The structure and financing of health insurance schemes for pensioners in the United States

Transcription

1 International Social Security Association Fourteenth International Conference of Social Security Actuaries and Statisticians Mexico City, September 2003 The structure and financing of health insurance schemes for pensioners in the United States Special contribution Chairperson Health Section International Actuarial Association ISSA/ACT/CONF/14/2(b)

2 The structure and financing of health insurance schemes for pensioners in the United States Special contribution Chairperson Health Section International Actuarial Association More than other developed nation, the structure and financing of access to health care in the United States is a complex patchwork of public, quasi-public, and private health insurance schemes. This complexity is most noticeable in the working age population whose needs are dominated by health insurance voluntarily bought by businesses on behalf of their employees. Structural characteristics of private health insurance markets, and consumer and insurer behaviours characteristic of this structure, make it impossible for private markets to achieve universal coverage. 1 Complementing this private market core is an array of quasipublic and public schemes that cover Federal workers (including military personnel and their dependents) and certain categories of poor, disabled, and some otherwise uninsured Americans. Unfortunately, these various public and private schemes do not seamlessly interface leaving 14.6 % of the population of the United States not covered by any health insurance scheme (CPS, March 2002) and, as a consequence, subject to uncertain access to health care. Despite a large and growing gap between public and private schemes, the political system of the United States has been unable to design and enact a solution to this serious structural problem. Contrary to the unsolved problems of working Americans, the United States have addressed many of the structural problems of health insurance for pensioners and the poor. Historical coverage gaps for pensioners and the poor were quite large: In the early 1960s only about one-half of Americans age 65 and over had medical care insurance, and, the level of coverage dropped to less than one-third for those over age 75 and those with chronic conditions. The small amount of available private insurance was both limited and expensive, averaging 13 to 20 % of an elder couple's median income (MedPAC, 2002, p.4). To remedy this situation, President Lyndon Johnson's Great Society initiative lead to Congressional enactment in 1965 of two large public schemes to solve specific severe needs for health insurance: Medicare for pensioners, and, Medicaid for certain categories of the poor. These two public systems, and not private health insurance, now dominate the structure and financing of pensioners' health insurance. 1 The classic analysis of private insurance markets, which are characterized by information asymmetries between consumers and insurers is Rothschild and Stiglitz, 1976.

3 2 While the Federal Medicare programme dominates pensioners' health insurance, the complete structure of this large and growing market is itself complex. The complete structure consists of Medicare supplemented by Medicaid and by various private insurance schemes and out-of-pocket payments. Chart 1 is an overview of the pensioners' health insurance market structure of the United States. It visually represents public and private schemes serving four market segments: poor and non-poor pensioners for their medical and frailty care needs. Section I of this paper briefly describes each of the major health insurance schemes in Chart 1; including their covered populations, benefits, funding, formative background, trends, and issues. Section II discusses how successfully this array of schemes is in fulfilling a widely accepted goal of providing pensioners of the United States universal access to high-quality, cost-effective health care. I. Public and private health insurance schemes for pensioners Different schemes dominate each of the four pensioners' health insurance market segments. Medicare dominates financing poor and non-poor pensioners' medical care insurance needs. Medicaid is the primary source financing frailty care for poor pensioners. The frailty care need of non-poor pensioners, though, is not well served by any health insurance scheme. Chart 2 contains pensioners' enrollment in public health insurance schemes (Medicare, Medicaid, and Medicare + Choice) and Charts 5 to 8 contain information about enrollment and trends for both public and private health insurance schemes. A. Medicare The public Medicare programme is the principle source of financing medical care and a minor amount of frailty care for Americans age 65 and over, whether they work or not: 96.1 % of 33.8 million Americans age 65 and over received Medicare in 2001 (CPS, March 2002). Private sector providers deliver health care for Medicare beneficiaries: Virtually all medical care providers in the United States participate. Providers are paid a fee-for-service based upon formulas and schedules established by Congress that are annually updated by the Federal government Centers for Medicare and Medicaid Services (CMS). Medicare is funded by employment taxes (split between employers and employees) and Federal government general revenues. In addition, beneficiaries pay a monthly premium to cover a portion of their Medical Insurance benefits. Medicare benefits consist of two Parts, which pay for much, but not all, beneficiaries' medical care expenses. Part A (Hospital Insurance) pays benefits for inpatient hospital care, home care, hospice care, and some very limited benefits for skilled nursing facilities (SNF). Part B (Medical Insurance) covers physicians, surgeons, outpatient clinics, emergency room care, diagnostic testing, and other medical care services. Medicare's coverage of beneficiaries' frailty care needs is very limited: SNF and home care benefits cover only a small portion of these expenses. Chart 3 summarizes Medicare premiums, major coverage gaps (see next paragraph), and major non-covered health care expenses. 2 Medicare Part A and Part B benefits were designed to be similar to a 1965 standard privatesector health insurance plan and, as such, there are numerous deductibles, coinsurances, and non-covered services (collectively referred to in this paper as "gaps"). An unintended 2 More complete descriptions of Medicare and Medicaid benefits are found on the Website of Centers for Medicare and Medicaid Services ( CMS is the Federal agency charged with administering these two large public programmes.

