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Order Code IB87106
CRS Issue Brief
Catastrophic Health Insurance:
Medicare
Updated May 4, 1990
by
Jennifer O'Sullivan
#
Education and Public Welfare Division
CRS
Congressional Research Service
The Library of Congress
CONTENTS
SUMMARY
ISSUE DEFINITION
BACKGROUND AND ANALYSIS
Insurance Coverage for the Aged
Medicare Coverage
Other Insurance Protection
Enactment of MCCA
Summary of MCCA
Part A (Hospital Insurance) Benefits
Part B (Supplementary Medical Insurance) Benefits
Catastrophic Prescription Drug Benefits
Financing
Other Provisions
Estimated Impact of MCCA
MCCA Issues
Congressional Action in the 101st Congress
MCCA Repeal Provisions
Part A Provisions
Part B Provisions
Catastrophic Prescription Drugs
Financing
Medigap Provisions
Other Provisions
Medicaid
Post-Repeal Action
LEGISLATION
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
FOR ADDITIONAL READING
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Catastrophic Health Insurance: Medicare
SUMMARY
Catastrophic medical costs are broadly defined as large unpredictable health care
expenses; these are usually associated with a major illness or serious injury. The
absence of catastrophic health insurance protection for the elderly was the subject of
concern for several years. During the 100th Congress, a number of proposals were
considered to expand protection for the aged through the Medicare program. The
Medicare Catastrophic Coverage Act of 1988 (MCCA, P.L. 100-360) was signed into
law on July 1, 1988. This measure placed an upper limit on beneficiary liability in
connection with covered Medicare services. It also established a new catastrophic
prescription drug program. The measure did not include protection against long-term
institutional care expenditures in the benefit package.
MCCA removed coinsurance and number-of-day limitations on hospital care; a
beneficiary needing hospital care would pay only one inpatient deductible per year.
The law modified the skilled nursing facility benefit and expanded benefits for home
health and hospice care. The law established a maximum out-of-pocket limit (the
"catastrophic cap") on beneficiary liability for cost-sharing charges in connection with
physicians' and other Part B services. Beginning in 1991, the law authorized
Medicare coverage for catastrophic outpatient prescription drug expenses. MCCA was
to be financed through a combination of (1) an increase in the monthly Part B
premium for all Part B enrollees, and (2) a new supplemental premium which was
to be mandatory for all Part A enrollees with Federal tax liability (about 41% of the
elderly in 1989). MCCA also contained several Medicaid provisions.
Many elderly complained about the supplemental premium; many also questioned
the need for the new benefits. Further, concerns were raised regarding the rapid
increase in estimated MCCA costs. During 1989, Congress considered ways to modify
MCCA. Such modifications included developing a plan retaining a portion of the
MCCA benefits, while reducing or eliminating the supplemental premium. However,
a consensus could not be reached.
Thus, on Nov. 22, 1989, the House and Senate cleared the Medicare Catastrophic
Coverage Repeal Act of 1989 (H.R. 3607), for the President's signature; it was signed
into law Dec. 13 (P.L. 101-234). The Act repeals the Medicare catastrophic provisions
included in MCCA; however, it retains the Medicaid provisions.
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ISSUE DEFINITION
Catastrophic medical costs are broadly defined as large unpredictable health care
expenses; these are usually associated with a major illness or serious injury. Further,
these expenses must be the liability of the individual or family; that is, they are not
covered by so-called third parties, either private insurance or public programs.
Congress passed the Medicare Catastrophic Coverage Act of 1988 (MCCA), which
provided protection against some catastrophic costs for the elderly. After enactment,
a number of issues were raised about MCCA. Of particular concern was the
financing mechanism. Critics also focused on the increases in MCCA estimated costs.
On Nov. 22, 1989, the House and Senate cleared the Medicare Catastrophic Coverage
Repeal Act of 1989 (H.R. 3607) for the President's signature; the measure was signed
into law (P.L. 101-234) on Dec. 13, 1989.
BACKGROUND AND ANALYSIS
Insurance Coverage for the Aged
Medicare Coverage
Aged persons who face catastrophic health expenses do so because of gaps in
their insurance coverage. Almost the entire aged population (between 95 and 96%
or 30 million persons) are covered under Medicare; in addition, the program covers 3
million disabled persons. Medicare's benefits, which are the same throughout the
country, are targeted toward meeting the acute health care needs of the elderly.
Prior to 1989, limits were placed on the number of covered days of hospital care and
continue to be placed on skilled nursing facility care. (The hospital limits will be
restored in 1990.) Further, the program has placed no upper limit on cost sharing
charges in connection with covered program services.
Overall, Medicare covers about half of the aged's health care costs. The
program's benefit package excludes prescription drugs, routine eye examinations,
eyeglasses, hearing aids, dental care, dentures, and most preventive care. The major
gap in the Medicare benefit package is coverage of long-term-care services. Nursing
home coverage is limited to short-term post-hospital stays in skilled nursing facilities
(SNFs). As a result, Medicare covers less than 2% of the nursing home costs of the
aged. Home health care is covered only when a beneficiary can be shown to need
intermittent skilled nursing care or physical or speech therapy. Many chronically ill
persons do not need skilled care to remain in their homes, but rather, need custodial
care and assistance with daily routines; home health services for these persons are
not covered by Medicare.
Other Insurance Protection
The majority of Medicare beneficiaries have had some insurance protection in
addition to Medicare coverage. The largest group is that with Medigap coverage.
Medigap is the term used to describe individually purchased policies designed to
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supplement Medicare's coverage. Approximately 39% of the noninstitutionalized
Medicare population purchased private health insurance policies in 1987, most of
which could be classified as Medigap. The principal protection offered by the majority
of these policies is coverage of Medicare's cost sharing charges; some policies may
offer coverage of additional services. Few policies offer protection against the costs
of long-term institutional care -- potentially the most costly service item.
