1. © 2008 Delmar Cengage Learning. Chapter 14 Medicare: The Great Transformation John Oberlander

2. © 2008 Delmar Cengage Learning. 2 Medicare: Offspring of NHI Failure Medicare has its roots in 1910s struggle for national health insurance (NHI) After repeated policy failures: –Proponents limited ambitions –Sought to expand coverage to “deserving” group The elderly

3. © 2008 Delmar Cengage Learning. 3 Medicare: Offspring of NHI Failure Champions of NHI then hoped Medicare would be incrementally expanded to cover all Americans

4. © 2008 Delmar Cengage Learning. 4 Legacies of Founding Compromise To achieve passage: –Medicare proponents were forced to compromise with conservatives on a host of fronts –These compromises made it nearly impossible to expand Medicare later

5. © 2008 Delmar Cengage Learning. 5 Provider Accommodation Under Medicare Compromises were also made with medical providers Payments under Medicare were to be determined by hospitals, doctors Led to long-term increases in cost of program

6. © 2008 Delmar Cengage Learning. 6 Effects of Accommodation “Blank check” to physicians, hospitals led to dramatic increase in cost of program Financial “crises” common in first years of program

7. © 2008 Delmar Cengage Learning. 7 Effects of Accommodation Pressure to reform: –Led to institution of Diagnostic-Related Groups (and successors) in 1980s

8. © 2008 Delmar Cengage Learning. 8 Managed Care and Beyond Prospective payment systems lowered cost of Medicare program –But providers made up the difference by shifting higher costs to private customers Businesses responded to higher costs by moving into managed care

9. © 2008 Delmar Cengage Learning. 9 Managed Care and Beyond Pressure then built with Republican Revolution of 1994-95 for Medicare to post savings –Incorporate principles of managed care

10. © 2008 Delmar Cengage Learning. 10 The Medicare Modernization Act (2003) Passed under President Bush –Complicated program represented vast expansion of Medicare into prescription drugs Prominent role retained for private insurers

11. © 2008 Delmar Cengage Learning. 11 The Medicare Modernization Act (2003) Savings partly attained through unique “doughnut-hole” structure –In which benefits curtailed for those facing middling costs

12. © 2008 Delmar Cengage Learning. 12 Chapter 14 Summary Medicare was the orphan of the national health insurance debate Circumstances at enactment have had profound effects on the way the program has unfolded Providers accommodated by program framers, particularly in terms of payment structures, amounts

13. © 2008 Delmar Cengage Learning. 13 Chapter 14 Summary Political accommodation led to spiraling costs –Which were then controlled through prospective payment systems Resultant cost shifting led business to move to managed care plans –Which were later introduced within Medicare