4 3 consequence of this design strategy was to create a need and a market for supplemental insurance to fill these gaps. While few working-age adults felt a need to purchase supplemental insurance to cover these same gaps in their employers' health plans, by the late 1960s, more than 45 % of Medicare beneficiaries were covered by some form of supplemental coverage (Super 2002). With constant growth of health care costs relative to non-health care expenditures, the need for and widespread purchase of insurance to supplement some of Medicare's gaps is now an important characteristic of pensioners' health insurance market structure: Medicare paid only about 53 % of beneficiaries 1999 total health care spending of USD385.2 billion (USD9,573 per beneficiary) (CMS, 2002, slides 67 and 69). Chart 4 summarizes 1999 data on beneficiaries' health care spending that demonstrates Medicare's inadequacies by type of health care service (CMS, 2002, slide 68): For example, Medicare covered 87.0 % of beneficiaries' inpatient hospital costs, but only 8.1 % of prescription drugs, a paltry 0.5 % of their long term care expenses, and none of their dental expenses. 3 B. Medicare + Choice (Medicare Part C) Politically salient concerns about Medicare's rapidly growing costs and the quality of care provided to its beneficiaries, and, the early success of private sector managed care organizations lead Congress in 1997 to enact Medicare + Choice (M+C). A potential for cost savings through the use of successful managed care techniques was the main reason for Congressional action to create this new programme. M+C allows participating private managed care organizations to enroll all interested Medicare beneficiaries subject to their offering at least the actuarial equivalent value of standard Medicare plan benefits. Most M+C plans offer their enrollees benefits well in excess of Medicare, eliminating most Part A and Part B gaps and often providing prescription drug coverage. M+C plans receive governmentspecific premiums (based on the average cost of Medicare) and they may charge enrollees for plan benefits that supplement Medicare's benefit. Most have made no extra charge for providing supplemental benefits, which is a major for their attractiveness to potential enrollees. M+C is not available everywhere in the United States. Geographical coverage peaked at a potential enrollment of 74 % of all Medicare beneficiaries and dropped by 2002 to 61 % potential enrollment (CMS, 2002, slide 36). M+C enrolled at its 2000 peak 6.5 million Medicare beneficiaries (Chart 2). Over the past few years, participating managed care organizations claim to have experienced benefit cost increases exceeding their income increases causing losses. Despite pleas and threats, relief has not been forthcoming from Washington, so participating plans have begun to cut their supplemental benefits and to withdrawal from what they feel are unprofitable areas. Without changes in the way that plans are paid by Medicare, the future of the M+C programme is quite uncertain. C. Medicaid Medicaid is the second great society public health insurance scheme enacted in While Congress created the programme, it is run by the States, which have some limited latitude in defining eligibility and plan benefits. The Federal government shares a portion of each State's cost based upon a complex formula. Unlike Medicare, which is almost universally available to the elderly, Medicaid is aimed at specific categories of Americans living in poverty. There are three categories of pensioners who qualify for Medicaid support: Those 3 Prescription drugs, long term care, and dental care account for 98.6 % of Medicare beneficiaries out-ofpocket spending on health care outside the Medicare Part A and Part B benefit package (CMS, 2002, slide 72).

