1. Return to Tutorials Tricia Neuman, Sc.D. Director, Medicare Policy Project Vice President, Kaiser Family Foundation For KaiserEDU June 2009 Medicare 101: The Basics

2. Return to Tutorials Medicare Overview  1965: Signed into law by President Johnson to provide health and economic security to seniors  1972: expanded to cover younger adults with permanent disabilities  2009: covers 45 million people, including 7 million under-65 disabled  Covers individuals without regard to income or medical history  Helps pay for range of medical services, including inpatient hospital, physician, home health, diagnostic tests and prescription drugs Exhibit 2

3. Return to Tutorials Percent of total Medicare population: NOTE: ADL is activity of daily living. SOURCE: Income data for 2007 from U.S. Census Bureau, Current Population Survey, 2008 Annual Social and Economic Supplement. All other data from Kaiser Family Foundation analysis of the Centers for Medicare & Medicaid Services Medicare Current Beneficiary Survey, Access to Care file, 2006. Income <200% FPL ($20,800 in 2008) Cognitive/Mental Impairment Long-term Care Facility Resident 3+ Chronic Conditions Under-65 Disabled Medicare Covers a Population with Diverse Needs and Circumstances Fair/Poor Health Age 85+ 2+ADL Limitations Exhibit 3

4. Return to Tutorials Medicare Part A – Hospital Insurance Program Inpatient hospital, skilled nursing facility, home health, hospice $1,068 deductible for hospital inpatient in 2009 Individuals (and spouses) entitled to Part A after paying payroll taxes for 10+ years Mainly funded by payroll tax contributions (1.45 percent from employers/employees) Medicare Part B – Supplementary Medical Insurance Physician visits, outpatient, preventive services, home health $96.40 monthly premium in 2009; higher for beneficiaries with higher incomes $135 deductible; 20% coinsurance for physician visits and outpatient hospital services Exhibit 4 Medicare Parts A and B

5. Return to Tutorials Beneficiaries can enroll in regular fee-for- service program OR in a Medicare Advantage (MA) plan MA include HMOs, PPOs and other private health plans Some plans offer extra benefits and have lower cost-sharing requirements than traditional Medicare Access to doctors and other health care providers is typically limited to those in the plan’s network Plans are paid a fixed amount per enrollee On average, 14 percent more than it would pay under traditional Medicare This extra payment will increase overall costs to Medicare by about~$150 b over 10 years Exhibit 5 Medicare Advantage (Part C) Medicare Advantage Enrollment (in millions) 25% of beneficiaries are enrolled in Medicare Advantage plans in 2009

6. Return to Tutorials Medicare Prescription Drug Benefit (Part D) Exhibit 6 Administered exclusively through private plans; not under fee-for- service program - Stand-alone prescription drug plans (PDPs) - Medicare Advantage prescription drug plans (MA PDs) Premiums and cost-sharing vary; most plans have a gap in coverage (“doughnut hole”) Additional premium and cost-sharing subsidies for low-income Funded by general revenues, enrollee premiums and payments from states Part D Stand-Alone Prescription Drug Plan Part D Medicare Advantage Prescription Drug Plan Retiree Drug Coverage No Drug Coverage Other Drug Coverage 4.5 million 10% 9.2 million 20% 7.9 million 18% 6.2 million 14% 17.5 million 39% Prescription Drug Coverage, 2009 45.2 Million Medicare Beneficiaries

7. Return to Tutorials Medicare Benefit Payments, by Type of Service, 2009 Total Benefit Payments = $484 billion Notes: Total does not include $2.5 billion in administrative expenses such as spending for implementation of the Medicare drug benefit and the Medicare Advantage program. Total is net of $9.4 billion in recoveries for 2009. Source: Congressional Budget Office, Medicare Baseline, March 2009. Part A Part B Part D Part A and B 19% 4% 23% 5% 28% 4% 6% 4% 5% Exhibit 7

8. Return to Tutorials Sources of Medicare Revenue in 2010 Source: 2009 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. PART A $237 Billion PART D $66 Billion PART B $196 Billion TOTAL $499 Billion Exhibit 8

