Medicare
• Medicare
– covers health care for those over 65 – was established in 1964
– was fully in force in 1967
– part of President Johnson’s Great Society Programs
Public Insurance and the Elderly: Why It Is Needed
• A private insurance market for the elderly is likely to fail because of
– Adverse Selection
• the problem in insurance in which those who need it the most will be the only ones willing to pay for it driving the price up and driving out those who need it somewhat less
– Lack of a group
•
Those over 65 have a poverty rate that is typically 2-3 percentage points lower than
the rest of the nation.
•
The cost-split was intended to be 50-50 with the taxpayer and recipient paying
roughly equal shares. Today that split is 75-25 with taxpayers carrying the larger
share.
Why Medicare’s Costs Are High
• The elderly are susceptible to much more costly illnesses and treatments for these illnesses are expensive.
• Costs to patients are relatively low so there is the problem of the Third Party Payer
– when someone other than the producer or consumer pays the costs of a good or service and as a result neither is cost conscious
Costs of Medicare
0 50000 100000 150000 200000 250000 $ ( 0 0 0 0 0 0 )1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 Year
Real Medicare Spending
Retrospective Payments
• Most payments for services are made after the service has been rendered. • When there are third-party payments this can inflate costs.
• Gatekeepers can be used to limit these costs.
Medicare Nuts and Bolts
•
Medicare Part A
– Pays for hospital care
– Mandatory
•
Medicare Part B
Provider Types
Medicare, Part A
• Premiums – In 1999
• $309 for those between 65 and 72.5 • $170 for those over 72.5
• Deductible – In 1999
• $768 first the first day in the hospital • After the first day
– Medicare pays all
• of the next 60 days
• But $192 per day from 60-90 days
Prospective Payments and the DRG
•
All incidents are categorized by Diagnosis Related Groups (DRGs).
•
There are more than 400 DRGs
Medicare, Part B
• Premium
– In 1999 $45 per month (much lower than market prices) • Deductible
– In 1999 $100 per year (also much lower than market alternatives.) • Subsidy
No Prospective Payments
Medicare HMOs
No Coverage
•
Prescription Drugs
•
Long Term Care
Medicare Trust Fund
•
Like Social Security, the Trust Fund is made up of bought-back government debt.
•
Depending on assumptions, the trust funds will be out of bonds to sell in 2025 under
Trust Fund Estimates
0
200
400
600
800
$
B
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1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Year
Actual Balance
Intermediate Cost
Low Cost
High Cost
Medicare Part A Trust Fund
Taxes Necessary to Pay for Medicare
2
4
6
8
10
12
14
16
P
e
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o
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P
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2000 2010 2020 2030 2040 2050 2060 2070
Year
High Cost
Intermediate Cost
Low Cost
Current Rate
Medicaid
•
Medicaid
– covers health care for the poor
– was established in 1964
– was in full force in 1967
– part of President Johnson’s Great Society Programs
The Who’s
• Covers (1994)
– 18 million children
– 18 million adults
– 60% are female (75% of adults are women)
– 45% white; 24% black; 17% Hispanic (11% “unknown”)
• Children are eligible if
– they are under 19 and in households with income less than 133% of the poverty rate.
– they are under 1 and in households with income less than 185% of the poverty rate
• Adults are eligible if they qualify for
– TANF (Temporary Aid to Needy Families)
– SSI (Supplemental Security Income)
• Not all poor are covered
The How Much’s
•
The federal government pays states a matching grant (ranging from 50% to 70%) that
depends on the income of the state.
More Details
• States establish reimbursement rates for procedures
– rates must be high enough so that patients have adequate coverage. • States may choose to exclude some procedures
– most states choose not to cover abortions.
• Doctors and hospitals may choose not to accept Medicaid patients
Why Medicaid Costs So Much
•
Per patient expenditures per year on Medicaid are substantially higher (about 20%)
than non-Medicaid patients.
•
In part, this is a feature of the clientele
Medicaid and the Elderly
•
Medicare is the program for the elderly.
•
Medicaid is the program for the poor.
Expenses by Age Group (1996)
• Medicaid expenses per patient
– overall $4,250
– Children under 5 $1,406
– Elderly 75-84 $8,956
– Elderly over 85 $12,169
• Children make up half the Medicaid population and account for 22% of expenses.
Getting Medicaid to Pay for Nursing Homes
•
People have to show very little income and have very few assets in order for
Medicaid to pay for nursing home care.
The Relationship Between Medicare and Medicaid
• Medicare
– Part A is mandatory and has premiums, deductibles and co-payments. – Part B is voluntary and has premiums, deductibles and co-payments.
Cost Saving Measures in Medicaid
• Medicaid costs were rising 10% per year in the 1990s • HMOs
– Medicaid has increased it use of HMO’s from 5% coverage in 1990 to 50% by 1998. • Primary Care Physicians were established to minimize inappropriate emergency room use by
