RWJHPF 2005: Primer on Healthcare Finance, Medicare, Medicaid, and SCHIP

1
RWJ-HPF 2005Primer on Healthcare Finance,
Medicare, Medicaid, and SCHIP

• Howard P. Forman
• Yale University
• Howard.Forman_at_Yale.Edu

2
NHE and the Healthcare Economy
3
Health Care Spending (NHE) 2003Highlights

• 1.68 Trillion up by 7.7 from prior year. 5670
  per capita up by 6.6 (both are deccelerations
  from 9.3 and 8.2 from 2002 data)
• GDP (nominal) growth 4.9
• 15.3 of GDP (highest ever, grew by 0.4 this
  year)
• Healthcare, as percent of GDP, has been growing
  for 5 years now
• Private spending grew at a 8.6 rate and public
  spending at 6.6 (45.6 of NHE are PUBLIC, down
  from 45.9, last year)

4
What drives NHE?

• Never mistake aggregate changes for changes in
  utilization, alone.
• Policy changes
• a. Reimbursement by public payers Medicare AND
  Medicaid, primarily
• b. Coverage
• c. Manner of payment
• Direct payment versus through a private insurer
  or health system
• Utilization per person
• Population growth
• True inflation (healthcare inflation)
• Population shift

5
Where it came from
6
Where it went
7
Footnotes to Pie Charts

• 1 "Other Public" includes programs such as
  workers' compensation, public health activity,
  Department of Defense, Department of Veterans
  Affairs, Indian Health Service, and State and
  local hospital subsidies and school health.
• 2 "Other Private" includes industrial in-plant,
  privately funded construction, and non-patient
  revenues, including philanthropy.
• 3 "Other Spending" includes dentist services,
  other professional services, home health care,
  durable medical products, over-the-counter
  medicines and sundries, public health, research
  and construction.
• NOTE Numbers shown may not add to 100 because of
  rounding.

8
Components of Health Care Spending and Change
From Prior Year (2003)

• Research and Construction (aka inv.) 64.6 B
  9.1 1
• Hospital Care 515.9B 6.5
• Home Health Care 40B 9.5
• Nursing Home Care 110.8 B 4.0
• Physician Services 369.7 B 8.5
• Prescription Drugs 179.2 B 10.7
• Administration 119.7 13.2
• Overall 7.7
• CPI proxy (really CW-GDP-PD) 1.8
• Population Growth 1.0
• GDP (nominal) 4.9
• Personal Health Deflator (HC-CPI-proxy) 3.6

• Government administration and net cost of
  private health insurance
• 1 Research and development expenditures of drug
  companies and other manufacturers and providers
  of medical equipment and supplies are excluded
  from research expenditures but are included in
  the expenditure class in which product falls.

9
National Health Care Expenditures Growth (nominal)

• 1970 - 10.6
• 1980 12.9
• 1990 11.7
• 1991 - 9.5
• 1992 - 8.6
• 1993 - 7.3
• 1994 - 5.5
• 1995 - 5.4

• 1996 - 5.2
• 1997 5.3
• 1998 4.8
• 1999 5.6
• 2000 6.7
• 2001 8.5
• 2002 9.3
• 2003 7.7

10
(No Transcript)
11
(No Transcript)
12
Sustainable or not?

• Sustainable growth rates are those that do not
  consume a greater piece of the pie with time
• GDP is a proxy for the pie
• Thus GDP growth (nominal) must be the limit
  (long-run average) for health care expenditure
  growth
• Nominal GDP growth inflation real GDP growth

13
Sustainable or not?

• Govt estimates of sustainable rate of real GDP
  growth 3.6 2.6 Productivity and 1
  population growth
• Inflation rate 2.4 (best case long-term
  scenario?) (embedded rate in Long Bond is 2.85)
• Thus, nominal GDP growth in the long run is
  approximately 6
• Rate of health care spending growth can also,
  then, be 6 in the long run

14
If nothing else

• Remember the next slide!

