The Basics of Medicare and Medicaid

Judith R. LaveUniversity of Pittsburgh

Medicare Eligibility

Individuals age 65 or over Individuals who have been on Social

Security Disability for two years. Individuals with End Stage Renal

Disease (Kidney Failure) -2 year waiting period does not apply

Medicare is Made Up of Four Parts

Medicare Part A HI- hospital insurance

Medicare Part B SMI – Supplemental Medical Insurance

Medicare Part C Medicare Advantage

Medicare Part D Medicare Drug Coverage

Medicare Part A

Helps pay For Inpatient hospital care (all types) Skilled nursing care Hospice Care Limited home health (up to 100 days post

hospital discharge ) People are entitled to Part A if they or

their spouse have paid payroll taxes for 40 quarters or more

Medicare Part A

Part A is funded primarily by a dedicated tax of 2.9% of earnings (no limit) paid by employers and employees (1.45% each) Paid into a dedicated Trust Fund

There is some cost-sharing (2007) Hospital: $992 deductible per spell of

illness; $248 per day for days 61-90; $286 per day for days 91 – 150, 100% after day 150

Skilled Nursing Home: $124 per day 21 through 100 each benefit period.

Medicare Part B

Pays for Physician services, outpatient hospital

services, certain home health services and durable medical equipment

Cost Sharing (2007 Deductible of $131.00 per year 20% of approved charges after deductible No cost sharing on home health

Medicare Part B

Medicare Part B is financed through premiums (about 25%) and general revenues

2007 Premium was $93.50 a month Premium is higher if income is above

$80,000 (individuals) or $160,000 (families)

Medicare Part C

Part C provides care through managed care plans, regional PPOs and private fee for service plans.

It is called Medicare Advantage

About 20% of Medicare beneficiaries are currently in Medicare Advantage

Note

People who do not enroll in a Medicare Advantage Plan are said to stay in

Traditional Medicare or Fee-for-service Medicare

Part C

Plans must cover the same services as Part A and Part B

It is financed by fixed payments from CMS tied to the gov’t cost of traditional Medicare.

People in Part C must be enrolled in both Parts A&B.

An Issue of Controversy

MA plans receive a capitated payment that is higher than the government’s average cost of covering Medicare beneficiaries that stay in traditional Medicare by about 10%

These additional payments increase attractiveness of MA plans by allowing them to reduce cost-sharing or offer additional benefits.

Part D

Voluntary drug program Provided by private stand-alone drug plans or

Medicare Advantage plans Subsidies for individuals with low income and

assets Financed by beneficiary premiums of about

$22 per month, general revenues and state payments (state clawbacks)

Complicated cost-sharing structure – plans may offer actuarial equivalent coverage

Standard Medicare Drug Benefit, 2006

$386 average annual premium***

$250 Deductible

$2,250 in Total Drug Costs*

$5,100 in Total Drug Costs**

25%

5%

$2,850 Gap: Beneficiary Pays 100%

Medicare Pays 75%

Medicare Pays 95%

No Coverage (the “doughnut hole”)

Catastrophic Coverage

Partial Coverageup to Limit

Beneficiary Out-of-PocketSpending

*Equivalent to $750 in out-of-pocket spending. **Equivalent to $3,600 in out-of-pocket spending.***Based on $32.20 national average monthly beneficiary premium (CMS, 8/2005).SOURCE: KFF analysis of standard drug benefit described in Medicare Modernization Act of 2003.

Exhibit 8

Return to KaiserEDU.org

Total = $374 billionNote: Does not include administrative expenses such as spending forimplementation of the Medicare drug benefit and the Medicare Advantage program. SOURCE: Congressional Budget Office, Medicare Baseline, March 2006.

