[WPRT 106-4]
[From the U.S. Government Publishing Office]
106th Congress WMCP:
COMMITTEE PRINT
1st Session 106-4
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COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
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MEDICARE AND HEALTH CARE
CHARTBOOK
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13
MAY 17, 1999
Prepared for the use of Members of the Committee on Ways and Means. This
document has not been officially approved by the Committee and may not
reflect the views of its Members
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56-395 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1999
------------------------------------------------------------------------------
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-054178-6
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
----------
ONE HUNDRED SIXTH CONGRESS
BILL ARCHER, Texas, Chairman
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A.L. Singleton, Chief of Staff
This document was prepared by the majority staff of
the Committee on Ways and Means and is issued under the
authority of Chairman Bill Archer. This document has not
been reviewed or officially approved by the Members of
the Committee.
Introduction
In 1997, Americans spent nearly $1.1 trillion on
health care and health-related services and supplies.
This amount represented 13.5% of the economy as measured
by the gross domestic product (GDP) of the United
States, up from only 5% in 1960. The Congressional
Budget Office (CBO) estimates that by the year 2008
health expenditures will be slightly more than $2
trillion, which, in that year, will represent 15.5% of
the economy.
Although spending on health care as a percent of
the economy is expected to rise in the future, since
1995 it has remained relatively constant at between
13.7% and 13.5% of GDP. This low rate of growth reflects
a variety of factors, including a decline in fee-for-
service health insurance and an increase in coverage of
managed care plans as well as generally low inflation
and a strong U.S. economy.
Most Americans have group health insurance through
their own or a family member's employment (63% of the
population). However, 16% of the population was without
insurance coverage in 1997 (43 million individuals),
including 11.6 million children under age 19. Medicare
and Medicaid covered 22% of the population, and 10% had
private, nongroup coverage.
In 1997 the CBO estimated that Medicare's Part A
trust fund (which covers hospital and related services)
would become insolvent in about the year 2001. Recent
CBO estimates indicate that the Medicare provisions in
the Balance Budget Act of 1997 (BBA) will delay
depletion of the trust fund until at least 2010.
Nevertheless, the program will incur large spending
increases as the baby boom generation reaches retirement
age in 2011.
In order to reduce cost growth under the Medicare
program, Congress in 1982 sought alternatives to the
open-ended spending design of the traditional fee-for-
service Medicare program by authorizing private health
plans, such as HMOs, to provide health care to Medicare
beneficiaries for a fixed annual payment per beneficiary
known as a ``capitated payment.'' In BBA, Congress
enacted the Medicare+Choice program which modified the
1982 law to create new capitated plan options and change
the formula determining the government's payment per
beneficiary. At the start of 1999, about 300
Medicare+Choice plans participated in Medicare and
enrolled about 16% of Medicare beneficiaries.
This Chartbook provides data and information on
national health care spending (Section 1); the health
insurance coverage of various segments of the population
(Section 2); the traditional Medicare program (Section
3); and Medicare Health Maintenance Organizations
(Section 4). It was prepared by a team of Congressional
Research Service analysts including: Rich Rimkunas,
Madeleine Smith, Dadi Einarsson, Jennifer O'Sullivan,
Sibyl Tilson, and Richard Price. Carolyn Merck served as
the project coordinator. Phillip Brogsdale produced the
report in a professional and timely manner.
C O N T E N T S
LIST OF FIGURES
Section 1. What We Spend on Health Care
Figure 1.1. National Health Expenditures, 1960-1997............. 2
Figure 1.2. Health Spending as a Share of the Economy in
Selected Nations, 1960-1997................................... 4
Figure 1.3. Who Pays Our Health Bills, 1997..................... 6
Figure 1.4. Health Spending by Payment Source, 1960-1997........ 8
Figure 1.5. Health Spending as a Share of Government
Expenditures, 1960-1997....................................... 10
Figure 1.6. Per Capita Health Spending in Selected Nations,
1960-1994..................................................... 12
Figure 1.7. Major Components of Health Expenditures, 1997....... 14
Figure 1.8. Personal Health Care Spending, by Service Category,
1997.......................................................... 16
Figure 1.9. Growth Rates for Hospital, Physician, and Nursing
Home Spending, 1960-1997...................................... 18
Figure 1.10. Sources of Hospital Service Payments, 1960-1997..... 20
Figure 1.11. Total Hospital Marginal Revenues, 1976-1997......... 22
Figure 1.12. Trends in Hospital Utilization: Inpatient Days and
Outpatient Visits, 1965-1997.................................. 24
Figure 1.13. Sources of Physician Services Payments, 1960-1997... 26
Figure 1.14. Physician Contacts Per Person, 1987-1995............ 28
Figure 1.15. Physician Supply, Selected Years 1965-1997.......... 30
Figure 1.16. Sources of Nursing Home Care Payments, 1960-1997.... 32
Figure 1.17. Nursing Home Use by the Aged, 1973-1995............. 34
Section 2. Insurance and the Uninsured
Figure 2.1. Health Insurance Coverage by Type of Insurance, 1997 38
Figure 2.2. Uninsured Nonelderly by Age, 1997................... 40
Figure 2.3. Uninsured Ages 35-64................................ 42
Figure 2.4. Uninsured by Region of Residence, 1997.............. 44
Figure 2.5. Sources of Children's Health Insurance, 1990 and
1997.......................................................... 46
Figure 2.6. Uninsured Children by Age, 1997..................... 48
Figure 2.7. Uninsured Children by Family's Income Relative to
Poverty Thresholds, 1997...................................... 50
Figure 2.8. Uninsured Children by Parents' Insurance Status,
1997.......................................................... 52
Figure 2.9. Uninsured Children by Parents' Employment Status,
1997.......................................................... 54
Figure 2.10. Uninsured Children by Size of Largest Firm Employing
Either Parent, 1997........................................... 56
Figure 2.11. Enrollment in Employment-Based Health Plans, by Plan
Type, 1988-1998............................................... 58
Figure 2.12. Change in Employment-Based Health Insurance
Premiums, 1995-1998........................................... 60
Figure 2.13. Comparison of Growth in Medicare and Private Health
Insurance, 1970-1997.......................................... 62
Figure 2.14. Distribution of HMOs by Plan Type, 1997............. 64
Figure 2.15. HMO Enrollment, 1990-1996........................... 66
Figure 2.16. Preferred Provider Organization (PPO) Enrollment,
1990-1996..................................................... 68
Figure 2.17. Provider Incentives and Capitation Contracts........ 70
Figure 2.18. State Laws Regulating Managed Care.................. 72
Figure 2.19. State Premium Rating Restrictions in the Individual
Market........................................................ 74
Figure 2.20. State High-Risk Health Insurance Pools.............. 76
Section 3. Medicare
Figure 3.1. Total Medicare Outlays, FY1967-FY2009............... 80
Figure 3.2. Total and Net Medicare Outlays, FY1967-FY2009....... 82
Figure 3.3. Total and Net Medicare Outlays in 1998 Constant
Dollars, FY1967-FY1998........................................ 84
Figure 3.4. Age and Gender Distribution of Medicare
Beneficiaries, 1996........................................... 86
Figure 3.5. Race/Ethnicity Distribution of Medicare
Beneficiaries, 1996........................................... 88
Figure 3.6. Medicare Enrollment, Actual and Projected, 1966-2017 90
Figure 3.7. The Aging of the U.S. Population, 1960-2030......... 92
Figure 3.8. Income Distribution of Elderly and Disabled Medicare
Beneficiaries, 1995........................................... 94
Figure 3.9. Percent of Poor Persons in the U.S. Population,
1959-1996..................................................... 96
Figure 3.10. Distribution of Medicare Benefit Payments by Service
Category, FY1997.............................................. 98
Figure 3.11. Trends in Distribution of Fee-for-Service Medicare
Payments for Selected Services, FY1980 and FY1997............. 100
Figure 3.12. Average Annual Medicare Growth Rates, FY1990-FY1996
and FY1997-FY2002............................................. 102
Figure 3.13. Medicare Short-Stay Hospital Utilization, Selected
Fiscal Years, 1985-1997....................................... 104
Figure 3.14. Medicare Funding for Graduate Medical Education,
1990-1998..................................................... 106
Figure 3.15. Trend in Number of Medical Residents, 1990/91-1997/
98............................................................ 108
Figure 3.16. Selected Primary Care Residents as a Percent of
Total Residents, 1990-1991 and 1997-1998...................... 110
Figure 3.17. Trend in Medicare Payments for Skilled Nursing
Facility (SNF) Care, 1988-1998................................ 112
Figure 3.18. Trends in SNF Utilization and Payments Per Day,
1988-1998..................................................... 114
Figure 3.19. Trend in Medicare Payments for Home Health, 1988-
1998.......................................................... 116
Figure 3.20. Trends in Medicare Home Health Care Utilization and
Payments Per Visit, 1988-1997................................. 118
Figure 3.21. Home Health Users and Total Visits, by Number of
Visits, FY1996................................................ 120
Figure 3.22. Medicare Fee-for-Service Spending for Selected
Service Categories, by Major Diagnostic Classifications, 1995. 122
Figure 3.23. Average Per Capita Medicare Spending, FY1999-FY2009. 124
Figure 3.24. Distribution of Medicare Spending for Beneficiaries,
1995.......................................................... 126
Figure 3.25. Average Medicare Part A and Part B Benefit Payment
Per Elderly Enrollee, by Age, 1995............................ 128
Figure 3.26. Average Medicare Benefit Payment Per User of
Services by Mortality, ESRD, and Hospital Status, 1995........ 130
Figure 3.27. Average Medicare Payments Per Enrollee by State and
by Region, CY1996............................................. 132
Figure 3.28. Trends in Medicare Part A and Part B Administrative
Expenses, 1970-1997........................................... 134
Figure 3.29. Administrative Costs: Medicare Compared to Private
Insurance and HMOs, 1993...................................... 136
Figure 3.30. Trends in Medicare Claims Volume, 1970-1997......... 138
Figure 3.31. Medicare Part A Trust Fund: Income and Outlays,
FY1970-FY2009................................................. 140
Figure 3.32. Medicare Part A Trust Fund: End-of-Year Balance,
FY1970-FY2009................................................. 142
Figure 3.33. Medicare Part A Trust Fund: Projected Income and
Cost Rates, 1999-2070......................................... 144
Figure 3.34. Incurred Medicare Outlays and Social Security
Outlays, Calendar Years 1999-2030............................. 146
Figure 3.35. Hospital Insurance Cumulative Shortfall, Calendar
Years 1999-2030............................................... 148
Figure 3.36. Medicare Part A Trust Fund: Number of Workers Per
Beneficiary, for Selected Years............................... 150
Figure 3.37. Medicare Part B Premium as a Percent of Total Part B
Trust Fund Disbursements, FY1970-FY1999....................... 152
Figure 3.38. Sources of Payment for Health Care, for All
Beneficiaries, Elderly and Disabled, 1994..................... 154
Figure 3.39. Spending for Health as a Percentage of After-Tax
Income, Elderly and Non-Elderly Households, 1960-1994......... 156
Figure 3.40. Out-of-Pocket Health Spending, 1995................. 158
Figure 3.41. Sources of Health Insurance for Medicare
Beneficiaries, 1996........................................... 160
Section 4. Medicare Risk HMOs and Medicare+Choice
Figure 4.1. Medicare+Choice Plans and Risk HMOs Participating in
Medicare, 1987-1999........................................... 164
Figure 4.2. Beneficiaries Enrolled in Medicare Risk HMOs and
Medicare+Choice Plans, Actual and Projected, 1990-2002........ 166
Figure 4.3. Distribution of Medicare Beneficiaries, by Number of
Risk HMOs Available in Their Area, 1995-1998.................. 168
Figure 4.4. Medicare Beneficiaries in Urban and Rural Locations
Enrolled in Risk HMOs, March 1998............................. 170
Figure 4.5. Variation in Number of Risk HMOs Available to
Medicare Beneficiaries in Urban and Rural Locations, June 1997 172
Figure 4.6. Medicare Beneficiaries Enrolled in Risk HMOs, by
State, December 1998.......................................... 174
Figure 4.7. Distribution of Medicare Risk HMO Enrollees Among
Selected States, 1998......................................... 176
Figure 4.8. Growth in Medicare Risk HMO Enrollment, December
1996-December 1998............................................ 178
Figure 4.9. Percent of Medicare Beneficiaries Enrolled in Risk
HMOs, by Number of Plans Available in Their Area, June 1998... 180
Figure 4.10. Medicare Risk Contract Plan Terminations, 1985-1998. 182
Figure 4.11. Medicare Risk HMO Contracts by Plan Model, December
1998.......................................................... 184
Figure 4.12. Average Monthly Medicare+Choice Payment Rate for
Aged Beneficiaries, 1999...................................... 186
Figure 4.13. Medicare+Choice Budget Neutrality Provision
Eliminates Blend from 1998 and 1999 HMO Payments.............. 188
Figure 4.14. Spread of County Medicare+Choice Payments for the
Aged by Location, 1997-1999................................... 190
Figure 4.15. Medicare Risk HMOs Offering Additional Benefits in
Their Basic Option Package, December 1997 and December 1998... 192
Figure 4.16. Distribution of Medicare Risk HMOs by Premium
Charged, 1996-1998............................................ 194
Figure 4.17. Age, Income and Health Status of Medicare HMO
Enrollees versus Medicare Fee-for-Service Enrollees........... 196
Figure 4.18. Medicare Risk HMOs: Costs as a Percentage of Average
Medicare Spending Per Beneficiary............................. 198
Figure 4.19. Current Risk Adjustment of Medicare+Choice Payments,
1999.......................................................... 200
Figure 4.20. Proposed Risk Adjustment of Medicare+Choice
Payments, 2000................................................ 202
Figure 4.21. Beneficiary Satisfaction with Medicare HMOs and Fee-
for-Service, 1996............................................. 204
Figure 4.22. Beneficiary Dissatisfaction with Medicare HMOs and
Fee-for-Service, 1996......................................... 206
Figure 4.23. Reasons for Disenrolling from Medicare Risk HMOs and
Switching to Medicare Fee-for-Service, 1996................... 208
Figure 4.24. Trends in Relative Growth in HMO Enrollment:
Medicare Versus Non-Medicare Markets, 1988-1999............... 210
Figure 4.25. Non-Medicare and Medicare HMO Penetration in
Selected States, 1996......................................... 212
Figure 4.26. Average Estimated Medical Education Payments as
Components of Medicare+Choice Payment Rates, by Urban and
Rural Location, 1998.......................................... 214
------------------------------------------------------------------------
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Medicare and Health Care Chartbook
May 1999
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Section 1.
What We Spend on Health Care
U.S. health care spending patterns in the mid-1990s
reflect some important delivery and financing changes.
This first section of the chartbook provides selected
information on health spending in the United States that
will help place Medicare spending within a broader
context. It provides data on overall health expenditure
trends and expenditure trends for three major health
services: hospitals, physicians, and nursing homes. The
figures convey information on the overall size of health
expenditures in the United States, the public role in
paying for those costs, and shifting patterns among the
sources of payment for them.
The national health expenditure data provide
summary spending trends for health services and supplies
and other related health expenditures. The expenditure
trends shown here portray total spending on health
services, supplies and other activities. Changes in the
price of services, supplies or insurance are
incorporated into these summary trends, along with any
changes in the use of health services and supplies.
This section answers some basic questions about
health spending in the United States:
How much do we spend on health services and
supplies?
Who pays for this spending?
How has health spending changed over the
last 37 years?
How do sources of payment vary by type of
service?
How have we utilized these services?
Most figures presented in this section rely on data
developed by the Office of National Health Statistics in
the Office of the Actuary at the Health Care Financing
Administration (HCFA).
Figure 1.1.
National Health Expenditures, 1960-1997
National health expenditures include spending on
health care services and supplies, health research and
construction, administration and the net cost of private
health insurance. The size of this aggregate spending
amount is influenced by such factors as the size of the
U.S. population, the population's use of medical
services and supplies, and reimbursement for those
services and supplies.
In 1960, national health care spending accounted
for 5.1% of the Gross Domestic Product (GDP), the
commonly used indicator of the size of the overall
economy. The enactment of Medicare and Medicaid and the
expansion of private health insurance covered services
contributed to a health spending trend that, over much
of the 37-year period, grew much more quickly than the
overall economy.
From 1960-1997, four periods are exceptions to the
rule that the growth in U.S. health spending outpaced
the growth of the overall economy. The 1964-1966 period,
the 1977-1979 period, and the 1982-1984 period are times
when there was no substantial change in the share of the
U.S. economy spent on health. Each of these was
characterized by substantial growth in the overall
economy. The fourth period, 1992-1997, also shows health
spending representing roughly the same share of the
economy (between 13.4% and 13.7%). However, unlike these
earlier periods, during the nineties health spending
grew at an historically lower rate--close to the
moderate rate of growth in the overall economy.
TABLE 1.1. National Health Expenditures and Expenditures as a Percent of
GDP, 1960-1997
------------------------------------------------------------------------
National
Health
Calendar Year Expenditures Percent of GDP
(in billions)
------------------------------------------------------------------------
1960.................................... $26.9 5.1
1965.................................... 41.1 5.7
1970.................................... 73.2 7.1
1975.................................... 130.7 8.0
1980.................................... 247.3 8.9
1985.................................... 428.7 10.3
1990.................................... 699.4 12.2
1995.................................... 993.7 13.7
1996.................................... 1042.5 13.6
1997.................................... 1092.4 13.5
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.001
Figure 1.2.
Health Spending as a Share of the Economy in
Selected Nations, 1960-1997
As depicted in this figure, health care spending in
the United States far exceeds that of most other
industrialized Nations when measured as a share of the
economy. In 1997, the United States spent 13.5% of its
economy on health. This can be compared with Germany's
10%, Canada's 9% and Japan and Great Britain's 7%.
Figure 1.2 compares health spending as a share of
the economy in selected Nations. Health spending in
different countries differs for a variety of reasons,
including different types of public and private health
insurance plans and benefits; different medical
education systems and approaches to treating illnesses;
and differing health characteristics of the populations.
These and other factors affect the share of a Nation's
economy spent on health care.
TABLE 1.2. Health Spending as a Share of the Economy in Selected Nations, 1960-1997
(Expenditures as a percent of national GDP)
----------------------------------------------------------------------------------------------------------------
United Great
Calendar Year States Britain Canada Germany Japan
----------------------------------------------------------------------------------------------------------------
1960........................................... 5.1 3.9 5.5 4.8 3.0
1965........................................... 5.7 4.1 6.0 4.6 4.5
1970........................................... 7.1 4.5 7.1 6.3 4.4
1975........................................... 8.0 5.5 7.2 8.8 5.5
1980........................................... 8.9 5.6 7.3 8.8 6.4
1985........................................... 10.3 5.9 8.4 9.3 6.7
1990........................................... 12.2 6.0 9.2 8.7 6.0
1995........................................... 13.7 6.9 9.3 10.4 7.2
1996........................................... 13.6 6.9 9.2 10.5 7.2
1997........................................... 13.5 6.7 9.0 10.4 7.3
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Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.002
Figure 1.3.
Who Pays Our Health Bills, 1997
Figure 1.3 shows health expenditures by payment
source. Private spending is the largest payment source
for health care in the United States, accounting for 54%
of all expenditures. Federal spending (primarily through
the Medicare and Medicaid programs) is the largest
single contributor, accounting for 34% of all spending.
Private health insurance includes employer-based
group insurance plans and individually purchased
policies.
Out-of-pocket spending includes payments made by
insured individuals for premiums, coinsurance,
copayments and deductibles, as well as health services
and items not covered by insurance. Out-of-pocket
payments also include payments by persons without
insurance coverage.
TABLE 1.3. Health Spending by Major Funding Source
------------------------------------------------------------------------
Expenditures Percent of
Funding Source (in millions) Total
------------------------------------------------------------------------
Private health insurance................ $348,020 31.9
Out-of-pocket spending.................. 187,551 17.2
Other private spending.................. 49,741 4.6
Federal spending........................ 367,050 33.6
State and local spending................ 140,023 12.8
All private sources..................... 585,312 53.6
All public sources...................... 507,073 46.4
-------------------------------
Total................................... $1,092,385 100.0
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Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.003
Figure 1.4.
Health Spending by Payment Source, 1960-1997
Over the last 37 years there has been a substantial
shift in the relative role of various payers of health
services. This stems from a number of factors including
the enactment and expansion of Medicare and Medicaid,
changes in reimbursement practices for these federal
programs, and changes in private health insurance.
Importantly, private health insurance has shifted away
from the fee-for-service-based reimbursement system to
managed care prepayment and mixed compensation systems.
The first significant shift in payment source
depicted in figure 1.4 occurred shortly after 1965
reflecting the enactment of the Medicare and Medicaid
programs. In 1964, before their enactment, the federal
government contributed about 12% to all health
expenditures. By 1970, the federal government's share
increased to 24%. Federal spending continued its rise as
a percent of all expenditures until 1976 when it
represented about 28 cents of each health dollar.
Between 1976 and 1990, the share of health spending paid
by the federal government hovered around 28%. Since
1990, federal spending on health has grown from this
plateau to represent \1/3\ of all health spending in
1996.
Perhaps the most dramatic trend depicted in the
figure is the reduction in the share of health
expenditures paid for by individuals out-of-pocket. In
1960, almost half of all health expenditures were paid
out-of-pocket. The growth of private health insurance
and public health programs results in out-of-pocket
spending accounting for about \1/6\ of all health
spending.
TABLE 1.4. Health Spending by Payment Source, 1960-1997
----------------------------------------------------------------------------------------------------------------
Out-of- Private State and Total
Calendar Year Pocket Health Other Federal Local Expenditures (in
Payments Insurance Private Spending Spending millions)
----------------------------------------------------------------------------------------------------------------
1960.................................... 48.7 21.9 4.7 10.9 13.9 $26,850
1965.................................... 45.1 24.4 5.6 11.7 13.3 41,145
1970.................................... 34.0 22.2 5.9 24.3 13.5 73,243
1975.................................... 29.1 23.9 4.8 27.8 14.2 130,727
1980.................................... 24.4 28.2 5.0 29.1 13.3 247,273
1985.................................... 23.5 31.0 4.9 28.7 11.9 428,720
1990.................................... 20.7 34.1 4.5 27.9 12.6 699,361
1995.................................... 17.2 32.6 4.4 32.8 13.0 993,725
1996.................................... 17.1 32.3 4.4 33.4 12.8 1,042,522
1997.................................... 17.2 31.9 4.6 33.6 12.8 1,092,385
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Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.004
Figure 1.5.
Health Spending as a Share of Government
Expenditures, 1960-1997
Over the last 37 years, the share of government
spending going to health has grown substantially. In
1960, health spending represented a minor component of
all federal spending (accounting for just over 3% of
each federal dollar). The enactment of the Medicare and
Medicaid programs in the mid-1960s, and the program
expansions contributed to health representing about 12%
of federal expenditures by 1980. Since 1980, health
spending has grown to 21% of each federal dollar spent.