15
(No Transcript)
16
Medicare
Note Please pay attention to dates on slides and
data CMS has discontinued the publication of
some valuable figures and these are occasionally
referenced for prior years.
17
Brief History of Medicare

• Enacted in 1965
• Patterned after private insurance products
• traditional indemnity
• 2 parts
• Hospital Insurance (Part A)
• Supplemental Medical Insurance (Part B)

18
Medicare Highlights(2004)

• 41.7 million people (35.4 M aged 6.3 M disabled)
  covered
• Combined expenditures growing faster than GDP
  (from 2.6 of GDP in 2002 to 5.3 in 2035 and
  then 13.6 in 2079)
• HI sources of income do not increase
  automatically, while SMI do
• Trust fund 289 Billion Expenditures - 309 B
  Income - 318B

19
HI-Medicare Part A (2004)

• Hospice care (since 1982)
• Inpatient Hospital services
• Skilled nursing facility care
• Home Health Agency (now transitioning to SMI)
• 22 of beneficiaries actually received HI
  services in 2002
• BBA- 1997 slowed expenditures depletion now
  predicted for 2020
• Average expenditure per enrollee increased by
  10.2 Now 4,064
• Intermediate estimates call for rates of growth
  of 1.4 5.6 per year for the next decade

20
Part A Financing(2005 figures)

• 65 years and older and eligible for any type of
  SS benefit automatically entitled. Requires 40
  quarters of Medicare-covered employment sliding
  scale for those with less.
• Non-entitled may pay (375/month increased from
  343)
• Co-pay is 228 per hospital day
• Deductible is 912
• Co-pay does not kick in until day 61 and then
  has to be paid for up to 30 more hospital days
• If hospital stay is longer than 90 days, the
  co-pay rises to 456 per day for a lifetime
  reserve of 30 more days, when you assume all
  fiscal responsibility
• Thus, a long hospitalization can bankrupt an
  elderly patient (if no medi-gap insurance is
  owned).
• This, then, becomes a somewhat regressive program
  in that the poorest patient will be less inclined
  to use marginal services
• Skilled Nursing Facility Care Totally covered
  for the first 20 days and then the patient covers
  114 per day for days 21 100. No further
  Medicare benefit.

21
Part A Financing

• 1966 - Deductible was 40
• 2005 - Deductible is 912 (increased from 876
  4.1)
• Benefits and administrative costs are paid from a
  trust fund financed by payroll taxes
• 1966, payroll tax basis was 6600 max. and rate
  was 0.35
• 2005, tax basis is infinite and rate is 2.9

22
CMS, 2005
23
Part A Trust Fund
CMS, 2005
24
Workers per Beneficiary
CMS, 2002
25
Medicare Part B - Supplemental Medical Insurance
(SMI)- 2005

• Physician services
• Durable medical equipment (DME)
• Outpatient medical services
• Clinical lab tests
• PT/OT
• Ambulance transportation
• Hep B, Flu, Pneumococcal vaccines
• Pap smear and screening mammography
• Prescription drugs which can not be
  self-administered including certain anti-cancer
  drugs

26
SMI Part B/2003 Highlights

• 93 of the 41.8 Million Medicare enrollees are
  enrolled in Part B
• SMI benefits will grow 1.8 faster than GDP going
  forward (assumption)
• 95 of enrollees received services (2000 data)
• Administrative costs are 2.1 of program costs,
  compared with 1.7 for HI
• Average benefit per enrollee is 2915, increasing
  19.6 in past year

27
Part B Financing

• Voluntary
• Open to all Part A enrollees and most Americans
  over 65
• Annual deductible
• 50 in 1966
• 60 in 1973
• 75 in 1982
• 100 in 1991
• 110 in 2005 and now to be indexed to Part B
  inflation
• If it had kept pace with actual charges, 1000
  now!
• Co payments - 20 of allowed charges
• 1966 - 3/month
• Until 1976, premium rate was set to cover 50 of
  program costs
• Since that time and until 1983, the premium rate
  has been allowed to increase at same rate as SS
  benefits (Inflation) which is substantially lower
  than health care inflation

28
Part B Financing

• Since health care costs have been rising much
  faster than inflation - - -premiums covered only
  25 by 1983
• In 1984, congress tried to fix system and tried
  to decrease the trend
• By 1995, since health care costs had slowed their
  increases, the monthly premium of 43.80 covered
  25 of actual program costs.
• BBA-1997 - Permanently established that premium
  be 25 of program expenditures.
• 2003 - 58.70/month (8.7 increase) 2004 -
  66.60 (13.5 increase) 2005 - 78.20 (17.4
  increase).
• During the past five years, Medicare SMI has
  grown MUCH faster than the economy as a whole.
• SMI outlays were less than 1.1 of GDP last year
  and will be 4.2 of GDP in 2077 Intermediate
  assumptions

