Lecture Health economics - Chapter 14: Medicare

Lecture Health economics - Chapter 14: Medicare. This chapter presents the following content: The medicare program, coverage, financing, case study, medicare costs, medicare financing, patient cost sharing, physician prospective payment system,...

Professor Vivian Ho Health Economics

Fall 2009

Coverage Financing Case Study

The Medicare Program

Target population - individuals 65+, certain disabled people, and people with kidney failure

Part A - Hospital Insurance program

Part B - Supplemental Medical

Insurance program (voluntary)

Physician servicesOutpatient care

Emergency room services

17.7m enrollees in 1966, 41.7m in 2008

*Source: www.cms.hhs.gov

Medicare Financing - Part A

Part A Trust Fund

Part A Patient Cost Sharing

No hospital inpatient coverage after 90 days

Except for 60-day lifetime reserve

Medicare offers no coverage in

“catastrophic circumstances.”

Part A Patient Costs

1966 $ 40

1975 92

1980 180

1985 400

1990 592

1995 716 2000 776 2005 912 2009 1068

10

23 46

45 90

100 200

148 296

179 358

194 388 228 456

Year Days 1-60 Days 61-90 After 90 Days

Deductible Daily Coinsurance

Medicare Part B Financing

Funding sources

Monthly premium paymentsContributions from general revenue of the U.S Treasury

Part B Trust Fund

Year Income Disbursements Balance

Part B Patient Costs

20 78.20

20 96.40

Year Deductible Annual Coinsurance Rate Premium Monthly

Medicare Part C

Since the 1980s, the aged could

voluntarily enroll in Medicare HMOs

HMO receives capitated payment based on Part A and B beneficiary costs adjusted for age, sex, region, etc

HMO can provide lower copays and

outpatient drugs not covered by Medicare Part B

Medicare Part C: Medicare+Choice

1997 BBA increased the variety of

managed care plans under Medicare

PPOs - physician networks

PSOs - owned by hospitals and physiciansPOS - extra fee for out-of-network care

Private FFS

no limits on premiums charged to beneficiaries

MSAs

Turnover reduced by requiring

enrollment for at least 1 year

Medicare Part C: Medicare+Choice

Medicare Part C: Medicare+Choice

Enrollment and plan participation has

varied over time, but shows a strong net gain

Plans are putting more limits and

copays for prescription drug coverage

Most elderly have access to a plan with

no premiums, but the share is falling

Medicare Part A Provider

Reimbursement

1983, Prospective Payment System

Medicare patients were classified by principal diagnosis into 1 of 470 Diagnosis Related Groups (DRGs)

s Adjustment

Hospital x

Payments

Outlier s

Adjustment

gional x

weight

DRG x

DRG 103 - heart transplant, weight=20.5419

2) Patient Outcomes

No evidence that quality of care changed for Medicare patients as a result of PPSHowever, hospital admissions and length

of stay declined

3) Hospitals

Profits from Medicare patients initially fell, but some hospitals still very profitable

Are higher costs “worth it”?

Life Expectancy and Costs for Medicare Patients w/ a new heart attack:

Regional comparisons paint a different

Regional survival rates for AMI, stroke,

GI bleeds not correlated with higher

health care spending

Medicare Part B Provider

Reimbursement

1989 Omnibus Reconciliation Act

1) Prospective payment system for

3) Strict limits on balance billing

Additional fees physicians can charge to Medicare patients above Medicare

reimbursement rates

Physician Prospective Payment System

Pre 1992, Medicare reimbursed

physicians retrospectively

Physicians were paid lowest of bill

submitted, physician’s customary charge,

or area’s prevailing rate for that service

Physicians had incentives to raise charges,

in order to raise future rates

1992-96, Gradual phase-in of

Resource-Based Relative Value Scale

Fee schedule based on estimated time, effort, resources required for various

physician services

Favors evaluation and management

services (e.g office visits w/ established patients over technical medical

procedures)

e.g 1992: Average fees for GP’s rose

10%, specialty surgeons experienced an 8% fall

2003 Medicare Modernization Act

Created Medicare Part D

Prescription Drug Benefit- Jan 2006

Private insurers offer drug plans

subsidized by CMS

Drug-only insurance plans

Medicare Advantage comprehensive plans

eg. PPO’s or HMO’s

2003 Medicare Modernization Act

All private insurers must include certain

features in their policies:

$250 deductible for drug purchases

25% copay for the next $2000

100% copay for purchases from $2250 to $5100the “donut hole”

5% copay for purchases > $5100

‘catastrophic coverage’

2003 Medicare Modernization Act

Plans may compete for customers

2003 Medicare Modernization Act

CMS pays insurers a subsidy equal to 75% of the expected costs of all

accepted plans

Insurers bid for access to the Medicare market before they know their actual

costs

2003 Medicare Modernization Act

Initial cost impact of MMA may be low, because copayments are so high

But the number of highly effective, cost drugs > $10,000 is growing

high-Numerous regulations restrict price

competition

Limited penalties for cost over-runs

Insurers reimbursed 80% of costs if > 2.5%

of projected costs