • Does not cover outpatient prescription drugs (changed 2004) Limited coverage for longterm care No “stop loss” provision Unrestricted choice of care provider Covers outpatient prescription drugs Does not cover long term care Usually has a “stop loss” provision Some have choice restrictions Supplemental Insurance Supplemental Insurance
• • • Medigap insurance is bridge insurance Supplemental insurance from former employer Neither pays the cost of longterm care Medicare’s successes Medicare’s successes Medicare’s successes Medicare’s successes
• Improved access to health care among elderly and disabled Impoverishment related to large medical bills has been virtually eliminated Income from Medicare has become the bedrock for many medical practices Has contributed substantially to overall public health • • • Link between Medicare Link between Medicare and Medicaid
Medicaid must pick up Medicare’s premiums, deductible, and coinsurance for poor aged and disabled people. 2005 and beyond? 2005 and beyond? Medicare Part D Medicare Part D
Passed in 2003 by Congress, the Medicare Modernization Act established Medicare Part D which would allow private companies to offer prescription drug coverage plans to people on Medicare. Medicare Part D Medicare Part D
• The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 • Creation of outpatients prescription drug benefits starting in Spring 2004 and fully emplace January 2006 • Raises many questions
• • • • • When will prescription drug coverage begin? What drugs will be covered? Do beneficiaries have to enroll to obtain the new benefits? Will the changes affect their current coverage? How will online enrollment effect the elderly population? • Transition Assistance Program to MMA:
• Temporary Drug Discount card
• Medicare Part D Medicare Part D • • • Covers prescription drug, biological product, or insulin product covered by Medicaid and used for a medically accepted indication savings of 10–15% on their total drug costs 25% or more on individual prescriptions Was phased out as of January 2006 • Basic Program Structure
• • • Medicare Part D Medicare Part D
Limited coverage (Donut Hole) Voluntary basis Separate deductible and premium Insurance against catastrophic medication costs
• • Benefits from a private entity
• • Access to a preferred pharmacy • Medication therapy management programs health plan, an insurer, pharmacy benefit management company Medicare Part D Medicare Part D • Additional Changes Medicare Part D Medicare Part D • Reform of current pharmaceutical practices • The creation of electronic prescribing programs • Competitive acquisition programs • Changes to HatchWaxman Act • Drug importation from Canada • Effect on Dual Eligibles Medicare Part D Medicare Part D • Six million low income seniors • People with disabilities • Prescription drug coverage switched from Medicaid to Medicare Part D • Nonvoluntary transition Public Health Care Spending Public Health Care Spending Growth: Medicaid and Medicare Public Health Care Spending Public Health Care Spending
• 46.2% of all health care spending in 2000, up from 42.7% in 1980. Increase being driven primary by Medicaid Table 3.1 Public Payors’ Share of National Health Spending, 1980-2005
The share of national spending by public payors has increased slightly over the last two decades, driven by faster growth in Medicaid spending.
Total Public 50 45 40 35 Percent 30 25 20 15 10 5 0 1980 1990 2000 2005*
Note: Total public includes Medicare, Medicaid, other federal (not shown) and state and local spending. *2005 is a projection. Source: CMS, Office of the Actuary, National Health Statistics Group. Medicare Medicaid 45.2 Other State & Local 44.8 42.7 40.6 15.2 10.6 13.6 15.8 10.6 12.9 17.3 15.6 16 16.5 13.5 14.1 Public Health Care Spending Public Health Care Spending
• • 46.2% of all health care spending in 2000, up from 42.7% in 1980. Increase being driven primary by Medicaid Hospitals and longterm care facilities make up 64% of all public spending on health care Table 3.11 Total Health Care Spending Paid by or on Behalf of Medicare Beneficiaries, 1999
Total Health Care Expenditures = $385.2 Billion
Dental 3% ($10.4 billion) Medical Provider 22% ($83.1 billion) Rx Drugs 10% ($39.8 billion) Home Health 2% ($7.8 billion) LTC 24% ($88.0 billion) Hospital 40% ($155.7 billion) SNF 4% ($14.1 billion) Hospice 1% ($2.2 billion) Note: Premium payments are excluded. LTC is long-term care. SNF is skilled nursing facility. Source: CMS, Office of Research, Development, and Information: Data from the Medicare Current Beneficiary Survey (MCBS) 1999 Cost and Use File. Public Health Care Spending Public Health Care Spending
• • • 46.2% of all health care spending in 2000, up from 42.7% in 1980. Increase being driven primary by Medicaid Hospitals and longterm care facilities make up 64% of all public spending on health care Medicare pays more than half the health care expenditure for recipients, private insurance pays only 12% Table 3.12 Sources of Payment for Medicare Beneficiaries’ Medical Services, 1999
Medicare pays a little more than half of the total cost of beneficiaries’ medical care.