5 4 who are poor enough to qualify for full Medicaid benefits based on their State-of-residency eligibility rules are covered for their Medicare Part A and Part B benefit gaps, Medicare Part B premium, and nursing home costs; qualified Medicare beneficiaries, who are poor but have more income and assets than allowed for full Medicaid, receive coverage for their Medicare Part A and Part B benefit gaps and Part B premiums; and, specified low-income Medicare beneficiaries, who have even greater financial resources, qualify for Medicaid payment of their Part B premiums. None of these Medicaid eligible elderly pay premiums for their benefits. Thus, "dual-eligible" elderly poor, numbering 4.9 million in 2002 (Chart 2), have some or all of their medical care and frailty care needs financed from a combination of Medicare and Medicaid. Medicaid was devised primarily as a medical care insurance scheme for working age poor families. Poor elderly were included as one of the eligible categories at the programme's inception. While the proportion of elderly beneficiaries remains a modest million of a total 48.9 million in 2001 (CMS Website), their proportion of Medicaid expenditure, particularly for nursing home care, is disproportionably large. One reason for this is that Medicaid's nursing home care benefit is subject to a moral hazard problem: Frail elderly may divest their assets and income in order to qualify. As Medicaid costs continue to increase much faster than States' revenues, political pressure may build to reform Medicare eligibility, particularly for frailty care. D. Private health insurance covering medical care gaps The vast majority of pensioners are not eligible for Medicaid to supplement their Medicare benefits or have not joined an M+C plan that provides supplemental benefits. Thus, a large proportion of pensioners depend on private health insurance and out-of-pocket payments to cover Medicare's gaps. A majority of pensioners obtain private insurance, which comes in two varieties; benefits provided by businesses to their retired employees, and, individually purchased Medigap policies. Chart 5 summarizes the variety of sources of supplemental health insurance in 2002: Chart 6 looks at short-term ( ) trends. A lack of prescription drug coverage is the most politically salient of Medicare's gaps with over 90 % of these expenditures not being covered. Chart 7 focuses on source of supplemental health insurance used by pensioners to finance their large and growing prescription drug expenditures. 1. Business provided retiree health insurance Business provided retiree health insurance is the most common source of coverage to supplement Medicare. Large businesses have historically offered their retired employees (and employees' elderly spouses) insurance that fills most Medicare gaps and usually includes prescription drug coverage, however, these plans do not cover frailty care. Small businesses offering retiree health insurance have always been a rarity. 37 % of Medicareeligible beneficiaries received retiree health insurance from a previous employer in 2002 (Chart 5), and, 60 % of total cost of retiree health insurance is subsidized by their former employers' (Kaiser/Hewitt, 2002). 4 Unfortunately, the trend in retiree health insurance (Chart 6) is downward: The percentage of pensioners covered by these plans has been dropping. This is caused, in part, by large increases in per employee cost of retiree health insurance, and, in part, by the growing 4 The cited Kaiser/Hewitt survey is a very complete source of information about eligibility, costs, benefits, and trends in retiree health insurance.