Spurred on largely as a result of increased
Medicaid spending, the share of state and local spending
dedicated to health has increased from 12% of state and
local expenditures in 1960 to 18.5% in 1997. While the
share of state and local budgets dedicated to health has
increased, their share of spending has not increased as
rapidly as the federal government's share. Caution
should be used in interpreting this state and local
trend. Individual states and localities may spend
substantially more or less of their budgets on health.
In addition, state and local balanced budget
requirements may have an impact on this trend.
TABLE 1.5. Health Spending as a Share of Government Expenditures, 1960-1997
($ in millions)
----------------------------------------------------------------------------------------------------------------
Percent of
Federal Percent of State and All State
Calendar Year Expenditures All Federal Local and Local
Expenditures Expenditures Expenditures
----------------------------------------------------------------------------------------------------------------
1960.................................................... $2,914 3.3 $3,734 11.7
1965.................................................... 4,820 3.9 5,458 11.8
1970.................................................... 17,816 8.5 9,890 11.8
1975.................................................... 36,407 9.8 18,625 13.0
1980.................................................... 71,958 11.6 32,823 15.0
1985.................................................... 123,171 12.6 51,032 15.1
1990.................................................... 195,181 15.2 87,993 17.0
1995.................................................... 328,705 19.9 129,229 18.9
1996.................................................... 348,009 20.5 133,373 18.5
1997.................................................... 367,050 21.0 140,023 18.5
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.005
Figure 1.6.
Per Capita Health Spending in Selected Nations,
1960-1994
A previous figure (figure 1.2) shows that the
United States spends a substantially larger share of its
economy on health than other nations. There are a number
of factors that are likely to account for this,
including the size and age distribution of a nation's
population.
Figure 1.6 adjusts cross-national health spending
patterns by taking into account the relative size of
each nation's population. The table and figure convert
each nation's health expenditures into U.S. dollars
using a measure of purchasing power parity (PPP). The
PPP is an index used to convert national currency units
to a common unit. A dollar in this common unit would
purchase the same basket of goods in each nation.
After adjusting for population and the purchasing
power of national currencies, the United States still
spends substantially more per capita than the other
industrialized nations portrayed in the figure. For
example, in 1994, the United States spent almost three
times as much per capita as Great Britain on health.
TABLE 1.6. Per Capita Health Spending in Selected Nations, 1960-1994
(Per capita amounts converted to U.S. dollars)
----------------------------------------------------------------------------------------------------------------
United Great
Calendar Year States Britain Canada Germany Japan
----------------------------------------------------------------------------------------------------------------
1960........................................... $141 $77 $105 $91 $26
1965........................................... 202 98 151 127 62
1970........................................... 341 149 255 212 129
1975........................................... 582 278 436 452 260
1980........................................... 1,051 453 735 802 522
1985........................................... 1,733 670 1,215 1,164 818
1990........................................... 2,689 957 1,690 1,519 1,091
1991........................................... 2,903 1,006 1,828 1,534 1,180
1992........................................... 3,144 1,170 1,939 1,750 1,297
1993........................................... 3,329 1,165 1,981 1,726 1,359
1994........................................... 3,516 1,211 2,010 1,869 1,473
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS. All dollar amounts are converted to U.S. dollars using a purchasing price parity
measure.
[GRAPHIC] [TIFF OMITTED] T6395.006
Figure 1.7.
Major Components of Health Expenditures, 1997
Most (89%) but not all health care expenditures are
spent on personal health services and supplies. The
remaining 11% can be classified into the following
categories:
4.6% of all health expenditures are for
program administration and the net cost of private
health insurance (which includes profits earned by
private health insurance companies);
3.5% of all health expenditures are for
public health activities;
1.6% of all health expenditures are for
non-commercial health research; and
1.6% of all health expenditures are for
the construction of health care facilities.
TABLE 1.7. Major Components of Health Expenditures, 1997
------------------------------------------------------------------------
Expenditures Percent of
Spending Category (in millions) Total
------------------------------------------------------------------------
Personal health care.................... $969,005 88.7
Program administration and net cost of 49,998 4.6
private insurance......................
Government public health activities..... 38,490 3.5
Non-commercial research................. 17,956 1.6
Construction............................ 16,937 1.6
-------------------------------
Total health expenditures............... $1,092,385 100.0
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.007
Figure 1.8.
Personal Health Care Spending,
by Service Category, 1997
Combined spending on three service categories
(hospital services, physician services, and nursing home
services) account for 69% of total personal health care
spending. Inpatient and outpatient hospital service
spending represents the single largest service category
(38%). In addition, physician service spending accounts
for roughly 60% of that amount (23%). Nursing home
service spending accounts for about 9% of the total.
Other significant service or supply categories
include prescription drugs (8%), dental services (5%)
and a relatively small but growing share home health
care services (3%).
TABLE 1.8. Personal Health Care Spending, by Service Category, 1997
------------------------------------------------------------------------
Expenditures Percent of
Service Category (in millions) Total
------------------------------------------------------------------------
Hospital care........................... 371,062 38.3
Physician services...................... 217,628 22.5
Non-durable medical products............ 108,872 11.2
prescription drugs.................. 78,888 8.1
other non-durables.................. 29,984 3.1
Nursing home care....................... 82,774 8.5
Other professional care................. 61,916 6.4
Dental services......................... 50,648 5.2
Home health care........................ 32,318 3.3
Other personal health care.............. 29,909 3.1
Durable medical equipment............... 13,878 1.4
-------------------------------
Personal health care.................... $969,005 100.0
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.008
Figure 1.9.
Growth Rates for Hospital, Physician, and
Nursing Home Spending, 1960-1997
During the 1990s, the rate of growth for all three
major health spending categories (hospital, physician,
and nursing home services) was lower than in the past.
From 1990 to 1997, hospital and physician spending grew
at a relatively moderate rate of 5.4% and 5.8% per
annum, respectively. Nursing home services also grew at
a lower rate than in prior periods over these 6 years,
but at a somewhat higher per annum rate of 7.2%.
A number of factors have contributed to the
lowering of growth rates. For instance, the move of much
of the population into managed care together with
changes in reimbursement practices have contributed to a
reduction in inpatient hospital use (see chapter 2) and
physician services. In addition, the availability of
other alternatives to nursing home care, such as
community-based care and special living arrangements for
the elderly, may have an impact on the use of nursing
home services.
TABLE 1.9. Spending and Annual Growth Rates for Hospital Services, Physician Services, and Nursing Home
Services, 1960-1997
(All dollar amounts are in millions)
----------------------------------------------------------------------------------------------------------------
Average Average Average
Annual Annual Annual
Hospital Rate of Physician Rate of Nursing Rate of
Calendar Year Care Growth Services Growth Home Care Growth
(in (in (in
percent) percent) percent)
----------------------------------------------------------------------------------------------------------------
1960....................................... $9,275 -- $5,283 -- $848 --
1965....................................... 14,040 8.6 8,191 9.2 1,471 11.6
1970....................................... 28,003 14.8 13,579 10.6 4,217 23.4
1975....................................... 52,571 13.4 23,909 12.0 8,668 15.5
1980....................................... 102,700 14.3 45,232 13.6 17,649 15.3
1985....................................... 168,290 10.4 83,618 13.1 30,679 11.7
1990....................................... 256,447 8.8 146,346 11.8 50,928 10.7
1995....................................... 347,227 6.2 201,863 6.6 75,467 8.2
1996....................................... 360,777 3.9 208,509 3.3 79,385 5.2
1997....................................... 371,062 2.9 217,628 4.4 82,774 4.3
1990-97.................................... -- 5.4 -- 5.8 -- 7.2
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.009
Figure 1.10.
Sources of Hospital Service Payments, 1960-1997
In 1997, public (federal and state and local)
sources accounted for over 61% of hospital service
expenditures. The single largest hospital services payer
is the federal government, contributing half of the
total spending for this service category. Private health
insurance represents the next largest payer paying about
31% of all hospital spending.
Between 1960 and 1997, federal payments grew from
17% to 50% of hospital spending. Medicare and Medicaid's
enactment led to this increase in federal spending and
the reduction in out-of-pocket spending.
TABLE 1.10. Sources of Hospital Service Payments, 1960-1997
(in percent)
----------------------------------------------------------------------------------------------------------------
Total
Out-of- Private Other Federal State and Expenditures
Calendar Year Pocket Health Private Spending Local (in
Payments Insurance Spending millions)
----------------------------------------------------------------------------------------------------------------
1960....................................... 20.7 35.6 1.2 17.3 25.2 $9,275
1965....................................... 19.6 40.9 1.9 15.4 22.2 14,040
1970....................................... 9.0 32.4 3.2 36.4 19.0 28,003
1975....................................... 8.3 32.9 2.7 38.9 17.1 52,571
1980....................................... 5.2 35.5 4.9 41.0 13.4 102,700
1985....................................... 5.2 35.0 4.9 43.0 11.9 168,290
1990....................................... 4.3 37.3 4.0 41.1 13.3 256,447
1995....................................... 3.3 30.9 4.3 49.1 12.4 347,227
1996....................................... 3.3 30.5 4.5 49.8 12.0 360,777
1997....................................... 3.3 30.5 4.6 50.0 11.5 371,062
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.010
Figure 1.11.
Total Hospital Marginal Revenues, 1976-1997
Hospital margins are a widely used indicator of the
financial condition of the nation's hospitals. A
hospital's total margin is the difference between the
hospital's total revenues and total expenses, taken as a
percentage of total revenues. Medicare's prospective
payment system (PPS) hospital inpatient margins are the
difference between PPS operating and capital payments
the hospital receives and the sum of its Medicare
inpatient operating and capital costs, taken as a
percentage of the total Medicare payments.
Figure 1.11 shows the trend in total hospital
margins. Between 1976 and 1984, total hospital revenues
increased at a faster rate than total hospital expenses,
resulting in increasing total hospital margins. In 1984,
total margins peaked at 7.3%. Between 1985 and 1988,
total margins declined to 3.5%, the lowest level since
the enactment of PPS. Since 1985, total hospital margins
have been gradually increasing, reaching 5.7% in 1995.
The implementation of Medicare's PPS for hospital care
in 1984, under which the program began paying only a
fixed amount for each admission, has been credited with
motivating hospitals to contain their costs. Between
1984 and 1991, PPS margins dropped each year, reaching
-2.4% in 1991. Since 1992, PPS margins have started
climbing upward, and are projected to reach 14.2% in
1997.
TABLE 1.11. Total Hospital Marginal Revenues, 1976-1997
------------------------------------------------------------------------
Actual and
Total Aggregate Projected PPS
Calendar Year Margin Inpatient
Margins
------------------------------------------------------------------------
1976................................ 2.0% --
1980................................ 3.6 --
1984................................ -- 13.4%
1985................................ 6.6 13.0
1986................................ -- 8.7
1987................................ -- 5.9
1988................................ -- 2.7
1989................................ -- 0.3
1990................................ 3.6 -1.5
1991................................ 4.4 -2.4
1992................................ 4.3 -1.0
1993................................ 4.5 1.0
1994................................ 5.0 5.0
1995................................ 5.8 10.0
1996................................ -- 11.3*
1997................................ -- 14.2*
------------------------------------------------------------------------
Note: Table prepared by CRS.
*MedPAC Estimated data. March 1998.
[GRAPHIC] [TIFF OMITTED] T6395.011
Figure 1.12.
Trends in Hospital Utilization:
Inpatient Days and Outpatient Visits,
1965-1997
Spending on hospital services includes spending for
inpatient care and outpatient visits. Figure 1.12
depicts a major shift in the use of these two categories
of hospital services. Inpatient hospital days (an
aggregate measure influenced by the number of admissions
and the length of hospital stays) declined during the
1980s and has continued to decline. Between 1990 and
1997, inpatient days declined by 15%. In contrast, the
number of outpatient visits has increased over this time
period, rising by 49%.
TABLE 1.12. Trends in Hospital Utilization: Inpatient Days and
Outpatient Visits, 1965-1997
------------------------------------------------------------------------
Outpatient
Calendar Year Visits Inpatient Days
------------------------------------------------------------------------
1965................................ 92,631 206,411
1970................................ 133,545 239,866
1975................................ 196,311 258,096
1980................................ 206,752 275,105
1985................................ 222,773 237,857
1990................................ 302,691 227,782
1991................................ 323,202 223,805
1992................................ 349,397 220,476
1993................................ 368,358 215,390
1994................................ 384,880 209,025
1995................................ 415,710 201,279
1996................................ 440,845 192,919
1997................................ 450,907 192,730
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.012
Figure 1.13.
Sources of Physician Services Payments, 1960-1997
Private insurance is the major source of spending
for physician services paying for half of all physician
services in 1997. Another roughly $1 in $7 spent on
physician services in the United States is paid directly
by individuals out-of-pocket either in the form of
copayments, deductibles, or in-full for services that
are not covered by their health insurance.
Like hospital services, the probability of
individuals paying for physician services has declined
sharply since the 1960s. Unlike hospital services,
however, the single largest payer for physician services
is not the federal government, but rather private health
insurance companies. Private health insurers paid for
51% of all physician services in 1997; in 1985, private
health insurers contributed to about 40% of the total.
In contrast to these shifts in private payment
sources, public sources of physician payments has
remained relatively stable over the last 10 years. The
federal government's share of this spending increased
slightly (from 23% to 27%), while state and local
spending continued to pay for about 6% of all physician
services.
TABLE 1.13. Sources of Physician Services Payments, 1960-1997
(in percent)
----------------------------------------------------------------------------------------------------------------
Total
Out-of- Private Other Federal State and Expenditures
Calendar Year Pocket Health Private Spending Local (in
Payments Insurance Spending millions)
----------------------------------------------------------------------------------------------------------------
1960....................................... 62.7 30.2 0.1 1.4 5.7 $5,283
1965....................................... 60.6 32.5 0.1 1.4 5.4 8,191
1970....................................... 42.2 35.2 0.1 16.3 6.2 13,579
1975....................................... 36.7 35.3 0.2 19.9 7.8 23,909
1980....................................... 32.4 37.9 0.8 22.1 6.8 45,232
1985....................................... 29.2 40.1 1.6 23.2 5.9 83,618
1990....................................... 22.0 45.7 1.8 24.3 6.2 146,346
1995....................................... 14.9 51.7 2.1 25.2 6.1 201,863
1996....................................... 14.9 51.3 2.0 26.1 5.7 208,509
1997....................................... 15.7 50.2 2.0 26.8 5.4 217,628
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.013
Figure 1.14.
Physician Contacts Per Person, 1987-1995
Largely as a result of an increase in the number of
visits by the aged, the number of physician contacts per
person has increased from 5.4 contacts per person per
annum in 1987 to 5.8 contacts per annum per year in
1995.
For the elderly, the number of physician contacts
increased from 8.9 contacts per year in 1989 to 11.3
contacts per person in 1994. The most recent data, for
1995, indicate a slight decline in these contacts to
11.1.
TABLE. 1.14. Physician Contacts Per Person, 1987-1995
------------------------------------------------------------------------
Year Total Aged
------------------------------------------------------------------------
1987.................................... 5.4 8.9
1988.................................... 5.3 8.7
1989.................................... 5.3 8.9
1990.................................... 5.5 9.2
1991.................................... 5.6 10.4
1992.................................... 5.9 10.6
1993.................................... 6.0 10.9
1994.................................... 6.0 11.3
1995.................................... 5.8 11.1
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.014
Figure 1.15.
Physician Supply, Selected Years 1965-1997
Since the 1960s the number of physicians in the
United States has grown rapidly. In 1965, 266,000
physicians (excluding those physicians practicing in
federal health systems) provided services to the U.S.
population. By 1975, the number of physicians increased
to 357,000. By 1997, there were close to 736,000
physicians in the United States, more than 2.7 times the
number in 1965.
As shown in figure 1.15, the increase in the number
of physicians has outpaced population growth in the
United States. A recent Institute of Medicine report
indicates that the physician growth rate is about 1\1/2\
times the rate of population growth. It should be noted
that this overall growth rate masks significant
differences in the physician to population ratio in
specific geographic regions.
TABLE 1.15. Physician Supply, Selected Years 1965-1997
------------------------------------------------------------------------
Number of
Physicians Per
Year 100,000
Population
------------------------------------------------------------------------
1965.................................................. 139
1970.................................................. 148
1975.................................................. 169
1980.................................................. 195
1985.................................................. 220
1990.................................................. 237
1992.................................................. 249
1993.................................................. 252
1994.................................................. 252
1995.................................................. 267
1996.................................................. 271
1997.................................................. 276
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.015
Figure 1.16.
Sources of Nursing Home Care Payments, 1960-1997
The federal government's role as a source of
payment for nursing home care has changed in the last
few years. In 1990, the federal government paid for 31%
of care; by 1997, its share increased to about 42%. As
depicted in the figure, no other single payment source
experienced a similar increase in share of nursing home
payments.
The Nation spent $83 billion for nursing home care
in 1997. Government programs financed the largest
portion of this, with Medicaid (federal and state
spending) playing the largest role. Medicare's role as a
payer for nursing home care has increased in the last
several years and accounts for much of the increase in
the federal government's share of nursing home spending.
Out-of-pocket spending is the other major source of
payment for nursing home care, and private insurance
coverage of nursing home services is currently very
limited.
TABLE 1.16. Sources of Nursing Home Care Payments, 1960-1997
(in percent)
----------------------------------------------------------------------------------------------------------------
Total
Out-of- Private Other Federal State and Expenditures
Calendar Year Pocket Health Private Spending Local (in
Payments Insurance Spending millions)
----------------------------------------------------------------------------------------------------------------
1960....................................... 77.9 0.0 6.4 7.9 7.8 848
1965....................................... 60.1 0.1 5.7 15.0 19.0 1,471
1970....................................... 53.5 0.4 4.9 24.8 16.4 4,217
1975....................................... 42.6 0.7 4.8 30.5 21.3 8,668
1980....................................... 41.8 1.2 3.0 31.8 22.2 17,649
1985....................................... 44.4 2.7 1.8 29.9 21.2 30,679
1990....................................... 43.1 4.0 1.8 31.0 20.0 50,928
1995....................................... 35.3 4.5 1.9 37.6 20.7 75,467
1996....................................... 33.6 4.7 1.9 39.4 20.4 79,385
1997....................................... 31.1 4.9 1.9 41.7 20.4 82,774
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.016
Figure 1.17.
Nursing Home Use by the Aged, 1973-1995
A recent survey finds that the rate of nursing home
use among the aged has declined since the mid-1970s. In
1985, 4.6% of the aged were residents in nursing homes.
In 1995, this percentage fell to 4.1%. This reduction is
occurring at the same time that the aged population is
growing in size and becoming much older. One possible
explanation for this decline in the use of nursing home
services is the growing use of alternative sources of
long-term care services for the aged. For instance, the
Medicare program's expansion of coverage of home health
services may have contributed to this lower nursing home
utilization rate among the aged. States have also
expanded coverage of home and community-based care under
their Medicaid programs.
TABLE 1.17. Nursing Home Use by the Aged, 1973-1995
------------------------------------------------------------------------
Year Rate (Per 1,000)
------------------------------------------------------------------------
1973-1974............................................. 44.7
1977.................................................. 47.1
1985.................................................. 46.2
1995.................................................. 41.3
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.017
Section 2.
Insurance and the Uninsured
How many Americans are without health insurance?
Where do they live and work? How old are they? This
section of the chartbook describes the economic and
demographic characteristics of the uninsured. It also
describes two aspects of the health sector in the United
States: the sources of coverage among the 226 million
Americans who are insured and how that coverage is
changing.
In addition to providing basic information on the
pattern of health insurance coverage, this section
reports on children without health insurance. The
proportion of children with no health insurance rose
from 13.3% in 1990 to 15.4% in 1997, and the number of
uninsured children increased by almost 2.5 million
during the period.
Different data sources provide different answers to
the question: how many Americans are without health
insurance? The estimates contained in this section of
the report are based on an analysis of the March 1998
income supplement of the Current Population Survey (CPS)
prepared by the Census Bureau. This survey asks a series
of questions on the health insurance coverage of
individuals and families for the prior calendar year
(1997). The estimates contained in this section follow
the methods used by the Census Bureau in their
calculation of the number of uninsured.
This section also provides background information
on the use of managed care options by those with
insurance. Managed care can take a variety of forms
including health maintenance organizations (HMOs) and
preferred provider organizations (PPOs). This topic
concludes with a series of figures portraying the use of
the different types of HMOs, health service utilization
of HMO members, and PPO enrollment and ownership.
In addition, this section includes detailed
information on state regulations of health insurance.
State laws regulating managed care through a variety of
provisions, such as any willing provider and mental
health parity, are described. State laws regulating the
health insurance premiums that may be charged for
individual, nongroup health insurance, such as community
rating, are outlined. Finally, details are reported for
state high-risk health insurance pools.
Figure 2.1.
Health Insurance Coverage by Type of Insurance, 1997
Figure 2.1 provides a breakdown of health insurance
coverage by type of insurance. It should be noted in
viewing the figure that individuals may have more than
one source of health insurance. Based on the annual
income supplement to the Current Population Survey,
conducted by the Bureau of the Census:
63% of the U.S. population relied on
employment-based health insurance coverage (group health
insurance through an employer or union);
22% of the U.S. population relied on
Medicare or Medicaid as a source of health insurance;
and
10% of the U.S. population relied on
private nongroup coverage to meet their health insurance
needs.
In 1997, approximately 43 million people in the
United States (16.1%) were without any form of health
insurance coverage throughout the year. The uninsured
were often young and poor, but many of them did have
some ties to the labor force, frequently in small firms.
TABLE 2.1. Health Insurance Coverage by Type of Insurance, 1997
------------------------------------------------------------------------
Percent of
Type of Health Insurance U.S.
Population
------------------------------------------------------------------------
Employment based........................................ 62.5
Medicare or Medicaid.................................... 21.8
Private nongroup........................................ 10.1
Military................................................ 3.2
Other public............................................ 0.7
Uninsured............................................... 16.1
Total population (in millions).......................... 269.1
------------------------------------------------------------------------
Note: Table prepared by CRS. It should be noted in viewing the figure
that individuals may have more than one source of health insurance.
[GRAPHIC] [TIFF OMITTED] T6395.018
Figure 2.2.
Uninsured Nonelderly by Age, 1997
Figure 2.2 provides a breakdown of the uninsured
population by age. Note that this figure excludes the
elderly population ages 65 and over, most of whom are
insured. Persons ages 19 to 34 years are over-
represented among the uninsured, especially young adults
ages 19 to 24. These young adults comprise 16% of the
uninsured population, but only 9% of the total
nonelderly population. Children less than 19 years and
adults ages 35 to 64 make up smaller proportions of the
uninsured than of the total nonelderly population.
[GRAPHIC] [TIFF OMITTED] T6395.019
Figure 2.3.
Uninsured Ages 35-64
Figure 2.3 shows the percent uninsured by working
status for people ages 35 to 64. Across age groups, the
pattern of uninsurance is quite similar when work status
is controlled. The highest rate of uninsurance is found
among those in the ``other'' category, which includes
students, homemakers, those reporting that they were
unable to find work, and other circumstances. The lowest
rate of uninsurance is reported by full-time full year
workers in each age category.
