[Budget of the United States Government]
[III. Creating a Better Government]
[13. Medicare]
[From the U.S. Government Publishing Office, www.gpo.gov]
13. MEDICARE
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Table 13-1. Federal Resources in Support of Medicare
(In millions of dollars)
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Estimate
Function 570 2000 -----------------------------------------------------------
Actual 2001 2002 2003 2004 2005 2006
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Spending:
Discretionary Budget Authority.......... 2,998 3,352 3,466 3,549 3,631 3,714 3,800
Mandatory Outlays:
Existing law.......................... 194,115 216,002 226,448 238,575 252,231 270,784 279,426
Proposed legislation.................. ........ ........ ........ ........ ........ 8,300 12,800
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Created by the Social Security Amendments of 1965, and expanded in
1972, Medicare is a nationwide health insurance program for the elderly
and certain people with disabilities. The program will spend an
estimated $226 billion in 2002 on mandatory benefits (net of beneficiary
premiums) and administrative costs.
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
expanded access to quality care for the elderly and people with
disabilities. With rapid changes in the health care industry, however,
Medicare's approach to health care coverage has become increasingly
dated. Medicare's benefits have significant gaps, including the lack of
a prescription drug benefit. Medicare provides fewer coverage options
for many beneficiaries than are enjoyed by employees of large private
firms and the Federal Government. As a result, many beneficiaries do not
have access to innovative disease management programs for their chronic
illnesses, or to coverage options that would help them limit their out-
of-pocket costs. In addition, Medicare has an enormous and growing long-
term financing gap.
Medicare Benefits
In contrast to the integrated health insurance plans that provide
coverage for most non-elderly Americans today, Medicare's structure
continues to reflect the historical division of health insurance into a
``hospital'' component and a ``physician'' component that existed at the
time the program was created. Medicare has two parts: (1) Hospital
Insurance (Part A) and (2) Supplementary Medical Insurance (Part B).
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.
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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; 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.
Public vs. Private Health Care Coverage
Beneficiaries can choose the coverage they prefer among a limited set
of options. Under the traditional fee-for-service option, beneficiaries
can go to most providers in the country. Medicare pays providers
primarily based on prospective payment, an established fee schedule, or
reasonable costs. About 84 percent of Medicare beneficiaries now opt for
fee-for-service coverage.
Alternatively, beneficiaries can enroll in a Medicare+Choice plan.
Generally, enrollees receive care from a network of providers. Most
managed care plans receive a monthly, per-enrollee capitated payment
that covers the cost of Part A and B services. The Administration will
focus on expanding opportunities for beneficiaries to access a wider
array of plans, including Preferred Provider Organizations and plans
that offer a point of service benefit, allowing beneficiaries to receive
certain services from non-network providers.
Spending and Enrollment
Federal spending on Medicare benefits will rise by an estimated
average annual rate of 5.4 percent from 2002 to 2006, from $226 billion
to $279 billion. Part A benefit outlays will grow by an estimated 23
percent over the period--from $140 billion to $172 billion, or an
average of 5.3 percent a year. Part B outlays will grow by an estimated
23 percent--from $85 billion to $106 billion, or an average of 5.7
percent a year. These figures cover net Federal spending on Medicare
benefits, and do not include spending financed by beneficiaries' premium
payments.
Medicare enrollment will grow slowly until 2011, then rapidly increase
as the baby boom generation begins to reach age 65 in 2011. From 1995 to
2011, enrollment will grow at an estimated average annual rate of 1.5
percent, from 37.4 million enrollees in 1995 to 46.9 million in 2011.
After 2011, average annual growth will grow at a faster rate, with
enrollment reaching more than 69 million in 2025.
The Two Trust Funds and Solvency
Hospital Insurance (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. 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 Medicare Trustees recently
reported that the HI Trust Fund depletion date improved slightly from
last year's report (from 2025 to 2029) but HI spending will begin to
exceed tax receipts by 2016. In addition, the Medicare Trustees reported
that the HI Trust Fund is in worse long-term financial shape than the
Social Security Trust Fund. The President plans to work with Congress to
develop a long-term solution to this financing challenge.
Supplementary Medical Insurance (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.
