Medicare: What's right? What's wrong? What's next?

Health Affairs

Volumn 18, Issue 1, 1999, Pages 92-106

  Wilensky, Gail R ^a,b   Newhouse, Joseph P ^c,d,e  

^a Medicare Payment Advisory Commission   (United States)

^b Health Care Financing Administration   (United States)

^c HARVARD SCHOOL OF PUBLIC HEALTH   (United States)

^d Division of Health Policy Research

^e Department of MedPAC ^*

Author keywords

[No Author keywords available]

Indexed keywords

AGED; ARTICLE; BUDGET; ECONOMIC ASPECT; ECONOMICS; FEE; FORECASTING; HEALTH CARE POLICY; HEALTH INSURANCE; HUMAN; LEGAL ASPECT; MEDICARE; ORGANIZATION AND MANAGEMENT; RETIREMENT; UNITED STATES;

AGED; BUDGETS; ECONOMIC COMPETITION; FORECASTING; HEALTH CARE REFORM; HUMANS; INSURANCE, MEDIGAP; MEDICARE; MEDICARE PART C; RATE SETTING AND REVIEW; RETIREMENT; UNITED STATES;

EID: 0032620733     PISSN: 02782715     EISSN: None     Source Type: Journal    
DOI: 10.1377/hlthaff.18.1.92     Document Type: Article

References (32)