Within each work status, lack of coverage is
highest for people ages 35 to 54, both in each group and
in total. At the same time, people ages 62 to 64 and 55
to 61 are slightly less likely to be uninsured than the
younger group--14.3 to 14.4% versus 15.8%. This result
occurs because of the differences in work status by age
group. Almost two-thirds (63%) of those ages 35 to 54
work full-time compared to 50% of those ages 55 to 61
and 28% of those ages 62 to 64. High rates of coverage
among full-time workers reduce the relative lack of
coverage among the youngest age group here. Moreover,
early retirees, who account for 35% of those ages 62 to
64 but only 1% of those ages 35 to 54, are more likely
to be uninsured than full-time workers. Relatively fewer
full-time workers and more retirees among those ages 62
to 64 produce the level of uninsurance found for this
group.
TABLE 2.3. Percent Uninsured by Work Status and Age, 1997
----------------------------------------------------------------------------------------------------------------
Full-Time
Full Year Other Ill/ Retired Other Total
Workers Workers Disabled
----------------------------------------------------------------------------------------------------------------
35-54 years................................... 11.2% 23.6% 17.2% 29.1% 28.7% 15.8%
55-61 years................................... 9.8% 18.7% 13.4% 17.2% 28.1% 14.3%
62-64 years................................... 9.6% 17.2% 9.8% 16.4% 24.5% 14.4%
----------------------------------------------------------------------------------------------------------------
Source: Table prepared by CRS using the March 1998 CPS.
[GRAPHIC] [TIFF OMITTED] T6395.020
Figure 2.4.
Uninsured by Region of Residence, 1997
People living in the Northeast and Midwest are less
likely to be uninsured than those in the West and South.
While residents of the Northeast and Midwest make up 19%
and 23%, respectively, of the U.S. population, they
constitute only 17% and 16% of persons without health
insurance. In contrast, while the South contains 35% of
the U.S. population, 40% of all people without health
insurance reside in the South. Likewise, while 23% of
U.S. residents live in the West, 27% of all people
without health insurance live in Western states.
[GRAPHIC] [TIFF OMITTED] T6395.021
Figure 2.5.
Sources of Children's Health Insurance, 1990 and 1997
Figure 2.5 shows the percentage of children ages 18
and younger who were covered by private insurance or
Medicaid or who were uninsured in 1990 and 1997.
According to data collected in the Current Population
Survey (CPS), the number of children with private health
insurance--employer-group coverage or individually
purchased policies--rose by about 1.5 million from 1990
to 1997, but the percentage of children with private
health insurance declined from 71.5% to 67.0%.
Simultaneously, the percentage of children covered by
Medicaid increased from 18.1% to 19.4%. Consequently,
the proportion of children with no health insurance rose
from 13.3% in 1990 to 15.4% in 1997, and the number of
uninsured children increased by almost 2.5 million
during this period. Care should be exercised in
interpreting these data because changes to the survey
instrument and data collection methods in the
intervening years may have affected the estimates of
insurance coverage derived from this source.
Nevertheless, while the precise size of the changes in
insurance coverage from year to year may be uncertain,
the trends are not in doubt.
TABLE 2.5. Sources of Health Insurance, 1990 and 1997, Children Ages 18
and Younger
------------------------------------------------------------------------
(Number of Children) 1990 1997
------------------------------------------------------------------------
Private insurance....................... 49,063,000 50,556,000
Medicaid................................ 12,420,000 14,652,000
Uninsured............................... 9,126,000 11,586,000
-------------------------------
Total................................... 68,619,000 75,491,000
------------------------------------------------------------------------
Note: Estimated from the Current Population Survey. Some children have
more than one kind of insurance.
[GRAPHIC] [TIFF OMITTED] T6395.022
Figure 2.6.
Uninsured Children by Age, 1997
Figure 2.6 shows the distribution of uninsured
children ages 18 and younger by age. The 11.6 million
children without health insurance in 1997 comprised
15.4% of all children under age 19. Of this number,
29.6% were under age 6, 34.2% were ages 6 to 12, and
36.2% were ages 13 to 18. Among the three age groups,
the highest proportion of uninsured children was among
those 13 to 18 years old, 17.9% of whom were uninsured.
The lowest rate of uninsured children was among those 6
to 12 years old, 14.1% of whom were without health
insurance in 1997.
TABLE 2.6. Uninsured Children by Age, 1997
------------------------------------------------------------------------
Number Percent
------------------------------------------------------------------------
Under age 6............................. 3,424,000 29.6
Ages 6-12............................... 3,968,000 34.2
Ages 13-18.............................. 4,195,000 36.2
-------------------------------
Total................................... 11,586,000 100.0
------------------------------------------------------------------------
Note: Estimated from the Current Population Survey.
[GRAPHIC] [TIFF OMITTED] T6395.023
Figure 2.7.
Uninsured Children by Family's Income
Relative to Poverty Thresholds, 1997
Figure 2.7 displays the distribution of uninsured
children by their family income relative to the federal
poverty thresholds. Almost one-third of uninsured
children were in families with income below the poverty
line in 1997. Slightly more than one-third of children
without health insurance were in families with incomes
between 100% and 200% of the poverty level. About 17% of
uninsured children were in families with incomes equal
to three times the poverty level or higher. This
analysis only includes children living with family
members.
TABLE 2.7. Uninsured Children by Family's Income Relative to Poverty
Thresholds, 1997
------------------------------------------------------------------------
Number Percent
------------------------------------------------------------------------
Under 100%.............................. 3,396,000 30.8
100%-149%............................... 2,182,000 19.8
150%-199%............................... 1,680,000 15.3
200%-299%............................... 1,846,000 16.8
300%+................................... 1,912,000 17.3
-------------------------------
Total................................... 11,016,000 100.0
------------------------------------------------------------------------
Note: Estimated from the Current Population Survey. Excludes children
not in families. Does not include 571,000 uninsured children who lived
with non-relatives.
[GRAPHIC] [TIFF OMITTED] T6395.024
Figure 2.8.
Uninsured Children by Parents' Insurance Status,
1997
Figure 2.8 reports the health insurance status of
the head of the family in which there was a child
without health insurance in 1997. Only 17.1% of these
children lived with a family head who had employment-
based group coverage. Most uninsured children--80.4%--
were members of families in which both parents or the
only parent present in the household also were
uninsured.
TABLE 2.8. Uninsured Children by Parents' Insurance Status, 1997
------------------------------------------------------------------------
Number Percent
------------------------------------------------------------------------
Employment-related...................... 1,888,000 17.1
Other private plan...................... 123,000 1.1
Medicare or Medicaid.................... 131,000 1.2
Other public............................ 19,000 0.2
Uninsured............................... 8,855,000 80.4
-------------------------------
Total................................... 11,016,000 100.0
------------------------------------------------------------------------
Note: Estimated from the Current Population Survey. Does not include
571,000 uninsured children who lived with non-relatives.
[GRAPHIC] [TIFF OMITTED] T6395.025
Figure 2.9.
Uninsured Children by Parents' Employment Status,
1997
Figure 2.9 describes the employment status of the
parent(s) of uninsured children. In 1997, almost 59% of
uninsured children had at least one parent who worked
full-time for the full year. Only 17% of children
without health insurance were in families in which there
was not at least one working parent.
TABLE 2.9. Uninsured Children by Parents' Employment Status, 1997
------------------------------------------------------------------------
Number Percent
------------------------------------------------------------------------
At least one parent worked full-time for 6,447,000 58.5
the full year..........................
At least one parent worked part-time or 2,664,000 24.2
part-year..............................
Neither parent worked................... 1,905,000 17.3
-------------------------------
Total................................... 11,016,000 100.0
------------------------------------------------------------------------
Note: Estimated from the Current Population Survey. Does not include
571,000 uninsured children who lived with non-relatives.
[GRAPHIC] [TIFF OMITTED] T6395.026
Figure 2.10.
Uninsured Children by Size of Largest Firm
Employing Either Parent, 1997
Figure 2.10 shows the number of workers at the
largest firm that employed either parent of a child
without health insurance.\1\ About 38% of these children
lived in families in which neither parent worked for a
firm with more than 25 employees. Nearly 27% of
uninsured children lived in families in which neither
parent worked for a firm with 10 or more employees. Only
19% of uninsured children were in families in which a
parent was employed by a firm with 1,000 or more
workers.
TABLE 2.10. Uninsured Children by Size of Largest Firm Employing Either
Parent, 1997
------------------------------------------------------------------------
Number Percent
------------------------------------------------------------------------
<10 Workers............................. 3,015,000 27.4
10-24 Workers........................... 1,217,000 11.0
25-99 Workers........................... 1,384,000 12.5
100-499 Workers......................... 1,080,000 9.8
500-999 Workers......................... 331,000 3.0
1,000+ Workers.......................... 2,083,000 19.0
Not applicable.......................... 1,905,000 17.3
-------------------------------
Total................................... 11,016,000 100.0
------------------------------------------------------------------------
Note: Estimated from the Current Population Survey. Does not include
571,000 uninsured children who lived with non-relatives.
----------
\1\ The firm comprises all locations at which the
employer does business including, but not limited to,
the establishment where the head of the family
participating in this survey went to work each day.
[GRAPHIC] [TIFF OMITTED] T6395.027
Figure 2.11.
Enrollment in Employment-Based Health Plans,
by Plan Type, 1988-1998
Health plan enrollments shifted dramatically from
1988 to 1998. Among employees of private and public
employers with more than 200 workers, enrollment in
conventional fee-for-service (FFS) plans declined from
71% of the total to 14%. Enrollees shifted from FFS
plans to health maintenance organizations (HMOs),
preferred provider organizations (PPOs) and point-of-
service (POS) plans. (POS plans resemble an HMO for in-
network services, and a FFS plan for out-of-network
care.)
The shift to managed care was rapid. In 1988,
almost three quarters (71%) of enrollees were in
conventional FFS plans, and the remaining 29% were in
some form of managed care, either an HMO or PPO plan.
Four years later, in 1992, slightly less than half (45%)
were in FFS plans. By 1998, only 14% of enrollees were
in FFS plans, and 86% were enrolled in managed care
plans.
TABLE 2.11. Enrollment in Employment-Based Health Plans, by Plan Type, 1988-1998
(in percent)
----------------------------------------------------------------------------------------------------------------
Type of Plan
Year ----------------------------------------------------
Conventional HMO PPO POS
----------------------------------------------------------------------------------------------------------------
1988....................................................... 71 18 11 0
1992....................................................... 45 22 26 8
1993....................................................... 42 26 22 10
1994....................................................... 35 25 25 15
1995....................................................... 31 29 22 18
1996....................................................... 26 33 25 16
1997....................................................... 18 33 31 17
1998....................................................... 14 30 34 22
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.
Source: KPMG Health Benefits in 1998, figure 36, p. 40.
[GRAPHIC] [TIFF OMITTED] T6395.028
Figure 2.12.
Change in Employment-Based Health Insurance
Premiums, 1995-1998
Health insurance premiums increased more rapidly in
1998 than in recent years, about 2% to 3% overall,
according to surveys of employers by the HayGroup and
KPMG. Premium increases exceeding 10% annually in the
early 1990s were followed by more modest increases and
declines, or almost zero growth, in 1996. Since 1997,
premiums have increased moderately, in general.
HMO plans saw the lowest premium growth over the
1995-1998 period, increasing about 1%. Premiums in POS,
PPOs and FFS grew between 2% and 3%. (The higher growth
in FFS and PPO plans premiums may help explain the
decline in FFS and PPO enrollment over this period;
similarly, the lower premium growth in HMO plans
probably encouraged greater enrollment in these types of
plans.)
TABLE 2.12. Change in Employment-Based Health Insurance Premiums, 1995-1998
(in percent)
----------------------------------------------------------------------------------------------------------------
Year All Plans FFS HMO PPO POS
----------------------------------------------------------------------------------------------------------------
HayGroup Survey
1991................................................. 12.9 * * * *
1992................................................. 11.5 * * * *
1993................................................. 8.3 * * * *
1994................................................. 2.7 * * * *
1995................................................. 1.2 3.3 0.3 2.4 3.0
1996................................................. -1.9 2.7 -3.0 2.9 3.4
1997................................................. 0.6 0.9 0.9 1.4 -1.2
1998................................................. 2.3 3.1 5.7 4.7 2.4
1995-1998, annual average............................ 0.6 2.5 1.0 2.9 1.9
KPMG Survey
1991................................................. 11.5 12.0 12.1 10.1 0.0
1992................................................. 10.9 11.0 9.8 10.6 12.4
1993................................................. 8.0 8.5 8.3 8.2 4.9
1994................................................. 4.8 5.1 5.3 3.2 5.9
1995................................................. 2.1 2.7 0.4 3.5 2.4
1996................................................. 0.5 1.2 -0.4 0.6 1.2
1997................................................. 2.1 2.6 2.0 2.1 1.9
1998................................................. 3.3 3.5 2.9 3.8 2.9
1995-1998, annual average............................ 2.0 2.5 1.2 2.5 2.1
----------------------------------------------------------------------------------------------------------------
*Not available.
Notes: Table prepared by CRS. FFS is fee-for-service; HMO is health maintenance organization; PPO is preferred
provider organization; and POS is point-of-service.
Sources: HayGroup, Hay Benefits Report trend data, 1999 and KPMG, Health Benefits in 1998, figure 2, p. 7.
[GRAPHIC] [TIFF OMITTED] T6395.029
Figure 2.13.
Comparison of Growth in Medicare and
Private Health Insurance, 1970-1997
Over the past 27 years, Medicare and private health
insurance (PHI) spending per enrollee have grown at
comparable rates: 10.4% annually under Medicare and
11.4% annually under PHI. This overall similarity masks
significant differences between growth for the two
sources during 2 periods, however. From 1985 to 1991,
the rate of growth in PHI spending per enrollee far
outpaced the rate of growth in Medicare spending per
enrollee, with PHI averaging 11.4% annual increases
compared to 6.9% for Medicare. From 1993 to 1996, growth
in Medicare spending per enrollee (8.7% annually)
exceeded growth in PHI per enrollee (3.5% annually).
Since 1996, Medicare growth has moderated and PHI growth
has increased, resulting in a narrowing of the gap
between growth rates.
[GRAPHIC] [TIFF OMITTED] T6395.105
Figure 2.14.
Distribution of HMOs by Plan Type, 1997
Increasing numbers of employees and their families
are enrolling in managed care plans, including HMOs,
PPOs, and other types of managed care delivery system
arrangements. There are different types of HMOs. Staff
and group model HMOs were the earliest managed care
plans. In a staff model HMO, physicians are salaried
employees who, typically, provide care in HMO-owned
offices and hospitals. A group model HMO contracts with
one or more multispecialty medical groups to provide all
covered services to HMO participants in exchange for a
per capita fee. Each medical group's practice is
limited, largely, to the HMO membership and it is
managed independently of the HMO. Physicians contract
with the medical group, which may compensate them on a
risk-sharing, cost, or salary basis.
A newer variant is the individual or independent
practice association, or IPA model. An IPA contracts
directly with physicians in independent practice,
associations of physicians in independent practices, or
multispecialty group practices. Participating physicians
retain their private practices, in their own offices,
but they see HMO patients as part of that practice.
Typically, IPA physicians do not have an exclusive
relationship with a single HMO.
A network or mixed model HMO can offer the broadest
provider participation of any type of HMO because it
contracts with staff, group and IPA models in
combination. Network model HMOs may contract with
primary and specialty care provider groups as well as
hospitals--a practice which helps spread financial risk.
Network model HMOs offer the least amount of control or
management of providers' utilization of services and
resources. Moreover, providers typically do not have
exclusive contracting relationships with network HMOs.
In January, 1997 there were 651 HMOs nationwide.
Most HMOs were mixed model HMOs (49%) or IPAs (44%).
TABLE 2.14. Distribution of HMOs by Plan Type, 1997
------------------------------------------------------------------------
Number Percent
------------------------------------------------------------------------
Network/mixed........................... 316 49
IPAs.................................... 284 44
Group................................... 25 4
Staff................................... 15 2
Unknown................................. 15 2
------------------------------------------------------------------------
Source: American Association of Health Plans, Managed Care Facts,
January 1998.
[GRAPHIC] [TIFF OMITTED] T6395.031
Figure 2.15.
HMO Enrollment, 1990-1996
In 1996, about 67.5 million people, or about 1 in 4
Americans, were enrolled in an HMO. Since 1990, HMO
enrollment has increased by 85%.
TABLE 2.15. HMO Enrollment, 1990-1996
------------------------------------------------------------------------
Total Enrollment
Year (in millions)
------------------------------------------------------------------------
1990.................................................. 36.5
1991.................................................. 38.6
1992.................................................. 41.4
1993.................................................. 45.2
1994.................................................. 51.1
1995.................................................. 59.1
1996.................................................. 67.5
------------------------------------------------------------------------
Note: Table prepared by the CRS based on data in American Association of
Health Plans, Managed Care Facts, January 1998.
[GRAPHIC] [TIFF OMITTED] T6395.032
Figure 2.16.
Preferred Provider Organization (PPO) Enrollment,
1990-1996
A PPO is a health plan arrangement in which
providers contract to provide services to enrollees for
discounted amounts, usually paid on a fee-for-service
(FFS) basis. Enrollees in the PPO may use other non-
preferred providers, usually with higher coinsurance
requirements. One way the typical PPO differs from HMOs
is that visits to specialists generally do not require
referral by an enrollee's primary care provider.
Enrollment in PPOs has been rising, increasing over
150% between 1990 and 1996.
TABLE 2.16. PPO Enrollment, 1990-1996
------------------------------------------------------------------------
Total
Year Enrollment (in
millions)
------------------------------------------------------------------------
1990.................................................... 38.1
1991.................................................... 43.8
1992.................................................... 50.5
1993.................................................... 60.6
1994.................................................... 82.5
1995.................................................... 91.8
1996.................................................... 97.8
------------------------------------------------------------------------
Note: Table prepared by CRS based on data from American Association of
Health Plans, Managed Care Facts, January 1998.
[GRAPHIC] [TIFF OMITTED] T6395.033
Figure 2.17.
Provider Incentives and Capitation Contracts
Managed care organizations use a variety of
physician incentive plans to compensate physicians, some
of which share financial risk with the providers.
Capitation, which entails the payment of a fixed-fee per
member per month for all covered services regardless of
the level of service utilization, represents the primary
method of risk-sharing. Forty-five percent (45%) of
total reimbursements to primary care physicians and 48%
of total reimbursements to specialists were through
capitation. Almost half (48%) of HMOs used per diem
costs to reimburse both inpatient and ambulatory
hospital services.\2\
Nearly two-thirds of providers indicated that their
contracts include financial incentives or disincentives
above the base capitation rate. Primary care and
multispecialty groups were the most likely to have
financial incentives, while specialists and hospitals
were the least likely.\3\ For providers reporting
receiving an incentive, the incentive represented about
6% of total compensation, on average, with higher
percentages among providers in PHOs and hospitals, and
lower percentages among providers in multispecialty
groups/IPAs. Utilization influences incentives/
disincentives for providers in multispecialty groups/
independent practice associations (IPAs), primary care
groups and specialists, while costs were reported as
significant factors among providers in physician-
hospital organizations (PHOs).
TABLE 2.17. Incentives/Disincentives Beyond the Capitation Rate
----------------------------------------------------------------------------------------------------------------
Factors Influencing Incentives/Disincentives
Contracts Incentive ------------------------------------------------------
w/ Percent* Patient Quality/
Incentives Utilization Satisfaction Costs Outcomes Other
----------------------------------------------------------------------------------------------------------------
Multispecialty Groups/IPAs........ 73% 3.3% 70% 30% 30% 20% 20%
Primary Care Groups............... 83% 6.1% 80% 20% 40% 40% 0%
PHOs/IDSs......................... 63% 12.0% 40% 40% 80% 20% 0%
Specialists....................... 50% 5.7% 58% 8% 33% 0% 0%
Hospitals......................... 25% 9.0% N/A N/A N/A N/A N/A
Total............................. 61% 6.1% 63% 22% 41% 16% 6%
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS based on data from Capitation Management Report, 1997 Capitation Survey. Each
provider can have more than one type of Incentive.
*Average incentive amount as a percentage of total compensation.
----------
\2\ Health Insurance Association of America, Source Book
of Health Insurance Data 1997-1998, p. 54-55.
\3\ Capitation Management Report, 1997 Capitation
Survey.
[GRAPHIC] [TIFF OMITTED] T6395.034
Figure 2.18.
State Laws Regulating Managed Care
Numerous bills are pending in the 106th Congress to
establish federal standards for managed health care and
other forms of health insurance. Under current law, the
regulation of managed health care depends on who
sponsors the plan and who bears the risk for paying for
insured services. In general, the federal government
regulates private sector employer health plans,
including managed care plans that are sponsored by a
private employer. The states regulate the business of
insurance, which includes a health maintenance
organization (HMO) or other type of managed care
organization that sells a health insurance policy to an
individual, employer, or other purchaser. States also
oversee plans sponsored by state and local governments.
The states have enacted numerous laws over the last
few years to expand their regulation of health
insurance, and especially managed care. Figure 2.23
provides information on a subset of these laws,
indicating how many states have adopted them. The
description of the laws is provided by the Blue Cross
and Blue Shield Association.
Any Willing Provider: Laws that compel health plans
to admit to their networks any provider willing to abide
by the terms and conditions of the contract. It only
applies to pharmacies, except in 5 states where the
scope includes most providers (ID, IN, KY, VA, WY).
Direct Access to Specialists: Laws that allow
subscribers to go directly to a specialist without prior
referral from the health plan's primary care physician.
The laws apply primarily to obstetricians-gynecologists,
but also can refer to chiropractors, dermatologists,
etc.
Patient Disclosure/``Gag Clause'': Laws that ban
health plans from including so-called ``gag clauses'' in
provider contracts that prohibit or discourage a
provider from discussing alternative treatment options
and appropriate care with patients.
Mandatory Point-of-Service (POS): Laws that require
health plans to offer a POS product to employer groups
at the employer's option, in addition to a gatekeeper
product like an HMO. Two states (ID and MT) impose a
mandatory POS requirement (i.e., an HMO must offer POS).
Access to Emergency Services: Laws that impose new
requirements to pay for certain care delivered in an
emergency room. Several of the laws also impose a
``prudent layperson'' standard to define what
constitutes a medical emergency.
Mental Health Parity: Laws that require health
plans to provide equivalent benefits and cost-sharing
requirements for mental and physical illnesses. These
states generally have limited parity mandates that
either limit the definition of mental illness, the scope
of benefits, and/or allow increased cost-sharing.
External Grievance Review: Laws that require health
plans to allow enrollees to appeal a coverage or claims
denial to an outside medical expert panel, if
dissatisfied with the outcome of the plan's internal
appeals process.
[GRAPHIC] [TIFF OMITTED] T6395.035
Figure 2.19.
