Transcript The United States Social Security System

Medicare
LECTURE 13
By the end of this lecture, you
should be able to:
Explain who is covered by Medicare
Explain what Medicare covers:
Parts A – D
Explain how Medicare is financed
Describe the financing challenge facing
the Medicare system
Describe how the new Rx drug benefit
will work
Medicare Overview
Established in 1965 (as part of LBJ’s
“Great Society”)
Health insurance at age 65: 44.1 Million
Total Beneficiaries, 7.2 M disabled
Two Traditional Parts
Part A: Hospital Insurance (HI)
Part B: Supplementary Medical Insurance
(SMI)
Medicare Eligibility
Part A (hospital) is available to anyone over age
65 as long as entitled to Social Security, railroad
retirement or civilian employee of federal gov’t.
Coverage also extended to:
Persons age 65+ if dependent of fully insured worker
over age 62
Survivor age 65+ if eligible for SS survivor benefit
Disabled persons at any age if eligible to receive SS
benefits for two years because of disability
Also covers end-stage renal (kidney) disease for those
requiring dialysis or kidney transplants
These individuals receive Part A at no cost
Medicare Eligibility, cont.
Persons 65+ not otherwise eligible for
Medicare can voluntarily enroll, but they
must pay a monthly part A premium (and
must enroll in both parts A and B)
$244/month: 30-39 Calendar Quarters
$443/month: Less than 39 Calendar
Quarters
Medicare Eligibility, cont.
Part B:
Automatically covered if receive part A
Charges monthly premium
• $96.40 per month in 2008 if take as soon as eligible
($85K/$170K or less Income) At $213/426K--$308.30
• Cost goes up 10% per year that you were eligible but did
not take
• Annual Deductible: $135.00
Premium covers only about 25% of expected costs
of part B benefits
Part A Benefits (Hospital)
Hospital stays
Semi-private room, meals, general nursing, and
other hospital services and supplies
Skilled nursing facility care: 21 days paid
Only after related 3-day inpatient hospital stay
$135.00 thereafter from 22-100 days
Home health care but limited in scope
Hospice care
Blood
Part B Benefits (Dr. Visits)
Provides benefits for most medical
expenditures not covered by Part A
Physician and surgeon fees
Diagnostic tests, Physical therapy
Radiation therapy, Medical supplies
Medical equipment rental, Prosthetics
Lots more
Part A and B together are fairly
comprehensive for hospital and doctor visits
How Part B Works
Part B has $135 annual deductible
Medicare covers 80% of approved charges above
this deductible
A select list of charges are covered in full (flu
shots, some outpatient procedures, etc)
Center for Medicare and Medicaid Services
(formerly the Health Care Financing
Administration) sets a fee schedule – most
providers accept assignment of benefits & are
thus prohibited from collecting more than set fee
Providers are not required to see Medicare
patients
What is Missing from Coverage?
Health care outside of US
Long-term care (nursing homes)
Rx Drugs (this changed on Jan 1 2006!)
Routine physical, eye, and hearing exams
Routine foot care
Immunizations (with a few exceptions)
Cosmetic surgery (with exceptions)
Dental care
Eyeglasses, hearing aids, orthopedic shoes
Multiple Plans
Original Medicare Plan
Fee-for-service plan managed by federal
government
Medicare Advantage
Includes Medicare HMOs, Medicare PPOs,
and other plans
“Original” Medicare
You can go to any doctor that accepts
Medicare and to any hospital
You pay a deductible
Hospital:
•
•
•
•
$1068 per stay for of 1-60 days
$267per day for days 61-90
$534 for days 91-150
All costs for longer stays
$135 Medicare Part B
Above deductible, Medicare pays 80%
Medigap
A health insurance policy sold by private
insurance companies
Designed to cover “gaps” in Medicare
coverage:
Coinsurance, deductibles, etc.
