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Tricia Neuman, Sc.D.

Director, Medicare Policy Project

Vice President, Kaiser Family Foundation

For

KaiserEDU

June 2009

Medicare 101: The Basics

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Medicare Overview

1965: Signed into law by President Johnson to provide health and economic security to seniors

1972: expanded to cover younger adults with permanent disabilities

2009: covers 45 million people, including 7 million under-65 disabled

Covers individuals without regard to income or medical history

Helps pay for range of medical services, including inpatient hospital, physician, home health, diagnostic tests and prescription drugs

Exhibit 2

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Percent of total Medicare population:

NOTE: ADL is activity of daily living. SOURCE: Income data for 2007 from U.S. Census Bureau, Current Population Survey, 2008 Annual Social and Economic Supplement. All other data from Kaiser Family Foundation analysis of the Centers for Medicare & Medicaid Services Medicare Current Beneficiary Survey, Access to Care file, 2006.

Income <200% FPL ($20,800 in 2008)

Cognitive/Mental Impairment

Long-term Care Facility Resident

3+ Chronic Conditions

Under-65 Disabled

Medicare Covers a Population with Diverse Needs and Circumstances

5%

12%

16%

17%

28%

29%

38%

46%

Fair/Poor Health

Age 85+

2+ADL Limitations

Exhibit 3

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• Medicare Part A – Hospital Insurance Program• Inpatient hospital, skilled nursing facility, home health, hospice • $1,068 deductible for hospital inpatient in 2009• Individuals (and spouses) entitled to Part A after paying payroll

taxes for 10+ years • Mainly funded by payroll tax contributions (1.45 percent from

employers/employees)

• Medicare Part B – Supplementary Medical Insurance• Physician visits, outpatient, preventive services, home health • $96.40 monthly premium in 2009; higher for beneficiaries with

higher incomes • $135 deductible; 20% coinsurance for physician visits and

outpatient hospital services

Exhibit 4

Medicare Parts A and B

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• Beneficiaries can enroll in regular fee-for-service program OR in a Medicare Advantage (MA) plan

• MA include HMOs, PPOs and other private health plans

• Some plans offer extra benefits and have lower cost-sharing requirements than traditional Medicare

• Access to doctors and other health care providers is typically limited to those in the plan’s network

• Plans are paid a fixed amount per enrollee

• On average, 14 percent more than it would pay under traditional Medicare

• This extra payment will increase overall costs to Medicare by about~$150 b over 10 years

Exhibit 5

Medicare Advantage (Part C)

6.96.1

5.36.1

8.7

10.8

1999 2001 2003 2005 2007 2009

Medicare Advantage Enrollment (in millions)

25% of beneficiaries are enrolled in Medicare Advantage plans in 2009

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Medicare Prescription Drug Benefit (Part D)Exhibit 6

Administered exclusively through private plans; not under fee-for-service program

- Stand-alone prescription drug plans (PDPs)

- Medicare Advantage prescription drug plans (MA PDs)

Premiums and cost-sharing vary; most plans have a gap in coverage (“doughnut hole”)

Additional premium and cost-sharing subsidies for low-income

Funded by general revenues, enrollee premiums and payments from states

Part D Stand-Alone Prescription

Drug Plan

Part D Medicare Advantage Prescription Drug Plan

Retiree Drug Coverage

No Drug Coverage

Other Drug Coverage

4.5million

10%

9.2 million20%

7.9 million18%

6.2million

14%17.5

million39%

Prescription Drug Coverage, 2009

45.2 Million Medicare Beneficiaries

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Home Health

Physicians and Other Suppliers

Medicare Advantage (Part C)

Hospice3%

Skilled Nursing Facilities

Hospital Inpatient

Hospital Outpatient

Payments to Drug Plans

Other Part B Benefits

Payments to Union/Employer-Sponsored Plans

1%

Low-Income Subsidy Payments

Medicare Benefit Payments, by Type of Service, 2009

Total Benefit Payments = $484 billionNotes: Total does not include $2.5 billion in administrative expenses such as spending for implementation of the Medicare drug benefit and the Medicare Advantage program. Total is net of $9.4 billion in recoveries for 2009.Source: Congressional Budget Office, Medicare Baseline, March 2009.

Part A

Part B

Part D

Part A and B

19%

4% 23%

5%

28%

4%6%

4%

5%

Exhibit 7

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7%3%7%

13%

12% 25%11%

39%

73% 77%

40%

85%

4% 2%

2%

1%

Payroll Taxes

General Revenue

BeneficiaryPremiums

Payments fromStates

Taxation of SocialSecurity Benefits

Interest and Other

Sources of Medicare Revenue in 2010

Source: 2009 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds.