State Premium Rating Restrictions
in the Individual Market
As of the end of 1998, 19 states had enacted laws
to regulate the premiums of health insurance sold to
individuals (as opposed to groups). In those states
without premium restrictions, an insurance carrier may
price the insurance at whatever rate is necessary to
cover the expected claims risk of the individual policy-
holder and administrative overhead. Of those states that
have enacted premium restrictions, the majority have
adopted community rating. In the figure, a state is
categorized as having community rating if its law
prohibits the health insurer from using experience,
health status, or duration of coverage in setting the
premium rates for individual coverage. In some states,
the community rate is adjusted for demographic factors,
such as age and gender. The state is categorized as
having very tight rating bands (i.e., limits on the
range of variation of the premium) if the law
significantly limits the use of experience, health
status, or duration of coverage in the setting of the
premium. Finally, the state is categorized as having
rating bands if it has laws that restrict to some extent
the plans' use of experience, health status, or duration
of coverage.
[GRAPHIC] [TIFF OMITTED] T6395.036
Figure 2.20.
State High-Risk Health Insurance Pools
Twenty-seven states have established high risk
pools to provide coverage for individuals who otherwise
are unable to obtain health insurance at reasonable
rates. In recent years, the combined population of the
risk pools has remained about 100,000. Enrollment may
grow because many states have elected under the Health
Insurance Portability and Accountability Act (HIPAA,
P.L. 104-191) to use existing or newly established risk
pools to provide for guaranteed portability of insurance
for individuals leaving the group market.
A risk pool is generally a state-created, nonprofit
association. It offers comprehensive health insurance
benefits at a rate that typically costs more than
standard insurance but is capped by law (usually at 125%
to 150% of the standard rate charged in the individual
insurance market). Each pool is expected to lose money
because the premiums are set at an amount that is not
expected to pay for the claims of the pool's enrollees.
The states fund the losses of the pool in a variety of
ways. Most assess health insurance carriers in the state
on a proportional basis (e.g., as a specified percentage
of their health insurance premiums). A few allocate
funds from state income tax, tobacco tax, or general
revenues. Still others use a combination of assessments
on insurers and other funding mechanisms.
Figure 2.20. State High-Risk Health Insurance Pools
--------------------------------------------------------------------------------------------------------------------------------------------------------
Premium Cap Premium Cap
State Year Current (in State Year Current Enrollees (in
Operational Enrollees percent)* Operational percent)*
--------------------------------------------------------------------------------------------------------------------------------------------------------
AL................................................. 1998 690 200 MO 1992 1,032 150-200
AK......................................................... 1993 198 200 MT 1987 704 150
AR......................................................... 1996 588 150 NE 1986 3,997 135
CA......................................................... 1991 19.995 125-137.5 NM 1988 792 150
CO......................................................... 1991 1,058 150 ND 1982 1,328 135
CT......................................................... 1976 1,290 125-150 OK 1996 783 125
FL......................................................... 1983 1,095 200-250 OR 1990 4,134 125
IL......................................................... 1989 5,438 125-150 SC 1990 943 200
IN......................................................... 1982 3,997 150 TX 1998 1,354 137.5-200
IA......................................................... 1987 482 150 UT 1991 888 --
KS......................................................... 1993 1,019 -- WA 1988 766 150
LA......................................................... 1992 747 150-200 WI 1981 7,318 200
MN......................................................... 1976 26,314 125 WY 1991 429 125-150
MS......................................................... 1992 1,700 150-175 27 states ........... Total current ...........
enrollees 89,079
--------------------------------------------------------------------------------------------------------------------------------------------------------
*Refers to state-imposed limits that cap premiums at no more than a fixed percentage above standard premiums charged by private heath plans for
individual coverage in the state.
Enrollment is limited to HIPAA eligibles.
Periodic enrollment caps.
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.037
Section 3.
Medicare
Medicare is a nationwide health insurance program
for the aged and certain disabled persons. The program
consists of two parts: the Part A, Hospital Insurance
Program and the Part B, Supplementary Medical Insurance
Program.
Almost all persons over age 65 are automatically
entitled to Medicare Part A. Part A also provides
coverage, after a 24-month waiting period, for persons
under age 65 who are receiving Social Security cash
benefits on the basis of disability. In FY1999, Part A
will cover an estimated 39.0 million aged and disabled
persons (including those with chronic kidney disease).
Part A provides coverage for inpatient hospital
services, up to 100 days of posthospital skilled nursing
facility (SNF) care, home health services and hospice
care. Medicare Part A is financed primarily through the
hospital insurance (HI) payroll tax levied on current
workers and their employers. Employers and employees
each pay a tax of 1.45% on all earnings. The self-
employed pay a single tax of 2.9% on earnings.
Medicare Part B is voluntary. All persons over age
65 and all persons enrolled in Part A may enroll in Part
B by paying a monthly premium. In 1999, Part B will
cover an estimated 36.9 million aged and disabled
persons. Part B provides coverage for physicians'
services, laboratory services, durable medical
equipment, outpatient hospital services, some home
health services, and other medical care. Part B is
financed through a combination of monthly premiums
levied on program beneficiaries and federal general
revenues. In 1999, the premium is $45.50. Beneficiary
premiums have generally represented about 25% of Part B
costs. Federal general revenues (that is, tax dollars)
account for the remaining 75%.
The ability of Medicare's current financing
mechanism to fund program growth adequately has been of
concern for many years. Prior to the enactment of the
Balanced Budget Act of 1997 (BBA 97), the Part A trust
fund was projected to become insolvent in 2001. In that
year, revenues coming into the trust fund (primarily
payroll taxes), together with any balance carried over
from prior years, would have been insufficient to cover
the payment for Part A benefits in that year. BBA 97
postponed the exhaustion of the trust fund until at
least 2010.
While BBA 97 lowered the projected 75-year Part A
deficit by one-half, the ability of the program to meet
future needs continues to be a major issue. Contributing
to the Part A insolvency issue are two related concerns.
First, in the year 2011, the leading edge of the baby
boom cohort (persons born between 1946 and 1964) turns
age 65. Second, the number of workers whose payroll tax
supports Part A benefits is declining. In 1997, there
were 3.9 workers per beneficiary; this number is
expected to be about 3.6 by 2010 and 2.3 by 2030.
Figure 3.1.
Total Medicare Outlays, FY1967-FY2009
Total Medicare spending increased significantly
since the program began; however, the average annual
rate of growth has slowed somewhat in recent years. Over
the FY1980-FY1990 period, total outlays grew from $35.0
billion to $109.7 billion, for an average annual rate of
growth of 12.1%. For the FY1990-FY1997 period, total
outlays grew from $109.7 billion to $210.4 billion, for
an average annual growth rate of 9.8%. Different trends
are recorded for spending on Part A and Part B. The
average annual rate of growth in Part A spending
increased from 10.6% over the FY1980-FY1990 period to
10.9% over the FY1990-FY1997 period. Conversely, the
average annual rate of growth for Part B declined from
14.9% in the FY1980-FY1990 period to 7.7% over the
FY1990-FY1997 period.
BBA 97 reduced the rate of growth in Medicare
spending. It also shifted some spending from Part A to
Part B. The Congressional Budget Office (CBO) projects
that with no further changes in law, total Medicare
spending will grow from $214 billion in FY1998 to $449
billion in FY2009. This represents an average annual
overall rate of growth of 7.0%. Total Part A outlays
will increase at an average annual rate of growth of
5.4%, while Part B will increase at an average annual
rate of growth of 9.5%.
TABLE 3.1. Total Medicare Outlays, FY1967-FY2009
(in billions)
----------------------------------------------------------------------------------------------------------------
Total Medicare
Fiscal Year Part A Part B Outlays
----------------------------------------------------------------------------------------------------------------
1967............................................................ $2.6 $0.8 $3.4
1970............................................................ 5.0 2.2 7.1
1975............................................................ 10.6 4.2 14.8
1980............................................................ 24.3 10.7 35.0
1985............................................................ 48.7 22.7 71.4
1990............................................................ 66.7 43.0 109.7
1995............................................................ 114.9 65.2 180.1
1996............................................................ 125.3 68.9 194.3
1997............................................................ 137.9 72.5 210.4
1998............................................................ 137.2 76.2 213.6
1999............................................................ 135 81 216
2000............................................................ 141 91 232
2001............................................................ 147 101 248
2002............................................................ 151 108 258
2003............................................................ 161 121 282
2004............................................................ 171 132 303
2005............................................................ 186 148 333
2006............................................................ 193 155 348
2007............................................................ 210 173 383
2008............................................................ 226 189 415
2009............................................................ 243 206 449
----------------------------------------------------------------------------------------------------------------
Note: Data for 1999-2009 are CBO projections. Totals may not add due to rounding. Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.038
Figure 3.2.
Total and Net Medicare Outlays, FY1967-FY2009
Net Medicare outlays (after deduction of premiums
paid by beneficiaries, primarily for Part B) have also
increased significantly since the beginning of the
program. The average annual rate of growth has, however,
slowed in recent years. Over the FY1980-FY1990 period,
the average annual rate of growth in net outlays was
11.8%; this rate declined to 9.9% for the FY1990-FY1997
period.
CBO projects that net Medicare outlays will
increase from $192.8 billion in FY1998 to $395.5 billion
in FY2009, for an average annual growth rate of 6.7%.
TABLE 3.2. Total and Net Medicare Outlays, FY1967-FY2009
(in billions)
------------------------------------------------------------------------
Total Medicare Net
Fiscal Year Medicare Premium Medicare
Outlays Offset Outlays
------------------------------------------------------------------------
1967............................. $ 3.4 $-0.7 $2.7
1970............................. 7.1 -0.9 6.2
1975............................. 14.8 -1.9 12.9
1980............................. 35.0 -2.9 32.1
1985............................. 71.4 -5.6 65.8
1990............................. 109.7 -11.6 98.1
1995............................. 180.1 -20.2 159.9
1996............................. 194.3 -20.1 174.2
1997............................. 210.4 -20.4 190.0
1998............................. 213.6 -20.8 192.8
1999............................. 216.1 -21.5 194.6
2000............................. 232.0 -23.2 208.8
2001............................. 247.9 -25.4 222.4
2002............................. 258.2 -27.7 230.5
2003............................. 281.9 -30.6 251.3
2004............................. 303.4 -34.1 269.3
2005............................. 333.4 -37.6 295.8
2006............................. 348.2 -40.4 307.7
2007............................. 383.1 -44.4 338.7
2008............................. 415.0 -48.7 366.3
2009............................. 448.6 -53.1 395.5
------------------------------------------------------------------------
Note: Totals may not add due to rounding. Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.039
Figure 3.3.
Total and Net Medicare Outlays in
1998 Constant Dollars, FY1967-FY1998
``Real'' spending over time is measured in
constant, in this case 1998, dollars. Total real
Medicare spending increased significantly since the
program began. Real spending more than tripled over the
FY1980 to FY1997 period. Over this 18-year period, real
total spending (measured in 1998 constant dollars)
increased from $66.9 billion to $213.6 billion. This
represents an average annual rate of growth of 6.7%.
Over the same period, real net Medicare spending
increased from $61.2 billion to $192.8 billion. This
represents an average annual rate of increase of 6.6%.
However, looking at the change between FY1997 and
FY1998, there is only 0.29% for real total Medicare
spending and 0.25% for real net Medicare spending.
TABLE 3.3. Total and Net Medicare Outlays in 1998 Constant Dollars,
FY1967-FY1998
(in billions)
------------------------------------------------------------------------
Total Medicare Net
Fiscal Year Medicare Premium Medicare
Outlays Offset Outlays
------------------------------------------------------------------------
1967............................. $14.6 -2.8 11.8
1970............................. 27.0 -3.5 23.5
1975............................. 41.1 -5.3 35.8
1980............................. 66.9 -5.6 61.2
1985............................. 103.1 -8.0 95.1
1990............................. 133.3 -14.1 119.2
1995............................. 189.4 -21.3 168.1
1996............................. 200.4 -20.7 179.6
1997............................. 213.0 -20.6 192.3
1998............................. 213.6 -20.8 192.8
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.040
Figure 3.4.
Age and Gender Distribution of
Medicare Beneficiaries, 1996
In 1996, approximately 38.1 million persons were
enrolled in Medicare. The vast majority of enrollees--
33.4 million--were aged. An additional 4.7 million, or
12.3% of the total, were disabled. Over half of the
elderly (54%) were under age 75; one-third (34%) were
between ages 75 and 84; and the remaining 12% were 85
and over.
As shown in Table 3.4b, the proportion of Medicare
beneficiaries who are women increases substantially with
age.
TABLE 3.4a. Age Distribution of Medicare Beneficiaries, 1996
------------------------------------------------------------------------
Beneficiaries
(in thousands)
------------------------------------------------------------------------
Elderly............................................... 33,404
65-74 years...................................... 18,031
75-84 years...................................... 11,408
85+ years........................................ 3,965
Disabled.............................................. 4,688
Under 45 years................................... 1,610
45-54 years...................................... 1,317
55-64 years...................................... 1,760
All beneficiaries..................................... 38,092
------------------------------------------------------------------------
Note: Table prepared by CRS.
TABLE 3.4b. Gender Composition of Elderly Medicare Beneficiaries, 1996
------------------------------------------------------------------------
Percent of
Beneficiaries
Who Are Women
------------------------------------------------------------------------
65-74 years............................................. 55.3
75-84 years............................................. 61.3
85+ years............................................... 72.2
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.041
Figure 3.5.
Race/Ethnicity Distribution of
Medicare Beneficiaries, 1996
The great majority of Medicare beneficiaries are
white. Eighty-five percent of the elderly and 68% of the
disabled are white. African-Americans and hispanics
constitute a larger percentage of the disabled
population (18% and 11%) than of the elderly population
(8% and 6%).
[GRAPHIC] [TIFF OMITTED] T6395.042
Figure 3.6.
Medicare Enrollment, Actual and Projected, 1966-2017
Medicare enrollment grew from 19.1 million persons
in 1966 to an estimated 38.6 million persons in 1997.
The elderly Medicare population grew from 19.1 million
to 33.7 million over this period.
The program began covering the disabled in 1973.
The disabled population grew from 2.2 million in 1975 to
4.9 million in 1997.
Total Medicare enrollment increased at an average
annual rate of 1.8% over the FY1980-FY1990 period and
1.7% over the FY1990-FY1997 period. Elderly enrollment
increased at an average annual rate of 1.9% for the
FY1980-FY1990 period and 1.2% for the FY1990-FY1997
period. Very different trends were recorded for the
disabled. While the average annual enrollment rate for
the disabled was only 1% for the FY1980-FY1990 period,
it climbed to 5.8% for the FY1990-FY1997 period.
TABLE 3.6. Medicare Enrollment, Actual and Projected, 1966-2017
(in millions)
------------------------------------------------------------------------
Total Elderly Disabled
Year Persons Persons Persons
------------------------------------------------------------------------
1966............................. 19.1 19.1 --
1970............................. 20.5 20.5 --
1975............................. 25.0 22.8 2.2
1980............................. 28.5 25.5 3.0
1985............................. 31.1 28.2 2.9
1990............................. 34.2 30.9 3.3
1991............................. 34.9 31.5 3.4
1992............................. 35.6 32.0 3.6
1993............................. 36.3 32.4 3.8
1994............................. 36.9 32.8 4.1
1995............................. 37.3 33.0 4.3
1996............................. 37.8 33.3 4.6
1997............................. 38.6 33.7 4.9
2007............................. 44.1 36.9 7.2
2017............................. 56.6 47.8 8.8
------------------------------------------------------------------------
Note: Medicare coverage was extended to the disabled in 1973. Table
prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.043
Figure 3.7.
The Aging of the U.S. Population, 1960-2030
The U.S. population is aging. In 1960, 16.6 million
persons were age 65 or over; this represented 9.2% of
the population. In 1990, the number of aged persons had
almost doubled (31.2 million persons) while the aged's
percentage of the population had climbed to 12.5%. Both
the number and percentage of aged persons is expected to
climb rapidly after 2010 as the first wave of the baby
boomers turns 65. By 2030, as the last of the baby
boomers reaches 65, an estimated one-fifth of the
population (over 69 million persons) will be aged.
TABLE 3.7. The Aging of the U.S. Population, 1960-2030
------------------------------------------------------------------------
Number of
Persons 65 Percent of
Year Plus Years Population 65+
(in millions)
------------------------------------------------------------------------
1960.................................... 16.56 9.2%
1970.................................... 19.98 9.8
1980.................................... 25.55 11.3
1990.................................... 31.24 12.5
2000 (est.)............................. 34.71 12.6
2010 (est.)............................. 39.41 13.2
2020 (est.)............................. 53.22 16.5
2030 (est.)............................. 69.38 20.0
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.044
Figure 3.8.
Income Distribution of Elderly and
Disabled Medicare Beneficiaries, 1995
Over 70% of elderly Medicare beneficiaries reported
incomes of less than $25,000 in 1995; close to 30%
reported incomes of less than $10,000. The disabled
reported even lower incomes: over one-half under
$10,000, and 84% under $25,000.
TABLE 3.8. Income Distribution of Elderly and Disabled Medicare
Beneficiaries, 1995
------------------------------------------------------------------------
Elderly (in Disabled (in
Income percent) percent)
------------------------------------------------------------------------
$5,000 or less..................... 4 9
$5,001-$10,000...................... 24 46
$10,001-$25,000..................... 45 29
$25,001-$50,000..................... 21 13
$50,000+............................ 6 3
------------------------------------------------------------------------
Note: Totals may not add due to rounding. Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.045
Figure 3.9.
Percent of Poor Persons in the U.S. Population,
1959-1996
From 1959-1996, the percentage of the U.S.
population below the poverty line declined from 22.4 to
13.7. An even more dramatic decline was recorded in the
poverty rate for the elderly, dropping from 35.2% to
10.8%; however, the 1996 rate reflected a slight
increase over the 1995 rate of 10.5. A less dramatic
decline was recorded for children over the 1959-1996
period; the percentage for this group declined from 26.9
to 20.2.
While the rates for both the elderly and children
were higher than that for the general population in
1959, the rate for the elderly was below that of the
general population in 1996. Conversely, the rate for
children in 1996 was considerably above that for the
general population and substantially larger than that
for the elderly.
The poverty rate for the elderly has improved over
the years, largely as a result of Social Security and a
maturing pension system. The aged tend to be more immune
to the effects of recession than others.
TABLE 3.9. Percent of Poor Persons in the U.S. Population, 1959-1996
------------------------------------------------------------------------
Year Children Elderly All Ages
------------------------------------------------------------------------
1959............................. 26.9 35.2 22.4
1970............................. 15.0 24.6 12.6
1975............................. 16.8 15.3 12.3
1980............................. 17.9 15.7 13.0
1985............................. 20.1 12.6 14.0
1990............................. 20.5 12.2 13.5
1995............................. 20.5 10.5 13.8
1996............................. 20.2 10.8 13.7
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.046
Figure 3.10.
Distribution of Medicare Benefit Payments by
Service Category, FY1997
Close to 58% of Medicare benefit payments in FY1997
were for inpatient hospital services and physicians'
services. Services provided by skilled nursing
facilities, home health agencies, and hospices accounted
for over 15%, while outpatient hospital services and
other medical and health services accounted for over 14%
of Medicare benefit payments. Managed care accounted for
12% of the total.
TABLE 3.10. Distribution of Medicare Benefit Payments by Service
Category, FY1997
------------------------------------------------------------------------
Percent of Benefit
Service Category Total Benefit Payments (in
Payments billions)
------------------------------------------------------------------------
Fee-for-service......................... 87.6 $181.5
Inpatient hospital................. 43.1 89.3
Physician.......................... 14.9 30.8
Skilled nursing facility........... 5.9 12.2
Home health........................ 8.5 17.5
Hospice............................ 1.0 2.1
Outpatient......................... 8.3 17.1
Other medical and health........... 6.0 12.5
Managed care............................ 12.4 25.6
-------------------------------
Total................................... 100.0 $207.0
------------------------------------------------------------------------
Note: Table prepared by CRS; total may not add due to rounding.
[GRAPHIC] [TIFF OMITTED] T6395.047
Figure 3.11.
Trends in Distribution of Fee-For-Service Medicare
Payments for Selected Services,
FY1980 and FY1997
Payments for inpatient hospital services have
represented a declining proportion of fee-for-service,
as well as total, Medicare benefit payments since 1980.
The percentage of total payments attributable to skilled
nursing facility and home health benefits has increased
over the period, while that for physicians services and
related medical services has remained relatively
constant
These trends reflect the fact that the growth rates
in spending for hospital and physicians services have
slowed significantly in response to the introduction of
new payment systems. In FY1984, Medicare began paying
for hospital services under the prospective payment
system. In 1992, Medicare began to pay for physicians
services on the basis of a fee schedule. In contrast,
skilled nursing facility services and home health
services continued to be paid on a reasonable cost
basis; payments for these services have continued to
rise at a much faster rate than those for hospital and
physicians services. BBA 97 provided for the
implementation of prospective payment systems for both
skilled nursing facility and home health services. This
is expected to slow the rate of growth in payments for
these service categories.
TABLE 3.11. Trends in Distribution of Fee-For-Service Medicare Payments
for Selected Services, FY1980 and FY1997
(in percent)
------------------------------------------------------------------------
Selected Services 1980 1997
------------------------------------------------------------------------
Inpatient hospital...................... 67.4 49.2
Physician and related items............. 24.6 23.9
Skilled nursing facility................ 1.2 6.7
Home health............................. 1.5 9.6
------------------------------------------------------------------------
Note: Data for 1980 may include limited expenditures for managed care.
Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.048
Figure 3.12.
Average Annual Medicare Growth Rates,
FY1990-FY1996 and FY1997-FY2002
There is wide variation in the average annual
growth rates for various service categories. In recent
years, the expenditures for skilled nursing facility
(SNF) services, home health services, and hospice care
have been growing considerably faster than have other
fee-for-service expenditures such as those for inpatient
hospital, outpatient hospital, and physician services.
Expenditures for managed care have also increased at
significant rate; this reflects the increasing number of
beneficiaries enrolled in managed care plans.
The BBA 97 reduced the rate of growth in Medicare
spending. As a result, the expected average annual
increase in spending by benefit category is expected to
slow significantly over the FY1997-FY2002 period.
TABLE 3.12. Average Annual Medicare Growth Rates, FY1990-FY1996 and
FY1997-FY2002
(in percent)
------------------------------------------------------------------------
1997-2002
1990-96 (est)
------------------------------------------------------------------------
All benefits.................................. 8.5 3.7
Inpatient hospital............................ 5.2 -0.7
Outpatient hospital........................... 9.9 4.8
Physician..................................... 4.4 1.4
Home health................................... 27.9 -4.0
Skilled nursing facility...................... 23.2 2.5
Hospice....................................... 33.1 3.5
Independent laboratories...................... 3.7 1.7
Managed care.................................. 22.1 19.8
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.049
Figure 3.13.