29
Part B Financing
CMS,2002
30
Part B Spending
CMS, 2002
31
Part B Financing
CMS, 2005
32
Part B Financing- Premium as Share of Cost (prior
to BBA- 1997)
33
Premium income as percent of expenditures - after
BBA-1997 (2001est.)
34
(No Transcript)
35
(No Transcript)
36
Medicare Payment Changes

• Physicians were originally paid on allowed
  charges which were determined by actual customary
  and prevailing charges
• Institutional providers were paid on costs
  incurred

37
Introduction of Prospective Payments

• In 1984, hospital reimbursements changed
  dramatically
• Formerly, retrospective payments
• bill arrived for a hospital stay and all charges,
  etc. were paid in part or full
• hospital incentive was to do more (irrespective
  of value)

38
Prospective Payment System

• 470 Diagnosis related groups (DRGs)
• Hospitals now get paid a pre-determined amount
  for care of a patient based on their DRG
• Outlier payments IME Capital payments
• New Incentives

39
Incentives of PPS

• Shorter Length of Stay (LOS) now means more money
• 500 Beds365days/year 182,500 bed-days per year
• Average LOS 5 days 36,500 admissions
• Average LOS 3.65 Days 50,000 admissions

40
Physician Payment Reform

• 1992, the introduction of a Resource Based
  Relative Value Scale (RBRVS) attempted to
  rationalize the relative payments for services
  provided
• decreased FFS payments for surgeries and
  procedures and relatively increased FFS
  payments for primary care

41
RBRVS and Payment Reform

• Chest Radiograph (71010)
• 1995 - 10.61
• 1997 - 9.44
• 1999 - 10.18
• 2001 - 10.73
• 2002 - 9.70
• 2003 - 9.86
• 2004 - 9.99
• 2005 - 10.11

42
RBRVS and Payment Reform

• CT - Abdomen (74160)
• 1995 - 75.81
• 1996 - 73.34
• 1997 - 67.07
• 1998 - 72.54
• 1999 - 70.91
• 2001 - 75.11
• 2002 - 68.78
• 2003 69.47
• 2004 - 69.92
• 2005 - 70.81

43
RBRVS and Payment Reform

• MR - Brain (70553)
• 1995 - 133.89
• 1996 - 137.28
• 1997 - 125.57
• 1998 - 135.79
• 1999 - 132.56
• 2001 - 139.54
• 2005 - 131.50

44
Medicare and Managed Care

• Medicare reimbursement always allowed for prepaid
  medical plans
• In 1985, the Tax Equity and Fiscal Responsibility
  Act of 1982 (TEFRA) was implemented and Medicare
  HMO enrollment took off
• Presently, less than 10 enrolled in managed
  Medicare
• MMA-2003 have superfunded these plans to
  encourage greater participation and an expansion
  in enrollment.
• Presidents Budget 05 Predicts massive
  enrollment (see figure)
• Medicare is the dominant payor for elderly and
  disabled, but pays for less than 10 of nursing
  home costs and none for dental services or
  outpatient prescription drugs

45
From the Presidents 2005 Budget
46
Medicare Advantage

• Where it exists, it represents a credible
  alternative to FFS Medicare
• According to CMS (2004), Medicare Advantage
  enrollees (who do not have Medicaid or Retiree
  Benefits from Employer) have 700 less in OOP
  payments than FFS enrollees.

47
(No Transcript)
48
Administration

• Centers for Medicare and Medicaid Services (CMS
  formerly known as HCFA)
• Administrative expense as percent of benefit
  spending
• 1.7 2 versus 12 12.5 for BC/BS (average)
• Uses fiscal intermediaries to process Part A
  and carriers to process Part B
• 2005 and beyond (Medicare Administrative
  Contractors (MACS) as per MMA 2003

49
Medicare and GME

• Graduate Medical Education
• Direct Payments of 2.2 Billion
• Indirect payments made through DRGs add another
  4.5B
• IME payments are based on a formula which rewards
  hospitals for having more residents per hospital
  bed.
• Payments to hospitals total 70K - 120K per
  resident

