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Medicare LECTURE 13

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Page 1: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

Medicare

LECTURE 13

Page 2: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

By the end of this lecture, you should be able to:

Explain who is covered by MedicareExplain what Medicare covers:

Parts A – D

Explain how Medicare is financed Describe the financing challenge facing the Medicare systemDescribe how the new Rx drug benefit will work

Page 3: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

Medicare Overview

Established in 1965 (as part of LBJ’s “Great Society”)Health insurance at age 65: 44.1 Million Total Beneficiaries, 7.2 M disabledTwo Traditional Parts

Part A: Hospital Insurance (HI)Part B: Supplementary Medical Insurance (SMI)

Page 4: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

Medicare EligibilityPart A (hospital) is available to anyone over age 65 as long as entitled to Social Security, railroad retirement or civilian employee of federal gov’t. Coverage also extended to:

Persons age 65+ if dependent of fully insured worker over age 62Survivor age 65+ if eligible for SS survivor benefitDisabled persons at any age if eligible to receive SS benefits for two years because of disabilityAlso covers end-stage renal (kidney) disease for those requiring dialysis or kidney transplants

These individuals receive Part A at no cost

Page 5: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

Medicare Eligibility, cont.Persons 65+ not otherwise eligible for Medicare can voluntarily enroll, but they must pay a monthly part A premium (and must enroll in both parts A and B)

$244/month: 30-39 Calendar Quarters$443/month: Less than 39 Calendar Quarters

Page 6: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

Medicare Eligibility, cont.

Part B: Automatically covered if receive part ACharges monthly premium

• $96.40 per month in 2008 if take as soon as eligible ($85K/$170K or less Income) At $213/426K--$308.30

• Cost goes up 10% per year that you were eligible but did not take

• Annual Deductible: $135.00

Premium covers only about 25% of expected costs of part B benefits

Page 7: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

Part A Benefits (Hospital)Hospital stays

Semi-private room, meals, general nursing, and other hospital services and supplies

Skilled nursing facility care: 21 days paidOnly after related 3-day inpatient hospital stay$135.00 thereafter from 22-100 days

Home health care but limited in scopeHospice careBlood

Page 8: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

Part B Benefits (Dr. Visits)

Provides benefits for most medical expenditures not covered by Part A

Physician and surgeon feesDiagnostic tests, Physical therapyRadiation therapy, Medical supplies Medical equipment rental, ProstheticsLots more

Part A and B together are fairly comprehensive for hospital and doctor visits

Page 9: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

How Part B WorksPart B has $135 annual deductibleMedicare covers 80% of approved charges above this deductibleA select list of charges are covered in full (flu shots, some outpatient procedures, etc)Center for Medicare and Medicaid Services (formerly the Health Care Financing Administration) sets a fee schedule – most providers accept assignment of benefits & are thus prohibited from collecting more than set feeProviders are not required to see Medicare patients

Page 10: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

What is Missing from Coverage?Health care outside of USLong-term care (nursing homes)Rx Drugs (this changed on Jan 1 2006!)Routine physical, eye, and hearing examsRoutine foot careImmunizations (with a few exceptions)Cosmetic surgery (with exceptions)Dental careEyeglasses, hearing aids, orthopedic shoes

Page 11: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

Multiple Plans

Original Medicare PlanFee-for-service plan managed by federal government

Medicare AdvantageIncludes Medicare HMOs, Medicare PPOs, and other plans

Page 12: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

“Original” Medicare

You can go to any doctor that accepts Medicare and to any hospitalYou pay a deductible

Hospital: • $1068 per stay for of 1-60 days• $267per day for days 61-90• $534 for days 91-150• All costs for longer stays

$135 Medicare Part B

Above deductible, Medicare pays 80%

Page 13: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

Medigap

A health insurance policy sold by private insurance companiesDesigned to cover “gaps” in Medicare coverage:

Coinsurance, deductibles, etc.Other benefits such as travel outside of the US

In 47 states, the policies must be one of 12 standardized policies regulated by federal law

Page 14: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

“Medicare Advantage”Formerly known as Medicare+Choice (Part C)Health Maintenance Organizations (HMOs): generally must get care from within a network of doctorsPreferred Provider Organizations (PPOs): you pay less if stay in network, more if go outside network

Page 15: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

Part D

Prescription drug coveragePassed into law in late 2003 as part of “The Medicare Prescription Drug, Improvement, and Modernization Act of 2003”Coverage took effect on Jan 1, 2006Highly controversial (for both programmatic and budgetary reasons)More on this next time

Page 16: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

Financing of MedicareHI (part A) is financed by payroll taxes paid by workers and employers