Medicare Benefit Payments By Type of Service, 2006 (KFF)

Hospice2%

Payments to Drug Plans4%

Other Facility Services5%

Hospital Outpatient5%

Physician and Other Suppliers

24%

Home Health3%

Managed Care(Part C)

14%

Skilled Nursing Facilities5%

Hospital Inpatient34%

Payments to Union/Employer-Sponsored Plans

1%

Low-Income Subsidy Payments

3%

Exhibit 11

Part A

Part B

Parts A and B

Part D

KFF –Kaiser Family Foundation

These slides were downloaded from tutorials on the Kaiser Family Foundation Web-site.

www.KFF.org

Ten Percent of All Medicare Beneficiaries Account For More than Two Thirds of

Medicare Spending (KFF)

25%

11%

7%

9%

8%

16%

53%

2%

54%

4%

4%

$25,000 or More

$15,000-$24,999

$10,000-$14,999

$5,000-$9,999

$1,000-$4,999

$0-$999

SOURCE: Kaiser Family Foundation analysis of the Medicare Current Beneficiary Survey 2002 Cost and Use File.

Total Number of Beneficiaries: 41.8 million

Total Medicare Spending: $224.5 billion

6% 10%

69%

Exhibit 13

2002 average = $5,370 per capita

Number of Medicare Beneficiaries 2005

Total: 42,394,929 % disabled (age < 65): 15.8%

(Note % disabled is increasing over time: 1980, 10.4%, 1995, 11/7%)

http://www.cms.hhs.gov/MedicareEnrpts/

Value of Medicare

Pays for the majority of health care services for people 65 and over and the disabled.

Leads to an increase in life expectancyLeads to an increase in quality of life

Trusted Program

Problems With Medicare

Medicare does not cover many services – long term care, vision, hearing Average Medicare beneficiary has out of pocket

expenditures of $3,765, Medicare paid for 46% of health care expenditures for elderly.

Payment system needs to be revised – major changes in hospital payments this year

Medicare payments per beneficiary vary widely dramatically geographically with no measurable affects on health

Some Challenges

Improve payment system to promote quality and increase efficiency

Improve coverage for the chronically ill and address long term care problems

Determine balance between Traditional Medicare and Medicare Advantage Should Medicare Advantage be Subsidized?

MAJOER CHALLENGE

Medicare’s Cost Pressures

Composition of Federal Spending in FY 2007

SOURCE: OMB, Fiscal Year 2007 Budget, February 2006.

2007 Total Outlays = $2.77 trillion

Exhibit 12

Medicare14%

Medicaid and SCHIP

7%

Other12%

Net Interest9%Nondefense

Discretionary18%

Social Security21%

Defense Discretionary

19%

Return to KaiserEDU.org

Medicare Expenditures1998-2005

NOTE: Per capita amounts based on July 1 Census resident based population estimates for each year. Numbers and percents may not add to totals because of rounding. $ amounts shown are in current dollars.SOURCE: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group; U.S. Bureau of the Census.

Amount in Billions

202.4 206.1 216.4239.9

257.6275.6

303.4331.4

0

50

100

150

200

250

300

350

1998 1999 2000 2001 2001 2003 2004 2005

Medicare

Historical and Projected Number of Medicare Beneficiaries and Number of Workers Per

Beneficiary

39.7

46.5

61.6

2000 2006 2010 2020 2030

SOURCE: 2001 and 2006 Annual Reports of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds.

Number of beneficiaries (in millions)

Number of workers per HI beneficiary

3.7

2.9

2000 2006 2010 2020 2030

Exhibit 15

42.7

78.6 4.0

2.4

3.9

Return to KaiserEDU.org

Key Dates for Medicare Part A Trust Funds

First year outgo exceeds Income excluding interest 2007

First year outgo exceedsIncome including interest 2011

Year Trust Funds are Exhausted 2019

Medicare Expenditures as a % of GDP

WHY ARE WE FOCUSING ON MEDICARE AND NOT SOCIAL SECURITY?

Social Security and Medicare Cost as a Percent of GDP

Why is Medicare Growing So Much faster than Social Security

Technological change in the absence of any effective restraining mechanism Technological change – which both increases the number of people who can get a given treatment (i.e. bypass) and the treatments available lead to increasing costs.

Questions?

Does Society want to allocate such a high proportion of its GDP to Medicare (note its somewhat limited benefits)

Does Society want to raise taxes to enable Medicare beneficiaries to get these services

Does Society want to allocate such a high proportion of its overall resources to the health of the elderly.