Medicare Short-Stay Hospital Utilization,
Selected Fiscal Years, 1985-1997
Since FY1984 Medicare has paid for acute, or short-
stay, hospital care on the basis of a prospective
payment system (PPS). Under Medicare's PPS for inpatient
care, hospital payment amounts are established in
advance of the provision of services on the basis of a
patient's diagnosis. The system's fixed prices are
determined using a classification system of 511
diagnosis-related groups (DRGs). Each Medicare inpatient
case is assigned to one of the 511 DRGs based on the
patient's medical condition and diagnosis at admission.
While discharge rates per 1,000 Medicare enrollees
remained fairly constant during the 1990s, days of care
and average length of stay have decreased significantly
over the same period. Between 1990 and 1997, total days
of care dropped from 94 million to 75 million, a
decrease of 20%. Average length of stay also declined
from 9.0 days in 1990 to 6.4 days in 1997, a decrease of
almost 29%.
TABLE 3.13. Medicare Short-Stay Hospital Utilization, Selected Fiscal Years, 1985-1997
----------------------------------------------------------------------------------------------------------------
1985 1990 1995 1996 1997*
----------------------------------------------------------------------------------------------------------------
Discharges
Total in millions............................................. 10.5 10.5 11.7 11.7 11.8
Rate per 1,000 enrollees...................................... 347 313 317 312 314
Days of care
Total, in millions............................................ 92 94 83 78 75
Rate per 1,000 enrollees...................................... 3,016 2,805 2,253 2,074 2,014
Average length of stay
All short-stay (in days)...................................... 8.7 9.0 7.1 6.7 6.4
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.
*Preliminary data.
[GRAPHIC] [TIFF OMITTED] T6395.050
Figure 3.14.
Medicare Funding for Graduate Medical Education,
1990-1998
Medicare recognizes as reasonable the extra costs
of graduate medical education (GME), or medical
residency training activities incurred by teaching
hospitals. The Medicare program pays for its share of
GME costs through two payment mechanisms: the indirect
medical education (IME) adjustment, and the direct
graduate medical education (direct GME) payment. The IME
adjustment is designed to compensate teaching hospitals
for their relatively higher costs attributable to the
involvement of residents in patient care and the
severity of illness of patients requiring specialized
services available only in teaching hospitals. The
direct GME payment is designed to reimburse teaching
hospitals for Medicare's share of the costs of salaries
and fringe benefits paid to residents, interns, and
teaching faculty, and certain overhead costs relating to
teaching activities.
The BBA 97 includes several reforms of Medicare's
payments for GME. First, the IME adjustment is reduced
from 7.7% to 7.0% in FY1998; 6.5% in FY1999; 6.0% in
FY2000; and to 5.5% in FY2001 and subsequent years.
Second, the BBA 97 phases out Medicare GME support from
premiums paid to managed care plans and pays these
monies directly to teaching hospitals that treat
Medicare managed care patients. The BBA 97 also caps the
number of medical residents supported by Medicare at the
December 31, 1996 level. Finally, the BBA 97 also makes
a number of changes to the direct GME payments,
including allowing non-hospital providers to receive
such funds, and creating voluntary residency reduction
programs.
IME payments \4\ rose from $2.91 billion in FY1990
to $4.99 billion in FY1998. Total direct GME payments
\5\ increased from $1.76 billion in FY1990 to $2.10
billion in FY1998.
TABLE 3.14. Medicare Funding for Graduate Medical Education, 1990-1998
($ in billions)
----------------------------------------------------------------------------------------------------------------
Year IME Direct GME Total GME
----------------------------------------------------------------------------------------------------------------
1990..................................................................... 2.91 1.76 4.67
1991..................................................................... 3.21 1.89 5.10
1992..................................................................... 3.67 2.36 6.03
1993..................................................................... 4.09 2.55 6.64
1994..................................................................... 4.50 2.61 7.11
1995..................................................................... 5.10 2.74 7.84
1996..................................................................... 5.55 2.86 8.41
1997..................................................................... 5.16 2.43 7.59
1998..................................................................... 4.99 2.10 6.09
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.
----------
\4\ IME amounts include payments for capital costs and
payments to managed care plans.
\5\ Direct GME amounts include payments for certain
hospital-operated nursing and allied health professions
education and training programs.
[GRAPHIC] [TIFF OMITTED] T6395.106
Figure 3.15.
Trend in Number of Medical Residents,\6\ 1990/91-1997/98
In the rapidly changing health care market, the
supply of physicians and the mix of specialties they
practice continue to be of concern to policymakers. An
oversupply of physicians and an imbalance in specialty
mix can contribute to the growth in health care costs.
The growth of managed care has also contributed to the
concern about whether or not the correct mix of
physician specialties are being trained. Generally,
there is concern that too many specialist and not enough
primary care physicians are being trained.
Medicare currently pays for residency training
without regard to specialty.\7\ Some argue that because
Medicare is the only explicit payer of graduate medical
education costs the program should play a larger role in
shaping the physician workforce. The BBA 97 includes
several GME reforms which are designed to address some
of the concerns about residency training supported by
Medicare. These provisions include: (1) a cap on the
total number of residents supported by Medicare; (2)
payments to non-hospital providers for direct GME costs;
and (3) incentive payments to teaching hospitals for
reducing the size of their residency training programs.
There is some evidence that the market for
physicians is changing slightly in response to general
health care market forces. The total number of residents
increased each year through school year 1995-1996, but
may now be on a downward trend. Part of this trend,
however, may be attributed to changes in the data
collection methods.
TABLE 3.15. Trend in Number of Medical Residents, 1990-1998
------------------------------------------------------------------------
Annual
Number of Growth
School Years Residents Rates (in
percent)
------------------------------------------------------------------------
1990-1991..................................... 91,766 --
1991-1992..................................... 95,130 3.7
1992-1993..................................... 98,573 3.6
1993-1994..................................... 102,168 3.6
1994-1995..................................... 103,640 1.4
1995-1996..................................... 104,609 0.9
1996-1997..................................... 103,777 -0.7
1997-1998..................................... 98,138 -5.4
------------------------------------------------------------------------
Note: Table prepared by CRS, based on data collected by Association of
American Colleges.
----------
\6\ The data presented for medical residents includes
residents in allopathic (M.D.) residency programs only.
\7\ Medicare pays for its share of the direct cost of
GME. For residents in their initial residency period,
defined as the minimum number of years required to
become board certified and not to exceed 5 years,
Medicare counts each full-time-equivalent (FTE) resident
as 1.0 FTE. For residents beyond their initial residency
period, Medicare counts each resident as 0.5 FTE. There
is a special exception for residents in accredited
geriatrics training programs that allows these residents
to be counted as 1.0 FTE for an additional 2 years.
[GRAPHIC] [TIFF OMITTED] T6395.052
Figure 3.16.
Selected Primary Care Residents as a
Percent of Total Residents, 1990-1991 and 1997-1998
The specialty mix of residents has been an
important concern for GME reform. Many experts look to
the specialty choices of medical residents as an
indication of the changing health care marketplace and
how it will affect the future physician workforce. When
considering the number of residents training in primary
care, it is important to keep in mind that many
residents who undergo training in a primary care
specialty may go on to subspecialize and may not
practice in primary care once their training is
completed.
The number of residents in selected \8\ primary
care specialties grew from 26,093 in 1990-1991, to
39,767 in 1997-1998, a 52.4% increase. First-year
residents in selected primary care specialties also grew
from 10,796 in 1990-1991 to 14,809 in 1997-1998, a 37.2%
increase.
Both the total number of residents in primary care
and first year residents in primary care increased from
1996-1997 to 1997-1998. When compared to the total
number of residents, the proportion of residents in
primary care specialties grew from 28.4% in 1990-1991 to
38.3% in 1997-1998.
TABLE 3.16. Selected Primary Care Residents and First-Year Residents, 1990-1991 and 1997-1998
----------------------------------------------------------------------------------------------------------------
Primary Care Residents First-Year Primary Care
-------------------------- Residents
Specialty -------------------------
1990-1991 1997-1998 1990-1991 1997-1998
----------------------------------------------------------------------------------------------------------------
Family practice............................................. 7,183 10,369 2,407 3,577
Family practice--geriatrics............................ 17 22 N.A. N.A.
Internal medicine (general)................................. 11,883 21,574 6,070 8,396
Internal medicine--geriatrics.......................... 177 240 N.A. N.A.
Pediatrics (general)........................................ 6,833 7,520 2,319 2,632
---------------------------------------------------
Total primary care.......................................... 26,093 39,767 10,796 14,809
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.
----------
\8\ Selected primary care residency programs include:
family practice, family practice--geriatrics, internal
medicine (general), internal medicine--geriatrics, and
pediatrics (general).
[GRAPHIC] [TIFF OMITTED] T6395.053
Figure 3.17.
Trend in Medicare Payments for Skilled Nursing
Facility (SNF) Care, 1988-1998
Medicare skilled nursing facility (SNF) spending
increased dramatically between 1988, when payments were
$900 million, and 1989 when payments soared to $3.5
billion. It has increased at an average annual rate of
17% since then, rising to over $13.8 billion in 1998.
The initial increase can be traced to two
significant changes occurring in the late 1980s. First,
the Health Care Financing Administration (HCFA) issued
new coverage guidelines that became effective in 1988.
These guidelines provided SNFs a great deal more
information than had previously been available about
criteria that must be met for a beneficiary to receive
Medicare coverage. A second major, though temporary,
change also came in 1988, with the enactment of the
Medicare Catastrophic Coverage Act (MCCA). Effective
beginning in 1989, this legislation eliminated the SNF
benefit's prior hospitalization requirement and made
several other changes. The MCCA was repealed in 1989,
and the SNF benefits structure assumed its prior form.
Studies have suggested that the coverage guidelines
and the MCCA changes together might have caused a long-
run shift in the nursing home industry toward Medicare
patients that did not end with the repeal of the MCCA.
Between 1989 and 1997, the number of SNFs participating
in the program increased from 8,638 to 14,619 or by 69%.
In addition, during this same period, an increasing
number of persons qualified for SNF care and
reimbursements per day of care grew significantly, as
explained in the next figure.
TABLE 3.17. Trend in Medicare Payments for Skilled Nursing Facility
Care, 1988-1998
(fee-for-service only)
------------------------------------------------------------------------
Payments (in
Calendar Year billions) Percent Change
------------------------------------------------------------------------
1988................................ $0.9 --
1989................................ 3.5 275.7
1990................................ 2.3 -33.1
1991................................ 2.7 17.5
1992................................ 4.0 45.8
1993................................ 5.3 33.7
1994................................ 7.3 36.8
1995................................ 9.1 24.6
1996................................ 11.1 21.9
1997................................ 12.7 14.4
1998................................ 13.8 8.6
------------------------------------------------------------------------
Note: Total for 1998 is estimated. Rounding in payments may not reflect
actual percentage change. Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.054
Figure 3.18.
Trends in SNF Utilization and Payments Per Day,
1988-1998
Growth in Medicare skilled nursing facility (SNF)
spending can be explained largely by an increasing
number of persons qualifying for the benefit and
increases in reimbursements per day of care. From 1988
through 1998, persons receiving SNF care increased at an
average annual rate of 16%; reimbursements per day of
covered care increased on average by 12%. The average
number of days per person served increased from about 28
days in 1988 to 32 days in 1998.
Since the start of 1992, the rate of growth in SNF
use has been high because of declining lengths of stay
in hospitals as well as an increasing supply of
participating facilities. Medicare reimbursement
policies explain much of the increase in reimbursements
per covered day of care. Although routine care costs
(nursing, room and board, administrative, and other
overhead) have been subject to per diem limits,
ancillary services (therapies, laboratory services,
radiology procedures, supplies and other equipment) have
not. However, this should change in 1999 as a 3-year
phase-in of a prospective payment system for SNF care
takes effect. This prospective payment system,
established by BBA 97, will pay a fixed per diem rate
for services provided to a Medicare beneficiary as a SNF
patient. The per diem rate will include all SNF benefits
(including routine, ancillary, and capital-related
costs) as well as certain other Part B services the
beneficiary is provided during a SNF stay. The actual
per diem rate paid to a SNF for a given beneficiary will
be based on a resident classification system that takes
into account relative resource utilization of different
patient types; it will pay higher per diems for patients
requiring a great deal of care and lower rates for those
requiring less intensive care.
TABLE 3.18. Trends in SNF Utilization and Payments Per Day, 1988-1998
(fee-for-service only)
----------------------------------------------------------------------------------------------------------------
Average
Number of Average
Calendar Year Number of % Change Days per % Change Payment per % Change
People Served Person Day (in
Served dollars)
----------------------------------------------------------------------------------------------------------------
1988................................. 384,000 -- 27.8 -- $87 --
1989................................. 636,000 65.6 46.8 68.4 117 34.5
1990................................. 638,000 0.3 37.3 -20.3 98 -16.2
1991................................. 671,000 5.2 33.2 -11.0 123 25.5
1992................................. 785,000 17.0 34.4 3.6 148 20.3
1993................................. 908,000 15.7 34.5 0.3 171 15.5
1994................................. 1,068,000 17.6 35.6 3.2 192 12.3
1995................................. 1,240,000 16.1 34.9 -2.0 211 9.8
1996................................. 1,384,000 11.6 34.5 -1.2 233 10.4
1997................................. 1,572,000 13.5 32.0 -7.3 253 8.5
1998................................. 1,630,000 3.6 32.2 0.0 262 3.5
----------------------------------------------------------------------------------------------------------------
Note: During 1989 only, a prior hospitalization was not required for Medicare coverage of SNF care. Data for
1998 are preliminary and possibly incomplete. Rounding in payments may not reflect actual percentage change.
Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.107
Figure 3.19.
Trend in Medicare Payments for Home Health,
1988-1998
Throughout the early 1990s, home health care was
one of Medicare's fastest growing benefits. Spending
increased from $2.0 billion in 1988 to $16.5 billion in
1998, for an average annual rage of growth of 24%.
Factors that explain some of this growth include
technological advances that make home care rather than
hospital care possible, and a nearly two-fold increase
in the number of home care agencies participating in
Medicare, from 5,686 agencies in 1989 to 10,492 in 1997.
Some portion of the growth probably resulted from
the incentives set up by the hospital prospective
payment system to discharge patients more quickly to
other settings. At first, HCFA reviews of care for these
discharged patients resulted in high denial rates for
home health care, but in 1989 the rules were relaxed and
new guidelines liberalized coverage policies.
In response to the growth of home health care
costs, Congress established in BBA 97 new limits for
computing Medicare payments to home health agencies. One
of these changes includes a new limit on payments per
beneficiary that are applied in the aggregate. They were
in effect through most of 1998, and the 1998 data
reflect expected payment reductions. Further savings are
anticipated when a prospective payment system is
implemented for home health care after the start of the
year 2000.
TABLE 3.19. Trend in Medicare Payments for Home Health, 1988-1998
(fee-for-service only)
------------------------------------------------------------------------
Payments (in
Calendar Year billions) Percent Change
------------------------------------------------------------------------
1988................................ $2.0 --
1989................................ 2.5 23.3
1990................................ 3.9 53.2
1991................................ 5.5 43.7
1992................................ 7.7 39.5
1993................................ 10.2 32.0
1994................................ 13.3 30.1
1995................................ 16.2 21.8
1996................................ 17.5 8.0
1997................................ 17.6 0.0
1998................................ 16.5 -6.3
------------------------------------------------------------------------
Note: Total includes both Part A and Part B payments. The total for 1998
is estimated. Rounding in payments may not reflect the actual
percentage change. Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.056
Figure 3.20.
Trends in Medicare Home Health Care Utilization and
Payments Per Visit, 1988-1997
Most of the growth in home health spending can be
attributed to an increasing volume of services covered
under the program, as measured by increases in the
numbers of users as well as the number of covered visits
per user. For the period 1988 through 1997, the number
of users increased at an average annual rate of 10%, and
the average number of visits per person served increased
at the rate of 14% per year. During this same period,
total Medicare enrollment increased by less than 2% per
year. Increasing costs for home health services have
accounted for comparatively little of the growth in
spending. Payments per visit increased at an average
annual rate of 1.5% from 1988 through 1997. Growth in
the volume of home health services paid for by Medicare
was highest from 1988 through 1993; the rate of growth
has declined since 1994. The declining rate of growth in
volume of visits reimbursed during this latter period
can be explained in part by increasing numbers of
beneficiaries enrolling in Medicare managed care plans;
between 1993 and 1997 managed care enrollment increased
from 5.3% to 14% of total Medicare enrollment. The
program does not track utilization of individual covered
benefits for persons enrolled in managed care. The
absolute decrease in the average number of visits per
person in 1997 reflects provisions in BBA 97 that
established new payment limits for home health services
aimed at controlling the volume of covered services
beginning October 1, 1997.
TABLE 3.20. Trends in Medicare Home Health Care Utilization and Payments Per Visit, 1988-1997
(fee-for-service only)
----------------------------------------------------------------------------------------------------------------
Average
Number of Average
Calendar Year Number of % Change Visits per % Change Payment per Change
People Served Person Visit (in
Served dollars)
----------------------------------------------------------------------------------------------------------------
1988................................. 1,582,000 -- 23 -- $55 --
1989................................. 1,685,000 6.5 27 17.4 55 0.0
1990................................. 1,940,000 15.1 36 33.3 56 1.8
1991................................. 2,223,000 14.6 44 22.2 56 0.0
1992................................. 2,523,000 13.5 53 20.5 58 3.6
1993................................. 2,868,000 13.7 59 11.3 61 5.2
1994................................. 3,175,000 10.7 69 17.0 60 -1.6
1995................................. 3,457,000 8.9 77 11.6 60 0.0
1996................................. 3,583,000 3.6 79 2.6 61 1.7
1997................................. 3,865,000 7.8 72 8.9 63 3.2
----------------------------------------------------------------------------------------------------------------
Note: Rounding in payments may not reflect actual percentage change. Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.108
Figure 3.21.
Home Health Users and Total Visits,
by Number of Visits, FY 1996
A large portion of the growth in volume of home
health visits paid for by Medicare can be attributed to
heavy users. By FY1996, home health users with more than
100 visits had grown to 21% of all users from 4% in
1988. In addition, these users accounted for the great
bulk of covered home health visits--70% of all visits in
FY1996 (see Figure 3.21). Persons receiving more than
300 visits accounted for 32% of all visits in that year
but represented only 5% of users, as shown in the table
below.
TABLE 3.21. Home Health Users and Total Visits, by Number of Visits, FY1996
----------------------------------------------------------------------------------------------------------------
Number of Share of Total Number of Share of Total
Number of Visits per User Users Users (%) Visits Visits (%)
----------------------------------------------------------------------------------------------------------------
1-10............................................ 171,795 24.27 934,376 1.80
11-20........................................... 120,352 17.00 1,812,449 3.50
21-30........................................... 75,134 10.61 1,891,408 3.65
31-40........................................... 51,561 7.28 1,817,443 3.51
41-50........................................... 38,188 5.40 1,730,598 3.34
51-60........................................... 30,378 4.29 1,678,322 3.24
61-70........................................... 23,654 3.34 1,544,606 2.98
71-80........................................... 18,647 2.63 1,404,818 2.71
81-90........................................... 15,525 2.19 1,325,049 2.56
91-100.......................................... 13,223 1.87 1,261,918 2.43
101-130......................................... 31,244 4.41 3,581,118 6.91
131-160......................................... 23,224 3.28 3,369,860 6.50
161-190......................................... 20,061 2.83 3,507,514 6.77
191-220......................................... 14,351 2.03 2,940,631 5.67
221-250......................................... 10,699 1.51 2,513,069 4.85
251-280......................................... 9,328 1.32 2,474,191 4.77
281-300......................................... 5,018 0.71 1,455,632 2.81
300+............................................ 35,450 5.01 16,589,460 32.01
---------------------------------------------------------------
Total........................................... 707,832 100.00 51,832,462 100.00
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.058
Figure 3.22.
Medicare Fee-for-Service Spending for
Selected Service Categories,
by Major Diagnostic Classifications, 1995
The table below shows Medicare fee-for-service
spending by major diagnostic classification for four
selected service categories: short stay hospital
services, skilled nursing facility services, home health
services, and physician and supplier services. Taken
together, these four service categories accounted for
87.5 % of total Medicare fee-for-service payments for
all diagnoses in 1995.
Over one-quarter of Medicare spending in 1995 in
these selected service categories was for persons whose
diagnosis was a disease of the circulatory system,
primarily heart disease. Over 10% of spending was for
persons whose diagnosis was a disease of the respiratory
system, such as pneumonia and asthma. The categories of
neoplasms (cancers), and injury and poisonings, each
constituted close to 9% of spending. Other disease
categories represented a smaller proportion of the
total. For example, endocrine, nutritional and metabolic
diseases (including diabetes) jointly represented under
5% of the total.
TABLE 3.22. Medicare Spending for Selected Service Categories, by Major Diagnostic Classifications, 1995
(in thousands)
----------------------------------------------------------------------------------------------------------------
Percent of
Major Diagnostic Classifications Spending Grand Total
----------------------------------------------------------------------------------------------------------------
Congenital abnormalities........................................................ $ 242,693 0.2%
Diseases of the blood and blood-forming organs.................................. 1,483,755 1.1%
Infectious and parasitic diseases............................................... 3,234,879 2.3%
Diseases of the skin and subcutaneous system.................................... 3,411,521 2.4%
Mental disorders................................................................ 4,273,033 3.1%
Diseases of the genitourinary system............................................ 5,501,940 3.9%
Other........................................................................... 6,031,643 4.3%
Diseases of the nervous system and sense organs................................. 6,410,261 4.6%
Endocrine, nutritional and metabolic diseases................................... 6,500,646 4.6%
Symptoms, signs, and ill-defined conditions..................................... 6,917,179 4.9%
Diseases of the musculoskeletal system and connective tissue.................... 8,945,088 6.4%
Diseases of the digestive system................................................ 9,800,807 7.0%
Neoplasms....................................................................... 11,836,200 8.5%
Injury and poisoning............................................................ 11,870,067 8.5%
Diseases of the respiratory system.............................................. 14,640,590 10.5%
Diseases of the circulatory system.............................................. 38,893,001 27.8%
-------------------------------
Total, all diagnoses............................................................ $139,993,303 100.0%
----------------------------------------------------------------------------------------------------------------
Note: Includes Medicare fee-for-service spending for short-stay hospital services, skilled nursing facility
services, home health services, and services provided by physicians and suppliers. Together, these accounted
for 87.5% of Medicare fee-for-service payments in CY1995. Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.059
Figure 3.23.
Average Per Capita Medicare Spending,
FY1999-FY2009
Total per capita Medicare spending per enrollee
(including administrative costs) is expected to increase
from $5,657 in FY1999 to $10,257 in FY2009, for an
average annual rate of increase of 6.1% over the period.
