Social Insurance …updated

© Allen C. Goodman, 2014

Social Insurance

• Started in Germany, in 1880s.• Originally employment-related.• United States was dragged in kicking and

screaming with the Social Security Act of 1935.• Medicare and Medicaid were established in 1965.• PPACA in 2010.

Particularly good places for data

• Center for Medicare and Medicaid Services

• Kaiser Family Foundation

• They update all of the data in this chapter faster than I can.

MedicareMedicare Enrollment by Year, 1966-2009

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

50,000,000

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Year

En

roll

men

t

All Persons

Aged Persons

Disabled Persons

Year

Type of Coverage and Service 1967 1974 1980 1983 1990 1997 2000 2002 2004 2006 2007 2008

Type of Coverage Number of Enrollees in Thousands

Hospital Insurance and/or

Supplementary Medical Insurance 19,521 24,201 28,478 30,026 34,213 38,465 39,632 40,503 41,729 43,339 44,263 45,412

Hospital Insurance 19,494 23,924 28,067 29,587 33,731 38,059 39,211 40,079 41,391 42,975 43,910 45,067

Supplementary Medical Insurance 17,893 23,167 27,400 28,975 32,636 36,479 37,369 38,088 39,101 40,398 41,109 42,020

Table 3.3Persons Enrolled and Persons Served Under Medicare, and Program Payments, by Type of Coverage and Service:

Selected Calendar Years 1967-2008

Persons Enrolled and Persons Served

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

1960 1970 1980 1990 2000 2010

Year

Nu

mb

ers

(in

th

ou

san

ds)

Supplementary MedicalInsurance

Hospital Insurance

Supplementary MedicalInsurance

Percentage increasesPercentage Increases

All Aged Disabled Year Persons Persons Persons

2000 1.22% 0.95% 2.98%2001 1.04% 0.62% 3.66%2002 1.16% 0.63% 4.43%2003 1.47% 0.94% 4.59%2004 2.50% 1.33% 9.16%2005 1.42% 1.14% 2.90%2006 1.62% 1.45% 2.51%2007 2.10% 1.50% 5.19%2008 2.53% 2.06% 4.86%

Medicare CoveragePart A is generally provided automatically to persons age 65 and over who

are entitled to Social Security or Railroad Retirement Board benefits. Medicare’s Part A coverage includes:

Inpatient hospital care coverage, requiring an initial deductible payment, plus co-payments for all hospital days following day 60 within a benefit period.

Skilled nursing facility (SNF) care, which is generally covered by Part A only if it is within 30 days of a hospitalization of three or more days, and certified as medically necessary.

Home Health Agency (HHA) care, including care provided by a home health aide.

Hospice, which is provided to those terminally ill persons with a life expectancy of six months or less who elect to forgo standard Medicare benefits, and receive only hospice care.

Part B

Supplementary Medical Insurance (Part B) benefits are available to almost all resident citizens age 65 and over.

Part B coverage is optional and requires payment of a monthly premium. Part B covers physician services (in both hospital and non-hospital settings) as well as other services including clinical laboratory tests, diagnostic tests, ambulance services, and blood which was not supplied by Part A.

Year

Type of Coverage and Service 1967 1974 1980 1983 1990 1997 2000 2002 2004 2006 2007 2008

Program Payments Amount in Millions

Total $4,239 $11,179 $33,613 $53,446 $101,419 $175,423 $174,261 $215,411 $255,325 $280,672 $288,504 $301,136

Hospital Insurance 2,967 8,000 23,119 36,314 62,347 114,327 101,663 122,993 139,747 151,917 155,785 162,370

Inpatient Hospital Services 2,667 7,680 22,297 34,519 56,716 84,563 85,197 99,382 110,550 116,350 116,922 120,251

Skilled Nursing Facility Services 274 224 344 428 1,971 11,237 10,621 14,363 17,043 20,387 22,261 24,360

Home Health Agency Services 26 96 478 1,366 3,660 16,487 2,918 4,788 5,479 5,979 6,275 6,629

Hospice Services --- --- --- --- --- 2,040 2,927 4,460 6,675 9,201 10,327 11,130

Supplementary Medical Insurance 1,272 3,179 10,494 17,132 39,072 61,069 72,599 92,418 115,579 128,755 132,719 138,766

Physician and Other

Medical Services 1,217 2,740 8,358 13,660 30,222 43,621 51,474 64,272 79,271 85,305 85,694 88,155

Outpatient Services 2 38 397 1,962 3,443 8,773 17,256 16,787 23,346 30,335 35,411 37,560 40,140

Home Health Agency Services 17 40 175 29 78 219 4,338 4,800 5,973 8,039 9,465 10,472

