Lecture Health economics - Chapter 14: Medicare. This chapter presents the following content: The medicare program, coverage, financing, case study, medicare costs, medicare financing, patient cost sharing, physician prospective payment system,...
Medicare Professor Vivian Ho Health Economics Fall 2009 Topics Coverage Financing Case Study The 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 Medicare Costs Total Expenditures ($ billions) 1966 1980 1990 1995 2000 2003 2006 2008 1.8 37.2 109.5 182.4 225.2 283.8 408.3 468.0 Medicare 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 Fund ($ millions) Year Income Disbursements 1967 1975 1980 1985 1990 1995 2000 2005 2008 $ 3,089 12,568 25,415 50,933 79,563 114,847 159,681 196,921 230,815 2,597 10,612 24,288 48,654 66,687 114,883 130,284 184,142 235,556 Balance 1,343 9,870 14,490 21,277 95,631 129,520 168,084 277,723 321,270 Part 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 Costs Deductible Year 1966 1975 1980 1985 1990 1995 2000 2005 2009 Days 1-60 $ 40 92 180 400 592 716 776 912 1068 Daily Coinsurance Days 61-90 10 23 45 100 148 179 194 228 267 After 90 Days 46 90 200 296 358 388 456 534 Medicare Part B Financing Funding sources Monthly premium payments Contributions from general revenue of the U.S Treasury Impact 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”? Life Expectancy and Costs for Medicare Patients w/ a new heart attack: Year Life Exp Costs ($1991) 1984 2/12 $11,175 1986 4/12 11,998 1988 6/12 12,725 1990 9/12 13,623 1991 10/12 14,772 Higher costs improve outcomes Regional comparisons paint a different picture 1995 average inpatient expenditures for Medicare patients in the last months of life were 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 Reimbursement 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 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 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 2003 Medicare Modernization Act 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’ 2003 Medicare Modernization Act 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 2003 Medicare Modernization Act 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 2003 Medicare Modernization Act Initial cost impact of MMA may be low, because copayments are so high But the number of highly effective, highcost 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 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 ... by Medicare Part B Medicare 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 -. .. out-of-network care Private FFS no limits on premiums charged to beneficiaries MSAs Turnover reduced by requiring enrollment for at least year Medicare Part C: Medicare+ Choice Medicare Part C: Medicare+ Choice... 8% fall 2003 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