[WPRT 106-4]
[From the U.S. Government Publishing Office]


106th Congress                                                     WMCP:
                             COMMITTEE PRINT
1st Session                                                        106-4
------------------------------------------------------------------------


                        COMMITTEE ON WAYS AND MEANS
                       U.S. HOUSE OF REPRESENTATIVES

                              ------------

 
                         MEDICARE AND HEALTH CARE
                                 CHARTBOOK

                                     
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13

                                     
                              MAY 17, 1999

Prepared for the use of Members of the Committee on Ways and Means. This 
 document has not been officially approved by the Committee and may not 
                    reflect the views of its Members

                              ------------

56-395                U.S. GOVERNMENT PRINTING OFFICE

                            WASHINGTON : 1999
------------------------------------------------------------------------------

             For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
                           ISBN 0-16-054178-6
                                      


                       COMMITTEE ON WAYS AND MEANS
                      U.S. HOUSE OF REPRESENTATIVES

                               ----------

                       ONE HUNDRED SIXTH CONGRESS
                      BILL ARCHER, Texas, Chairman

                               ----------

                     A.L. Singleton, Chief of Staff

            This document was prepared by the majority staff of 
        the Committee on Ways and Means and is issued under the 
        authority of Chairman Bill Archer. This document has not 
        been reviewed or officially approved by the Members of 
        the Committee.



                              Introduction

             In 1997, Americans spent nearly $1.1 trillion on 
        health care and health-related services and supplies. 
        This amount represented 13.5% of the economy as measured 
        by the gross domestic product (GDP) of the United 
        States, up from only 5% in 1960. The Congressional 
        Budget Office (CBO) estimates that by the year 2008 
        health expenditures will be slightly more than $2 
        trillion, which, in that year, will represent 15.5% of 
        the economy.
            
             Although spending on health care as a percent of 
        the economy is expected to rise in the future, since 
        1995 it has remained relatively constant at between 
        13.7% and 13.5% of GDP. This low rate of growth reflects 
        a variety of factors, including a decline in fee-for-
        service health insurance and an increase in coverage of 
        managed care plans as well as generally low inflation 
        and a strong U.S. economy.
            
             Most Americans have group health insurance through 
        their own or a family member's employment (63% of the 
        population). However, 16% of the population was without 
        insurance coverage in 1997 (43 million individuals), 
        including 11.6 million children under age 19. Medicare 
        and Medicaid covered 22% of the population, and 10% had 
        private, nongroup coverage.
            
             In 1997 the CBO estimated that Medicare's Part A 
        trust fund (which covers hospital and related services) 
        would become insolvent in about the year 2001. Recent 
        CBO estimates indicate that the Medicare provisions in 
        the Balance Budget Act of 1997 (BBA) will delay 
        depletion of the trust fund until at least 2010. 
        Nevertheless, the program will incur large spending 
        increases as the baby boom generation reaches retirement 
        age in 2011.
            
             In order to reduce cost growth under the Medicare 
        program, Congress in 1982 sought alternatives to the 
        open-ended spending design of the traditional fee-for-
        service Medicare program by authorizing private health 
        plans, such as HMOs, to provide health care to Medicare 
        beneficiaries for a fixed annual payment per beneficiary 
        known as a ``capitated payment.'' In BBA, Congress 
        enacted the Medicare+Choice program which modified the 
        1982 law to create new capitated plan options and change 
        the formula determining the government's payment per 
        beneficiary. At the start of 1999, about 300 
        Medicare+Choice plans participated in Medicare and 
        enrolled about 16% of Medicare beneficiaries.
            
             This Chartbook provides data and information on 
        national health care spending (Section 1); the health 
        insurance coverage of various segments of the population 
        (Section 2); the traditional Medicare program (Section 
        3); and Medicare Health Maintenance Organizations 
        (Section 4). It was prepared by a team of Congressional 
        Research Service analysts including: Rich Rimkunas, 
        Madeleine Smith, Dadi Einarsson, Jennifer O'Sullivan, 
        Sibyl Tilson, and Richard Price. Carolyn Merck served as 
        the project coordinator. Phillip Brogsdale produced the 
        report in a professional and timely manner.



                             C O N T E N T S

                             LIST OF FIGURES

Section 1.  What We Spend on Health Care
  
Figure 1.1.   National Health Expenditures, 1960-1997.............     2
Figure 1.2.   Health Spending as a Share of the Economy in 
    Selected Nations, 1960-1997...................................     4
Figure 1.3.   Who Pays Our Health Bills, 1997.....................     6
Figure 1.4.   Health Spending by Payment Source, 1960-1997........     8
Figure 1.5.   Health Spending as a Share of Government 
    Expenditures, 1960-1997.......................................    10
Figure 1.6.   Per Capita Health Spending in Selected Nations, 
    1960-1994.....................................................    12
Figure 1.7.   Major Components of Health Expenditures, 1997.......    14
Figure 1.8.   Personal Health Care Spending, by Service Category, 
    1997..........................................................    16
Figure 1.9.   Growth Rates for Hospital, Physician, and Nursing 
    Home Spending, 1960-1997......................................    18
Figure 1.10.  Sources of Hospital Service Payments, 1960-1997.....    20
Figure 1.11.  Total Hospital Marginal Revenues, 1976-1997.........    22
Figure 1.12.  Trends in Hospital Utilization: Inpatient Days and 
    Outpatient Visits, 1965-1997..................................    24
Figure 1.13.  Sources of Physician Services Payments, 1960-1997...    26
Figure 1.14.  Physician Contacts Per Person, 1987-1995............    28
Figure 1.15.  Physician Supply, Selected Years 1965-1997..........    30
Figure 1.16.  Sources of Nursing Home Care Payments, 1960-1997....    32
Figure 1.17.  Nursing Home Use by the Aged, 1973-1995.............    34
  
Section 2.  Insurance and the Uninsured
  
Figure 2.1.   Health Insurance Coverage by Type of Insurance, 1997    38
Figure 2.2.   Uninsured Nonelderly by Age, 1997...................    40
Figure 2.3.   Uninsured Ages 35-64................................    42
Figure 2.4.   Uninsured by Region of Residence, 1997..............    44
Figure 2.5.   Sources of Children's Health Insurance, 1990 and 
    1997..........................................................    46
Figure 2.6.   Uninsured Children by Age, 1997.....................    48
Figure 2.7.   Uninsured Children by Family's Income Relative to 
    Poverty Thresholds, 1997......................................    50
Figure 2.8.   Uninsured Children by Parents' Insurance Status, 
    1997..........................................................    52
Figure 2.9.   Uninsured Children by Parents' Employment Status, 
    1997..........................................................    54
Figure 2.10.  Uninsured Children by Size of Largest Firm Employing 
    Either Parent, 1997...........................................    56
Figure 2.11.  Enrollment in Employment-Based Health Plans, by Plan 
    Type, 1988-1998...............................................    58
Figure 2.12.  Change in Employment-Based Health Insurance 
    Premiums, 1995-1998...........................................    60
Figure 2.13.  Comparison of Growth in Medicare and Private Health 
    Insurance, 1970-1997..........................................    62
Figure 2.14.  Distribution of HMOs by Plan Type, 1997.............    64
Figure 2.15.  HMO Enrollment, 1990-1996...........................    66
Figure 2.16.  Preferred Provider Organization (PPO) Enrollment, 
    1990-1996.....................................................    68
Figure 2.17.  Provider Incentives and Capitation Contracts........    70
Figure 2.18.  State Laws Regulating Managed Care..................    72
Figure 2.19.  State Premium Rating Restrictions in the Individual 
    Market........................................................    74
Figure 2.20.  State High-Risk Health Insurance Pools..............    76
  
Section 3.  Medicare
  
Figure 3.1.   Total Medicare Outlays, FY1967-FY2009...............    80
Figure 3.2.   Total and Net Medicare Outlays, FY1967-FY2009.......    82
Figure 3.3.   Total and Net Medicare Outlays in 1998 Constant 
    Dollars, FY1967-FY1998........................................    84
Figure 3.4.   Age and Gender Distribution of Medicare 
    Beneficiaries, 1996...........................................    86
Figure 3.5.   Race/Ethnicity Distribution of Medicare 
    Beneficiaries, 1996...........................................    88
Figure 3.6.   Medicare Enrollment, Actual and Projected, 1966-2017    90
Figure 3.7.   The Aging of the U.S. Population, 1960-2030.........    92
Figure 3.8.   Income Distribution of Elderly and Disabled Medicare 
    Beneficiaries, 1995...........................................    94
Figure 3.9.   Percent of Poor Persons in the U.S. Population, 
    1959-1996.....................................................    96
Figure 3.10.  Distribution of Medicare Benefit Payments by Service 
    Category, FY1997..............................................    98
Figure 3.11.  Trends in Distribution of Fee-for-Service Medicare 
    Payments for Selected Services, FY1980 and FY1997.............   100
Figure 3.12.  Average Annual Medicare Growth Rates, FY1990-FY1996 
    and FY1997-FY2002.............................................   102
Figure 3.13.  Medicare Short-Stay Hospital Utilization, Selected 
    Fiscal Years, 1985-1997.......................................   104
Figure 3.14.  Medicare Funding for Graduate Medical Education, 
    1990-1998.....................................................   106
Figure 3.15.  Trend in Number of Medical Residents, 1990/91-1997/
    98............................................................   108
Figure 3.16.  Selected Primary Care Residents as a Percent of 
    Total Residents, 1990-1991 and 1997-1998......................   110
Figure 3.17.  Trend in Medicare Payments for Skilled Nursing 
    Facility (SNF) Care, 1988-1998................................   112
Figure 3.18.  Trends in SNF Utilization and Payments Per Day, 
    1988-1998.....................................................   114
Figure 3.19.  Trend in Medicare Payments for Home Health, 1988-
    1998..........................................................   116
Figure 3.20.  Trends in Medicare Home Health Care Utilization and 
    Payments Per Visit, 1988-1997.................................   118
Figure 3.21.  Home Health Users and Total Visits, by Number of 
    Visits, FY1996................................................   120
Figure 3.22.  Medicare Fee-for-Service Spending for Selected 
    Service Categories, by Major Diagnostic Classifications, 1995.   122
Figure 3.23.  Average Per Capita Medicare Spending, FY1999-FY2009.   124
Figure 3.24.  Distribution of Medicare Spending for Beneficiaries, 
    1995..........................................................   126
Figure 3.25.  Average Medicare Part A and Part B Benefit Payment 
    Per Elderly Enrollee, by Age, 1995............................   128
Figure 3.26.  Average Medicare Benefit Payment Per User of 
    Services by Mortality, ESRD, and Hospital Status, 1995........   130
Figure 3.27.  Average Medicare Payments Per Enrollee by State and 
    by Region, CY1996.............................................   132
Figure 3.28.  Trends in Medicare Part A and Part B Administrative 
    Expenses, 1970-1997...........................................   134
Figure 3.29.  Administrative Costs: Medicare Compared to Private 
    Insurance and HMOs, 1993......................................   136
Figure 3.30.  Trends in Medicare Claims Volume, 1970-1997.........   138
Figure 3.31.  Medicare Part A Trust Fund: Income and Outlays, 
    FY1970-FY2009.................................................   140
Figure 3.32.  Medicare Part A Trust Fund: End-of-Year Balance, 
    FY1970-FY2009.................................................   142
Figure 3.33.  Medicare Part A Trust Fund: Projected Income and 
    Cost Rates, 1999-2070.........................................   144
Figure 3.34.  Incurred Medicare Outlays and Social Security 
    Outlays, Calendar Years 1999-2030.............................   146
Figure 3.35.  Hospital Insurance Cumulative Shortfall, Calendar 
    Years 1999-2030...............................................   148
Figure 3.36.  Medicare Part A Trust Fund: Number of Workers Per 
    Beneficiary, for Selected Years...............................   150
Figure 3.37.  Medicare Part B Premium as a Percent of Total Part B 
    Trust Fund Disbursements, FY1970-FY1999.......................   152
Figure 3.38.  Sources of Payment for Health Care, for All 
    Beneficiaries, Elderly and Disabled, 1994.....................   154
Figure 3.39.  Spending for Health as a Percentage of After-Tax 
    Income, Elderly and Non-Elderly Households, 1960-1994.........   156
Figure 3.40.  Out-of-Pocket Health Spending, 1995.................   158
Figure 3.41.  Sources of Health Insurance for Medicare 
    Beneficiaries, 1996...........................................   160
  
Section 4.  Medicare Risk HMOs and Medicare+Choice
  
Figure 4.1.   Medicare+Choice Plans and Risk HMOs Participating in 
    Medicare, 1987-1999...........................................   164
Figure 4.2.   Beneficiaries Enrolled in Medicare Risk HMOs and 
    Medicare+Choice Plans, Actual and Projected, 1990-2002........   166
Figure 4.3.   Distribution of Medicare Beneficiaries, by Number of 
    Risk HMOs Available in Their Area, 1995-1998..................   168
Figure 4.4.   Medicare Beneficiaries in Urban and Rural Locations 
    Enrolled in Risk HMOs, March 1998.............................   170
Figure 4.5.   Variation in Number of Risk HMOs Available to 
    Medicare Beneficiaries in Urban and Rural Locations, June 1997   172
Figure 4.6.   Medicare Beneficiaries Enrolled in Risk HMOs, by 
    State, December 1998..........................................   174
Figure 4.7.   Distribution of Medicare Risk HMO Enrollees Among 
    Selected States, 1998.........................................   176
Figure 4.8.   Growth in Medicare Risk HMO Enrollment, December 
    1996-December 1998............................................   178
Figure 4.9.   Percent of Medicare Beneficiaries Enrolled in Risk 
    HMOs, by Number of Plans Available in Their Area, June 1998...   180
Figure 4.10.  Medicare Risk Contract Plan Terminations, 1985-1998.   182
Figure 4.11.  Medicare Risk HMO Contracts by Plan Model, December 
    1998..........................................................   184
Figure 4.12.  Average Monthly Medicare+Choice Payment Rate for 
    Aged Beneficiaries, 1999......................................   186
Figure 4.13.  Medicare+Choice Budget Neutrality Provision 
    Eliminates Blend from 1998 and 1999 HMO Payments..............   188
Figure 4.14.  Spread of County Medicare+Choice Payments for the 
    Aged by Location, 1997-1999...................................   190
Figure 4.15.  Medicare Risk HMOs Offering Additional Benefits in 
    Their Basic Option Package, December 1997 and December 1998...   192
Figure 4.16.  Distribution of Medicare Risk HMOs by Premium 
    Charged, 1996-1998............................................   194
Figure 4.17.  Age, Income and Health Status of Medicare HMO 
    Enrollees versus Medicare Fee-for-Service Enrollees...........   196
Figure 4.18.  Medicare Risk HMOs: Costs as a Percentage of Average 
    Medicare Spending Per Beneficiary.............................   198
Figure 4.19.  Current Risk Adjustment of Medicare+Choice Payments, 
    1999..........................................................   200
Figure 4.20.  Proposed Risk Adjustment of Medicare+Choice 
    Payments, 2000................................................   202
Figure 4.21.  Beneficiary Satisfaction with Medicare HMOs and Fee-
    for-Service, 1996.............................................   204
Figure 4.22.  Beneficiary Dissatisfaction with Medicare HMOs and 
    Fee-for-Service, 1996.........................................   206
Figure 4.23.  Reasons for Disenrolling from Medicare Risk HMOs and 
    Switching to Medicare Fee-for-Service, 1996...................   208
Figure 4.24.  Trends in Relative Growth in HMO Enrollment: 
    Medicare Versus Non-Medicare Markets, 1988-1999...............   210
Figure 4.25.  Non-Medicare and Medicare HMO Penetration in 
    Selected States, 1996.........................................   212
Figure 4.26.  Average Estimated Medical Education Payments as 
    Components of Medicare+Choice Payment Rates, by Urban and 
    Rural Location, 1998..........................................   214
                                     

------------------------------------------------------------------------
------------------------------------------------------------------------

                   Medicare and Health Care Chartbook

                                May 1999

------------------------------------------------------------------------
------------------------------------------------------------------------



                               Section 1.

                      What We Spend on Health Care

            
             U.S. health care spending patterns in the mid-1990s 
        reflect some important delivery and financing changes. 
        This first section of the chartbook provides selected 
        information on health spending in the United States that 
        will help place Medicare spending within a broader 
        context. It provides data on overall health expenditure 
        trends and expenditure trends for three major health 
        services: hospitals, physicians, and nursing homes. The 
        figures convey information on the overall size of health 
        expenditures in the United States, the public role in 
        paying for those costs, and shifting patterns among the 
        sources of payment for them.
            
             The national health expenditure data provide 
        summary spending trends for health services and supplies 
        and other related health expenditures. The expenditure 
        trends shown here portray total spending on health 
        services, supplies and other activities. Changes in the 
        price of services, supplies or insurance are 
        incorporated into these summary trends, along with any 
        changes in the use of health services and supplies.
            
             This section answers some basic questions about 
        health spending in the United States:
            
             How much do we spend on health services and 
        supplies?
             Who pays for this spending?
             How has health spending changed over the 
        last 37 years?
             How do sources of payment vary by type of 
        service?
             How have we utilized these services?
            
             Most figures presented in this section rely on data 
        developed by the Office of National Health Statistics in 
        the Office of the Actuary at the Health Care Financing 
        Administration (HCFA).

                               Figure 1.1.

                 National Health Expenditures, 1960-1997

            
             National health expenditures include spending on 
        health care services and supplies, health research and 
        construction, administration and the net cost of private 
        health insurance. The size of this aggregate spending 
        amount is influenced by such factors as the size of the 
        U.S. population, the population's use of medical 
        services and supplies, and reimbursement for those 
        services and supplies.
            
             In 1960, national health care spending accounted 
        for 5.1% of the Gross Domestic Product (GDP), the 
        commonly used indicator of the size of the overall 
        economy. The enactment of Medicare and Medicaid and the 
        expansion of private health insurance covered services 
        contributed to a health spending trend that, over much 
        of the 37-year period, grew much more quickly than the 
        overall economy.
            
             From 1960-1997, four periods are exceptions to the 
        rule that the growth in U.S. health spending outpaced 
        the growth of the overall economy. The 1964-1966 period, 
        the 1977-1979 period, and the 1982-1984 period are times 
        when there was no substantial change in the share of the 
        U.S. economy spent on health. Each of these was 
        characterized by substantial growth in the overall 
        economy. The fourth period, 1992-1997, also shows health 
        spending representing roughly the same share of the 
        economy (between 13.4% and 13.7%). However, unlike these 
        earlier periods, during the nineties health spending 
        grew at an historically lower rate--close to the 
        moderate rate of growth in the overall economy.


TABLE 1.1. National Health Expenditures and Expenditures as a Percent of
                             GDP, 1960-1997
------------------------------------------------------------------------
                                             National
                                              Health
              Calendar Year                Expenditures   Percent of GDP
                                           (in billions)
------------------------------------------------------------------------
1960....................................           $26.9             5.1
1965....................................            41.1             5.7
1970....................................            73.2             7.1
1975....................................           130.7             8.0
1980....................................           247.3             8.9
1985....................................           428.7            10.3
1990....................................           699.4            12.2
1995....................................           993.7            13.7
1996....................................          1042.5            13.6
1997....................................          1092.4            13.5
------------------------------------------------------------------------
Note: Table prepared by CRS.

            
        [GRAPHIC] [TIFF OMITTED] T6395.001
        
          

                               Figure 1.2.

              Health Spending as a Share of the Economy in

                       Selected Nations, 1960-1997

             As depicted in this figure, health care spending in 
        the United States far exceeds that of most other 
        industrialized Nations when measured as a share of the 
        economy. In 1997, the United States spent 13.5% of its 
        economy on health. This can be compared with Germany's 
        10%, Canada's 9% and Japan and Great Britain's 7%.
            
             Figure 1.2 compares health spending as a share of 
        the economy in selected Nations. Health spending in 
        different countries differs for a variety of reasons, 
        including different types of public and private health 
        insurance plans and benefits; different medical 
        education systems and approaches to treating illnesses; 
        and differing health characteristics of the populations. 
        These and other factors affect the share of a Nation's 
        economy spent on health care.


               TABLE 1.2. Health Spending as a Share of the Economy in Selected Nations, 1960-1997
                                   (Expenditures as a percent of national GDP)
----------------------------------------------------------------------------------------------------------------
                                                    United       Great
                 Calendar Year                      States      Britain       Canada      Germany       Japan
----------------------------------------------------------------------------------------------------------------
1960...........................................          5.1          3.9          5.5          4.8          3.0
1965...........................................          5.7          4.1          6.0          4.6          4.5
1970...........................................          7.1          4.5          7.1          6.3          4.4
1975...........................................          8.0          5.5          7.2          8.8          5.5
1980...........................................          8.9          5.6          7.3          8.8          6.4
1985...........................................         10.3          5.9          8.4          9.3          6.7
1990...........................................         12.2          6.0          9.2          8.7          6.0
1995...........................................         13.7          6.9          9.3         10.4          7.2
1996...........................................         13.6          6.9          9.2         10.5          7.2
1997...........................................         13.5          6.7          9.0         10.4          7.3
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.

          
        [GRAPHIC] [TIFF OMITTED] T6395.002
        
          

                               Figure 1.3.

                     Who Pays Our Health Bills, 1997

            
             Figure 1.3 shows health expenditures by payment 
        source. Private spending is the largest payment source 
        for health care in the United States, accounting for 54% 
        of all expenditures. Federal spending (primarily through 
        the Medicare and Medicaid programs) is the largest 
        single contributor, accounting for 34% of all spending.
            
             Private health insurance includes employer-based 
        group insurance plans and individually purchased 
        policies.
            
             Out-of-pocket spending includes payments made by 
        insured individuals for premiums, coinsurance, 
        copayments and deductibles, as well as health services 
        and items not covered by insurance. Out-of-pocket 
        payments also include payments by persons without 
        insurance coverage.


           TABLE 1.3. Health Spending by Major Funding Source
------------------------------------------------------------------------
                                           Expenditures     Percent of
             Funding Source                (in millions)       Total
------------------------------------------------------------------------
Private health insurance................        $348,020            31.9
Out-of-pocket spending..................         187,551            17.2
Other private spending..................          49,741             4.6
Federal spending........................         367,050            33.6
State and local spending................         140,023            12.8
All private sources.....................         585,312            53.6
All public sources......................         507,073            46.4
                                         -------------------------------
Total...................................      $1,092,385           100.0
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
        [GRAPHIC] [TIFF OMITTED] T6395.003
        
          

                               Figure 1.4.

              Health Spending by Payment Source, 1960-1997

            
             Over the last 37 years there has been a substantial 
        shift in the relative role of various payers of health 
        services. This stems from a number of factors including 
        the enactment and expansion of Medicare and Medicaid, 
        changes in reimbursement practices for these federal 
        programs, and changes in private health insurance. 
        Importantly, private health insurance has shifted away 
        from the fee-for-service-based reimbursement system to 
        managed care prepayment and mixed compensation systems.
            
             The first significant shift in payment source 
        depicted in figure 1.4 occurred shortly after 1965 
        reflecting the enactment of the Medicare and Medicaid 
        programs. In 1964, before their enactment, the federal 
        government contributed about 12% to all health 
        expenditures. By 1970, the federal government's share 
        increased to 24%. Federal spending continued its rise as 
        a percent of all expenditures until 1976 when it 
        represented about 28 cents of each health dollar. 
        Between 1976 and 1990, the share of health spending paid 
        by the federal government hovered around 28%. Since 
        1990, federal spending on health has grown from this 
        plateau to represent \1/3\ of all health spending in 
        1996.
            
             Perhaps the most dramatic trend depicted in the 
        figure is the reduction in the share of health 
        expenditures paid for by individuals out-of-pocket. In 
        1960, almost half of all health expenditures were paid 
        out-of-pocket. The growth of private health insurance 
        and public health programs results in out-of-pocket 
        spending accounting for about \1/6\ of all health 
        spending.


                             TABLE 1.4. Health Spending by Payment Source, 1960-1997
----------------------------------------------------------------------------------------------------------------
                                           Out-of-    Private                       State and        Total
              Calendar Year                 Pocket     Health    Other    Federal     Local     Expenditures (in
                                           Payments  Insurance  Private   Spending   Spending      millions)
----------------------------------------------------------------------------------------------------------------
1960....................................       48.7       21.9      4.7       10.9       13.9            $26,850
1965....................................       45.1       24.4      5.6       11.7       13.3             41,145
1970....................................       34.0       22.2      5.9       24.3       13.5             73,243
1975....................................       29.1       23.9      4.8       27.8       14.2            130,727
1980....................................       24.4       28.2      5.0       29.1       13.3            247,273
1985....................................       23.5       31.0      4.9       28.7       11.9            428,720
1990....................................       20.7       34.1      4.5       27.9       12.6            699,361
1995....................................       17.2       32.6      4.4       32.8       13.0            993,725
1996....................................       17.1       32.3      4.4       33.4       12.8          1,042,522
1997....................................       17.2       31.9      4.6       33.6       12.8          1,092,385
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.