Medicaid 12% ($1,103) Private Insurance 12% ($1,161) Medicare 53% ($5,043) Direct Out-of-Pocket* 19% ($1,825) Other Sources 5% ($441) Total Medical Expenses per Medicare Beneficiary = $9,573
*Beneficiary out-of-pocket spending does not include their payments for Medicare Part B premiums, private insurance premiums, or HMO premiums. Note: Data are for all beneficiaries, both fee-for-service and Medicare+Choice enrollees. Source: CMS, Office of Research, Development, and Information: Data From the Medicare Current Beneficiary Survey (MCBS) 1999 Cost and Use File. Public Health Care Spending Public Health Care Spending
• • • • 46.2% of all health care spending in 2000, up from 42.7% in 1980. Increase being driven primary by Medicaid Hospitals and longterm care facilities make up 64% of all public spending on health care Medicare pays more than half the health care expenditure for recipients, private insurance pays only 12% Medicare pays for 87% of hospital care, Medicaid pays for and 49.1% of longterm care of Medicare recipients. Table 3.13 Sources of Payment for Medicare Beneficiaries by Type of Service, 1999
Medicare pays a large proportion of the total payments for the services it covers.
100% Percent of Expenditure by Payer
2.1 9.8 1.0 6.0 0.8 3.3 12.7 1.1 12.0 2.8 19.3 2.8 27.4 5.3 6.5 11.0 9.8 34.6 80% 37.9 41.3 60%
87.0 89.9 80.8 78.7 67.0 60.0 2.8 10.2 2.9 9.1 OOP 1 Other Medicaid Medicare 40% 42.8 52.3 11.3 8.1 49.1 20%
Inpatient Hospital Home Health Independent Labs Skilled Nursing Facility 3 Medical Provider Outpatient Hospital Other Medical2 Prescribed Long-Term Medicines Care OOP is out-of-pocket. Other Medical includes things such as hospice and durable medical equipment. 3 Short term nursing home stays. Longer term stays are in the long term care bar. Source: CMS, Office of Research, Development, and Information: Data from the Medicare Current Beneficiary Survey (MCBS), 1999 Cost and Use File.
1 2 Table 3.2 Personal Health Care Expenditures by Type of Service and Percent Medicare Paid, 2000
Total personal health care spending in 2000 was $1.1 trillion; Medicare accounted for 19 percent.
Hospital Care Physician and Clinical Services Prescription Drugs 1 Nursing Home Dental Services Other Professionals Other Personal Health Care Home Health Other Medical Nondurables Medical Durables 0
$122 Billion Medicare pays 2% $92 Billion Medicare pays 10% $60 Billion Medicare pays 0% $39 Billion Medicare pays 12% $37 Billion Medicare pays 0% $32 Billion Medicare pays 29% $31 Billion Medicare pays 4% $19 Billion Medicare pays 25% $286 Billion Medicare pays 21% $412 Billion Medicare pays 31% Medicare Spending Other Payers 50 100 150 200 250 300 350 400 450 Personal Health Spending (Billions of Dollars)
Medicare payments are mostly from managed care plans, since fee-for-service Medicare does not generally cover outpatient prescription drugs.
1 Source: CMS, Office of the Actuary, National Health Statistics Group. Public Health Care Spending Public Health Care Spending
• Between 1980 and 2001 Medicare spending shifted from inhospital patient services to outpatient and managed care services. Where the Medicare Dollar Went: 1980 and 2001 Where the Medicare Dollar Went: 1980 and 2001
Medicare spending has moved from inpatient hospital services to outpatient settings.