Net per capita spending (after deduction of beneficiary
premiums) is expected to increase from $5,089 to $8,999,
for an average annual rate of increase of 5.8%
TABLE 3.23. Average Per Capita Medicare Spending, FY1999-FY2009
------------------------------------------------------------------------
Total Net
------------------------------------------------------------------------
1999.................................... 5,657 5,089
2000.................................... 6,025 5,408
2001.................................... 6,387 5,722
2002.................................... 6,597 5,861
2003.................................... 7,105 6,299
2004.................................... 7,541 6,666
2005.................................... 8,204 7,238
2006.................................... 8,414 7,413
2007.................................... 9,110 8,024
2008.................................... 9,677 8,516
2009.................................... 10,257 8,999
------------------------------------------------------------------------
Note: Totals may not add due to rounding Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.060
Figure 3.24.
Distribution of Medicare Spending
for Beneficiaries, 1995
Medicare spending is unevenly distributed among
beneficiaries. In 1995, 5% of elderly beneficiaries
accounted for 45% of Medicare spending for this
population group. Only 14% of beneficiaries accounted
for close to three-fourths (73%) of all spendings for
elderly beneficiaries. Clearly, in a given year, the
majority of health costs are concentrated among a
minority of persons.
A similar and even more pronounced pattern is
reflected in Medicare spending for disabled
beneficiaries. In 1995, 7% of disabled beneficiaries
accounted for over one-half (56%) of this group's total
spending for the year, and 15% accounted for over three-
quarters (79%) of spending.
TABLE 3.24. Distribution of Medicare Spending for Beneficiaries, 1995
(in percent)
------------------------------------------------------------------------
Elderly Disabled
------------------------------------------------------------------------
Percent of Percent of Percent of
Percent of Beneficiaries Spending Beneficiaries Spending
------------------------------------------------------------------------
5.............................. 45 7 56
10............................. 63 11 71
14............................. 73 15 79
23............................. 85 23 88
48............................. 97 46 97
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.061
Figure 3.25.
Average Medicare Part A and Part B Benefit Payment
Per Elderly Enrollee, by Age, 1995
The average annual benefit payment per Medicare
elderly enrollee increases by age, reflecting the need
for more health care as this population ages. In 1995,
the average Part A payment was $1,519 for the 65 to 66
year old population, rising to $4,634 for those 85 and
older. Similarly, Part B payments increased from $1,154
for the youngest age group to $1,869 for the oldest
group.
TABLE 3.25. Average Medicare Part A and Part B Benefit Payment Per
Elderly Enrollee, by Age, 1995
------------------------------------------------------------------------
Part A Part B
------------------------------------------------------------------------
65 and 66 years............................... $1,519 $1,154
67 and 68 years............................... 1,755 1,278
69 and 70 years............................... 1,978 1,351
71 and 72 years............................... 2,219 1,450
73 and 74 years............................... 2,521 1,566
75-79 years................................... 2,982 1,705
80-84 years................................... 3,848 1,839
85+ years..................................... 4,634 1,869
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.062
Figure 3.26.
Average Medicare Benefit Payment
Per User of Services by Mortality,
ESRD, and Hospital Status, 1995
High Medicare spending is frequently associated
with specific beneficiary characteristics, namely,
whether the person died during the year, whether they
were ESRD beneficiaries, or whether they had a hospital
stay. In 1995, the average program payment per person
for those who died during the year was $16,613, compared
to $4,383 for persons who used services but remained
alive during the year. In the same year, ESRD
beneficiaries averaged $35,154 in payments while non-
ESRD beneficiaries who used services averaged $4,963.
Persons using hospital services also had higher costs--
$18,080 per person compared to $1,437 for users without
a hospital stay. The average payment for all users of
services was $5,226 in 1995.
TABLE 3.26. Average Medicare Benefit Payment Per User of Services by
Mortality, ESRD, and Hospital Status, 1995
------------------------------------------------------------------------
Average
Type of Service User Benefit
Payment
------------------------------------------------------------------------
Mortality status: dead.................................. $16,613
Mortality status: alive................................. 4,383
ESRD.................................................... 35,154
Non-ESRD................................................ 4,963
With hospital stay...................................... 18,080
Without hospital stay................................... 1,437
------------------------------------------------------------------------
Note: Excludes persons for whom no Medicare payments were made during
the year. Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.063
Figure 3.27.
Average Medicare Payments Per Enrollee by
State and by Region, CY1996
The average Medicare payment per beneficiary varies
by state and by geographic region. In 1996, six States
had per enrollee payments over $5,400--Louisiana
($6,553), Massachusetts ($6,266), California ($5,986),
Florida ($5,901), Texas ($5,905), and New York ($5,541).
The District of Columbia recorded a per enrollee payment
of $6,631 for the same period. The lowest per capita
payment was recorded in Nebraska ($3,512). The average
payment also varied by geographic region, ranging from
$4,069 in the West North Central region to $5,709 in the
West South Central Division.
TABLE 3.27. Average Medicare Payments Per Enrollee by Region and
Subregion, CY1996
------------------------------------------------------------------------
Dollars Per
Enrollee
------------------------------------------------------------------------
United States........................................... $5,048
Region
Northeast.......................................... 5,427
Midwest............................................ 4,492
South.............................................. 5,225
West............................................... 5,032
Subregion
New England........................................ 5,418
Middle Atlantic.................................... 5,430
East North Central................................. 4,675
West North Central................................. 4,069
South Atlantic..................................... 5,045
East South Central................................. 5,031
West South Central................................. 5,709
Mountain........................................... 4,299
Pacific............................................ 5,379
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.064
Figure 3.28.
Trends in Medicare Part A and Part B
Administrative Expenses, 1970-1997
Medicare administrative costs are a small and
declining portion of total benefit payments. In 1970,
administrative costs represented 3.1% of Part A benefit
payments and 11% of Part B benefit payments. By 1997,
administrative costs had dropped to 1.2 % of Part A
payments and 2.0% of Part B payments. This reflects, in
part, technological improvements in automated claims
processing. Over 96% of hospital and skilled nursing
facility claims are submitted electronically and 79% of
physician, laboratory and durable medical equipment
claims are submitted electronically.
TABLE 3.28. Trends in Medicare Part A and Part B Administrative Expenses
(as a percent of Part A and Part B benefit payments), 1970-1997
------------------------------------------------------------------------
Year Part A Part B
------------------------------------------------------------------------
1970.......................................... 3.1 11.0
1975.......................................... 2.5 10.8
1980.......................................... 2.1 5.8
1985.......................................... 1.7 4.2
1990.......................................... 1.2 3.7
1992.......................................... 1.5 3.4
1993.......................................... 1.0 3.5
1994.......................................... 1.2 3.0
1995.......................................... 1.1 2.8
1996.......................................... 1.0 2.6
1997.......................................... 1.2 2.0
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.065
Figure 3.29.
Administrative Costs:
Medicare Compared to Private Insurance
and HMOs, 1993
Medicare's administrative costs are substantially
lower than those for private insurance. In 1993,
Medicare's administrative costs represented about 2% of
total program costs, while such costs represented 9.5%
of private insurers costs and 11.9% of program costs for
health maintenance organizations (HMOs). Private
insurance and HMO administrative costs include
marketing, profits, and other costs which are not part
of Medicare's expenses. Administrative costs for HMOs
are higher than for private insurance because HMOs
invest more resources into managing the care provided to
enrollees.
TABLE 3.29. Administrative Costs: Medicare Compared to Private Insurance
and HMOs, 1993
------------------------------------------------------------------------
Percent of
Costs
------------------------------------------------------------------------
Medicare................................................... 2.0
Private insurance.......................................... 9.5
HMOs....................................................... 11.9
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.066
Figure 3.30.
Trends in Medicare Claims Volume, 1970-1997
The volume of Medicare claims rose from 60.9
million in 1970 to an estimated 842.7 million in 1997.
This is close to a thirteen-fold increase. Growth has
been greater for Part B claims than for Part A claims.
The rapid rise in the volume of claims reflects a
number of factors, including increased utilization due
to the growing number of beneficiaries, the increasing
longevity of the beneficiary population, and advances in
medical technology. The higher increase in the number of
Part B claims reflects the fact that Part B claims
continue to be based on small units of services (e.g., a
lab test), while Part A claims now generally represent a
larger unit of service, e.g., a hospital admission. The
increase in Part B claims also reflects the addition of
several service categories, e.g., preventive screenings
and flu shots.
TABLE 3.30. Trends in Medicare Claims Volume, 1970-1997
(in millions)
------------------------------------------------------------------------
Part A Part B Total
Year Claims Claims Claims
------------------------------------------------------------------------
1970............................. 17.1 43.8 60.9
1980............................. 41.8 155.0 196.8
1985............................. 58.5 267.2 325.8
1990............................. 83.2 453.9 537.1
1995............................. 133.1 646.5 779.6
1996............................. 142.1 665.6 807.7
1997............................. 150.0 692.7 842.7
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.067
Figure 3.31.
Medicare Part A Trust Fund: Income and Outlays,
FY1970-FY2009
Income to the Medicare Part A Hospital Insurance
Trust Fund traditionally exceeded outlays. However,
beginning in FY1995, this pattern was reversed. In that
year, the program paid out $36 million more than it took
in. The difference totaled $4.2 billion in FY1996 and
$9.3 billion in 1997. BBA 97 reduced the rate of growth
in Medicare spending. It also shifted some spending from
Part A to Part B. As a result, both CBO and the
Administration estimate that income will exceed outgo
through 2006.
TABLE 3.31. Medicare Part A Trust Fund: Income and Outlays, FY1970-FY2009
(in billions)
----------------------------------------------------------------------------------------------------------------
Total Total
Year Income Outlays
----------------------------------------------------------------------------------------------------------------
1970........................................................ $5.6 ........... $5.0 ...........
1975........................................................ 12.6 ........... 10.6 ...........
1980........................................................ 25.4 ........... 24.3 ...........
1985........................................................ 50.9 ........... 48.7 ...........
1990........................................................ 79.6 ........... 66.7 ...........
1995........................................................ 114.9 ........... 114.9 ...........
1996........................................................ 121.1 ........... 125.3 ...........
1997........................................................ 128.5 ........... 137.8 ...........
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Projections Administration CBO Administration CBO
----------------------------------------------------------------------------------------------------------------
1998.................................................. 140.5 138.2 135.8 136.3
1999.................................................. 145.7 145.4 145.2 135.0
2000.................................................. 150.8 150.9 142.5 141.1
2001.................................................. 157.3 154.7 150.6 147.1
2002.................................................. 163.9 163.7 157.2 150.6
2003.................................................. 171.0 171.0 165.6 160.9
2004.................................................. 178.6 178.9 174.4 171.0
2005.................................................. 187.3 188.0 184.6 185.7
2006.................................................. 196.1 196.3 196.0 193.1
2007.................................................. 205.9 205.1 208.1 210.4
2008.................................................. 215.7 213.4 220.8 226.3
2009.................................................. N.A. 221.5 N.A. 242.9
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.068
Figure 3.32.
Medicare Part A Trust Fund: End-of-Year Balance,
FY1970-FY2009
The balance in the Part A Hospital Insurance Trust
Fund is currently increasing. The end-of-year balance
began to drop in FY1995. Prior to enactment of BBA 97,
both the CBO and the Medicare trustees estimated that
the balance would fall below zero in FY2001. However,
with passage of this legislation, both CBO and the
Medicare trustees estimate that the balance will
continue to rise through 2006. In March 1999, the
Medicare trustees projected the fund would become
insolvent in 2015.
TABLE 3.32. Medicare Part A Trust Fund: End-of-Year Balance, FY1970-
FY2009
(in billions)
------------------------------------------------------------------------
End-of-Year
Year Balance
------------------------------------------------------------------------
1970.......................................... $2.7 ...........
1975.......................................... 9.9 ...........
1980.......................................... 14.5 ...........
1985.......................................... 21.3 ...........
1990.......................................... 95.6 ...........
1995.......................................... 129.5 ...........
1996.......................................... 125.3 ...........
1997.......................................... 116.1 ...........
------------------------------------------------------------------------
------------------------------------------------------------------------
Projections Administration CBO
------------------------------------------------------------------------
1998....................................... 117.1 116.9
1999....................................... 119.8 127.3
2000....................................... 127.4 137.1
2001....................................... 132.8 144.6
2002....................................... 142.5 157.7
2003....................................... 148.9 167.8
2004....................................... 153.8 175.6
2005....................................... 155.6 177.9
2006....................................... 160.4 181.1
2007....................................... 160.1 175.8
2008....................................... 156.8 163.0
2009....................................... N.A. 141.6
------------------------------------------------------------------------
Note: Table prepared by CRS
[GRAPHIC] [TIFF OMITTED] T6395.069
Figure 3.33.
Medicare Part A Trust Fund:
Projected Income and Cost Rates, 1999-2070
The Medicare trustees measure long-range financial
soundness of the hospital insurance (HI) trust fund by
comparing: (1) HI tax income (payroll tax and income
from taxation of a portion of Social Security benefits)
as a percentage of taxable payroll (``income rate'')
with (2) HI cost as a percentage of taxable payroll
(``cost rate''). The trustees view this measure as more
meaningful since the value of the dollar changes over
time. There is already a gap between the cost rate and
the income rate. The 1999 estimated cost rate is 3.10%
of taxable payroll, whereas the estimated income rate is
3.02%. The gap is thus 0.08% of taxable payroll. Since
costs are rising faster than payroll tax receipts, the
deficit increases over the projection period, rising to
0.26 percentage points in 2010 and to 3.39 percentage
points by 2070. This represents an improvement over the
1997 and 1998 projections.
TABLE 3.33. Medicare Part A Trust Fund: Projected Income and Cost Rates,
1999-2070
------------------------------------------------------------------------
Difference
Income Cost Rate Between
Calendar Year Rate (in (in Income Rate
percent) percent) and Cost
Rate
------------------------------------------------------------------------
1999............................. 3.02 3.10 -0.08
2000............................. 3.04 3.10 -0.05
2005............................. 3.06 3.17 -0.11
2010............................. 3.08 3.33 -0.26
2015............................. 3.10 3.60 -0.50
2020............................. 3.14 4.00 -0.86
2025............................. 3.20 4.54 -1.35
2030............................. 3.24 5.09 -1.85
2035............................. 3.27 5.52 -2.24
2040............................. 3.29 5.79 -2.50
2045............................. 3.31 5.96 -2.65
2050............................. 3.32 6.06 -2.74
2055............................. 3.34 6.16 -2.82
2060............................. 3.36 6.33 -2.97
2065............................. 3.38 6.55 -3.17
2070............................. 3.39 6.78 -3.39
------------------------------------------------------------------------
Note: Data for 1999-2070 are projections made by the trustees of the
Hospital Insurance Trust Fund.
[GRAPHIC] [TIFF OMITTED] T6395.070
Figure 3.34.
Incurred Medicare Outlays and Social Security Outlays,
Calendar Years 1999-2030
Traditionally, spending on Social Security (i.e.,
the Old Age, Survivors, and Disability Insurance (OASDI)
programs)), has been the largest social welfare
expenditure in the federal budget. Medicare has been
second. Prior to enactment of BBA 97, Medicare spending
(calculated on the basis of obligations incurred, rather
than cash outlays) was expected to outpace Social
Security spending beginning in 2022. However, BBA 97 cut
the long-term Medicare deficit in half. As a result, the
trustees estimate that Social Security spending will
continue as the largest social welfare program through
at least the entire projection period (i.e., through
2072). Despite this fact, the rate of growth in spending
on Medicare will exceed the rate of growth in Social
Security cash payments. Projected Medicare growth
reflects medical care inflation, changes in the mix and
utilization of services, and the aging of the population
(particularly among the oldest group).
Both Medicare and Social Security are expected to
consume an expanding share of the nation's economy. In
1999, Medicare spending ($225.3 billion) will be an
estimated 2.6% of the gross domestic product (GDP),
while Social Security and Medicare together ($619.3
billion) will represent 7.0% of GDP. Medicare is
projected to grow to $450.8 billion (3.0% of GDP) in
2010, while the two programs together will total $1.2
trillion (7.8% of GDP). By 2030, Medicare is expected to
grow to $1.8 trillion and its share of GDP is expected
to climb to 4.9%. Medicare and Social Security together
($4.4 trillion) would climb to 11.7% of GDP.
TABLE 3.34. Incurred Medicare Outlays and Social Security Outlays, Calendar Years 1999-2030
(in billions)
----------------------------------------------------------------------------------------------------------------
HI Total SMI Total Medicare
Calendar Year Incurred Incurred Medicare Social Plus Social
Outgo Outgo Total Security Security
----------------------------------------------------------------------------------------------------------------
1999........................................... 138.4 86.9 225.3 394.0 619.3
2000........................................... 143.3 96.3 239.6 409.0 648.6
2005........................................... 182.9 139.3 322.2 524.0 846.2
2010........................................... 245.8 205.0 450.8 710.0 1160.8
2015........................................... 334.6 316.8 651.4 995.0 1646.4
2020........................................... 463.8 467.0 930.8 1405.0 2335.8
2025........................................... 653.0 661.2 1314.1 1925.0 3239.1
2030........................................... 907.6 904.3 1811.9 2542.0 4353.9
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS; totals may not add due to rounding.
[GRAPHIC] [TIFF OMITTED] T6395.071
Figure 3.35.
Hospital Insurance Cumulative Shortfall,
Calendar Years 1999-2030
In calendar year 1999, estimated income to the
Hospital Insurance trust fund will be an estimated
$134.7 billion; however, incurred expenditures from the
trust fund will be an estimated $138.4 billion. This
leaves a shortfall of $3.7 billion in 1999. Over time
the estimated yearly shortfall increases rapidly, rising
to $19.0 billion in 2010, $99.2 billion in 2020, and
$329.7 billion by 2030. The cumulative shortfall for the
calendar year 1999-2030 period is estimated at close to
$2.8 trillion. (The income and outgo numbers differ from
the trust fund numbers shown in the previous tables.
These estimates somewhat understate income to the trust
fund because they exclude premiums paid by the small
number of persons who obtain Part A coverage by paying a
monthly premium; the income figures also exclude
interest. Both the income and outgo figures reflect
obligations incurred during the calendar year, rather
than cash outlays made during the period.)
TABLE 3.35. Hospital Insurance Cumulative Shortfall, 1999-2030
(in billions)
----------------------------------------------------------------------------------------------------------------
HI Total
Calendar Year HI Income Incurred Annual Cumulative
Outgo Shortfall Shortfall
----------------------------------------------------------------------------------------------------------------
1999........................................................ 134.7 138.4 -3.7 -3.7
2000........................................................ 140.8 143.3 -2.5 -6.2
2005........................................................ 176.6 182.9 -6.3 -24.4
2010........................................................ 226.8 245.8 -19.0 -92.3
2015........................................................ 288.4 334.6 -46.2 -262.0
2020........................................................ 364.6 463.8 -99.2 -639.4
2025........................................................ 459.3 652.9 -193.7 -1402.3
2030........................................................ 577.9 907.6 -329.7 -2765.4
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS; totals may not add due to rounding
[GRAPHIC] [TIFF OMITTED] T6395.072
Figure 3.36.
Medicare Part A Trust Fund:
Number of Workers Per Beneficiary, for Selected Years
The ratio of the number of workers paying a payroll
tax to the number of beneficiaries receiving services
will begin to decline rapidly when the baby boom
generation (individuals born between 1946 and 1964)
begins to reach 65 in 2011. In 1970, there were 4.4
workers paying a payroll tax for every beneficiary
receiving benefits. This ratio dropped to 3.9 workers
per beneficiary by 1997. It is expected to further
decline to 3.6 workers per beneficiary in 2010 and to
2.3 in 2030 as the last of the ``baby boomers'' reaches
age 65. The ratio is expected to eventually stabilize at
around 2 workers per beneficiary.
The declining worker/beneficiary ratio reflects the
high baby boom birthrate (which peaked at 26.6 births
per 1,000 population in 1947) as well as a steadily
declining birthrate beginning in the late 1950s. From
1957 to 1994 the rate declined from 25.3 per 1,000 to an
estimated 15.0 per 1,000.
TABLE 3.36. Medicare Part A Trust Fund: Number of Workers per
Beneficiary, for Selected Years
------------------------------------------------------------------------
Workers Per
Calendar Year Beneficiary
------------------------------------------------------------------------
1970....................................................... 4.4
1997....................................................... 3.9
2010....................................................... 3.6
2030....................................................... 2.3
2060....................................................... 2.0
------------------------------------------------------------------------
Note: Based on intermediate assumptions. For 1970, workers covered by
OASDI are used as a proxy for covered HI workers. Table prepared by
CRS.
[GRAPHIC] [TIFF OMITTED] T6395.073
Figure 3.37.
Medicare Part B Premium as a Percent of Total
Part B Trust Fund Disbursements, FY1970-FY1999
The Part B premium paid by Medicare beneficiaries
was originally intended to equal 50% of program costs;
general revenues financed the remainder. Legislation
enacted in 1972 limited annual increases to the
percentage increase in Social Security benefits (the
cost-of-living adjustment, or COLA.) As a result,
beneficiary contributions dropped to below 25% of
program costs by the early 1980s. Since the early 1980s,
Congress regularly voted to set the Part B premium equal
to 25% of costs for the aged. (The disabled pay the same
premium.) However, the Omnibus Budget Reconciliation Act
of 1990 (OBRA 1990) set specific dollar figures, rather
than a percentage, in law for 1991-1995. Because Part B
costs rose more slowly than had been anticipated in
1990, the 1995 premium actually represented 31.5% of
program costs for the aged. The Omnibus Budget
Reconciliation Act of 1993 set the 1996-1998 premiums at
25% of program costs for the aged. BBA 97 permanently
sets the Part B premium at 25% of program costs for the
aged.
TABLE 3.37. Medicare Part B Premium as a Percent of Total Part B Trust
Fund Disbursements, FY1970-FY1999
------------------------------------------------------------------------
Premium from Total
Year Beneficiaries Disbursements Percent of
(in millions) (in millions) Total
------------------------------------------------------------------------
1970......................... $936 $2,196 42.6
1975......................... 1,887 4,170 45.3
1980......................... 2,928 10,737 27.3
1985......................... 5,524 22,730 24.3
1986......................... 5,699 26,218 21.7
1987......................... 6,480 30,837 21.0
1988......................... 8,756 34,947 25.1
1989......................... 11,548 38,317 30.1
1990......................... 11,494 43,022 26.7
1991......................... 11,807 47,019 25.1
1992......................... 12,748 50,288 25.3
1993......................... 14,683 56,059 26.2
1994......................... 16,895 59,724 28.3
1995......................... 19,244 65,213 29.5
1996......................... 18,931 68,946 27.5
1997......................... 19,141 72,553 26.4
1998......................... 19,427 76,272 25.5
1999......................... 19,947 83,126 24.0
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.074
Figure 3.38.
Sources of Payment for Health Care,
for All Beneficiaries, Elderly and Disabled, 1994
Medicare does not cover all of the health care
expenditures for program beneficiaries. Medicare
requires cost-sharing for most covered services,
provides only limited protection for some services (such
as outpatient prescription drugs and long-term care),
and includes no protection against the costs of other
services. As a result, Medicare financed only 53% of the
medical bills for Medicare beneficiaries in 1994. The
program covered 55% of the costs for the aged, but only
40% of the costs for the disabled. This difference was
offset, in large measure, by higher Medicaid payments
for the disabled (25% vs. 12%). Private insurance
covered 10% of medical expenses for the elderly and 8%
for the disabled. Both groups paid a portion of their
total bill out-of-pocket--20% for the aged and 13% for
the disabled.
