Transcript Chapter 16 Health Insurance II

Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
Health Insurance II: Medicare, Medicaid, and
Health Care Reform
Chapter 16
16.1 The Medicaid Program
for Low-income Mothers and
Children
16.2 What Are the Effects of
the Medicaid Program?
16.3 The Medicare Program
16.4 What Are the Effects of
the Medicare Program?
16.5 Long-term Care
16.6 Lessons for Health Care
Reform in the United States
16.7 Conclusion
© 2007 Worth Publishers Public Finance and Public Policy, 2/e, Jonathan Gruber
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
Health Insurance II: Medicare, Medicaid, and
Health Care Reform
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
Health Insurance II: Medicare, Medicaid, and
Health Care Reform
Medicare Federal program,
funded by a payroll tax, that
provides health insurance to all
elderly over age 65 and
disabled persons under age 65.
Medicaid Federal and state
program, funded by general tax
revenues, that provides health
care for poor families, elderly,
and disabled.
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
16 . 1
The Medicaid Program for Low-income Mothers and
Children
How Medicaid Works
Medicaid, like unemployment insurance (UI), is a program that is federally
mandated but administered by the states.
Who Is Eligible for Medicaid?
Children’s Health Insurance Program (CHIP) Program
introduced in 1997 to expand eligibility of children for
public health insurance beyond the existing limits of the
Medicaid program, generally up to 200% of the poverty line.
All individuals age 18 or younger are eligible for Medicaid or CHIP up to 100%
of the poverty line.
Children under age 6 and pregnant women are covered up to 133% of the
poverty line.
In most states, eligibility extends further for both children and pregnant women:
a typical state covers both groups up to 200% of the poverty line.
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
16 . 1
The Medicaid Program for Low-income Mothers and
Children
What Health Services Does Medicaid Cover?
While federal Medicaid rules require states to cover major services, such as
physician and hospital care, they do not require states to pay for optional
services, such as prescription drugs or dental care.
How Do Providers Get Paid?
States can also regulate the rate at which health service providers are
reimbursed.
In most states, Medicaid reimburses physicians at a much lower level than
does the private sector, which often leads physicians to be unwilling to serve
Medicaid patients.
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
16 . 2
What Are the Effects of the Medicaid Program?
The goal of this large and rapidly growing program is to provide health
insurance coverage to low-income populations who cannot afford private
coverage and thereby improve their health.
How Does Medicaid Affect Health? A Framework
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
16 . 2
What Are the Effects of the Medicaid Program?
How Does Medicaid Affect Health? Evidence
Take-Up
In 1982, 12% of individuals nationwide aged 18 or under were eligible for public
insurance under Medicaid. By 2000, 46% of individuals in that age group were
eligible.
There was a parallel rise for pregnant women, with some small increase for
parents of eligible children in selected states that chose to expand to that
population.
Crowd-Out
Unlike people who prefer to hold on to their private health insurance, some
individuals might find it attractive to leave private insurance for public insurance
because the Medicaid insurance package is much more generous.
This is another example of the ways government intervention can crowd out
private provision, as we saw with fireworks, education, and social insurance.
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
16 . 2
What Are the Effects of the Medicaid Program?
How Does Medicaid Affect Health? Evidence
Health Care Utilization and Health
Even at the largest estimates of crowd-out, expanding Medicaid still
substantially reduces the number of uninsured, so expansions may affect
the utilization of health care services.
Cost-Effectiveness
Findings suggest that investing in low-income health care may be a costeffective means of improving health in the United States.
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
EMPIRICAL EVIDENCE
USING STATE MEDICAID EXPANSIONS TO
ESTIMATE PROGRAM EFFECTS
An important feature of the Medicaid expansions is that they occurred at a very
different pace across the states and at a different pace for different age groups of
children within states.
Studies can compare outcomes (such as degree of illness) in the treatment states,
those that expand eligibility more, to outcomes in the controls, those that expand
it less.
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
16 . 3
The Medicare Program
The largest public health insurance program in the United States is Medicare.
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The Medicare Program
How Medicare Works
The Medicare program is administered at the federal level.
All U.S. citizens who have worked and paid payroll taxes for ten years, and
their spouses, are eligible for coverage.
Other citizens who do not have the requisite work experience can purchase
Medicare coverage at its full cost.
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16 . 3
The Medicare Program
How Medicare Works
Medicare Is Really Three Different Programs
Medicare Part A Part of the Medicare program that
covers inpatient hospital costs and some costs of
long-term care; financed from a payroll tax.
