Medicare (History and Financing)

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1 Medicare (History and Financing) Note: Please pay attention to dates on slides and data; CMS has discontinued the publication of some valuable figures and these are occasionally referenced for prior years.

2 Objectives Medicare overview Medicare Part A, B, D, and C Understand Financing Understand political and policy implications 2

3 NOTES: Numbers may not sum to total due to rounding. People with disabilities under age 65 were not eligible for Medicare prior to SOURCE: Centers for Medicare & Medicaid Services, Medicare Enrollment: Hospital Insurance and/or Supplemental Medical Insurance Programs for Total, Fee-for-Service and Managed Care Enrollees as of July 1, 2008: Selected Calendar Years ; , HHS Budget in Brief, FY2011. Number in millions: Medicare Enrollment, Nonelderly Disabled (Under Age 65) Elderly (Age 65 and Older)

4 NOTE: ADL is activity of daily living. SOURCE: Income data for 2009 from U.S. Census Bureau, Current Population Survey, 2009 Annual Social and Economic Supplement. All other data from Kaiser Family Foundation analysis of the Centers for Medicare & Medicaid Services Medicare Current Beneficiary 2008 Access to Care file. Characteristics of the Medicare Population Income <200% FPL ($21,660 in 2010) Percent of total Medicare population: 3+ Chronic Conditions Cognitive/Mental Impairment Fair/Poor Health Under-65 Disabled 2+ ADL Limitations Age 85+ Long-term Care Facility Resident

5 Medicare Spending as a Percent of Total Federal Spending, Fiscal Year % 20% 15% 19% 8% 6% 12% Total Federal Spending, FY2010 = $3.5 Trillion NOTES: FY is fiscal year. 1 Amount for Medicare includes offsetting premium receipts. 2 Other category includes disaster costs and negative outlays for Troubled Asset Relief Program. SOURCE: Office of Management and Budget, FY2011 Budget, Summary Tables; February 2010.

6 Medicare s Share of National Personal Health Expenditures, by Type of Service, 2010 Medicare $489 $31 Expenditures in Billions $235 $62 $105 $29 Total $2,142 $77 $789 $260 $536 $149 NOTES: Total also includes dental care, durable medical equipment, other professional services, and other personal health care/products. SOURCE: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Expenditure Projections , February 2010.

7 Medicare Benefit Payments, by Type of Service, 2010 and 2020 Part A Parts A and B Part B Part D Outpatient Prescription Drugs 6% 11% 27% Outpatient Prescription Drugs 19% 27% 13% 8% 5% 6% 10% 4% 23% 12% 12% 5% 11% Medicare Benefit Payments 2010 = $509 Billion Medicare Benefit Payments 2020 = $914 Billion NOTES: Totals do not include administrative expenses and are net of recoveries. Other Services include hospice services; durable medical equipment; ambulance services; independent, physician in-office, and hospital outpatient department laboratory services; hospital outpatient services that are not paid for using the prospective payment system (PPS); Part B prescription drugs; rural health clinic services; outpatient dialysis; and benefit payments not allocated to specific services, including adjustments to reflect year-to-date spending (2010), and savings from the Independent Payment Advisory Board (2020). SOURCE: Congressional Budget Office, Medicare Baseline, August 2010.

8 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) 8

9 Medicare (Total) Highlights TR 2011 (2010 data) 47.5 million people (39.6 M aged; 7.9 M disabled) 25% are now in Medicare Advantage Total Benefits - $516 Billion Total Expenditures - $ 523 Billion Total Income - $486 Billion Total Assets - $ 344 Billion 9

10 Financing Part A 1.45% Payroll tax on total income, matched by employer No limit Money flows into trust fund Modified by ACA for wealth ($200K+; $250K+ for couples/families) in % (up from 2.9%) tax on earned income 3.8% (up from zero) tax on unearned income (same income threshold) NOT INDEXED (huge impact) 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 10

11 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? Less than 25% of beneficiaries use a Part A service in any given year. Average expenditure per enrollee $5187 (2010) 11

12 Medicare Part A (2011 figures) 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 ($461/month) with sliding scale Co-pay is $ 283 Deductible is $1132 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 $566 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 $ per day for days No further Medicare benefit. 12

13 Part A Financing Deductible was $ $1132, indexed. 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%; and higher for high income earners after

14 Pre-ACA Post-ACA TR,

15 Solvency Projections of the Medicare Hospital Insurance Trust Fund, Projected Number of Years to Insolvency and Projected Year of Insolvency: Report Year (1972) (2001) (1999) (2001) 8 (2017) (1994) (2003) 15 (2019) (2005) 16 (2024) (2015) (2020) 19 (2029) 23 (2026) 28 (2029) Source: Intermediate projections from Annual Reports of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds.