1. R.J. Blendon et al., "The Public's View of the Future of Medicare,"Journal of the American Medical Association (22/29 November 1995): 1645-1648; and R.J. Blendon et al., "Voters and Health Care in the 1996 Election,"Journal of the American Medical Association (16 April 1997): 1253-1258.
2. R.J. Blendon et al., "The Public's View of the Future of Medicare,"Journal of the American Medical Association (22/29 November 1995): 1645-1648; and R.J. Blendon et al., "Voters and Health Care in the 1996 Election,"Journal of the American Medical Association (16 April 1997): 1253-1258.
3. Physician Payment Review Commission, Annual Report to Congress, 1997 (Washington: PPRC, 1997).
4. Consumer Reports (September 1998): 34-38.
5. Some discussions seem to assume, absurdly, that any positive rate of administrative expense is excessive. The current Medicare program might obtain greater value if its administrative expenses were higher.
6. This comparison is only intended as a rough guide. Personal health care spending has a different composition than Medicare; for example, it includes out-patient prescription drugs, chronic long-term care services, and dental care.
7. Authors' calculations from data in K.R. Levit et al., "National Health Expeditures, 1996,"Health Care Financing Review (Fall 1997): 161-200; K.R. Levit et al., "National Health Expenditures in 1997: More Slow Growth,"Health Affairs (November/December 1998): 99-110; National Center for Health Statistics, Health, United States, 1998 (Hyattsville, Md.: NCHS, July 1998); and Economic Report of the President, 1998 (Washington: U.S. Government Printing Office, February 1998). Chain-weighted GDP deflator used to convert to real dollars.
8. Authors' calculations from data in K.R. Levit et al., "National Health Expeditures, 1996,"Health Care Financing Review (Fall 1997): 161-200; K.R. Levit et al., "National Health Expenditures in 1997: More Slow Growth,"Health Affairs (November/December 1998): 99-110; National Center for Health Statistics, Health, United States, 1998 (Hyattsville, Md.: NCHS, July 1998); and Economic Report of the President, 1998 (Washington: U.S. Government Printing Office, February 1998). Chain-weighted GDP deflator used to convert to real dollars.
9. Authors' calculations from data in K.R. Levit et al., "National Health Expeditures, 1996,"Health Care Financing Review (Fall 1997): 161-200; K.R. Levit et al., "National Health Expenditures in 1997: More Slow Growth,"Health Affairs (November/December 1998): 99-110; National Center for Health Statistics, Health, United States, 1998 (Hyattsville, Md.: NCHS, July 1998); and Economic Report of the President, 1998 (Washington: U.S. Government Printing Office, February 1998). Chain-weighted GDP deflator used to convert to real dollars.
10. J.P. Newhouse, "An Iconoclastic View of Cost Containment,"Health Affairs (Supplement 1993): 152-171.
11. We have ignored the effects of differences in the age distribution within the over-age-sixty-five group, which, with the growth of the oldest old, will tend to make our calculations conservative. In 1994 the average amount per person served was $4,000 for those ages sixty-five to seventy-four, $5,400 for those ages seventy-five to eighty-four, and $6,300 for those age eighty-five and older. Health Care Financing Review: Medicare and Medicaid Statistical Supplement, 1996, 210. Also, our calculations assume that the disability and end-stage renal disease (ESRD) portions of the program maintain their current share of roughly 15 percent of total spending, but our calculations are not sensitive to moderate errors in that assumption. For more complete discussion of the effect of demographics, see D. McKusick, "Demographic Issues in Medicare Reform,"Health Affairs (January/February 1999): 194-207.
12. We have ignored the effects of differences in the age distribution within the over-age-sixty-five group, which, with the growth of the oldest old, will tend to make our calculations conservative. In 1994 the average amount per person served was $4,000 for those ages sixty-five to seventy-four, $5,400 for those ages seventy-five to eighty-four, and $6,300 for those age eighty-five and older. Health Care Financing Review: Medicare and Medicaid Statistical Supplement, 1996, 210. Also, our calculations assume that the disability and end-stage renal disease (ESRD) portions of the program maintain their current share of roughly 15 percent of total spending, but our calculations are not sensitive to moderate errors in that assumption. For more complete discussion of the effect of demographics, see D. McKusick, "Demographic Issues in Medicare Reform,"Health Affairs (January/February 1999): 194-207.
13. Specifically, the trustees assume that growth in Part A will trend down to growth in real earnings (0.9 percent) and that growth in Part B will trend down to the growth rate in gross domestic product (1.3 percent).
14. Calculated from Table III.B.1 (page 78) and Table I.F.1 (page 13) of the 1998 Trustees Report on the Hospital Insurance Trust Fund. We assume that the federal budget as a share of GDP remains at 21 percent.
15. See, for example, H. Aaron and R. Reischauer, "The Medicare Reform Debate: What Is the Next Step?"Health Affairs (Winter 1995): 8-30; and J. White, "Uses and Abuses of Long-Term Medicare Cost Estimates,"Health Affairs (January/February 1999): 63-79.
16. See, for example, H. Aaron and R. Reischauer, "The Medicare Reform Debate: What Is the Next Step?"Health Affairs (Winter 1995): 8-30; and J. White, "Uses and Abuses of Long-Term Medicare Cost Estimates,"Health Affairs (January/February 1999): 63-79.
17. J. O'Sullivan et al., "Medicare Provisions in the Balanced Budget Act of 1997 (P.L. 105-33)" (Washington: Congressional Research Service, 18 August 1997).
18. U.S. Congress, Congressional Budget Office, The Economic and Budget Outlook Fiscal Years 1999-2008 (Washington: CBO, January 1998), 123.
19. Medicare Program, Establishment of the Medicare Choice Program, 63 Federal Register 34968 (26 June 1998).
20. CBO, The Economic and Budget Outlook, 125.
21. This assumes that the (nominal) rate of spending increase considerably exceeds the 2 percent minimum guaranteed to all counties.
22. Although additional providers may well be attracted to areas with low payment rates, it is not clear that the number of providers is constraining services below appropriate levels.
23. J.D. Lubitz and G.F. Riley, "Trends in Medicare Payments in the Last Year of Life,"New England Journal of Medicine (15 April 1993): 1092-1096.
24. Indeed, variation in mortality rates at the state level for the fifteen leading causes of death explains 40 percent of the variation in standardized costs per enrollee. See Prospective Payment Assessment Commission, "State Variation in the Resource Costs of Treating Aged Medicare Beneficiaries,"Intramural Report no. I-96-01 (Washington: ProPAC, 19 June 1996), 19-21.
25. Aaron and Reischauer, "The Medicare Reform Debate."
26. This is also true, of course, for Part B premiums, to the degree that the federal share remains constant.
27. CBO, Baby Boomers in Retirement: An Early Perspective (Washington: CBO, September 1993).
28. Workers per beneficiary will fall from around 3.4 today to 2.0 in 2030, using the intermediate projections of the Medicare trustees.
29. The "notch"occurs when an additional dollar of income renders a person ineligible for Medicaid, thereby creating much more than a 100 percent tax on that dollar. In the near term the dual-eligible program would be eliminated only for those acute care costs covered by Medicare, but in the longer term it would be desirable to integrate financing for long-term care with Medicare. The expansion of home health care benefits in the 1990s has effectively begun to provide some chronic care benefits through Medicare.
30. See J.P. Newhouse, M.B. Buntin, and J.D. Chapman, "Risk Adjustment and Medicare: Taking a Closer Look,"Health Affairs (September/October 1997): 26-43; and J.P. Newhouse, "Risk Adjustment: Where Are We Now?"Inquiry (Summer 1998): 122-131.
31. See J.P. Newhouse, M.B. Buntin, and J.D. Chapman, "Risk Adjustment and Medicare: Taking a Closer Look,"Health Affairs (September/October 1997): 26-43; and J.P. Newhouse, "Risk Adjustment: Where Are We Now?"Inquiry (Summer 1998): 122-131.
32. See E. Keeler, G.M. Carter, and J.P. Newhouse, "A Model of the Impact of Reimbursement Schemes on Health Plan Choice,"Journal of Health Economics (June 1998): 219-240, for some supportive evidence.