TABLE 3.38 Sources of Payment for Health Care, for all Beneficiaries, Elderly and Disabled, 1994
(in percent)
----------------------------------------------------------------------------------------------------------------
Private Out-of-
Medicare Medicaid Insurance Other Payer Pocket
----------------------------------------------------------------------------------------------------------------
All............................................ 52.7 13.7 9.4 5.1 19.1
Elderly........................................ 54.9 11.8 9.7 3.6 20.1
Disabled....................................... 39.6 25.1 7.9 14.5 12.9
----------------------------------------------------------------------------------------------------------------
Note: Rows may not add to 100% due to rounding. Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.075
Figure 3.39.
Spending for Health as a Percentage of After-Tax Income,
Elderly and Non-Elderly Households, 1960-1994
Most persons spend a portion of their incomes out-
of-pocket for health care. This spending includes
payments for health insurance, cost-sharing charges
incurred for use of insurance-covered medical care, as
well as costs for services not covered by insurance. The
percentage of after-tax income that the elderly spend on
health care has risen from 11% in the early 1960s to 18%
in 1994. In contrast, the percentage spent by nonelderly
households has remained relatively constant--declining
from 6% in the early 1960s to 5% in 1994. The higher
percentage spent by the elderly reflects several
factors, including their higher utilization of health
care, their payments for long-term care services and the
premiums paid by those elderly persons who purchase
supplemental insurance (i.e., ``Medigap'') policies.
TABLE 3.39. Spending for Health as a Percentage of After-Tax Income,
Elderly and Non-Elderly Households, 1960-1994
(percent of after-tax income)
------------------------------------------------------------------------
Nonelderly Elderly
Year(s) Households Households
------------------------------------------------------------------------
1960-1961..................................... 6 11
1972-1973..................................... 4 10
1980-1983..................................... 5 13
1984-1987..................................... 5 15
1988-1991..................................... 5 16
1992.......................................... 5 16
1993.......................................... 5 18
1994.......................................... 5 18
------------------------------------------------------------------------
Note: Includes spending for health insurance, medical services,
prescription drugs, and medical supplies. Definition of elderly or
nonelderly households is based on designation of reference person.
Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.076
Figure 3.40.
Out-of-Pocket Health Spending, 1995
Despite Medicare's near universal coverage of the
elderly population, half of this age group spends at
least 14.4% of after-tax income out-of-pocket on health
care costs. These costs include health insurance
premiums, co-payment of medical bills, and medical costs
that are not covered by insurance (such as prescription
drugs).
As shown in the top chart, the highest out-of-
pocket health spending, expressed as a percent of after-
tax income, is concentrated among the ``near poor''
elderly (whose income is between the poverty line and 2
times the poverty line). The near poor, who make up one-
quarter of all non-institutionalized elderly persons,
spend from 45% to 61% of their income on out-of-pocket
health costs. In contrast, the top one-quarter of
elderly, with income at least 4 times the poverty line,
spent 6.5% of after-tax income out-of-pocket on health
costs.
It is important to note that these estimates of
``average'' out-of-pocket spending are not based on mean
calculations, which are subject to distortion by extreme
values (either very high or very low scores). Instead,
they are based on calculations of medians. The median is
the score in the middle of a distribution. It is not
swayed by extreme scores at either end of a
distribution.
Compared to the non-elderly, the elderly spend 75%
more (in dollar terms) on out-of-pocket health care
costs ($2,678 vs. $1,510, on average, in 1994), but they
earn less than half as much ($19,449 vs. $40,941 in
1996).\9\ As a share of their after-tax income, the
elderly spend about 3 times more than the non-elderly on
out-of-pocket health costs. Moreover, as shown in the
chart at the bottom of opposite page, this difference is
not because the elderly spend less on other necessities.
The elderly also spend a larger share of their income on
food and housing than do the non-elderly.
TABLE 3.40. Median Out-of-Pocket Health Spending as a Percent of After-
Tax Income, 1995
------------------------------------------------------------------------
Percent Out- Percent of
Income Relative to Poverty Status of-Pocket Elderly
------------------------------------------------------------------------
Below poverty line (PL)....................... 21.1% 9.2%
PL-(1.25) PL.................................. 60.7 5.3
(1.25) PL-(2) PL.............................. 44.8 21.1
(2) PL-(4) PL................................. 15.9 37.9
(4) PL +...................................... 6.5 26.6
-------------------------
All elderly................................... 14.4 ...........
------------------------------------------------------------------------
Note: Data for elderly includes non-institutionalized household
expenditures for health insurance, medical services, drugs, and
medical supplies.
----------
\9\ ``Consumer Expenditures in 1994,'' U.S. Department
of Labor, Bureau of Labor Statistics, Report 902,
February 1996, Table 3, page 8.
[GRAPHIC] [TIFF OMITTED] T6395.077
Figure 3.41.
Sources of Health Insurance for
Medicare Beneficiaries, 1996
The majority of Medicare beneficiaries depends on
one or more supplemental insurance policies or Medicaid
to help pay for services not covered by Medicare and for
the program's cost-sharing requirements. In 1996 about
63% of the Medicare population had private supplemental
insurance. Private insurance protection may be obtained
through a current or former employer. It may also be
obtained through an individually-purchased policy
(commonly referred to as a ``Medigap'' policy). About
17% had Medicaid coverage; about half of these persons
had full Medicaid coverage while the remainder had
coverage just for Medicare's cost-sharing and premium
costs under the Qualified Medicare Beneficiary (QMB)
program or for premium charges only under the Specified
Low Income Beneficiary (SLIMB) program. Two percent of
the Medicare population had supplemental coverage from
one of a variety of public sources (such as the
military).
Over 19% of the Medicare population had no
supplementary coverage. However, there was a large
difference between the traditional fee-for-service
sector where 13% had no supplementary coverage and the
managed care sector where 63% had no supplementary
coverage. Managed care organizations often provide
coverage for services in addition to those covered under
the traditional fee-for-service program.
TABLE 3.41. Distribution of Supplementary Health Insurance for Medicare
Beneficiaries, 1996
(in percent)
------------------------------------------------------------------------
Fee-for- Managed
Type of Insurance All Service Care
Beneficiaries Enrollees Enrollees
------------------------------------------------------------------------
Medicare only.................. 19.3 13.0 63.1
Individually-purchased......... 28.4 30.0 17.3
Employer-sponsored............. 29.9 32.8 10.0
Both private types............. 4.2 4.6 1.7
Medicaid, total................ 16.5 18.0 5.7
Full Medicaid................. 8.3 9.1 2.4
Qualified Medicare Beneficiary 7.4 8.1 2.6
(QMB).........................
Specified Low-Income 0.8 0.8 0.7
Beneficiary...................
Other.......................... 1.7 1.6 2.1
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.078
Section 4.
Medicare Risk HMOs and Medicare+Choice
Effective in 1999, the Medicare+Choice program,
authorized by the Balanced Budget Act of 1997 (BBA 97,
P. L. 105-33), replaced the Medicare risk contract
program that had originally been authorized in 1982.
This section includes data for the pre-1999 Medicare
risk contract program and the new Medicare+Choice
program.
Under both programs, a private health care
organization contracts with the government to provide
all Medicare-covered health care to Medicare
beneficiaries who elect to enroll in the private plan
instead of traditional Medicare; the plan assumes the
full cost risk of providing services to its
beneficiaries for a fixed annual ``capitation payment''
per beneficiary paid by the government.
In creating the Medicare+Choice program, the BBA 97
changed the formula determining the government's payment
to Medicare risk HMOs and Medicare+Choice plans per
beneficiary; created new rules for beneficiary
enrollment and disenrollment; and required that plan
comparison information be made available to
beneficiaries. It also expanded the types of private
plans that can contract with Medicare to include managed
care organizations such as preferred provider
organizations and provider-sponsored organizations,
private fee-for-service plans, and, on a limited
demonstration basis, high-deductible plans offered in
conjunction with medical savings accounts (MSAs). As of
January 1999, only one non-HMO, a provider-sponsored
organization, had contracted to provide services. As is
the case for HMOs, organizations seeking to contract as
Medicare+Choice plans will have to meet specific
organizational, financial, and other requirements.
The new method for paying risk HMOs and
Medicare+Choice plans took effect on January 1, 1998.
The changes were designed to reduce the wide variation
in payments and the year-to-year volatility that
resulted from the old rules, especially in less-
populated counties. Payments under the new system are
based on a blend of local rates (using the 1997 adjusted
average per capita cost, or ``AAPCCs'') and national
rates. Payment floors are applied to raise rates in
certain counties more quickly than would have occurred
based on blended rates alone. County rates are
guaranteed to increase by a minimum of 2%. The resulting
1999 rates range from a minimum of $380 to a high of
$798. Further changes will be phased in through 2003.
Actual payments to plans vary based on characteristics
of the enrolled population (e.g., age, gender, and
whether or not the individual is in a nursing home). New
risk adjusters reflecting enrollees' health status are
scheduled to be implemented in January 2000.
Medicare+Choice enrolls about 16% of beneficiaries
(February, 1999). This section provides information on
the number and location of Medicare risk HMOs and
Medicare+Choice plans, and the number, geographic
distribution, and characteristics of beneficiaries
enrolled in these plans. Comparisons are drawn between
Medicare HMO enrollees and beneficiaries in Medicare
fee-for-service, and examples of current and proposed
changes in risk adjustment are given. Information is
also provided on Medicare payments to Medicare+Choice
providers and geographic variation in these payments,
including how such payments have changed under BBA 97.
Figure 4.1.
Medicare+Choice Plans and Risk HMOs
Participating in Medicare, 1987-1999
The Medicare+Choice program began operation on
January 1, 1999, as authorized by the Balanced Budget
Act of 1997 (BBA). Prior to this program, risk HMOs were
authorized by the Tax Equity and Fiscal Responsibility
Act of 1982 (TEFRA) and were sometimes called TEFRA
HMOs. The BBA allows for risk contracts with
organizations besides HMOs, including provider sponsored
organizations (PSOs), preferred-provider organizations
(PPOs), and private fee-for-service plans. Further,
under a demonstration program, a limited number of
beneficiaries are able to establish medical savings
accounts (MSAs) in conjunction with a high deductible
plan. By February 1999, one PSO and 298 HMOs had
contracted with HCFA under the Medicare+Choice program.
Under both the BBA and TEFRA, providers receive a
predetermined monthly payment amount from Medicare for
each enrolled beneficiary, regardless of the actual
medical care utilization of the enrollee. Beginning in
2000, payments will be modified using a new mechanism
for risk adjustment.
Participation of risk contract HMOs in Medicare
declined from 1987 to the early 1990s as many plans
terminated existing contracts. However, the total number
of health plans signing risk contracts with the Medicare
program tripled between 1993 and 1998. With the
beginning of the Medicare+Choice program in 1999, a
number of plans withdrew from the Medicare risk program
or reduced the size of their service areas. These
reductions left fewer providers of Medicare managed care
under the Medicare+Choice program than previously served
Medicare beneficiaries. Yet, in February 1999, 28
Medicare+Choice plans had pending applications and 16
had pending service area expansions.
TABLE 4.1. Medicare+Choice Plans and Risk HMOs Participating in
Medicare, 1987-1999
------------------------------------------------------------------------
Number of Number of
Year Plans Year Plans
------------------------------------------------------------------------
1987............................. 161 1994 154
1988............................. 155 1995 183
1989............................. 131 1996 241
1990............................. 96 1997 307
1991............................. 93 1998 346
1992............................. 96 1999 299
1993............................. 110 ........... ...........
------------------------------------------------------------------------
Note: Table prepared by CRS. 1998 data from December; 1999 data from
February, and includes one PSO.
[GRAPHIC] [TIFF OMITTED] T6395.079
Figure 4.2.
Beneficiaries Enrolled in Medicare Risk HMOs and
Medicare+Choice Plans,
Actual and Projected, 1990-2002
There was a steady growth in enrollment in Medicare
risk HMOs during the 1990s, reaching 16.1% of all
beneficiaries in December 1998. Between 1994 and 1997,
enrollment more than doubled. Over the last 5 years, the
annual rate of growth was in the range of 25% to 33%.
Monthly enrollment growth fell steadily from June
through December, 1998--total risk enrollment increased
by only 0.6% between November and December. Although
HCFA reports changes under Medicare+Choice that produce
an understatement of enrollment, the number of Medicare
managed care enrollees declined 1% between December 1998
and February 1999. Still, the Congressional Budget
Office (CBO) projects that enrollment in Medicare+Choice
plans will reach about 19% of all beneficiaries by 2002.
TABLE 4.2. Beneficiaries Enrolled in Medicare Risk HMOs and
Medicare+Choice Plans, Actual and Projected, 1990-2002
(in percent)
------------------------------------------------------------------------
Year Enrollment
------------------------------------------------------------------------
1990....................................................... 3.3
1991....................................................... 3.8
1992....................................................... 4.4
1993....................................................... 5.3
1994....................................................... 6.6
1995....................................................... 8.8
1996....................................................... 11.0
1997....................................................... 14.0
1998....................................................... 16.1
2002....................................................... 18.8
------------------------------------------------------------------------
Note: Data for year 2002 are projected. Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.080
Figure 4.3.
Distribution of Medicare Beneficiaries, by Number of
Risk HMOs Available in Their Area, 1995-1998
Although about 300 Medicare+Choice plans now
participate in Medicare, each is available only to
beneficiaries in a specific service area. Plans define a
service area as a set of counties and county parts,
itemized at the zip code level. In March 1998, 72% of
all Medicare beneficiaries lived in a zip code that was
served by at least one risk plan. Over 60% of all
beneficiaries had access to a choice of plans, and
almost 40% had five or more plans available to them.
From June 1995 to March 1998, an additional 16% of all
beneficiaries gained access to at least one risk plan,
while the number with access to at least five plans
almost tripled.
TABLE 4.3. Distribution of Medicare Beneficiaries, by Number of Risk HMOs Available in Their Area, 1995-1998
(in percent)
----------------------------------------------------------------------------------------------------------------
Number of Risk HMOs Available June 1995 June 1996 June 1997 March 1998
----------------------------------------------------------------------------------------------------------------
None........................................................ 45 37 33 28
One......................................................... 16 13 9 10
Two to four................................................. 26 25 24 23
Five or more................................................ 14 25 34 39
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS based on MedPAC analysis of HCFA data.
[GRAPHIC] [TIFF OMITTED] T6395.081
Figure 4.4.
Medicare Beneficiaries in Urban and Rural Locations
Enrolled in Risk HMOs, March 1998
Patterns of enrollment in risk contract HMOs are
not uniform across urban and rural locales. Risk plan
enrollment in central urban areas (generally, the cities
at the core of metropolitan areas) was about 22.5% in
March 1998, which was about twice the level of
enrollment in outlying urban areas. Risk HMO enrollment
in rural areas was about 1% to 3%.
TABLE 4.4. Medicare Beneficiaries in Urban and Rural Locations Enrolled
in Risk HMOs, March 1998
(in percent)
------------------------------------------------------------------------
Enrollment in
Risk-Contract
Plans (in
percent)
------------------------------------------------------------------------
Central urban......................................... 22.5
Other urban........................................... 11.7
Rural-urban fringe.................................... 3.1
Other rural........................................... 0.6
------------------------------------------------------------------------
Note: Table prepared by CRS based on MedPAC analysis of HCFA data.
[GRAPHIC] [TIFF OMITTED] T6395.082
Figure 4.5.
Variation in Number of Risk HMOs Available to
Medicare Beneficiaries in Urban and Rural Locations,
June 1997
The availability to Medicare beneficiaries of risk
contract plans is much greater in urban areas than in
rural areas. A choice of Medicare+Choice plans is
available to most residents of central urban areas. By
contrast, rural beneficiaries rarely have even a single
plan available to them. Plan availability had been
growing rapidly in both urban and rural locales. For
example, the proportion of central urban residents with
five or more plans in their areas grew from 39% to 79%
from 1995 to 1997. The percentage of rural beneficiaries
in urban fringe areas with at least one plan grew from
11% to 30% in that same period.
TABLE 4.5. Variation in Number of Risk HMOs Available to Medicare Beneficiaries in Urban and Rural Locations,
June 1997
(in percent)
----------------------------------------------------------------------------------------------------------------
2 to 4 5 or More
0 Plans 1 Plan Plans Plans
----------------------------------------------------------------------------------------------------------------
Central urban............................................... 0 2 19 79
Other urban................................................. 27 12 34 27
Rural-urban fringe.......................................... 71 18 11 1
Other rural................................................. 91 6 3 0
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS based on MedPAC analysis of HCFA data.
[GRAPHIC] [TIFF OMITTED] T6395.083
Figure 4.6.
Medicare Beneficiaries Enrolled in Risk HMOs,
by State, December 1998
Enrollment patterns are not uniform on a regional
basis. Medicare risk HMO enrollment was much higher in
western states. In particular, over one-third of the
beneficiaries in Arizona (40%) and California (39%) were
in Medicare risk HMOs. The highest levels of enrollment
in eastern states were in Rhode Island (38%), Florida
(28%), Pennsylvania (26%) and Massachusetts (22%). In
contrast, 13 states had no (or marginal) risk HMO plan
enrollment, and in many others the enrollment was quite
low.
[GRAPHIC] [TIFF OMITTED] T6395.084
Figure 4.7.
Distribution of Medicare Risk HMO Enrollees Among
Selected States, 1998
Medicare risk HMO enrollees were far more
concentrated geographically than Medicare beneficiaries
as a whole. As of December 1998, 37% of all Medicare
risk HMO enrollees lived in California and Florida, even
though only 17% of all beneficiaries lived in those two
states.
TABLE 4.7. Distribution of Medicare Risk HMO Enrollees Among Selected
States, 1998
(in percent)
------------------------------------------------------------------------
Total
Total Risk Medicare
State Enrollment Population
(12/98) (9/97)
------------------------------------------------------------------------
Arizona....................................... 4 2
California.................................... 24 10
Florida....................................... 13 7
New York...................................... 7 7
Oregon........................................ 2 1
Pennsylvania.................................. 9 6
Texas......................................... 5 6
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.085
Figure 4.8.
Growth in Medicare Risk HMO Enrollment,
December 1996-December 1998
(New Enrollees as a Percent of
Previous State Enrollment)
The traditional definition of growth in Medicare
risk HMO enrollment was the change in enrollment from
one time to another. Using this definition, national
growth was almost 50% during the period December 1996
through December 1998. Growth was highest in eastern
states, where enrollment levels typically had been low
or moderate. Because the base enrollment was quite low
in some of these states, even relatively few new
enrollees led to large growth rates.
[GRAPHIC] [TIFF OMITTED] T6395.086
Figure 4.9.
Percent of Medicare Beneficiaries Enrolled in Risk HMOs,
by Number of Plans Available in Their Area, June 1998
In 1998, 11% or fewer of beneficiaries with two or
fewer plans available had enrolled in a risk HMO. In
contrast, areas in which eleven or more risk HMOs were
available enrolled over one-third of all beneficiaries,
on average.
TABLE 4.9. Percent of Medicare Beneficiaries Enrolled in Risk HMOs, by
Number of Plans Available in Their Area, June 1998
------------------------------------------------------------------------
Percent of
Number of Plans Available Beneficiaries
Enrolled
------------------------------------------------------------------------
0........................................................ 0.0
1........................................................ 5.0
2........................................................ 11.0
3........................................................ 17.0
4........................................................ 19.0
5........................................................ 20.0
6........................................................ 21.0
7........................................................ 25.0
8........................................................ 28.0
9........................................................ 20.0
10....................................................... 29.0
11....................................................... 37.0
12....................................................... 32.0
13....................................................... 51.0
14....................................................... 36.0
------------------------------------------------------------------------
Note: Table prepared by CRS based on MedPAC analysis of HCFA data.
[GRAPHIC] [TIFF OMITTED] T6395.087
Figure 4.10.
Medicare Risk Contract Plan Terminations, 1985-1998
The early years of the Medicare risk program saw
substantial turnover in the number of HMOs participating
in Medicare. In the past few years, more and more HMOs
entered the Medicare risk market and contract
terminations declined. Prior to 1998, terminations
reached a high of 38 plans in 1989, declining to fewer
than 5 annually from 1993 through 1997.
Immediately prior to the beginning of the
Medicare+Choice program in January 1999, a number of
plans withdrew from the Medicare risk program or reduced
the size of their service areas. These plans terminated
66 contracts at the end of 1998. These changes affected
slightly more than 400,000 (6.5%) of the more than 6
million Medicare beneficiaries enrolled in managed care.
Slightly more than 50,000 beneficiaries, less than 1% of
Medicare risk enrollees, were left without access to
another managed care plan. In total, 372 counties were
affected by the withdrawals or service area reductions;
72 counties lost access to Medicare managed care.
Despite these reductions, in February, 28
Medicare+Choice plans had pending applications.
TABLE 4.10. Medicare Risk Contract Plan Terminations, 1985-1998
------------------------------------------------------------------------
Contract
Year Terminations
------------------------------------------------------------------------
1985...................................................... 3
1986...................................................... 7
1987...................................................... 29
1988...................................................... 34
1989...................................................... 38
1990...................................................... 14
1991...................................................... 12
1992...................................................... 8
1993...................................................... 4
1994...................................................... 1
1995...................................................... 0
1996...................................................... 2
1997...................................................... 3
1998...................................................... 66
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.088
Figure 4.11.
Medicare Risk HMO Contracts by Plan Model,
December 1998
The majority of Medicare risk HMOs were independent
practice associations (IPAs). An IPA is an HMO that
contracts with physicians in solo practice or with
associations of physicians that, in turn, contract with
their member physicians to provide health care services.
Many physicians in IPA HMOs have a significant number of
patients who are not IPA enrollees. Group model HMOs
contract with one or more group practices of physicians
to provide health care services, and each group
primarily treats the HMO's members. Staff model HMOs
employ health providers, such as physicians and nurses,
directly. The providers are employees of the HMO, and
deal exclusively with HMO enrollees.
Sixty-six percent of Medicare beneficiaries
enrolled in a Medicare HMO in 1998 were in an IPA model
plan.
Most risk contract plans (71%) were owned by for-
profit managed care organizations. These plans enrolled
68% of Medicare's risk plan membership.
TABLE 4.11. Medicare Risk HMO Contracts by Plan Model, December 1998
----------------------------------------------------------------------------------------------------------------
Number of Percent of Number of Percent of
Contracts Contracts Enrollees Enrollees
----------------------------------------------------------------------------------------------------------------
Model
IPA.................................................. 237 69% 4,021,395 66%
Group................................................ 90 26% 1,358,224 22%
Staff................................................ 18 5% 675,005 12%
Ownership
Profit............................................... 247 71% 4,118,303 68%
Non profit........................................... 99 29% 1,937,243 32%
----------------------------------------------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.089
Figure 4.12.
