MEDICARE

Outline
• Overview
• Eligibility
• History and Current Status
• Benefits and its Composition
• Cost Management
• Impacts on Expenditures and Health Outcomes
 WHAT IS MEDICARE?
 A federally-funded government health SOURCES OF HEALTH CARE FUNDS
(NHE, 2016)
insurance program for the elderly (65
or older) and the disabled. Others
18%
Medicare
20%
 Second largest domestic spending
program next to Social Security
 Only requirement is that the prospect Out of
Pocket
enrolee (or spouse) has worked and 11%
paid payroll taxes for at least a decade. Medicaid
17%
 In 2016, Medicare spending grew 3.6%
to $672b or 20% of NHE. $58.5m Private
enrolees as of 2017. Health
Insurance
34%
 BRIEF HISTORY AND MILESTONES
 July 1965: President Johnson ratified MEDICARE EXPENDITURES 1987 - 2016 (NHE, 2016)

Medicare Law 800.00 4.00%

 1972: President Nixon widened coverage 700.00 3.50%

• 1980: Expanded to home health services

Medicare Expenditures in USD Billions

600.00 3.00%

and introduced Medigap. 500.00 2.50%

• 1988: Extended Qualified Medicare

Beneficiaries 400.00 2.00%

• 1990s: Institutionalized SLMB and QI 300.00 1.50%

eligibility programs 200.00 1.00%

• 2003: President Bush signed the Medicare 100.00 0.50%

Prescription Drug Improvement and
Modernization Act which added the - 0.00%

2001
2000

2002
2003
2004
2005
2006
2007
2008
2009
1995
1987
1988
1989
1990
1991
1992
1993
1994

1996
1997
1998
1999

2010
2011

2013
2014
2015
2016
2012
Prescription Drug Benefit MEDICARE PERCENTAGE OF GDP
 MEDICARE IN RECENT TIMES
 November 2010: Patient Protection and Affordable Care Act introduced key reforms to
the Medicare Program
 Gradual elimination of the coverage gap in the prescription drug benefit
 Extended prevention benefits and created Accountable Care Organizations (ACOs)
 April 2015: Medicare Access and CHIP Reauthorization Act was legislated
 Known as the “Permanent Doc Fix,” the law repealed a 1990s provision and which
revised the reimbursement of Medicare doctors from a fee to service to a pay for performance
system.
 Extended QI Programs
 2018: The Bipartisan Budget Act was enacted to close the donut hole in the prescription
drug benefit part of Medicare
 MEDICARE BENEFITS

A B

MEDICARE
PROGRAM

C D
 ORIGINAL MEDICARE
A: HOSPITAL INSURANCE
Mandatory participation
Coverage for inpatient hospital
care, hospice and home services,
and inpatient stays in most skilled
nursing facilities.
Deductible of $1,316 for the first
60 days of care (2017)
Financed through a payroll tax
(1.45% each for employee and
employer)
B: SUPPLEMENTARY HEALTH
INSURANCE
Also known as outpatient or medical
coverage
Answers doctor and clinical lab
services, outpatient and preventive
care, screenings, surgical fees and
supplies, and physical and
occupational therapy.
Optional participation
Monthly premium, deductible and
coinsurance rate
Financed through general revenues
and premiums paid by beneficiaries
 OTHER PARTS
C: MEDICARE ADVANTAGE
Private plans approved by Medicare
to cover all services of Original
Medicare and usually Part D, with
bonus benefits.
Available through Health
Maintenance Organization (HMO),
private free-for-service (PFFS) or
regional/local preferred provider
organizations (PPOs) plans
Premiums, co-payments, and costs
vary per plan offering
D:PRESCRIPTION DRUG
BENEFIT
Outpatient prescription drug coverage
Voluntary benefit
Obtainable through a private plan
integrated with MA or a private stand-
alone drug plan available in your area.
Private drug plan requires a monthly
premium, deductible varies according
to indexed threshold – ‘donut hole’
Premiums vary per plan offering
 COST MANAGEMENT IN MEDICARE
 The growing financial burden at the early days of Medicare was worsened by a
Retrospective Payment System.
 This prompted the shift to a Prospective Payment System where a patient is
identified with Diagnosis Related Group and costs are fixed at the onset.
 Moral hazard risk : hospitals started to put clients to more expensive DRG
categories in order to profit from Medicare’s greater compensation.
 In terms of monitoring doctor costs, Medicare institutionalized a resources-
based relative value scale system which establishes fees based on relative
values of time and effort of physician labour in order to keep costs down.
 This was revised last 2015 on the MACRA
 Other controls include: (1) prevention of fraud and abuse and (2) bundling
fee-for-service payments and competitive bidding
 ASSESSING IMPACT ON SPENDING
AND HEALTH
 Finkelstein (2007) concluded that the MEDICARE COMPONENTS
(NHE, 2016)
establishment of Medicare led to Net Cost of Private
Health Insurance
increased spending. 5%
Prescription Drug
Benefit
 However, the impact on health 14%

outcomes remains inconclusive

(Finkelstein and McKnight, 2008).
 Given mounting healthcare costs, Hospital Insurance

Medicare’s pressure on the fiscal deficit

52%

remains to be strong (15% of federal

spending last year). Supplemental
Medical Insurance
29%

 Sustainable revenue sources must be

identified to counter growing costs
BIBLIOGRAPHY
• Centers for Medicare and Medicaid Services. (Modified last 17 April 2018). “NHE
Fact Sheet 2016.” Centers for Medicare and Medicaid Services. Retrieved from
https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-
reports/nationalhealthexpenddata/nhe-fact-sheet.html
• Feldstein, Martin. "Dealing with long-term deficits." American Economic
Review 106.5 (2016): 35-38.
• Finkelstein, Amy, and Robin McKnight. "What did Medicare do? The initial impact
of Medicare on mortality and out of pocket medical spending." Journal of Public
Economics 92.7 (2008): 1644-1668.
• Finkelstein, Amy. "The aggregate effects of health insurance: Evidence from the
introduction of Medicare." The Quarterly Journal of Economics 122.1 (2007): 1-37.
• Henry J. Kaiser Family Foundation. (24 March 2015). “Medicare Timeline.” Henry J.
Kaiser Family Foundation. https://www.kff.org/medicare/timeline/medicare-
timeline//
• Rosen, Harvey and Ted Gayer. “Government and the Market for Health Care. Public
Finance. 10th Ed. NY: McGraw-Hill. 2014.