Table 3.3—ContinuedPersons Enrolled and Persons Served Under Medicare, and Program Payments, by Type of Coverage and Service:

Selected Calendar Years 1967-2008

Program Payments Per Person Served

Total $593 $945 $1,864 $2,709 $3,743 $5,877 $5,891 $6,784 $7,733 $8,489 $8,903 $9,393

Hospital Insurance 749 1,559 3,424 4,879 8,861 14,083 13,878 15,694 17,132 18,709 19,592 20,704

Inpatient Hospital Services 741 1,512 3,342 4,814 8,668 12,279 12,318 13,466 14,525 15,581 16,118 16,945

Skilled Nursing Facility Services 774 842 1,339 1,615 3,089 7,476 7,235 8,855 9,728 11,093 12,176 13,231

Home Health Agency Services 206 348 658 1,036 1,890 4,768 2,021 3,059 3,236 3,489 3,680 3,889

Hospice Services --- --- --- --- --- --- --- 6,836 8,374 9,796 10,378 10,620

Supplementary Medical Insurance 195 277 589 880 1,450 2,062 2,477 2,934 3,531 3,934 4,142 4,383

Physician and Other

Medical Services 190 247 484 722 1,147 1,506 1,790 2,074 2,457 2,649 2,722 2,833

Outpatient Services 2 25 116 260 379 566 840 798 1,014 1,264 1,475 1,592 1,721

Home Health Agency Services 144 299 535 1,450 2,053 4,563 3,644 4,336 4,692 5,508 6,095 6,487

Social Security and Medicare Payments – 1990 - 2010http://www.ssa.gov/OACT/STATS/table4a4.html

Year Total Benefits OASDI Disability % Change Hospital SMI % Change

1990 356,536 222,993 24,803 66,239 42,468

1993 449,896 267,804 34,598 5.7% 93,487 53,979 10.7%

1994 478,775 279,118 37,717 4.8% 103,282 58,618 9.8%

1995 513,959 291,682 40,898 5.0% 116,368 64,972 12.0%

1996 544,350 302,914 44,174 4.4% 128,632 68,598 8.8%

1997 572,542 316,311 45,659 4.3% 137,762 72,757 6.7%

1998 585,156 326,817 48,173 3.6% 133,990 76,125 -0.2%

1999 595,326 334,437 51,331 2.9% 128,766 80,724 -0.3%

2000 625,060 352,706 54,938 5.7% 128,458 88,893 3.8%

2001 672,853 372,370 59,577 6.0% 141,183 99,663 10.8%

2002 714,804 388,170 65,645 5.1% 149,944 110,969 8.3%

2003 746,756 399,892 70,906 3.7% 152,084 123,825 5.7%

2004 795,868 415,082 78,202 4.8% 167,554 134,978 9.6%

2005 850,058 435,373 85,394 5.6% 180,013 149,228 8.8%

2006 954,939 460,457 92,384 6.2% 188,989 213,044 22.1%

2007 1,010,414 485,881 99,086 5.8% 200,151 225,234 5.8%

2008 1,077,030 509,056 106,031 5.1% 232,299 229,295 8.5%

2009 1,177,869 557,160 118,329 9.8% 239,260 263,038 8.8%

2010 1,213,209 577,448 124,191 3.9% 244,463 267,051 1.8%

Part D Drug Coverage

Program Financing

The Medicare Part A program is financed primarily through a mandatory payroll deduction (FICA tax).

The FICA tax is 1.45% of earnings (paid by each employee and by the employer for each), as well as 2.90% for self-employed persons.

This tax is paid on all covered wages and self-employment income without limit.

One-time deductible at the beginning of each benefit period ($1,260 in 2015).

(2) through contributions from general revenue of the U.S. Treasury, Beneficiary premiums are currently set to cover 25% of the average expenditures for aged beneficiaries.

This is NOW means- tested. It didn’t used to be this way.

File individual tax return

File joint tax

return

File married & separate

tax return$85,000 or less

$170,000 or less

$85,000 or less

$104.90

above $85,000 up to $107,000

above $170,000 up to $214,000

Not applicable

$146.90

above $107,000 up to $160,000

above $214,000 up to $320,000

Not applicable

$209.80

above $160,000 up to $214,000

above $320,000 up to $428,000

above $85,000 and up to $129,000

$272.70

above $214,000

above $428,000

above $129,000

$335.70

If your yearly income in 2013 (for what you pay in 2015) was

You pay (in 2015)

(1) Monthly Payments

Medicare Part B

Beneficiary Payment LiabilitiesParts A and B beneficiaries are responsible for charges not covered

by Medicare, and for various cost-sharing features of the plans. These liabilities may be paid by the beneficiary, by a third party such as private “medigap” insurance purchased by the beneficiary, or by Medicaid, if the person is eligible. “Medigap” refers to private health insurance that, within limits, pays most of the health care service charges not covered by Parts A or B of Medicare.

