Chapter 22 Medicare

Chapter 22MedicareChapter OutlinePUBLIC INSURANCE AND THE ELDERLYMEDICARE’S NUTS AND BOLTSCOST CONTROL PROVISIONSMEDICARE TRUST FUNDBackgroundMedicarecovers health care for those over 65was established in 1964was fully in force in 1967part of President Johnson’s Great Society Programspaired with Medicaid (which covers health care for the poor)is a federally-administered programPublic Insurance and the Elderly: Why It Is NeededA private insurance market for the elderly is likely to fail because of Adverse Selectionthe problem in insurance in which those who need it the most will be the only ones willing to pay for it driving the price up and driving out those who need it somewhat lessLack of a groupMost private health insurance is obtained through employers and a group is formed to overcome the problem of adverse selection. Because most Medicare recipients are retired, there is no group.Those over 65 have a poverty rate that is typically 2-3 percentage points lower than the rest of the nation.The cost-split was intended to be 50-50 with the taxpayer and recipient paying roughly equal shares. Today that split is 75-25 with taxpayers carrying the larger share.Public Insurance and the Elderly: Who Should Pay?Why Medicare’s Costs Are HighThe elderly are susceptible to much more costly illnesses and treatments for these illnesses are expensive.Costs to patients are relatively low so there is the problem of the Third Party Payer when someone other than the producer or consumer pays the costs of a good or service and as a result neither is cost consciousNew treatments are available for ailments that in prior times would have led to the patient dying. These treatments are expensive.Costs of MedicareRetrospective PaymentsMost payments for services are made after the service has been rendered. When there are third-party payments this can inflate costs.Gatekeepers can be used to limit these costs.doctors who treat general afflictions and who are charged with referring patients to specialistsMedicare Nuts and BoltsMedicare Part APays for hospital careMandatoryMedicare Part BPays for doctor visitsvoluntaryProvider TypesHealth Maintenance Organizations (HMOs)Non-HMOs Fee-for-serviceMedicare, Part APremiumsIn 1999 $309 for those between 65 and 72.5$170 for those over 72.5DeductibleIn 1999 $768 first the first day in the hospitalAfter the first day Medicare pays all of the next 60 daysBut $192 per day from 60-90 daysBut $384 per day from 90 days on until reserve days are gone.There is a 60 day reserve Prospective Payments and the DRGAll incidents are categorized by Diagnosis Related Groups (DRGs).There are more than 400 DRGsHospitals receive payment from Medicare based on the DRG not costs.Prospective payments are designed to keep costs down.Medicare, Part BPremiumIn 1999 $45 per month (much lower than market prices)DeductibleIn 1999 $100 per year (also much lower than market alternatives.)SubsidyGeneral tax revenues make the program 75% paid by taxpayers and 25% paid by recipients.No Prospective PaymentsBecause it would be impossible to track expenses for Part B by individual provider prospective payments are not attempted in Part B.Medicare HMOsHealth Maintenance Organizations are offered as an option for Medicare, Part B.Many HMO’s stopped covering Medicare patients in 2000.No Coverage Prescription DrugsLong Term CareNursing HomesHospiceMedicare Trust FundLike Social Security, the Trust Fund is made up of bought-back government debt.Depending on assumptions, the trust funds will be out of bonds to sell in 2025 under their “intermediate” assumptionsTrust Fund EstimatesTaxes Necessary to Pay for Medicare