Other benefits such as travel outside of the US
In 47 states, the policies must be one of 12
standardized policies regulated by federal law
“Medicare Advantage”
Formerly known as Medicare+Choice
(Part C)
Health Maintenance Organizations
(HMOs): generally must get care from
within a network of doctors
Preferred Provider Organizations
(PPOs): you pay less if stay in network,
more if go outside network
Part D
Prescription drug coverage
Passed into law in late 2003 as part of “The
Medicare Prescription Drug, Improvement,
and Modernization Act of 2003”
Coverage took effect on Jan 1, 2006
Highly controversial (for both
programmatic and budgetary reasons)
More on this next time
Financing of Medicare
HI (part A) is financed by payroll taxes paid
by workers and employers
Payroll tax of 2.9% (half employer, half employee)
Unlike SS, wages are not capped – 2.9% is paid
on all earnings (even if you earn $1 billion)
Primarily “pay as you go” – today’s taxes pay for
today’s beneficiaries
SMI (part B) is financed primarily be transfers
from the general fund of the US Treasury and
by monthly part B premiums paid by
beneficiaries ($96.40—$308.300)
Overall State of Medicare’s Finances
From the 2007 Medicare Trustee’s Report
“As we reported last year, Medicare’s financial
difficulties come sooner – and are much more
severe – than those confronting Social Security.”
“While both programs face essentially the same
demographic challenge, underlying health care costs
per enrollee are projected to rise faster than wages
per worker on which the payroll tax is paid.”
“As a result, while Medicare’s annual costs are
currently 3.2% of GDP, or about 60% of Social
Security’s, they are projected to pass Social Security
expenditures in 2028 and reach almost 11% of GDP
in 2082.”
Overall Status, continued
The projected 75-year actuarial deficit in
the HI Trust Fund is now 3.55 percent of
taxable payroll
The fund again fails our test of shortrange financial adequacy.
Date of HI Trust Fund exhaustion .. 2019
What is Driving Costs?
Demographics (just like SS)
# of Beneficiaries
• 1999: 39.2 million
• 2006: 43.2 million
• 2080: 108 million
Rising Health Care Costs
Avg Cost per beneficiary
• 1999: $5,502
• 2004: $7,500 (6.4% annual growth for past 5 years)
• 2006: $10,205 (first year of large scale Rx coverage)
Part A (HI) Finances
HI income is expected to fall short of payouts
IN 2013 (vs 2017 for SS)
The “Trust Fund” exhaustion date is 2019
To bring into balance just over next 75 years
would require a 108% increase in revenue or
48% reduction in outlays
Much bigger changes required to make
system permanently solvent
Part B (SMI) and D (Rx) Finances
Technically, both B and D are “projected to be
adequately financed into the indefinite future”
But this is because current law automatically
sets financing each year to cover costs!
Just because program is “adequately financed”
does not mean there is no problem
This will result in:
Drain on general revenue rising from 1.0% of GDP
today to 11% in 2081
• General revenue covers 75% of costs
Substantial increases in beneficiary premiums
• Premiums theoretically cover 25% of costs
FICA Taxes in Total
(as % of earnings)
OASI
DI
OASDI
HI
Total
Employees
5.30
0.90
6.20
1.45
7.65
Employers
5.30
0.90
6.20
1.45
7.65
Total
10.60
1.80
12.40
2.90 15.30
Earnings for tax purposes are capped for OASDI but not HI
Funding Sources (2007)($ Billions)
Source
Payroll
Taxes
General
Revenue
Interest
OASI
561
DI
95
1
178
2
51
7
238
13
17
1
16
3
10
109
1
224
Other
Total
SMI
97
Premiums
Benefit
taxes
HI
192
675
Chart B-Social Security and Medicare Cost as a Percentage of GDP
Source: www.ssa.gov/OACT/TRSUM/trsummary.html
Chart C-Income and Cost Rates
[Percentage of taxable payroll]
Source: www.ssa.gov/OACT/TRSUM/trsummary.html
General Revenue Cost of Part B/D
SMI general revenue financing was
<9% of federal income taxes in 2003
If income taxes stay constant as share
of GDP, then growth in SMI costs as %
of federal tax revenue would be:
14% by 2010
29% by 2030
50% by 2078
Key Dates for SS and Medicare
OASDI
HI
First year outgo exceeds
income (excl. interest)
2017
2004
First year outgo exceeds
income (incl. Interest)
2027
2013
Trust Fund exhaustion
2041
2019
Chart D-Medicare Expenditures and Non-Interest Income by Source
as a Percent of GDP
SMI Costs to Individuals
Part B and D greatly reduce the costs that
beneficiaries would otherwise face for health care
But individual financial burden will still increase
Part B premiums and coinsurance for typical Medicare
beneficiary = 16% of average SS benefit in 2006
Once part D is included, premiums + coinsurance for
Medicare as a fraction of SS benefit will be:
• 35% by 2010
• 50% by 2030
• 80% by 2078
Note: this overstates picture a bit because in absence
of part D, they would still incur Rx drug costs out of
pocket