[Budget of the United States Government]
[VI. Investing in the Common Good: Program Performance in Federal Functions]
[23. Medicare]
[From the U.S. Government Publishing Office, www.gpo.gov]
23. MEDICARE
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Table 23-1. FEDERAL RESOURCES IN SUPPORT OF MEDICARE
(In millions of dollars)
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Estimate
Function 570 1997 -----------------------------------------------------------
Actual 1998 1999 2000 2001 2002 2003
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Spending:
Discretionary Budget Authority.......... 2,623 2,724 2,648 2,640 2,627 2,609 2,652
Mandatory Outlays:
Existing law.......................... 187,441 195,383 204,691 214,249 230,075 232,504 253,450
Proposed legislation.................. ........ ........ -79 -33 -152 -257 -326
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Created by the Social Security Amendments of 1965 (and expanded in
1972), Medicare is a Nation-wide health insurance program for the
elderly and certain people with disabilities. The program, which will
spend an estimated $207 billion in 1999 on benefits and administrative
costs, consists of two complementary but distinct parts, each tied to a
trust fund: (1) Hospital Insurance (Part A) and (2) Supplementary
Medical Insurance (Part B).
Over 30 years ago, Medicare was designed to address a serious,
national problem in health care--the elderly often could not afford to
buy health insurance, which was more expensive for them than for other
Americans because they had higher health care costs. Medicare was
expanded in 1972 to address a similar problem of access to insurance for
people with disabilities. Through Medicare, the Federal Government
created one insurance pool for all of the elderly and eligibile disabled
individuals while subsidizing some of the costs, thus making insurance
much more affordable for almost all elderly Americans and for certain
people with disabilities.
Medicare has very successfully expanded access to quality care for the
elderly and people with disabilities. Still, even though the Balanced
Budget Act (BAA) of 1997 improved Medicare's financial outlook for the
near future, its trust funds face financing challenges as the Nation
moves into the 21st Century. Along with legislative proposals discussed
elsewhere in the budget, the Health Care Financing Administration
(HCFA), which runs Medicare, is working to improve Medicare through its
regulatory authority and demonstration programs.
The Department of Health and Human Services (HHS), which houses HCFA,
is the Federal Government's lead agency for health programs. HHS'
Strategic Plan states the agency mission as: ``to enhance the health and
well-being of Americans by providing for effective health and human
services and by fostering strong, sustained advances in the sciences
underlying medicine, public health, and social services.''
Medicare supports HHS' first, second, third, and fourth strategic
goals, as described in Chapter 22, ``Health.''
Part A
Part A covers almost all Americans age 65 or older, and most persons
who are disabled for 24 months or more and who are entitled to Social
Security or Railroad Retirement benefits. People with end-stage renal
disease (ESRD) also are eligible for Part A coverage. About 99 percent
of Americans aged 65 or older are enrolled in Part A, along with an
estimated 93 percent of ESRD patients. Part A reimburses providers for
the inpatient hospital, skilled nursing facility, home health care
related to a hospital
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stay, and hospice services provided to beneficiaries. Part A's Hospital
Insurance (HI) Trust Fund receives most of its income from the HI
payroll tax--2.9 percent of payroll, split evenly between employers and
employees.
Part B
Part B coverage is optional, and it is available to almost all
resident citizens age 65 or older and to people with disabilities who
are entitled to Part A. About 96 percent of those enrolled in Part A
have chosen to enroll in Part B. Enrollees pay monthly premiums that
cover about 25 percent of Part B costs, while general taxpayer dollars
subsidize the remaining costs. For most beneficiaries, the Government
simply deducts the Part B premium from their monthly Social Security
checks.
Part B pays for medically necessary physician services; outpatient
hospital services; diagnostic clinical laboratory tests; certain durable
medical equipment (e.g., wheelchairs) and medical supplies (e.g.,
oxygen); home health care; physical and occupational therapy; speech
pathology services; and outpatient mental health services. Part B also
covers kidney dialysis and other services for ESRD patients.
Fee-for-Service vs. Managed Care
Beneficiaries can choose the coverage they prefer. Under the
``traditional,'' fee-for-service option, beneficiaries can go to
virtually any provider in the country. Medicare pays providers primarily
based on prospective payment, an established fee schedule, or reasonable
costs. About 87 percent of Medicare beneficiaries now opt for fee-for-
service coverage.
Alternatively, beneficiaries can enroll in a Medicare managed care
plan, and the 13 percent who do are concentrated in several geographic
areas. Generally, enrollees receive care from a network of providers,
although Medicare managed care plans may offer a point-of-service
benefit, allowing beneficiaries to receive certain services from non-
network providers. Most managed care plans receive a monthly, per-
enrollee ``capitated'' payment that covers the cost of Part A and B
services. As of June 1997, 67 percent of all Medicare beneficiaries
lived in a county served by at least one Medicare managed care plan.
Due to the BBA, Medicare managed care (renamed ``Medicare+Choice'' or
Part C) will provide new health plan options for Medicare beneficiaries,
including provider-sponsored organizations (PSOs) and preferred provider
organizations (PPOs). Part C also will feature improved beneficiary
information and will be fully operational by January 1, 1999.
Successes
Medicare has dramatically increased access to health care for the
elderly--from slightly over 50 percent of the elderly in 1966 to almost
100 percent today.
According to the Physician Payment Review Commission's latest report,
96 percent of Medicare beneficiaries reported no trouble obtaining care.
Further, less than 1 percent of beneficiaries reported trouble getting
care because a physician would not accept Medicare patients. Medicare
beneficiaries have access to the most up-to-date medical technology and
procedures.
