medicare professor vivian ho health economics fall 2009

MedicareMedicare

Professor Vivian Ho

Health Economics

Fall 2009

TopicsTopics

Coverage Financing Case Study

The Medicare ProgramThe Medicare Program

Target population - individuals 65+, certain disabled people, and people with kidney failure

Part A - Hospital Insurance program (compulsory) Inpatient hospital services Skilled nursing care Home health care Hospice care

19.1m enrollees in 1966; 44.9m in 2008

*Source: www.cms.hhs.gov

Part B - Supplemental Medical Insurance program (voluntary) Physician services Outpatient care Emergency room services

17.7m enrollees in 1966, 41.7m in 2008

*Source: www.cms.hhs.gov

1966 1.8

1980 37.2

1990 109.5

1995 182.4

2000 225.2

2003 283.8

2006 408.3

2008 468.0

Medicare CostsMedicare Costs

Total Expenditures ($ billions)

Medicare Financing - Part AMedicare Financing - Part A

Funding Sources 2.9% payroll tax shared equally by

employers and employees Federal Hospital Insurance Trust Fund Enrollee deductibles and copayments

Part A Trust FundPart A Trust Fund($ millions)($ millions)

1967 $ 3,089

1975 12,568

1980 25,415

1985 50,933

1990 79,563

1995 114,847

2000 159,681

2005 196,921

2008 230,815

2,597 1,343

10,612 9,870

24,288 14,490

48,654 21,277

66,687 95,631

114,883 129,520

130,284 168,084

184,142 277,723

235,556 321,270

Year Income Disbursements Balance

Part A Patient Cost SharingPart A Patient Cost Sharing

No hospital inpatient coverage after 90 days Except for 60-day lifetime reserve Medicare offers no coverage in

“catastrophic circumstances.”

Part A Patient CostsPart A Patient Costs

1966 $ 40

1975 92

1980 180

1985 400

1990 592

1995 716

2000 776

2005 912

2009 1068

10 ---

23 46

45 90

100 200

148 296

179 358

194 388

228 456

267 534

Year Days 1-60 Days 61-90 After 90 DaysDeductible Daily Coinsurance

Medicare Part B FinancingMedicare Part B Financing

Funding sources Monthly premium payments Contributions from general revenue of the

U.S. Treasury

Part B Trust FundPart B Trust Fund

1967 $ 1,285

1975 4,322

1980 10,275

1985 24,577

1990 46,138

1995 58,169

2000 89,239

2005 151,307

2008 200,623

799 486

4,170 1,424

10,737 4,532

22,730 10,646

43,022 14,527

65,213 13,874

88,992 45,896

151,536 16,885

183,303 59,382

Year Income Disbursements Balance

Part B Patient CostsPart B Patient Costs

1966 $ 50

1975 60

1980 60

1985 75

1990 75

1995 100

2000 100

2005 110

2009 135

20 3.00

20 6.70

40 8.70

20 15.50

20 28.60

20 46.10

20 45.50

20 78.20

20 96.40

YearAnnual

DeductibleCoinsurance

RateMonthly Premium

Medicare Part CMedicare Part C

Since the 1980s, the aged could voluntarily enroll in Medicare HMOs

HMO receives capitated payment based on Part A and B beneficiary costs adjusted for age, sex, region, etc.

HMO can provide lower copays and outpatient drugs not covered by Medicare Part B

Medicare Part C: Medicare+ChoiceMedicare Part C: Medicare+Choice

1997 BBA increased the variety of managed care plans under Medicare PPOs - physician networks PSOs - owned by hospitals and physicians POS - extra fee for out-of-network care Private FFS

no limits on premiums charged to beneficiaries

MSAs Turnover reduced by requiring

enrollment for at least 1 year


Enrollment and plan participation has varied over time, but shows a strong net gain

