0. Medicare: An Overview Cristina Boccuti, MA, MPP
Associate Director, Program on Medicare Policy
Kaiser Family Foundation

1. Medicare’s History: The First 50 Years
Exhibit 2
Medicare’s History: The First 50 Years
Millions of Medicare beneficiaries
MMA 2003 creates drug benefit with “extra help” for low-income people, raises premiums for higher-income people, renames Medicare+Choice “Medicare Advantage”
Catastrophic Coverage Act enacted (1988) and then repealed (1989); retains QMB assistance from Medicaid
OBRA 1987 creates nursing home quality standards
BBA 1997 reduces provider and plan payments, creates SGR and Medicare+Choice
MACRA repeals SGR
1972: Medicare extended to cover people under age 65 with permanent disabilities
ACA reduces Medicare spending, closes donut hole, promotes delivery system reforms, creates IPAB, raises HI payroll tax
New RBRVS payment system for physicians authorized
Hospital DRG system implemented
1966: Medicare coverage begins
Hospice benefit added
Federal standards for Medigap established
First prevention services added
SOURCE: Kaiser Family Foundation, 2015 Medicare Timeline.

2. Medicare Past and Present
Enacted in 1965 to provide health and economic security to seniors age 65 and older; At the time, half of all seniors lacked health insurance
Expanded in 1972 to cover younger beneficiaries with permanent disabilities, after a 24-month waiting period
Covers 55 million people (9 million under age 65) regardless of income or medical history
Medicare benefits include hospital visits, physician services, and prescription drugs (Parts A, B, and D of Medicare)
Private plans have been playing an increasingly larger role in the delivery of Medicare benefits (Part C)

3. Part A – Hospital Insurance Program
Services covered
Inpatient hospital, skilled nursing facility,
(some) home health care, and hospice care
Premiums
$0 (for most);
entitlement after 10+ years of payroll taxes
Deductible
$1,288
per benefit period (2016)
Cost sharing
Daily copayments for extended stays in hospitals (>60 days) and skilled nursing facilities (>20 days)
Financing
2.9% tax on earnings paid by employers and employees (1.45% each; increased to 2.35% for taxpayers with wages above $200,000 for individuals or $250,000 for couples)

4. Part B – Supplementary Medical Insurance
Services covered
Physician visits, outpatient hospital services,
preventive services, and (some) home health care
Monthly Premiums
$105 for most; (2016)
$171-$390 if income > $85,000 (individual) or $170,000 (couple)
Deductible
$147 per year (2016)
Cost Sharing
20% coinsurance (generally)
for most covered services, except preventive services which are free
Financing
Premiums (pay for 25% of program costs) and general revenues

5. Part C – Medicare Advantage
An alternative to traditional Medicare; beneficiaries can enroll in a private plan with a restricted provider network (mainly HMOs and PPOs)
Medicare pays private plans a fixed amount per enrollee
Enrollees receive all Medicare- covered Part A & Part B benefits
Typically also receive drug coverage (Part D)
Often receive extra benefits (e.g., dental, eyeglasses)
Enrollees generally pay the Part B premium and an additional premium for their Medicare Advantage plan
Medicare Advantage Enrollment (in millions)
Three in ten Medicare beneficiaries are enrolled in Medicare Advantage plans

6. Part D – Prescription Drug Benefit
2020 Part D Standard benefit
100% paid by enrollee
25%
paid by enrollee
75%
paid by
plan
15% paid by plan; 80% paid by Medicare
Catastrophic coverage
Deductible
Running tally of costs
2016 Part D Standard Benefit
2020 Part D Standard benefit
100% paid by enrollee
25%
paid by enrollee
75%
paid by
plan
15% paid by plan; 80% paid by Medicare
Catastrophic coverage
Deductible
Part D is a voluntary drug benefit offered through private stand-alone drug plans (PDPs) or Medicare Advantage drug plans
Plans can offer the “standard” benefit; most offer an alternative design equal in value
Plans vary widely in terms of premiums, drugs covered, and costs
All plans are now required to offer coverage in the “doughnut hole”
Additional subsidies for enrollees with low incomes (<150% of poverty) and resources
7 in 10 beneficiaries are in Part D plans
Plan pays 15%; Medicare pays 80%
Catastrophic Limit =
$7,515 Rx* $4,850 out-of-pocket 5%
Catastrophic Coverage (> $6,955)
Brand-name drugs:
Enrollee pays 45%
Plan pays 5%
50% manufacturer discount
Generic drugs:
Enrollee pays 58%
Plan pays 42%
Coverage gap
“Doughnut hole”
Coverage Gap
Between $2,970 and $6,955
in total drug costs
Enrollee pays 25%
Plan pays 75%
Initial coverage
limit =
$3,310 Rx
$1,098 out-of-pocket
Initial Coverage Limit
(up to $2,970 in total drug costs)
Enrollee pays 100%
Deductible = $360
Deductible ($325)
NOTE: *Amount corresponds to the estimated catastrophic coverage limit for non-low-income subsidy enrollees ($7,063 for LIS enrollees), which corresponds to True Out-of-Pocket (TrOOP) spending of $4,850 (the amount used to determine when an enrollee reaches the catastrophic coverage threshold. SOURCE: Kaiser Family Foundation illustration of standard Medicare drug benefit for 2016.

