Introduction A Brief Introduction to Medicarewevans1/health_econ/medicare.pdf · A Brief...
Transcript of Introduction A Brief Introduction to Medicarewevans1/health_econ/medicare.pdf · A Brief...
4/7/2015
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A Brief Introduction to Medicare
Health Economics
Bill Evans
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Introduction
• Social insurance– Government run insurance programs
– Typically
• have subsidized premiums
• have redistributive component
• Type of social insurance– Poverty programs
– Old age (Social Security)
– Disability
– Health care/insurance
– Unemployment
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Definitions
• Entitlements– Available to all who quality
• For example, if you quality for Medicaid (and enroll), you receive benefits
– In contrast, federally subsidized housing has a limited number of units, once units are gone, ‘benefit’ used up
• Mean tested– Eligibility is determined by income/asset limits
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• Federal government is the largest single provider of health insurance in the country– Medicare
– Medicaid
– Veteran’s Benefits
– Military Insurance
• In these next 2 weeks, we will discuss the first two
• Size of these programs make them important to consider
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• Medicare – insurance for – Elderly
– Disabled
– End stage renal disease (dialysis)
• Medicaid -- Insurance for people with medical needs and limited income – Poor and their children/ pregnant women
– Low income elderly
– Blind/Disabled
– Long term care
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Political Economy
• Long fought battles – Medicare originally proposed by Truman in 1945
– Medicaid was originally proposed to be part of original Social Security act of 1935
• Was opposed by medical groups and private insurers
• Successful adoption as part of Johnson’s ‘war on poverty’– Medicare signed into law July 31, 1965
– Medicaid Established in 1965
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Importance of M&M
• Large fraction of Federal/State spending
• Large fraction of Health care spending
• Large Fraction of all people with insurance
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Structure of Medicare
• Part A– Hospitalizations, short-term rehab, hospice: mandatory
– Funded by payroll tax, general revenues
• Part B– Outpatient charges: voluntary (most people purchase)
– Funded by premiums, general revenues
• Part D– Prescription drug, voluntary
– Funded by premiums, general revenues
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Medicare Advantage
• Created in 1997
• Alternative to traditional A+B/D coverage
• Private insurance companies cover seniors/reimbursed at fixed rates for coverage
– Companies paid per enrollee per month
– Must take ‘all comers’ in a county
• Usually HMO type coverage with some prescription drug plan
• Has higher deductibles and copays than traditional A+B coverage
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Cost sharing in Medicare, 2014
• Part A– $1,216 deductible (1st day of hospital stay)– Days 1-60 no copay, 61-90 $304 copay, $608 for days 91-15, Zip after 150
days– Pay all SNF costs for 1st 20 days, $152/day for 21—100, nothing after
100 days>• Part B
– Monthly premium of $104.90 (higher for high income)– $147 annual deductible– 20% coinsurance on physician services, outpatient care, ambulatory
surgical, preventive– No coinsurance on lab services
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Does the structure, the items covered, and the coinsurance rates in Medicare make
ECONOMIC sense?
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Medicare payroll tax
• 2.9% of all earnings • Employers/employees share equally (1.45%)
• Changes due to ACA– Tax raises to 2.35% on employees for
• Single > $200,000 in taxable income
• Married couple > $250,000 in taxable income
– High income people also subject to 3.8% tax on investment income
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Medicare Presc. Drug Improvement and Modernization Act 2003
• Signed 12/8/2003
• Effective 1/1/2006
• Voluntary drug plan – ‘Part D’
• 1st time Rx were part of Medicare
• Coverage provided by private entities– Stand alone if meet certain criteria
– As part of Part A/B coverage (Medicare Advantage plans)
– Gov’t fall back plan in areas without choice
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Motivation for Part D
• Rx important in medical treatment of elderly– Seniors represent 13% of the population– 1/3 of all scripts– 42% of spending on Rx drugs
• Among the elderly, 85% receive a Rx during the year• Growing fraction w/ Rx Coverage• Purchased through
– Retiree benefits– Medigap policy
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Top 5 drugs among the elderly (2003)
Drug What it treats? Annual cost
Lipitor Cholesterol $871
Novasc Calcium $549
Fosamax Bone density $894
Prilosec Anti-ulcer $1,684
Celebrex Rheu. Arth. $2,102
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Costs?