50
Disproportionate Share Payments

• Much like IME, Medicare adjusts DRG payments to
  provide additional money to hospitals which serve
  a disproportionately large share of low-income
  patients Accounted for under Medicaid

51
MMA - 2003
52

• Medicare Prescription Drug Improvement, and
  Modernization Act of 2003
• Discount Card Until 2006 Small fee
  competition
• Transitional assistance to lt 135 FPL

53
Low Income Provisions

• Transitional Assistance (2004 and beyond)
• 600 per year (sliding scale) for lt 135 of FPL
  and lt 100 FPL (better coverage)
• Enrollment fee paid for by HHS
• 5 (lt 100) and 10 (lt135) co-pays
• In combination with discount card

54
Standard Drug Benefit (2006)

• Deductible 250 35 monthly premium
• 25 co-insurance for next 2000 in drug spending
  (500 dollars out of pocket total is 750
  Premium)
• No coverage for next 2850 in drug spending
  (Total is now 3600 OOP)
• Then 5 coinsurance for non-poor and less for
  poor (2/5 for lt135 and 0 for lt 100 FPL)
• This is a competitively bid product with some
  government reinsurance in order to get them to
  the table
• Low Income provisions
• lt135 FPL No Premium 1/5 cost-sharing
• 136-150 FPL Reduced Premium 50 deductible
  15 cost-sharing

55
Drug Benefit

• Requirement that each beneficiary have access to
  one Prescription Drug Benefit Plan and one
  Integrated Plan (or two Prescription Drug Benefit
  plans, if no integrated plan is offered)
• Dual Eligibles are mandated by Federal Benefit
  but 75 supported by state contribution
• Subsidy to employers to keep coverage

56
Medicare Advantage(Formerly Medicare Choice)

• Bidding and Competition for various plans
  including FFS options
• 2006 and 2010 are target years for further
  roll-outs
• Enhanced funding immediate for current plans that
  are offered

57
DME/AWP reform

• Durable Medicare Equipment Pricing reform with
  competitive bidding further rolled out
• AWP reform Chemotherapy, etc. drugs with
  immediate reduction in prices and further
  reduction with new methodology (ASP 6) in 2005
  and competitive bidding possible in 2006
• Compensate Oncologists for losses

58
Other features

• Improvement in payments to rural hospitals
• Improvement in payments to physicians
• Improvement in payments to all hospitals with
  financial incentive for reporting quality data
• Teaching hospital phase down of payment increases
• Much more.

59
Part A and B provisions

• Secretary shall conduct a demonstration to
  determine a less restrictive definition of
  home-bound for home healthcare services
• Home healthcare NO Co-Payment
• Initial Voluntary physical when first eligible
  for Medicare
• New Preventive benefits screening for diabetes
  and cardiovascular disease
• Deductible is 110 in 2005 and indexed to Part B
  expenditures for the future
• Disease management program for chronic diseases

60
Part A and B Provisions (contd)

• Requirement of congressional action if general
  revenue is more than 45 of total program costs
  (AB?)
• New Income means testing for Part B Premiums
• 80K/160K or less in income continue to receive
  75 subsidy
• 200K/400K - 20 subsidy
• Sliding scale between them
• Phased in through 2007

61
Other

• Contracting and Regulatory Reform
• Hatch-Waxman Reforms (See prescription drug talk)
• Limited to one 30-month stay
• New 180 day exclusivity for multiple companies if
  they all file at once
• Allows for reimportation if Secy allows that it
  is safe
• Health Savings Accounts (Potentially one of the
  most major components What does this have to do
  with Medicare?)
• Contributions Build-up Spending is tax free
• Can be made by individuals, employers, families
• Up to a 2600 (5150 for families) deductible
• 55 65 year olds can make 1000 catch up
  payments
• Distributions can be used for retiree benefits

62
Medicaid
63
Medicaid

• Enacted in 1965 (Title 19 of the SSA)
• Federal Government
• 57 on average of the cost
• States cover the remainder
• Federal matching ranges from 50 77
• Administered by States
• only nominal co-payments (no more than 3)
• No premiums
• No deductibles

