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Medicare: Balancing Cost, Access and Quality

Marilyn MoonAmerican Institutes for Research

September 9, 2005University of North Carolina

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Cost Issues Dominate

Share of federal budget and view of the public sectorFuture projectionsChanges can have a major impact but often viewed narrowly

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Source: CBO 2005

Medicare as a Share of the Federal Budget

3.5%4.2%

5.8%

7.4%8.6%

11.7% 12.1%12.8%

16.6%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

1970 1975 1980 1985 1990 1995 2000 2001 2011

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Growth in Medicare Spending as a Share of GDP and in Beneficiaries as a Share of Total Population

0.73% 1.24% 1.74% 2.02%1.32% 1.90% 2.29%2.77%

3.73%5.03%

6.12%

0.70%

14.8%

18.2%

23.1%

9.5%

12.1%13.2% 13.8%

21.9%

0%

5%

10%

15%

20%

25%

1970 1980 1990 2000 2010 2020 2030 2040

Medicare as a Share of GDP

Prescription Drug Benefit as a share ofMedicareMedicare as share of the population

Source: 2005 OASDI and Medicare Trustees Report

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Projected 2025 Medicare spending as a share of GDP

3.6%2.5% 2.2% 2.0%

2.9%

2.8%2.2%

2.0%

0%

1%

2%

3%

4%

5%

6%

7%

8%

1997 1998 1999 2000

Projection year

Perc

ent o

f GD

P

Part A percent of GDP Part B percent of GDP

Source: Medicare Trustees Report, 1997-2000

6.5%

5.3%

4.4%4.0%

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No Magic Bullets

Many Beneficiaries are not well offBeneficiaries already pay a substantial amount for careManaged care has been problematic in Medicare

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Distribution of Per Capita Income of Elderly 2003

6%

22%21%

13%

9%

6%4%

3% 4%3%

2% 1% 1% 1%2%

0%

5%

10%

15%

20%

25%

0-$5,0

00

$5,00

0-$10,00

0

$10,00

0-$15

,000

$15,00

0-$20,0

00

$20,00

0-$25,0

00

$25,00

0-$30

,000

$30,00

0-$35,0

00

$35,00

0-40,00

0

$40,00

0-$50,0

00

$50,00

0-$60,0

00

$60,00

0-$70

,000

$70,00

0-$80,0

00

$80,0

00-$90

,000

$90,0

00-$10

0,000

$100,0

00+

Income

Perc

enta

ge

Source: Current Population Survey, 2004®®

Out-of Pocket Spending as a Share of Income Among Elderly Beneficiaries

19.1%

11.0% 11.2%12.3%

14.3%

22.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

1965 1970 1978 1984 1987 2004

Source: American Institutes for Research Calculations Using NHE, CPI, CPS, and Trustees Report, MCBS

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Figure 1.2Yearly Enrollment in Medicare Advantage Plan

2.4872.84

3.467

4.368

5.414

6.4166.857 6.856

6.166

5.5385.302 5.376

0

1

2

3

4

5

6

7

8

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Calendar Year

Enr

ollm

ent (

in m

illio

ns)

Source: Board of Trustees, 2004®®

Cumulative Growth in Per Enrollee Payments for Comparable Services, Medicare And Private

Insurers, 1970-2000*

0

500

1000

1500

2000

2500

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

Year

Gro

wth

(%)

Private health insurers

Medicare

Private Insurers

Medicare

*Includes hospital care, physician, and clinical services, durable medical equipment, and other professional servicesSource: Boccuti and Moon, 2003

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Access to Care

Affordability of benefits“Sustainability” of Medicare

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Affordability

From 2003 to 2040Increase in GDP per worker- 63%Increase in GDP per worker if take out Medicare burden- 55%To do this requires tax increase

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Hold Line on Spending?

No tax increase approach 42% cut

Growth proportional to income 33% cut

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Challenges for Quality

Rapid Changes in HealthcareCoverage limitationsDiversity of beneficiary populationFlexibility

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Medicare Expenditures by Type of Service: 1967 and 2003

Hospital Outpatient

1% Physicians and other Part B

29%

Skilled Nursing Facility

7%

Home Health1%

Hospital62%

Managed Care13%

Hospital Inpatient40%

Hospital Outpatient5%

Physicians and other Part B

33%

Skilled Nursing Facility

5%

Home Health4%

1967: 70% Part A; 30% Part B 2003: 46% Part A; 41% Part B; 13% Part C (Medicare+Choice)

Source: Health Care Financing Administration, 2000 and Medicare Payment Advisory Commission 2004®®

Demographic and Health Characteristics of Medicare Beneficiariesby Poverty Share

Share of Population

22.218.019.82.471.147.8250%+

29.923.527.53.558.754.2200-249%

31.225.429.64.147.557.4150-199%

33.932.536.17.030.664.9100-149%

41.442.941.811.223.368.7<100%

Physical Difficulties

CognitivePoor or Fair Health

InstitutionalizedMarriedWomenFPL

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How Does Quality Fit?

Competition for attention in this environmentOn what scale?Does quality increase costs?Linking quality to reimbursementDemonstrationsOther approaches