Average Monthly Medicare+Choice Payment Rate for
Aged Beneficiaries, 1999
In 1999, the average county has a monthly payment
rate of $424 for aged beneficiaries, while the average
Medicare beneficiary lives in a county with a payment
rate of $489. This difference occurs because payment
rates are generally higher in more populous counties.
The average Medicare+Choice enrollee lives in a county
with a payment rate of $541. This higher rate indicates
that enrollees tend to live in counties with higher
payment rates.
[GRAPHIC] [TIFF OMITTED] T6395.090
Figure 4.13.
Medicare+Choice Budget Neutrality Provision
Eliminates Blend from 1998 and 1999 HMO Payments
Under the Balanced Budget Act of 1997 (BBA),
payment rates to capitated plans are set at the county
level. A county's Medicare+Choice rate is the maximum of
three different rates:
a floor, equal to $367 per month in 1998
and $380 per month in 1999 for the 50 states and D.C.,
updated annually by the national growth percentage;
a ``minimum update'' equal to the previous
year's payment rate increased by 2%; and
a ``blend'' equal to a combination of local
area-specific (i.e., county) and national, input-price
adjusted rates.
In both 1998 and 1999, no U.S. counties receive a
blend rate. This outcome results from the budget
neutrality provision of the BBA (Section 1853(d)(3)(B)),
which requires that Medicare+Choice payments not exceed
payments that would have been made if payments were
based solely on local rates. If awarding the county the
maximum of the three rates would exceed the budget
neutral target, counties which would otherwise receive
the blend rate have their rates reduced to meet the
target. The rate may not fall below the greater of the
county's floor or minimum update. Counties originally at
the floor or minimum update do not have their rates
reduced.
The budget neutrality provision reduces
Medicare+Choice rates for aged beneficiaries in 1,293
counties (41%) in 1999. These counties would have
received blend amounts if sufficient funds were
available to fund all counties at the maximum of the
floor, blend, or minimum update. Actual 1999 rates were
compared to rates that would have occurred without
budget neutrality. The figure shows that over half (59%)
of all counties, which include two-thirds (66%) of all
Medicare+Choice enrollees and 60% of all Medicare
beneficiaries, have no differences in Medicare+Choice
payments due to the budget neutrality provision. These
counties receive either the floor or minimum update with
or without the budget neutrality provision. Virtually
all counties (99%) and Medicare+Choice enrollees (98%)
have actual rates that are the same or include
reductions of 5% or less. Looking at dollar amounts, the
figure shows that over three-fourths of counties (76%)
and of Medicare+Choice enrollees (78%) had monthly rates
reduced by $5 or less. Only 1% of counties and 3% of
Medicare+Choice enrollees had monthly rates reduced by
more than $20 due to the budget neutrality provision.
[GRAPHIC] [TIFF OMITTED] T6395.109
Figure 4.14.
Spread of County Medicare+Choice Payments
for the Aged by Location, 1997-1999
Medicare pays HMOs and other private plans that
contract with Medicare a fixed monthly payment for each
Medicare beneficiary enrolled in the plan. Beginning in
1998, this Medicare+Choice payment is calculated by the
formula in the Balanced Budget Act (BBA) of 1997.
Under the BBA, a county's payment rate is the
largest of three different rates:
a ``floor,'' or minimum payment rate;
a ``minimum update'' rate, which is 2%
higher than the previous year's rate; and
a ``blended'' rate.
In 1998 and 1999, each county receives the higher of
the floor or minimum update rate because of the budget
neutrality provision in the BBA.
Medicare pays a range of rates for enrollees in
different counties across the United States. Nationally,
this range has narrowed from $546 in 1997 to $416 in
1998 and $418 in 1999. On average, rates are higher in
urban areas than in rural areas, but the difference
between mean rates in ``central urban'' and ``other
rural'' areas has narrowed--from $173 in 1997 to $157 in
1998 and 1999. However, there is also a wide range of
variation for rates even within urban and rural areas.
For example, the lowest rate per month for 1999 in
``urban'' areas will be $380, while the highest rate for
these areas will be $798, which is over twice as much.
TABLE 4.14. Spread of Medicare+Choice Payments for the Aged by Location,
1997-1999
------------------------------------------------------------------------
Minimum Mean Maximum
------------------------------------------------------------------------
1997
National..................... $221 $467 $767
Central urban................ 349 544 767
Other urban.................. 256 438 728
Rural-urban fringe........... 231 394 693
Other rural.................. 221 371 647
1998
National..................... $367 $480 $783
Central urban................ 367 555 783
Other urban.................. 367 450 742
Rural-urban fringe........... 367 412 707
Other rural.................. 367 398 660
1999
National..................... $380 $491 $798
Central urban................ 380 566 798
Other urban.................. 380 460 757
Rural-urban fringe........... 380 423 721
Other rural.................. 380 409 673
------------------------------------------------------------------------
Note: Table prepared by CRS based on analysis of HCFA data. Means
weighted by the number of aged beneficiaries per county in 1996.
[GRAPHIC] [TIFF OMITTED] T6395.092
Figure 4.15.
Medicare Risk HMOs Offering Additional Benefits
in Their Basic Option Package,
December 1997 and December 1998
Most Medicare enrollees in risk HMOs were provided
with additional services not covered by traditional
Medicare. For example, in December 1997, 92% of Medicare
risk plans offered eye exams as part of their basic
benefit package, 97% offered routine physicals, and 68%
offered some coverage of prescription (outpatient)
drugs. Similar levels of coverage were reported in
December 1998 for many services, although declines were
reported for eye and hearing exams and large declines
for glasses and hearing aids. Note that these figures
only apply to basic option packages. Data are not
available for coverage under high option packages. The
percentage of plans covering prescription drugs has
varied over time. In December 1995, only 50% of risk
plans offered such coverage, compared to 78% of plans in
January 1997, 68% in December 1997 and 67% in December
1998.
TABLE 4.15. Medicare Risk HMOs Offering Additional Benefits in Their
Basic Option Package
------------------------------------------------------------------------
Percent of Risk HMOs
-------------------------
Benefit December December
1997 1998
------------------------------------------------------------------------
Routine physicals............................. 97 97
Eye exams..................................... 92 83
Immunizations................................. 89 90
Hearing exams................................. 78 72
Outpatient drugs.............................. 68 67
Dental........................................ 39 37
Health education.............................. 37 38
Foot care..................................... 30 30
Lenses........................................ 15 1
Hearing aids.................................. 10 1
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.093
Figure 4.16.
Distribution of Medicare Risk HMOs by
Premium Charged, 1996-1998
Different Medicare risk HMOs charged different
premiums to enrollees. The majority of risk HMOs (70% in
December 1998) required enrollees to pay no premium
above and beyond the Medicare Part B premium for the
plan's basic benefit package ($43.80 in 1998; $45.50 in
1999). In 1998, almost 1 in 5 plans charged a monthly
premium of $40 or more for their basic package, compared
to 1 in 10 in 1997, and 1 in 6 in 1996. The proportion
of zero-premium plans increased by 4.7% from December
1996 to December 1997, but by less than 1% from December
1997 to December 1998. Data are not available for
premiums charged for high option packages.
TABLE 4.16. Distribution of Medicare Risk HMOs by Premium Charged for
Basic Option Package, 1996-1998
(in percent)
------------------------------------------------------------------------
In Addition to Medicare Monthly December December December
Premium 1996 1997 1998
------------------------------------------------------------------------
$0............................... 64.6 69.3 69.8
$0.01-$39.99..................... 19.0 20.3 17.2
$40.00 and up.................... 16.5 10.4 18.4
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.094
Figure 4.17.
Age, Income and Health Status of
Medicare HMO Enrollees versus Medicare
Fee-for-Service Enrollees
Individuals entitled to Medicare on the basis of
disability (those under 65 years old) were less likely
to be enrolled in Medicare risk HMOs than in fee-for-
service (FFS). The likelihood of being enrolled in a
risk HMO was highest for beneficiaries aged 65 to 74.
The least wealthy and most wealthy Medicare
beneficiaries were disproportionately under-represented
in HMO enrollment. In contrast, those with reported
income between $10,000 and $50,000 were somewhat over-
represented in HMOs, compared to the distribution of
beneficiaries in traditional Medicare.
According to HCFA's analysis of the 1996 Medicare
Current Beneficiary Survey, Medicare beneficiaries
enrolled in risk HMOs were healthier than those in the
fee-for-service program. For example, 84% of risk HMO
enrollees needed no assistance with activities of daily
living (ADLs) compared with about 75% of beneficiaries
in Medicare fee-for-service. About 50% more fee-for-
service beneficiaries reported that their health was
fair or poor than risk HMO enrollees. This may reflect a
variety of factors. Healthier beneficiaries may be more
likely to enroll in risk HMOs. It is also possible that
enrollees in risk HMOs might have relatively better
access to care.
TABLE 4.17. Age, Income and Health Status of Medicare HMO and FFS
Enrollees
(in percent)
------------------------------------------------------------------------
Percent of Percent of
FFS HMO
Population Enrollment
------------------------------------------------------------------------
Age, 1995
Under 65 years............................ 12.0 3.6
65-74..................................... 49.0 55.0
75-84..................................... 28.0 33.0
85 years and over......................... 10.0 8.8
Income, 1995
$5,000 or less............................ 5.0 3.7
$5,000-$10,000............................ 27.8 20.5
$10,000-$15,000........................... 17.4 19.4
$15,000-$25,000........................... 24.2 25.0
$25,000-$50,000........................... 19.5 26.6
$50,000+.................................. 6.0 4.8
Relative health status, 1996
No ADL assistance......................... 75.3 84.0
Three or more ADLs........................ 11.7 4.9
Health: excellent, very good or good...... 69.6 80.5
Health: fair or poor...................... 30.1 19.4
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.095
Figure 4.18.
Medicare Risk HMOs: Costs as a Percentage of
Average Medicare Spending Per Beneficiary
Several studies have found that Medicare
beneficiaries who enrolled in HMOs used fewer Medicare-
covered services than those who remained in the fee-for-
service program. Such differences were also reflected in
studies that showed that Medicare beneficiaries who
enrolled in HMOs had relatively low costs prior to
enrollment. Using data through mid-1994, the Physician
Payment Review Commission (PPRC) found that new HMO
enrollees' costs were 37% below average Medicare
spending per beneficiary during the 6 months prior to
HMO enrollment. Moreover, as shown in the figure,
beneficiaries who enrolled and then disenrolled from an
HMO (and returned to fee-for-service) had costs that
were 60% above the average expenditure for fee-for-
service individuals. However, it should be noted that
within the 1 year period ending February 1996, the vast
majority (97%) of HMO enrollees did not disenroll. (As
shown in the inset, 3% of beneficiaries disenrolled and
5% switched from one HMO to another.)
[GRAPHIC] [TIFF OMITTED] T6395.096
Figure 4.19.
Current Risk Adjustment of
Medicare+Choice Payments, 1999
HCFA currently uses five demographic
characteristics of beneficiaries to ``risk adjust''
payment rates to Medicare+Choice providers: age, gender,
eligibility for Medicaid, working status, and
institutionalized status. Most agree that these
demographic factors do not capture much of the variation
in Medicare beneficiaries' medical care costs. Beginning
in 2000, HCFA will implement a new risk adjustment
mechanism based on diagnoses of beneficiaries with an
inpatient hospitalization, the principal inpatient
diagnostic cost group (PIP-DCG) model.
In general, the five demographic factors assume
that younger beneficiaries, females, non-Medicaid
recipients, working aged, and non-institutionalized
beneficiaries are less costly. Using these factors, the
least costly beneficiary would be a female, aged 65 to
69, who is still working, not receiving Medicaid, and
not institutionalized. The most costly beneficiary would
be a male, aged 85 or older, who receives Medicaid, but
is not institutionalized, and is not working.
Under the current system, the most costly
beneficiary has a demographic adjustment factor that is
almost six times greater than the factor for the least
costly beneficiary. As a result of demographic risk
adjustments, Medicare+Choice providers receiving the
minimum Medicare+Choice payment rate in 1999 (i.e.,
those in counties eligible for the floor payment of
$379.84) could see actual payments range from a low of
$141 to a high of $842. Medicare+Choice providers in the
county with the highest payment rate (i.e., $798.35 in
Richmond, NY) could see actual payments range from a low
of $296 to a high of $1,769. Actual rates will depend on
characteristics of individual enrollees.
TABLE 4.19. Risk Adjustment under Medicare+Choice, 1999
------------------------------------------------------------------------
Actual Rate for Rate for
Unadjusted ``Best'' ``Worst''
Rate Risk Risk
------------------------------------------------------------------------
Minimum (county at floor rate)... $380 $141 $ 842
Maximum.......................... $798 $296 $1,769
------------------------------------------------------------------------
Source: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.097
Figure 4.20.
Proposed Risk Adjustment of
Medicare+Choice Payments, 2000
Beginning in 2000, the Health Care Financing
Administration (HCFA) will begin to implement a new risk
adjustment mechanism under the Medicare+Choice program.
This procedure, the principal inpatient diagnostic cost
group, or PIP-DCG, is based on health status factors.
Initially, payment will be based on inpatient data using
the PIP-DCG adjuster, which predicts incremental costs
above the average for a demographic group. The mechanism
is prospective; it uses diagnoses in the base year to
adjust payment in the following year. HCFA plans to move
to comprehensive risk adjustment, based on both
inpatient and outpatient data, by 2004.
As of January, 1999, HCFA proposes to use 15 PIP-
DCGs to trigger increased payments. Medicare+Choice
payments would also be adjusted for age, gender, working
status, whether the beneficiary originally qualified for
Medicare based on disability, and Medicaid coverage.
Separate demographic-based payments would be used for
aged persons newly eligible for Medicare, newly disabled
Medicare enrollees, and others without a medical
history.
The table and figure illustrate calculation of risk
factors. Each age and gender group would have a base
payment--$4,625 per year for males, aged 75-79, for
example. If the enrollee falls into this age/gender
group and has no other risk adjustment factors, the
overall risk factor would be 0.91 ($4,625/$5,100, with
$5,100 the average payment for all Medicare
beneficiaries.) An enrollee with a kidney infection
admitted to the hospital during the base year would have
a payment increment of $5,969 for this diagnosis the
following year. With no other risk adjustment factors,
this enrollee would have a risk factor of 2.08 ($4,625 +
$5,969/$5,100). Similarly, a male with lung cancer, who
was originally disabled and received Medicaid benefits,
would have a risk factor of 4.14.
These risk factors would be used to adjust the
Medicare+Choice payment rate in effect for the
Medicare+Choice provider. HCFA proposes phasing-in the
new risk adjustment mechanism, with 90% of the
Medicare+Choice rate adjusted for demographic
characteristics and 10% for PIP-DCGs in 2000.
Table 4.20. Proposed Risk Adjustment of Medicare+Choice Payments, 2000
----------------------------------------------------------------------------------------------------------------
Male 75-79 Male 75-79 Male 75-79
with: No with: Kidney with: Lung
Admissions Infection Cancer
----------------------------------------------------------------------------------------------------------------
Base............................................................ $4,625 $4,625 $4,625
Health status................................................... 0 5,969 12,435
Disabled enrollee............................................... 0 0 2,353
Medicaid enrollee............................................... 0 0 1,705
Total........................................................... 4,625 10,594 21,118
Risk factor (total/$5,100)...................................... 0.91 2.08 4.14
----------------------------------------------------------------------------------------------------------------
Source: Table prepared by CRS based on HCFA, Medicare+Choice Risk Adjustments, January 1999.
[GRAPHIC] [TIFF OMITTED] T6395.098
Figure 4.21.
Beneficiary Satisfaction with Medicare HMOs and
Fee-for-Service, 1996
In 1996, Medicare beneficiaries enrolled in risk
HMOs were more likely to report that they were very
satisfied with the quality of and access to their care
than those in Medicare FFS. While the differences in
satisfaction rates were generally small, they are
notable with respect to the issue of costs. Whereas 27%
of risk HMO enrollees reported that they were very
satisfied with the costs of their care, only 17% of
beneficiaries in FFS were very satisfied.
TABLE 4.21. Beneficiary Satisfaction with Medicare HMOs and FFS, 1996
------------------------------------------------------------------------
Percent Percent
Very Very
Type of Service Satisfied Satisfied
FFS HMO
------------------------------------------------------------------------
Quality....................................... 31.9 34.4
Costs......................................... 16.5 27.4
Specialist care............................... 20.3 25.5
Care on phone................................. 15.9 18.9
Provider concern for health................... 20.5 23.7
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.099
Figure 4.22.
Beneficiary Dissatisfaction with Medicare HMOs and
Fee-for-Service, 1996
Only a small percentage of Medicare beneficiaries
reported being very dissatisfied with their Medicare
coverage in 1996. However, risk contract enrollees were
likely to report being very dissatisfied about quality,
and were twice as likely to report being very
dissatisfied with specialist care, care on the phone,
and their providers' concern for their health than
beneficiaries with Medicare fee-for-service (FFS)
coverage. The dissatisfaction rates are most notable for
the differences on the issue of costs, where fee-for-
service enrollees were more likely to be very
dissatisfied than HMO enrollees.
TABLE 4.22. Beneficiary Dissatisfaction with Medicare HMOs and FFS, 1996
------------------------------------------------------------------------
Percent Very Percent Very
Type of Service Dissatisfied Dissatisfied
FFS HMO
------------------------------------------------------------------------
Quality..................................... 0.7 0.8
Costs....................................... 3.2 0.7
Specialist care............................. 0.8 1.8
Care on the phone........................... 1.3 2.4
Provider concern for health................. 0.7 1.4
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.100
Figure 4.23.
Reasons for Disenrolling from Medicare Risk HMOs and
Switching to Medicare Fee-for-Service, 1996
A telephone survey of Medicare beneficiaries
enrolled in a risk HMO for at least 1 year during the
year ending February 1996 revealed that those Medicare
beneficiaries who disenrolled in favor of Medicare fee-
for-service did so for a variety of reasons. Problems
with physicians and access concerns motivated 40% of
disenrollments to fee-for-service. More than 25%
disenrolled because they moved or for other, involuntary
reasons. Not shown in the figure is that beneficiaries
who disenrolled from one risk HMO and enrolled in
another risk HMO were more likely than those who
switched back to fee-for-service to have left because
their doctor left, died, or retired, and were less
likely to have left because of access problems.
TABLE 4.23. Reasons for Disenrolling from Medicare Risk HMOs and
Switching to Medicare FFS, 1996
------------------------------------------------------------------------
Percent of
Enrollees
------------------------------------------------------------------------
Problems with physicians................................... 26
Moved, or other involuntary reasons........................ 28
Access problems/location................................... 14
Financial issues........................................... 18
Other...................................................... 14
------------------------------------------------------------------------
Note: Table prepared by CRS based on PPRC survey.
[GRAPHIC] [TIFF OMITTED] T6395.101
Figure 4.24.
Trends in Relative Growth in HMO Enrollment:
Medicare Versus Non-Medicare Markets, 1988-1999
The rate of increased enrollment in Medicare risk
HMOs surpassed that for non-Medicare HMOs every year
from 1990 to 1996. Beginning in 1997, the rapid growth
in enrollment in Medicare risk HMOs abated, and
enrollment actually declined in early 1999 as the
Medicare+Choice program began operation.
TABLE 4.24. Trends in Relative Growth in HMO Enrollment: Medicare Versus
Non-Medicare Markets, 1988-1999
(in percent)
------------------------------------------------------------------------
Non-
Year Medicare Medicare
Risk HMOs HMOs
------------------------------------------------------------------------
1988.......................................... 6 12
1989.......................................... 7 6
1990.......................................... 11 5
1991.......................................... 10 8
1992.......................................... 13 7
1993.......................................... 16 9
1994.......................................... 25 11
1995.......................................... 36 15
1996.......................................... 33 13
1997.......................................... 27 --
1998.......................................... 16 --
1999.......................................... -0.7 --
------------------------------------------------------------------------
Note: Table prepared by CRS. Other forms of managed care delivery
systems, such as preferred provider organizations, are not included in
the non-Medicare HMO totals. 1999 data reports change between December
1998 and February 1999.
[GRAPHIC] [TIFF OMITTED] T6395.102
Figure 4.25.
Non-Medicare and Medicare HMO Penetration in
Selected States, 1996
HMO penetration (the extent to which individuals
enrolled in managed care plans) varied across states,
for both Medicare and non-Medicare enrollment. In many
areas, managed care companies have only recently begun
to market to Medicare beneficiaries.
TABLE 4.25. Non-Medicare and Medicare HMO Penetration in Selected
States, 1996
(in percent)
------------------------------------------------------------------------
Insured Medicare
Population in Beneficiaries
State Commercial and in Medicare
Medicaid HMOs Risk HMOs
------------------------------------------------------------------------
Arizona................................. 62 34
California.............................. 77 38
Colorado................................ 51 26
Florida................................. 52 22
Louisiana............................... 42 9
Massachusetts........................... 75 16
Minnesota............................... 52 18
Nebraska................................ 26 2
New York................................ 60 13
Oregon.................................. 69 37
------------------------------------------------------------------------
Note: Table prepared by CRS.
[GRAPHIC] [TIFF OMITTED] T6395.103
Figure 4.26.
Average Estimated Medical Education Payments as
Components of Medicare+Choice Payment Rates,
by Urban and Rural Location, 1998
Medicare fee-for-service payments for inpatient
hospital stays include payments for indirect and direct
medical education costs incurred by teaching hospitals
and extra payments to hospitals that serve a
disproportionate share of low-income beneficiaries (or
DSH payments). The DSH payments are retained in the
expenditures used to calculate Medicare+Choice payments
to risk HMOs. Beginning in 1998, Medicare+Choice
payments exclude medical education costs with a phase-
out of 20% of costs in 1998, 40% in 1999, 60% in 2000,
80% in 2001, and 100% from 2002 onward. As a result, the
Medicare+Choice payments reflect a county's average
monthly per capita cost for fee-for-service DSH and part
of medical education costs. These amounts may not
correspond with actual plan costs, however, because not
all Medicare+Choice plans have medical education
programs or use teaching or disproportionate share
hospitals. In 1995, medical education was an estimated
3.4% of the rates overall, and DSH was 2.1%. The share
of medical education costs was 3.2% overall in 1998.
This share varied across the country, as shown in the
figure.
TABLE 4.26. Average Estimated Medical Education Payments as Components
of Medicare+Choice Payment Rates, by Urban and Rural Location, 1998
(percent of payment rates)
------------------------------------------------------------------------
Medical
Education
------------------------------------------------------------------------
All counties............................................... 3.2
Urban counties............................................. 3.6
Central urban......................................... 4.4
Other urban........................................... 2.8
Rural counties............................................. 2.0
Urban fringe.......................................... 2.2
Other rural........................................... 1.8
------------------------------------------------------------------------
Note: Table prepared by CRS based on HCFA data. Average percent weighted
by number of aged beneficiaries per county in 1996.
[GRAPHIC] [TIFF OMITTED] T6395.104