          
        [GRAPHIC] [TIFF OMITTED] T6395.004
        
          

                               Figure 1.5.

                Health Spending as a Share of Government

                         Expenditures, 1960-1997

            
             Over the last 37 years, the share of government 
        spending going to health has grown substantially. In 
        1960, health spending represented a minor component of 
        all federal spending (accounting for just over 3% of 
        each federal dollar). The enactment of the Medicare and 
        Medicaid programs in the mid-1960s, and the program 
        expansions contributed to health representing about 12% 
        of federal expenditures by 1980. Since 1980, health 
        spending has grown to 21% of each federal dollar spent.
            
             Spurred on largely as a result of increased 
        Medicaid spending, the share of state and local spending 
        dedicated to health has increased from 12% of state and 
        local expenditures in 1960 to 18.5% in 1997. While the 
        share of state and local budgets dedicated to health has 
        increased, their share of spending has not increased as 
        rapidly as the federal government's share. Caution 
        should be used in interpreting this state and local 
        trend. Individual states and localities may spend 
        substantially more or less of their budgets on health. 
        In addition, state and local balanced budget 
        requirements may have an impact on this trend.


                   TABLE 1.5. Health Spending as a Share of Government Expenditures, 1960-1997
                                                 ($ in millions)
----------------------------------------------------------------------------------------------------------------
                                                                                                     Percent of
                                                             Federal     Percent of     State and     All State
                      Calendar Year                       Expenditures   All Federal      Local       and Local
                                                                        Expenditures  Expenditures  Expenditures
----------------------------------------------------------------------------------------------------------------
1960....................................................        $2,914           3.3        $3,734          11.7
1965....................................................         4,820           3.9         5,458          11.8
1970....................................................        17,816           8.5         9,890          11.8
1975....................................................        36,407           9.8        18,625          13.0
1980....................................................        71,958          11.6        32,823          15.0
1985....................................................       123,171          12.6        51,032          15.1
1990....................................................       195,181          15.2        87,993          17.0
1995....................................................       328,705          19.9       129,229          18.9
1996....................................................       348,009          20.5       133,373          18.5
1997....................................................       367,050          21.0       140,023          18.5
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.

          
        [GRAPHIC] [TIFF OMITTED] T6395.005
        
          

                               Figure 1.6.

             Per Capita Health Spending in Selected Nations,

                                1960-1994

            
             A previous figure (figure 1.2) shows that the 
        United States spends a substantially larger share of its 
        economy on health than other nations. There are a number 
        of factors that are likely to account for this, 
        including the size and age distribution of a nation's 
        population.
            
             Figure 1.6 adjusts cross-national health spending 
        patterns by taking into account the relative size of 
        each nation's population. The table and figure convert 
        each nation's health expenditures into U.S. dollars 
        using a measure of purchasing power parity (PPP). The 
        PPP is an index used to convert national currency units 
        to a common unit. A dollar in this common unit would 
        purchase the same basket of goods in each nation.
            
             After adjusting for population and the purchasing 
        power of national currencies, the United States still 
        spends substantially more per capita than the other 
        industrialized nations portrayed in the figure. For 
        example, in 1994, the United States spent almost three 
        times as much per capita as Great Britain on health.


                      TABLE 1.6. Per Capita Health Spending in Selected Nations, 1960-1994
                                 (Per capita amounts converted to U.S. dollars)
----------------------------------------------------------------------------------------------------------------
                                                    United       Great
                 Calendar Year                      States      Britain       Canada      Germany       Japan
----------------------------------------------------------------------------------------------------------------
1960...........................................         $141          $77         $105          $91          $26
1965...........................................          202           98          151          127           62
1970...........................................          341          149          255          212          129
1975...........................................          582          278          436          452          260
1980...........................................        1,051          453          735          802          522
1985...........................................        1,733          670        1,215        1,164          818
1990...........................................        2,689          957        1,690        1,519        1,091
1991...........................................        2,903        1,006        1,828        1,534        1,180
1992...........................................        3,144        1,170        1,939        1,750        1,297
1993...........................................        3,329        1,165        1,981        1,726        1,359
1994...........................................        3,516        1,211        2,010        1,869        1,473
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS. All dollar amounts are converted to U.S. dollars using a purchasing price parity
  measure.

          
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                               Figure 1.7.

              Major Components of Health Expenditures, 1997

            
             Most (89%) but not all health care expenditures are 
        spent on personal health services and supplies. The 
        remaining 11% can be classified into the following 
        categories:
            
              4.6% of all health expenditures are for 
        program administration and the net cost of private 
        health insurance (which includes profits earned by 
        private health insurance companies);
              3.5% of all health expenditures are for 
        public health activities;
              1.6% of all health expenditures are for 
        non-commercial health research; and
              1.6% of all health expenditures are for 
        the construction of health care facilities.


        TABLE 1.7. Major Components of Health Expenditures, 1997
------------------------------------------------------------------------
                                           Expenditures     Percent of
            Spending Category              (in millions)       Total
------------------------------------------------------------------------
Personal health care....................        $969,005            88.7
Program administration and net cost of            49,998             4.6
 private insurance......................
Government public health activities.....          38,490             3.5
Non-commercial research.................          17,956             1.6
Construction............................          16,937             1.6
                                         -------------------------------
Total health expenditures...............      $1,092,385           100.0
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                               Figure 1.8.

                     Personal Health Care Spending,

                        by Service Category, 1997

            
             Combined spending on three service categories 
        (hospital services, physician services, and nursing home 
        services) account for 69% of total personal health care 
        spending. Inpatient and outpatient hospital service 
        spending represents the single largest service category 
        (38%). In addition, physician service spending accounts 
        for roughly 60% of that amount (23%). Nursing home 
        service spending accounts for about 9% of the total.
            
             Other significant service or supply categories 
        include prescription drugs (8%), dental services (5%) 
        and a relatively small but growing share home health 
        care services (3%).


   TABLE 1.8. Personal Health Care Spending, by Service Category, 1997
------------------------------------------------------------------------
                                           Expenditures     Percent of
            Service Category               (in millions)       Total
------------------------------------------------------------------------
Hospital care...........................         371,062            38.3
Physician services......................         217,628            22.5
Non-durable medical products............         108,872            11.2
    prescription drugs..................          78,888             8.1
    other non-durables..................          29,984             3.1
Nursing home care.......................          82,774             8.5
Other professional care.................          61,916             6.4
Dental services.........................          50,648             5.2
Home health care........................          32,318             3.3
Other personal health care..............          29,909             3.1
Durable medical equipment...............          13,878             1.4
                                         -------------------------------
Personal health care....................        $969,005           100.0
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                               Figure 1.9.

                Growth Rates for Hospital, Physician, and

                    Nursing Home Spending, 1960-1997

            
             During the 1990s, the rate of growth for all three 
        major health spending categories (hospital, physician, 
        and nursing home services) was lower than in the past. 
        From 1990 to 1997, hospital and physician spending grew 
        at a relatively moderate rate of 5.4% and 5.8% per 
        annum, respectively. Nursing home services also grew at 
        a lower rate than in prior periods over these 6 years, 
        but at a somewhat higher per annum rate of 7.2%.
            
             A number of factors have contributed to the 
        lowering of growth rates. For instance, the move of much 
        of the population into managed care together with 
        changes in reimbursement practices have contributed to a 
        reduction in inpatient hospital use (see chapter 2) and 
        physician services. In addition, the availability of 
        other alternatives to nursing home care, such as 
        community-based care and special living arrangements for 
        the elderly, may have an impact on the use of nursing 
        home services.


     TABLE 1.9. Spending and Annual Growth Rates for Hospital Services, Physician Services, and Nursing Home
                                               Services, 1960-1997
                                      (All dollar amounts are in millions)
----------------------------------------------------------------------------------------------------------------
                                                           Average                Average                Average
                                                           Annual                 Annual                 Annual
                                               Hospital    Rate of   Physician    Rate of    Nursing     Rate of
               Calendar Year                     Care      Growth     Services    Growth    Home Care    Growth
                                                             (in                    (in                    (in
                                                          percent)               percent)               percent)
----------------------------------------------------------------------------------------------------------------
1960.......................................       $9,275        --       $5,283        --         $848        --
1965.......................................       14,040       8.6        8,191       9.2        1,471      11.6
1970.......................................       28,003      14.8       13,579      10.6        4,217      23.4
1975.......................................       52,571      13.4       23,909      12.0        8,668      15.5
1980.......................................      102,700      14.3       45,232      13.6       17,649      15.3
1985.......................................      168,290      10.4       83,618      13.1       30,679      11.7
1990.......................................      256,447       8.8      146,346      11.8       50,928      10.7
1995.......................................      347,227       6.2      201,863       6.6       75,467       8.2
1996.......................................      360,777       3.9      208,509       3.3       79,385       5.2
1997.......................................      371,062       2.9      217,628       4.4       82,774       4.3
1990-97....................................           --       5.4           --       5.8           --       7.2
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 1.10.

             Sources of Hospital Service Payments, 1960-1997

            
             In 1997, public (federal and state and local) 
        sources accounted for over 61% of hospital service 
        expenditures. The single largest hospital services payer 
        is the federal government, contributing half of the 
        total spending for this service category. Private health 
        insurance represents the next largest payer paying about 
        31% of all hospital spending.
            
             Between 1960 and 1997, federal payments grew from 
        17% to 50% of hospital spending. Medicare and Medicaid's 
        enactment led to this increase in federal spending and 
        the reduction in out-of-pocket spending.


                           TABLE 1.10. Sources of Hospital Service Payments, 1960-1997
                                                  (in percent)
----------------------------------------------------------------------------------------------------------------
                                                                                                        Total
                                              Out-of-    Private     Other     Federal   State and  Expenditures
               Calendar Year                   Pocket     Health    Private    Spending    Local         (in
                                              Payments  Insurance                         Spending    millions)
----------------------------------------------------------------------------------------------------------------
1960.......................................       20.7       35.6        1.2       17.3       25.2        $9,275
1965.......................................       19.6       40.9        1.9       15.4       22.2        14,040
1970.......................................        9.0       32.4        3.2       36.4       19.0        28,003
1975.......................................        8.3       32.9        2.7       38.9       17.1        52,571
1980.......................................        5.2       35.5        4.9       41.0       13.4       102,700
1985.......................................        5.2       35.0        4.9       43.0       11.9       168,290
1990.......................................        4.3       37.3        4.0       41.1       13.3       256,447
1995.......................................        3.3       30.9        4.3       49.1       12.4       347,227
1996.......................................        3.3       30.5        4.5       49.8       12.0       360,777
1997.......................................        3.3       30.5        4.6       50.0       11.5       371,062
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 1.11.

               Total Hospital Marginal Revenues, 1976-1997

            
             Hospital margins are a widely used indicator of the 
        financial condition of the nation's hospitals. A 
        hospital's total margin is the difference between the 
        hospital's total revenues and total expenses, taken as a 
        percentage of total revenues. Medicare's prospective 
        payment system (PPS) hospital inpatient margins are the 
        difference between PPS operating and capital payments 
        the hospital receives and the sum of its Medicare 
        inpatient operating and capital costs, taken as a 
        percentage of the total Medicare payments.
            
             Figure 1.11 shows the trend in total hospital 
        margins. Between 1976 and 1984, total hospital revenues 
        increased at a faster rate than total hospital expenses, 
        resulting in increasing total hospital margins. In 1984, 
        total margins peaked at 7.3%. Between 1985 and 1988, 
        total margins declined to 3.5%, the lowest level since 
        the enactment of PPS. Since 1985, total hospital margins 
        have been gradually increasing, reaching 5.7% in 1995. 
        The implementation of Medicare's PPS for hospital care 
        in 1984, under which the program began paying only a 
        fixed amount for each admission, has been credited with 
        motivating hospitals to contain their costs. Between 
        1984 and 1991, PPS margins dropped each year, reaching 
        -2.4% in 1991. Since 1992, PPS margins have started 
        climbing upward, and are projected to reach 14.2% in 
        1997.


         TABLE 1.11. Total Hospital Marginal Revenues, 1976-1997
------------------------------------------------------------------------
                                                           Actual and
                                       Total Aggregate    Projected PPS
            Calendar Year                  Margin           Inpatient
                                                             Margins
------------------------------------------------------------------------
1976................................              2.0%                --
1980................................               3.6                --
1984................................                --             13.4%
1985................................               6.6              13.0
1986................................                --               8.7
1987................................                --               5.9
1988................................                --               2.7
1989................................                --               0.3
1990................................               3.6              -1.5
1991................................               4.4              -2.4
1992................................               4.3              -1.0
1993................................               4.5               1.0
1994................................               5.0               5.0
1995................................               5.8              10.0
1996................................                --             11.3*
1997................................                --             14.2*
------------------------------------------------------------------------
Note: Table prepared by CRS.

*MedPAC Estimated data. March 1998.

          
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                              Figure 1.12.

                     Trends in Hospital Utilization:

                  Inpatient Days and Outpatient Visits,

                                1965-1997

            
             Spending on hospital services includes spending for 
        inpatient care and outpatient visits. Figure 1.12 
        depicts a major shift in the use of these two categories 
        of hospital services. Inpatient hospital days (an 
        aggregate measure influenced by the number of admissions 
        and the length of hospital stays) declined during the 
        1980s and has continued to decline. Between 1990 and 
        1997, inpatient days declined by 15%. In contrast, the 
        number of outpatient visits has increased over this time 
        period, rising by 49%.


     TABLE 1.12. Trends in Hospital Utilization: Inpatient Days and
                      Outpatient Visits, 1965-1997
------------------------------------------------------------------------
                                         Outpatient
            Calendar Year                  Visits        Inpatient Days
------------------------------------------------------------------------
1965................................            92,631           206,411
1970................................           133,545           239,866
1975................................           196,311           258,096
1980................................           206,752           275,105
1985................................           222,773           237,857
1990................................           302,691           227,782
1991................................           323,202           223,805
1992................................           349,397           220,476
1993................................           368,358           215,390
1994................................           384,880           209,025
1995................................           415,710           201,279
1996................................           440,845           192,919
1997................................           450,907           192,730
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 1.13.

            Sources of Physician Services Payments, 1960-1997

            
             Private insurance is the major source of spending 
        for physician services paying for half of all physician 
        services in 1997. Another roughly $1 in $7 spent on 
        physician services in the United States is paid directly 
        by individuals out-of-pocket either in the form of 
        copayments, deductibles, or in-full for services that 
        are not covered by their health insurance.
            
             Like hospital services, the probability of 
        individuals paying for physician services has declined 
        sharply since the 1960s. Unlike hospital services, 
        however, the single largest payer for physician services 
        is not the federal government, but rather private health 
        insurance companies. Private health insurers paid for 
        51% of all physician services in 1997; in 1985, private 
        health insurers contributed to about 40% of the total.
            
             In contrast to these shifts in private payment 
        sources, public sources of physician payments has 
        remained relatively stable over the last 10 years. The 
        federal government's share of this spending increased 
        slightly (from 23% to 27%), while state and local 
        spending continued to pay for about 6% of all physician 
        services.


                          TABLE 1.13. Sources of Physician Services Payments, 1960-1997
                                                  (in percent)
----------------------------------------------------------------------------------------------------------------
                                                                                                        Total
                                              Out-of-    Private     Other     Federal   State and  Expenditures
               Calendar Year                   Pocket     Health    Private    Spending    Local         (in
                                              Payments  Insurance                         Spending    millions)
----------------------------------------------------------------------------------------------------------------
1960.......................................       62.7       30.2        0.1        1.4        5.7        $5,283
1965.......................................       60.6       32.5        0.1        1.4        5.4         8,191
1970.......................................       42.2       35.2        0.1       16.3        6.2        13,579
1975.......................................       36.7       35.3        0.2       19.9        7.8        23,909
1980.......................................       32.4       37.9        0.8       22.1        6.8        45,232
1985.......................................       29.2       40.1        1.6       23.2        5.9        83,618
1990.......................................       22.0       45.7        1.8       24.3        6.2       146,346
1995.......................................       14.9       51.7        2.1       25.2        6.1       201,863
1996.......................................       14.9       51.3        2.0       26.1        5.7       208,509
1997.......................................       15.7       50.2        2.0       26.8        5.4       217,628
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 1.14.

                Physician Contacts Per Person, 1987-1995

            
             Largely as a result of an increase in the number of 
        visits by the aged, the number of physician contacts per 
        person has increased from 5.4 contacts per person per 
        annum in 1987 to 5.8 contacts per annum per year in 
        1995.
            
             For the elderly, the number of physician contacts 
        increased from 8.9 contacts per year in 1989 to 11.3 
        contacts per person in 1994. The most recent data, for 
        1995, indicate a slight decline in these contacts to 
        11.1.


          TABLE. 1.14. Physician Contacts Per Person, 1987-1995
------------------------------------------------------------------------
                  Year                         Total           Aged
------------------------------------------------------------------------
1987....................................             5.4             8.9
1988....................................             5.3             8.7
1989....................................             5.3             8.9
1990....................................             5.5             9.2
1991....................................             5.6            10.4
1992....................................             5.9            10.6
1993....................................             6.0            10.9
1994....................................             6.0            11.3
1995....................................             5.8            11.1
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 1.15.

               Physician Supply, Selected Years 1965-1997

            
             Since the 1960s the number of physicians in the 
        United States has grown rapidly. In 1965, 266,000 
        physicians (excluding those physicians practicing in 
        federal health systems) provided services to the U.S. 
        population. By 1975, the number of physicians increased 
        to 357,000. By 1997, there were close to 736,000 
        physicians in the United States, more than 2.7 times the 
        number in 1965.
            
             As shown in figure 1.15, the increase in the number 
        of physicians has outpaced population growth in the 
        United States. A recent Institute of Medicine report 
        indicates that the physician growth rate is about 1\1/2\ 
        times the rate of population growth. It should be noted 
        that this overall growth rate masks significant 
        differences in the physician to population ratio in 
        specific geographic regions.


         TABLE 1.15. Physician Supply, Selected Years 1965-1997
------------------------------------------------------------------------
                                                            Number of
                                                         Physicians Per
                         Year                                100,000
                                                           Population
------------------------------------------------------------------------
1965..................................................               139
1970..................................................               148
1975..................................................               169
1980..................................................               195
1985..................................................               220
1990..................................................               237
1992..................................................               249
1993..................................................               252
1994..................................................               252
1995..................................................               267
1996..................................................               271
1997..................................................               276
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 1.16.

            Sources of Nursing Home Care Payments, 1960-1997

            
             The federal government's role as a source of 
        payment for nursing home care has changed in the last 
        few years. In 1990, the federal government paid for 31% 
        of care; by 1997, its share increased to about 42%. As 
        depicted in the figure, no other single payment source 
        experienced a similar increase in share of nursing home 
        payments.
            
             The Nation spent $83 billion for nursing home care 
        in 1997. Government programs financed the largest 
        portion of this, with Medicaid (federal and state 
        spending) playing the largest role. Medicare's role as a 
        payer for nursing home care has increased in the last 
        several years and accounts for much of the increase in 
        the federal government's share of nursing home spending. 
        Out-of-pocket spending is the other major source of 
        payment for nursing home care, and private insurance 
        coverage of nursing home services is currently very 
        limited.


                          TABLE 1.16. Sources of Nursing Home Care Payments, 1960-1997
                                                  (in percent)
----------------------------------------------------------------------------------------------------------------
                                                                                                        Total
                                              Out-of-    Private     Other     Federal   State and  Expenditures
               Calendar Year                   Pocket     Health    Private    Spending    Local         (in
                                              Payments  Insurance                         Spending    millions)
----------------------------------------------------------------------------------------------------------------
1960.......................................       77.9        0.0        6.4        7.9        7.8           848
1965.......................................       60.1        0.1        5.7       15.0       19.0         1,471
1970.......................................       53.5        0.4        4.9       24.8       16.4         4,217
1975.......................................       42.6        0.7        4.8       30.5       21.3         8,668
1980.......................................       41.8        1.2        3.0       31.8       22.2        17,649
1985.......................................       44.4        2.7        1.8       29.9       21.2        30,679
1990.......................................       43.1        4.0        1.8       31.0       20.0        50,928
1995.......................................       35.3        4.5        1.9       37.6       20.7        75,467
1996.......................................       33.6        4.7        1.9       39.4       20.4        79,385
1997.......................................       31.1        4.9        1.9       41.7       20.4       82,774
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 1.17.

                 Nursing Home Use by the Aged, 1973-1995

            
             A recent survey finds that the rate of nursing home 
        use among the aged has declined since the mid-1970s. In 
        1985, 4.6% of the aged were residents in nursing homes. 
        In 1995, this percentage fell to 4.1%. This reduction is 
        occurring at the same time that the aged population is 
        growing in size and becoming much older. One possible 
        explanation for this decline in the use of nursing home 
        services is the growing use of alternative sources of 
        long-term care services for the aged. For instance, the 
        Medicare program's expansion of coverage of home health 
        services may have contributed to this lower nursing home 
        utilization rate among the aged. States have also 
        expanded coverage of home and community-based care under 
        their Medicaid programs.


           TABLE 1.17. Nursing Home Use by the Aged, 1973-1995
------------------------------------------------------------------------
                         Year                           Rate (Per 1,000)
------------------------------------------------------------------------
1973-1974.............................................              44.7
1977..................................................              47.1
1985..................................................              46.2
1995..................................................             41.3
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                               Section 2.

                       Insurance and the Uninsured

            
             How many Americans are without health insurance? 
        Where do they live and work? How old are they? This 
        section of the chartbook describes the economic and 
        demographic characteristics of the uninsured. It also 
        describes two aspects of the health sector in the United 
        States: the sources of coverage among the 226 million 
        Americans who are insured and how that coverage is 
        changing.
            
             In addition to providing basic information on the 
        pattern of health insurance coverage, this section 
        reports on children without health insurance. The 
        proportion of children with no health insurance rose 
        from 13.3% in 1990 to 15.4% in 1997, and the number of 
        uninsured children increased by almost 2.5 million 
        during the period.
            
             Different data sources provide different answers to 
        the question: how many Americans are without health 
        insurance? The estimates contained in this section of 
        the report are based on an analysis of the March 1998 
        income supplement of the Current Population Survey (CPS) 
        prepared by the Census Bureau. This survey asks a series 
        of questions on the health insurance coverage of 
        individuals and families for the prior calendar year 
        (1997). The estimates contained in this section follow 
        the methods used by the Census Bureau in their 
        calculation of the number of uninsured.
            
             This section also provides background information 
        on the use of managed care options by those with 
        insurance. Managed care can take a variety of forms 
        including health maintenance organizations (HMOs) and 
        preferred provider organizations (PPOs). This topic 
        concludes with a series of figures portraying the use of 
        the different types of HMOs, health service utilization 
        of HMO members, and PPO enrollment and ownership.
            
             In addition, this section includes detailed 
        information on state regulations of health insurance. 
        State laws regulating managed care through a variety of 
        provisions, such as any willing provider and mental 
        health parity, are described. State laws regulating the 
        health insurance premiums that may be charged for 
        individual, nongroup health insurance, such as community 
        rating, are outlined. Finally, details are reported for 
        state high-risk health insurance pools.

                               Figure 2.1.

          Health Insurance Coverage by Type of Insurance, 1997

            
             Figure 2.1 provides a breakdown of health insurance 
        coverage by type of insurance. It should be noted in 
        viewing the figure that individuals may have more than 
        one source of health insurance. Based on the annual 
        income supplement to the Current Population Survey, 
        conducted by the Bureau of the Census:
            
             63% of the U.S. population relied on 
        employment-based health insurance coverage (group health 
        insurance through an employer or union);
             22% of the U.S. population relied on 
        Medicare or Medicaid as a source of health insurance; 
        and
             10% of the U.S. population relied on 
        private nongroup coverage to meet their health insurance 
        needs.
            
             In 1997, approximately 43 million people in the 
        United States (16.1%) were without any form of health 
        insurance coverage throughout the year. The uninsured 
        were often young and poor, but many of them did have 
        some ties to the labor force, frequently in small firms.


     TABLE 2.1. Health Insurance Coverage by Type of Insurance, 1997
------------------------------------------------------------------------
                                                            Percent of
                Type of Health Insurance                       U.S.
                                                            Population
------------------------------------------------------------------------
Employment based........................................            62.5
Medicare or Medicaid....................................            21.8
Private nongroup........................................            10.1
Military................................................             3.2
Other public............................................             0.7
Uninsured...............................................            16.1
Total population (in millions)..........................          269.1
------------------------------------------------------------------------
Note: Table prepared by CRS. It should be noted in viewing the figure
  that individuals may have more than one source of health insurance.

          
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                               Figure 2.2.