Medicare Part B Part of the Medicare program that
covers physician expenditures, outpatient hospital
expenditures, and other services; financed from
enrollee premiums and general revenues.
Medicare Part D Part of the Medicare program
that covers prescription drug expenditures.
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
16 . 3
The Medicare Program
How Medicare Works
Medicare Has High Patient Costs
Relative to private health insurance, the Medicare program has fairly high
copayments and deductibles and a relatively lean benefits package.
This greatly lowers the consumption-smoothing value of Medicare, since there
is still some risk of very high medical expenditures if you are ill.
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
 APPLICATION
The Medicare Prescription Drug Debate
Because outpatient drugs were only a very small share of medical spending when
Medicare was established in 1965, their absence from the benefits package was not
viewed as a terrible omission. As prescription drugs grew in importance, became a
glaring deficiency.
Democrats suggested adding a drug benefit to the Medicare program, with the
government negotiating directly with drug companies to ensure the lowest drug
prices.
Republicans suggested that the government subsidize private insurers to offer
prescription drug coverage to the elderly. In December 2003, President Bush signed
into law a bill that followed the Republican approach.
For basic Part D plans, individuals receive coverage for:
none of the first $250 in drug costs each year
75% of costs for the next $2,250 of drug spending (up to $2,500 total)
0% of costs for the next $3,600 of drug spending (up to $5,100 total)
95% of costs above $5,100 of drug spending
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
16 . 4
What Are the Effects of the Medicare Program?
Despite broad support, there is surprisingly little evidence that the Medicare
program actually improves the health of the elderly.
The Prospective Payment System
Prospective Payment System (PPS)
Medicare’s system for reimbursing hospitals
based on nationally standardized payments
for specific diagnoses.
This system had several key features:
1. All diagnoses for hospital admissions were grouped into 467
“Diagnosis Related Groups,” or DRGs.
2. The government reimbursed hospitals a fixed amount based on the
DRG of patient admission.
3. The fixed amount of reimbursement was determined by a national
standard for the cost of treating that DRG.
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
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What Are the Effects of the Medicare Program?
Empirical Evidence on the Move to the PPS
The average length of a hospital stay for elderly patients fell from 9.7 days to
8.4 days in just one year, which was four times the rate of decrease over the
previous two decades.
In one Indiana hospital, the length of stay for hip fractures fell from almost 22
days to only 13 days.
The move to a PPS led to a sharp reduction in the rate of growth of hospital
costs: after growing at 9.6% per year from 1967 to 1982, hospital costs under
Medicare grew at only 3.0% per year from 1983 to 1988.
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
16 . 4
What Are the Effects of the Medicare Program?
Problems with PPS
Why didn’t the PPS solve the long-run cost growth problems of the Medicare
program?
Medicare was paying a fixed price per diagnosis, but the choice of a diagnosis is
something the hospital has some control over when patients are admitted.
There was a large increase in reported severity of admission diagnoses for the
elderly around the time of PPS.
This short-run problem has a longer-run manifestation, which is a problem with
the design of the DRGs themselves. Almost half of the DRG designations are
based not purely on diagnosis but also on the actual treatment used for the
patient.
Another problem with the PPS has been that it applies only to one part of the
medical system for treating the elderly, but there is enormous substitutability
across different pieces of the medical system.
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What Are the Effects of the Medicare Program?
Lesson: The Difficulty of Partial Reform
Just as with designing optimal insurance systems for workers, designing optimal
reimbursement systems for providers reflects a trade-off.
Retrospective reimbursement systems do not provide sufficient incentives to
control medical costs.
A purely prospective system, which we have not yet achieved, might lead
providers to cut care too much in order to make money.
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What Are the Effects of the Medicare Program?
Medicare Managed Care
Starting in 1985, the federal government allowed Medicare enrollees a choice
of Medicare HMOs as well.
A disadvantage for patients was that HMOs restricted their choice of provider
and potentially engaged in other rationing devices to keep down costs that were
not present in the traditional system.
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
16 . 4
What Are the Effects of the Medicare Program?
Medicare Managed Care
The Medicare program lowered its costs by reimbursing HMOs only 95% of the
average annual medical costs of enrollees who stayed in traditional Medicare.
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
16 . 4
What Are the Effects of the Medicare Program?
Medicare Managed Care
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
16 . 4
What Are the Effects of the Medicare Program?
Should Medicare Move to a Full Choice Plan?
Premium Support
premium support A system of full
choice among health care plans for
Medicare enrollees, whereby they
receive a voucher for a certain
amount that they can apply to a range
of health insurance options (either
paying or receiving the difference
between plan premiums and the
voucher amount).