Regulation of insurance, including health insurance, is generally a State
responsibility. However, in the 1970s there were a series of reports on marketing
and sales abuses with respect to health policies sold to the elderly. Congress therefore
approved a voluntary certification program in 1980. Under the program, policies that
wished to be certified as Medigap policies had to meet or exceed standards set forth
in a model regulation approved by the National Association of Insurance
Commissioners (NAIC). The voluntary program applies only in States that fail to
establish equivalent or more stringent programs. Almost all States established their
own programs. (See MCCA summary and summary of MCCA repeal for Medigap
provisions.)
Approximately 29% of the noninstitutionalized Medicare population has
employer-based health insurance coverage which may be paid in whole or part
by their employers. Employer-sponsored plans are not covered by the NAIC rules.
(See MCCA summary and summary of MCCA repeal for maintenance of effort
provision.)
Some low-income aged and disabled Medicare beneficiaries are also covered by
the Federal-State Medicaid program. However, many of the aged do not become
eligible for Medicaid benefits until after they become institutionalized and reduce
their incomes and resources to the Medicaid standard through their expenditures on
health care. Medicaid beneficiaries are effectively protected against the costs
associated with covered program services.
Prior to MCCA, an estimated 20% of the Medicare population had no other
health insurance coverage. According to DHHS, this figure included over 2 million
poor and 6 million near-poor elderly not covered by Medicaid.
Enactment of MCCA
President Reagan submitted the Administration proposal for catastrophic
coverage for the Medicare population on Feb. 24, 1987. It was seen by many in
Congress as defining the minimum parameters of a Medicare expansion bill. The
final law differed considerably from the original Administration plan. The major
benefit expansion included in the law was the new catastrophic prescription drug
coverage.
Financing was a key issue during Congressional consideration of MCCA. Given
the Federal budget deficit, it was decided that any program expansions could not rely
on general revenue financing. Therefore another mechanism had to be developed.
It was determined that, first, the legislation must provide the revenues for any
benefit expansions. Second, expanded benefits had to be paid for by the beneficiaries
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themselves. As the legislation was developed, there was concern that many
beneficiaries would be unable to afford the cost of the improved benefits, if the cost
were to be spread equally across all beneficiaries. The law therefore provided that
those with a greater ability to pay (as evidenced by Federal tax liability) would
shoulder a larger portion of the costs. On the other hand, State Medicaid programs
would be required to phase in coverage of Part B premium payments (and other
Medicare cost-sharing charges) for those with incomes below the poverty line.
Summary of MCCA
The Medicare Catastrophic Coverage Act of 1988 was given final approval by
Congress June 8, 1988, and signed into law as P.L. 100-360 July 1, 1988. The
following are highlights of the major provisions. (For a detailed summary see CRS
Report 89-155 EPW, Medicare Catastrophic Coverage Act of 1988.) The hospital and
SNF benefit expansions were effective Jan. 1, 1989; the remaining benefit provisions
(except drugs) were to be effective Jan. 1, 1990. The catastrophic prescription drug
benefit was to be effective Jan. 1, 1991.
Part A (Hospital Insurance) Benefits
Part A provides coverage for inpatient hospital services, skilled nursing facility
(SNF) services, home health care, and hospice services. Prior to the enactment of
MCCA, long-term hospital stays were subject to significant coinsurance charges.
Further a beneficiary could potentially exhaust all benefits; however, a very small
percentage actually did so. MCCA made the following Part A changes:
Inpatient Hospital Services. Specified a maximum of one hospital deductible
per year ($560 in 1989) and eliminated the day limits, coinsurance charges, and spell
of illness provisions.
Skilled Nursing Facility Services. Required daily coinsurance payments for
the first 8 days equal to 20% of the national average Medicare reasonable cost for
SNF care ($25.50/day in 1989); eliminated coinsurance charges for 21st-100th days;
provided coverage for up to 150 days and eliminated prior hospitalization
requirement.
Home Health Services. Expanded the "intermittent" skilled nursing care
definition so that "daily" care was defined as 7 days a week for up to 38 days (instead
of 5 days a week for up to 2 or 3 weeks).
Hospice Services. Provided that the 210 day lifetime limit could be extended.
Part B (Supplementary Medical Insurance) Benefits
Beneficiaries enrolled in Part B pay a monthly premium ($31.90 a month in
1989). They are also liable for certain charges in connection with their use of
physicians and other services covered under the program. All beneficiaries are liable
for the $75 deductible and 20% coinsurance charges. In addition, where a physician
or other provider does not accept "assignment" (i.e., agree to accept Medicare's
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determination of the "reasonable charge" amount as payment in full for covered
services), the beneficiary is liable for the difference between Medicare's reasonable
charge amount and the physician's actual charge. (This is sometimes referred to as
the "balance billed" amount.) The following are the Part B changes which were made
by MCCA.
Limitation on Out-of-Pocket Expenses. Established a maximum
out-of-pocket limit (the "catastrophic cap") on beneficiary liability for Part B
cost-sharing charges after which Medicare would pay 100% of the approved amount.
(Balance billing charges would not count toward the cap; nor would Medicare pay
these charges once the beneficiary hit the cap.) The limit was set at $1,370 for 1990;
it was to be indexed so that a constant 7% of beneficiaries would be eligible for this
catastrophic benefit each year.
Mammography Screening. Established a new Medicare benefit. Screenings
for women over 65 would be covered every other year, subject to a maximum payment
per screening of $50 in 1990 (indexed in future years).
Respite Care. Provided coverage for in-home care for a chronically dependent
individual for up to 80 hours per year. The benefit was to be available only for
persons who met either the catastrophic cap or the outpatient prescription drug cap.
Catastrophic Prescription Drug Benefits
MCCA established, effective Jan. 1, 1990, a limited prescription drug benefit for
home intravenous (IV) drugs and immunosuppressive drugs furnished after the first
year following a transplant (they are already covered in the first year). The
deductible was to be $550 in 1990; the coinsurance was to be 20% for home IV drugs
and 50% for immunosuppressives. Beginning Jan. 1, 1991, catastrophic prescription
drug coverage was to be available for all outpatient prescription drugs, subject to a
$600 deductible and 50% coinsurance charges. The deductible was slated to go to
$652 in 1992 and be indexed in future years so that 16.8% of beneficiaries would
reach the deductible each year. The coinsurance was slated to be lowered to 40% in
1992 and 20% in 1993.