PART A$237 Billion

PART D$66 Billion

PART B$196 Billion

TOTAL$499 Billion

Exhibit 8

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Medicare offers important coverage, but with high cost-sharing and benefit gaps

• Does not cover all medical benefits• Very limited long-term care coverage• No dental, hearing aids or eyeglasses

• Has relatively high cost-sharing requirements• Deductibles for Part A, Part B, and Part D• Coinsurance/copayments • Part D coverage gap (“doughnut hole”)

• No limit on out-of-pocket spending• Unlike typical plans offered by large employer

• Pays about half of beneficiaries’ total health and long-term care spending

Exhibit 9

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Supplemental Coverage Among Medicare Beneficiaries, by Income, 2006

Employer

Medicaid

Self-Purchased Only

Other Public/Private

No SupplementalCoverage

SOURCE: Kaiser Family Foundation analysis of the CMS Medicare Current Beneficiary Survey Access to Care File, 2006.

$10,000 or less

$10,001-20,000

$20,001-30,000

$30,001-40,000

$40,001or more

Exhibit 10

8%

20%

42%

52%

9%

52%59%19%

3%

1%1%

20%

21%

20%1%

14%16%

1%

<1%

11%7% 5%

21%

<1%<1%

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Median out-of-pocket health spending as a percent of income for Medicare beneficiaries is on the rise – especially for those with modest incomes

NOTES: In 2005, federal poverty level: $9,570/individual and $12,830/couple. SOURCE: Kaiser Family Foundation. “Skin-in-the-Game,” November 2008.

16.1%

21.9% 22.4%

14.9%

7.8%

5.4%

10.6%

17.6%16.0%

11.9%

Total <100% Poverty 100-199%Poverty

200-399%Poverty

400%+ Poverty

1997 2005

Exhibit 11

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20092018

(projected)Percent Increase

2009-2018

Part A: Hospital Insurance

Deductible $1,068 $1,584 48%

Part B: Supplementary Medical Insurance

Premiums $1,157 $1,577 36%

Deductible $135 $184 36%

Part D: Prescription Drug Benefit

Premiums $364 $667 83%

Deductible $295 $490 66%

Coverage gap $3,454 $5,755 67%

Medicare Premiums and Cost Sharing Projected to Increase

Exhibit 12

Annual Costs:

Source: 2009 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds.

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Medicare Spending and Financing

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Medicare accounts for 13% of federal spending and 22% of national health spending

Nondefense Discretionary

OtherNet Interest

Social Security

Defense Discretionary

Medicare

Medicaid/ CHIP

21%

13%

7%

13%9%

16%

23%

Total Federal Spending, 2009 = $3.1 trillion

Exhibit 14

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A small share of beneficiaries account for most of Medicare spending

90%

37%

10%

63%

Total FFS Beneficiaries, 2005: 37.5 million

Total Medicare FFS Spending, 2005: $265 billion

Average per capita* = $2,934

Average per capita* = $44,220

NOTE: Excludes Medicare Advantage enrollees*Average Medicare FFS Spending onlySOURCE: Kaiser Family Foundation analysis of the CMS Medicare Current Beneficiary Survey Cost & Use file, 2005.

Exhibit 15

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Medicare Financial Challenges

Part A Trust Fund - The hospital insurance trust fund is projected to be insolvent by 2017 – with insufficient funds to pay for all promised benefits

Worker to retiree ratio – The number of workers per beneficiary is projected to decline as the Medicare population grows in the future

GDP – Medicare spending is projected to double from 3.5% of GDP in 2010 to 6.4% of GDP by 2030.

The Congressional Budget Office indicates most of the growth is due to rising health costs, rather than the aging of the Baby Boom generation.

Exhibit 16

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Looking to the Future…

Medicare remains critical source of health coverage and economic security for many

Addressing fiscal pressures without shifting more costs to beneficiaries

Setting fair payment rates to providers and plans

Monitoring and improving Part D drug benefit

Assessing role of Medicare Advantage plans

Improving care to meet needs of those with coverage and chronic illnesses and disabilities

Ensuring affordability for lower-income beneficiaries

Strengthening coverage for long-term care services

Exhibit 17

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• Kaiser Family Foundation’s Medicare Policy ProjectKaiser Family Foundation’s Medicare Policy Project• kff.org/medicare/index.cfmkff.org/medicare/index.cfm

• Official Medicare siteOfficial Medicare site• medicare.gov/medicare.gov/

• Centers for Medicare & Medicaid Services (CMS)Centers for Medicare & Medicaid Services (CMS)• cms.hhs.govcms.hhs.gov

• Congressional Budget Office (CBO)Congressional Budget Office (CBO)• cbo.govcbo.gov

• Medicare Payment Advisory Commission (MedPAC)Medicare Payment Advisory Commission (MedPAC) • medpac.govmedpac.gov

Additional ResourcesAdditional Resources

Exhibit 18