[Budget of the United States Government]
[VI. Investing in the Common Good: Program Performance in Federal Functions]
[24. Medicare]
[From the U.S. Government Publishing Office, www.gpo.gov]
24. MEDICARE
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Table 24-1. FEDERAL RESOURCES IN SUPPORT OF MEDICARE
(In millions of dollars)
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Estimate
Function 570 1998 -----------------------------------------------------------
Actual 1999 2000 2001 2002 2003 2004
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Spending:
Discretionary Budget Authority.......... 2,723 2,989 2,926 2,926 2,926 2,926 2,926
Mandatory Outlays:
Existing law.......................... 190,233 202,037 214,944 229,182 233,195 251,244 265,201
Proposed legislation.................. ........ ........ -1,243 -1,496 -1,526 -1,673 -1,824
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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 $217 billion in 2000 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 eligible 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, but at an increasing cost. The
Balanced Budget Act (BBA) of 1997 improved Medicare's financial outlook
for the near future, yet 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.
Because it serves almost 40 million Medicare beneficiaries, HCFA has
been designated as a High Impact Agency by the National Partnership for
Reinventing Government. To meet the challenges of the changing health
care system and increase responsiveness to its constituencies, HCFA has
begun a process of management reform (see Section IV). Included in this
reform are increased management and program flexibilities, increased
accountability to constituencies, structural reforms, and legislative
changes to promote competition and increase efficiency in Medicare
contracting.
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' second, third, fourth and sixth strategic goals, as
described in Chapter 23, ``Health.''
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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. Part A reimburses
providers for the inpatient hospital, skilled nursing facility, home
health care related to a hospital 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 94 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 85 percent of Medicare beneficiaries now opt for fee-for-service
coverage.
Alternatively, beneficiaries can enroll in a Medicare managed care
plan, and the 15 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. Additional kinds of managed care plans, including
provider sponsored organizations and preferred provider organizations,
will be phased in for Medicare beneficiaries over the next few years as
part of Medicare + Choice.
Most managed care plans receive a monthly, per-enrollee capitated
payment that covers the cost of Part A and B services. As of March 1998,
72 percent of all Medicare beneficiaries lived in a county served by at
least one Medicare managed care plan.
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 a recent Medicare Payment Advisory
Commission report, 97 percent of Medicare fee-for-service beneficiaries
(94 percent for managed care) reported no trouble obtaining care.
Further, 88 percent of fee-for-service Medicare beneficiaries (92
percent for managed care) reported having a physician or physician's
office as a usual source of care. Medicare beneficiaries have access to
the most up-to-date medical technology and procedures.
Under the BBA and other recent legislation, Medicare beneficiaries now
have expanded access to many important preventive care services
including mammographies, prostate and colorectal cancer screening, bone
mass measurements and diabetes self-management services. These benefits
will help prevent or reduce the complications of disease for millions of
beneficiaries.
Medicare also gives beneficiaries an attractive choice of managed care
plans, which can provide coordinated care that is focused on prevention
and wellness. As of December 1, 1998, over six million beneficiaries
have enrolled in 346 Medicare managed care plans. During the 12-month
period ending December 1, 1998, enrollment in the capitated managed care
plans called ``risk contracts'' grew by 16 percent.
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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. Since 1993 the Federal Government has assigned
more Federal prosecutors and FBI agents to fight health care fraud. As a
result, it has increased prosecutions by over 60 percent, convictions by
240 percent, and saved $20 billion in health care claims. The budget
also proposes legislation that can save Medicare another $2 billion over
the next five years.
Spending and Enrollment
Net Medicare outlays will rise by an estimated 31 percent from 1999 to
2004--from $201 billion to $264 billion. \1\ Part A outlays will grow by
an estimated 30 percent over the period--from $130 billion to $169
billion--or an average of 5.4 percent a year. Part B outlays will grow
by an estimated 33 percent--from $71 billion to $95 billion--or an
average of six 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 2004,
assuming no changes in current law, Federal spending on Medicare
benefits will total an estimated $264 billion, or almost 14 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, extended the solvency of the
Trust Fund until 2008.
Medicare Part A still faces a long-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 2.3 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 bipartisan 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.
Balanced Budget Act Implementation
HCFA continues to implement the many changes in Medicare payment
methodologies and provider options that were mandated in the BBA.
Although HCFA has been forced to delay some provisions due to the year
2000 (Y2K) computer problem, the agency has issued major rules that
implement the new Medicare + Choice program, PSO solvency standards, an
interim payment system for home health services and a prospective pay
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ment system for skilled nursing facilities. According to the Board of
Trustees for the Part A Trust Fund, the reform measures enacted in the
BBA extended the solvency of the Part A Trust Fund from 2001 to 2008 and
lowered its projected 75-year deficit by about one-half.
Performance Plan
HCFA has developed a set of performance goals to measure its progress
in ensuring that Medicare beneficiaries receive the highest quality
health care. HCFA's performance goals relate to four critical areas:
quality assurance; access to care for the elderly and disabled;
administrative efficiency; and a reduction in fraud and abuse. For
example, HCFA's 2000 goals include:
Increasing the percentage of Medicare beneficiaries who
receive a mammogram once every two years from 55 percent in
1994 to 60 percent in 2000;
Increasing the number of Medicare beneficiaries over age 65
receiving vaccinations for influenza from 55 percent in 1995
to 60 percent in 2000;
Increasing the percentage of Medicare beneficiaries who have
at least one managed care choice from 70 percent in 1997 to 80
percent in 2000.
Decreasing the one-year mortality rate among Medicare
beneficiaries hospitalized for heart attacks from 31.4 percent
in 1995 to 27.4 percent in 2000.
Reducing the telephone busy rate for Medicare carriers, for
which measurement will begin in 2000. By 2001, the number of
Medicare carriers who answer calls within two minutes and the
number who answer 80 percent of calls within one minute will
increase.
Reducing the payment error rate under Medicare's fee-for-
service program from 14 percent in 1996 to seven percent in
the year 2000 and five percent by the year 2002; and
Ensuring that all systems necessary for continuity of HCFA
payments and other mission critical outputs through and beyond
2000 will be Y2K computer compliant. Specifically, all systems
will be certified compliant (mission-critical certified by the
independent contractor and others by appropriate HCFA
personnel) prior to the need for those systems to process new
dates.
The budget includes legislative proposals relating to the Patients'
Bill of Rights, long term care, and several proposals expanding Medicare
access. Appropriate performance measures will be developed as
legislation is enacted and implemented.