6 5 number of retirees. These two cost-increasing factors are greatly exacerbated by a 1990 statement from the private sector Financial Accounting Standards Board (FAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions") that requires most businesses to include their unfunded retiree health insurance liabilities on financial statements. Following implementation of FAS 106 the number of businesses offering retiree health insurance dropped dramatically. One series of surveys found that the percentage of businesses with 200 or more employees offering this benefit dropped from 66 % in 1989 to 36 % in 1993, the first year that FAS 106 came into effect (KPMG Survey of Employer- Sponsored Health Benefits: 1988, 1993). A recent survey points to a continued plan terminations, and, for those plans that do survive tighter retiree-eligibility requirements, increases in employee contributions, and additional benefit limits (Kaiser/Hewitt 2002). 2. Individually purchased Medigap insurance Most non-poor pensioners do not have business-sponsored retiree health insurance. In 2002, 19 % of Medicare beneficiaries purchased individual Medigap insurance (Chart 5). Individual policies sold to the elderly by insurance agents have been a source of concern over abusive practices by insurers and their sales agents. In 1980, Congress passed the "Baucus" bill (P.L ) to rein-in some of the worst sales and insurance abuses. A second major overhaul occurred in 1990 when Congress mandated that only ten specifiedbenefit Medigap plan options be made available to pensioners, and, that new underwriting, pricing and State insurance regulatory standards be established. Benefit "standardization" allows direct comparison of Medigap policy premiums and benefits, making it more difficult for agents to adopt confusing sales tactics and creating direct price competition among insurers. The ten plan options cover a mix-and-match array of Medicare Part A and Part B deductibles and coinsurances. Only three of the most expensive plans offer limited coverage for prescription drugs, and, none of the three are very popular with consumers (see Super, 2002, for description of ten standard Medigap policies). Over the recent past, Medigap coverage has been dropping as a proportion of Medicare beneficiaries. Studies reviewed by the author do not identify the cause, but an average premium of USD1,300 (1999) (Super, 2002) and erratic increases that generally exceed the growth of pensioners' income are the likely cause. Without a third-party to subsidize premiums, Medigap is likely to become less affordable with time, which will continue to erode this option as a source of supplemental health insurance. E. Private health insurance for frailty care The scarcity of public and private health insurance covering frailty care needs of non-poor pensioners is the weakest link in the pensioners' health insurance structure of the United States. Referring to Chart 8, the lack of an insurance solution is evident. Medicaid is available only to poor pensioners, and, Medicare covers only very limited post-acute frailty care. This leaves the vast majority of non-poor pensioners' needing either to buy private long term care insurance or to pay for their frailty care out-of-pocket. Private long-term care and home care insurance has been widely available for about two decades. A survey of insurers by the Health Insurance Association of America found the volume of sales increases from 815,000 policies in 1987 to 4,960,000 in 1996 (HIAA, ). Despite its availability, private insurance covered only about 8 % of nursing home and home care expenditures in 1998 (Chart 8), however, the growth in policies-sold indicates

7 6 that this percentage is likely to rise as today's policyholders reach ages where the risk of needing frailty care increases. The author's personal experience with long term care insurance suggests that product design features, such as fixed benefits in the face of ever rising frailty care costs, premium levels affordable only by wealthier pensioners, and insurers' health screening and risk rating practices that exclude customers with high-loss potential (characteristic of private health insurance markets with asymmetric information) make it unlikely that individual health insurance will ever be able to adequately serve this market segment. As another private option, business might subsidize long term care insurance for their pensioners. This option is quite unlikely since businesses are already beset by cost problems with their existing retiree health insurance plans. F. Out-of pocket costs Health care expenses not covered by public and/or private health insurance schemes must be paid out of pensioners' own resources. Out-of-pocket spending for health care averaged over USD3,000 per Medicare beneficiary in 1999 (Chart 9), including pensioners' Medicare Part B and supplemental health insurance premiums. This large burden falls unequally on poorer elderly, accounting for 29.2 % of income in families with income below USD10,000 in 2000 (Chart 10). Chart 11 provides an overview of the sources of Medicare beneficiaries' out-of-packet spending in As health care costs continue to increase, and as private supplemental health insurance continues to erode (medical care) or to develop slowly (frailty care), the consequences of a growing out-of-pocket burden will weigh heavily on the structure and financing of the pensioners' health insurance schemes of the United States. II. Successes and failures of the pensioners' health insurance market of the United States Universal access to high-quality, cost-effective health care is a widely accepted goal for developed nations' health care systems, including the system of the United States with its unusual emphasis on voluntarily purchased health insurance. The structure and financing of health insurance schemes for pensioners of the United States can be evaluated based on these cost, quality, and access performance goals. Cost is a serious concern for each of the four pensioners' health insurance market segments (Chart 1). Each segment has been and almost certainly will continue to be affected by a rising in health care costs that exceed growth of the Gross Domestic Product (GDP) and personal income. While this analysis must emphasize that there are serious difficulties achieving cost-effective health care for pensioners, meaningful discussion of the causes and consequences is beyond the scope of this paper (see Bolnick, 2003, for a more complete analysis). A. Medical care for poor pensioners Poor pensioners, who are "dual eligible" for both Medicare and Medicaid, have universal access to resources to meet most of their medical care needs. Despite having comprehensive health insurance coverage, poor pensioners still spend a large portion of income on health care (Chart 9). This is a result of ancillary health care costs not covered by either Medicare or Medicaid, and benefit limitations for qualified and specified low-income Medicare beneficiaries. Expanding Medicaid to help finance poor pensioners' remaining outof-pocket expenses is not an issue for elderly health insurance advocates, nor is it politically

