The Basics of Medicare and Medicaid

Judith R. Lave
University of Pittsburgh
 Medicare Eligibility

 Individuals age 65 or over

 Individuals who have been on Social
Security Disability for two years.
 Individuals with End Stage Renal
Disease (Kidney Failure) -2 year waiting
period does not apply
Medicare is Made Up of Four Parts

 Medicare Part A
 HI- hospital insurance
 Medicare Part B
 SMI – Supplemental Medical Insurance
 Medicare Part C
 Medicare Advantage
 Medicare Part D
 Medicare Drug Coverage
 Medicare Part A

 Helps pay For

 Inpatient hospital care (all types)
 Skilled nursing care
 Hospice Care
 Limited home health (up to 100 days post
hospital discharge )
 People are entitled to Part A if they or
their spouse have paid payroll taxes for
40 quarters or more
 Medicare Part A

 Part A is funded primarily by a dedicated tax of

2.9% of earnings (no limit) paid by employers
and employees (1.45% each)
 Paid into a dedicated Trust Fund
 There is some cost-sharing (2007)
 Hospital: $992 deductible per spell of
illness; $248 per day for days 61-90; $286
per day for days 91 – 150, 100% after day
150
 Skilled Nursing Home: $124 per day 21
through 100 each benefit period.
 Medicare Part B

 Pays for
 Physician services, outpatient hospital
services, certain home health services and
durable medical equipment
 Cost Sharing (2007
 Deductible of $131.00 per year
 20% of approved charges after deductible
 No cost sharing on home health
 Medicare Part B

 Medicare Part B is financed through

premiums (about 25%) and general
revenues
 2007 Premium was $93.50 a month
 Premium is higher if income is above
$80,000 (individuals) or $160,000 (families)
 Medicare Part C

Part C provides care through managed

care plans, regional PPOs and private
fee for service plans.

It is called Medicare Advantage

About 20% of Medicare beneficiaries are

currently in Medicare Advantage
 Note

People who do not enroll in a Medicare

Advantage Plan are said to stay in

Traditional Medicare or
Fee-for-service Medicare
 Part C

 Plans must cover the same services as

Part A and Part B
 It is financed by fixed payments from
CMS tied to the gov’t cost of traditional
Medicare.
 People in Part C must be enrolled in
both Parts A&B.
 An Issue of Controversy

MA plans receive a capitated payment that

is higher than the government’s average
cost of covering Medicare beneficiaries
that stay in traditional Medicare by
about 10%

These additional payments increase

attractiveness of MA plans by allowing
them to reduce cost-sharing or offer
additional benefits.
 Part D

 Voluntary drug program

 Provided by private stand-alone drug plans or
Medicare Advantage plans
 Subsidies for individuals with low income and
assets
 Financed by beneficiary premiums of about $22
per month, general revenues and state
payments (state clawbacks)
 Complicated cost-sharing structure – plans
may offer actuarial equivalent coverage
 Exhibit 8

Standard Medicare Drug Benefit, 2006

Beneficiary
Out-of-Pocket
Catastrophic Coverage 5% Medicare Pays 95% Spending

$5,100 in Total Drug Costs**

No Coverage $2,850 Gap: Beneficiary

(the “doughnut hole”) Pays 100%

$2,250 in Total Drug Costs*

Partial Coverage Medicare Pays 75%

25%
up to Limit

$250 Deductible
$386 average annual premium***
*Equivalent to $750 in out-of-pocket spending. **Equivalent to $3,600 in out-of-pocket spending.
***Based on $32.20 national average monthly beneficiary premium (CMS, 8/2005).
SOURCE: KFF analysis of standard drug benefit described in Medicare Modernization Act of 2003. Return to KaiserEDU.org
 Medicare Benefit Payments By Type of Exhibit 11

Service, 2006 (KFF) Low-Income

Subsidy Payments
3% Payments to Union/Employer-
Payments to Drug Plans
4% Sponsored Plans
1%
Other Facility Services
5%
Hospital Inpatient
Hospital Outpatient 34%
5%

Part A
Part B
Parts A and B
Part D
Physician and Other
Suppliers
24% Skilled Nursing Facilities
5%
Hospice
2%
Home Health Managed Care
3% (Part C)
14%