Financing
The new benefits were to be financed through a combination of (1) an increase
in the monthly Part B premium for all Part B enrollees, and (2) a new supplemental
premium which was to be mandatory for all those entitled to Part A who had Federal
tax liability of $150 or more.
Part B Premium. The additional monthly Part B premium was set in the
statute through 1993. The additional monthly amount was set at $4 in 1989, $4.90
in 1990, $7.40 in 1991, $9.20 in 1992, and $10.20 in 1993.
Supplemental Premium. The supplemental premium (to be collected in
conjunction with the Federal income tax) was to be based on Federal tax liability (i.e.,
amount of taxes owed). The supplemental premium was in effect a surtax. The
surtax rate was to be 15% in 1989, 25% in 1990, 26% in 1991, 27% in 1992, and 28%
in 1993. The maximum annual premium per enrollee was $800 in 1989, rising to
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$1,050 in 1993. It was estimated that the approximate income levels at which the
maximum premium amounts would be reached were $40,000 for a single return and
$80,000 for a couple.
Other Provisions
Medigap Policies. MCCA amended procedures for Federal certification of
Medigap policies. It provided that if the National Association of Insurance
Commissioners (NAIC) revised its standards prior to Oct. 1, 1988, such revised
standards would apply as the standard for certification. The NAIC met this deadline.
Policies sold before enactment, but still in effect on Jan. 1, 1989, were deemed not
to duplicate Medicare's new benefits if they complied with the NAIC model transition
rule; this rule required insurers to notify beneficiaries of policy and premium changes
and to make appropriate premium adjustments in their policies.
Maintenance of Effort. Any employer who provides health benefits to an
employee or retired former employee (including State and local employees) that
duplicate at least 50% of the new or improved Part A or Part B benefits would have
to provide additional benefits or refunds that totalled at least the actuarial value of
the duplicative benefits. The provision was to be effective with respect to Part A
benefits in 1989 and Part B benefits in 1990 except that an extension was provided
to cover current collective bargaining agreements.
Federal Employees. MCCA required the Director of the Office of Personnel
Management (OPM) to reduce, effective Jan. 1, 1989, the rates charged to
Medicare-eligible individuals participating in the Federal Employee Health Benefits
Program (FEHBP) to reflect the amounts that would have been paid by those plans
except for the enactment of this bill. The reduction was $3.10 per month in 1989.
OPM was also required to conduct a study of changes to FEHBP that might required
to incorporate plans designed specifically for Medicare-eligible individuals.
Medicaid. MCCA mandated States, on a phased-in basis, to pay Medicare
premiums, deductibles and coinsurance for elderly and disabled individuals with
incomes below the poverty line. Also, in the case of a couple where one member is
institutionalized, the bill provided protection of a portion of the couple's income and
resources for maintenance needs of the community spouse (the so-called spousal
impoverishment provision).
Estimated Impact of MCCA
All beneficiaries had increased insurance protection as a result of the new law.
The Congressional Budget Office (CBO) estimated that when the legislation was fully
implemented, approximately 22% of Medicare beneficiaries each year would have been
entitled to higher benefit payments as a result of the program expansions.
At the time of enactment, total new benefit and administrative costs were
estimated at $30.8 billion over the FY89-FY93 period. This figure increased to $48.2
billion in September 1989. These costs were to be financed through the additional
Part B premium and the new supplemental premium. It was estimated that 41.2%
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of enrollees would pay the supplemental premium in 1989. Close to two-thirds of
those paying the premium would pay less than $300. An estimated 5.6% of enrollees
would pay the maximum supplemental premium in 1989.
It was estimated that approximately 30% of enrollees would pay more in new
premiums (supplemental plus the new Part B) than they would receive in new
benefits. However, all persons (including those paying the maximum supplemental
premium) would still receive more in total Medicare benefits than they would pay in
total. This was true even when you included the hospital insurance payroll tax
which was paid by these individuals (and their employers) during their working years.
MCCA Issues
Following passage of MCCA, a number of issues were raised about the scope of
the new legislation and its financing. Critics of the measure focused mainly on the
financing aspects. Some persons who would be liable for the new supplemental
premium (also known as the surtax) objected to the amount they would have been
required to pay for the expanded coverage. Most persons liable for the supplemental
premium would have averaged more in total new premium charges (supplemental plus
Part B) than the per capita value of the new benefits. Critics further objected to the
mandatory nature of the program; they felt that beneficiaries should be allowed to
make their own choices about insurance coverage.
Proponents of the measure noted that, given the Federal budget deficit, it was
decided that any program expansions could not rely on general revenue financing.
Therefore another mechanism had been chosen. All beneficiaries, except those with
incomes below the poverty line, would pay a portion of the additional costs. Higher-
income individuals would assume a higher percentage of the costs. Proponents note
that even though higher-income individuals would be paying more than the value of
the new benefits, they would still be receiving a subsidy on the overall Medicare
benefits package. Further, financing Medicare through an income-related charge was
not new to Medicare. The Part A program has always been financed by an income-
related hospital insurance tax levied on current workers and their employers.
Proponents noted that the program was mandatory rather than voluntary to
help maintain a sound financial base. The mandatory base was intended to prevent
those beneficiaries who were younger, healthier, and had higher incomes from
dropping out of the program until they were older, sicker and more likely to need the
protection.
Critics noted that over three-quarters of Medicare beneficiaries already had
private and or public health insurance coverage in addition to Medicare. They
suggested that these individuals did not need, nor in many cases want, expanded
Medicare coverage. Some individuals who had their additional coverage paid for in
whole or in part by their current or former employer would have been subject to the
supplemental premium and therefore have been subject to higher total charges after
enactment of MCCA.