8 7 feasible due to the potential for large public cost increases. Private supplemental health insurance is also not a possible solution. As medical care costs continue to increase, there is a risk that State budget problems will result in a tightening of Medicaid eligibility and new coverage limits. The legal definition of "dual eligible" and their benefits is difficult for States to change without Federal legislation. However, even with no changes to definitions or benefits, Medicaid income and asset eligibility requirements tend, over time, to cover a decreasing proportion of those with meager resources, making the "dual eligible" safety net accessible to fewer needy pensioners. There is little debate over the quality of medical care for pensioners. Medicare provides access to virtually all health care providers of the United States and to the wide range of available medical care services. Medicare regulations do inhibit introduction of some cuttingedge technologies and procedures, but once their value is established or they become widely used by physicians, Medicare benefits generally are made available. Medicaid, though, may lag behind in its reimbursement of some new techniques and drugs. This lag may compromise the quality of services available to some "dual eligible" pensioners. In general, we conclude that poor pensioners who qualify as "dual eligible" have virtually universal access to high-quality, though costly (to taxpayers), medical care. B. Frailty care for poor pensioners Medicaid finances frailty care for some poor pensioners (those with meager enough resources to qualify for full Medicaid benefits). While frailty care is universally accessible solely to this subset of "dual eligible" beneficiaries, the same access issues exist in this segment as exist for Medicaid medical care benefits for poor pensioners: The safety net is at risk of contracting over time as a smaller proportion of pensioners meet eligibility standards. The risk of contraction may be particularly severe in this segment if Medicaid's administrators focus on finding ways to counter the tendency of many poor (and not eligible for frailty care) and near-poor pensioners to divest their assets and income to qualify for nursing home benefits. Quality of Medicaid's frailty care is a major issue. State Medicaid agencies contract with a subset of all nursing homes to provide services. While contracts do contain quality standards, relatively low reimbursement rates may result in minimally acceptable (or lower) levels of care. Also, Medicaid generally does not cover home care or other support services aimed at maintaining frail elderly in non-institutionalized settings. Medicaid recipients, therefore, are more likely to be institutionalized than non-poor pensioners, which may reduce their quality of life. Those poor pensioners that qualify for Medicaid frailty care benefits have universal access to a modest-quality of institutional nursing home care. C. Medical care for non-poor pensioners This is by far the largest and most costly pensioners' health insurance segment. Pensioners have virtually universal access to high-quality care for a majority of their medical care needs including, most importantly, the vast majority of their hospital, surgical, and physician expenses (Chart 4). This paper described above how antiquated Medicare plan benefits create very significant gaps that require most non-poor pensioners to obtain supplemental