7. Gaps in Traditional Medicare’s benefit package expose beneficiaries to potentially high out-of-pocket costs
NO hearing aids
NO dental services or dentures
NO routine eye exams or eyeglasses
NO long-term care benefit
(covers post-acute skilled nursing facility
and home health services)
NO limit on
out-of-pocket expenses
Part D ‘doughnut hole’ (filled in by 2020)

8. Characteristics of the Medicare Population
Percent of total Medicare population:
Savings Below $61,400
Income below $23,500
4+ Chronic Conditions
Cognitive/Mental Impairment
Fair/Poor Health
2+ Functional Impairments
Under-65 and Disabled
Ages 85+
Long-term Care Facility Resident
SOURCE: Urban Institute and Kaiser Family Foundation analysis, 2013; Kaiser Family Foundation analysis of the Centers for Medicare & Medicaid Services Medicare Current Beneficiary Survey 2010 Cost and Use file.

9. Distribution of Medicare Benefit Payments, 2014
Total Medicare Benefit Payments, 2014 = $597 billion
NOTE: *Other services includes ambulance services, ambulatory surgical centers, community mental health centers, durable medical equipment, federally qualified health centers, hospice, hospital outpatient services not paid for using the outpatient prospective payment system, outpatient dialysis, outpatient therapy services, lab services, rural health clinics, Part B drugs.
SOURCE: Kaiser Family Foundation analysis of data from Congressional Budget Office, 2015 Medicare Baseline (March 2015).

10. Distribution of Average Total Out-of-Pocket Spending on Services and Premiums by Medicare Beneficiaries, 2010
Long-term care facility
Medical providers and supplies
Premiums
Services
Prescription drugs
Dental
Inpatient hospital
Skilled nursing facility
Outpatient hospital
Home health
Average Total Out-of-Pocket Spending on Services and Premiums, 2010: $4,745
NOTE: Analysis excludes beneficiaries enrolled in Medicare Advantage plans. Premiums includes Medicare Parts A and B and other types of health insurance beneficiaries may have (Medigap, employer-sponsored insurance, and other public and private sources). Estimates do not sum to total due to rounding.
SOURCE: Kaiser Family Foundation analysis of the Medicare Current Beneficiary Survey 2010 Cost and Use file.

11. Across all states, most physicians accept new Medicare patients
National Rate = 91%
97%
83%
Accepting other insurance types:
Private non-capitated
91%
Private Capitated
72%
Medicaid
71%
No-charge or charity
47%
79% %
80% %
90% - 100%
(4 states)
(19 states, DC)
(27 states)
NOTES: Pediatricians are excluded from this analysis. Physicians were not asked to distinguish between patients in traditional Medicare and Medicare Advantage plans.
SOURCE: National Ambulatory Medical Care Survey – National Electronic Health Records Survey, 2012.

12. “What percent of your patients have Medicare?”
Figure 21
For one-third of primary care physicians, at least half their patients have Medicare
“What percent of your patients have Medicare?”
25% - 49%
(41%)
0-24%
(25%)
Percent of non-pediatric primary care physicians,
by percent of patients with Medicare, 2015
NOTE: Analysis excludes pediatricians. (*) Indicates difference from “0-49%” is statistically significant at the 95% confidence level. Percentages may not sum to 100 percent due to rounding and “other” specialties (4%) not shown.
SOURCE: The Kaiser Family Foundation/ Commonwealth Fund 2015 National Survey of Primary Care Providers

13. Role of Medicare in Delivery System Reforms
Traditional Medicare (“fee-for-service”) generally reimburses individual providers separately for the services they deliver to beneficiaries
“Siloed” payment approach carries incentives for providers to furnish more care (or more expensive care); lacks incentives to coordinate care across health care settings
Increasingly, CMS is linking Medicare payments to “value” (quality and cost)
Large-scale programs across Medicare (e.g., Hospital Readmission Reduction Program)
Testing new models that encourage delivery system reforms (e.g., ACOs, bundled payments, medical homes);
Innovation Center (CMMI) established by the ACA
Delivery system reform -- New payment approaches that can change the way providers organize and deliver care
Main goals: lower per capita spending while fostering improved patient care
New models typically include financial incentives to encourage collaboration and care coordination among different providers, reduce unnecessary service use, and reward providers for furnishing higher quality patient care at lower costs
Preliminary evidence shows mixed results with some programs showing more success than others in achieving savings

14. Medicare provides health insurance coverage for seniors and people with disabilities, but faces a range of challenges ahead
Budget and financing
Medicare is 14% of the federal budget and a rising share of the economy
Long-term financing challenges due to fewer workers to support retirees, and growing numbers of Medicare beneficiaries, and longer life expectancies
Beneficiaries
Beneficiaries incur relatively high out-of-pocket expenses as a share of household income/budgets (no limit on out-of-pocket costs for Medicare-covered services)
Medicare’s benefit structure has grown more complex; beneficiaries have many choices in health plans but unclear how well beneficiaries navigate private marketplaces; role in delivery system reforms is also evolving
Providers
Improving care management and targeting interventions to beneficiaries with the greatest needs and highest costs
Navigating new payment approaches and delivery system reforms
Are payments adequate to ensure participation?

15. Medicare Resources on kff.org
A Primer on Medicare
Payment and Delivery System Reform in Medicare: A Primer on Medical Homes, Accountable Care Organizations, and Bundled Payments
Medicare Advantage Fact Sheet
Medicare Part D Prescription Drug Benefit Fact Sheet
The Facts on Medicare Spending and Financing
The Story of Medicare: A Timeline
Policy Options to Sustain Medicare for the Future
For more information,
visit kff.org/medicare