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Proponents of the measure stated that it represented the most significant
expansion in benefits since the enactment of Medicare in 1965. They noted that the
law was designed to fill very significant program gaps. While many enrollees had
other health insurance protection, approximately 20% of the aged had no additional
coverage. These individuals tended to be older, sicker and poorer than those who
purchased additional coverage.
Proponents noted that Medicare is more efficient to administer than private
insurance. They also noted that it may be difficult for those elderly with preexisting
conditions to obtain affordable private coverage.
Some persons suggested that persons will be paying for coverage that they will
not actually use. Proponents noted that the new legislation provided catastrophic
insurance protection. As with car insurance or homeowners insurance, not everyone
expects to avail themselves of the benefits each year. However, if the program had
been fully implemented, an estimated 22% of beneficiaries would have been entitled
to higher Medicare payments as a result of the legislation.
Some critics of the catastrophic measure questioned its focus. They suggested
that enactment of the catastrophic proposal would, in effect, delay enactment of a
long-term-care bill. They noted that the major gap in Medicare was and continued
to be coverage of long-term-care services. Very few private insurers offer protection
against these costs. As a result, Medicaid remains the primary source of third party
financing for these expenses. Many elderly at risk of needing long-term-care services
face the prospect of impoverishing themselves to welfare levels in order to gain
Medicaid eligibility.
Congressional Action in the 101st Congress
During the 1st Session of the 101st Congress, both the House and Senate
considered a number of alternative approaches to modifying MCCA. This interest
was spurred in large part by the considerable opposition that was voiced by many
senior citizens to imposition of the supplemental premium. It was also spurred in
part by the considerable increase in estimated program costs of catastrophic benefits.
Two services accounted for most of the estimated increase -- the expanded skilled
nursing facility benefit and the prescription drug benefit.
On Oct. 4, 1989, the House during its consideration of the FY90 budget
reconciliation bill approved the amendment offered by Congressmen Donnelly and
Archer by a vote of 360 to 66. This replaced the catastrophic provision approved
earlier by the Committee on Ways and Means. The House rejected the substitute
amendment offered by Congressmen Stark, Gradison, and Waxman. The
Donnelly/Archer amendment basically repealed the Medicare provisions and the
financing provisions of MCCA while retaining the Medicaid provisions.
On Oct. 6, 1989, the Senate by a vote of 99 - 0 approved S. 1726, as amended.
This legislation was introduced by Senator McCain as a free-standing measure.
(Earlier efforts by the Finance Committee to report a catastrophic agreement as part
of reconciliation were unsuccessful.) The Senate's action came after a series of
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amendments (including a repeal amendment) were disapproved. The Senate bill
retained the Part A benefit with the exception of the SNF benefit. It also retained
coverage for immunosuppressives and home IV drugs, mammography services, and
respite care. The Senate bill eliminated the supplemental premium and provided
beginning in 1990 for a recalculation of the Part B premium to fund the remaining
benefits.
On Nov. 8, 1989, the House passed H.R. 3607, the Medicare Catastrophic
Coverage Act of 1989. The provisions of this bill were identical to the catastrophic
provisions approved by the House as part of the reconciliation bill. Also on Nov. 8,
1989, the Senate passed its version of H.R. 3607. The Senate version was a revised
McCain bill which corrected technical errors incorporated in S. 1726. The Conferees
reported the measure on Nov. 19, 1989. The Conferees essentially reported the House
repeal measure with a few modifications. The Senate rejected the measure twice
returning the measure to the House; the latter body insisted on the conference
agreement. Both Houses approved the conference report with technical correction on
Nov. 22, 1989. The bill was signed into law (P.L. 101-234) on Dec. 13, 1989.
MCCA Repeal Provisions
The following summarizes the provisions of H.R. 3607 as approved by Congress.
Part A Provisions
Hospital and SNF Benefits. The expanded hospital and SNF benefits
authorized by MCCA were effective Jan. 1, 1989. P.L. 101-234 restores the prior law
provisions effective Jan. 1, 1990.
Beginning Jan. 1, 1990, hospital and SNF benefits will again be tied to the
beneficiary's "spell of illness." A spell of illness begins when a beneficiary enters a
hospital and ends when he or she has not been an inpatient of a hospital or SNF for
60 consecutive days.
A beneficiary is entitled to 90 days of hospital care per spell of illness." Days
1-60 are subject to one deductible ($592 in 1990). Days 61-90 are subject to a daily
coinsurance charge ($148 in 1990). Beneficiaries also have a total of 60 lifetime
reserve days available to them. A beneficiary exceeding 90 days of care during a spell
of illness may use lifetime reserve days, subject to a daily coinsurance charge ($296
in 1990). Lifetime reserve days can be used only once; any such days used by a
beneficiary prior to 1989 are subtracted from the total available.
A beneficiary is also entitled to 100 days of SNF care per spell of illness. The
three-day prior hospitalization requirement removed by MCCA has been restored.
Days 1-20 of post-hospital SNF care are not subject to beneficiary cost-sharing. Days
21-100 are subject to daily coinsurance charges ($74 in 1990).
P.L. 101-234 establishes transition provisions for persons in a hospital on Jan.
1, 1990 whose inpatient stay began prior to that date. For these individuals, January
1, 1990 is considered to be the first day of the beneficiary's spell of illness; however,
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no deductible is imposed if one was imposed for such stay in 1989. Also, if a
deductible was imposed on an inpatient stay beginning in December 1989, no
deductible is to be imposed for a spell of illness beginning in January 1990. Further,
no deductible is imposed on an individual whose spell of illness began prior to Jan.
1, 1990.
P.L. 101-234 also establishes transition provisions for persons in a SNF on Jan.