                    Uninsured Nonelderly by Age, 1997

            
             Figure 2.2 provides a breakdown of the uninsured 
        population by age. Note that this figure excludes the 
        elderly population ages 65 and over, most of whom are 
        insured. Persons ages 19 to 34 years are over-
        represented among the uninsured, especially young adults 
        ages 19 to 24. These young adults comprise 16% of the 
        uninsured population, but only 9% of the total 
        nonelderly population. Children less than 19 years and 
        adults ages 35 to 64 make up smaller proportions of the 
        uninsured than of the total nonelderly population.
          
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                               Figure 2.3.

                          Uninsured Ages 35-64

            
             Figure 2.3 shows the percent uninsured by working 
        status for people ages 35 to 64. Across age groups, the 
        pattern of uninsurance is quite similar when work status 
        is controlled. The highest rate of uninsurance is found 
        among those in the ``other'' category, which includes 
        students, homemakers, those reporting that they were 
        unable to find work, and other circumstances. The lowest 
        rate of uninsurance is reported by full-time full year 
        workers in each age category.
            
             Within each work status, lack of coverage is 
        highest for people ages 35 to 54, both in each group and 
        in total. At the same time, people ages 62 to 64 and 55 
        to 61 are slightly less likely to be uninsured than the 
        younger group--14.3 to 14.4% versus 15.8%. This result 
        occurs because of the differences in work status by age 
        group. Almost two-thirds (63%) of those ages 35 to 54 
        work full-time compared to 50% of those ages 55 to 61 
        and 28% of those ages 62 to 64. High rates of coverage 
        among full-time workers reduce the relative lack of 
        coverage among the youngest age group here. Moreover, 
        early retirees, who account for 35% of those ages 62 to 
        64 but only 1% of those ages 35 to 54, are more likely 
        to be uninsured than full-time workers. Relatively fewer 
        full-time workers and more retirees among those ages 62 
        to 64 produce the level of uninsurance found for this 
        group.


                            TABLE 2.3. Percent Uninsured by Work Status and Age, 1997
----------------------------------------------------------------------------------------------------------------
                                                Full-Time
                                                Full Year    Other       Ill/     Retired     Other      Total
                                                 Workers    Workers    Disabled
----------------------------------------------------------------------------------------------------------------
35-54 years...................................      11.2%      23.6%      17.2%      29.1%      28.7%      15.8%
55-61 years...................................       9.8%      18.7%      13.4%      17.2%      28.1%      14.3%
62-64 years...................................       9.6%      17.2%       9.8%      16.4%      24.5%      14.4%
----------------------------------------------------------------------------------------------------------------
Source: Table prepared by CRS using the March 1998 CPS.

          
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                               Figure 2.4.

                 Uninsured by Region of Residence, 1997

            
             People living in the Northeast and Midwest are less 
        likely to be uninsured than those in the West and South. 
        While residents of the Northeast and Midwest make up 19% 
        and 23%, respectively, of the U.S. population, they 
        constitute only 17% and 16% of persons without health 
        insurance. In contrast, while the South contains 35% of 
        the U.S. population, 40% of all people without health 
        insurance reside in the South. Likewise, while 23% of 
        U.S. residents live in the West, 27% of all people 
        without health insurance live in Western states.
          
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                               Figure 2.5.

          Sources of Children's Health Insurance, 1990 and 1997

            
             Figure 2.5 shows the percentage of children ages 18 
        and younger who were covered by private insurance or 
        Medicaid or who were uninsured in 1990 and 1997. 
        According to data collected in the Current Population 
        Survey (CPS), the number of children with private health 
        insurance--employer-group coverage or individually 
        purchased policies--rose by about 1.5 million from 1990 
        to 1997, but the percentage of children with private 
        health insurance declined from 71.5% to 67.0%. 
        Simultaneously, the percentage of children covered by 
        Medicaid increased from 18.1% to 19.4%. Consequently, 
        the proportion of children with no health insurance rose 
        from 13.3% in 1990 to 15.4% in 1997, and the number of 
        uninsured children increased by almost 2.5 million 
        during this period. Care should be exercised in 
        interpreting these data because changes to the survey 
        instrument and data collection methods in the 
        intervening years may have affected the estimates of 
        insurance coverage derived from this source. 
        Nevertheless, while the precise size of the changes in 
        insurance coverage from year to year may be uncertain, 
        the trends are not in doubt.


 TABLE 2.5. Sources of Health Insurance, 1990 and 1997, Children Ages 18
                               and Younger
------------------------------------------------------------------------
          (Number of Children)                 1990            1997
------------------------------------------------------------------------
Private insurance.......................      49,063,000      50,556,000
Medicaid................................      12,420,000      14,652,000
Uninsured...............................       9,126,000      11,586,000
                                         -------------------------------
Total...................................      68,619,000     75,491,000
------------------------------------------------------------------------
Note: Estimated from the Current Population Survey. Some children have
  more than one kind of insurance.

          
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                               Figure 2.6.

                     Uninsured Children by Age, 1997

            
             Figure 2.6 shows the distribution of uninsured 
        children ages 18 and younger by age. The 11.6 million 
        children without health insurance in 1997 comprised 
        15.4% of all children under age 19. Of this number, 
        29.6% were under age 6, 34.2% were ages 6 to 12, and 
        36.2% were ages 13 to 18. Among the three age groups, 
        the highest proportion of uninsured children was among 
        those 13 to 18 years old, 17.9% of whom were uninsured. 
        The lowest rate of uninsured children was among those 6 
        to 12 years old, 14.1% of whom were without health 
        insurance in 1997.


               TABLE 2.6. Uninsured Children by Age, 1997
------------------------------------------------------------------------
                                              Number          Percent
------------------------------------------------------------------------
Under age 6.............................       3,424,000            29.6
Ages 6-12...............................       3,968,000            34.2
Ages 13-18..............................       4,195,000            36.2
                                         -------------------------------
Total...................................      11,586,000          100.0
------------------------------------------------------------------------
Note: Estimated from the Current Population Survey.

          
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                               Figure 2.7.

                  Uninsured Children by Family's Income

                  Relative to Poverty Thresholds, 1997

            
             Figure 2.7 displays the distribution of uninsured 
        children by their family income relative to the federal 
        poverty thresholds. Almost one-third of uninsured 
        children were in families with income below the poverty 
        line in 1997. Slightly more than one-third of children 
        without health insurance were in families with incomes 
        between 100% and 200% of the poverty level. About 17% of 
        uninsured children were in families with incomes equal 
        to three times the poverty level or higher. This 
        analysis only includes children living with family 
        members.


  TABLE 2.7. Uninsured Children by Family's Income Relative to Poverty
                            Thresholds, 1997
------------------------------------------------------------------------
                                              Number          Percent
------------------------------------------------------------------------
Under 100%..............................       3,396,000            30.8
100%-149%...............................       2,182,000            19.8
150%-199%...............................       1,680,000            15.3
200%-299%...............................       1,846,000            16.8
300%+...................................       1,912,000            17.3
                                         -------------------------------
Total...................................      11,016,000          100.0
------------------------------------------------------------------------
Note: Estimated from the Current Population Survey. Excludes children
  not in families. Does not include 571,000 uninsured children who lived
  with non-relatives.

          
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                               Figure 2.8.

            Uninsured Children by Parents' Insurance Status,

                                  1997

            
             Figure 2.8 reports the health insurance status of 
        the head of the family in which there was a child 
        without health insurance in 1997. Only 17.1% of these 
        children lived with a family head who had employment-
        based group coverage. Most uninsured children--80.4%--
        were members of families in which both parents or the 
        only parent present in the household also were 
        uninsured.


    TABLE 2.8. Uninsured Children by Parents' Insurance Status, 1997
------------------------------------------------------------------------
                                               Number         Percent
------------------------------------------------------------------------
Employment-related......................       1,888,000            17.1
Other private plan......................         123,000             1.1
Medicare or Medicaid....................         131,000             1.2
Other public............................          19,000             0.2
Uninsured...............................       8,855,000            80.4
                                         -------------------------------
Total...................................      11,016,000          100.0
------------------------------------------------------------------------
Note: Estimated from the Current Population Survey. Does not include
  571,000 uninsured children who lived with non-relatives.

          
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                               Figure 2.9.

            Uninsured Children by Parents' Employment Status,

                                  1997

            
             Figure 2.9 describes the employment status of the 
        parent(s) of uninsured children. In 1997, almost 59% of 
        uninsured children had at least one parent who worked 
        full-time for the full year. Only 17% of children 
        without health insurance were in families in which there 
        was not at least one working parent.


    TABLE 2.9. Uninsured Children by Parents' Employment Status, 1997
------------------------------------------------------------------------
                                              Number          Percent
------------------------------------------------------------------------
At least one parent worked full-time for       6,447,000            58.5
 the full year..........................
At least one parent worked part-time or        2,664,000            24.2
 part-year..............................
Neither parent worked...................       1,905,000            17.3
                                         -------------------------------
Total...................................      11,016,000          100.0
------------------------------------------------------------------------
Note: Estimated from the Current Population Survey. Does not include
  571,000 uninsured children who lived with non-relatives.

          
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                              Figure 2.10.

               Uninsured Children by Size of Largest Firm

                      Employing Either Parent, 1997

            
             Figure 2.10 shows the number of workers at the 
        largest firm that employed either parent of a child 
        without health insurance.\1\ About 38% of these children 
        lived in families in which neither parent worked for a 
        firm with more than 25 employees. Nearly 27% of 
        uninsured children lived in families in which neither 
        parent worked for a firm with 10 or more employees. Only 
        19% of uninsured children were in families in which a 
        parent was employed by a firm with 1,000 or more 
        workers.


 TABLE 2.10. Uninsured Children by Size of Largest Firm Employing Either
                              Parent, 1997
------------------------------------------------------------------------
                                              Number          Percent
------------------------------------------------------------------------
<10 Workers.............................       3,015,000            27.4
10-24 Workers...........................       1,217,000            11.0
25-99 Workers...........................       1,384,000            12.5
100-499 Workers.........................       1,080,000             9.8
500-999 Workers.........................         331,000             3.0
1,000+ Workers..........................       2,083,000            19.0
Not applicable..........................       1,905,000            17.3
                                         -------------------------------
Total...................................      11,016,000          100.0
------------------------------------------------------------------------
Note: Estimated from the Current Population Survey. Does not include
  571,000 uninsured children who lived with non-relatives.





        ----------
        \1\ The firm comprises all locations at which the 
        employer does business including, but not limited to, 
        the establishment where the head of the family 
        participating in this survey went to work each day.
          
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                              Figure 2.11.

              Enrollment in Employment-Based Health Plans,

                         by Plan Type, 1988-1998

            
             Health plan enrollments shifted dramatically from 
        1988 to 1998. Among employees of private and public 
        employers with more than 200 workers, enrollment in 
        conventional fee-for-service (FFS) plans declined from 
        71% of the total to 14%. Enrollees shifted from FFS 
        plans to health maintenance organizations (HMOs), 
        preferred provider organizations (PPOs) and point-of-
        service (POS) plans. (POS plans resemble an HMO for in-
        network services, and a FFS plan for out-of-network 
        care.)
            
             The shift to managed care was rapid. In 1988, 
        almost three quarters (71%) of enrollees were in 
        conventional FFS plans, and the remaining 29% were in 
        some form of managed care, either an HMO or PPO plan. 
        Four years later, in 1992, slightly less than half (45%) 
        were in FFS plans. By 1998, only 14% of enrollees were 
        in FFS plans, and 86% were enrolled in managed care 
        plans.


                TABLE 2.11. Enrollment in Employment-Based Health Plans, by Plan Type, 1988-1998
                                                  (in percent)
----------------------------------------------------------------------------------------------------------------
                                                                                 Type of Plan
                            Year                            ----------------------------------------------------
                                                             Conventional      HMO          PPO          POS
----------------------------------------------------------------------------------------------------------------
1988.......................................................            71           18           11            0
1992.......................................................            45           22           26            8
1993.......................................................            42           26           22           10
1994.......................................................            35           25           25           15
1995.......................................................            31           29           22           18
1996.......................................................            26           33           25           16
1997.......................................................            18           33           31           17
1998.......................................................            14           30           34          22
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.

Source: KPMG Health Benefits in 1998, figure 36, p. 40.

          
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                              Figure 2.12.

               Change in Employment-Based Health Insurance

                           Premiums, 1995-1998

            
             Health insurance premiums increased more rapidly in 
        1998 than in recent years, about 2% to 3% overall, 
        according to surveys of employers by the HayGroup and 
        KPMG. Premium increases exceeding 10% annually in the 
        early 1990s were followed by more modest increases and 
        declines, or almost zero growth, in 1996. Since 1997, 
        premiums have increased moderately, in general.
            
             HMO plans saw the lowest premium growth over the 
        1995-1998 period, increasing about 1%. Premiums in POS, 
        PPOs and FFS grew between 2% and 3%. (The higher growth 
        in FFS and PPO plans premiums may help explain the 
        decline in FFS and PPO enrollment over this period; 
        similarly, the lower premium growth in HMO plans 
        probably encouraged greater enrollment in these types of 
        plans.)


                   TABLE 2.12. Change in Employment-Based Health Insurance Premiums, 1995-1998
                                                  (in percent)
----------------------------------------------------------------------------------------------------------------
                           Year                            All Plans     FFS        HMO        PPO        POS
----------------------------------------------------------------------------------------------------------------
HayGroup Survey
    1991.................................................       12.9          *          *          *          *
    1992.................................................       11.5          *          *          *          *
    1993.................................................        8.3          *          *          *          *
    1994.................................................        2.7          *          *          *          *
    1995.................................................        1.2        3.3        0.3        2.4        3.0
    1996.................................................       -1.9        2.7       -3.0        2.9        3.4
    1997.................................................        0.6        0.9        0.9        1.4       -1.2
    1998.................................................        2.3        3.1        5.7        4.7        2.4
    1995-1998, annual average............................        0.6        2.5        1.0        2.9        1.9
KPMG Survey
    1991.................................................       11.5       12.0       12.1       10.1        0.0
    1992.................................................       10.9       11.0        9.8       10.6       12.4
    1993.................................................        8.0        8.5        8.3        8.2        4.9
    1994.................................................        4.8        5.1        5.3        3.2        5.9
    1995.................................................        2.1        2.7        0.4        3.5        2.4
    1996.................................................        0.5        1.2       -0.4        0.6        1.2
    1997.................................................        2.1        2.6        2.0        2.1        1.9
    1998.................................................        3.3        3.5        2.9        3.8        2.9
    1995-1998, annual average............................        2.0        2.5        1.2        2.5       2.1
----------------------------------------------------------------------------------------------------------------
*Not available.

Notes: Table prepared by CRS. FFS is fee-for-service; HMO is health maintenance organization; PPO is preferred
  provider organization; and POS is point-of-service.

Sources: HayGroup, Hay Benefits Report trend data, 1999 and KPMG, Health Benefits in 1998, figure 2, p. 7.

          
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                              Figure 2.13.

                  Comparison of Growth in Medicare and

                   Private Health Insurance, 1970-1997

            
             Over the past 27 years, Medicare and private health 
        insurance (PHI) spending per enrollee have grown at 
        comparable rates: 10.4% annually under Medicare and 
        11.4% annually under PHI. This overall similarity masks 
        significant differences between growth for the two 
        sources during 2 periods, however. From 1985 to 1991, 
        the rate of growth in PHI spending per enrollee far 
        outpaced the rate of growth in Medicare spending per 
        enrollee, with PHI averaging 11.4% annual increases 
        compared to 6.9% for Medicare. From 1993 to 1996, growth 
        in Medicare spending per enrollee (8.7% annually) 
        exceeded growth in PHI per enrollee (3.5% annually). 
        Since 1996, Medicare growth has moderated and PHI growth 
        has increased, resulting in a narrowing of the gap 
        between growth rates.
          
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                              Figure 2.14.

                 Distribution of HMOs by Plan Type, 1997

            
             Increasing numbers of employees and their families 
        are enrolling in managed care plans, including HMOs, 
        PPOs, and other types of managed care delivery system 
        arrangements. There are different types of HMOs. Staff 
        and group model HMOs were the earliest managed care 
        plans. In a staff model HMO, physicians are salaried 
        employees who, typically, provide care in HMO-owned 
        offices and hospitals. A group model HMO contracts with 
        one or more multispecialty medical groups to provide all 
        covered services to HMO participants in exchange for a 
        per capita fee. Each medical group's practice is 
        limited, largely, to the HMO membership and it is 
        managed independently of the HMO. Physicians contract 
        with the medical group, which may compensate them on a 
        risk-sharing, cost, or salary basis.
            
             A newer variant is the individual or independent 
        practice association, or IPA model. An IPA contracts 
        directly with physicians in independent practice, 
        associations of physicians in independent practices, or 
        multispecialty group practices. Participating physicians 
        retain their private practices, in their own offices, 
        but they see HMO patients as part of that practice. 
        Typically, IPA physicians do not have an exclusive 
        relationship with a single HMO.
            
             A network or mixed model HMO can offer the broadest 
        provider participation of any type of HMO because it 
        contracts with staff, group and IPA models in 
        combination. Network model HMOs may contract with 
        primary and specialty care provider groups as well as 
        hospitals--a practice which helps spread financial risk. 
        Network model HMOs offer the least amount of control or 
        management of providers' utilization of services and 
        resources. Moreover, providers typically do not have 
        exclusive contracting relationships with network HMOs.
            
             In January, 1997 there were 651 HMOs nationwide. 
        Most HMOs were mixed model HMOs (49%) or IPAs (44%).


           TABLE 2.14. Distribution of HMOs by Plan Type, 1997
------------------------------------------------------------------------
                                              Number          Percent
------------------------------------------------------------------------
Network/mixed...........................             316              49
IPAs....................................             284              44
Group...................................              25               4
Staff...................................              15               2
Unknown.................................              15              2
------------------------------------------------------------------------
Source: American Association of Health Plans, Managed Care Facts,
  January 1998.

          
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                              Figure 2.15.

                        HMO Enrollment, 1990-1996

            
             In 1996, about 67.5 million people, or about 1 in 4 
        Americans, were enrolled in an HMO. Since 1990, HMO 
        enrollment has increased by 85%.


                  TABLE 2.15. HMO Enrollment, 1990-1996
------------------------------------------------------------------------
                                                        Total Enrollment
                         Year                             (in millions)
------------------------------------------------------------------------
1990..................................................              36.5
1991..................................................              38.6
1992..................................................              41.4
1993..................................................              45.2
1994..................................................              51.1
1995..................................................              59.1
1996..................................................              67.5
------------------------------------------------------------------------
Note: Table prepared by the CRS based on data in American Association of
  Health Plans, Managed Care Facts, January 1998.

          
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                              Figure 2.16.

            Preferred Provider Organization (PPO) Enrollment,

                                1990-1996

            
             A PPO is a health plan arrangement in which 
        providers contract to provide services to enrollees for 
        discounted amounts, usually paid on a fee-for-service 
        (FFS) basis. Enrollees in the PPO may use other non-
        preferred providers, usually with higher coinsurance 
        requirements. One way the typical PPO differs from HMOs 
        is that visits to specialists generally do not require 
        referral by an enrollee's primary care provider.
            
             Enrollment in PPOs has been rising, increasing over 
        150% between 1990 and 1996.


                  TABLE 2.16. PPO Enrollment, 1990-1996
------------------------------------------------------------------------
                                                               Total
                          Year                            Enrollment (in
                                                             millions)
------------------------------------------------------------------------
1990....................................................            38.1
1991....................................................            43.8
1992....................................................            50.5
1993....................................................            60.6
1994....................................................            82.5
1995....................................................            91.8
1996....................................................           97.8
------------------------------------------------------------------------
Note: Table prepared by CRS based on data from American Association of
  Health Plans, Managed Care Facts, January 1998.

          
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                              Figure 2.17.

              Provider Incentives and Capitation Contracts

            
             Managed care organizations use a variety of 
        physician incentive plans to compensate physicians, some 
        of which share financial risk with the providers. 
        Capitation, which entails the payment of a fixed-fee per 
        member per month for all covered services regardless of 
        the level of service utilization, represents the primary 
        method of risk-sharing. Forty-five percent (45%) of 
        total reimbursements to primary care physicians and 48% 
        of total reimbursements to specialists were through 
        capitation. Almost half (48%) of HMOs used per diem 
        costs to reimburse both inpatient and ambulatory 
        hospital services.\2\
            
             Nearly two-thirds of providers indicated that their 
        contracts include financial incentives or disincentives 
        above the base capitation rate. Primary care and 
        multispecialty groups were the most likely to have 
        financial incentives, while specialists and hospitals 
        were the least likely.\3\ For providers reporting 
        receiving an incentive, the incentive represented about 
        6% of total compensation, on average, with higher 
        percentages among providers in PHOs and hospitals, and 
        lower percentages among providers in multispecialty 
        groups/IPAs. Utilization influences incentives/
        disincentives for providers in multispecialty groups/
        independent practice associations (IPAs), primary care 
        groups and specialists, while costs were reported as 
        significant factors among providers in physician-
        hospital organizations (PHOs).


                         TABLE 2.17. Incentives/Disincentives Beyond the Capitation Rate
----------------------------------------------------------------------------------------------------------------
                                                                Factors Influencing Incentives/Disincentives
                                     Contracts  Incentive ------------------------------------------------------
                                        w/       Percent*                  Patient             Quality/
                                    Incentives             Utilization  Satisfaction   Costs   Outcomes    Other
----------------------------------------------------------------------------------------------------------------
Multispecialty Groups/IPAs........        73%        3.3%        70%           30%        30%       20%      20%
Primary Care Groups...............        83%        6.1%        80%           20%        40%       40%       0%
PHOs/IDSs.........................        63%       12.0%        40%           40%        80%       20%       0%
Specialists.......................        50%        5.7%        58%            8%        33%        0%       0%
Hospitals.........................        25%        9.0%        N/A           N/A        N/A       N/A      N/A
Total.............................        61%        6.1%        63%           22%        41%       16%      6%
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS based on data from Capitation Management Report, 1997 Capitation Survey. Each
  provider can have more than one type of Incentive.

*Average incentive amount as a percentage of total compensation.



        ----------
        \2\ Health Insurance Association of America, Source Book 
        of Health Insurance Data 1997-1998, p. 54-55.

        \3\ Capitation Management Report, 1997 Capitation 
        Survey.
          
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                              Figure 2.18.

                   State Laws Regulating Managed Care

            
             Numerous bills are pending in the 106th Congress to 
        establish federal standards for managed health care and 
        other forms of health insurance. Under current law, the 
        regulation of managed health care depends on who 
        sponsors the plan and who bears the risk for paying for 
        insured services. In general, the federal government 
        regulates private sector employer health plans, 
        including managed care plans that are sponsored by a 
        private employer. The states regulate the business of 
        insurance, which includes a health maintenance 
        organization (HMO) or other type of managed care 
        organization that sells a health insurance policy to an 
        individual, employer, or other purchaser. States also 
        oversee plans sponsored by state and local governments.
            
             The states have enacted numerous laws over the last 
        few years to expand their regulation of health 
        insurance, and especially managed care. Figure 2.23 
        provides information on a subset of these laws, 
        indicating how many states have adopted them. The 
        description of the laws is provided by the Blue Cross 
        and Blue Shield Association.
            
             Any Willing Provider: Laws that compel health plans 
        to admit to their networks any provider willing to abide 
        by the terms and conditions of the contract. It only 
        applies to pharmacies, except in 5 states where the 
        scope includes most providers (ID, IN, KY, VA, WY).
            
             Direct Access to Specialists: Laws that allow 
        subscribers to go directly to a specialist without prior 
        referral from the health plan's primary care physician. 
        The laws apply primarily to obstetricians-gynecologists, 
        but also can refer to chiropractors, dermatologists, 
        etc.
            
             Patient Disclosure/``Gag Clause'': Laws that ban 
        health plans from including so-called ``gag clauses'' in 
        provider contracts that prohibit or discourage a 
        provider from discussing alternative treatment options 
        and appropriate care with patients.
            
             Mandatory Point-of-Service (POS): Laws that require 
        health plans to offer a POS product to employer groups 
        at the employer's option, in addition to a gatekeeper 
        product like an HMO. Two states (ID and MT) impose a 
        mandatory POS requirement (i.e., an HMO must offer POS).
            
             Access to Emergency Services: Laws that impose new 
        requirements to pay for certain care delivered in an 
        emergency room. Several of the laws also impose a 
        ``prudent layperson'' standard to define what 
        constitutes a medical emergency.
            
             Mental Health Parity: Laws that require health 
        plans to provide equivalent benefits and cost-sharing 
        requirements for mental and physical illnesses. These 
        states generally have limited parity mandates that 
        either limit the definition of mental illness, the scope 
        of benefits, and/or allow increased cost-sharing.
            
             External Grievance Review: Laws that require health 
        plans to allow enrollees to appeal a coverage or claims 
        denial to an outside medical expert panel, if 
        dissatisfied with the outcome of the plan's internal 
        appeals process.
          