HHA 2.2% Physician 24.1% Outpatient Hospital and Other Outpatient Facility1 5.3% 2001
DME, Supplies, Independent Labs and Outpatient Hospital Other Services2 and Other Hospice 7% Outpatient Facility1 1% 8% Managed Care 18% SNF 1.1% HHA 4% Inpatient Hospital 67.4% Physician 17% Inpatient Hospital 39% SNF 5% Total = $37 Billion
1 Total = $236 Billion Other outpatient facilities include ESRD freestanding dialysis facilities, RHCs, outpatient rehabilitation facilities, and federally qualified health centers. 2 Other services include ambulatory surgical center facility costs and ambulance services. Note: Data do not sum due to rounding. Spending includes benefit dollars only. Source: CMS, Office of the Actuary. Public Health Care Spending Public Health Care Spending
• • • Between 1980 and 2001 Medicare spending shifted from inhospital patient services to outpatient and managed care services. BUT………. Predicted growth in the number of Medicare recipients will severely strain the system as we move toward 2030 – 22% of the population. Table 3.7 Medicare Beneficiaries as a Share of the U.S. Population, 1970-2030
The U.S. population will age rapidly through 2030, when 22 percent of the population will be eligible for Medicare.
25 65 & Over Disabled 22.0%
20 Percent of Population 18.5% 15.0% 2.4 12.6 2.7 15.8 2.4 19.5 15 10 9.5% 9.5 12.1% 1.3 10.8 13.1% 1.2 11.9 13.9% 1.9 12.0 5 0 1970 1980 1990 2000 2010 2020 2030 Source: Social Security Administration, Office of the Actuary. Table 3.8 Medicare Spending for Fee-for-Service Beneficiaries by Income, 2000
Seventy percent of Medicare expenditures are on behalf of individuals with annual incomes of $25,000 or less.
$40,001 or More 13% $5,000 or Less 6% $25,001 $40,000 17% $5,001 - $10,000 25% $15,001 - $25,000 22%
Note: Data may not sum due to rounding. $10,001 - $15,000 19% Source: CMS, Office of Research, Development and Information: Data from the Medicare Current Beneficiary Survey (MCBS) 2000 Access to Care File. Section III.B.5. Page 6 Table 3.10 Age and Gender of the Medicare Population, 2000
The proportion of women increases among those 85 and older.
20 18 16
17.9 million Females Males Enrollees (millions) 14 12 10 8 6 4 2
56% 5.5 million 54% 12.6 million 59% 4.7 million 44% 46% 41% 71% 29% 0 Under 65 65-74 75-84 85+ Note: Fifty-six percent (23 million) of all Medicare beneficiaries are female; 44% (18 million) are males. Data reflect Medicare beneficiaries ever enrolled in the program during the year. Source: CMS, Office of Research, Development, and Information: Data from the Medicare Current Beneficiary Survey (MCBS) 2000 Access to Care File. Table 3.17 Distribution of Medicare Enrollees by Functional Status, 2000
More than one-third of the Medicare population needs assistance with at least one “activity of daily living.”
55 51 50% Percent of Population 40%
21 20 15 11 14 24 25 21 20%
13 10% 0% All No ADL or IADL Limitations Elderly IADLs Only 1-2 ADLs Disabled 3-6 ADLs Note: ADLs are activities of daily living (e.g., eating, bathing); IADLs are instrumental activities of daily living (e.g., shopping, use of phone, cleaning). Source: CMS, Office of Research, Development, and Information: Data from Medicare Current Beneficiary Survey (MCBS) 2000 Access to Care File. Future Solvency of Medicare Future Solvency of Medicare Cost of Medicare Cost of Medicare
Number of Enrollees
• • • Cost of Care
• Retirement of baby boomers (20102030) Aging of the population (85+ yrs) Dependency ratio
• Lower fertility rate • Percentage increase in costs versus percentage increase in payroll taxes Real per capita spending
• Projected to increase by 2.5% annually Problems with Medicare Problems with Medicare
• Cost sharing so low, particularly those with supplemental insurance, that beneficiaries have no incentive to limit care or choose between care options Providers are paid feeforservice and therefore have an incentive to provide more services • Overprovision of care
• Moral hazard • Future Solvency of Medicare Future Solvency of Medicare
• Cost of program places it in jeopardy • Depending on what assumptions you make regarding medical inflation and population projections, Medicare spending as a percentage of GDP is predicted to be:
• 2020: • 2050: • 6.5% at 1% growth • 7.2% at 2.5% growth • 11% at 1% growth • 20% at 2.5% growth Federal Spending for Medicare and Federal Spending for Medicare and Medicaid as Percentage of GDP Education Source: Congressional Budget Office. 2003. The LongTerm Budget Outlook. CBO: Washington, D.C Medicare, Medicaid (federal only) and Social Security Outlays (percent of GDP)
Social Security 30% Medicare Medicaid 25% 20% 15% 10% 5% 0% 1962 1969 1976 1983 1990 1997 2004 2011 2018 2025 2032 2039 2046 2053 2060 2067 2074 Source: 2004 Annual Report of the Social Security and Medicare Boards of Trustees and data underlying the Congressional Budget Office. 2003. The Long-Term Budget Outlook. CBO: Washington, D.C Will the trust funds pay for this? Will the trust funds pay for this? Income & Cost Rates of Social Security and Medicare Hospital Insurance