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
 APPLICATION
A Premium Support System for Medicare
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
 APPLICATION
A Premium Support System for Medicare
The advantages of a premium support system mirror the advantages of
voucher systems for education.
•
First, such a system respects consumer sovereignty by allowing
individuals to choose the health plan that best matches their taste.
•
Second, such a system promotes efficiency in medical care delivery
by allowing individuals to shop across plans.
•
Finally, such a system solves the problem of “appropriate”
reimbursement levels for managed care plans by simply letting the
market work.
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
16 . 4
What Are the Effects of the Medicare Program?
Gaps in Medicare Coverage
Individuals fill these coverage gaps in Medicare in one of three ways:
1. Low income elderly individuals are entitled to more generous coverage
under the Medicaid program or through subsidies to private
prescription drug plans.
2. About one-third of all retirees over 65 are covered by retiree health
insurance from their former employers.
3. Many retirees not covered by Medicaid or their own retiree health
insurance buy individual “Medi-gap” policies from insurance
companies.
These three means of filling the gaps in Medicare coverage exert a negative
financial externality on the Medicare program.
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16 . 5
Long-term Care
long-term care Health care delivered to the
disabled and elderly for their long-term
rather than acute needs either in an
institutional setting (a nursing home) or in
their homes.
This care is delivered primarily in two forms:
1. Institutional care provided in nursing homes.
2. Home health care, where nurses and other aides provide care in the
patient’s home.
Financing Long-term Care
When savings are drawn below a threshold level, individuals qualify for state
programs that pick up the cost of nursing homes under Medicaid.
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16 . 6
Lessons for Health Care Reform in the United States
Rising Health Care Costs
Since 1950, the Consumer Price Index for medical care has risen by 1.8
percentage points more per year than the Consumer Price Index for all items in
the U.S. economy.
Controlling medical care costs is a tremendously difficult proposition for two
reasons.
•
First, it is not clear that costs should be controlled.
•
Second, even if costs should be controlled, it is not clear how this can be
done.
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
16 . 6
Lessons for Health Care Reform in the United States
The Uninsured
Pooling
Efficient provision of insurance requires large pools of participants that are
created independently of health status.
Solving the problem of the uninsured requires developing some new pooling
mechanism, either through government insurance or through private insurance
pools.
Affordability
Health insurance is expensive.
For example, the average cost of employer-provided insurance in 2006 is $4,024
per year for individuals and $10,880 for families.
Mandates
mandate A legal requirement for employers
to offer insurance or for individuals to obtain
some type of insurance coverage.
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
16 . 6
Lessons for Health Care Reform in the United States
Incremental Reforms
Incremental Cost Controls
One approach that has been used extensively in recent years by the Medicare
program is to restrict provider reimbursement, either by lowering prices or
moving to more prospective reimbursement.
Incremental Reforms to Cover the Uninsured
One option is to try to make the small employer and nongroup markets more
hospitable to the uninsured, in the hopes of inducing the uninsured to buy
insurance.
Another possibility for increasing insurance coverage for the uninsured is to
continue to expand the public insurance safety net.
A third possibility (which is currently very popular) is to offer individuals new
tax subsidies with which to purchase health insurance.
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
16 . 6
Lessons for Health Care Reform in the United States
Fundamental Reform: Public National Health Insurance
national health insurance A system
whereby the government provides insurance
to all its citizens, as in Canada, without the
involvement of a private insurance industry.
While public expenditures would rise dramatically, there would be a large reduction in
private insurance expenditures. Thus, the rise in total social costs of health care
would be small compared to the actual costs to the government. First, there may be a
deadweight loss arising from the need to increase government revenues. Second,
moving from private financing of health insurance through employer expenditures to
public financing is like moving from a hidden tax to an explicit tax.
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
16 . 6
Lessons for Health Care Reform in the United States
Fundamental Reform: Private-Sector Solutions
An alternative approach to fundamental reform would be to build on the
existing hybrid of private and public insurance in the United States.
State governments could each set up new pools of insurance plans, akin to the
pools offered by employers, from which individuals could choose insurance.
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Chapter 16 Health Insurance II: Medicare, Medicaid, and Health Care Reform
16 . 7
Conclusion
The Medicare and Medicaid programs play a central and growing role in the
delivery of health care in the United States.
Two lessons are apparent that can help guide health care reform efforts:
•
First, expanding health insurance to those without coverage can increase
medical utilization and improve health in a cost-effective manner.
•
Second, there are no easy answers when it comes to controlling health
care costs.
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