16 Medicare is less generous than FEHB and other large employer plans Share of Total Spending Paid by Plan in 2007 Total Average Medical Spending = $14,270 74% 85% 83% Medicare Typical Large Employer PPO Plan FEHBP Standard Option NOTE: The FEHBP (Federal Employees Health Benefits Program) standard option is offered through Blue Cross Blue Shield. Employer plans include dental benefits. SOURCE: Hewitt Associates analysis for the Kaiser Family Foundation, 2008.

17 Pre-ACA Post-ACA 2011 estimate 17 TR, 2011

18 Medicare Beneficiaries and The Number of Workers Per Beneficiary Millions Number of beneficiaries (millions) Number of workers per beneficiary SOURCE: Kaiser Family Foundation based on the 2009 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds.

19 TR,

20 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 selfadministered including certain anti-cancer drugs 20

21 SMI Part B (TR 2011) 43.8 Million Medicare enrollees are enrolled in Part B (out of 47.5M total) 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 $4786 (2010) 21

22 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 $162 in 2011 If it had kept pace with actual charges, more than $2500 now! Co payments - 20% of allowed charges Initial premium in $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 22

23 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 Permanently established that premium be 25% of program expenditures $58.70/month (8.7% increase); $66.60 (13.5% increase); $78.20 (17.4 % increase); $88.50 (13.2%); $93.50**(5.6%); 2008 and $96.40** (3.1%); $ (14.6%)!; $ Social Security increase in 2010 and 2011 = 0! Hold Harmless provision means that 73% of beneficiaries are actually still paying last year s rates. 27% pay the higher premium because: 3% are new enrollees 5% pay the income related premium (see next slide) 2% choose not to have the premium withheld from SS 17% have the Premium paid by Medicaid (Duals) 23

24 Income Related Part B Premiums for 2011 Note that this slide (and occasionally others in this set) will bundle Part D into Part B Medicare.gov website 24

25 Standard Drug Benefit (2011) (Averages) Basic PDP Premium - $36.70; Enhanced $56.28 Deductible $310; $27.33 monthly premium (average) 25% co-insurance for next $2530 in drug spending No coverage for next $3610 in total drug spending Then 5% coinsurance for non-poor and less for poor ($2.50/$6.30 for <135% and 0 for < 100% FPL) This is a competitively bid product with some government reinsurance 34.5 Million enrolled; $1789/enrollee for 2010 year 25

26 Standard Medicare Prescription Drug Benefit, 2011 CATASTROPHIC COVERAGE COVERAGE GAP Enrollee pays 5% Plan pays 15%; Medicare pays 80% Brand-name drugs Enrollee pays 50%; 50% manufacturer discount Generic drugs Enrollee pays 93%; Plan pays 7% Catastrophic Coverage Limit = $6,448 in Total Drug Costs Initial Coverage Limit = $2,840 in Total Drug Costs INITIAL COVERAGE PERIOD Enrollee pays 25% Plan pays 75% $310 Deductible SOURCE: Kaiser Family Foundation illustration of standard Medicare drug benefit for 2011 (standard benefit parameter update from Centers for Medicare & Medicaid Services, April 2010). Amounts rounded to nearest dollar.

27 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 (disappears with ACA January 2013) 27

28 Chart 1.23: Percentage of Medicare Beneficiaries Enrolled in Medicare Managed Care, Source: Centers for Medicare & Medicaid Services, Office of the Actuary. correspondence with CMS staff in January 2011.

29 Estimated Sources of Medicare Revenue, 2010 TOTAL $499 billion PART A $218 billion PART B $219 billion PART D $63 billion SOURCE: 2010 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical

30 Net Effect of Major Legislation on Medicare Spending Net Spending/Savings as a Share of Projected Medicare Spending Over 10 Years BBA (1997) BBRA (1999) BIPA (2000) MMA (2003) DRA (2005) MIPPA (2008) PPACA (2010) 10-yr Medicare spending/savings (in $ billions): -$394 $25 $82 $391 -$23 -$2 -$424 Net spending Net savings 10-yr Medicare baseline amounts (in $ trillions): $3.4 $3.2 $3.2 $3.9 $5.6 $6.8 $7.1 Source: Kaiser Family Foundation analysis of Congressional Budget Office (CBO) estimates. Notes: Shares are rounded to the nearest whole number. Net spending as a percent of baseline for MIPPA is rounded up from -0.02%; estimate for DRA is rounded from -0.47%. Baseline amounts are based on CBO projections of 10-year Medicare baseline spending prior to enactment of

31 Take-home points Financing versus budget impact of Parts A, B, and D Prescription Drug Plan basics and opportunities Medicare Advantage: ideology versus economics Why might this be the solution? Ryan Plan? Wilensky modifications? 31

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