Medicare & Medicaid

1. Medicare & Medicaid

2. Medicare – Medical Care for the Elderly • Institutional features • Part A—Hospital insurance • Part B—Physician, Outpatient hospital, diagnostic and lab testing, PT, and durable equipment insurance • Part D—Outpatient prescription drugs

3. Medicare Spending

4. Medicare Features • Part A Features: (2007) • $992 deductible • Coinsurance (days 2-60, zero; days 61-90, 25% of the deductible per day; days 91+, no coverage unless 60 lifetime reserve days are still available) • Part B Features: (2007) • Voluntary participation w/ $93.50 monthly premium • Deductible of $131 per year & Medicare pays 80% thereafter • 50% MDs accept assignment, so patient only pays 20%. Max bill = 115%

5. Medicare coverage gaps • Pays 87% of inpatient charges, 67% of physicians’ services, 8% of outpatient drugs (Part D changes this percentage), and 0.5% of nursing home • Does not provide catastrophic coverage, custodial nursing home care, preventive services or routine physical examinations.

6. Part D – The donut hole • About 8 million seniors get drug coverage through Medicare Advantage • Premiums vary (basic plan - $27.35 monthly) • Annual deductible - $265

7. Financing • Overall funded by individuals < 65 years old – 90% • Part A funded by a payroll tax of 2.9% • Part B premium pays 25% of expenses • Part D premiums pay 25% of expenses • Financing is Inequitable • Part A Trust Fund insolvent by 2020 – need to increase tax from 2.9% to > 10% • Part B & D subsidy will need to double from $350 billion today to $700 billion by 2015.

8. Financing Inequities • Part A payroll tax has low income workers subsidizing high income retirees • Parts B & D financed by income tax, which is progressive • Intergenerational transfer – retirees receive $5 in benefits per $1 contributed

9. Medicare Payment Allocations, 2002

10. Suggested Liberal Reforms • Increase eligibility age to 67 • Decrease provider reimbursements • Increase payroll tax & premiums (already done for high income retirees) • Ban Medigap policies to decrease moral hazard • Reduce subsidy to Medicare Advantage (Part C) plans

11. Suggested Conservative Reforms (Ryan Proposals) • Phase out Medicare, convert to private voucher program (start in 2022) • Voucher amounts tied to income: $11,000 for < $80K, $5500 for $80-200K, and $3300 for >$200K individual $ • Those turning 65 by 1/1/2021 keep Medicare but premiums for Part D tied to income • If payroll taxes pay <55% Medicare costs, provider payments decrease 1%

12. Medicaid • Institutional features • State administered • Federal cost-sharing • Eligibility standards • SCHIP expansion

13. Medicaid Spending

14. Medicaid – Large State Spending, 2004

15. Economic Consequences • Nationwide, 50% of poverty population covered. Eligibility differs by state (for family of 3 in AL $3048 and MN $40,224 in 2002) • Nursing home care and home health care constitute over 70% of outlays- just 30% to nonelderly and nondisabled • Payments per capita for children and adults only $1454 and $2067 in 2001.

16. Spending by Eligibility Categories, 2001

17. Expansion of Medicaid Impacts • 10% expansion leads to a 2.8% decrease in infant mortality and 3.4% decrease in child mortality • Decreases enrollment in private insurance (employers & persons) • Decreases labor supply for fear of losing Medicaid • Decreases willingness to marry • Decreases willingness to save due to asset test