9. Return to Tutorials Medicare offers important coverage, but with high cost-sharing and benefit gaps Does not cover all medical benefits Very limited long-term care coverage No dental, hearing aids or eyeglasses Has relatively high cost-sharing requirements Deductibles for Part A, Part B, and Part D Coinsurance/copayments Part D coverage gap (“doughnut hole”) No limit on out-of-pocket spending Unlike typical plans offered by large employer Pays about half of beneficiaries’ total health and long-term care spending Exhibit 9

10. Return to Tutorials Supplemental Coverage Among Medicare Beneficiaries, by Income, 2006 SOURCE: Kaiser Family Foundation analysis of the CMS Medicare Current Beneficiary Survey Access to Care File, 2006. $10,000 or less $10,001- 20,000 $20,001- 30,000 $30,001- 40,000 $40,001 or more Exhibit 10 8% 20% 42% 52% 9% 52% 59% 19% 3% 1% 20% 21% 20% 1% 14% 16% 1% <1% 11% 7% 5% 21% <1%

11. Return to Tutorials Median out-of-pocket health spending as a percent of income for Medicare beneficiaries is on the rise – especially for those with modest incomes NOTES: In 2005, federal poverty level: $9,570/individual and $12,830/couple. SOURCE: Kaiser Family Foundation. “Skin-in-the-Game,” November 2008. Exhibit 11

12. Return to Tutorials 2009 2018 (projected) Percent Increase 2009-2018 Part A: Hospital Insurance Deductible$1,068$1,584 48% Part B: Supplementary Medical Insurance Premiums$1,157$1,577 36% Deductible$135$184 36% Part D: Prescription Drug Benefit Premiums$364$667 83% Deductible$295$490 66% Coverage gap$3,454$5,755 67% Medicare Premiums and Cost Sharing Projected to Increase Exhibit 12 Annual Costs: Source: 2009 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds.

13. Return to Tutorials Medicare Spending and Financing

14. Return to Tutorials Medicare accounts for 13% of federal spending and 22% of national health spending 21% 13% 7% 13% 9% 16% 23% Total Federal Spending, 2009 = $3.1 trillion Exhibit 14

15. Return to Tutorials A small share of beneficiaries account for most of Medicare spending Total FFS Beneficiaries, 2005: 37.5 million Total Medicare FFS Spending, 2005: $265 billion Average per capita* = $2,934 Average per capita* = $44,220 NOTE: Excludes Medicare Advantage enrollees *Average Medicare FFS Spending only SOURCE: Kaiser Family Foundation analysis of the CMS Medicare Current Beneficiary Survey Cost & Use file, 2005. Exhibit 15

16. Return to Tutorials Medicare Financial Challenges  Part A Trust Fund - The hospital insurance trust fund is projected to be insolvent by 2017 – with insufficient funds to pay for all promised benefits  Worker to retiree ratio – The number of workers per beneficiary is projected to decline as the Medicare population grows in the future  GDP – Medicare spending is projected to double from 3.5% of GDP in 2010 to 6.4% of GDP by 2030.  The Congressional Budget Office indicates most of the growth is due to rising health costs, rather than the aging of the Baby Boom generation. Exhibit 16

17. Return to Tutorials Looking to the Future…  Medicare remains critical source of health coverage and economic security for many  Addressing fiscal pressures without shifting more costs to beneficiaries  Setting fair payment rates to providers and plans  Monitoring and improving Part D drug benefit  Assessing role of Medicare Advantage plans  Improving care to meet needs of those with coverage and chronic illnesses and disabilities  Ensuring affordability for lower-income beneficiaries  Strengthening coverage for long-term care services Exhibit 17

18. Return to Tutorials Kaiser Family Foundation’s Medicare Policy Project Kaiser Family Foundation’s Medicare Policy Project kff.org/medicare/index.cfm kff.org/medicare/index.cfm kff.org/medicare/index.cfm Official Medicare site Official Medicare site medicare.gov/ medicare.gov/ medicare.gov/ Centers for Medicare & Medicaid Services (CMS) Centers for Medicare & Medicaid Services (CMS) cms.hhs.gov cms.hhs.gov cms.hhs.gov Congressional Budget Office (CBO) Congressional Budget Office (CBO) cbo.gov cbo.gov cbo.gov Medicare Payment Advisory Commission (MedPAC) Medicare Payment Advisory Commission (MedPAC) medpac.gov medpac.gov medpac.gov Additional Resources Exhibit 18