Medicaid

Established in 1965 States manage the program subject to

Federal guidelines States must cover certain groups

(defined by age, disability and income) and may cover other groups

State must cover certain services and may cover other services.

Medicaid Financing

The federal government shares in the cost of the Medicaid.

The Federal Match varies across the states from 50% to 78%

Federal Match in PA is 54.39%

Medicaid Eligibility & Benefits for Medicare Beneficiaries, 2005

Pathway Income Eligibility

Asset LimitIndividual/Couple

Medicaid Benefits

Medicare Premiums & Cost-sharing

SSI Cash Assistance

< 74% of poverty(SSI income eligibility)

$2,000$3,000

X X

Qualified Medicare Beneficiary (QMB)

< 100% of poverty $4,000$6,000

X

Specified Low-Income Beneficiary (SLMB) Copied from Medicaid

100-120% of poverty

$4,000$6,000

Premium only

Mandatory Populations: (Medicaid 101. ww.kaiser.edu)

Medicaid Eligibility & Benefits for Medicare Beneficiaries, 2005

(cont’d)

Pathway Income Eligibility

Asset LimitIndividual/ Couple

Medicaid Benefits

Medicare Premiums & Cost-sharing

Medically Needy

Individuals who spend income down to a specified level

$2,000$3,000

X* X

Poverty Level < 100% of poverty $2,000$3,000

X X

Special Income Rule for Nursing Home Residents

Institutionalizedindividuals withincome < 300% of the SSI level

$2,000$3,000

X X

HCBS Waivers Must be eligible for institutional care

X X

Optional Populations

*Medicaid benefits may be more limited than for SSI.

Eligibility and Covered Services for PA

M Costlow and J. lave, Faces. www.PAMedicaid.pitt.edu

Federal Poverty Level 2007

Persons in Family Guideline 1 $10,210 2 13,690 3 17,170 4 20,650

Medicaid Benefits

Physician services

Laboratory and x-ray services

Inpatient hospital services

Outpatient hospital services

Early and periodic screening, diagnostic, and treatment (EPSDT) services for individuals under 21

Family planning

Rural and federally-qualified health center (FQHC) services

Nurse midwife services

Nursing facility (NF) services for individuals 21 or over

Prescription drugs

Clinic services

Dental services, dentures

Physical therapy and rehab services

Prosthetic devices, eyeglasses

Primary care case management

Intermediate care facilities for the mentally retarded (ICF/MR) services

Inpatient psychiatric care for individuals under 21

Home health care services

Personal care services

Hospice services

“Mandatory” Items and Services “Optional” Items and Services

Other Medicare

Beneficiaries32.4 Million

82%

Full Dual Eligibles

6.1 Million 15%

Partial DualEligibles

1.1 Million 3%

Total Medicare Beneficiaries = 40 million

SOURCE: KCMU estimates based on CMS data and Urban Institute analysis of data from MSIS.

Total Duals =

7.2 million

Medicaid Status of Medicare Beneficiaries, FFY 2002

Medicaid Payments Per Enrolleeby Acute and Long-Term Care, 2003

Children Adults Disabled Elderly

$1,700 $1,900

$12,300 $12,800

SOURCE: KCMU estimates based on CBO and Urban Institute data, 2004.

Long-TermCare

AcuteCare

Some PA Data

Medicaid covers about 14.8% of Pennsylvanians on an average month

Medicaid covers 44% of all children Medicaid expenditures are = $14.4

billion dollars ($7.6 Billion Federal) It accounts for 19% of general

fundspending

Figure 5: Percent of Pennsylvania Citizens Enrolled in Medicaid by Age

September 2006

Note. Data provided by PA DPW: Commonwealth of Pennsylvania, Department of Public Welfare (PA DPW). (2006). Medical Assistance Eligibility Statistics, (PA DPW). Provided to authors by Director, August–December 2006.