Total = $374 billion

Note: Does not include administrative expenses such as spending for
implementation of the Medicare drug benefit and the Medicare Advantage program.
SOURCE: Congressional Budget Office, Medicare Baseline, March 2006.
 KFF –Kaiser Family Foundation

These slides were downloaded from

tutorials on the Kaiser Family
Foundation Web-site.
www.KFF.org
 Ten Percent of All Medicare Beneficiaries Exhibit 13

Account For More than Two Thirds of

Medicare Spending (KFF)
6% 10%
4%
4%
2002 average =
7% $5,370 per capita

53%
25%
69%
$25,000 or More

$15,000-$24,999

$10,000-$14,999
16%
$5,000-$9,999

54% 8% $1,000-$4,999

9% $0-$999

11%
2%

Total Number of Beneficiaries: Total Medicare Spending:

41.8 million $224.5 billion
SOURCE: Kaiser Family Foundation analysis of the Medicare Current Beneficiary Survey 2002 Cost and Use File.
 Number of Medicare Beneficiaries
2005

 Total: 42,394,929
 % disabled (age < 65): 15.8%

(Note % disabled is increasing over time:

1980, 10.4%, 1995, 11/7%)

http://www.cms.hhs.gov/MedicareEnrpts/
 Value of Medicare

Pays for the majority of health care

services for people 65 and over and the
disabled.
Leads to an increase in life expectancy
Leads to an increase in quality of life
Trusted Program
 Problems With Medicare

 Medicare does not cover many services – long

term care, vision, hearing
 Average Medicare beneficiary has out of pocket
expenditures of $3,765, Medicare paid for 46% of
health care expenditures for elderly.
 Payment system needs to be revised – major
changes in hospital payments this year
 Medicare payments per beneficiary vary widely
dramatically geographically with no
measurable affects on health
 Some Challenges

Improve payment system to promote

quality and increase efficiency
 Improve coverage for the chronically ill
and address long term care problems
 Determine balance between Traditional
Medicare and Medicare Advantage
 Should Medicare Advantage be Subsidized?
 MAJOER CHALLENGE

Medicare’s Cost Pressures

 Exhibit 12

Composition of Federal Spending in FY 2007

Medicare
Social Security 14%
21%

Medicaid
and SCHIP
7%

Defense
Discretionary
19% Other
12%

Net Interest
Nondefense 9%
Discretionary
18%

2007 Total Outlays = $2.77 trillion

SOURCE: OMB, Fiscal Year 2007 Budget, February 2006. Return to KaiserEDU.org
 Medicare Expenditures
1998-2005
Amount in Billions

Medicare
350 331.4
303.4
300 275.6
257.6
239.9
250 216.4
202.4 206.1
200

150

100

50

0
1998 1999 2000 2001 2001 2003 2004 2005
NOTE: Per capita amounts based on July 1 Census resident based population estimates for each year. Numbers and percents may not add to totals because of rounding. $ amounts shown are in current dollars.
SOURCE: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group; U.S. Bureau of the Census.
 Exhibit 15

Historical and Projected Number of Medicare

Beneficiaries and Number of Workers Per
Beneficiary

Number of beneficiaries Number of workers

(in millions) per HI beneficiary
78.6 4.0
3.9
3.7

61.6
2.9

46.5 2.4
42.7
39.7

2000 2006 2010 2020 2030 2000 2006 2010 2020 2030

SOURCE: 2001 and 2006 Annual Reports of the Boards of Trustees of the
Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. Return to KaiserEDU.org
 Key Dates for Medicare Part A Trust
Funds

First year outgo exceeds

Income excluding interest 2007

First year outgo exceeds

Income including interest 2011

Year Trust Funds are

Exhausted 2019
Medicare Expenditures
as a % of GDP
WHY ARE WE FOCUSING ON MEDICARE
AND NOT SOCIAL SECURITY?
Social Security and Medicare Cost as
a Percent of GDP
Why is Medicare Growing So Much faster
than Social Security

 Technological change in the absence of

any effective restraining mechanism
Technological change – which both
increases the number of people who can
get a given treatment (i.e. bypass) and
the treatments available lead to
increasing costs.
 Questions?