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Comprehensive Measure of Medicare Solvency: Currently, there is no
comprehensive measure of Medicare's solvency that takes into account SMI
finances, as well as HI. This seriously underestimates the magnitude of
the Medicare financial problem. The Medicare Trustees acknowledged this
disconnect in their 2001 Trustees report. They stated that: ``Although
this report focuses on the financial status of the HI Trust Fund, it is
important to recognize the financial challenges facing the Medicare
program as a whole and the need for integrated solutions.''
As the Trustees report begins to show, on a combined basis Medicare
spending will grow from 2.2 percent of GDP in 2000 to 4.5 percent in
2030 and 8.5 percent in 2075. Sources of dedicated Medicare financing
will rise at a slower rate, from 1.8 percent of GDP in 2000, to 2.2
percent in 2030, and 2.5 percent in 2075. The gap in Medicare financing
will therefore grow from 0.4 percent of GDP in 2000 to six percent of
GDP in 2075. The Administration will work to establish a comprehensive
measurement of solvency in order to assess the overall financial outlook
of the Medicare program.
Previous Medicare Reform Legislation
The Balanced Budget Act (BBA) of 1997 improved Medicare's financial
outlook temporarily, while the Balanced Budget Refinement Act (BBRA) of
1999 corrected some of the unintended consequences of the BBA. The
Beneficiary Improvement and Protection Act (BIPA) of 2000 added
preventive benefits health care benefits, reduced beneficiary cost
sharing, while also reducing some provider payments. Despite this
legislative activity, the Medicare program requires additional reform to
address its poor financial condition, and the inadequate benefits
package, among other problems. The Administration will work with
Congress to further modernize Medicare and integrate prescription drug
coverage, while also strengthening the Medicare+Choice program.
Budget Implementation
Medicare Reform: Many improvements in Medicare's outdated structure
are needed to increase the quality of care for seniors and the disabled,
to streamline the burdensome and inflexible bureaucratic controls, and
to improve the program's financing. The budget devotes $153 billion over
10 years for Medicare modernization, including providing for a
prescription drug benefit for all Medicare beneficiaries (see Table 13-
2).
The President plans to reform Medicare based on the following
principles:
Medicare should be modernized, to provide better coverage
options, streamlined regulations, and higher quality of care.
Medicare should assure that all seniors have affordable access
to prescription drug coverage, as part of a modernized
Medicare program.
Medicare should provide better options for protection against
high out-of-pocket expenses, particularly for low-income
seniors.
Medicare should have greater overall financial security,
including an accurate measure of the financial status of the
program as a whole, without raising payroll tax rates.
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Table 13-2. Immediate Helping Hand and Medicare Modernization
(Outlays in billions of dollars)
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Estimate Total
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2002- 2002-
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2006 2011
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Immediate Helping Hand and 3 11 13 15 13 13 13 16 17 20 24 64 153
Medicare Modernization.........
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Reforming the Health Care Financing Administration (HCFA): HCFA faces
the formidable challenge of modernizing its administrative
infrastructure, meeting pressing statutory deadlines for program changes
from the BBA, the BBRA, the BIPA, and the Health Insurance Portability
and Accountability Act, and perhaps most importantly, the need to be
highly responsive to its customers. HCFA management reform is an
Administration priority. HCFA will undertake a major effort to modernize
and streamline its operations to more effectively manage current
programs and implement new legislation. The Administration will also
examine more fundamental change in HCFA's mission and structure as part
of this effort.
In addition, HCFA will also work to protect the integrity of
Medicare's payment systems without imposing burdensome new requirements
on providers. Previous legislation authorizes 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. In 2000, the error rate
was 6.8 percent, or $11.9 billion. The 2002 goal is to reduce the error
rate to five percent.
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 2002 goals include:
increasing the percentage of female Medicare beneficiaries
who receive a mammogram once every two years from 45 percent
in 1998 to 52 percent in 2002;
decreasing the one-year mortality rate among Medicare
beneficiaries hospitalized for heart attacks from 31.2 percent
in 1995 to 27.4 percent in 2002;
reducing the prevalence of pressure ulcers (bed sores) in
nursing homes from 9.8 percent in 2000 to 9.5 percent in 2002.
Absence of pressure ulcers are a good indicator of quality of
care provided by nursing home; and
increasing the percentage of Medicare beneficiaries age 65
and over receiving vaccinations for influenza from 59 percent
in 1994 to 73 percent in 2002, and those receiving a lifetime
pneumococcal vaccination from 25 percent in 1994 to 65 percent
in 2002.