For hospital care covered under Part A, the beneficiary’s payment share includes a one-time deductible at the beginning of each benefit period ($1,260 in 2015). This covers the beneficiary’s part of the first 60 days of each spell of inpatient hospital care. If continued inpatient care is needed beyond the 60 days, additional coinsurance payments ($315 per day in 2015) are required through the 90th day of a benefit period.

Problem!Many people think Medicare pays for everything

Problem!Many people think Medicare pays for everything

Beneficiary Payment Liabilities

For Part B, the beneficiary’s payment share includes

one annual deductible (in 2014/5, $147);

Monthly premiums = $104.90 and up.

Coinsurance payments for Part B services (usually 20% of the medically allowed charges);

a deductible for blood; and payment for any services which are not covered by Medicare.

For end-stage renal disease (ESRD) patients, Medicare Part B covers kidney dialysis and physician charges incurred by the patient and donor during the transplant and follow-up care.

http://www.medicare.gov/your-medicare-costs/costs-at-a-glance/costs-at-glance.html

Medicaid Overview

Medicaid, referring to Title XIX of the Social Security Act, is a federal-state matching entitlement program that pays for medical assistance for certain vulnerable and needy individuals and families with low incomes and resources.

This program is the largest source of funding for medical and health-related services for America’s poorest people. In 2007, it provided health care assistance to more than 50.1 million persons on average, with a total of 62.9 million people enrolled for at least one month. Total expenditures (including CHIP) for fiscal year 2009 were $380.6 billion.

Children’s Eligibility – 2009

Children’s Eligibility – 2011

Children’s Eligibility – 2011 – 2

http://www.crcmich.org/column/?p=276

MichiganChart 1.  Total Medicaid Enrollment, Percent Growth from June 2001 through June 2010

Total Medicaid Recipients in Michigan by County, June 2011

http://www.crcmich.org/column/?p=276

May not be where you think!

Comes from the states

Within broad national guidelines established by federal statutes, regulations and policies, each state:

(1) establishes its own eligibility standards;

(2) determines the type, amount, duration, and scope of services;

(3) sets the rate of payment for services; and

(4) administers its own program.

Medicaid policies for eligibility, services, and payment vary considerably even among similar-sized and/or adjacent states.

Thus, a person who is eligible for Medicaid in one state might not be eligible in another state; and the services provided by one state may differ.

Medicaid Eligibility

Medicaid does not provide medical assistance for all poor persons. Even under the broadest provisions of the federal statute, it does not provide health care services even for very poor persons unless they are in one of the designated groups.

Low income is only one test for Medicaid eligibility for those within these groups; their resources also are tested against threshold levels (as determined by each state within federal guidelines).

States generally have broad discretion in determining which groups their Medicaid programs will cover and the financial criteria for Medicaid eligibility.

To be eligible for federal funds, however, states must provide Medicaid coverage for certain individuals who receive federally assisted income-maintenance payments, as well as for related groups not receiving cash payments.

What Michigan Pays For - 2005 More recent version

Payment for Medicaid Services

States may impose nominal deductibles, coinsurance, or copayments on some Medicaid recipients for certain services, but certain Medicaid recipients, including pregnant women and children under age 18, are excluded from cost sharing.

All Medicaid recipients must be exempt from copayments for emergency services and family planning services.

Medicaid is a cost-sharing partnership between the federal government and the states. The federal government pays a share of the medical assistance expenditures under each state’s Medicaid program.

That share, known as the Federal Medical Assistance Percentage (FMAP) is determined annually by a formula that compares the state’s average per capita income level with the national income average. States with higher per capita income levels are reimbursed smaller shares of their costs.

Federal Medical Assistance Percentages and Enhanced Federal Medical Assistance Percentages

On average, the federal share has been 57%

Beginning in 2014, the Affordable Care Act (ACA)

established highly enhanced FMAPs for the cost of services to low-income adults with incomes up to 138% of the Federal Poverty Level (FPL) who are not currently covered.

State Federal Medical Assistance

Percentages

Enhanced Federal Medical Assistance

PercentagesIllinois 50.76 65.53Indiana 66.52 76.56Michigan 65.54 75.88Ohio 62.64 73.85Wisconsin 58.27 70.79

http://aspe.hhs.gov/health/reports/2014/FMAP2015/fmap15.cfm

How the Medicaid match works …

• Medicaid provides matching funds.