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                              Figure 2.19.

                    State Premium Rating Restrictions

                        in the Individual Market

            
             As of the end of 1998, 19 states had enacted laws 
        to regulate the premiums of health insurance sold to 
        individuals (as opposed to groups). In those states 
        without premium restrictions, an insurance carrier may 
        price the insurance at whatever rate is necessary to 
        cover the expected claims risk of the individual policy-
        holder and administrative overhead. Of those states that 
        have enacted premium restrictions, the majority have 
        adopted community rating. In the figure, a state is 
        categorized as having community rating if its law 
        prohibits the health insurer from using experience, 
        health status, or duration of coverage in setting the 
        premium rates for individual coverage. In some states, 
        the community rate is adjusted for demographic factors, 
        such as age and gender. The state is categorized as 
        having very tight rating bands (i.e., limits on the 
        range of variation of the premium) if the law 
        significantly limits the use of experience, health 
        status, or duration of coverage in the setting of the 
        premium. Finally, the state is categorized as having 
        rating bands if it has laws that restrict to some extent 
        the plans' use of experience, health status, or duration 
        of coverage.
          
        [GRAPHIC] [TIFF OMITTED] T6395.036
        
          

                              Figure 2.20.

                 State High-Risk Health Insurance Pools

            
             Twenty-seven states have established high risk 
        pools to provide coverage for individuals who otherwise 
        are unable to obtain health insurance at reasonable 
        rates. In recent years, the combined population of the 
        risk pools has remained about 100,000. Enrollment may 
        grow because many states have elected under the Health 
        Insurance Portability and Accountability Act (HIPAA, 
        P.L. 104-191) to use existing or newly established risk 
        pools to provide for guaranteed portability of insurance 
        for individuals leaving the group market.
            
             A risk pool is generally a state-created, nonprofit 
        association. It offers comprehensive health insurance 
        benefits at a rate that typically costs more than 
        standard insurance but is capped by law (usually at 125% 
        to 150% of the standard rate charged in the individual 
        insurance market). Each pool is expected to lose money 
        because the premiums are set at an amount that is not 
        expected to pay for the claims of the pool's enrollees. 
        The states fund the losses of the pool in a variety of 
        ways. Most assess health insurance carriers in the state 
        on a proportional basis (e.g., as a specified percentage 
        of their health insurance premiums). A few allocate 
        funds from state income tax, tobacco tax, or general 
        revenues. Still others use a combination of assessments 
        on insurers and other funding mechanisms.


                                                   Figure 2.20. State High-Risk Health Insurance Pools
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                     Premium Cap                                             Premium Cap
                           State                                 Year      Current       (in        State        Year     Current Enrollees      (in
                                                             Operational  Enrollees   percent)*              Operational                      percent)*
--------------------------------------------------------------------------------------------------------------------------------------------------------
AL.................................................        1998         690          200         MO        1992               1,032      150-200
AK.........................................................        1993         198          200         MT        1987                 704          150
AR.........................................................        1996         588          150         NE        1986               3,997          135
CA.........................................................        1991      19.995    125-137.5         NM        1988                 792          150
CO.........................................................        1991       1,058          150         ND        1982               1,328          135
CT.........................................................        1976       1,290      125-150         OK        1996                 783          125
FL.........................................................        1983       1,095      200-250         OR        1990               4,134          125
IL.........................................................        1989       5,438      125-150         SC        1990                 943          200
IN.........................................................        1982       3,997          150         TX        1998               1,354    137.5-200
IA.........................................................        1987         482          150         UT        1991                 888           --
KS.........................................................        1993       1,019           --         WA        1988                 766          150
LA.........................................................        1992         747      150-200         WI        1981               7,318          200
MN.........................................................        1976      26,314          125         WY        1991                 429      125-150
MS.........................................................        1992       1,700      150-175  27 states  ...........      Total current  ...........
                                                                                                                           enrollees 89,079
--------------------------------------------------------------------------------------------------------------------------------------------------------
*Refers to state-imposed limits that cap premiums at no more than a fixed percentage above standard premiums charged by private heath plans for
  individual coverage in the state.

Enrollment is limited to HIPAA eligibles.

 Periodic enrollment caps.

Note: Table prepared by CRS.

          
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                               Section 3.

                                Medicare

            
             Medicare is a nationwide health insurance program 
        for the aged and certain disabled persons. The program 
        consists of two parts: the Part A, Hospital Insurance 
        Program and the Part B, Supplementary Medical Insurance 
        Program.
            
             Almost all persons over age 65 are automatically 
        entitled to Medicare Part A. Part A also provides 
        coverage, after a 24-month waiting period, for persons 
        under age 65 who are receiving Social Security cash 
        benefits on the basis of disability. In FY1999, Part A 
        will cover an estimated 39.0 million aged and disabled 
        persons (including those with chronic kidney disease). 
        Part A provides coverage for inpatient hospital 
        services, up to 100 days of posthospital skilled nursing 
        facility (SNF) care, home health services and hospice 
        care. Medicare Part A is financed primarily through the 
        hospital insurance (HI) payroll tax levied on current 
        workers and their employers. Employers and employees 
        each pay a tax of 1.45% on all earnings. The self-
        employed pay a single tax of 2.9% on earnings.
            
             Medicare Part B is voluntary. All persons over age 
        65 and all persons enrolled in Part A may enroll in Part 
        B by paying a monthly premium. In 1999, Part B will 
        cover an estimated 36.9 million aged and disabled 
        persons. Part B provides coverage for physicians' 
        services, laboratory services, durable medical 
        equipment, outpatient hospital services, some home 
        health services, and other medical care. Part B is 
        financed through a combination of monthly premiums 
        levied on program beneficiaries and federal general 
        revenues. In 1999, the premium is $45.50. Beneficiary 
        premiums have generally represented about 25% of Part B 
        costs. Federal general revenues (that is, tax dollars) 
        account for the remaining 75%.
            
             The ability of Medicare's current financing 
        mechanism to fund program growth adequately has been of 
        concern for many years. Prior to the enactment of the 
        Balanced Budget Act of 1997 (BBA 97), the Part A trust 
        fund was projected to become insolvent in 2001. In that 
        year, revenues coming into the trust fund (primarily 
        payroll taxes), together with any balance carried over 
        from prior years, would have been insufficient to cover 
        the payment for Part A benefits in that year. BBA 97 
        postponed the exhaustion of the trust fund until at 
        least 2010.
            
             While BBA 97 lowered the projected 75-year Part A 
        deficit by one-half, the ability of the program to meet 
        future needs continues to be a major issue. Contributing 
        to the Part A insolvency issue are two related concerns. 
        First, in the year 2011, the leading edge of the baby 
        boom cohort (persons born between 1946 and 1964) turns 
        age 65. Second, the number of workers whose payroll tax 
        supports Part A benefits is declining. In 1997, there 
        were 3.9 workers per beneficiary; this number is 
        expected to be about 3.6 by 2010 and 2.3 by 2030.

                               Figure 3.1.

                  Total Medicare Outlays, FY1967-FY2009

            
             Total Medicare spending increased significantly 
        since the program began; however, the average annual 
        rate of growth has slowed somewhat in recent years. Over 
        the FY1980-FY1990 period, total outlays grew from $35.0 
        billion to $109.7 billion, for an average annual rate of 
        growth of 12.1%. For the FY1990-FY1997 period, total 
        outlays grew from $109.7 billion to $210.4 billion, for 
        an average annual growth rate of 9.8%. Different trends 
        are recorded for spending on Part A and Part B. The 
        average annual rate of growth in Part A spending 
        increased from 10.6% over the FY1980-FY1990 period to 
        10.9% over the FY1990-FY1997 period. Conversely, the 
        average annual rate of growth for Part B declined from 
        14.9% in the FY1980-FY1990 period to 7.7% over the 
        FY1990-FY1997 period.
            
             BBA 97 reduced the rate of growth in Medicare 
        spending. It also shifted some spending from Part A to 
        Part B. The Congressional Budget Office (CBO) projects 
        that with no further changes in law, total Medicare 
        spending will grow from $214 billion in FY1998 to $449 
        billion in FY2009. This represents an average annual 
        overall rate of growth of 7.0%. Total Part A outlays 
        will increase at an average annual rate of growth of 
        5.4%, while Part B will increase at an average annual 
        rate of growth of 9.5%.


                                TABLE 3.1. Total Medicare Outlays, FY1967-FY2009
                                                  (in billions)
----------------------------------------------------------------------------------------------------------------
                                                                                                  Total Medicare
                           Fiscal Year                                Part A          Part B          Outlays
----------------------------------------------------------------------------------------------------------------
1967............................................................            $2.6            $0.8            $3.4
1970............................................................             5.0             2.2             7.1
1975............................................................            10.6             4.2            14.8
1980............................................................            24.3            10.7            35.0
1985............................................................            48.7            22.7            71.4
1990............................................................            66.7            43.0           109.7
1995............................................................           114.9            65.2           180.1
1996............................................................           125.3            68.9           194.3
1997............................................................           137.9            72.5           210.4
1998............................................................           137.2            76.2           213.6
1999............................................................             135              81             216
2000............................................................             141              91             232
2001............................................................             147             101             248
2002............................................................             151             108             258
2003............................................................             161             121             282
2004............................................................             171             132             303
2005............................................................             186             148             333
2006............................................................             193             155             348
2007............................................................             210             173             383
2008............................................................             226             189             415
2009............................................................             243             206            449
----------------------------------------------------------------------------------------------------------------
Note: Data for 1999-2009 are CBO projections. Totals may not add due to rounding. Table prepared by CRS.

          
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                               Figure 3.2.

              Total and Net Medicare Outlays, FY1967-FY2009

            
             Net Medicare outlays (after deduction of premiums 
        paid by beneficiaries, primarily for Part B) have also 
        increased significantly since the beginning of the 
        program. The average annual rate of growth has, however, 
        slowed in recent years. Over the FY1980-FY1990 period, 
        the average annual rate of growth in net outlays was 
        11.8%; this rate declined to 9.9% for the FY1990-FY1997 
        period.
            
             CBO projects that net Medicare outlays will 
        increase from $192.8 billion in FY1998 to $395.5 billion 
        in FY2009, for an average annual growth rate of 6.7%.


        TABLE 3.2. Total and Net Medicare Outlays, FY1967-FY2009
                              (in billions)
------------------------------------------------------------------------
                                      Total       Medicare       Net
            Fiscal Year              Medicare     Premium      Medicare
                                     Outlays       Offset      Outlays
------------------------------------------------------------------------
1967.............................        $ 3.4        $-0.7         $2.7
1970.............................          7.1         -0.9          6.2
1975.............................         14.8         -1.9         12.9
1980.............................         35.0         -2.9         32.1
1985.............................         71.4         -5.6         65.8
1990.............................        109.7        -11.6         98.1
1995.............................        180.1        -20.2        159.9
1996.............................        194.3        -20.1        174.2
1997.............................        210.4        -20.4        190.0
1998.............................        213.6        -20.8        192.8
1999.............................        216.1        -21.5        194.6
2000.............................        232.0        -23.2        208.8
2001.............................        247.9        -25.4        222.4
2002.............................        258.2        -27.7        230.5
2003.............................        281.9        -30.6        251.3
2004.............................        303.4        -34.1        269.3
2005.............................        333.4        -37.6        295.8
2006.............................        348.2        -40.4        307.7
2007.............................        383.1        -44.4        338.7
2008.............................        415.0        -48.7        366.3
2009.............................        448.6        -53.1        395.5
------------------------------------------------------------------------
Note: Totals may not add due to rounding. Table prepared by CRS.

          
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                               Figure 3.3.

                    Total and Net Medicare Outlays in

                  1998 Constant Dollars, FY1967-FY1998

            
             ``Real'' spending over time is measured in 
        constant, in this case 1998, dollars. Total real 
        Medicare spending increased significantly since the 
        program began. Real spending more than tripled over the 
        FY1980 to FY1997 period. Over this 18-year period, real 
        total spending (measured in 1998 constant dollars) 
        increased from $66.9 billion to $213.6 billion. This 
        represents an average annual rate of growth of 6.7%. 
        Over the same period, real net Medicare spending 
        increased from $61.2 billion to $192.8 billion. This 
        represents an average annual rate of increase of 6.6%. 
        However, looking at the change between FY1997 and 
        FY1998, there is only 0.29% for real total Medicare 
        spending and 0.25% for real net Medicare spending.


   TABLE 3.3. Total and Net Medicare Outlays in 1998 Constant Dollars,
                              FY1967-FY1998
                              (in billions)
------------------------------------------------------------------------
                                      Total       Medicare       Net
            Fiscal Year              Medicare     Premium      Medicare
                                     Outlays       Offset      Outlays
------------------------------------------------------------------------
1967.............................        $14.6         -2.8         11.8
1970.............................         27.0         -3.5         23.5
1975.............................         41.1         -5.3         35.8
1980.............................         66.9         -5.6         61.2
1985.............................        103.1         -8.0         95.1
1990.............................        133.3        -14.1        119.2
1995.............................        189.4        -21.3        168.1
1996.............................        200.4        -20.7        179.6
1997.............................        213.0        -20.6        192.3
1998.............................        213.6        -20.8       192.8
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                               Figure 3.4.

                     Age and Gender Distribution of

                      Medicare Beneficiaries, 1996

            
             In 1996, approximately 38.1 million persons were 
        enrolled in Medicare. The vast majority of enrollees--
        33.4 million--were aged. An additional 4.7 million, or 
        12.3% of the total, were disabled. Over half of the 
        elderly (54%) were under age 75; one-third (34%) were 
        between ages 75 and 84; and the remaining 12% were 85 
        and over.
            
             As shown in Table 3.4b, the proportion of Medicare 
        beneficiaries who are women increases substantially with 
        age.


      TABLE 3.4a. Age Distribution of Medicare Beneficiaries, 1996
------------------------------------------------------------------------
                                                          Beneficiaries
                                                         (in thousands)
------------------------------------------------------------------------
Elderly...............................................            33,404
     65-74 years......................................            18,031
     75-84 years......................................            11,408
     85+ years........................................             3,965
Disabled..............................................             4,688
     Under 45 years...................................             1,610
     45-54 years......................................             1,317
     55-64 years......................................             1,760
All beneficiaries.....................................           38,092
------------------------------------------------------------------------
Note: Table prepared by CRS.



 TABLE 3.4b. Gender Composition of Elderly Medicare Beneficiaries, 1996
------------------------------------------------------------------------
                                                             Percent of
                                                           Beneficiaries
                                                           Who Are Women
------------------------------------------------------------------------
65-74 years.............................................            55.3
75-84 years.............................................            61.3
85+ years...............................................           72.2
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                               Figure 3.5.

                     Race/Ethnicity Distribution of

                      Medicare Beneficiaries, 1996

            
             The great majority of Medicare beneficiaries are 
        white. Eighty-five percent of the elderly and 68% of the 
        disabled are white. African-Americans and hispanics 
        constitute a larger percentage of the disabled 
        population (18% and 11%) than of the elderly population 
        (8% and 6%).
          
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                               Figure 3.6.

          Medicare Enrollment, Actual and Projected, 1966-2017

            
             Medicare enrollment grew from 19.1 million persons 
        in 1966 to an estimated 38.6 million persons in 1997. 
        The elderly Medicare population grew from 19.1 million 
        to 33.7 million over this period.
            
             The program began covering the disabled in 1973. 
        The disabled population grew from 2.2 million in 1975 to 
        4.9 million in 1997.
            
             Total Medicare enrollment increased at an average 
        annual rate of 1.8% over the FY1980-FY1990 period and 
        1.7% over the FY1990-FY1997 period. Elderly enrollment 
        increased at an average annual rate of 1.9% for the 
        FY1980-FY1990 period and 1.2% for the FY1990-FY1997 
        period. Very different trends were recorded for the 
        disabled. While the average annual enrollment rate for 
        the disabled was only 1% for the FY1980-FY1990 period, 
        it climbed to 5.8% for the FY1990-FY1997 period.


     TABLE 3.6. Medicare Enrollment, Actual and Projected, 1966-2017
                              (in millions)
------------------------------------------------------------------------
                                      Total       Elderly      Disabled
               Year                  Persons      Persons      Persons
------------------------------------------------------------------------
1966.............................         19.1         19.1           --
1970.............................         20.5         20.5           --
1975.............................         25.0         22.8          2.2
1980.............................         28.5         25.5          3.0
1985.............................         31.1         28.2          2.9
1990.............................         34.2         30.9          3.3
1991.............................         34.9         31.5          3.4
1992.............................         35.6         32.0          3.6
1993.............................         36.3         32.4          3.8
1994.............................         36.9         32.8          4.1
1995.............................         37.3         33.0          4.3
1996.............................         37.8         33.3          4.6
1997.............................         38.6         33.7          4.9
2007.............................         44.1         36.9          7.2
2017.............................         56.6         47.8         8.8
------------------------------------------------------------------------
Note: Medicare coverage was extended to the disabled in 1973. Table
  prepared by CRS.

          
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                               Figure 3.7.

               The Aging of the U.S. Population, 1960-2030

            
             The U.S. population is aging. In 1960, 16.6 million 
        persons were age 65 or over; this represented 9.2% of 
        the population. In 1990, the number of aged persons had 
        almost doubled (31.2 million persons) while the aged's 
        percentage of the population had climbed to 12.5%. Both 
        the number and percentage of aged persons is expected to 
        climb rapidly after 2010 as the first wave of the baby 
        boomers turns 65. By 2030, as the last of the baby 
        boomers reaches 65, an estimated one-fifth of the 
        population (over 69 million persons) will be aged.


         TABLE 3.7. The Aging of the U.S. Population, 1960-2030
------------------------------------------------------------------------
                                             Number of
                                            Persons 65      Percent of
                  Year                      Plus Years    Population 65+
                                           (in millions)
------------------------------------------------------------------------
1960....................................           16.56            9.2%
1970....................................           19.98             9.8
1980....................................           25.55            11.3
1990....................................           31.24            12.5
2000 (est.).............................           34.71            12.6
2010 (est.).............................           39.41            13.2
2020 (est.).............................           53.22            16.5
2030 (est.).............................           69.38            20.0
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                               Figure 3.8.

                   Income Distribution of Elderly and

                  Disabled Medicare Beneficiaries, 1995

            
             Over 70% of elderly Medicare beneficiaries reported 
        incomes of less than $25,000 in 1995; close to 30% 
        reported incomes of less than $10,000. The disabled 
        reported even lower incomes: over one-half under 
        $10,000, and 84% under $25,000.


     TABLE 3.8. Income Distribution of Elderly and Disabled Medicare
                           Beneficiaries, 1995
------------------------------------------------------------------------
                                        Elderly  (in      Disabled  (in
               Income                     percent)          percent)
------------------------------------------------------------------------
 $5,000 or less.....................                 4                 9
$5,001-$10,000......................                24                46
$10,001-$25,000.....................                45                29
$25,001-$50,000.....................                21                13
$50,000+............................                 6                3
------------------------------------------------------------------------
Note: Totals may not add due to rounding. Table prepared by CRS.

          
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                               Figure 3.9.

             Percent of Poor Persons in the U.S. Population,

                                1959-1996

            
             From 1959-1996, the percentage of the U.S. 
        population below the poverty line declined from 22.4 to 
        13.7. An even more dramatic decline was recorded in the 
        poverty rate for the elderly, dropping from 35.2% to 
        10.8%; however, the 1996 rate reflected a slight 
        increase over the 1995 rate of 10.5. A less dramatic 
        decline was recorded for children over the 1959-1996 
        period; the percentage for this group declined from 26.9 
        to 20.2.
            
             While the rates for both the elderly and children 
        were higher than that for the general population in 
        1959, the rate for the elderly was below that of the 
        general population in 1996. Conversely, the rate for 
        children in 1996 was considerably above that for the 
        general population and substantially larger than that 
        for the elderly.
            
             The poverty rate for the elderly has improved over 
        the years, largely as a result of Social Security and a 
        maturing pension system. The aged tend to be more immune 
        to the effects of recession than others.


  TABLE 3.9. Percent of Poor Persons in the U.S. Population, 1959-1996
------------------------------------------------------------------------
               Year                  Children     Elderly      All Ages
------------------------------------------------------------------------
1959.............................         26.9         35.2         22.4
1970.............................         15.0         24.6         12.6
1975.............................         16.8         15.3         12.3
1980.............................         17.9         15.7         13.0
1985.............................         20.1         12.6         14.0
1990.............................         20.5         12.2         13.5
1995.............................         20.5         10.5         13.8
1996.............................         20.2         10.8        13.7
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 3.10.

              Distribution of Medicare Benefit Payments by

                        Service Category, FY1997

            
             Close to 58% of Medicare benefit payments in FY1997 
        were for inpatient hospital services and physicians' 
        services. Services provided by skilled nursing 
        facilities, home health agencies, and hospices accounted 
        for over 15%, while outpatient hospital services and 
        other medical and health services accounted for over 14% 
        of Medicare benefit payments. Managed care accounted for 
        12% of the total.


    TABLE 3.10. Distribution of Medicare Benefit Payments by Service
                            Category, FY1997
------------------------------------------------------------------------
                                            Percent of        Benefit
             Service Category              Total Benefit   Payments (in
                                             Payments        billions)
------------------------------------------------------------------------
Fee-for-service.........................            87.6          $181.5
     Inpatient hospital.................            43.1            89.3
     Physician..........................            14.9            30.8
     Skilled nursing facility...........             5.9            12.2
     Home health........................             8.5            17.5
     Hospice............................             1.0             2.1
     Outpatient.........................             8.3            17.1
     Other medical and health...........             6.0            12.5
Managed care............................            12.4            25.6
                                         -------------------------------
Total...................................           100.0         $207.0
------------------------------------------------------------------------
Note: Table prepared by CRS; total may not add due to rounding.

          
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                              Figure 3.11.

           Trends in Distribution of Fee-For-Service Medicare

                     Payments for Selected Services,

                            FY1980 and FY1997

            
             Payments for inpatient hospital services have 
        represented a declining proportion of fee-for-service, 
        as well as total, Medicare benefit payments since 1980. 
        The percentage of total payments attributable to skilled 
        nursing facility and home health benefits has increased 
        over the period, while that for physicians services and 
        related medical services has remained relatively 
        constant
            
             These trends reflect the fact that the growth rates 
        in spending for hospital and physicians services have 
        slowed significantly in response to the introduction of 
        new payment systems. In FY1984, Medicare began paying 
        for hospital services under the prospective payment 
        system. In 1992, Medicare began to pay for physicians 
        services on the basis of a fee schedule. In contrast, 
        skilled nursing facility services and home health 
        services continued to be paid on a reasonable cost 
        basis; payments for these services have continued to 
        rise at a much faster rate than those for hospital and 
        physicians services. BBA 97 provided for the 
        implementation of prospective payment systems for both 
        skilled nursing facility and home health services. This 
        is expected to slow the rate of growth in payments for 
        these service categories.


 TABLE 3.11. Trends in Distribution of Fee-For-Service Medicare Payments
                for Selected Services, FY1980 and FY1997
                              (in percent)
------------------------------------------------------------------------
            Selected Services                  1980            1997
------------------------------------------------------------------------
Inpatient hospital......................            67.4            49.2
Physician and related items.............            24.6            23.9
Skilled nursing facility................             1.2             6.7
Home health.............................             1.5            9.6
------------------------------------------------------------------------
Note: Data for 1980 may include limited expenditures for managed care.
  Table prepared by CRS.

          
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                              Figure 3.12.

                  Average Annual Medicare Growth Rates,

                     FY1990-FY1996 and FY1997-FY2002

            
             There is wide variation in the average annual 
        growth rates for various service categories. In recent 
        years, the expenditures for skilled nursing facility 
        (SNF) services, home health services, and hospice care 
        have been growing considerably faster than have other 
        fee-for-service expenditures such as those for inpatient 
        hospital, outpatient hospital, and physician services. 
        Expenditures for managed care have also increased at 
        significant rate; this reflects the increasing number of 
        beneficiaries enrolled in managed care plans.
            
             The BBA 97 reduced the rate of growth in Medicare 
        spending. As a result, the expected average annual 
        increase in spending by benefit category is expected to 
        slow significantly over the FY1997-FY2002 period.


   TABLE 3.12. Average Annual Medicare Growth Rates, FY1990-FY1996 and
                              FY1997-FY2002
                              (in percent)
------------------------------------------------------------------------
                                                              1997-2002
                                                  1990-96       (est)
------------------------------------------------------------------------
All benefits..................................          8.5          3.7
Inpatient hospital............................          5.2         -0.7
Outpatient hospital...........................          9.9          4.8
Physician.....................................          4.4          1.4
Home health...................................         27.9         -4.0
Skilled nursing facility......................         23.2          2.5
Hospice.......................................         33.1          3.5
Independent laboratories......................          3.7          1.7
Managed care..................................         22.1        19.8
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 3.13.