(percent of taxable payroll)
Social Security Cost Rate 25% HI Cost Rate Social Security Income Rate HI Income Rate SS trust fund exhaustion in 2042 20% Social Security 15% 10% HI trust fund exhaustion in 2019 HI 5% 0% 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2078 Source: Data underlying 2004 Annual Report of the Social Security and Medicare Boards of Trustees Annual Cash Flow Surpluses and Deficits for Social Security & Hospital Insurance (billions of 2004 dollars)
Social Security 100 Hospital Insurance 0 -100 -200 -300 -400 -500 -600 -700 -800 2003 2008 2013 2018 2023 Years 2028 2033 2038 2042 Source: 2004 Annual Report of the Social Security and Medicare Boards of Trustees What about cost containment What about cost containment focused on Managed Care? Medicare Managed Care Medicare Managed Care
Medicare enrollment plan that restricts treatment using specified sets of providers: Beneficiaries have no cost sharing in the program Medicare Managed Care Medicare Managed Care
• • Narrow choice of plan providers Reimbursement rates at 95% of average fee forservice in the area Or, fixed per patient fee (capitation) Medicare HMO monitors and controls service provision Usually covers prescription drugs • • • Medicare Managed Care
• Only 10% or all Medicare patients are enrolled in Medicare Managed Care programs. Why?
• Limited choice by setting strict limits on which doctors beneficiaries can use • Limited financial incentive to join Political Context for Political Context for Medicare Reform Political Environment Political Environment
• • • • Medicare is an enormously popular program Medicare is a universal program Medicare coverage is fairly comprehensive Interrelatedness between the public and private systems MedicareOptions for MedicareOptions for future solvency of the program Payment reductions Restructuring Medicare program Increasing beneficiary payments Capping Medicare spending Payment Reductions Payment Reductions
• • Cutting payments to providers Prospective Payment System (PPS) for inpatient hospital care:
• Incentive to provide less care • Weighted base rate per person • Offsetting behavior “squeezing the balloon”? Increasing Beneficiary Increasing Beneficiary Payments
• Increase Part B premium contributions • Other option: • Huge distribution impact • Changes relative contributions of working and nonworking population • Doesn’t address overall cost containment • Increase age at eligibility? Restructuring Medicare Program Restructuring Medicare Program
• Medical Account Allowances or “Coupons”
• Beneficiary restricts own care • Convert to a “choicebased” program
• Financial incentive for efficient choices • Guaranteed plan for guaranteed price
• • • • + More efficient choices + Less rapid increase in costs Bigger base package cost? Service availability? Restructuring Medicare Program Restructuring Medicare Program
• Global Budgets • Capping Medicare Spending:
• • Sectors (hospitals) paid a fixed amount for the entire year rather than separate payments for each patient/service • Limit total Medicare benefit spending by controlling $$ paid for service
hard to do Are there other options? Are there other options?
Should the United States adopt a universal, single payer health system? SinglePayer System SinglePayer System
• • • • • • • • Also known as National Health Insurance Entitlement to all citizens Centrally administered Covering all necessary medical services No copays or deductibles No financial barriers to care Physicians hold salaried positions at various institutions Global budgeting Proponents of NHI system Proponents of NHI system
• • • • Universal access to care – no uninsured Avoids adverse selection Avoids wasteful and duplicative administrative costs Reduces system’s complexity through elimination of individual budgeting, payment negotiation, and billing Opponents of NHI System Opponents of NHI System
• • • • • • Liberty – right to choose Will result in higher taxes and burden on economy Poorly administered system adversely affects everyone (care quality) Average waiting time for care is higher Two tiered system quickly develops Universal coverage does not mean that everyone gets the care they want Opponents of NHI System Opponents of NHI System
• • • • • • Erodes strong doctorpatient relationship Limits treatment options Ties hands of doctors Leads to rationing of care Limits access to new therapies/technology Moral hazard: patients insulated from the cost of care and therefore tend to over consume health care services. ...
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This note was uploaded on 03/30/2009 for the course PAM 2300 taught by Professor Avery,r. during the Fall '06 term at Cornell.
- Fall '06