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MedicaidandMedicare1.pptxMedicaid and Medicare
The US Medicare program
Medicare is a government insurance program that provides insurance coverage to 48 million elderly and disabled people (as of 2012).
The Medicare program consists of four parts:
Part A pays for enrollees’ hospital care.
Part B pays for outpatient care and physician services.
Part C provides an option for Medicare enrollees to receive their health insurance from a private plan, rather than through Plans A and B.
Part D pays for enrollees’ prescription drugs.
The US Medicare program
All American citizens over 65 years of age, and severely disabled Americans who have been out of work for two years, are eligible to enroll.
Medicare is expensive because it covers populations that are less healthy than the general population, which tend to demand lots of medical care.
It also reimburses for any procedure that is shown to be medically effective, irrespective of cost.
Finally, it sets premiums far below an actuarially fair level.
This means it needs large outside sources of funding (taxes on the young).
Table 12.1 Actual Medicare Spending and Enrollment
Cost control in Medicare
Medicare includes several mechanisms designed to mitigate moral hazard and control costs.
In both Medicare Parts A and B, patients face cost-sharing requirements, including deductibles and copayments for outpatient visits and hospital stays longer than 60 days.
However, most Medicare enrollees also purchase private supplemental insurance, called Medigap plans, which pay for enrollees’ deductibles and copayments, and thereby undercuts the moral hazard mitigation effects of cost-sharing.
Cost control in Medicare
A more significant cost control mechanism is the Diagnosis Related Group (DRG) system.
Under this system, Medicare pays a fixed amount to hospitals based upon the diagnosis the patient has when admitted to the hospital, rather than on his length of stay or the extent of care given.
The DRG system of hospital payment transfers risk from the government to hospitals and eliminates incentives for hospitals to provide unnecessarily expensive care to patients.
Prospective payments
Cost-effectiveness analysis
Finally, there is a major cost control tool that Medicare is prohibited from using: cost-effectiveness analysis.
Any treatment that is proven effective in scientific studies – regardless of cost – is covered by Medicare.
It seems likely that Medicare could reap substantial budgetary savings from CEA, but so far there has been little political will to introduce CEA into Medicare’s coverage determinations.
The Future of Medicare
Medicare spending grew from less than 1% of GDP in 1975 to 3.5% in 2015
Medicare is expected to grow to over 5% of GDP in the next decade, over 6% by 2040, and 9% by 2090.
Medicare was unsustainable before passage of the ACA, and it is still unsustainable
Without additional revenue sources (or a reduction in spending on hospital services), Medicare will only be able to pay 87% of the promised benefits
By law, Medicare is unable to borrow money to cover the annual deficits, and the only option to pay all promised benefits is to raise the payroll tax
Reform Options
Place limits on the ability of recipients to purchase first dollar coverage through private supplemental insurance policies
Simplify the benefit structure by combining the three separate insurance plans (A, B, and D), covering hospitals, physicians, and prescription drugs into one plan
Raise Medicare eligibility age gradually
Restructure Medicare to provide a direct subsidy to individuals allowing them to purchase the coverage of their choice (premium support)
MEDICAID
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Medicaid
Medicaid is a public insurance program that provides highly subsidized insurance coverage to low-income families who have no insurance.
Unlike Medicare, which is run by the U.S. federal government and administered uniformly across the country, Medicaid is run jointly by the federal and state governments.
State governments have wide latitude to set budgets, determine eligibility rules and decide how generous their local Medicaid program is.
As a consequence, Medicaid coverage and generosity can vary substantially from state to state.
Medicaid
In 2009, Medicaid covered 62.5 million people – about a fifth of the U.S. population – and its expenses totaled about $400 billion nationwide.
Low income alone does not qualify one for Medicaid in most states. Various other factors including martial status, number of children, pregnancy, disability, health and immigration status can affect eligibility.
In general, able-bodied individuals without children are not eligible for coverage, no matter how low their incomes.
Medicaid Spending Select Years
Cost control in Medicaid
Cost-sharing burdens for Medicaid enrollees are typically very low, so Medicaid programs must contain costs and curb moral hazard with a combination of eligibility and coverage restrictions.
One way that states control Medicaid expenditures is by setting reimbursement rates at a low level.
A doctor treating a Medicaid patient receives only a fraction of the payment she would get for seeing a similar, but privately-insured, patient.
As a result, Medicaid patients can have trouble finding a regular source of care, as many doctors choose not to accept Medicaid patients.
Cost control in Medicaid
States also control costs by restricting the set of prescription drugs available to Medicaid enrollees, and by setting reimbursement rates at a low level.
The list of drugs available often excludes expensive branded drugs when generic alternatives are available.
Some states have also experimented with other forms of cost containment, including explicit cost- effective analysis.
Work disincentive effects of Medicaid
While Medicaid certainly improves health equity, it also reduces economic efficiency.
Medicaid eligibility rules create a disincentive to work as hard as possible, because rising incomes can mean disqualification from Medicaid.
2010 HEALTH REFORM
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2010 health reform
In March 2010, the US congress passed the Patient Protection and Affordable Care Act (PPACA), colloquially known as “Obamacare.” Most parts of the law were slated to go into effect in 2014.
The law has thousands of provisions but three major parts:
Medicaid expansion
An individual insurance mandate
Cuts to Medicare spending
Three major parts of PPACA
Medicaid expansion
PPACA expands Medicaid coverage dramatically by forcing states to cover broader classes of people
Estimated to add 17 million to Medicaid roles
But, a 2012 US Supreme Court ruling says that states can opt out of this part of the law
An individual insurance mandate
Cuts to Medicare spending
Three major parts of PPACA
Medicaid expansion
An individual insurance mandate
All citizens who do not have insurance through work or another public insurance program must buy insurance on a state-wide private market
This is designed to combat adverse selection, much in the manner of Bismarck managed competition
People with low incomes will receive subsidies
Cuts to Medicare spending
Three major parts of PPACA
Medicaid expansion
An individual insurance mandate
Cuts to Medicare spending
Extending insurance coverage to millions is not cheap
Expected to cost about $200 billion per year
To help pay, Medicare is cut by $50 billion per year, but cuts are not specified by the law
Instead, cuts will be made by an independent board called IPAB with an unusual amount of freedom
IPAB may invoke HTA, which would be a first for Medicare
Conclusion
The American model, with its mix of public and private insurance and care can be contrasted with the more egalitarian models popular in Europe and Asia.
With the introduction of PPACA, the American Model is undergoing substantial changes, but it is keeping its distance from both the Beveridge and Bismarck models.