 Does Society want to allocate such a

high proportion of its GDP to Medicare
(note its somewhat limited benefits)
 Does Society want to raise taxes to
enable Medicare beneficiaries to get
these services
 Does Society want to allocate such a
high proportion of its overall resources
to the health of the elderly.
 Medicaid

 Established in 1965
 States manage the program subject to
Federal guidelines
 States must cover certain groups
(defined by age, disability and income)
and may cover other groups
 State must cover certain services and
may cover other services.
 Medicaid Financing

 The federal government shares in the

cost of the Medicaid.
 The Federal Match varies across the
states from 50% to 78%
 Federal Match in PA is 54.39%
 Medicaid Eligibility & Benefits for Medicare Beneficiaries, 2005
Mandatory Populations: (Medicaid 101. ww.kaiser.edu)

Asset Medicare
Limit Premiums &
Individua Medicaid Cost-sharing
Pathway Income Eligibility l/Couple Benefits
SSI Cash < 74% of poverty $2,000 X X
Assistance (SSI income $3,000
eligibility)

Qualified < 100% of poverty $4,000 X

Medicare $6,000
Beneficiary
(QMB)
Specified 100-120% of $4,000 Premium
Low-Income poverty $6,000 only
Beneficiary
(SLMB)
Copied from
Medicaid
 Medicaid Eligibility & Benefits for Medicare
Beneficiaries, 2005
Optional Populations (cont’d)
Asset Limit Medicare
Individual/ Medicaid Premiums &
Pathway Income Eligibility Couple Benefits Cost-
sharing
Medically Individuals who $2,000 X* X
Needy spend income down $3,000
to a specified level
Poverty Level < 100% of poverty $2,000 X X
$3,000
Special Institutionalized $2,000 X X
Income Rule $3,000
individuals with
for Nursing
Home income < 300%
Residents of the SSI level
HCBS Waivers Must be eligible for institutional X X
care

*Medicaid benefits may be more limited than for SSI.

Eligibility and Covered Services for PA

M Costlow and J. lave, Faces.

www.PAMedicaid.pitt.edu
 Federal Poverty Level
2007

Persons in Family Guideline

1 $10,210
2 13,690
3 17,170
4 20,650
 Medicaid Benefits
“Mandatory” Items and Services
 Physician services
 Laboratory and x-ray
services
 Inpatient hospital services
 Outpatient hospital services
 Early and periodic screening,
diagnostic, and treatment
(EPSDT) services for
individuals under 21
 Family planning
 Rural and federally-qualified
health center (FQHC)
services
 Nurse midwife services
 Nursing facility (NF) services
for individuals 21 or over
“Optional” Items and Services
 Prescription drugs
 Clinic services
 Dental services, dentures
 Physical therapy and rehab services
 Prosthetic devices, eyeglasses
 Primary care case management
 Intermediate care facilities for the
mentally retarded (ICF/MR) services
 Inpatient psychiatric care for individuals
under 21
 Home health care services
 Personal care services
 Hospice services
 Medicaid Status of Medicare
Beneficiaries, FFY 2002

Full Dual
Other Eligibles
Medicare 6.1 Million
Beneficiaries 15%
32.4 Million
82% Partial Dual
Eligibles
1.1 Million
3%

Total Medicare Beneficiaries = Total Duals =

40 million
7.2 million
SOURCE: KCMU estimates based on CMS data and
Urban Institute analysis of data from MSIS.
 Medicaid Payments Per Enrollee
by Acute and Long-Term Care, 2003
$12,800
$12,300

Long-Term
Care

Acute
Care

$1,700 $1,900

Children Adults Disabled Elderly

SOURCE: KCMU estimates based on CBO and Urban

Institute data, 2004.
 Some PA Data

 Medicaid covers about 14.8% of

Pennsylvanians on an average month
 Medicaid covers 44% of all children
 Medicaid expenditures are = $14.4
billion dollars ($7.6 Billion Federal)
 It accounts for 19% of general
fundspending
 Figure 5: Percent of Pennsylvania Citizens
Enrolled in Medicaid by Age
September 2006

11%
18%

13%
under age 6
age 6 to 17
age 18 to 21
age 22 to 45
age 46 to 64
age 65 and older
29%
22%

7%

Note. Data provided by PA DPW: Commonwealth of Pennsylvania, Department of Public Welfare (PA DPW). (2006). Medical Assistance Eligibility Statistics, (PA DPW).
Provided to authors by Director, August–December 2006.
 Figure 4: Distribution of Pennsylvania Medicaid
Recipients and Expenditures by Broad Eligibility
Category in 2005