9 8 health insurance. Absent supplemental insurance, access to care may be compromised, particularly for prescription drugs where pensioners without supplemental prescription drug insurance report filling significantly fewer prescriptions than pensioners with supplemental insurance (CMS, 2002, slide 94). Almost since the programme's inception, Medicare's coverage gaps have motivated very powerful elderly political groups, lead by the American Association of Retired People (AARP), to almost continuously pressure Congress for expanded Medicare benefits. The political saliency of this issue has driven continuous addition of new diagnostic and therapeutic technologies and procedures to the Medicare benefit package (MedPAC, 2002). In what is being called the biggest expansion and overhaul of Medicare since its creation, the House of Representatives and Senate of the United States each passed a Medicare reform bill in June Their specific contents need to be reconciled before a final bill to President Bush. From all indications, this will happen later in Once signed by the President, their will be two major changes to Medicare: A limited prescription drug benefit, offered mainly through voluntarily purchased private insurance, will be added, and there will be an overhaul of incentives for a wider range of private sector managed care organizations to compete for Medicare beneficiaries. The expanded use of private sector health insurance as intermediaries between Medicare and health care providers has been an ongoing and politically contentious issue. If and how private insurance will compete for Medicare beneficiaries and their success or failure will likely take years to become clear. What is clear is that the new law, which becomes effective in 2006, will significantly expand Medicare and reduce the need for private supplemental health insurance. Even with major uncertainty about the new law's affect, it is clear that it will improve universal access to high-quality health care for non-poor pensioners. D. Frailty care for non-poor pensioners Frailty care for non-poor pensioners is the sole market segment that severely fails to provide universal access to any level of health care. Medicare provides some universal access, but only for its beneficiaries very limited post-acute care frailty needs, and not at all to their long term needs. Private health insurance is widely available, but covers only a small portion of the potential market. Most frailty care for the non-poor has been, and will continue to be paid for out-of-pocket, and, family caregivers remain a very important source of support and care. A rapidly aging population of the United States makes adequate provision for pensioners' frailty care needs a key concern of health policymakers. Elderly advocates continuously point to this area as a failure of the American pensioners' health insurance structure. However, the enormous potential cost of adding a meaningful and universal frailty care benefit to Medicare is a major political constraint, one so large that it virtually assures no action by Congress in the foreseeable future. Non-poor pensioners are most likely to have their access to frailty care limited by a lack of widespread private insurance. Those with insurance or with adequate means to pay for services out-of-pocket can receive a very high quality of frailty care. III. Summary The structure and financing of health insurance for pensioners varies significantly for medical care versus frailty care and by whether pensioners are poor or non-poor. Medical care

10 9 benefits are virtually universally available and actually more complete for poor pensioners, whose Medicare gaps are filled by Medicaid, than for non-poor pensioners, whose supplemental needs must be filled through private insurance or out-of-pocket. Medicaid assures frailty care for eligible poor pensioners at a minimal level. Frailty care for non-poor pensioners is an underdeveloped market characterized by a small amount of private long term care insurance and a great deal of out-of-pocket spending and family caregivers who support their elderly family members' needs. The vast majority of pensioners' health insurance is provided by public schemes financed by employment taxes and general revenues. This is the exact opposite of the main source of coverage and financing for health care needs of working Americans and their dependents. Given the erosion in private sector supplemental medical care insurance and the recent enactment of expanded Medicare benefits, health insurance for pensioners is likely to become more dominated by public sector health insurance schemes. The almost diametrically opposed characteristics of health insurance structure and financing for working age and elderly give rise to constant political tension that may actually hinder progress for all Americans towards a widely shared goal of universal access to high-quality, cost-effective health care. References Bolnick, H.J "Planning Health Care for the 21st Century", presented to the biannual conference of the Institute of Actuaries of Australia. Available on Internet at CMS Program Information on Medicare, Medicaid, SCHIP, and Other Programs of the Centers for Medicare and Medicaid Services, Centers for Medicare and Medicaid Services (CMS), Office of Research, Development and Information. Available on Internet at CPS Health Insurance Coverage Status and Type of Coverage by Selected Characteristics: 2001, Current Population Survey (CPS) of the Census Bureau of the United States, March. Available on Internet at Feder, J.; Komisar, H.L. and Niefeld, M "Long Term Care in the United States: An Overview", Health Affairs, Vol. 19, No. 3, pp HIAA Source Book of Health Insurance Data, , Health Insurance Association of America (HIAA), Washington D.C. Kaiser/Hewitt Current State of Retiree Health Benefits: Findings from the Kaiser/Hewitt 2002 Retiree Health Survey. Available on Internet at KPMG. Survey of Employer-Sponsored Health Benefits: 1988, Laschober, M.A.; Kitchman, M.; Neuman, P. and Strobic, A.A "Trends in Medicare Supplemental Insurance and Prescription Drug Coverage, ", Health Affairs - Web Exclusive, February 27 (W127-W138). MedPAC Assessing Medicare Benefits, Medical Payment Advisory Commission (MedPAC). Available on Internet at Rothschild, M. and Stiglitz, J "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information", Quarterly Journal of Economics, Vol. 90, November.

