Chapter 14

Public Health Insurance

14.1INTRODUCTION

14.2PUBLIC HEALTH INSURANCE

14.2.1 Medicare

14.2.1.1 Who is covered?

Instituted with passage of Title XVIII of SS Act, entitled “Health Insurance for the Aged.” Began operation on July 1, 1966. Under Medicare, insurance coverage is extended to individuals 65 and over who are eligible for Social Security benefits, disabled individuals, and persons who have end-stage renal disease.

14.2.1.2 What is covered?

Under Part A (hospital insurance), hospitalization and limited skilled nursing facility coverage are provided. Under part B, supplementary medical insurance (SM)) is provided including ambulatory services and supplies, such as physician services, X-ray and lab services, drugs, and medical supplies. There is also a Medicare part C, which is a combination of parts A and B, provided by Medicare-approved private insurance companies. Medicare part D pays for prescription drugs.

14.2.1.3 Financing Medicare

The basic Medicare plan operates on a fee-for-service basis. Program enrollees pay no premium for Part A; however, there is a deductible tied to the per diem cost of care, which has been rising in recent years. In 2016, it was $1288. After the deductible is met, there are no copayments for the next 60 days, and then there is a copayment of $322 per day for days for days 61 through 90.

Public share of HI (exclusive of deductibles and copayments) is financed primarily thru a SS tax on worker payrolls. (1.45% of payroll payable by employer and employee each (2.9% total)).

Part B, SMI, program is voluntary; if enrollees choose to participate, they can buy in by paying a premium. The Part B premium for 2016 is $104.90 for beneficiaries who already have the Social Security Administration (SSA), withhold their Part B premium and have income of up to $85,000 (up to $170,000 for joint filers). For all other individuals, the standard Medicare Part B monthly premium will be between $146.90 and $335.70, depending on their taxable income.

. An enrollee in the SMI program receives benefits subject to an annual deductible (first $166 of reasonable charges in 2016) and a copayment of 20 percent of reasonable charges.

14.2.1.4 Managed Care

Medicare beneficiaries have the option of enrolling in a Medicare managed care plan or a private fee-for-service plan. The enrollee would then pay a monthly premium comprising at least the part B premium (between $146.90 and $335.70 per month in 2016); the managed care plan may charge an additional amount as a premium, so that the total premium might be more than that under Medicare Part B. If the patient is enrolled in a managed care plan, then he or she will be restricted as to his or her choice of providers, including specialists and hospitals.

14.2.2 Medicaid

14.2.2.1 Who is covered?

Originally designed to finance medical care for low-income families who were recipients of other financial assistance, was introduced in 1966 under Title XIX of SS Act. Medicaid program is state-federal partnership.

Individuals covered fall into 4 groups: (1) cash recipients of AFDC program; (2) cash recipients of Supplementary Security Income (SSI) (Aged, Blind, and Disabled): (3) children and pregnant women in low-income families who do not receive AFDC; and (4) the “medically needy”, many of whom would not qualify on income basis but who have spent enough on medical care that their incomes net of medical care expenses fall below specific levels.

14.2.2.2 What Is Covered?

Federally required benefits under Medicaid include physician services, inpatient and outpatient hospital services, lab services, and nursing home services in skilled nursing homes. In addition, states can provide optional services such as intermediate care facility (ICF) stays, dental care, physiotherapy, and, most notably, outpatient prescription drugs.

The financing of Medicaid is based on a formula that incorporates state and national income levels. The minimum federal contribution is 50 percent. Mississippi receives the highest federal share (79%).

14.2.3 Medigap Insurance for Medicare

There is an active private market for supplementary insurance to cover the deductibles and copayments of beneficiaries in fee-for-service plans. Over 25 percent of Medicare beneficiaries participate in this market. Enrollees in the SMI program can pay premiums to private insurers for this supplementary “Medigap” coverage. The private insurers then reimburse the providers for the beneficiaries’ share of their costs (i.e., the deductibles and copayments). The Medigap insurance market is an extremely active one.

14.3SOME TRENDS IN PUBLIC HEALTH INSURANCE

14.3.1 Disbursements of the Hospital Insurance Trust Fund

Expenditures have been growing at a more rapid rate than receipts. Major portion of growth in total hospital expenditures occurred because of higher hospital costs per patient, not because of increases in number of patients.