1, 1990 whose SNF care began prior to that date. The 100 days of SNF care are
deemed to start on Jan. 1, 1990. Thus, no coinsurance would be imposed on days 1-
20; the daily $74 coinsurance charge would be imposed on days 21-100. Persons in
the SNF prior to Jan. 1, 1990 would not be subject to the prior hospitalization
requirement. The prior hospitalization requirement is also waived for persons
discharged from a SNF during Dec. 1989 and readmitted in Jan. 1990 within 30 days
of discharge.
Home Health Benefits. The expanded home health benefits (see MCCA
summary) which were to become effective Jan. 1, 1990 are repealed.
Hospice Benefits. The 210 limitation is restored Jan. 1, 1990, except that it
does not apply to persons electing hospice benefits prior to that date.
Blood Deductible. P.L. 101-234 retains the MCCA provision. MCCA provided
that the Part A blood deductible is to be imposed on a calendar year basis; it is to
be reduced by any such deductible imposed under Part B.
Part A Premium. The vast majority of the elderly are automatically eligible for
Part A protection. Persons not automatically eligible may obtain coverage through
payment of a monthly premium ($156 in 1989.) MCCA revised the calculation of that
premium. P.L. 101-234 retains this modification.
PPS Payments. MCCA provided for transitional adjustments in PPS payments
to take into account the new law. Further, for PPS-exempt hospitals, it provided for
an adjustment in the target amount (the annual limit on total Medicare payments
to such hospital) to take into account the additional days of care Medicare would be
covering.
P.L. 101-234 terminates the transitional adjustments for PPS and PPS-exempt
hospitals effective Jan. 1, 1990. Further, it requires the Secretary to make
appropriate adjustments in the target amount to take into account services provided
to an inpatient whose stay began before Jan. 1, 1990.
Part B Provisions
The following new Part B benefits which were to become effective Jan. 1, 1990
are repealed:
Limitation on out-of-pocket expenses (the so-called Part B cap)
Screening mammograms
Respite care
Home intravenous drug therapy services
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Catastrophic Prescription Drugs
Coverage for outpatient catastrophic prescription drugs, which was to begin on
a limited basis in 1990, is repealed.
MCCA required that physicians include the appropriate diagnosis code when
requesting Medicare payment, effective Mar. 1, 1989. This requirement is retained.
Financing
MCCA provided that the supplemental premium was to be effective for tax years
beginning after Dec. 31, 1988. P.L. 101-234 repeals this premium. While most
persons would not have paid the premium until they filed their 1989 tax returns,
some persons may have paid a portion of this as part of their estimated tax
payments. A separate refund of this amount will not be made. Repeal of the
premium results in reduced tax liability. If an individual's total 1989 tax payments
exceed total 1989 tax liability, a refund will be made when the individual files his or
her return.
MCCA also increased the monthly Part B premium by a specified amount to
fund catastrophic expenses. This add-on amount was set at $4 per month in 1989
and $4.90 per month in 1990. The additional premium is deducted from individual's
social security checks (as is the case for the basic Part B premium amount). The
additional premium is repealed effective January 1990. Due to the late passage of the
repeal legislation, the 1990 add-on amount will be deducted for several months until
the system can be appropriately modified. Any resulting overpayment will be
refunded.
MCCA extended indefinitely the hold harmless provision. This provision prohibits
a beneficiary's check from dropping as a result of an increase in the Part B premium.
This indefinite extension is retained.
MCCA also established several new trust funds and accounts. P.L. 101-234
repeals the Federal Hospital Insurance Catastrophic Coverage Reserve Fund, the
Federal Catastrophic Drug Insurance Trust Fund, and the Medicare Catastrophic
Coverage Account.
MCCA required the Secretary of the Treasury to study and report to Congress
by Nov. 30, 1988 on Federal tax policies to promote the private financing of long-
term care. P.L. 101-234 delays the reporting date until May 31, 1990.
Medigap Provisions
Revised Certification Requirements. MCCA amended procedures for Federal
certification of Medigap policies to reflect enactment of catastrophic coverage. (See
above.) P.L. 101-234 amends the requirements to reflect repeal of catastrophic
coverage. P.L. 101-234 provides a period of 90 days beginning with enactment for
the NAIC to revise their model medigap regulation to improve such regulation and
otherwise to reflect benefit changes made by the new law. The revised regulation
would apply in a State effective on the date the State adopts Medigap standards
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equal to or more stringent than the revised regulation or one year after the date the
NAIC first adopts such revised regulation. If the NAIC does not revise the model
regulation within 90 days, the Secretary must promulgate revised Federal model
standards within the subsequent 60 day period. These standards would become
effective on the earlier of the date the State adopts the standards equal to or more
stringent than the revised standards or one year after the date the Secretary
promulgates the standards. After the date the revised regulation (or the revised
Federal model standards) are effective in a State, no Medigap policy may be certified
by the Secretary and no Secretarial certification may remain in effect unless the
policy meets the revised NAIC model standards (or the revised Federal model
standards.)
P.L. 101-234 defines a transition deadline as one year after the NAIC adopts the
revised model regulation, or one year after the Secretary promulgates revised Federal
model standards, as the case may be. Medigap policies issued after the transition
deadline must comply with the revised NAIC model regulation or the Federal model
standards to be in compliance. Medigap policies issued before the transition deadline
are deemed to be in compliance with the new standards if they comply with a
transition provision to be issued by the NAIC no later than Dec. 15, 1989 (or failing
that, by the Secretary by Jan. 1, 1990.) The NAIC transition provision ceases to
apply on the earlier of either the date the State adopts standards equal to or more
stringent than the revised NAIC model regulation (or the revised Federal model
standards, if appropriate) or the date established for States requiring legislative
action.
Medigap policies in effect on Jan. 1, 1990 would not meet the standards unless
each policy holder or certificate holder who is eligible for Medicare is sent a notice
by Jan. 31, 1990 explaining the changes in Medicare's benefits resulting from
catastrophic repeal legislation and how these changes affect the policy's benefits and
premium.