11 10 Super, N "Medigap: Prevalence, Premiums, and Opportunities for Reform", National Health Policy Forum Issue Brief, No. 782, September 9. The Commonwealth Fund Medicare's Future: Current Picture, Trends, and Prescription Drug Policy Debate. Selected Charts. Available on Internet at

12 11 Annex Charts 1-11

13 Chart 1 Public & Private Health Insurance Schemes for Pensioners: by Market Segment, Income, and Type of Care Non Poor Pensioners Hospital Care Medical Care Physician Care MEDICARE Drugs MEDICARE SUPPLEMENTAL HEALTH INSURANCE OPTIONS: RETIREE HEALTH INSURANCE MEDIGAP M + C OUT OF- POCKET Frailty Care FAMILY SUPPORT OR OUT-OF- POCKET PRIVATE INSURANCE MEDICARE MEDICAID Poor Pensioners MEDICARE + MEDICAID MEDICAID Chart Pensioners' Public Health Insurance Schemes Enrollment in Selected Years (Millions) Medicare Medicaid Medicare + Choice Source: CMS Web Site Note on Chart 2: Medicare + Choice enrollment prior to 1997 is Medicare beneficiaries enrollment in managed care organizations under earlier programs. 13

14 Chart 3 Medicare Premiums for 2003 Part A: (Hospital Insurance) Premium Most people pay no Part A premium because they or a spouse has 40 or more quarters of Medicare covered employment. $ per month (Paid by individuals who are not eligible for premium-free hospital insurance and have less than 30 quarters of Medicare covered employment). $ for individuals having quarters of Medicare covered employment. Part B: (Medical Insurance) Premium $58.70 per month. Medicare Plan Deductibles and Coinsurances for 2003 Part A: (Hospital Insurance) Deductible $ (Per Benefit Period) Coinsurance $ a day for the 61st - 90th day each benefit period. $ a day for the 91st - 150th day for each lifetime reserve day (total of 60 lifetime reserve days - non-renewable). Skilled Nursing Facility Coinsurance up to $ a day for the 21st - 100th day each benefit period. Part B: (Medical Insurance) Deductible and Coinsurance $ per year and 20% of the Medicare approved amount for services after the deductible. Health Care Expenditures Not Covered by Medicare Outpatient Prescription Drugs (With Limited Exceptions) Well Care, Screening Tests, and Vaccinations Cosmetic Surgery Dental Care Eye Care, Hearing Care, and Routine Foot Care Long Term Custodial Care in a Nursing or at Home Health Care Received While Traveling Outside the U.S. Chart 4 Sources of Payment for Medicare Beneficiaries, by Type of Service, 1999 Medicare pays a large proportion of the total expenses of services it covers. 100 Percent Percent of Covered of Expe Expenditure by Pa by yer Payer Inpatient Hospital Home Health Independent Labs Skilled Nursing Facility Medical Provider Outpatient Hospital Other 2 Medical Prescribed Medicines Long-Term Care 0.50 OOP 1 Other Medicaid Medicare 1 OOP is out-of-poc ket. 2 Other Medical includes things such as hospice and durable medical equipment. Source: CMS, Office of Research, Development, and Information: Data from the Medicare Current Beneficiary Survey (MCBS), 1999 Cost and Use File. 14