14.3.2 Medicare’s SMI Revenues and Expenditures

SMI funds come from 2 main sources: premiums paid directly by enrollees (or by Medicaid for those qualifying for Medicaid coverage) and general revenue funds. Originally premium revenues were ½ of all revenues. From 1973 growth of premiums limited to growth of SS cash benefits → Premium share of total fund revenues has fallen to about 30%.

Most of growth of reimbursements has been in expenditures/enrollee.

14.3.3 Out-of-Pocket Expenditures for Medicare Enrollees

Higher income Medicare enrollees seek private insurance options to cover the copayments and deductibles, while many enrollees maintain health insurance though their former employers beyond retirement.

A substantial portion of the out-of-pocket health care expenditures for the over 65 population goes for prescription drugs.

14.4GOALS OF MEDICARE

Affordability refers to the total costs incurred by the program. Equity refers to the burden of payments on specific groups. Adequacy refers to the availability of care. Feasibility refers to the ability of Medicare to actually implement changes in policy. Acceptance refers to the acceptability of the program to consumers, intermediaries, and providers.

14.5POLICY ALTERNATIVES FOR MEDICARE

14.5.1 Economic Analysis and Alternative Solutions

We identify six basic types of policies that can be used to achieve policy goals. The first set of policies deals with the setting of the broad outline of the program. The second set deals with health insurance premiums. The third set deals with the direct price of care. The fourth set deals with provider reimbursement. Fifth, Medicare can introduce competitive practices into its reimbursement mechanism. And sixth, Medicare can regulate the behavior of providers (i.e., make them provide care on specific norms set by the program).

14.5.2 Scope of the Program

Currently, Medicare’s main line of business is to provide insurance coverage for persons over 65 years of age.

14.5.3 Insurance Premiums

Individuals and groups have proposed policies that would both increase and decrease health insurance premiums. The Balanced Budget Act of 1997, which overhauled Medicare’s finances, did not substantially increase the premium; however, the premium is based on Social Security payments, and as such payments increase, so will the part B premium. The Part B premium for 2016 is $104.90 for beneficiaries who already have the Social Security Administration (SSA), withhold their Part B premium and have income of up to $85,000 (up to $170,000 for joint filers). For all other individuals, the standard Medicare Part B monthly premium will be between $146.90 and $335.70, depending on their taxable income. An increase in the premium influences the goal of equity in payment.

14.5.4 Copayments and Deductibles

Copayments are fixed as a percentage of medical charges, and they increase as charges rise. Copayments and deductibles are based on usage and are not always predictable.

14.5.5 Provider Payments

In 1983 Medicare began paying for inpatient hospitalization on a DRG basis.

The Medicare Part A payment strategy also included a switch from fee-for-service to prospective payment systems for home health care and outpatient care. Such systems are expected to increase control over spending in these areas by Medicare. They may also reduce availability.

14.6POLICY ALTERNATIVES FOR MEDICAID

14.6.1 Scope of the Program

Until 1987, only low-income women (under age 65 and not blind or disabled) and their children who were receiving AFDC payments were eligible for Medicaid enrollment. The program expanded eligibility in 1987 to include low-income women and children who were not on the AFDC program. This expansion led to a rapid increase in Medicaid enrollment and expenditures beginning in 1990.

Medicaid’s scope of coverage usually includes outpatient drugs and dental care.

14.6.2 Copayments

Generally, Medicaid does not charge recipients for their services. However, states can institute a copayment for some services. In 2013 the maximum nominal deductible is $2.65 and the maximum managed care copayment is $4.00 per prescription. There is evidence that these copayments affect the utilization of drugs, and there is limited evidence that health status is adversely affected.

14.6.3 Provider Payments

Medicaid programs are noted for the low levels of fees paid to providers. Low fee levels discourage providers from serving Medicaid enrollees and thus reduce availability. This is a problem often noted when Medicaid is discussed.

14.6.4 Managed care

Many states are looking to managed care programs in order to consolidate their efforts at provision. In 2013, 71.1 percent of the Medicaid population was enrolled in managed care plans.