Continuation Provision. Special rules are established in the case of an
individual who had a Medigap supplemental policy in effect as of Dec. 31, 1988 with
an insurer (as a policy holder, or in the case of a group policy, a certificate holder)
and terminated this policy before enactment of P.L. 101-234. The insurer must offer
such policy holder or certificate holder (through written notice between Dec. 15, 1989
and Jan. 30, 1990) reinstitution coverage. The individual must be offered during a
period of at least 60 days (beginning not later than Feb. 1, 1990) reinstitution
coverage, with coverage effective as of Jan. 1, 1990. The offering must be under the
terms which: (1) do not provide for any waiting period for treatment of pre-existing
conditions; (2) provide for coverage which is substantially equivalent to coverage in
effect before the date of such termination; and (3) provide for classification of
premiums on terms which are at least as favorable to the policyholder or certificate
holder as the premium classification which would have applied to that person had the
coverage not been terminated. An insurer is not required to make this offer in the
case of a policyholder or certificate holder in another Medigap policy as of the date
of enactment of P.L. 101-234 if under that policy, as of Jan. 1, 1990, the individual
is not subject to a waiting period with respect to a pre-existing condition.
Medigap Premiums. In November 1989, the GAO conducted a survey of
commercial Medigap insurers to determine the expected increase in Medigap
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premiums in 1990. For the 20 companies reporting, the average monthly premium
was $58.71 in 1989. In the absence of repeal legislation, the estimated average 1990
monthly premium would be $60.10 in 1990. Repeal of MCCA would result in a 15.4
percent or $9.25 average increase in the 1990 monthly premiums. This represented
increases ranging from 6.3% to 41.3% across reporting companies.
The Blue Cross and Blue Shield Association estimated the impact of repeal on
member plans. A typical nongroup Medicare product costs an estimated $50 to $55
per month in 1989. Repeal of MCCA would result in increases of $8 to $24 per
month in 1990.
Other Provisions
P.L. 101-234 repeals the following additional MCCA provisions, effective Jan.
1, 1990:
Maintenance of effort. The repeal does not apply to duplicative Part A
benefits for periods before Jan. 1, 1990. (See summary of MCCA above.)
Rate reduction for Federal annuitants.
OPM study of offering Medigap policies to Federal annuitants (This
study has already been issued.)
Benefits counseling and assistance demonstration project
Case management demonstration projects
Advisory Committee on Medicare home health claims
Research on long-term-care services for Medicare beneficiaries
Study of adult day health services
The following provisions were retained:
United States Bipartisan Commission on Comprehensive Health
Care (the Pepper Commission)
Mailing of notice of Medicare benefits and information describing
the participating physician program
Prohibition of misuse of symbols, names, or emblems in reference
to Social Security or Medicare
Demonstration projects for chronic ventilator dependent units in
hospitals
HMO provisions relating to adjustment of contracts and changes
in civil monetary penalties with respect to certain actions
Technical corrections to OBRA 1987
P.L. 101-234 also requires prepaid health plans, for calendar year 1990 only, to
provide the additional Part A and Part B benefits otherwise repealed. The
adjustments in the 1990 premium rates are retained to cover the costs of these
benefits.
Medicaid
P.L. 101-234 retained the Medicaid provisions of MCCA. These provisions are
as follows:
Requiring Medicaid to pay Medicare premiums and cost-sharing
charges for Medicare beneficiaries below poverty
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Spousal impoverishment provision which, in the case of the
institutionalization of one member of a couple, provides protection for a
portion of the couple's income and resources for the maintenance needs of
the community spouse
Requiring Medicaid coverage of pregnant women and infants below
poverty
In November 1989, GAO conducted a survey of the impact of repeal of MCCA's
Medicare provisions on Medicaid budgets. The 37 States (and the District of
Columbia) reporting data showed a total increase in 1990 budgets of $1 billion, of
which an estimated $444 million would be State funds and $587 Federal funds.
Post-Repeal Action
During the second session of the 101st Congress, several measures have been
introduced to restore selected benefits which had been added by MCCA and
subsequently repealed. Generally the benefits proposed for restoration were some of
the less costly. One measure which has received considerable attention is the
proposed Medicare Benefit Improvement Act of 1990, H.R.3880 (Stark), which has
over 100 cosponsors. This bill includes provisions, comparable to those included in
MCCA, related to coverage of screening mammography, respite care, home health
services, and hospice care.
The second session of the 101st Congress is also examining issues related to
Medigap insurance. Of particular concern have been the substantial premium rate
increases following the repeal of MCCA. Several Medigap bills have been introduced
which address one or more of the following issues: premium increases, regulation of
Medigap insurance, and beneficiary counseling.
LEGISLATION
P.L. 101-234, H.R. 3607
Medicare Catastrophic Coverage Repeal Act of 1989. Includes provisions
repealing the Medicare provisions and the financing provisions of MCCA while
retaining the Medicaid provisions. Retains the modified calculation of the Part A
blood deductible and the requirement for the U.S. Bipartisan Commission on Health
Care (known as the Pepper Commission). Repeals the Part A provisions (which have
already gone into effect) at the end of 1989 and establishes transition requirements
for persons who were in hospitals or SNFs during 1989. Revises Medigap
requirements (including appropriate transition provisions) and includes a continuation
provision. Introduced Nov. 7, 1989; passed House Nov. 8, 1989. (Provisions identical
to catastrophic coverage repeal provisions included in House-passed H.R. 3299, the
Omnibus Budget Reconciliation Act of 1989) Passed Senate amended Nov. 8, 1989.
(Contained provisions of Senate-passed S.1726, with technical amendments.)
Conference report filed Nov. 19, 1989. Signed into law Dec. 13, 1989.
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H.R.3880 (Stark)
Medicare Benefits Improvements Act of 1990. Adds Medicare coverage for
screening mammography services. Adds coverage for up to 80 hours a year of in-
home respite care for certain chronically dependent individuals who have incurred
Part B cost-sharing charges of $1,780 or more; this 1991 amount is indexed for years
after 1991 so that an estimated 5.5% of beneficiaries are able to use this benefit each
year. Modifies the home health benefit by expanding the "intermittent" skilled nursing
care definition so that "daily" care is defined as 7 days-per-week for up to 38 days.
