Medicare & Medicaid

2

Medicare – Medical Care for the Elderly

Institutional features– Part A—Hospital insurance– Part B—Physician, Outpatient

hospital, diagnostic and lab testing, PT, and durable equipment insurance

– Part D—Outpatient prescription drugs

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Medicare Spending

4

Medicare Features Part A Features: (2007)

– $992 deductible– Coinsurance (days 2-60, zero; days 61-90,

25% of the deductible per day; days 91+, no coverage unless 60 lifetime reserve days are still available)

Part B Features: (2007)– Voluntary participation w/ $93.50 monthly

premium– Deductible of $131 per year & Medicare

pays 80% thereafter– 50% MDs accept assignment, so patient

only pays 20%. Max bill = 115%

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Medicare coverage gaps– Pays 87% of inpatient charges,

67% of physicians’ services, 8% of outpatient drugs (Part D changes this percentage), and 0.5% of nursing home

Does not provide catastrophic coverage, custodial nursing home care, preventive services or routine physical examinations.

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Part D – The donut hole

About 8 million seniors get drug coverage through Medicare Advantage

Premiums vary (basic plan - $27.35 monthly) Annual deductible - $265

Drug Spending Plan Pays Patient Pays Zero to $265 Zero 100% or $265 $266 to $3,465 75% or $2,4000 25% or $800 $3,466 to $6,250 Zero 100% or $2,785 More than $6,250 95% 5% or $2 generic, $5 brand

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Financing

Overall funded by individuals < 65 years old – 90%

Part A funded by a payroll tax of 2.9% Part B premium pays 25% of expenses Part D premiums pay 25% of expenses Financing is Inequitable Part A Trust Fund insolvent by 2020 – need

to increase tax from 2.9% to > 10% Part B & D subsidy will need to double from

$350 billion today to $700 billion by 2015.

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Financing Inequities

Part A payroll tax has low income workers subsidizing high income retirees

Parts B & D financed by income tax, which is progressive

Intergenerational transfer – retirees receive $5 in benefits per $1 contributed

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Medicare Payment Allocations, 2002

Payment Range

Number of beneficiaries

(millions)

Percent of total

Spending (billions)

Percent of total

Average per

enrollee Over $25,000 2.4 5.9 $114.2 53.0 $48,324 $20,000-$24,999 0.7 1.7 15.8 7.3 22,384 $10,000 $19,999 2.4 5.9 34.7 16.1 14,924 $5,000-$9,999 3.0 7.4 21.3 9.9 7,083 $2,000-$4,999 5.4 13.3 17.1 7.9 3,197 $1,000-$1,999 4.9 12.1 7.1 3.3 1,438 $500-$999 4.7 11.6 3.4 1.6 729 Less than $500 8.3 20.4 1.8 0.8 219 Zero 8.7 21.5 0 0 0 Total 40.5 100.0 $215.4 100.0 $5,319 Source: Centers for Medicare and Medicaid Services, Medicare Program Payments 2004, Table 16.

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Suggested Liberal Reforms

Increase eligibility age to 67 Decrease provider

reimbursements Increase payroll tax &

premiums (already done for high income retirees)

Ban Medigap policies to decrease moral hazard

Reduce subsidy to Medicare Advantage (Part C) plans

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Suggested Conservative Reforms (Ryan Proposals)

Phase out Medicare, convert to private voucher program (start in 2022)

Voucher amounts tied to income: $11,000 for < $80K, $5500 for $80-200K, and $3300 for >$200K individual $

Those turning 65 by 1/1/2021 keep Medicare but premiums for Part D tied to income

If payroll taxes pay <55% Medicare costs, provider payments decrease 1%

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Medicaid

Institutional features– State administered– Federal cost-sharing– Eligibility standards

SCHIP expansion

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Medicaid Spending

Year

Total Enrollment Year End (millions)

Total Spending (billions of current

dollars) 1

Annual Rate of Change in Spending2

(in percentages) 1966 10.0 $ 1.7 - 1970 - 4.9 30.3 1975 22.0 12.1 20.8 1980 21.6 24.0 13.8 1985 21.8 39.4 10.4 1990 25.3 69.8 11.8 1995 36.3 151.7 17.2 2000 34.5 195.5 5.2 2001 37.9 216.2 10.6 2002 41.1 246.6 13.9 2003 43.6 262.6 6.6 2004 44.6 281.8 7.3 2005 45.7 300.7 6.7 2006 45.2 303.9 1.1 Source: Medicaid Financial Management Reports available at

http://www.cms.hhs.gov/MedicaidBudgetExpendSystem/Downloads/2004to1997.pdf. 1. Includes payments made to "disproportionate share hospitals;” does not include administration. 2. Average annual change from the previous entry

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Medicaid – Large State Spending, 2004

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Economic Consequences

Nationwide, 50% of poverty population covered. Eligibility differs by state (for family of 3 in AL $3048 and MN $40,224 in 2002)

Nursing home care and home health care constitute over 70% of outlays- just 30% to nonelderly and nondisabled

Payments per capita for children and adults only $1454 and $2067 in 2001.

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Spending by Eligibility Categories, 2001

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Expansion of Medicaid Impacts

10% expansion leads to a 2.8% decrease in infant mortality and 3.4% decrease in child mortality

Decreases enrollment in private insurance (employers & persons)

Decreases labor supply for fear of losing Medicaid

Decreases willingness to marry Decreases willingness to save due to

asset test