Title 18 is Medicare
64
Medicaid Today

• Provides long-term care and health care coverage
  for over 50 million people
• Provides comprehensive, low-cost health insurance
  for 38 million people in low-income families
  covers one in four American children
• Finances care for over 12 million elderly and
  persons with disabilities, including over 6
  million Medicare beneficiaries (dual enrollees)
  who rely on Medicaid for long-term care,
  prescription drugs, and help with Medicare
  cost-sharing
• 41 million on Medicaid at any given point in
  time 52- 54 million on Medicaid at some time
  during the year (2004 data)
• Entitles individuals to coverage and states to
  open-ended federal financing
• Serves as important source of financing in health
  care system
• Provides 43 of federal funds to states through
  federal matching payments

KFF, 2003
65
(No Transcript)
66
(No Transcript)
67
(No Transcript)
68
(No Transcript)
69
Medicaid - Coverage

• Must cover
• Inpatient and outpatient hospital services
• Physician, midwife, and NP services
• Lab and x-ray
• Nursing home and HHC
• EPSDT Early and periodic screening, diagnosis,
  and treatment for children under age 21
• Optional (but receive federal matching if they
  cover)
• Prescription drugs (all do)
• Clinic services, prosthetics(31), hearing aids,
  dental care(26), ICF/MR(22)

70
Medicaid - Who?

• 50 51 Million people (more than Medicare)
• 38 million children and parents (only 29 of
  Medicaid expenditures)
• 8 million with disabilities
• 6 million low-income seniors and Medicare
  disables
• States have broad authority to extend below
  minimal federal mandates
• More than 42 of spending is for dual eligibles
  (Medicare and Medicaid)
• 2/3 of Medicaid enrollees are IN WORKING FAMILIES

71
(No Transcript)
72
(No Transcript)
73
(No Transcript)
74
Medicaid Eligibility

• All poor children below age 19
• All children under age 6 and pregnant women up to
  133 FPL
• Most states have expanded coverage for children
  up to 200 of poverty through S-CHIP
• Parents in families eligible for TANF/cash
  welfare median state is 45 of FPL
• Adult non-parents can only be made eligible
  through a state waiver

75
Who is entitled to Medicaid?
76
Dual Eligibles

• 7.5 Million Medicaid beneficiaries (and, thus 7.5
  million Medicare Beneficiaries)
• 14 of Medicaid (using the larger figure) and 18
  of Medicare
• Virtually all elderly Medicaid and 1/3 of
  non-elderly beneficiaries with disabilities in
  Medicaid
• 73 have income below 10K/annum
• 6.2 million are full duals
• 1.3 million are QMBs, SLMBs
• 40 of Medicaid spending

77
(No Transcript)
78
(No Transcript)
79
(No Transcript)
80
Dual Eligibles

• Qualified Medicare Beneficiaries (QMBs) without
  other Medicaid (QMB Only) - These individuals are
  entitled to Medicare Part A, have income of 100
  Federal poverty level (FPL) or less and resources
  that do not exceed twice the limit for SSI
  eligibility, and are not otherwise eligible for
  full Medicaid. Medicaid pays their Medicare Part
  A premiums, if any, Medicare Part B premiums,
  and, to the extent consistent with the Medicaid
  State plan, Medicare deductibles and coinsurance
  for Medicare services provided by Medicare
  providers. Federal financial participation (FFP)
  equals the Federal medical assistance percentage
  (FMAP).

81
Dual Eligibles

• QMBs with full Medicaid (QMB Plus) - These
  individuals are entitled to Medicare Part A, have
  income of 100 FPL or less and resources that do
  not exceed twice the limit for SSI eligibility,
  and are eligible for full Medicaid benefits.
  Medicaid pays their Medicare Part A premiums, if
  any, Medicare Part B premiums, and, to the extent
  consistent with the Medicaid State plan, Medicare
  deductibles and coinsurance, and provides full
  Medicaid benefits. FFP equals FMAP

82
Dual Eligibles

• Specified Low-Income Medicare Beneficiaries
  (SLMBs) without other Medicaid (SLMB Only) -
  These individuals are entitled to Medicare Part
  A, have income of greater than 100 FPL, but less
  than 120 FPL and resources that do not exceed
  twice the limit for SSI eligibility, and are not
  otherwise eligible for Medicaid. Medicaid pays
  their Medicare Part B premiums only. FFP equals
  FMAP.