Provides that the 210 day lifetime limit for hospice care may be extended. Specifies
that payment for the expanded benefits is to be made by beneficiaries through an
add-on to the monthly Part B premium of $0.80 in 1991, $1.00 in 1992 and 1993,
$1.20 in 1994, and $1.30 in 1995. Introduced Jan. 24, 1990 and referred jointly to
the Committees on Ways and Means and Enery and Commerce.
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
U.S. Congress. House. Committee of Conference. Medicare Catastrophic Coverage
Act of 1988; conference report to accompany H.R. 2470. May 31, 1988.
Washington, U.S. Govt. Print. Off., 1988. (100th Congress, 2d session. House.
Report no. 100-661)
U.S. Congress. House. Committee of Conference. Medicare Catastrophic Coverage
Repeal Act of 1989; conference report to accompany H.R.3607. November 19,
1989. Washington, U.S. Govt. Print. Off., 1989. (101st Congress, 1st session.
House Report no. 101-378)
FOR ADDITIONAL READING
U.S. Library of Congress. Congressional Research Service. Medicare Catastrophic
Coverage Act of 1988 (P.L. 100-360), by Jennifer O'Sullivan. [Washington]
March 3, 1989.
CRS Report 89-155 EPW
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U.S NEWS & WORLD REPORT, June 13, 1988
63
A&S
Finally, a health-cost cap
Catastrophic ills will bankrupt fewer elderly people, starting next year
The two-year struggle is
dressing and bathing. It only
over. This month, supporters
covers short-term nursing-
of a greatly expanded health-
home or home care that con-
insurance program for the el-
sists of actual medical atten-
derly expect President Reagan
tion and that is prescribed by
to sign into law an overhaul of
a physician. And although the
medicare benefits-the first
bill does offer a straw of de-
since the program started in
fense against financial devas-
1965. When the law takes ef-
tation for the spouses of peo-
fect next January, medicare
ple who need long-term
for the first time will spring
care-by guaranteeing that
for unlimited hospital stays,
they can keep a certain
will safeguard recipients
amount of their monthly in-
against a crippling accumula-
come and $12,000 in liquid
tion of physicians' fees and
assets-many elderly people
will begin sharing the cost of
will continue to face a severe
their prescription drugs.
depletion of their assets if
While not a perfect shield,
they or their spouses need
the new law goes a long way
Jacob Jimenez, 70, was lucky-his double-valve-replacement
nursing-home care.
toward protecting people age
heart surgery meant only 33 days in the hospital, all covered by
For many recipients, a
65 and over and the disabled
medicare. Under current law, he'd have begun paying on day 61
beefed-up medicare system
against the ruinous costs of
raises as many questions as it
catastrophic illness. After a deductible of
answers needs. One consideration will be
FOOTING A BIGGER BILL
$564 a year, their hospital tabs will in
whether to purchase or renew a private
the future be paid in full by medicare, no
Medicare beneficiaries will have to
medigap policy, insurance that medicare
matter how long the stay. Currently,
pay for their newly expanded health
recipients have relied on to fill in gaps
only 60 hospital days are covered in full
coverage through an increase in the
such as deductibles and hospital co-pay-
after payment of a $540 deductible. Fur-
medicare part-B premium, an addition-
ments-the share of the daily hospital
ther, the new law caps at $1,370 the
al drug premium and a supplemental
bills medicare recipients now have to
amount that beneficiaries will have to
federal income tax.
pay themselves after they've been in the
pay each year out of their own pockets
From the current premium of $297 a
hospital for 60 days. The medicare bill
for doctors' fees. Outpatient prescription
year ($24.80 a month), the annual di-
requires insurers to revise medigap plans
drugs, in the past the responsibility of
rect cost (including the increased
to eliminate duplication of coverage, but
part-B premium plus the new drug pre-
the patient, will be partially covered.
mium) will rise to $373 in 1989, $428
medigap holders should still make sure
(For a description of the new benefits,
in 1990, $500 in 1991, $529 in 1992
that their policies do not overlap with
see box on page 64.) All this added assis-
and $571 in 1993.
the expanded medicare coverage. Come
tance will be expensive-Congress esti-
As has been true in the past, medi-
January, for example, you'll no longer
mates the cost at $30 billion over the
care premiums will be deducted from
need to worry about covering the cost of
next five years. It will be paid for by
Social Security checks. No elderly
hospital co-payments. Instead, you
higher medicare premiums and an addi-
person, however, will see any de-
should be focusing on plans that cover
tional income tax on high-income recipi-
crease in the size of his or her
all deductibles, your share of your doc-
ents. (See box at right.)
checks; rather, the checks might not
tors' fees up to the $1,370 cap, and ser-
Help with medications. Of greatest val-
increase as much as they otherwise
vices medicare will not cover-routine
ue to the greatest number of people will
would. A provision in the Social Secu-
physicals, immunizations and the cost of
rity law called "hold harmless" pre-
be the doctors'-fee cap and the coverage
vents beneficiaries' checks from de-
hearing-aid fittings, for example. Since
of drug costs. According to congressio-
creasing so much as to more than
these charges can quickly mount, the
nal estimates, about 2 million elderly
cancel out a given year's cost-of-liv-
$500 or so you'll pay annually for an
people spent more than $1,370 each of
ing-allowance increase.
average medigap plan may be well spent.
their own funds last year on doctors'
The supplemental income tax will
Says Joshua Wiener, a health-care ana-
bills. An estimated 6 million have out-of-
affect only the 40 percent of single
lyst at the Brookings Institution: "I
pocket medication expenses that take big
beneficiaries with incomes above ap-
think a medigap policy is still going to be
bites out of their income. Medicare will
proximately $15,000 and couples with
a good investment for most people."