                Medicare Short-Stay Hospital Utilization,

                    Selected Fiscal Years, 1985-1997

            
             Since FY1984 Medicare has paid for acute, or short-
        stay, hospital care on the basis of a prospective 
        payment system (PPS). Under Medicare's PPS for inpatient 
        care, hospital payment amounts are established in 
        advance of the provision of services on the basis of a 
        patient's diagnosis. The system's fixed prices are 
        determined using a classification system of 511 
        diagnosis-related groups (DRGs). Each Medicare inpatient 
        case is assigned to one of the 511 DRGs based on the 
        patient's medical condition and diagnosis at admission.
            
             While discharge rates per 1,000 Medicare enrollees 
        remained fairly constant during the 1990s, days of care 
        and average length of stay have decreased significantly 
        over the same period. Between 1990 and 1997, total days 
        of care dropped from 94 million to 75 million, a 
        decrease of 20%. Average length of stay also declined 
        from 9.0 days in 1990 to 6.4 days in 1997, a decrease of 
        almost 29%.


             TABLE 3.13. Medicare Short-Stay Hospital Utilization, Selected Fiscal Years, 1985-1997
----------------------------------------------------------------------------------------------------------------
                                                                       1985     1990     1995     1996    1997*
----------------------------------------------------------------------------------------------------------------
Discharges
     Total in millions.............................................     10.5     10.5     11.7     11.7     11.8
     Rate per 1,000 enrollees......................................      347      313      317      312      314
Days of care
     Total, in millions............................................       92       94       83       78       75
     Rate per 1,000 enrollees......................................    3,016    2,805    2,253    2,074    2,014
Average length of stay
     All short-stay (in days)......................................      8.7      9.0      7.1      6.7     6.4
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.

*Preliminary data.

          
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                              Figure 3.14.

            Medicare Funding for Graduate Medical Education,

                                1990-1998

            
             Medicare recognizes as reasonable the extra costs 
        of graduate medical education (GME), or medical 
        residency training activities incurred by teaching 
        hospitals. The Medicare program pays for its share of 
        GME costs through two payment mechanisms: the indirect 
        medical education (IME) adjustment, and the direct 
        graduate medical education (direct GME) payment. The IME 
        adjustment is designed to compensate teaching hospitals 
        for their relatively higher costs attributable to the 
        involvement of residents in patient care and the 
        severity of illness of patients requiring specialized 
        services available only in teaching hospitals. The 
        direct GME payment is designed to reimburse teaching 
        hospitals for Medicare's share of the costs of salaries 
        and fringe benefits paid to residents, interns, and 
        teaching faculty, and certain overhead costs relating to 
        teaching activities.
            
             The BBA 97 includes several reforms of Medicare's 
        payments for GME. First, the IME adjustment is reduced 
        from 7.7% to 7.0% in FY1998; 6.5% in FY1999; 6.0% in 
        FY2000; and to 5.5% in FY2001 and subsequent years. 
        Second, the BBA 97 phases out Medicare GME support from 
        premiums paid to managed care plans and pays these 
        monies directly to teaching hospitals that treat 
        Medicare managed care patients. The BBA 97 also caps the 
        number of medical residents supported by Medicare at the 
        December 31, 1996 level. Finally, the BBA 97 also makes 
        a number of changes to the direct GME payments, 
        including allowing non-hospital providers to receive 
        such funds, and creating voluntary residency reduction 
        programs.
            
             IME payments \4\ rose from $2.91 billion in FY1990 
        to $4.99 billion in FY1998. Total direct GME payments 
        \5\ increased from $1.76 billion in FY1990 to $2.10 
        billion in FY1998.


                     TABLE 3.14. Medicare Funding for Graduate Medical Education, 1990-1998
                                                 ($ in billions)
----------------------------------------------------------------------------------------------------------------
                                   Year                                        IME       Direct GME   Total GME
----------------------------------------------------------------------------------------------------------------
1990.....................................................................         2.91         1.76         4.67
1991.....................................................................         3.21         1.89         5.10
1992.....................................................................         3.67         2.36         6.03
1993.....................................................................         4.09         2.55         6.64
1994.....................................................................         4.50         2.61         7.11
1995.....................................................................         5.10         2.74         7.84
1996.....................................................................         5.55         2.86         8.41
1997.....................................................................         5.16         2.43         7.59
1998.....................................................................         4.99         2.10        6.09
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.


        ----------
        \4\ IME amounts include payments for capital costs and 
        payments to managed care plans.

        \5\ Direct GME amounts include payments for certain 
        hospital-operated nursing and allied health professions 
        education and training programs.
          
        [GRAPHIC] [TIFF OMITTED] T6395.106
        
          

                              Figure 3.15.

        Trend in Number of Medical Residents,\6\ 1990/91-1997/98

            
             In the rapidly changing health care market, the 
        supply of physicians and the mix of specialties they 
        practice continue to be of concern to policymakers. An 
        oversupply of physicians and an imbalance in specialty 
        mix can contribute to the growth in health care costs. 
        The growth of managed care has also contributed to the 
        concern about whether or not the correct mix of 
        physician specialties are being trained. Generally, 
        there is concern that too many specialist and not enough 
        primary care physicians are being trained.
            
             Medicare currently pays for residency training 
        without regard to specialty.\7\ Some argue that because 
        Medicare is the only explicit payer of graduate medical 
        education costs the program should play a larger role in 
        shaping the physician workforce. The BBA 97 includes 
        several GME reforms which are designed to address some 
        of the concerns about residency training supported by 
        Medicare. These provisions include: (1) a cap on the 
        total number of residents supported by Medicare; (2) 
        payments to non-hospital providers for direct GME costs; 
        and (3) incentive payments to teaching hospitals for 
        reducing the size of their residency training programs.
            
             There is some evidence that the market for 
        physicians is changing slightly in response to general 
        health care market forces. The total number of residents 
        increased each year through school year 1995-1996, but 
        may now be on a downward trend. Part of this trend, 
        however, may be attributed to changes in the data 
        collection methods.


       TABLE 3.15. Trend in Number of Medical Residents, 1990-1998
------------------------------------------------------------------------
                                                                Annual
                                                 Number of      Growth
                 School Years                    Residents    Rates (in
                                                               percent)
------------------------------------------------------------------------
1990-1991.....................................       91,766           --
1991-1992.....................................       95,130          3.7
1992-1993.....................................       98,573          3.6
1993-1994.....................................      102,168          3.6
1994-1995.....................................      103,640          1.4
1995-1996.....................................      104,609          0.9
1996-1997.....................................      103,777         -0.7
1997-1998.....................................       98,138        -5.4
------------------------------------------------------------------------
Note: Table prepared by CRS, based on data collected by Association of
  American Colleges.



        ----------
        \6\ The data presented for medical residents includes 
        residents in allopathic (M.D.) residency programs only.

        \7\ Medicare pays for its share of the direct cost of 
        GME. For residents in their initial residency period, 
        defined as the minimum number of years required to 
        become board certified and not to exceed 5 years, 
        Medicare counts each full-time-equivalent (FTE) resident 
        as 1.0 FTE. For residents beyond their initial residency 
        period, Medicare counts each resident as 0.5 FTE. There 
        is a special exception for residents in accredited 
        geriatrics training programs that allows these residents 
        to be counted as 1.0 FTE for an additional 2 years.
          
        [GRAPHIC] [TIFF OMITTED] T6395.052
        
          

                              Figure 3.16.

                  Selected Primary Care Residents as a

           Percent of Total Residents, 1990-1991 and 1997-1998

            
             The specialty mix of residents has been an 
        important concern for GME reform. Many experts look to 
        the specialty choices of medical residents as an 
        indication of the changing health care marketplace and 
        how it will affect the future physician workforce. When 
        considering the number of residents training in primary 
        care, it is important to keep in mind that many 
        residents who undergo training in a primary care 
        specialty may go on to subspecialize and may not 
        practice in primary care once their training is 
        completed.
            
             The number of residents in selected \8\ primary 
        care specialties grew from 26,093 in 1990-1991, to 
        39,767 in 1997-1998, a 52.4% increase. First-year 
        residents in selected primary care specialties also grew 
        from 10,796 in 1990-1991 to 14,809 in 1997-1998, a 37.2% 
        increase.
            
             Both the total number of residents in primary care 
        and first year residents in primary care increased from 
        1996-1997 to 1997-1998. When compared to the total 
        number of residents, the proportion of residents in 
        primary care specialties grew from 28.4% in 1990-1991 to 
        38.3% in 1997-1998.


          TABLE 3.16. Selected Primary Care Residents and First-Year Residents, 1990-1991 and 1997-1998
----------------------------------------------------------------------------------------------------------------
                                                               Primary Care Residents    First-Year Primary Care
                                                             --------------------------         Residents
                          Specialty                                                    -------------------------
                                                               1990-1991    1997-1998    1990-1991    1997-1998
----------------------------------------------------------------------------------------------------------------
Family practice.............................................        7,183       10,369        2,407        3,577
     Family practice--geriatrics............................           17           22         N.A.         N.A.
Internal medicine (general).................................       11,883       21,574        6,070        8,396
     Internal medicine--geriatrics..........................          177          240         N.A.         N.A.
Pediatrics (general)........................................        6,833        7,520        2,319        2,632
                                                             ---------------------------------------------------
Total primary care..........................................       26,093       39,767       10,796      14,809
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.



        ----------
        \8\ Selected primary care residency programs include: 
        family practice, family practice--geriatrics, internal 
        medicine (general), internal medicine--geriatrics, and 
        pediatrics (general).
          
        [GRAPHIC] [TIFF OMITTED] T6395.053
        
          

                              Figure 3.17.

             Trend in Medicare Payments for Skilled Nursing

                     Facility (SNF) Care, 1988-1998

            
             Medicare skilled nursing facility (SNF) spending 
        increased dramatically between 1988, when payments were 
        $900 million, and 1989 when payments soared to $3.5 
        billion. It has increased at an average annual rate of 
        17% since then, rising to over $13.8 billion in 1998.
            
             The initial increase can be traced to two 
        significant changes occurring in the late 1980s. First, 
        the Health Care Financing Administration (HCFA) issued 
        new coverage guidelines that became effective in 1988. 
        These guidelines provided SNFs a great deal more 
        information than had previously been available about 
        criteria that must be met for a beneficiary to receive 
        Medicare coverage. A second major, though temporary, 
        change also came in 1988, with the enactment of the 
        Medicare Catastrophic Coverage Act (MCCA). Effective 
        beginning in 1989, this legislation eliminated the SNF 
        benefit's prior hospitalization requirement and made 
        several other changes. The MCCA was repealed in 1989, 
        and the SNF benefits structure assumed its prior form.
            
             Studies have suggested that the coverage guidelines 
        and the MCCA changes together might have caused a long-
        run shift in the nursing home industry toward Medicare 
        patients that did not end with the repeal of the MCCA. 
        Between 1989 and 1997, the number of SNFs participating 
        in the program increased from 8,638 to 14,619 or by 69%. 
        In addition, during this same period, an increasing 
        number of persons qualified for SNF care and 
        reimbursements per day of care grew significantly, as 
        explained in the next figure.


   TABLE 3.17. Trend in Medicare Payments for Skilled Nursing Facility
                             Care, 1988-1998
                         (fee-for-service only)
------------------------------------------------------------------------
                                        Payments  (in
            Calendar Year                 billions)      Percent Change
------------------------------------------------------------------------
1988................................              $0.9                --
1989................................               3.5             275.7
1990................................               2.3             -33.1
1991................................               2.7              17.5
1992................................               4.0              45.8
1993................................               5.3              33.7
1994................................               7.3              36.8
1995................................               9.1              24.6
1996................................              11.1              21.9
1997................................              12.7              14.4
1998................................              13.8              8.6
------------------------------------------------------------------------
Note: Total for 1998 is estimated. Rounding in payments may not reflect
  actual percentage change. Table prepared by CRS.

          
        [GRAPHIC] [TIFF OMITTED] T6395.054
        
          

                              Figure 3.18.

             Trends in SNF Utilization and Payments Per Day,

                                1988-1998

            
             Growth in Medicare skilled nursing facility (SNF) 
        spending can be explained largely by an increasing 
        number of persons qualifying for the benefit and 
        increases in reimbursements per day of care. From 1988 
        through 1998, persons receiving SNF care increased at an 
        average annual rate of 16%; reimbursements per day of 
        covered care increased on average by 12%. The average 
        number of days per person served increased from about 28 
        days in 1988 to 32 days in 1998.
            
             Since the start of 1992, the rate of growth in SNF 
        use has been high because of declining lengths of stay 
        in hospitals as well as an increasing supply of 
        participating facilities. Medicare reimbursement 
        policies explain much of the increase in reimbursements 
        per covered day of care. Although routine care costs 
        (nursing, room and board, administrative, and other 
        overhead) have been subject to per diem limits, 
        ancillary services (therapies, laboratory services, 
        radiology procedures, supplies and other equipment) have 
        not. However, this should change in 1999 as a 3-year 
        phase-in of a prospective payment system for SNF care 
        takes effect. This prospective payment system, 
        established by BBA 97, will pay a fixed per diem rate 
        for services provided to a Medicare beneficiary as a SNF 
        patient. The per diem rate will include all SNF benefits 
        (including routine, ancillary, and capital-related 
        costs) as well as certain other Part B services the 
        beneficiary is provided during a SNF stay. The actual 
        per diem rate paid to a SNF for a given beneficiary will 
        be based on a resident classification system that takes 
        into account relative resource utilization of different 
        patient types; it will pay higher per diems for patients 
        requiring a great deal of care and lower rates for those 
        requiring less intensive care.


                      TABLE 3.18. Trends in SNF Utilization and Payments Per Day, 1988-1998
                                             (fee-for-service only)
----------------------------------------------------------------------------------------------------------------
                                                                    Average
                                                                   Number of                Average
            Calendar Year                 Number of     % Change    Days per    % Change  Payment per   % Change
                                        People Served                Person                 Day (in
                                                                     Served                 dollars)
----------------------------------------------------------------------------------------------------------------
1988.................................         384,000         --         27.8         --          $87         --
1989.................................         636,000       65.6         46.8       68.4          117       34.5
1990.................................         638,000        0.3         37.3      -20.3           98      -16.2
1991.................................         671,000        5.2         33.2      -11.0          123       25.5
1992.................................         785,000       17.0         34.4        3.6          148       20.3
1993.................................         908,000       15.7         34.5        0.3          171       15.5
1994.................................       1,068,000       17.6         35.6        3.2          192       12.3
1995.................................       1,240,000       16.1         34.9       -2.0          211        9.8
1996.................................       1,384,000       11.6         34.5       -1.2          233       10.4
1997.................................       1,572,000       13.5         32.0       -7.3          253        8.5
1998.................................       1,630,000        3.6         32.2        0.0          262       3.5
----------------------------------------------------------------------------------------------------------------
Note: During 1989 only, a prior hospitalization was not required for Medicare coverage of SNF care. Data for
  1998 are preliminary and possibly incomplete. Rounding in payments may not reflect actual percentage change.
  Table prepared by CRS.

          
        [GRAPHIC] [TIFF OMITTED] T6395.107
        
          

                              Figure 3.19.

               Trend in Medicare Payments for Home Health,

                                1988-1998

            
             Throughout the early 1990s, home health care was 
        one of Medicare's fastest growing benefits. Spending 
        increased from $2.0 billion in 1988 to $16.5 billion in 
        1998, for an average annual rage of growth of 24%. 
        Factors that explain some of this growth include 
        technological advances that make home care rather than 
        hospital care possible, and a nearly two-fold increase 
        in the number of home care agencies participating in 
        Medicare, from 5,686 agencies in 1989 to 10,492 in 1997.
            
             Some portion of the growth probably resulted from 
        the incentives set up by the hospital prospective 
        payment system to discharge patients more quickly to 
        other settings. At first, HCFA reviews of care for these 
        discharged patients resulted in high denial rates for 
        home health care, but in 1989 the rules were relaxed and 
        new guidelines liberalized coverage policies.
            
             In response to the growth of home health care 
        costs, Congress established in BBA 97 new limits for 
        computing Medicare payments to home health agencies. One 
        of these changes includes a new limit on payments per 
        beneficiary that are applied in the aggregate. They were 
        in effect through most of 1998, and the 1998 data 
        reflect expected payment reductions. Further savings are 
        anticipated when a prospective payment system is 
        implemented for home health care after the start of the 
        year 2000.


    TABLE 3.19. Trend in Medicare Payments for Home Health, 1988-1998
                         (fee-for-service only)
------------------------------------------------------------------------
                                        Payments  (in
            Calendar Year                 billions)      Percent Change
------------------------------------------------------------------------
1988................................              $2.0                --
1989................................               2.5              23.3
1990................................               3.9              53.2
1991................................               5.5              43.7
1992................................               7.7              39.5
1993................................              10.2              32.0
1994................................              13.3              30.1
1995................................              16.2              21.8
1996................................              17.5               8.0
1997................................              17.6               0.0
1998................................              16.5             -6.3
------------------------------------------------------------------------
Note: Total includes both Part A and Part B payments. The total for 1998
  is estimated. Rounding in payments may not reflect the actual
  percentage change. Table prepared by CRS.

          
        [GRAPHIC] [TIFF OMITTED] T6395.056
        
          

                              Figure 3.20.

           Trends in Medicare Home Health Care Utilization and

                      Payments Per Visit, 1988-1997

            
             Most of the growth in home health spending can be 
        attributed to an increasing volume of services covered 
        under the program, as measured by increases in the 
        numbers of users as well as the number of covered visits 
        per user. For the period 1988 through 1997, the number 
        of users increased at an average annual rate of 10%, and 
        the average number of visits per person served increased 
        at the rate of 14% per year. During this same period, 
        total Medicare enrollment increased by less than 2% per 
        year. Increasing costs for home health services have 
        accounted for comparatively little of the growth in 
        spending. Payments per visit increased at an average 
        annual rate of 1.5% from 1988 through 1997. Growth in 
        the volume of home health services paid for by Medicare 
        was highest from 1988 through 1993; the rate of growth 
        has declined since 1994. The declining rate of growth in 
        volume of visits reimbursed during this latter period 
        can be explained in part by increasing numbers of 
        beneficiaries enrolling in Medicare managed care plans; 
        between 1993 and 1997 managed care enrollment increased 
        from 5.3% to 14% of total Medicare enrollment. The 
        program does not track utilization of individual covered 
        benefits for persons enrolled in managed care. The 
        absolute decrease in the average number of visits per 
        person in 1997 reflects provisions in BBA 97 that 
        established new payment limits for home health services 
        aimed at controlling the volume of covered services 
        beginning October 1, 1997.


          TABLE 3.20. Trends in Medicare Home Health Care Utilization and Payments Per Visit, 1988-1997
                                             (fee-for-service only)
----------------------------------------------------------------------------------------------------------------
                                                                    Average
                                                                   Number of                Average
            Calendar Year                 Number of     % Change   Visits per   % Change  Payment per    Change
                                        People Served                Person                Visit  (in
                                                                     Served                 dollars)
----------------------------------------------------------------------------------------------------------------
1988.................................       1,582,000         --           23         --          $55         --
1989.................................       1,685,000        6.5           27       17.4           55        0.0
1990.................................       1,940,000       15.1           36       33.3           56        1.8
1991.................................       2,223,000       14.6           44       22.2           56        0.0
1992.................................       2,523,000       13.5           53       20.5           58        3.6
1993.................................       2,868,000       13.7           59       11.3           61        5.2
1994.................................       3,175,000       10.7           69       17.0           60       -1.6
1995.................................       3,457,000        8.9           77       11.6           60        0.0
1996.................................       3,583,000        3.6           79        2.6           61        1.7
1997.................................       3,865,000        7.8           72        8.9           63       3.2
----------------------------------------------------------------------------------------------------------------
Note: Rounding in payments may not reflect actual percentage change. Table prepared by CRS.

          
        [GRAPHIC] [TIFF OMITTED] T6395.108
        
          

                              Figure 3.21.

                   Home Health Users and Total Visits,

                      by Number of Visits, FY 1996

            
             A large portion of the growth in volume of home 
        health visits paid for by Medicare can be attributed to 
        heavy users. By FY1996, home health users with more than 
        100 visits had grown to 21% of all users from 4% in 
        1988. In addition, these users accounted for the great 
        bulk of covered home health visits--70% of all visits in 
        FY1996 (see Figure 3.21). Persons receiving more than 
        300 visits accounted for 32% of all visits in that year 
        but represented only 5% of users, as shown in the table 
        below.


                   TABLE 3.21. Home Health Users and Total Visits, by Number of Visits, FY1996
----------------------------------------------------------------------------------------------------------------
                                                     Number of    Share of Total     Number of    Share of Total
            Number of Visits per User                  Users         Users (%)        Visits        Visits (%)
----------------------------------------------------------------------------------------------------------------
1-10............................................         171,795           24.27         934,376            1.80
11-20...........................................         120,352           17.00       1,812,449            3.50
21-30...........................................          75,134           10.61       1,891,408            3.65
31-40...........................................          51,561            7.28       1,817,443            3.51
41-50...........................................          38,188            5.40       1,730,598            3.34
51-60...........................................          30,378            4.29       1,678,322            3.24
61-70...........................................          23,654            3.34       1,544,606            2.98
71-80...........................................          18,647            2.63       1,404,818            2.71
81-90...........................................          15,525            2.19       1,325,049            2.56
91-100..........................................          13,223            1.87       1,261,918            2.43
101-130.........................................          31,244            4.41       3,581,118            6.91
131-160.........................................          23,224            3.28       3,369,860            6.50
161-190.........................................          20,061            2.83       3,507,514            6.77
191-220.........................................          14,351            2.03       2,940,631            5.67
221-250.........................................          10,699            1.51       2,513,069            4.85
251-280.........................................           9,328            1.32       2,474,191            4.77
281-300.........................................           5,018            0.71       1,455,632            2.81
300+............................................          35,450            5.01      16,589,460           32.01
                                                 ---------------------------------------------------------------
Total...........................................         707,832          100.00      51,832,462         100.00
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 3.22.

                  Medicare Fee-for-Service Spending for

                      Selected Service Categories,

                by Major Diagnostic Classifications, 1995

            
             The table below shows Medicare fee-for-service 
        spending by major diagnostic classification for four 
        selected service categories: short stay hospital 
        services, skilled nursing facility services, home health 
        services, and physician and supplier services. Taken 
        together, these four service categories accounted for 
        87.5 % of total Medicare fee-for-service payments for 
        all diagnoses in 1995.
            
             Over one-quarter of Medicare spending in 1995 in 
        these selected service categories was for persons whose 
        diagnosis was a disease of the circulatory system, 
        primarily heart disease. Over 10% of spending was for 
        persons whose diagnosis was a disease of the respiratory 
        system, such as pneumonia and asthma. The categories of 
        neoplasms (cancers), and injury and poisonings, each 
        constituted close to 9% of spending. Other disease 
        categories represented a smaller proportion of the 
        total. For example, endocrine, nutritional and metabolic 
        diseases (including diabetes) jointly represented under 
        5% of the total.


    TABLE 3.22. Medicare Spending for Selected Service Categories, by Major Diagnostic Classifications, 1995
                                                 (in thousands)
----------------------------------------------------------------------------------------------------------------
                                                                                                    Percent of
                         Major Diagnostic Classifications                             Spending      Grand Total
----------------------------------------------------------------------------------------------------------------
Congenital abnormalities........................................................       $ 242,693            0.2%
Diseases of the blood and blood-forming organs..................................       1,483,755            1.1%
Infectious and parasitic diseases...............................................       3,234,879            2.3%
Diseases of the skin and subcutaneous system....................................       3,411,521            2.4%
Mental disorders................................................................       4,273,033            3.1%
Diseases of the genitourinary system............................................       5,501,940            3.9%
Other...........................................................................       6,031,643            4.3%
Diseases of the nervous system and sense organs.................................       6,410,261            4.6%
Endocrine, nutritional and metabolic diseases...................................       6,500,646            4.6%
Symptoms, signs, and ill-defined conditions.....................................       6,917,179            4.9%
Diseases of the musculoskeletal system and connective tissue....................       8,945,088            6.4%
Diseases of the digestive system................................................       9,800,807            7.0%
Neoplasms.......................................................................      11,836,200            8.5%
Injury and poisoning............................................................      11,870,067            8.5%
Diseases of the respiratory system..............................................      14,640,590           10.5%
Diseases of the circulatory system..............................................      38,893,001           27.8%
                                                                                 -------------------------------
Total, all diagnoses............................................................    $139,993,303         100.0%
----------------------------------------------------------------------------------------------------------------
Note: Includes Medicare fee-for-service spending for short-stay hospital services, skilled nursing facility
  services, home health services, and services provided by physicians and suppliers. Together, these accounted
  for 87.5% of Medicare fee-for-service payments in CY1995. Table prepared by CRS.