Plans are putting more limits and copays for prescription drug coverage

Most elderly have access to a plan with no premiums, but the share is falling

Medicare Part A Provider Medicare Part A Provider ReimbursementReimbursement

1983, Prospective Payment System Medicare patients were classified by

principal diagnosis into 1 of 470 Diagnosis Related Groups (DRGs)

sAdjustment

Hospitalx

Payments

Outlier

sAdjustment

gionalx

weight

DRGx

payment

basePP 1

Re

DRG weight - index # reflecting relative cost of care

Examples from 2003:

DRG 33 - concussion, age<18, weight=.2072

DRG 103 - heart transplant, weight=20.5419

Impact of PPSImpact of PPS

1) Costs Cost growth has slowed periodically, but

they continue to grow in some periods Hospitals may have learned to game

the system

2) Patient Outcomes No evidence that quality of care changed

for Medicare patients as a result of PPS However, hospital admissions and length

of stay declined

3) Hospitals Profits from Medicare patients initially fell,

but some hospitals still very profitable

Are higher costs “worth it”?Are higher costs “worth it”?

Life Expectancy and Costs for Medicare Patients w/ a new heart attack:

Year Life Exp. Costs ($1991)

1984 5 2/12 $11,175

1986 5 4/12 11,998

1988 5 6/12 12,725

1990 5 9/12 13,623

1991 5 10/12 14,772 Higher costs improve outcomes

Regional comparisons paint a different Regional comparisons paint a different picturepicture

1995 average inpatient expenditures for Medicare patients in the last 6 months of life were 2 times higher in Miami vs. Minneapolis 25.4 specialist visits in Miami; 4.7 in

Minneapolis Regional survival rates for AMI, stroke,

GI bleeds not correlated with higher health care spending

Medicare Part B Provider Medicare Part B Provider ReimbursementReimbursement

1989 Omnibus Reconciliation Act

1) Prospective payment system for physicians

2) Limits on total growth in Medicare Part B expenditures by Congress Volume Performance Standards

3) Strict limits on balance billing Additional fees physicians can charge to

Medicare patients above Medicare reimbursement rates

Physician Prospective Payment SystemPhysician Prospective Payment System

Pre 1992, Medicare reimbursed physicians retrospectively Physicians were paid lowest of bill

submitted, physician’s customary charge, or area’s prevailing rate for that service

Physicians had incentives to raise charges, in order to raise future rates

1992-96, Gradual phase-in of Resource-Based Relative Value Scale Fee schedule based on estimated time,

effort, resources required for various physician services

Favors evaluation and management services (e.g. office visits w/ established patients over technical medical procedures)

e.g. 1992: Average fees for GP’s rose 10%, specialty surgeons experienced an 8% fall

2003 Medicare Modernization Act2003 Medicare Modernization Act

Created Medicare Part D Prescription Drug Benefit- Jan 2006

Private insurers offer drug plans subsidized by CMS Drug-only insurance plans Medicare Advantage comprehensive plans

eg. PPO’s or HMO’s


All private insurers must include certain features in their policies: $250 deductible for drug purchases 25% copay for the next $2000 100% copay for purchases from $2250 to $5100

the “donut hole” 5% copay for purchases > $5100

‘catastrophic coverage’


Plans may compete for customers based on: premium price formularies for which drugs are covered drug prices they negotiate with drug

manufacturers disease management services


CMS pays insurers a subsidy equal to 75% of the expected costs of all accepted plans

Insurers bid for access to the Medicare market before they know their actual costs


Initial cost impact of MMA may be low, because copayments are so high

But the number of highly effective, high-cost drugs > $10,000 is growing

Numerous regulations restrict price competition

Limited penalties for cost over-runs Insurers reimbursed 80% of costs if > 2.5%

of projected costs

Medicare CostsMedicare Costs

Projected Medicare cost increases are alarming

costs must be paid for w/ taxes or other spending

Part B & D premiums are set to cover 25% of costs 2003 Part B premiums = 15% of average SS

benefit Part B & D premiums expected to = 35% of

average SS benefit in 2010, 50% by 2030

medicare professor vivian ho health economics fall 2009

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