18%

29%

7%

22%

13%

11%

under age 6

age 6 to 17

age 18 to 21

age 22 to 45

age 46 to 64

age 65 and older

Figure 4: Distribution of Pennsylvania Medicaid Recipients and Expenditures by Broad Eligibility

Category in 2005

State Only, 6% State Only, 8%

Children & Families, 24%

Children & Families, 61%

Disabled, 33%

Disabled, 20%Elderly, 35%

Elderly, 13%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

# of Eligibles By Expenditure

Note. Data provided by PA DPW: Commonwealth of Pennsylvania, Department of Public Welfare, Office of Medical Assistance Programs. (2006). 2005/2006 Annual Report. Retrieved February 22, 2007, from http://www.dpw.state.pa.us/Resources/Documents/Pdf/AnnualReports/OMAP05-06AnnualReport.pdf.

Figure 6: The Proportion of Medicaid Recipients to Pennsylvania County Populations in 2006

Note. Data Provided by PA DPW. Other information from U.S. Census Bureau, 2006.[1]Pennsylvania map provided via 'Do It Yourself' Color-Coded State Maps, http://monarch.tamu.edu/~maps2/, Texas A&M University System.Commonwealth of Pennsylvania, Department of Public Welfare (PA DPW). (2006). Medical Assistance Eligibility Statistics, (PA DPW). Provided to authors by Director, August–December, 2006. and U.S. Census Bureau. (2006). State and County QuickFacts. Retrieved November 15, 2006, from http://quickfacts.census.gov/qfd/states/42000.html

Figure 3: Pennsylvania Medicaid Recipients from

1997–2005

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

1997–98 1998–99 1999–00 2000–01 2001–02 2002–03 2003–04 2004–05 2005–06

Years

Num

be

r o

f Reci

pie

nts

Year Totals

Children and Families

Note. Data provided by PA DPW: Commonwealth of Pennsylvania, Department of Public Welfare (PA DPW). (2006). Medical Assistance Eligibility Statistics, (PA DPW). Provided to authors by Director, 1997–2006.

COST PROBLEMS COME TO MEDICID

Medicaid Expenditures1998-2005

NOTE: Per capita amounts based on July 1 Census resident based population estimates for each year. Numbers and percents may not add to totals because of rounding. $ amounts shown are in current dollars.SOURCE: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group; U.S. Bureau of the Census.

Amount in Billions

158.2171.3

187208.9

230.7250.9

269.9289.3

0

50

100

150

200

250

300

350

1998 1999 2000 2001 2001 2003 2004 2005

Medicaid

5.3%6.6%

5.2% 5.1%

2.0%3.2%

4.9%

-3.5%

-7.8%

6.4%

9.2%

10.6%

12.7%

8.5%7.9% 7.5%

5.3%

3.8%

1997 1998 1999 2000 2001 2002 2003 2004 2005

State Tax Revenue Medicaid Spending Growth

Underlying Growth in State Tax RevenueCompared with Average Medicaid Spending

Growth, 1997 - 2005

NOTE: State Tax Revenue data is adjusted for inflation and legislative changes. Preliminary estimate for 2005.

SOURCE: KCMU Analysis of CMS Form 64 Data for Historic Medicaid Growth Rates and KCMU / HMA Survey for 2005 Medicaid Growth Estimates; Analysis by the Rockefeller Institute of Government for State Tax Revenue.

Composition of Federal Spending in FY 2007

SOURCE: OMB, Fiscal Year 2007 Budget, February 2006.

2007 Total Outlays = $2.77 trillion

Exhibit 12

Medicare14%

Medicaid and SCHIP

7%

Other12%

Net Interest9%Nondefense

Discretionary18%

Social Security21%

Defense Discretionary

19%

Return to KaiserEDU.org

Changes in Medicaid

Medicaid is changing due in part to the addition flexibility given to the states under the Deficit Reduction Act.

Trend did turn down this year.

What’s at Stake in Medicaid Reform (KFF)

Health Insurance Coverage

25 million children and 14 million adults in low-

income families; 6 million persons with disabilities

State Capacity for Health Coverage

43% of federal funds to states

MEDICAID

Support for Health Care System

17% of national health spending

Assistance to Medicare

Beneficiaries

7 million aged and disabled — 18% of

Medicare beneficiaries

Long-Term Care Assistance

1 million nursing home residents; 43% of long-

term care services