          
        [GRAPHIC] [TIFF OMITTED] T6395.059
        
          

                              Figure 3.23.

                  Average Per Capita Medicare Spending,

                              FY1999-FY2009

            
             Total per capita Medicare spending per enrollee 
        (including administrative costs) is expected to increase 
        from $5,657 in FY1999 to $10,257 in FY2009, for an 
        average annual rate of increase of 6.1% over the period. 
        Net per capita spending (after deduction of beneficiary 
        premiums) is expected to increase from $5,089 to $8,999, 
        for an average annual rate of increase of 5.8%


     TABLE 3.23. Average Per Capita Medicare Spending, FY1999-FY2009
------------------------------------------------------------------------
                                               Total            Net
------------------------------------------------------------------------
1999....................................           5,657           5,089
2000....................................           6,025           5,408
2001....................................           6,387           5,722
2002....................................           6,597           5,861
2003....................................           7,105           6,299
2004....................................           7,541           6,666
2005....................................           8,204           7,238
2006....................................           8,414           7,413
2007....................................           9,110           8,024
2008....................................           9,677           8,516
2009....................................          10,257          8,999
------------------------------------------------------------------------
Note: Totals may not add due to rounding Table prepared by CRS.

          
        [GRAPHIC] [TIFF OMITTED] T6395.060
        
          

                              Figure 3.24.

                    Distribution of Medicare Spending

                         for Beneficiaries, 1995

            
             Medicare spending is unevenly distributed among 
        beneficiaries. In 1995, 5% of elderly beneficiaries 
        accounted for 45% of Medicare spending for this 
        population group. Only 14% of beneficiaries accounted 
        for close to three-fourths (73%) of all spendings for 
        elderly beneficiaries. Clearly, in a given year, the 
        majority of health costs are concentrated among a 
        minority of persons.
            
             A similar and even more pronounced pattern is 
        reflected in Medicare spending for disabled 
        beneficiaries. In 1995, 7% of disabled beneficiaries 
        accounted for over one-half (56%) of this group's total 
        spending for the year, and 15% accounted for over three-
        quarters (79%) of spending.


  TABLE 3.24. Distribution of Medicare Spending for Beneficiaries, 1995
                              (in percent)
------------------------------------------------------------------------
                   Elderly                             Disabled
------------------------------------------------------------------------
                                  Percent of    Percent of    Percent of
    Percent of Beneficiaries       Spending   Beneficiaries    Spending
------------------------------------------------------------------------
5..............................           45             7            56
10.............................           63            11            71
14.............................           73            15            79
23.............................           85            23            88
48.............................           97            46           97
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 3.25.

           Average Medicare Part A and Part B Benefit Payment

                   Per Elderly Enrollee, by Age, 1995

            
             The average annual benefit payment per Medicare 
        elderly enrollee increases by age, reflecting the need 
        for more health care as this population ages. In 1995, 
        the average Part A payment was $1,519 for the 65 to 66 
        year old population, rising to $4,634 for those 85 and 
        older. Similarly, Part B payments increased from $1,154 
        for the youngest age group to $1,869 for the oldest 
        group.


   TABLE 3.25. Average Medicare Part A and Part B Benefit Payment Per
                     Elderly Enrollee, by Age, 1995
------------------------------------------------------------------------
                                                   Part A       Part B
------------------------------------------------------------------------
65 and 66 years...............................       $1,519       $1,154
67 and 68 years...............................        1,755        1,278
69 and 70 years...............................        1,978        1,351
71 and 72 years...............................        2,219        1,450
73 and 74 years...............................        2,521        1,566
75-79 years...................................        2,982        1,705
80-84 years...................................        3,848        1,839
85+ years.....................................        4,634       1,869
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
        [GRAPHIC] [TIFF OMITTED] T6395.062
        
          

                              Figure 3.26.

                    Average Medicare Benefit Payment

                   Per User of Services by Mortality,

                     ESRD, and Hospital Status, 1995

            
             High Medicare spending is frequently associated 
        with specific beneficiary characteristics, namely, 
        whether the person died during the year, whether they 
        were ESRD beneficiaries, or whether they had a hospital 
        stay. In 1995, the average program payment per person 
        for those who died during the year was $16,613, compared 
        to $4,383 for persons who used services but remained 
        alive during the year. In the same year, ESRD 
        beneficiaries averaged $35,154 in payments while non-
        ESRD beneficiaries who used services averaged $4,963. 
        Persons using hospital services also had higher costs--
        $18,080 per person compared to $1,437 for users without 
        a hospital stay. The average payment for all users of 
        services was $5,226 in 1995.


  TABLE 3.26. Average Medicare Benefit Payment Per User of Services by
               Mortality, ESRD, and Hospital Status, 1995
------------------------------------------------------------------------
                                                              Average
                   Type of Service User                       Benefit
                                                              Payment
------------------------------------------------------------------------
Mortality status: dead..................................         $16,613
Mortality status: alive.................................           4,383
ESRD....................................................          35,154
Non-ESRD................................................           4,963
With hospital stay......................................          18,080
Without hospital stay...................................          1,437
------------------------------------------------------------------------
Note: Excludes persons for whom no Medicare payments were made during
  the year. Table prepared by CRS.

          
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                              Figure 3.27.

                Average Medicare Payments Per Enrollee by

                       State and by Region, CY1996

            
             The average Medicare payment per beneficiary varies 
        by state and by geographic region. In 1996, six States 
        had per enrollee payments over $5,400--Louisiana 
        ($6,553), Massachusetts ($6,266), California ($5,986), 
        Florida ($5,901), Texas ($5,905), and New York ($5,541). 
        The District of Columbia recorded a per enrollee payment 
        of $6,631 for the same period. The lowest per capita 
        payment was recorded in Nebraska ($3,512). The average 
        payment also varied by geographic region, ranging from 
        $4,069 in the West North Central region to $5,709 in the 
        West South Central Division.


    TABLE 3.27. Average Medicare Payments Per Enrollee by Region and
                            Subregion, CY1996
------------------------------------------------------------------------
                                                            Dollars Per
                                                             Enrollee
------------------------------------------------------------------------
United States...........................................          $5,048
Region
     Northeast..........................................           5,427
     Midwest............................................           4,492
     South..............................................           5,225
     West...............................................           5,032
Subregion
     New England........................................           5,418
     Middle Atlantic....................................           5,430
     East North Central.................................           4,675
     West North Central.................................           4,069
     South Atlantic.....................................           5,045
     East South Central.................................           5,031
     West South Central.................................           5,709
     Mountain...........................................           4,299
     Pacific............................................          5,379
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 3.28.

                  Trends in Medicare Part A and Part B

                   Administrative Expenses, 1970-1997

            
             Medicare administrative costs are a small and 
        declining portion of total benefit payments. In 1970, 
        administrative costs represented 3.1% of Part A benefit 
        payments and 11% of Part B benefit payments. By 1997, 
        administrative costs had dropped to 1.2 % of Part A 
        payments and 2.0% of Part B payments. This reflects, in 
        part, technological improvements in automated claims 
        processing. Over 96% of hospital and skilled nursing 
        facility claims are submitted electronically and 79% of 
        physician, laboratory and durable medical equipment 
        claims are submitted electronically.


TABLE 3.28. Trends in Medicare Part A and Part B Administrative Expenses
     (as a percent of Part A and Part B benefit payments), 1970-1997
------------------------------------------------------------------------
                     Year                          Part A       Part B
------------------------------------------------------------------------
1970..........................................          3.1         11.0
1975..........................................          2.5         10.8
1980..........................................          2.1          5.8
1985..........................................          1.7          4.2
1990..........................................          1.2          3.7
1992..........................................          1.5          3.4
1993..........................................          1.0          3.5
1994..........................................          1.2          3.0
1995..........................................          1.1          2.8
1996..........................................          1.0          2.6
1997..........................................          1.2         2.0
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 3.29.

                          Administrative Costs:

                 Medicare Compared to Private Insurance

                             and HMOs, 1993

            
             Medicare's administrative costs are substantially 
        lower than those for private insurance. In 1993, 
        Medicare's administrative costs represented about 2% of 
        total program costs, while such costs represented 9.5% 
        of private insurers costs and 11.9% of program costs for 
        health maintenance organizations (HMOs). Private 
        insurance and HMO administrative costs include 
        marketing, profits, and other costs which are not part 
        of Medicare's expenses. Administrative costs for HMOs 
        are higher than for private insurance because HMOs 
        invest more resources into managing the care provided to 
        enrollees.


TABLE 3.29. Administrative Costs: Medicare Compared to Private Insurance
                             and HMOs, 1993
------------------------------------------------------------------------
                                                              Percent of
                                                                Costs
------------------------------------------------------------------------
Medicare...................................................          2.0
Private insurance..........................................          9.5
HMOs.......................................................        11.9
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 3.30.

               Trends in Medicare Claims Volume, 1970-1997

            
             The volume of Medicare claims rose from 60.9 
        million in 1970 to an estimated 842.7 million in 1997. 
        This is close to a thirteen-fold increase. Growth has 
        been greater for Part B claims than for Part A claims.
            
             The rapid rise in the volume of claims reflects a 
        number of factors, including increased utilization due 
        to the growing number of beneficiaries, the increasing 
        longevity of the beneficiary population, and advances in 
        medical technology. The higher increase in the number of 
        Part B claims reflects the fact that Part B claims 
        continue to be based on small units of services (e.g., a 
        lab test), while Part A claims now generally represent a 
        larger unit of service, e.g., a hospital admission. The 
        increase in Part B claims also reflects the addition of 
        several service categories, e.g., preventive screenings 
        and flu shots.


         TABLE 3.30. Trends in Medicare Claims Volume, 1970-1997
                              (in millions)
------------------------------------------------------------------------
                                      Part A       Part B       Total
               Year                   Claims       Claims       Claims
------------------------------------------------------------------------
1970.............................         17.1         43.8         60.9
1980.............................         41.8        155.0        196.8
1985.............................         58.5        267.2        325.8
1990.............................         83.2        453.9        537.1
1995.............................        133.1        646.5        779.6
1996.............................        142.1        665.6        807.7
1997.............................        150.0        692.7       842.7
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 3.31.

             Medicare Part A Trust Fund: Income and Outlays,

                              FY1970-FY2009

            
             Income to the Medicare Part A Hospital Insurance 
        Trust Fund traditionally exceeded outlays. However, 
        beginning in FY1995, this pattern was reversed. In that 
        year, the program paid out $36 million more than it took 
        in. The difference totaled $4.2 billion in FY1996 and 
        $9.3 billion in 1997. BBA 97 reduced the rate of growth 
        in Medicare spending. It also shifted some spending from 
        Part A to Part B. As a result, both CBO and the 
        Administration estimate that income will exceed outgo 
        through 2006.


                    TABLE 3.31. Medicare Part A Trust Fund: Income and Outlays, FY1970-FY2009
                                                  (in billions)
----------------------------------------------------------------------------------------------------------------
                                                                 Total                     Total
                            Year                                 Income                   Outlays
----------------------------------------------------------------------------------------------------------------
1970........................................................         $5.6  ...........         $5.0  ...........
1975........................................................         12.6  ...........         10.6  ...........
1980........................................................         25.4  ...........         24.3  ...........
1985........................................................         50.9  ...........         48.7  ...........
1990........................................................         79.6  ...........         66.7  ...........
1995........................................................        114.9  ...........        114.9  ...........
1996........................................................        121.1  ...........        125.3  ...........
1997........................................................        128.5  ...........        137.8  ...........
----------------------------------------------------------------------------------------------------------------



----------------------------------------------------------------------------------------------------------------

                      Projections                       Administration      CBO      Administration      CBO
----------------------------------------------------------------------------------------------------------------
1998..................................................          140.5         138.2          135.8         136.3
1999..................................................          145.7         145.4          145.2         135.0
2000..................................................          150.8         150.9          142.5         141.1
2001..................................................          157.3         154.7          150.6         147.1
2002..................................................          163.9         163.7          157.2         150.6
2003..................................................          171.0         171.0          165.6         160.9
2004..................................................          178.6         178.9          174.4         171.0
2005..................................................          187.3         188.0          184.6         185.7
2006..................................................          196.1         196.3          196.0         193.1
2007..................................................          205.9         205.1          208.1         210.4
2008..................................................          215.7         213.4          220.8         226.3
2009..................................................           N.A.         221.5           N.A.        242.9
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 3.32.

            Medicare Part A Trust Fund: End-of-Year Balance,

                              FY1970-FY2009

            
             The balance in the Part A Hospital Insurance Trust 
        Fund is currently increasing. The end-of-year balance 
        began to drop in FY1995. Prior to enactment of BBA 97, 
        both the CBO and the Medicare trustees estimated that 
        the balance would fall below zero in FY2001. However, 
        with passage of this legislation, both CBO and the 
        Medicare trustees estimate that the balance will 
        continue to rise through 2006. In March 1999, the 
        Medicare trustees projected the fund would become 
        insolvent in 2015.


  TABLE 3.32. Medicare Part A Trust Fund: End-of-Year Balance, FY1970-
                                 FY2009
                              (in billions)
------------------------------------------------------------------------
                                                End-of-Year
                     Year                         Balance
------------------------------------------------------------------------
1970..........................................         $2.7  ...........
1975..........................................          9.9  ...........
1980..........................................         14.5  ...........
1985..........................................         21.3  ...........
1990..........................................         95.6  ...........
1995..........................................        129.5  ...........
1996..........................................        125.3  ...........
1997..........................................        116.1  ...........
------------------------------------------------------------------------


------------------------------------------------------------------------
                Projections                  Administration      CBO
------------------------------------------------------------------------
1998.......................................          117.1         116.9
1999.......................................          119.8         127.3
2000.......................................          127.4         137.1
2001.......................................          132.8         144.6
2002.......................................          142.5         157.7
2003.......................................          148.9         167.8
2004.......................................          153.8         175.6
2005.......................................          155.6         177.9
2006.......................................          160.4         181.1
2007.......................................          160.1         175.8
2008.......................................          156.8         163.0
2009.......................................           N.A.        141.6
------------------------------------------------------------------------
Note: Table prepared by CRS

          
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                              Figure 3.33.

                       Medicare Part A Trust Fund:

               Projected Income and Cost Rates, 1999-2070

            
             The Medicare trustees measure long-range financial 
        soundness of the hospital insurance (HI) trust fund by 
        comparing: (1) HI tax income (payroll tax and income 
        from taxation of a portion of Social Security benefits) 
        as a percentage of taxable payroll (``income rate'') 
        with (2) HI cost as a percentage of taxable payroll 
        (``cost rate''). The trustees view this measure as more 
        meaningful since the value of the dollar changes over 
        time. There is already a gap between the cost rate and 
        the income rate. The 1999 estimated cost rate is 3.10% 
        of taxable payroll, whereas the estimated income rate is 
        3.02%. The gap is thus 0.08% of taxable payroll. Since 
        costs are rising faster than payroll tax receipts, the 
        deficit increases over the projection period, rising to 
        0.26 percentage points in 2010 and to 3.39 percentage 
        points by 2070. This represents an improvement over the 
        1997 and 1998 projections.


TABLE 3.33. Medicare Part A Trust Fund: Projected Income and Cost Rates,
                                1999-2070
------------------------------------------------------------------------
                                                              Difference
                                      Income      Cost Rate    Between
          Calendar Year              Rate (in       (in      Income Rate
                                     percent)     percent)     and Cost
                                                                 Rate
------------------------------------------------------------------------
1999.............................         3.02         3.10        -0.08
2000.............................         3.04         3.10        -0.05
2005.............................         3.06         3.17        -0.11
2010.............................         3.08         3.33        -0.26
2015.............................         3.10         3.60        -0.50
2020.............................         3.14         4.00        -0.86
2025.............................         3.20         4.54        -1.35
2030.............................         3.24         5.09        -1.85
2035.............................         3.27         5.52        -2.24
2040.............................         3.29         5.79        -2.50
2045.............................         3.31         5.96        -2.65
2050.............................         3.32         6.06        -2.74
2055.............................         3.34         6.16        -2.82
2060.............................         3.36         6.33        -2.97
2065.............................         3.38         6.55        -3.17
2070.............................         3.39         6.78       -3.39
------------------------------------------------------------------------
Note: Data for 1999-2070 are projections made by the trustees of the
  Hospital Insurance Trust Fund.

          
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                              Figure 3.34.

         Incurred Medicare Outlays and Social Security Outlays,

                        Calendar Years 1999-2030

            
             Traditionally, spending on Social Security (i.e., 
        the Old Age, Survivors, and Disability Insurance (OASDI) 
        programs)), has been the largest social welfare 
        expenditure in the federal budget. Medicare has been 
        second. Prior to enactment of BBA 97, Medicare spending 
        (calculated on the basis of obligations incurred, rather 
        than cash outlays) was expected to outpace Social 
        Security spending beginning in 2022. However, BBA 97 cut 
        the long-term Medicare deficit in half. As a result, the 
        trustees estimate that Social Security spending will 
        continue as the largest social welfare program through 
        at least the entire projection period (i.e., through 
        2072). Despite this fact, the rate of growth in spending 
        on Medicare will exceed the rate of growth in Social 
        Security cash payments. Projected Medicare growth 
        reflects medical care inflation, changes in the mix and 
        utilization of services, and the aging of the population 
        (particularly among the oldest group).
            
             Both Medicare and Social Security are expected to 
        consume an expanding share of the nation's economy. In 
        1999, Medicare spending ($225.3 billion) will be an 
        estimated 2.6% of the gross domestic product (GDP), 
        while Social Security and Medicare together ($619.3 
        billion) will represent 7.0% of GDP. Medicare is 
        projected to grow to $450.8 billion (3.0% of GDP) in 
        2010, while the two programs together will total $1.2 
        trillion (7.8% of GDP). By 2030, Medicare is expected to 
        grow to $1.8 trillion and its share of GDP is expected 
        to climb to 4.9%. Medicare and Social Security together 
        ($4.4 trillion) would climb to 11.7% of GDP.


           TABLE 3.34. Incurred Medicare Outlays and Social Security Outlays, Calendar Years 1999-2030
                                                  (in billions)
----------------------------------------------------------------------------------------------------------------
                                                   HI Total    SMI Total                               Medicare
                 Calendar Year                     Incurred     Incurred     Medicare      Social    Plus Social
                                                    Outgo        Outgo        Total       Security     Security
----------------------------------------------------------------------------------------------------------------
1999...........................................        138.4         86.9        225.3        394.0        619.3
2000...........................................        143.3         96.3        239.6        409.0        648.6
2005...........................................        182.9        139.3        322.2        524.0        846.2
2010...........................................        245.8        205.0        450.8        710.0       1160.8
2015...........................................        334.6        316.8        651.4        995.0       1646.4
2020...........................................        463.8        467.0        930.8       1405.0       2335.8
2025...........................................        653.0        661.2       1314.1       1925.0       3239.1
2030...........................................        907.6        904.3       1811.9       2542.0      4353.9
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS; totals may not add due to rounding.

          
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                              Figure 3.35.

                Hospital Insurance Cumulative Shortfall,

                        Calendar Years 1999-2030

            
             In calendar year 1999, estimated income to the 
        Hospital Insurance trust fund will be an estimated 
        $134.7 billion; however, incurred expenditures from the 
        trust fund will be an estimated $138.4 billion. This 
        leaves a shortfall of $3.7 billion in 1999. Over time 
        the estimated yearly shortfall increases rapidly, rising 
        to $19.0 billion in 2010, $99.2 billion in 2020, and 
        $329.7 billion by 2030. The cumulative shortfall for the 
        calendar year 1999-2030 period is estimated at close to 
        $2.8 trillion. (The income and outgo numbers differ from 
        the trust fund numbers shown in the previous tables. 
        These estimates somewhat understate income to the trust 
        fund because they exclude premiums paid by the small 
        number of persons who obtain Part A coverage by paying a 
        monthly premium; the income figures also exclude 
        interest. Both the income and outgo figures reflect 
        obligations incurred during the calendar year, rather 
        than cash outlays made during the period.)


                         TABLE 3.35. Hospital Insurance Cumulative Shortfall, 1999-2030
                                                  (in billions)
----------------------------------------------------------------------------------------------------------------
                                                                             HI Total
                        Calendar Year                          HI Income     Incurred      Annual     Cumulative
                                                                              Outgo      Shortfall    Shortfall
----------------------------------------------------------------------------------------------------------------
1999........................................................        134.7        138.4         -3.7         -3.7
2000........................................................        140.8        143.3         -2.5         -6.2
2005........................................................        176.6        182.9         -6.3        -24.4
2010........................................................        226.8        245.8        -19.0        -92.3
2015........................................................        288.4        334.6        -46.2       -262.0
2020........................................................        364.6        463.8        -99.2       -639.4
2025........................................................        459.3        652.9       -193.7      -1402.3
2030........................................................        577.9        907.6       -329.7     -2765.4
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS; totals may not add due to rounding

          
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                              Figure 3.36.

                       Medicare Part A Trust Fund:

          Number of Workers Per Beneficiary, for Selected Years

            
             The ratio of the number of workers paying a payroll 
        tax to the number of beneficiaries receiving services 
        will begin to decline rapidly when the baby boom 
        generation (individuals born between 1946 and 1964) 
        begins to reach 65 in 2011. In 1970, there were 4.4 
        workers paying a payroll tax for every beneficiary 
        receiving benefits. This ratio dropped to 3.9 workers 
        per beneficiary by 1997. It is expected to further 
        decline to 3.6 workers per beneficiary in 2010 and to 
        2.3 in 2030 as the last of the ``baby boomers'' reaches 
        age 65. The ratio is expected to eventually stabilize at 
        around 2 workers per beneficiary.
            
             The declining worker/beneficiary ratio reflects the 
        high baby boom birthrate (which peaked at 26.6 births 
        per 1,000 population in 1947) as well as a steadily 
        declining birthrate beginning in the late 1950s. From 
        1957 to 1994 the rate declined from 25.3 per 1,000 to an 
        estimated 15.0 per 1,000.


      TABLE 3.36. Medicare Part A Trust Fund: Number of Workers per
                     Beneficiary, for Selected Years
------------------------------------------------------------------------
                                                             Workers Per
                       Calendar Year                         Beneficiary
------------------------------------------------------------------------
1970.......................................................          4.4
1997.......................................................          3.9
2010.......................................................          3.6
2030.......................................................          2.3
2060.......................................................         2.0
------------------------------------------------------------------------
Note: Based on intermediate assumptions. For 1970, workers covered by
  OASDI are used as a proxy for covered HI workers. Table prepared by
  CRS.

          
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                              Figure 3.37.

              Medicare Part B Premium as a Percent of Total

             Part B Trust Fund Disbursements, FY1970-FY1999

            
             The Part B premium paid by Medicare beneficiaries 
        was originally intended to equal 50% of program costs; 
        general revenues financed the remainder. Legislation 
        enacted in 1972 limited annual increases to the 
        percentage increase in Social Security benefits (the 
        cost-of-living adjustment, or COLA.) As a result, 
        beneficiary contributions dropped to below 25% of 
        program costs by the early 1980s. Since the early 1980s, 
        Congress regularly voted to set the Part B premium equal 
        to 25% of costs for the aged. (The disabled pay the same 
        premium.) However, the Omnibus Budget Reconciliation Act 
        of 1990 (OBRA 1990) set specific dollar figures, rather 
        than a percentage, in law for 1991-1995. Because Part B 
        costs rose more slowly than had been anticipated in 
        1990, the 1995 premium actually represented 31.5% of 
        program costs for the aged. The Omnibus Budget 
        Reconciliation Act of 1993 set the 1996-1998 premiums at 
        25% of program costs for the aged. BBA 97 permanently 
        sets the Part B premium at 25% of program costs for the 
        aged.


 TABLE 3.37. Medicare Part B Premium as a Percent of Total Part B Trust
                    Fund Disbursements, FY1970-FY1999
------------------------------------------------------------------------
                                Premium from      Total
             Year              Beneficiaries  Disbursements   Percent of
                               (in millions)  (in millions)     Total
------------------------------------------------------------------------
1970.........................          $936         $2,196          42.6
1975.........................         1,887          4,170          45.3
1980.........................         2,928         10,737          27.3
1985.........................         5,524         22,730          24.3
1986.........................         5,699         26,218          21.7
1987.........................         6,480         30,837          21.0
1988.........................         8,756         34,947          25.1
1989.........................        11,548         38,317          30.1
1990.........................        11,494         43,022          26.7
1991.........................        11,807         47,019          25.1
1992.........................        12,748         50,288          25.3
1993.........................        14,683         56,059          26.2
1994.........................        16,895         59,724          28.3
1995.........................        19,244         65,213          29.5
1996.........................        18,931         68,946          27.5
1997.........................        19,141         72,553          26.4
1998.........................        19,427         76,272          25.5
1999.........................        19,947         83,126         24.0
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 3.38.