83
Dual Eligibles

• SLMBs with full Medicaid (SLMB Plus) - These
  individuals are entitled to Medicare Part A, have
  income of greater than 100 FPL, but less than
  120 FPL and resources that do not exceed twice
  the limit for SSI eligibility, and are eligible
  for full Medicaid benefits. Medicaid pays their
  Medicare Part B premiums and provides full
  Medicaid benefits. FFP equals FMAP

84
Dual Eligibles

• Medicaid Only Dual Eligibles (Non QMB, SLMB,
  QDWI, QI-1, or QI-2) - These individuals are
  entitled to Medicare Part A and/or Part B and are
  eligible for full Medicaid benefits. They are not
  eligible for Medicaid as a QMB, SLMB, QDWI, QI-1,
  or QI-2. Typically, these individuals need to
  spend down to qualify for Medicaid or fall into a
  Medicaid eligibility poverty group that exceeds
  the limits listed above. Medicaid provides full
  Medicaid benefits and pays for Medicaid services
  provided by Medicaid providers, but Medicaid will
  only pay for services also covered by Medicare if
  the Medicaid payment rate is higher than the
  amount paid by Medicare, and, within this limit,
  will only pay to the extent necessary to pay the
  beneficiary's Medicare cost-sharing liability.
  Payment by Medicaid of Medicare Part B premiums
  is a State option however, States may not
  receive FFP for Medicaid services also covered by
  Medicare Part B for certain individuals who could
  have been covered under Medicare Part B had they
  been enrolled. FFP equals FMAP

85
Medicaid - Dollars

• Federal Spending 152B in 2003
• States contributed an additional 114B
• States also receive supplemental Medicaid
  payments (9B in 2001) to aid their hospitals
  serving a disproportionate share of indigent
  patients (DSH)
• Where did the money go?
• 17 of NHE
• 12 of physician/professional services
• 17 of prescription drug spending
• 43 of nursing home spending
• As percent of Medicaid spending
• Acute care services 58
• Long-term care 36
• Medicare Premium assistance 2
• DSH 5
• 57 are in Managed Care
• Primarily the non-elderly
• 60 of nursing home residents are covered

86
SCHIP
87
SCHIP

• Effective 10/1/1997
• Eligibility
• Not eligible for Medicaid
• Under age 19, AND
• At or below 200 of FPL
• Unlike Medicaid This is a block grant. It is
  not endless
• Options
• Expand Medicaid
• Create or expand a state program
• Combination
• States can also spend up to 10 of the funds to
  provide coverage through a community based health
  delivery system or by purchasing family coverage
• Waivers allow for more flexibility

88
(No Transcript)
89
SCHIP Benefits

• If Medicaid, then states must offer the newly
  eligible the same Medicaid benefits package
• Otherwise, five basic options
• BC/BS preferred provider option offered to
  federal employee offered under FEHBP
• State employee health plan
• HMO with the largest insured commercial
  non-Medicaid enrollment in the state
• Coverage that is actuarially equivalent to the
  three options above
• Another benefit package that is approved by the
  Secretary of HHS
• NY, PA, and Fl are exempt from the above due to
  their existing state programs
• 19 States with fully separate SCHIP programs,
  only
• 11 States (and DC) with only Medicaid expansions
• 20 States with a combination of Medicaid
  expansion and SCHIP (separate) program

90
SCHIP Cost Sharing

• No co-payments are allowed for pediatric
  preventative care, including immunizations, at
  any income level
• At or below 150 FPL, current regulations for
  cost-sharing for adults receiving Medicaid apply.
  States can impose the following
• Premiums - 15 - 19 per family per month
• Deductibles - 2 per family per month
• Co-insurance 5 of non-institutional costs
• Co-payments range from 0.50 - 3.00 per visit
• Institutional care 50 of the first days costs
• For children above 150 FPL, states can impose
  premiums, etc. on a sliding scale not to exceed
  5 of the familys income

91
SCHIP Financing

• 40Billion over the first 10 years of the program
• Federal government will match state funds 30
  higher than the states FMAP (Federal Medical
  assistance percentage) up to 85
• If state chooses a Medicaid expansion, as the
  option, they still get the enhanced FMAP rate
  until that states SCHIP funds run out when they
  would revert to the usual Medicaid matching rate

92
(No Transcript)
93
The Uninsured Problem
Thorpe, K. E. N Engl J Med 20043511479-1481