• BUT federal mandates of program they cannot simply substitute Federal $ for State $.

All else

Health for poor

A*

H*

A**

H** Hmandated

• In particular, Medicaid has provided universal health insurance for children under age 18, whether states wanted it or not.

• Probably a good thing.

A***

Match v. Block Grant

• Block grant can get you to same level of utility, cheaper.

All else

Health for poor

A*

H*

A**

H** Hmandated

A***

• BUT, if it is important to provide a mandated amount of care, a block grant may not be cheaper.

• … and it could be more expensive.

States’ Decisions

• States must raise taxes for matches.

• Some have threatened to leave Medicaid, although they’ve not done it.

• Others have threatened to reduce covered conditions.

Medicaid Summary

• Most Medicaid recipients require relatively small average expenditures per person each year. The 2009 data indicate that Medicaid payments for non-disabled children averaged about $2,848 per child. Per capita spending for non-disabled children ($2,848) and adults ($4,123) was much lower than that for aged ($15,678) and disabled beneficiaries ($16,563). This reflects the differing health status and use of services by the members of these groups.

• In 2008 Medicaid paid for 40.6% of the total cost of nursing facility care and 34.7% of or home health services care. With the elderly or disabled percentage of the population increasing faster than the younger groups, the need for long-term care is expected to increase.

The Medicaid — Medicare RelationshipThe Medicare and Medicaid programs work jointly for many

beneficiaries. Medicare beneficiaries who have low incomes and limited resources may also receive help from the Medicaid program.

For those eligible for full Medicaid coverage, the Medicare health care coverage is supplemented by services that are available under their state’s Medicaid program, according to eligibility category.

These additional services may include, for example, nursing facility care beyond the 100 day limit covered by Medicare, prescription drugs, eyeglasses, and hearing aids.

For persons enrolled in both programs, any services that are covered by Medicare are paid for by the Medicare program before any payments are made by the Medicaid program, since Medicaid is always “payer of last resort.”

CMS estimates that Medicaid provided some supplemental health coverage for at least 8.8 million persons who were Medicare beneficiaries.

Medicare prescription drug benefit, started in 2006, includes all who previously received coverage from Medicaid.

The Medicaid — Medicare Relationship

Conflicting Incentives• Either Medicare or Medicaid may have the incentive to shift

costs to the other. Medicare is the primary payer for dual eligibles’ hospital, physician, and other acute medical care; Medicaid (according to the states’ discretions) can choose to pay the often considerable Medicare copayments for the dual eligibles.

• If the states seek to reduce their Medicaid expenditures, they may restrict their cost-sharing paying. This may result in less access and less treatment for beneficiaries in states with more restrictive policies.

• The adverse incentives can also go in the other direction. Most analysts believe that Medicare’s 1983 adoption of the prospective payment system with DRGs for hospital care, led to patients being discharged “sicker and quicker.”

• This change in payment contributed to the growth in Medicare-covered post-acute nursing home care in the years following prospective payment.

Conflicting Incentives – What to Do?

• One possibility is to try to coordinate the two programs.

• Second possibility – Shift financial responsibility of dual eligibles to federal government. Either Medicare, or some new program.

• PPACA creates “office of the duals” to look at this.

“Take-up” and “Crowd-out”

• What are the net impacts of social insurance program implementation?

• Are people now insured, who were previously uninsured (take-up), or are the new programs simply crowding out other forms of insurance?

Improvement

Target Population

IncreasedEligibility

Impacts of improving coverage

Improvement

Target Population

IncreasedEligibility

PreviouslyUninsured

PreviouslyInsured

Take-upTake-up

Crowd- out

Crowd- out

AdditionalCoverage

Impacts of improving coverage

AdditionalUtilization

AdditionalCoverage Access

Impacts of improving coverage

AdditionalUtilization

Better Health

Outcomes

AdditionalCoverage Access

Cost-Effectiveness

CE = Cost/ Outcome

Incremental Program

Costs

Impacts of improving coverage

Economic Analysis

Some value insurance more (D), some less (E).

Other Goods

Health Insurance

Vm

Vl

Some may not even value it at all at current prices (C).

This is called a corner solution. D

E

C

Some may take it who were not insured. Some may take it who were previously insured.

Economic AnalysisSuppose that the

government introduces free public insurance with generosity M.

Other Goods

Health Insurance

Vm

Vl

Some may stay with previous insurance.

D

E

C

M

Impacts

• Cutler and Gruber estimate that under Medicaid expansions, about ½ of increase in eligibility has been associated with a reduction in private insurance coverage (crowd-out), and about ½ with take-up.

Supplemental

Medicaid Enrollment

Medicaid Enrollment