                   Sources of Payment for Health Care,

            for All Beneficiaries, Elderly and Disabled, 1994

            
             Medicare does not cover all of the health care 
        expenditures for program beneficiaries. Medicare 
        requires cost-sharing for most covered services, 
        provides only limited protection for some services (such 
        as outpatient prescription drugs and long-term care), 
        and includes no protection against the costs of other 
        services. As a result, Medicare financed only 53% of the 
        medical bills for Medicare beneficiaries in 1994. The 
        program covered 55% of the costs for the aged, but only 
        40% of the costs for the disabled. This difference was 
        offset, in large measure, by higher Medicaid payments 
        for the disabled (25% vs. 12%). Private insurance 
        covered 10% of medical expenses for the elderly and 8% 
        for the disabled. Both groups paid a portion of their 
        total bill out-of-pocket--20% for the aged and 13% for 
        the disabled.


        TABLE 3.38 Sources of Payment for Health Care, for all Beneficiaries, Elderly and Disabled, 1994
                                                  (in percent)
----------------------------------------------------------------------------------------------------------------
                                                                             Private                   Out-of-
                                                   Medicare     Medicaid    Insurance   Other Payer     Pocket
----------------------------------------------------------------------------------------------------------------
All............................................         52.7         13.7          9.4          5.1         19.1
Elderly........................................         54.9         11.8          9.7          3.6         20.1
Disabled.......................................         39.6         25.1          7.9         14.5        12.9
----------------------------------------------------------------------------------------------------------------
Note: Rows may not add to 100% due to rounding. Table prepared by CRS.

          
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                              Figure 3.39.

        Spending for Health as a Percentage of After-Tax Income,

              Elderly and Non-Elderly Households, 1960-1994

            
             Most persons spend a portion of their incomes out-
        of-pocket for health care. This spending includes 
        payments for health insurance, cost-sharing charges 
        incurred for use of insurance-covered medical care, as 
        well as costs for services not covered by insurance. The 
        percentage of after-tax income that the elderly spend on 
        health care has risen from 11% in the early 1960s to 18% 
        in 1994. In contrast, the percentage spent by nonelderly 
        households has remained relatively constant--declining 
        from 6% in the early 1960s to 5% in 1994. The higher 
        percentage spent by the elderly reflects several 
        factors, including their higher utilization of health 
        care, their payments for long-term care services and the 
        premiums paid by those elderly persons who purchase 
        supplemental insurance (i.e., ``Medigap'') policies.


  TABLE 3.39. Spending for Health as a Percentage of After-Tax Income,
              Elderly and Non-Elderly Households, 1960-1994
                      (percent of after-tax income)
------------------------------------------------------------------------
                                                 Nonelderly    Elderly
                    Year(s)                      Households   Households
------------------------------------------------------------------------
1960-1961.....................................            6           11
1972-1973.....................................            4           10
1980-1983.....................................            5           13
1984-1987.....................................            5           15
1988-1991.....................................            5           16
1992..........................................            5           16
1993..........................................            5           18
1994..........................................            5          18
------------------------------------------------------------------------
Note: Includes spending for health insurance, medical services,
  prescription drugs, and medical supplies. Definition of elderly or
  nonelderly households is based on designation of reference person.
  Table prepared by CRS.

          
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                              Figure 3.40.

                   Out-of-Pocket Health Spending, 1995

            
             Despite Medicare's near universal coverage of the 
        elderly population, half of this age group spends at 
        least 14.4% of after-tax income out-of-pocket on health 
        care costs. These costs include health insurance 
        premiums, co-payment of medical bills, and medical costs 
        that are not covered by insurance (such as prescription 
        drugs).
            
             As shown in the top chart, the highest out-of-
        pocket health spending, expressed as a percent of after-
        tax income, is concentrated among the ``near poor'' 
        elderly (whose income is between the poverty line and 2 
        times the poverty line). The near poor, who make up one-
        quarter of all non-institutionalized elderly persons, 
        spend from 45% to 61% of their income on out-of-pocket 
        health costs. In contrast, the top one-quarter of 
        elderly, with income at least 4 times the poverty line, 
        spent 6.5% of after-tax income out-of-pocket on health 
        costs.
            
             It is important to note that these estimates of 
        ``average'' out-of-pocket spending are not based on mean 
        calculations, which are subject to distortion by extreme 
        values (either very high or very low scores). Instead, 
        they are based on calculations of medians. The median is 
        the score in the middle of a distribution. It is not 
        swayed by extreme scores at either end of a 
        distribution.
            
             Compared to the non-elderly, the elderly spend 75% 
        more (in dollar terms) on out-of-pocket health care 
        costs ($2,678 vs. $1,510, on average, in 1994), but they 
        earn less than half as much ($19,449 vs. $40,941 in 
        1996).\9\ As a share of their after-tax income, the 
        elderly spend about 3 times more than the non-elderly on 
        out-of-pocket health costs. Moreover, as shown in the 
        chart at the bottom of opposite page, this difference is 
        not because the elderly spend less on other necessities. 
        The elderly also spend a larger share of their income on 
        food and housing than do the non-elderly.


 TABLE 3.40. Median Out-of-Pocket Health Spending as a Percent of After-
                            Tax Income, 1995
------------------------------------------------------------------------
                                                Percent Out-  Percent of
       Income Relative to Poverty Status         of-Pocket     Elderly
------------------------------------------------------------------------
Below poverty line (PL).......................        21.1%         9.2%
PL-(1.25) PL..................................         60.7          5.3
(1.25) PL-(2) PL..............................         44.8         21.1
(2) PL-(4) PL.................................         15.9         37.9
(4) PL +......................................          6.5         26.6
                                               -------------------------
All elderly...................................         14.4  ...........
------------------------------------------------------------------------
Note: Data for elderly includes non-institutionalized household
  expenditures for health insurance, medical services, drugs, and
  medical supplies.


        ----------
        \9\ ``Consumer Expenditures in 1994,'' U.S. Department 
        of Labor, Bureau of Labor Statistics, Report 902, 
        February 1996, Table 3, page 8.
          
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                              Figure 3.41.

                     Sources of Health Insurance for

                      Medicare Beneficiaries, 1996

            
             The majority of Medicare beneficiaries depends on 
        one or more supplemental insurance policies or Medicaid 
        to help pay for services not covered by Medicare and for 
        the program's cost-sharing requirements. In 1996 about 
        63% of the Medicare population had private supplemental 
        insurance. Private insurance protection may be obtained 
        through a current or former employer. It may also be 
        obtained through an individually-purchased policy 
        (commonly referred to as a ``Medigap'' policy). About 
        17% had Medicaid coverage; about half of these persons 
        had full Medicaid coverage while the remainder had 
        coverage just for Medicare's cost-sharing and premium 
        costs under the Qualified Medicare Beneficiary (QMB) 
        program or for premium charges only under the Specified 
        Low Income Beneficiary (SLIMB) program. Two percent of 
        the Medicare population had supplemental coverage from 
        one of a variety of public sources (such as the 
        military).
            
             Over 19% of the Medicare population had no 
        supplementary coverage. However, there was a large 
        difference between the traditional fee-for-service 
        sector where 13% had no supplementary coverage and the 
        managed care sector where 63% had no supplementary 
        coverage. Managed care organizations often provide 
        coverage for services in addition to those covered under 
        the traditional fee-for-service program.


 TABLE 3.41. Distribution of Supplementary Health Insurance for Medicare
                           Beneficiaries, 1996
                              (in percent)
------------------------------------------------------------------------
                                                  Fee-for-     Managed
       Type of Insurance              All         Service        Care
                                 Beneficiaries   Enrollees    Enrollees
------------------------------------------------------------------------
Medicare only..................          19.3          13.0         63.1
Individually-purchased.........          28.4          30.0         17.3
Employer-sponsored.............          29.9          32.8         10.0
Both private types.............           4.2           4.6          1.7
Medicaid, total................          16.5          18.0          5.7
 Full Medicaid.................           8.3           9.1          2.4
 Qualified Medicare Beneficiary           7.4           8.1          2.6
 (QMB).........................
 Specified Low-Income                     0.8           0.8          0.7
 Beneficiary...................
Other..........................           1.7           1.6         2.1
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                               Section 4.

                 Medicare Risk HMOs and Medicare+Choice

            
             Effective in 1999, the Medicare+Choice program, 
        authorized by the Balanced Budget Act of 1997 (BBA 97, 
        P. L. 105-33), replaced the Medicare risk contract 
        program that had originally been authorized in 1982. 
        This section includes data for the pre-1999 Medicare 
        risk contract program and the new Medicare+Choice 
        program.
            
             Under both programs, a private health care 
        organization contracts with the government to provide 
        all Medicare-covered health care to Medicare 
        beneficiaries who elect to enroll in the private plan 
        instead of traditional Medicare; the plan assumes the 
        full cost risk of providing services to its 
        beneficiaries for a fixed annual ``capitation payment'' 
        per beneficiary paid by the government.
            
             In creating the Medicare+Choice program, the BBA 97 
        changed the formula determining the government's payment 
        to Medicare risk HMOs and Medicare+Choice plans per 
        beneficiary; created new rules for beneficiary 
        enrollment and disenrollment; and required that plan 
        comparison information be made available to 
        beneficiaries. It also expanded the types of private 
        plans that can contract with Medicare to include managed 
        care organizations such as preferred provider 
        organizations and provider-sponsored organizations, 
        private fee-for-service plans, and, on a limited 
        demonstration basis, high-deductible plans offered in 
        conjunction with medical savings accounts (MSAs). As of 
        January 1999, only one non-HMO, a provider-sponsored 
        organization, had contracted to provide services. As is 
        the case for HMOs, organizations seeking to contract as 
        Medicare+Choice plans will have to meet specific 
        organizational, financial, and other requirements.
            
             The new method for paying risk HMOs and 
        Medicare+Choice plans took effect on January 1, 1998. 
        The changes were designed to reduce the wide variation 
        in payments and the year-to-year volatility that 
        resulted from the old rules, especially in less-
        populated counties. Payments under the new system are 
        based on a blend of local rates (using the 1997 adjusted 
        average per capita cost, or ``AAPCCs'') and national 
        rates. Payment floors are applied to raise rates in 
        certain counties more quickly than would have occurred 
        based on blended rates alone. County rates are 
        guaranteed to increase by a minimum of 2%. The resulting 
        1999 rates range from a minimum of $380 to a high of 
        $798. Further changes will be phased in through 2003. 
        Actual payments to plans vary based on characteristics 
        of the enrolled population (e.g., age, gender, and 
        whether or not the individual is in a nursing home). New 
        risk adjusters reflecting enrollees' health status are 
        scheduled to be implemented in January 2000.
            
             Medicare+Choice enrolls about 16% of beneficiaries 
        (February, 1999). This section provides information on 
        the number and location of Medicare risk HMOs and 
        Medicare+Choice plans, and the number, geographic 
        distribution, and characteristics of beneficiaries 
        enrolled in these plans. Comparisons are drawn between 
        Medicare HMO enrollees and beneficiaries in Medicare 
        fee-for-service, and examples of current and proposed 
        changes in risk adjustment are given. Information is 
        also provided on Medicare payments to Medicare+Choice 
        providers and geographic variation in these payments, 
        including how such payments have changed under BBA 97.

                               Figure 4.1.

                   Medicare+Choice Plans and Risk HMOs

                  Participating in Medicare, 1987-1999

            
             The Medicare+Choice program began operation on 
        January 1, 1999, as authorized by the Balanced Budget 
        Act of 1997 (BBA). Prior to this program, risk HMOs were 
        authorized by the Tax Equity and Fiscal Responsibility 
        Act of 1982 (TEFRA) and were sometimes called TEFRA 
        HMOs. The BBA allows for risk contracts with 
        organizations besides HMOs, including provider sponsored 
        organizations (PSOs), preferred-provider organizations 
        (PPOs), and private fee-for-service plans. Further, 
        under a demonstration program, a limited number of 
        beneficiaries are able to establish medical savings 
        accounts (MSAs) in conjunction with a high deductible 
        plan. By February 1999, one PSO and 298 HMOs had 
        contracted with HCFA under the Medicare+Choice program. 
        Under both the BBA and TEFRA, providers receive a 
        predetermined monthly payment amount from Medicare for 
        each enrolled beneficiary, regardless of the actual 
        medical care utilization of the enrollee. Beginning in 
        2000, payments will be modified using a new mechanism 
        for risk adjustment.
            
             Participation of risk contract HMOs in Medicare 
        declined from 1987 to the early 1990s as many plans 
        terminated existing contracts. However, the total number 
        of health plans signing risk contracts with the Medicare 
        program tripled between 1993 and 1998. With the 
        beginning of the Medicare+Choice program in 1999, a 
        number of plans withdrew from the Medicare risk program 
        or reduced the size of their service areas. These 
        reductions left fewer providers of Medicare managed care 
        under the Medicare+Choice program than previously served 
        Medicare beneficiaries. Yet, in February 1999, 28 
        Medicare+Choice plans had pending applications and 16 
        had pending service area expansions.


     TABLE 4.1. Medicare+Choice Plans and Risk HMOs Participating in
                           Medicare, 1987-1999
------------------------------------------------------------------------
                                    Number of                 Number of
               Year                   Plans         Year        Plans
------------------------------------------------------------------------
1987.............................          161         1994          154
1988.............................          155         1995          183
1989.............................          131         1996          241
1990.............................           96         1997          307
1991.............................           93         1998          346
1992.............................           96         1999          299
1993.............................          110  ...........  ...........
------------------------------------------------------------------------
Note: Table prepared by CRS. 1998 data from December; 1999 data from
  February, and includes one PSO.

          
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                               Figure 4.2.

            Beneficiaries Enrolled in Medicare Risk HMOs and

                         Medicare+Choice Plans,

                     Actual and Projected, 1990-2002

            
             There was a steady growth in enrollment in Medicare 
        risk HMOs during the 1990s, reaching 16.1% of all 
        beneficiaries in December 1998. Between 1994 and 1997, 
        enrollment more than doubled. Over the last 5 years, the 
        annual rate of growth was in the range of 25% to 33%. 
        Monthly enrollment growth fell steadily from June 
        through December, 1998--total risk enrollment increased 
        by only 0.6% between November and December. Although 
        HCFA reports changes under Medicare+Choice that produce 
        an understatement of enrollment, the number of Medicare 
        managed care enrollees declined 1% between December 1998 
        and February 1999. Still, the Congressional Budget 
        Office (CBO) projects that enrollment in Medicare+Choice 
        plans will reach about 19% of all beneficiaries by 2002.


       TABLE 4.2. Beneficiaries Enrolled in Medicare Risk HMOs and
         Medicare+Choice Plans, Actual and Projected, 1990-2002
                              (in percent)
------------------------------------------------------------------------
                            Year                              Enrollment
------------------------------------------------------------------------
1990.......................................................          3.3
1991.......................................................          3.8
1992.......................................................          4.4
1993.......................................................          5.3
1994.......................................................          6.6
1995.......................................................          8.8
1996.......................................................         11.0
1997.......................................................         14.0
1998.......................................................         16.1
2002.......................................................        18.8
------------------------------------------------------------------------
Note: Data for year 2002 are projected. Table prepared by CRS.

          
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                               Figure 4.3.

          Distribution of Medicare Beneficiaries, by Number of

              Risk HMOs Available in Their Area, 1995-1998

            
             Although about 300 Medicare+Choice plans now 
        participate in Medicare, each is available only to 
        beneficiaries in a specific service area. Plans define a 
        service area as a set of counties and county parts, 
        itemized at the zip code level. In March 1998, 72% of 
        all Medicare beneficiaries lived in a zip code that was 
        served by at least one risk plan. Over 60% of all 
        beneficiaries had access to a choice of plans, and 
        almost 40% had five or more plans available to them. 
        From June 1995 to March 1998, an additional 16% of all 
        beneficiaries gained access to at least one risk plan, 
        while the number with access to at least five plans 
        almost tripled.


  TABLE 4.3. Distribution of Medicare Beneficiaries, by Number of Risk HMOs Available in Their Area, 1995-1998
                                                  (in percent)
----------------------------------------------------------------------------------------------------------------
                Number of Risk HMOs Available                  June 1995    June 1996    June 1997    March 1998
----------------------------------------------------------------------------------------------------------------
None........................................................           45           37           33           28
One.........................................................           16           13            9           10
Two to four.................................................           26           25           24           23
Five or more................................................           14           25           34          39
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS based on MedPAC analysis of HCFA data.

          
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                               Figure 4.4.

           Medicare Beneficiaries in Urban and Rural Locations

                    Enrolled in Risk HMOs, March 1998

            
             Patterns of enrollment in risk contract HMOs are 
        not uniform across urban and rural locales. Risk plan 
        enrollment in central urban areas (generally, the cities 
        at the core of metropolitan areas) was about 22.5% in 
        March 1998, which was about twice the level of 
        enrollment in outlying urban areas. Risk HMO enrollment 
        in rural areas was about 1% to 3%.


 TABLE 4.4. Medicare Beneficiaries in Urban and Rural Locations Enrolled
                        in Risk HMOs, March 1998
                              (in percent)
------------------------------------------------------------------------
                                                          Enrollment in
                                                          Risk-Contract
                                                           Plans  (in
                                                            percent)
------------------------------------------------------------------------
Central urban.........................................              22.5
Other urban...........................................              11.7
Rural-urban fringe....................................               3.1
Other rural...........................................              0.6
------------------------------------------------------------------------
Note: Table prepared by CRS based on MedPAC analysis of HCFA data.

          
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                               Figure 4.5.

              Variation in Number of Risk HMOs Available to

          Medicare Beneficiaries in Urban and Rural Locations,

                                June 1997

            
             The availability to Medicare beneficiaries of risk 
        contract plans is much greater in urban areas than in 
        rural areas. A choice of Medicare+Choice plans is 
        available to most residents of central urban areas. By 
        contrast, rural beneficiaries rarely have even a single 
        plan available to them. Plan availability had been 
        growing rapidly in both urban and rural locales. For 
        example, the proportion of central urban residents with 
        five or more plans in their areas grew from 39% to 79% 
        from 1995 to 1997. The percentage of rural beneficiaries 
        in urban fringe areas with at least one plan grew from 
        11% to 30% in that same period.


  TABLE 4.5. Variation in Number of Risk HMOs Available to Medicare Beneficiaries in Urban and Rural Locations,
                                                    June 1997
                                                  (in percent)
----------------------------------------------------------------------------------------------------------------
                                                                                           2 to 4     5 or More
                                                                0 Plans       1 Plan       Plans        Plans
----------------------------------------------------------------------------------------------------------------
Central urban...............................................            0            2           19           79
Other urban.................................................           27           12           34           27
Rural-urban fringe..........................................           71           18           11            1
Other rural.................................................           91            6            3           0
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS based on MedPAC analysis of HCFA data.

          
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                               Figure 4.6.

              Medicare Beneficiaries Enrolled in Risk HMOs,

                         by State, December 1998

            
             Enrollment patterns are not uniform on a regional 
        basis. Medicare risk HMO enrollment was much higher in 
        western states. In particular, over one-third of the 
        beneficiaries in Arizona (40%) and California (39%) were 
        in Medicare risk HMOs. The highest levels of enrollment 
        in eastern states were in Rhode Island (38%), Florida 
        (28%), Pennsylvania (26%) and Massachusetts (22%). In 
        contrast, 13 states had no (or marginal) risk HMO plan 
        enrollment, and in many others the enrollment was quite 
        low.
          
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                               Figure 4.7.

            Distribution of Medicare Risk HMO Enrollees Among

                          Selected States, 1998

            
             Medicare risk HMO enrollees were far more 
        concentrated geographically than Medicare beneficiaries 
        as a whole. As of December 1998, 37% of all Medicare 
        risk HMO enrollees lived in California and Florida, even 
        though only 17% of all beneficiaries lived in those two 
        states.


  TABLE 4.7. Distribution of Medicare Risk HMO Enrollees Among Selected
                              States, 1998
                              (in percent)
------------------------------------------------------------------------
                                                                Total
                                                 Total Risk    Medicare
                     State                       Enrollment   Population
                                                  (12/98)       (9/97)
------------------------------------------------------------------------
Arizona.......................................            4            2
California....................................           24           10
Florida.......................................           13            7
New York......................................            7            7
Oregon........................................            2            1
Pennsylvania..................................            9            6
Texas.........................................            5           6
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                               Figure 4.8.

                 Growth in Medicare Risk HMO Enrollment,

                       December 1996-December 1998

                     (New Enrollees as a Percent of

                       Previous State Enrollment)

            
             The traditional definition of growth in Medicare 
        risk HMO enrollment was the change in enrollment from 
        one time to another. Using this definition, national 
        growth was almost 50% during the period December 1996 
        through December 1998. Growth was highest in eastern 
        states, where enrollment levels typically had been low 
        or moderate. Because the base enrollment was quite low 
        in some of these states, even relatively few new 
        enrollees led to large growth rates.
          
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                               Figure 4.9.

        Percent of Medicare Beneficiaries Enrolled in Risk HMOs,

          by Number of Plans Available in Their Area, June 1998

            
             In 1998, 11% or fewer of beneficiaries with two or 
        fewer plans available had enrolled in a risk HMO. In 
        contrast, areas in which eleven or more risk HMOs were 
        available enrolled over one-third of all beneficiaries, 
        on average.


 TABLE 4.9. Percent of Medicare Beneficiaries Enrolled in Risk HMOs, by
           Number of Plans Available in Their Area, June 1998
------------------------------------------------------------------------
                                                             Percent of
                Number of Plans Available                  Beneficiaries
                                                              Enrolled
------------------------------------------------------------------------
0........................................................           0.0
1........................................................           5.0
2........................................................          11.0
3........................................................          17.0
4........................................................          19.0
5........................................................          20.0
6........................................................          21.0
7........................................................          25.0
8........................................................          28.0
9........................................................          20.0
10.......................................................          29.0
11.......................................................          37.0
12.......................................................          32.0
13.......................................................          51.0
14.......................................................          36.0
------------------------------------------------------------------------
Note: Table prepared by CRS based on MedPAC analysis of HCFA data.

          
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                              Figure 4.10.

           Medicare Risk Contract Plan Terminations, 1985-1998

            
             The early years of the Medicare risk program saw 
        substantial turnover in the number of HMOs participating 
        in Medicare. In the past few years, more and more HMOs 
        entered the Medicare risk market and contract 
        terminations declined. Prior to 1998, terminations 
        reached a high of 38 plans in 1989, declining to fewer 
        than 5 annually from 1993 through 1997.
            
             Immediately prior to the beginning of the 
        Medicare+Choice program in January 1999, a number of 
        plans withdrew from the Medicare risk program or reduced 
        the size of their service areas. These plans terminated 
        66 contracts at the end of 1998. These changes affected 
        slightly more than 400,000 (6.5%) of the more than 6 
        million Medicare beneficiaries enrolled in managed care. 
        Slightly more than 50,000 beneficiaries, less than 1% of 
        Medicare risk enrollees, were left without access to 
        another managed care plan. In total, 372 counties were 
        affected by the withdrawals or service area reductions; 
        72 counties lost access to Medicare managed care. 
        Despite these reductions, in February, 28 
        Medicare+Choice plans had pending applications.


     TABLE 4.10. Medicare Risk Contract Plan Terminations, 1985-1998
------------------------------------------------------------------------
                                                              Contract
                           Year                             Terminations
------------------------------------------------------------------------
1985......................................................             3
1986......................................................             7
1987......................................................            29
1988......................................................            34
1989......................................................            38
1990......................................................            14
1991......................................................            12
1992......................................................             8
1993......................................................             4
1994......................................................             1
1995......................................................             0
1996......................................................             2
1997......................................................             3
1998......................................................            66
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 4.11.

               Medicare Risk HMO Contracts by Plan Model,

                              December 1998

            
             The majority of Medicare risk HMOs were independent 
        practice associations (IPAs). An IPA is an HMO that 
        contracts with physicians in solo practice or with 
        associations of physicians that, in turn, contract with 
        their member physicians to provide health care services. 
        Many physicians in IPA HMOs have a significant number of 
        patients who are not IPA enrollees. Group model HMOs 
        contract with one or more group practices of physicians 
        to provide health care services, and each group 
        primarily treats the HMO's members. Staff model HMOs 
        employ health providers, such as physicians and nurses, 
        directly. The providers are employees of the HMO, and 
        deal exclusively with HMO enrollees.
            
             Sixty-six percent of Medicare beneficiaries 
        enrolled in a Medicare HMO in 1998 were in an IPA model 
        plan.
            
             Most risk contract plans (71%) were owned by for-
        profit managed care organizations. These plans enrolled 
        68% of Medicare's risk plan membership.


                      TABLE 4.11. Medicare Risk HMO Contracts by Plan Model, December 1998
----------------------------------------------------------------------------------------------------------------
                                                            Number of    Percent of     Number of     Percent of
                                                            Contracts    Contracts      Enrollees     Enrollees
----------------------------------------------------------------------------------------------------------------
Model
    IPA..................................................          237          69%       4,021,395          66%
    Group................................................           90          26%       1,358,224          22%
    Staff................................................           18           5%         675,005          12%
Ownership
    Profit...............................................          247          71%       4,118,303          68%
    Non profit...........................................           99          29%       1,937,243         32%
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 4.12.