• Original CBO estimates (Costs – revenues) – $495 billion in 2004-2013
• Second set of numbers– $593 billion in 2004-2013
• Third set of estimates– $640 billion in 10 years
• Actual numbers were $410 billion
Savings?
• Increased use of generics
• Reduced growth of Rx prices
• Competition?– Part D is primarily provided by private providers
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Offsets?
• Virtually all seniors now have Rx coverage
• Rx use way up
• Has access to Rx coverage reduced hospitalization rates?
• CMS has reduced Medicare’s 10-year projected costs by $137 billion – Much of it due to Medicare part D
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The Future of Medicare
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Medicare
• 2010
• 47 million recipients
• $524 bill. exp.
• 3.2% of GDP
• 16% of fed. budget
• 2040
• 87 million recipients
• 6% of GDP
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Future problems
• Rising costs
• Rising number of elderly
• People are living longer– Older people spend a lot more on health care
• Falling fraction of people to tax
• Growing share of disabled on program
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13.9 14.315.2
16.417.2
18.018.7
10.410.9 11.0 11.2 11.3 11.4
12.0
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8
10
12
14
16
18
20
1950 1960 1970 1980 1990 2000 2005
Rem
ain
ing
Ye
ars
Year
Remaining Life Years at Ages 65 and 75
At age 65
At age 75
35% ↑
15% ↑
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9.2% 9.9%11.3%
12.6% 12.4% 13.0%
16.1%
19.3% 20.0% 20.2%
0.52% 0.74% 0.99% 1.24% 1.51% 1.85% 1.93% 2.34%3.50% 4.34%
0%
5%
10%
15%
20%
25%
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Axi
s T
itle
% of Population by Age Group
65 and over 85 and over
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16.620.1
25.531.2
35.040.2
54.8
72.1
81.288.5
0.9 1.5 2.2 3.1 4.2 5.8 6.6 8.714.2
19.0
0
10
20
30
40
50
60
70
80
90
100
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Popu
latio
n in
Mill
ions
Population by Age Group(in millions)
65 and over 85 and over 44
$3,638 $4,422
$8,370
$15,857
$34,783
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
0-18 19-44 45-64 65-84 85+Age Group
Medical Expenditures per Person, by Age, 2010
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5.5
4.74.5 4.3
4.0
3.2
2.6 2.5
0
1
2
3
4
5
6
1970 1980 1990 2000 2010 2020 2030 2040
Ratio
Year
Ratio: 20‐64 Population/Medicare
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Policy Options
• Raise eligibility age 65-67– Reduce spending by $113 billion over 10 years
– Only $11.3 billion/year
• Raise Part B and D premiums– Raise enrollees’ share of costs from ~25 to 35%
– Save $241 billion over 10 years
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• Increase Medicare payroll tax– Increase from 2.9 to 3.9 percent for all, with an additional 0.9
percent tax for high wage earners (>$200K for individuals, $250K for couples)
– Raise $651 billion over 10 years
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Medicare Sustained Growth Rate
• Passed as part if 1997 Balanced Budget Act
• Set targets for Medicare growth
• Reimbursement rates in year t+1 adjusted based on how far off expenditure growth was in year t
• GDP growth + 1%
• 1997-2001, modest increases in fees
• 2002, physician fees reduced 4.8%
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• Tremendous political pressure from providers
• Every year since, Congress has passed legislation delaying the fee cuts
• Result – has fallen further and further behind the stated targets
• The cumulative effect has been that to be in compliance with SGR, cost would be $300 billion over 10 years
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• Proposal – reset SGR target to 2011 level and constrain growth at GDP+1%
• Cost would be $314 billion over 10 years
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