Payroll tax of 2.9% (half employer, half employee)Unlike SS, wages are not capped – 2.9% is paid on all earnings (even if you earn $1 billion)Primarily “pay as you go” – today’s taxes pay for today’s beneficiaries

SMI (part B) is financed primarily be transfers from the general fund of the US Treasury and by monthly part B premiums paid by beneficiaries ($96.40—$308.300)

Page 17: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

Overall State of Medicare’s Finances

From the 2007 Medicare Trustee’s Report“As we reported last year, Medicare’s financial difficulties come sooner – and are much more severe – than those confronting Social Security.”“While both programs face essentially the same demographic challenge, underlying health care costs per enrollee are projected to rise faster than wages per worker on which the payroll tax is paid.”“As a result, while Medicare’s annual costs are currently 3.2% of GDP, or about 60% of Social Security’s, they are projected to pass Social Security expenditures in 2028 and reach almost 11% of GDP in 2082.”

Page 18: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

Overall Status, continued

The projected 75-year actuarial deficit in the HI Trust Fund is now 3.55 percent of taxable payrollThe fund again fails our test of short-range financial adequacy.Date of HI Trust Fund exhaustion .. 2019

Page 19: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

What is Driving Costs?

Demographics (just like SS)# of Beneficiaries

• 1999: 39.2 million• 2006: 43.2 million• 2080: 108 million

Rising Health Care CostsAvg Cost per beneficiary

• 1999: $5,502• 2004: $7,500 (6.4% annual growth for past 5 years)• 2006: $10,205 (first year of large scale Rx

coverage)

Page 20: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

Part A (HI) Finances

HI income is expected to fall short of payouts IN 2013 (vs 2017 for SS)The “Trust Fund” exhaustion date is 2019To bring into balance just over next 75 years would require a 108% increase in revenue or 48% reduction in outlaysMuch bigger changes required to make system permanently solvent

Page 21: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

Part B (SMI) and D (Rx) FinancesTechnically, both B and D are “projected to be adequately financed into the indefinite future”But this is because current law automatically sets financing each year to cover costs! Just because program is “adequately financed” does not mean there is no problemThis will result in:

Drain on general revenue rising from 1.0% of GDP today to 11% in 2081

• General revenue covers 75% of costs

Substantial increases in beneficiary premiums• Premiums theoretically cover 25% of costs

Page 22: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

FICA Taxes in Total(as % of earnings)

OASI DI OASDI

HI Total

Employees

5.30 0.90 6.20 1.45 7.65

Employers

5.30 0.90 6.20 1.45 7.65

Total 10.60 1.80 12.40 2.90 15.30

Earnings for tax purposes are capped for OASDI but not HI

Page 23: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

Funding Sources (2007)($ Billions)

Source OASI DI HI SMIPayroll Taxes

561 95 192

General Revenue

1 178

Interest 97 13 16 2Premiums

3 51

Benefit taxes

17 1 10

Other 1 7Total 675 109 224 238

Page 24: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

Chart B-Social Security and Medicare Cost as a Percentage of GDP

Source: www.ssa.gov/OACT/TRSUM/trsummary.html

Page 25: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

Chart C-Income and Cost Rates [Percentage of taxable payroll]

Source: www.ssa.gov/OACT/TRSUM/trsummary.html

Page 26: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

General Revenue Cost of Part B/D

SMI general revenue financing was <9% of federal income taxes in 2003If income taxes stay constant as share of GDP, then growth in SMI costs as % of federal tax revenue would be:

14% by 201029% by 203050% by 2078

Page 27: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

Key Dates for SS and Medicare

OASDI HI

First year outgo exceeds income (excl. interest)

2017 2004

First year outgo exceeds income (incl. Interest)

2027 2013

Trust Fund exhaustion

2041 2019

Page 28: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

Chart D-Medicare Expenditures and Non-Interest Income by Sourceas a Percent of GDP

Page 29: Medicare LECTURE 13. By the end of this lecture, you should be able to: Explain who is covered by Medicare Explain what Medicare covers: Parts A – D Explain

SMI Costs to IndividualsPart B and D greatly reduce the costs that beneficiaries would otherwise face for health careBut individual financial burden will still increase

Part B premiums and coinsurance for typical Medicare beneficiary = 16% of average SS benefit in 2006Once part D is included, premiums + coinsurance for Medicare as a fraction of SS benefit will be:

• 35% by 2010• 50% by 2030• 80% by 2078

Note: this overstates picture a bit because in absence of part D, they would still incur Rx drug costs out of pocket


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