1. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Chapter 19 Government Health Insurance: Medicaid, Medicare and the Child Health Insurance Program

2. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Chapter Outline MEDICAID MEDICARE CHILD HEALTH INSURANCE PROGRAM

3. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Medicaid covers health care for the poor was established in 1964 was in full force in 1967 part of President Johnson’s Great Society Programs paired with Medicare (which covers health care for those over 65) is a state-administered program with federal matching funds.

4. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin The Who’s Covers –19 million children –22 million adults –60% are female (70% of adults are women) –44% white; 25% black; 20% Hispanic Children are eligible if –they are under 19 and in households with income less than 133% of the poverty rate. –they are under 1 and in households with income less than 185% of the poverty rate Adults are eligible if they qualify for –TANF (Temporary Aid to Needy Families) –SSI (Supplemental Security Income) Not all poor are covered –50% of those who live in households with income below 150% of the poverty line are not covered.

5. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Spending The federal government pays states a matching grant (ranging from 50% to 70%) that depends on the income of the state. The total federal government obligation is $120 billion The total state obligation is $60 billion

6. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin More Details States establish reimbursement rates for procedures –rates must be high enough so that patients have adequate coverage. States may choose to exclude some procedures –most states choose not to cover abortions. Doctors and hospitals may choose not to accept Medicaid patients –If they accept any patients for any procedure they must accept all patients for all procedures. It is an “all-or-nothing” proposition.

7. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Why Medicaid Costs So Much Per patient expenditures per year on Medicaid are substantially higher (about 20%) than non-Medicaid patients. In part, this is a feature of the clientele –The poor tend to be less healthy and need more expensive treatments. –Medicaid pays for nursing home expenses of the poor.

8. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Medicaid’s Impact on Overall Health Care Prices P* Q poor Q nonpoor D poor+nonpoor P* Q poor Q nonpoor P Q/t S D poor D nonpoor Without Medicaid Q/t S P D poor D nonpoor With Medicaid

9. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Medicaid and the Elderly Medicare is the program for the elderly. Medicaid is the program for the poor. If a patient is poor and over 65, Medicaid pays for Medicare premiums, deductibles and most of the co- payments.

10. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Expenses by Age Group Medicaid expenses per patient –overall $4,560 –Children under 5$1,454 –Elderly 65 and over$12,691 Children make up half the Medicaid population and account for 16% of expenses. Those over 65 make up less than 10% of the Medicaid population and account for 26% of expenses.

11. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Getting Medicaid to Pay for Nursing Homes People have to show very little income and have very few assets in order for Medicaid to pay for nursing home care. To determine Medicaid eligibility, the government looks at financial records going back 2 years to ensure that the person did not give away their assets so that Medicaid would pay.

12. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Cost Saving Measures in Medicaid Medicaid costs were rising 10% per year in the 1990s HMOs –Medicaid has increased it use of HMO’s from 5% coverage in 1990 to 50% by 1998. Primary Care Physicians were established to minimize inappropriate emergency room use by Medicaid patients.

13. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Medicare covers health care for those over 65 was established in 1964 was fully in force in 1967 part of President Johnson’s Great Society Programs paired with Medicaid (which covers health care for the poor) is a federally-administered program

14. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Public Insurance and the Elderly: Why It Is Needed A private insurance market for the elderly is likely to fail because of –Adverse Selection the 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 less –Lack of a group Most 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.

15. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin 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?

16. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Why Medicare’s Costs Are High The 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 conscious New treatments are available for ailments that in prior times would have led to the patient dying. These treatments are expensive.

17. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Costs of Medicare

18. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Retrospective Payments Most 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 specialists

19. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Medicare Nuts and Bolts Medicare Part A –Pays for hospital care –Mandatory Medicare Part B –Pays for doctor visits –voluntary

20. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Provider Types Health Maintenance Organizations (HMOs) Non-HMOs Fee-for-service

21. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Medicare, Part A Premiums –In 2005 No premium for people who work ten years before reaching 65 For everyone else the premium charged for Medicare Part A differs depending on how long they worked Deductible –In 2005 $912 for first the first day in the hospital After the first day –Medicare pays all of the next 60 days But $228 per day from 60-90 days But $456 per day from 90 days on until reserve days are gone. There is a 60 day reserve

22. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Prospective Payments and the DRG All incidents are categorized by Diagnosis Related Groups (DRGs). There are more than 500 DRGs Hospitals receive payment from Medicare based on the DRG not costs. Prospective payments are designed to keep costs down.

23. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Medicare, Part B Premium –In 2005 $78.29 per month (much lower than market prices) Deductible –In 2005 $110 per year (also much lower than market alternatives.) Subsidy –General tax revenues make the program 75% paid by taxpayers and 25% paid by recipients.

24. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin No Prospective Payments Because it would be impossible to track expenses for Part B by individual provider prospective payments are not attempted in Part B.

25. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Medicare HMOs Health Maintenance Organizations are offered as an option for Medicare, Part B. Many HMO’s stopped covering Medicare patients in 2000.

26. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin No Coverage Long Term Care –Nursing Homes –Hospice

27. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Prescription Drug Coverage Coverage began in 2006 Premiums: $420 per year Deductible: $275 deductible Co-Pay: 25 percent co-pay up to $2,200 No Coverage b/w $2,200 and $3,600 5% copay after $3,600

28. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Medicare Trust Fund Like 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” assumptions

29. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Trust Fund Estimates

30. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin The Relationship Between Medicare and Medicaid Medicare –Part A is mandatory and has premiums, deductibles and co-payments. –Part B is voluntary and has premiums, deductibles and co-payments. When the person is eligible for both Medicare and Medicaid, states choose to have their Medicaid programs pay the Medicare premiums, deductibles and most of the co- payments for both Part A and Part B.

31. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Child Health Insurance Program Passed in 1997 Covers children in families with incomes under 200% of the poverty line State administered-Federally funded Low Premiums (as low as $20 per month in many states) Costs $6 billion per year