            Average Monthly Medicare+Choice Payment Rate for

                        Aged Beneficiaries, 1999

            
             In 1999, the average county has a monthly payment 
        rate of $424 for aged beneficiaries, while the average 
        Medicare beneficiary lives in a county with a payment 
        rate of $489. This difference occurs because payment 
        rates are generally higher in more populous counties. 
        The average Medicare+Choice enrollee lives in a county 
        with a payment rate of $541. This higher rate indicates 
        that enrollees tend to live in counties with higher 
        payment rates.
          
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                              Figure 4.13.

               Medicare+Choice Budget Neutrality Provision

            Eliminates Blend from 1998 and 1999 HMO Payments

            
             Under the Balanced Budget Act of 1997 (BBA), 
        payment rates to capitated plans are set at the county 
        level. A county's Medicare+Choice rate is the maximum of 
        three different rates:
            
             a floor, equal to $367 per month in 1998 
        and $380 per month in 1999 for the 50 states and D.C., 
        updated annually by the national growth percentage;
             a ``minimum update'' equal to the previous 
        year's payment rate increased by 2%; and
             a ``blend'' equal to a combination of local 
        area-specific (i.e., county) and national, input-price 
        adjusted rates.
            
             In both 1998 and 1999, no U.S. counties receive a 
        blend rate. This outcome results from the budget 
        neutrality provision of the BBA (Section 1853(d)(3)(B)), 
        which requires that Medicare+Choice payments not exceed 
        payments that would have been made if payments were 
        based solely on local rates. If awarding the county the 
        maximum of the three rates would exceed the budget 
        neutral target, counties which would otherwise receive 
        the blend rate have their rates reduced to meet the 
        target. The rate may not fall below the greater of the 
        county's floor or minimum update. Counties originally at 
        the floor or minimum update do not have their rates 
        reduced.
            
             The budget neutrality provision reduces 
        Medicare+Choice rates for aged beneficiaries in 1,293 
        counties (41%) in 1999. These counties would have 
        received blend amounts if sufficient funds were 
        available to fund all counties at the maximum of the 
        floor, blend, or minimum update. Actual 1999 rates were 
        compared to rates that would have occurred without 
        budget neutrality. The figure shows that over half (59%) 
        of all counties, which include two-thirds (66%) of all 
        Medicare+Choice enrollees and 60% of all Medicare 
        beneficiaries, have no differences in Medicare+Choice 
        payments due to the budget neutrality provision. These 
        counties receive either the floor or minimum update with 
        or without the budget neutrality provision. Virtually 
        all counties (99%) and Medicare+Choice enrollees (98%) 
        have actual rates that are the same or include 
        reductions of 5% or less. Looking at dollar amounts, the 
        figure shows that over three-fourths of counties (76%) 
        and of Medicare+Choice enrollees (78%) had monthly rates 
        reduced by $5 or less. Only 1% of counties and 3% of 
        Medicare+Choice enrollees had monthly rates reduced by 
        more than $20 due to the budget neutrality provision.
          
        [GRAPHIC] [TIFF OMITTED] T6395.109
        
          

                              Figure 4.14.

                Spread of County Medicare+Choice Payments

                   for the Aged by Location, 1997-1999

            
             Medicare pays HMOs and other private plans that 
        contract with Medicare a fixed monthly payment for each 
        Medicare beneficiary enrolled in the plan. Beginning in 
        1998, this Medicare+Choice payment is calculated by the 
        formula in the Balanced Budget Act (BBA) of 1997.
            
             Under the BBA, a county's payment rate is the 
        largest of three different rates:
            
             a ``floor,'' or minimum payment rate;
             a ``minimum update'' rate, which is 2% 
        higher than the previous year's rate; and
             a ``blended'' rate.
            
            In 1998 and 1999, each county receives the higher of 
        the floor or minimum update rate because of the budget 
        neutrality provision in the BBA.
            
             Medicare pays a range of rates for enrollees in 
        different counties across the United States. Nationally, 
        this range has narrowed from $546 in 1997 to $416 in 
        1998 and $418 in 1999. On average, rates are higher in 
        urban areas than in rural areas, but the difference 
        between mean rates in ``central urban'' and ``other 
        rural'' areas has narrowed--from $173 in 1997 to $157 in 
        1998 and 1999. However, there is also a wide range of 
        variation for rates even within urban and rural areas. 
        For example, the lowest rate per month for 1999 in 
        ``urban'' areas will be $380, while the highest rate for 
        these areas will be $798, which is over twice as much.


TABLE 4.14. Spread of Medicare+Choice Payments for the Aged by Location,
                                1997-1999
------------------------------------------------------------------------
                                     Minimum        Mean       Maximum
------------------------------------------------------------------------
1997
    National.....................         $221         $467         $767
    Central urban................          349          544          767
    Other urban..................          256          438          728
    Rural-urban fringe...........          231          394          693
    Other rural..................          221          371          647
1998
    National.....................         $367         $480         $783
    Central urban................          367          555          783
    Other urban..................          367          450          742
    Rural-urban fringe...........          367          412          707
    Other rural..................          367          398          660
1999
    National.....................         $380         $491         $798
    Central urban................          380          566          798
    Other urban..................          380          460          757
    Rural-urban fringe...........          380          423          721
    Other rural..................          380          409         673
------------------------------------------------------------------------
Note: Table prepared by CRS based on analysis of HCFA data. Means
  weighted by the number of aged beneficiaries per county in 1996.

          
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                              Figure 4.15.

             Medicare Risk HMOs Offering Additional Benefits

                     in Their Basic Option Package,

                     December 1997 and December 1998

            
             Most Medicare enrollees in risk HMOs were provided 
        with additional services not covered by traditional 
        Medicare. For example, in December 1997, 92% of Medicare 
        risk plans offered eye exams as part of their basic 
        benefit package, 97% offered routine physicals, and 68% 
        offered some coverage of prescription (outpatient) 
        drugs. Similar levels of coverage were reported in 
        December 1998 for many services, although declines were 
        reported for eye and hearing exams and large declines 
        for glasses and hearing aids. Note that these figures 
        only apply to basic option packages. Data are not 
        available for coverage under high option packages. The 
        percentage of plans covering prescription drugs has 
        varied over time. In December 1995, only 50% of risk 
        plans offered such coverage, compared to 78% of plans in 
        January 1997, 68% in December 1997 and 67% in December 
        1998.


  TABLE 4.15. Medicare Risk HMOs Offering Additional Benefits in Their
                          Basic Option Package
------------------------------------------------------------------------
                                                  Percent of Risk HMOs
                                               -------------------------
                    Benefit                       December     December
                                                    1997         1998
------------------------------------------------------------------------
Routine physicals.............................           97           97
Eye exams.....................................           92           83
Immunizations.................................           89           90
Hearing exams.................................           78           72
Outpatient drugs..............................           68           67
Dental........................................           39           37
Health education..............................           37           38
Foot care.....................................           30           30
Lenses........................................           15            1
Hearing aids..................................           10           1
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 4.16.

                  Distribution of Medicare Risk HMOs by

                       Premium Charged, 1996-1998

            
             Different Medicare risk HMOs charged different 
        premiums to enrollees. The majority of risk HMOs (70% in 
        December 1998) required enrollees to pay no premium 
        above and beyond the Medicare Part B premium for the 
        plan's basic benefit package ($43.80 in 1998; $45.50 in 
        1999). In 1998, almost 1 in 5 plans charged a monthly 
        premium of $40 or more for their basic package, compared 
        to 1 in 10 in 1997, and 1 in 6 in 1996. The proportion 
        of zero-premium plans increased by 4.7% from December 
        1996 to December 1997, but by less than 1% from December 
        1997 to December 1998. Data are not available for 
        premiums charged for high option packages.


  TABLE 4.16. Distribution of Medicare Risk HMOs by Premium Charged for
                     Basic Option Package, 1996-1998
                              (in percent)
------------------------------------------------------------------------
 In Addition to Medicare Monthly     December     December     December
             Premium                   1996         1997         1998
------------------------------------------------------------------------
$0...............................         64.6         69.3         69.8
$0.01-$39.99.....................         19.0         20.3         17.2
$40.00 and up....................         16.5         10.4        18.4
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 4.17.

                    Age, Income and Health Status of

                 Medicare HMO Enrollees versus Medicare

                        Fee-for-Service Enrollees

            
             Individuals entitled to Medicare on the basis of 
        disability (those under 65 years old) were less likely 
        to be enrolled in Medicare risk HMOs than in fee-for-
        service (FFS). The likelihood of being enrolled in a 
        risk HMO was highest for beneficiaries aged 65 to 74. 
        The least wealthy and most wealthy Medicare 
        beneficiaries were disproportionately under-represented 
        in HMO enrollment. In contrast, those with reported 
        income between $10,000 and $50,000 were somewhat over-
        represented in HMOs, compared to the distribution of 
        beneficiaries in traditional Medicare.
            
             According to HCFA's analysis of the 1996 Medicare 
        Current Beneficiary Survey, Medicare beneficiaries 
        enrolled in risk HMOs were healthier than those in the 
        fee-for-service program. For example, 84% of risk HMO 
        enrollees needed no assistance with activities of daily 
        living (ADLs) compared with about 75% of beneficiaries 
        in Medicare fee-for-service. About 50% more fee-for-
        service beneficiaries reported that their health was 
        fair or poor than risk HMO enrollees. This may reflect a 
        variety of factors. Healthier beneficiaries may be more 
        likely to enroll in risk HMOs. It is also possible that 
        enrollees in risk HMOs might have relatively better 
        access to care.


    TABLE 4.17. Age, Income and Health Status of Medicare HMO and FFS
                                Enrollees
                              (in percent)
------------------------------------------------------------------------
                                                 Percent of   Percent of
                                                    FFS          HMO
                                                 Population   Enrollment
------------------------------------------------------------------------
Age, 1995
    Under 65 years............................         12.0          3.6
    65-74.....................................         49.0         55.0
    75-84.....................................         28.0         33.0
    85 years and over.........................         10.0          8.8
 Income, 1995
    $5,000 or less............................          5.0          3.7
    $5,000-$10,000............................         27.8         20.5
    $10,000-$15,000...........................         17.4         19.4
    $15,000-$25,000...........................         24.2         25.0
    $25,000-$50,000...........................         19.5         26.6
    $50,000+..................................          6.0          4.8
 Relative health status, 1996
    No ADL assistance.........................         75.3         84.0
    Three or more ADLs........................         11.7          4.9
    Health: excellent, very good or good......         69.6         80.5
    Health: fair or poor......................         30.1        19.4
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 4.18.

              Medicare Risk HMOs: Costs as a Percentage of

                Average Medicare Spending Per Beneficiary

            
             Several studies have found that Medicare 
        beneficiaries who enrolled in HMOs used fewer Medicare-
        covered services than those who remained in the fee-for-
        service program. Such differences were also reflected in 
        studies that showed that Medicare beneficiaries who 
        enrolled in HMOs had relatively low costs prior to 
        enrollment. Using data through mid-1994, the Physician 
        Payment Review Commission (PPRC) found that new HMO 
        enrollees' costs were 37% below average Medicare 
        spending per beneficiary during the 6 months prior to 
        HMO enrollment. Moreover, as shown in the figure, 
        beneficiaries who enrolled and then disenrolled from an 
        HMO (and returned to fee-for-service) had costs that 
        were 60% above the average expenditure for fee-for-
        service individuals. However, it should be noted that 
        within the 1 year period ending February 1996, the vast 
        majority (97%) of HMO enrollees did not disenroll. (As 
        shown in the inset, 3% of beneficiaries disenrolled and 
        5% switched from one HMO to another.)
          
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                              Figure 4.19.

                       Current Risk Adjustment of

                     Medicare+Choice Payments, 1999

            
             HCFA currently uses five demographic 
        characteristics of beneficiaries to ``risk adjust'' 
        payment rates to Medicare+Choice providers: age, gender, 
        eligibility for Medicaid, working status, and 
        institutionalized status. Most agree that these 
        demographic factors do not capture much of the variation 
        in Medicare beneficiaries' medical care costs. Beginning 
        in 2000, HCFA will implement a new risk adjustment 
        mechanism based on diagnoses of beneficiaries with an 
        inpatient hospitalization, the principal inpatient 
        diagnostic cost group (PIP-DCG) model.
            
             In general, the five demographic factors assume 
        that younger beneficiaries, females, non-Medicaid 
        recipients, working aged, and non-institutionalized 
        beneficiaries are less costly. Using these factors, the 
        least costly beneficiary would be a female, aged 65 to 
        69, who is still working, not receiving Medicaid, and 
        not institutionalized. The most costly beneficiary would 
        be a male, aged 85 or older, who receives Medicaid, but 
        is not institutionalized, and is not working.
            
             Under the current system, the most costly 
        beneficiary has a demographic adjustment factor that is 
        almost six times greater than the factor for the least 
        costly beneficiary. As a result of demographic risk 
        adjustments, Medicare+Choice providers receiving the 
        minimum Medicare+Choice payment rate in 1999 (i.e., 
        those in counties eligible for the floor payment of 
        $379.84) could see actual payments range from a low of 
        $141 to a high of $842. Medicare+Choice providers in the 
        county with the highest payment rate (i.e., $798.35 in 
        Richmond, NY) could see actual payments range from a low 
        of $296 to a high of $1,769. Actual rates will depend on 
        characteristics of individual enrollees.


         TABLE 4.19. Risk Adjustment under Medicare+Choice, 1999
------------------------------------------------------------------------
                                      Actual      Rate for     Rate for
                                    Unadjusted    ``Best''    ``Worst''
                                       Rate         Risk         Risk
------------------------------------------------------------------------
Minimum (county at floor rate)...         $380         $141        $ 842
Maximum..........................         $798         $296      $1,769
------------------------------------------------------------------------
Source: Table prepared by CRS.

          
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                              Figure 4.20.

                       Proposed Risk Adjustment of

                     Medicare+Choice Payments, 2000

            
             Beginning in 2000, the Health Care Financing 
        Administration (HCFA) will begin to implement a new risk 
        adjustment mechanism under the Medicare+Choice program. 
        This procedure, the principal inpatient diagnostic cost 
        group, or PIP-DCG, is based on health status factors. 
        Initially, payment will be based on inpatient data using 
        the PIP-DCG adjuster, which predicts incremental costs 
        above the average for a demographic group. The mechanism 
        is prospective; it uses diagnoses in the base year to 
        adjust payment in the following year. HCFA plans to move 
        to comprehensive risk adjustment, based on both 
        inpatient and outpatient data, by 2004.
            
             As of January, 1999, HCFA proposes to use 15 PIP-
        DCGs to trigger increased payments. Medicare+Choice 
        payments would also be adjusted for age, gender, working 
        status, whether the beneficiary originally qualified for 
        Medicare based on disability, and Medicaid coverage. 
        Separate demographic-based payments would be used for 
        aged persons newly eligible for Medicare, newly disabled 
        Medicare enrollees, and others without a medical 
        history.
            
             The table and figure illustrate calculation of risk 
        factors. Each age and gender group would have a base 
        payment--$4,625 per year for males, aged 75-79, for 
        example. If the enrollee falls into this age/gender 
        group and has no other risk adjustment factors, the 
        overall risk factor would be 0.91 ($4,625/$5,100, with 
        $5,100 the average payment for all Medicare 
        beneficiaries.) An enrollee with a kidney infection 
        admitted to the hospital during the base year would have 
        a payment increment of $5,969 for this diagnosis the 
        following year. With no other risk adjustment factors, 
        this enrollee would have a risk factor of 2.08 ($4,625 + 
        $5,969/$5,100). Similarly, a male with lung cancer, who 
        was originally disabled and received Medicaid benefits, 
        would have a risk factor of 4.14.
            
             These risk factors would be used to adjust the 
        Medicare+Choice payment rate in effect for the 
        Medicare+Choice provider. HCFA proposes phasing-in the 
        new risk adjustment mechanism, with 90% of the 
        Medicare+Choice rate adjusted for demographic 
        characteristics and 10% for PIP-DCGs in 2000.


                     Table 4.20. Proposed Risk Adjustment of Medicare+Choice Payments, 2000
----------------------------------------------------------------------------------------------------------------
                                                                    Male 75-79      Male 75-79      Male 75-79
                                                                     with: No      with: Kidney     with: Lung
                                                                    Admissions       Infection        Cancer
----------------------------------------------------------------------------------------------------------------
Base............................................................          $4,625          $4,625          $4,625
Health status...................................................               0           5,969          12,435
Disabled enrollee...............................................               0               0           2,353
Medicaid enrollee...............................................               0               0           1,705
Total...........................................................           4,625          10,594          21,118
Risk factor (total/$5,100)......................................            0.91            2.08           4.14
----------------------------------------------------------------------------------------------------------------
Source: Table prepared by CRS based on HCFA, Medicare+Choice Risk Adjustments, January 1999.

          
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                              Figure 4.21.

             Beneficiary Satisfaction with Medicare HMOs and

                          Fee-for-Service, 1996

            
             In 1996, Medicare beneficiaries enrolled in risk 
        HMOs were more likely to report that they were very 
        satisfied with the quality of and access to their care 
        than those in Medicare FFS. While the differences in 
        satisfaction rates were generally small, they are 
        notable with respect to the issue of costs. Whereas 27% 
        of risk HMO enrollees reported that they were very 
        satisfied with the costs of their care, only 17% of 
        beneficiaries in FFS were very satisfied.


  TABLE 4.21. Beneficiary Satisfaction with Medicare HMOs and FFS, 1996
------------------------------------------------------------------------
                                                  Percent      Percent
                                                    Very         Very
                Type of Service                  Satisfied    Satisfied
                                                    FFS          HMO
------------------------------------------------------------------------
Quality.......................................         31.9         34.4
Costs.........................................         16.5         27.4
Specialist care...............................         20.3         25.5
Care on phone.................................         15.9         18.9
Provider concern for health...................         20.5        23.7
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 4.22.

           Beneficiary Dissatisfaction with Medicare HMOs and

                          Fee-for-Service, 1996

            
             Only a small percentage of Medicare beneficiaries 
        reported being very dissatisfied with their Medicare 
        coverage in 1996. However, risk contract enrollees were 
        likely to report being very dissatisfied about quality, 
        and were twice as likely to report being very 
        dissatisfied with specialist care, care on the phone, 
        and their providers' concern for their health than 
        beneficiaries with Medicare fee-for-service (FFS) 
        coverage. The dissatisfaction rates are most notable for 
        the differences on the issue of costs, where fee-for-
        service enrollees were more likely to be very 
        dissatisfied than HMO enrollees.


TABLE 4.22. Beneficiary Dissatisfaction with Medicare HMOs and FFS, 1996
------------------------------------------------------------------------
                                              Percent Very  Percent Very
               Type of Service                Dissatisfied  Dissatisfied
                                                   FFS           HMO
------------------------------------------------------------------------
Quality.....................................           0.7           0.8
Costs.......................................           3.2           0.7
Specialist care.............................           0.8           1.8
Care on the phone...........................           1.3           2.4
Provider concern for health.................           0.7          1.4
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 4.23.

          Reasons for Disenrolling from Medicare Risk HMOs and

               Switching to Medicare Fee-for-Service, 1996

            
             A telephone survey of Medicare beneficiaries 
        enrolled in a risk HMO for at least 1 year during the 
        year ending February 1996 revealed that those Medicare 
        beneficiaries who disenrolled in favor of Medicare fee-
        for-service did so for a variety of reasons. Problems 
        with physicians and access concerns motivated 40% of 
        disenrollments to fee-for-service. More than 25% 
        disenrolled because they moved or for other, involuntary 
        reasons. Not shown in the figure is that beneficiaries 
        who disenrolled from one risk HMO and enrolled in 
        another risk HMO were more likely than those who 
        switched back to fee-for-service to have left because 
        their doctor left, died, or retired, and were less 
        likely to have left because of access problems.


    TABLE 4.23. Reasons for Disenrolling from Medicare Risk HMOs and
                     Switching to Medicare FFS, 1996
------------------------------------------------------------------------
                                                              Percent of
                                                              Enrollees
------------------------------------------------------------------------
Problems with physicians...................................           26
Moved, or other involuntary reasons........................           28
Access problems/location...................................           14
Financial issues...........................................           18
Other......................................................          14
------------------------------------------------------------------------
Note: Table prepared by CRS based on PPRC survey.

          
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                              Figure 4.24.

              Trends in Relative Growth in HMO Enrollment:

             Medicare Versus Non-Medicare Markets, 1988-1999

            
             The rate of increased enrollment in Medicare risk 
        HMOs surpassed that for non-Medicare HMOs every year 
        from 1990 to 1996. Beginning in 1997, the rapid growth 
        in enrollment in Medicare risk HMOs abated, and 
        enrollment actually declined in early 1999 as the 
        Medicare+Choice program began operation.


TABLE 4.24. Trends in Relative Growth in HMO Enrollment: Medicare Versus
                     Non-Medicare Markets, 1988-1999
                              (in percent)
------------------------------------------------------------------------
                                                                 Non-
                      Year                        Medicare     Medicare
                                                 Risk HMOs       HMOs
------------------------------------------------------------------------
1988..........................................            6           12
1989..........................................            7            6
1990..........................................           11            5
1991..........................................           10            8
1992..........................................           13            7
1993..........................................           16            9
1994..........................................           25           11
1995..........................................           36           15
1996..........................................           33           13
1997..........................................           27           --
1998..........................................           16           --
1999..........................................         -0.7           --
------------------------------------------------------------------------
Note: Table prepared by CRS. Other forms of managed care delivery
  systems, such as preferred provider organizations, are not included in
  the non-Medicare HMO totals. 1999 data reports change between December
  1998 and February 1999.

          
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                              Figure 4.25.

              Non-Medicare and Medicare HMO Penetration in

                          Selected States, 1996

            
             HMO penetration (the extent to which individuals 
        enrolled in managed care plans) varied across states, 
        for both Medicare and non-Medicare enrollment. In many 
        areas, managed care companies have only recently begun 
        to market to Medicare beneficiaries.


    TABLE 4.25. Non-Medicare and Medicare HMO Penetration in Selected
                              States, 1996
                              (in percent)
------------------------------------------------------------------------
                                              Insured        Medicare
                                           Population in   Beneficiaries
                  State                   Commercial and    in Medicare
                                           Medicaid HMOs     Risk HMOs
------------------------------------------------------------------------
Arizona.................................              62              34
California..............................              77              38
Colorado................................              51              26
Florida.................................              52              22
Louisiana...............................              42               9
Massachusetts...........................              75              16
Minnesota...............................              52              18
Nebraska................................              26               2
New York................................              60              13
Oregon..................................              69             37
------------------------------------------------------------------------
Note: Table prepared by CRS.

          
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                              Figure 4.26.

             Average Estimated Medical Education Payments as

              Components of Medicare+Choice Payment Rates,

                    by Urban and Rural Location, 1998

            
             Medicare fee-for-service payments for inpatient 
        hospital stays include payments for indirect and direct 
        medical education costs incurred by teaching hospitals 
        and extra payments to hospitals that serve a 
        disproportionate share of low-income beneficiaries (or 
        DSH payments). The DSH payments are retained in the 
        expenditures used to calculate Medicare+Choice payments 
        to risk HMOs. Beginning in 1998, Medicare+Choice 
        payments exclude medical education costs with a phase-
        out of 20% of costs in 1998, 40% in 1999, 60% in 2000, 
        80% in 2001, and 100% from 2002 onward. As a result, the 
        Medicare+Choice payments reflect a county's average 
        monthly per capita cost for fee-for-service DSH and part 
        of medical education costs. These amounts may not 
        correspond with actual plan costs, however, because not 
        all Medicare+Choice plans have medical education 
        programs or use teaching or disproportionate share 
        hospitals. In 1995, medical education was an estimated 
        3.4% of the rates overall, and DSH was 2.1%. The share 
        of medical education costs was 3.2% overall in 1998. 
        This share varied across the country, as shown in the 
        figure.


 TABLE 4.26. Average Estimated Medical Education Payments as Components
   of Medicare+Choice Payment Rates, by Urban and Rural Location, 1998
                       (percent of payment rates)
------------------------------------------------------------------------
                                                               Medical
                                                              Education
------------------------------------------------------------------------
All counties...............................................          3.2
Urban counties.............................................          3.6
     Central urban.........................................          4.4
     Other urban...........................................          2.8
Rural counties.............................................          2.0
     Urban fringe..........................................          2.2
     Other rural...........................................         1.8
------------------------------------------------------------------------
Note: Table prepared by CRS based on HCFA data. Average percent weighted
  by number of aged beneficiaries per county in 1996.

          
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