Assignment Review Lecture 3

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Assignment ReviewLecture 3

• Public Sector Financing
• Health Care
• Medicare and Medicaid

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Who finances health care?

• Who writes the checks
• Businesses
• Households
• Governments
• National Health Expenditures Accounts
• estimates of U.S. health care spending
• structured as a matrix health care goods and
  services by funding source
• Ultimately, who bears the financial burden?
• How?

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(No Transcript)
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Who pays the Federal Income Tax? 2002
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Source US Treasury Office of Tax Analysis
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HSS Spending Growth Highlights

• Spending growth Y-Y moderated in 2003 to 7.6 vs
  9.2 prior year.
• CPI-U grew 2.2. (Source BLS)
• Population grew 1.0 with 55 from natural
  increase. (Source Bureau of Census.)
• Medical care unit costs grew 3.9.
• Medical commodities 2.5
• Medical services 4.2
• Professional services 2.7
• Hospital/ related services 7.2
• Government spending grew faster than private.

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Expenditures for Health Services and Supplies (B)
Source Cowan and Hartman, Health Care Fin Rev/
Web Exclusive/ July 2005 Vol 1, Number 2
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Shares of HSS (, R)
Why do state governments complain so bitterly?
Source Cowan and Hartman
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Public Sector Financing of HSS (B)Federal
Outlays

• 1987 2000 2002 2003
• As Employer
• - PHI 4.9 14.3 17.7 19.7
• - Medicare HI 1.7 2.6 2.9 3.1
• From Gen. Rev
• Medicare 17.5 49.1 84.5 93.4
• Medicaid 28.1 120.1 150.5
  160.9
• Other programs 22.8 50.8 62.7
  66.9

Other programs e.g. PH, DOD, VA, SCHIP, IHS,
Maternal Child Health, etc.
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Public Sector Financing of HSS (B)State and
Local Outlays

• 1987 2000 2002 2003
• As Employer
• - PHI 16.7 58.6 77.1 86.2
• - Medicare HI 3.1 7.4 8.4 8.7
• From Gen. Rev
• Medicaid 22.8 86.5 104.2
  111.8
• Other programs 28.8 59.4 68.4
  71.5

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Medicare Financing Issues

• Part B (SMI) is funded out of enrollee premiums
  and general funds.
• Part A trust fund relies on payroll taxes and
  Intergovernmental transfers without IGT
  Medicare ran a deficit in 2003.
• Financing problems facing Medicare
• Fewer workers per retiree 3.7 (03) vs. 2.4
  (30)
• Growth in oldest segment 4.3 (03) vs. 8.5
  (30)
• In sum Medicare is expected to grow from 2.4
  GDP to between 4.9 and 21.3 by 2050.
• Problem one of accounting or demographics?

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Case based on intermediate assumptions
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Source http//www.gao.gov/cghome/centrist2005012
1/img2.html
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Medicare HI What has to happenRaise taxes?

• Potential impact significant on many people
• Medical costs growing faster than wages/ general
  inflation.
• Workers per retiree expected to be cut by about
  1/3 vs. today.
• Oldest (and sickest) segment will almost double.
• Recall that a large majority today pay more in
  social insurance taxes than in FIT.
• Bracket creep and the Alternative Minimum Tax
  will take a larger bite out of middle income
  earners.
• Medicare today is a flat tax on all earned
  income structural changes might endanger
  political support and solidarity.

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Medicare HI What has to happenCut benefits?

• Pay for fewer medical services or for fewer
  people.
• Raise age of eligibility precedent in SS.
• But, might cause corporations that supply early
  retirees with first medical insurance to
  eliminate the benefit.
• Identify and eliminate marginally beneficial
  services implies more control over care
  process.
• Share costs with high income enrollees.

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Medicare HI What has to happenReduce unit
costs of HC delivery?

• Increase penetration of managed care
• Utilize some MC concepts within Medicare FFS
• Limit rate of change of technology
• Require cost effectiveness analysis prior to
  drug/ device approval
• Improve dissemination of more cost effective
  services
• Cut costs of administrative burden

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Medicare HI What has to happen Reduce demand?

• Help people become healthier leaner,
  non-smoking, exercised
• Find cures for expensive, chronic diseases, e.g.
  Alzheimers

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Medicare HI What has to happenEliminate fraud
and abuse

• Enforcement against fraud and abuse
• False Claims Act 1863/ Amended 1986 private
  parties (relators) makes claims on behalf of
  the government case handled by DOJ relator
  shares in triple damages.
• DOJ recovered 840M in FY 2000. (Source GAO
  Report to Congress. Committees Medicare Fraud and
  Abuse 2001)
• GAO estimates 19.9B in Medicare net improper
  payments in FY 2004 took CMS six years to
  implement power wheelchair reforms. (Source
  GAO, Major Management Challenges at DHHS, 17 Aug
  05)

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Medicare HI What has to happenWhomp up more
workers ?

• Change immigration policy.
• More social support for families with children
  better start now
• HSAs can globalize part of the problem in
  financial terms.

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Medicaid Program

• Medicaid is an open-ended entitlement.
• States expand coverage beyond minimum one
  (Iowa) now allows near-poor to buy in.
• Medicaid expanded 34M (99) to 47M (04).
• Low income workers choosing Medicaid over private
  insurance when offered.
• Numbers of uninsured children declined from 1997
  (14.8) to 2004 (11.8).
• Childhood vaccination index rose from 72 (2000)
  to a record 81 (2004).

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Medicaid Fed Matching

• Feds match state funds based inversely on state
  pp income. Average 59, with range 50 (min) -
  76.
• Historically low reimbursement rates and need for
  indigent care resulted in providing
  Disproportionate Share Hospital payments.
• Medicaid competes with other programs
• 2nd largest state expenditure category, 3rd
  largest federal entitlement
• Budget buster or good investment?

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Medicaid Financing Issues

• Elderly and disabled (25) of total Medicaid
  population (47M), account for 70 of costs.
• LTC makes up 40 of Medicaid outlays, and
  almost half of national LTC expenditures.
• States using waivers to expand eligibility, add
  more programs 25 increase in enrollment from
  1999 to 2002.
• Spending growth (9.5) in 2004 outpaced general
  medical inflation.

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Future Medicaid Financing

• Acceleration in state expenditures slowing --
  11.4 (2002) to 7.3 (2003)
• As state revenues revive what will happen?
• Financing structure/ politics makes actual cuts
  unattractive.
• Some claim best hope for deceleration is volume
  purchase or other control of prescription drug
  costs.

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Creative financing or fraud?

• State schemes involving overpayments and
  kickbacks long-standing, e.g.
• Round trip state/ local intergov. transfers
• Provider taxes and donations (CPEs)
• Excessive DSH payments to hospitals/ state mental
  facilities
• UPL overpayments laundered back to states
• Some monies doubled up to state Medicaid
• Loopholes curtailed but not eliminated

Source GAO Testimony to Congress