15 Chart 5 Supplemental Health Insurance by Source, 2002 Medicaid and Other Public Plans 15% Multiple Plans 9% None 8% Em ployer 37% Medigap 19% Medicare HMO 12% Source: The Commonwealth Fund 2003 Chart 6 Source: Laschober, et. al Note on Chart 6: Data on this Chart are from a different source than data on Chart 5 and do not appear to produce the same results. This Chart should be viewed for its multi-year coverage trends. 15

16 Chart 7 Prescription Drug Insurance by Source, 2002 None 25% Employer 32% Multiple Plans 4% Medicaid and Other Public Plans 17% Medigap 9% Medicare HMO 13% Source: The Commonwealth Fund 2003 Chart 8 50% 44% 45% 40% 40% 35% 30% 25% 20% 15% 10% 5% 0% Medicaid Frailty Care Insurance: Payments by Source, % Medicare 14% 26% Out-of-Pocket 31% Private Insurance 7% 8% 7% 5% All Other Nursing Home & Home Care Nursing Home Source: Feder, et. al

17 Chart 9 Per Capita Out-of-Pocket Expenses for Medicare Beneficiaries, by Type of Insurance Coverage Beneficiaries without supplemental insurance and those with Medigap coverage had the largest increase in per capita out-of-pocket spending between 1993 and Per Capita Dollars $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $2,862 $4,082 $2,406 $3,428 $2,691 $3,324 $2,268 $3,008 $2,094 $1,922 $1,433 $1,801 $500 $0 Medicare FFS Only Medigap Other Employer Sponsored Plan Medicaid Medicare Risk HMO Note: Premium payments are included. Source: CMS, Office of Research, Development, and Information: Data from the Medicare Current Beneficiary Survey (MCBS), 1993 and 1999 Cost and Use Files. Chart 10 Elderly Health Spending as a Percentage of Income, 2000 Most elderly households have incomes below $40,000 and spend a high percentage of their income on health care. Percent of Elderly Households Percent of Elderly Households by Income Elderly Households Health Spending as a Percentage of Income Percent of Income Spent on Health <$10 $10-$19 $20-$39 $40-$69 $70+ Income in Thousands 0 <$10 $10-$19 $20-$39 $40-$69 $70+ Income in Thousands Most Elderly Households Have Incomes Below $40,000 The Elderly Poor Spend a Greater Portion of Their Income on Health Source: CMS, Office of the Actuary: data from the Bureau of Labor Statistics, Consumer Expenditure Survey,

18 Chart 11 Medicare Beneficiary Out-of-Pocket Spending, 1999 The majority of beneficiary out-of-pocket spending is for Medicare cost-sharing and payment for non-covered services. Private Health Insurance Premium 21% Medicare Part B Premium 15% Direct Out-of-Pocket 64% Physician/Supplier 18% Outpatient Services 5% Inpatient Hospital/SNF 4% Long Term Care 41% Prescription Drugs 21% Dental 10% Home Health* 1% Medicare Cost- Sharing 27% Outside Medicare Benefit Package 73% Total Out-of-Pocket Expenses Direct Out-of-Pocket $115 billion $74 billion *These are for home health services not covered by Medicare. Note: 1) Data are for all beneficiaries, both fee-for-service and Medicare+Choice enrollees. 2) Total per capita direct out-of-pocket spending is $1,825. Source: CMS, Research, Development, and Income, Medicare Current Beneficiary Survey (MCBS) 1999 Cost and Use File. 18