Medicare also gives beneficiaries an attractive choice of managed care
plans. Today, managed care is a major, and growing, part of Medicare. As
of December 1, 1997, over 5.2 million beneficiaries have enrolled in 307
Medicare managed care plans. During the 12-month period ending December
1, 1997, enrollment in the capitated managed care plans called ``risk
contracts'' grew by 27 percent. Managed care plans can provide
coordinated care that is focused on prevention and wellness.
In addition, Medicare is working to protect the integrity of its
payment systems. Building on the success of Operation Restore Trust, a
five-State demonstration aimed at cutting fraud and abuse in home health
agencies, nursing homes, and durable medical equipment suppliers,
Medicare is increasing its efforts to root out fraud and abuse. Recent
legislation provides mandatory Federal funds and greater authority to
prevent inappropriate payments to fraudulent providers, and to seek out
and prosecute providers who continue to defraud Medicare and other
health care programs.
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Spending and Enrollment
Net Medicare outlays will rise by an estimated 30 percent from 1998 to
2003--from $194.2 billion to $252 billion.\1\ Part A outlays will grow
by an estimated 23 percent over the period--from $130.3 billion to $160
billion--or an average of 4.2 percent a year. Part B outlays will grow
by an estimated 44 percent--from $63.8 billion to $92 billion--or an
average of 7.6 percent a year.
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\1\ These figures cover Federal spending on Medicare benefits, but do
not include spending financed by beneficiaries' premium payments or
administrative costs.
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Medicare is consuming a growing share of the budget. In 1980, Federal
spending on Medicare benefits was $31 billion, comprising 5.2 percent of
all Federal outlays. In 1995, Federal spending on Medicare benefits was
$156.6 billion, or just over 10 percent of all Federal outlays. By 2003,
assuming no changes in current law, Federal spending on Medicare
benefits will total an estimated $252 billion, or almost 13 percent of
all Federal outlays.
Medicare enrollment will grow slowly until 2010, then explode as the
baby boom generation begins to reach age 65. From 1995 to 2010,
enrollment will grow at an estimated average annual rate of 1.5 percent,
from 37.6 million enrollees in 1995 to 46.9 million in 2010. But after
2010, average annual growth will almost double, with enrollment reaching
an estimated 61.3 million in 2020.
The Two Trust Funds
HI Trust Fund: As noted earlier in this chapter, the HI Trust Fund is
financed by a 2.9 percent payroll tax, split evenly between employers
and employees. In 1995, HI expenditures began to exceed the annual
income to the Trust Fund and, as a result, Medicare began drawing down
the Trust Fund's accounts to help finance Part A spending. Prior to the
BBA, the Government's actuaries predicted that the HI Trust Fund would
become insolvent in 2001. The BBA, however, ensured the solvency of the
Trust Fund for another nine years--until 2010.
Medicare Part A still faces a longer-term financing challenge. Since
current benefits are paid by current workers, Medicare costs associated
with the retirement of the baby boomers, starting in 2010, will be borne
by the relatively small number of people born after the baby boom. As a
result, only 2.2 workers will be available to support each beneficiary
in 2030--compared to today's four workers per beneficiary. The President
plans to work with Congress and the Medicare Commission to develop a
long-term solution to this financing challenge.
SMI Trust Fund: The SMI Trust Fund receives about 75 percent of its
income from general Federal revenues and about 25 percent from
beneficiary premiums. Unlike HI, the SMI Trust Fund is really a trust
fund in name only; the law lets the SMI Trust Fund tap directly into
general revenues to ensure its annual solvency.
Demonstrations and Regulations
HCFA also conducts demonstration programs to determine the efficacy of
new service delivery or payment approaches. For example, Phase II of the
Social Health Maintenance Organization demonstration project is testing
alternative mechanisms for adjusting the managed care capitated payment,
including the beneficiary's functional status. In another demonstration
project, Centers of Excellence, HCFA has experimented with bundled
payments for hospital and physician costs for selected procedures
performed at certain high-quality facilities.
Through its regulatory authority, HCFA continually improves Medicare.
For example, HCFA has finalized regulations specifying additional
standards that home health agencies must meet to participate in
Medicare, including securing surety bonds, and it expects to issue
similar regulations for durable medical equipment suppliers this year.
By reducing the amount of fraud and abuse in the program, the
Administration is making important changes to strengthen Medicare.
Performance Plan
HCFA has developed a comprehensive set of performance goals to measure
its progress in ensuring that Medicare beneficiaries receive the highest
quality health care. HCFA's 22 performance goals relate to quality
assurance, access to care for the elderly and disabled,
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administrative efficiency, and a reduction in fraud and abuse--four
areas critical to the administration of Medicare.
For example, HCFA's 1999 goals include:
Increasing the percentage of Medicare beneficiaries who
receive a mammogram once every two years from 49 percent in
1994 to 59 percent in 1999 and 60 percent in 2000;
Increasing the number of Medicare beneficiaries receiving
vaccinations for influenza from 41 percent in 1995 to 59
percent;
Reducing the payment error rate under Medicare's fee-for-
service program from 14 percent in 1996 to 13 percent, with a
five-year goal of 10 percent;
Continuing to shift Medicare contractors' nine different
claims processing systems to one Part A and one Part B
standard system (by the end of 1999, HCFA will have one Part A
system and two Part B systems, with the final Part B
transition coming later); and
Ensuring that no significant interruptions to Medicare claims
payments occur because information systems under HCFA's
control were not year 2000 compliant. For systems not under
HCFA's direct control, HCFA will continue to work with its
Medicare contractor community and perform oversight activities
directing them to achieve and verify compliance. HCFA will
again seek legislative changes to increase its control over
contractor systems.