Medicare & Medicaid

2 Medicare – Medical Care for the Elderly l 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 l 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) l 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%

l 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 l Does not provide catastrophic coverage, custodial nursing home care, preventive services or routine physical examinations. 5

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

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

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

9 Medicare Payment Allocations, 2002

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

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

12 Medicaid l Institutional features – State administered – Federal cost-sharing – Eligibility standards l SCHIP expansion

13 Medicaid Spending

14 Medicaid – Large State Spending, 2004

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

16 Spending by Eligibility Categories, 2001

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