100%
Elderly, 13%
90%

Elderly, 35%
80%
Disabled, 20%
70%

60%

50% Disabled, 33%

40% Children &

Families, 61%
30%

Children &
20%
Families, 24%
10%

State Only, 6% State Only, 8%

0%
# of Eligibles By Expenditure

Note. Data provided by PA DPW: Commonwealth of Pennsylvania, Department of Public Welfare, Office of Medical Assistance Programs. (2006). 2005/2006 Annual Report. Retrieved February 22, 2007,
from http://www.dpw.state.pa.us/Resources/Documents/Pdf/AnnualReports/OMAP05-06AnnualReport.pdf.
 Figure 6: The Proportion of Medicaid Recipients
to Pennsylvania County Populations in 2006

Note. Data Provided by PA DPW. Other information from U.S. Census Bureau, 2006.[1]Pennsylvania map provided via 'Do It Yourself' Color-Coded State Maps,
http://monarch.tamu.edu/~maps2/, Texas A&M University System.
Commonwealth of Pennsylvania, Department of Public Welfare (PA DPW). (2006). Medical Assistance Eligibility Statistics, (PA DPW). Provided to authors by Director,
August–December, 2006. and U.S. Census Bureau. (2006). State and County QuickFacts. Retrieved November 15, 2006, from http://quickfacts.census.gov/qfd/states/42000.html
 Figure 3: Pennsylvania Medicaid Recipients from
1997–2005
2,000,000

1,800,000

1,600,000

1,400,000
Number of Recipients

1,200,000

Year Totals
1,000,000
Children and Families

800,000

600,000

400,000

200,000

0
1997–98 1998–99 1999–00 2000–01 2001–02 2002–03 2003–04 2004–05 2005–06
Years

Note. Data provided by PA DPW: Commonwealth of Pennsylvania, Department of Public Welfare (PA DPW). (2006). Medical Assistance Eligibility Statistics, (PA DPW).
Provided to authors by Director, 1997–2006.
COST PROBLEMS COME TO MEDICID
 Medicaid Expenditures
1998-2005

Amount in Billions

Medicaid
350
289.3
300 269.9
250.9
250 230.7
208.9
187
200 171.3
158.2
150

100

50

0
1998 1999 2000 2001 2001 2003 2004 2005
NOTE: Per capita amounts based on July 1 Census resident based population estimates for each year. Numbers and percents may not add to totals because of rounding. $ amounts shown are in current dollars.
SOURCE: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group; U.S. Bureau of the Census.
 Underlying Growth in State Tax Revenue
Compared with Average Medicaid Spending Growth,
1997 - 2005
State Tax Revenue Medicaid Spending Growth

12.7%

10.6%
9.2%
8.5%
7.9% 7.5%
6.4%
5.3%
3.8%
6.6%
5.3% 5.2% 5.1% 4.9%
3.2%
2.0%

1997 1998 1999 2000 2001 2002 2003 2004 2005

-3.5%
NOTE: State Tax Revenue data is adjusted for inflation and legislative
changes. Preliminary estimate for 2005.

SOURCE: KCMU Analysis of CMS Form 64 Data for Historic Medicaid

Growth Rates and KCMU / HMA Survey for 2005 Medicaid Growth
Estimates; Analysis by the Rockefeller Institute of Government for State -7.8%
Tax Revenue.
 Exhibit 12

Composition of Federal Spending in FY 2007

Medicare
Social Security 14%
21%

Medicaid
and SCHIP
7%

Defense
Discretionary
19% Other
12%

Net Interest
Nondefense 9%
Discretionary
18%

2007 Total Outlays = $2.77 trillion

SOURCE: OMB, Fiscal Year 2007 Budget, February 2006. Return to KaiserEDU.org
 Changes in Medicaid

 Medicaid is changing due in part to the

addition flexibility given to the states
under the Deficit Reduction Act.
 Trend did turn down this year.
 What’s at Stake in Medicaid
Reform (KFF)
Health Insurance Assistance to Long-Term Care
Coverage Medicare Assistance
25 million children and 14 Beneficiaries 1 million nursing home
million adults in low- 7 million aged and residents; 43% of long-
income families; 6 million disabled — 18% of term care services
persons with disabilities Medicare beneficiaries

MEDICAID

Support for Health Care State Capacity for Health

System Coverage
17% of national health spending 43% of federal funds to states