pay a percentage of prescription-drug
incomes above $20,000. The addition-
Long-term care. If insurers have their
costs beginning in 1991-starting at 50
al tax starts off at $22 for every $150
way, medicare's lack of provision for
of income tax owed and rises to $42
percent and rising to 80 percent by 1993.
nursing-home care will cause many re-
for every $150 owed in 1993. In 1989,
Not all people facing crushing medical
cipients and soon-to-be recipients to con-
the maximum supplemental tax would
bills will find relief. Contrary to what
be $800 for an individual and $1,600
clude that the new long-term-care plans
many elderly people believe, the bill
for a couple. In 1993, the maximum
are a great investment, too. While you
won't ease the financial burden of long-
would rise to $1,050 per individual and
may want to investigate long-term-care
term nursing-home patients who require
$2,100 per couple.
insurance, terms vary greatly, and it's
simple custodial care-help with eating,
important to proceed cau iously. About
C 1988 U.S. News & World Report, Inc. Reproduced by the Library of Congress,
Congressional Research Service with permission of copyright claimant.
How the safety net will work
Where medicare has been reinforced
COVERAGE
OLD PROVISIONS
NEW PROVISIONS
Hospital
First 60 days covered in full after $540 deduct-
All costs covered indefinitely; $564 deductible in 1989, $600 in
Inpatient care
ible for each hospital stay. Beneficiary pays
1990, rising thereafter. No matter how many hospital stays, you
$130 daily co-insurance (days 61-90), $260
pay one deductible a year.
(days 91-150). No coverage after 150 days.
Lifetime reserve of 60 free hospital days.
Doctors' fees
80% of all approved charges paid after $75
Same.
deductible. Beneficiary pays all costs beyond
approved charges.
Cap. out-of pocket
No cap.
Cap of $1,370 per year, rising to $1,900 in 1993 on amount
expenses for
beneficiaries pay out of pocket-in co-payments and deduct-
doctors' care
ibles-for approved charges.
(medicare part B)
Prescription
No coverage.
No coverage in 1989. 1990: Pays 50% of the cost of intrave-
drugs
nous drugs used at home (annual deductible of $600). 1991:
Pays 50% of the cost of all prescription drugs ($600 deduct-
ible). 1992: Coverage rises to 60%. 1993 and thereafter:
Coverage rises to 80%.
Nursing-home
Covers 100 days a year, with co-payment of
Covers 150 days a year. Beneficiary pays 20% of average daily
care
$65 a day after day 20. Minimum three-day
cost of first 8 days. Physician must certify medical care is need-
hospital stay required to qualify for coverage.
ed; custodial care is not covered. No previous hospital stay is
Patient must need medical-not simply custo-
required.
dial-care.
Home health
21 days per year of skilled-nursing care, gen-
38 24-hour days of skilled-nursing care per year when pre-
care
erally limited to 5 visits per week.
scribed by a doctor. Extension possible in some cases.
Hospice care
Limit of 210 days. Pays up to $68 per day.
No limit on days; other features unchanged.
Home care allowed.
Respite care
No coverage.
Covers up to 80 hours a year for nurse or home health aide to
relieve family caring for patient at home. Available to those who
exceed cap on doctors' fees or drug deductible.
Outpatient mental
Covers $250 a year.
Covers $1,100 per year. Visits to monitor medication dosage
health care
covered under part B and won't count toward this limit.
Low-Income
State medicaid programs pay medicare premi-
Medicaid will pay medicare premiums, co-payments and de-
protection
ums, co-payments and deductibles for benefi-
ductibles for beneficiaries with incomes below 100% of poverty
ciaries with incomes below 80% of poverty
line, and medical expenses of pregnant women and infants up
level, which is now $6,870 for family, $5,440
to 1 year old whose family incomes are below poverty level.
for individual.
Spousal
Allow but don't require medicaid programs to
Medicaid programs must permit spouse of someone who enters a
Impovertshment
protect assets of spouse. Most elderly have to
nursing home for long-term care to keep $786 of income per
protection
"spend down" to poverty level to qualify for
month-rising to $1,000 in 1993-and $12,000 in liquid assets
medicaid.
Homeownership, protected by other laws, is excluded.
70 companies now offer such "indemnity
todial care in a nursing home; also. it
long-term-care policy is probably a fool-
plans," which generally pay $25 to $60 a
will be "guaranteed renewable," mean-
ish expense, since you'll likely quickly
day in benefits for one to five years with
ing the company has to renew the policy
qualify for medicaid and at least some of
no adjustment for inflation. A 65-year-
as long as you pay the premium. A
your assets will be protected.
old buying a plan today may not need
growing number of home policies cover
Meanwhile, Congress doesn't view its
coverage until he or she is 80; by then,
long-term care in your home, too.
job as over. Several long-term-care bills,
nursing homes may cost an average $200
Most long-term-care policies are less
including one that would significantly
or more a day. The policies are also
than adequate, Consumer Reports con-
expand coverage of custodial-nursing
expensive, ranging from $600 to $800 a
cluded in its May issue in rating 53 such
care at home, have been proposed. Says
year for a 65-year-old to over $1,400 a
plans. Their recommendations: If you're
Stephen McConnell, coordinator of
year for a 75-year-old. Most have re-
under 60, don't buy a long-term-care
Long Term Care 88, a national cam-
strictions, too. People with a pre-existing
policy unless it provides some ratcheting
paign to make long-term care a priority
illness such as Alzheimer's disease may
up of benefits with inflation. If you're
in the coming year: "The new coverage
be unable to purchase a plan. Most poli-
over 60 and of moderate-to-high income,
will help, but it doesn't solve the major
cies also require prior hospitalization for
a policy with at least an $80-a-day bene-
problem. That's what we'll have to start
at least three days. A good plan will
fit and an unlimited number of days cov-
addressing now."
cover care in a skilled-nursing facility by
ered may be a "reasonable choice." If
doctors, nurses and therapists, and cus-
you're over 60 and of modest means, a
by Steven Findlay
64
U.S.NEWS & WORLD REPORT, June 13, 1988
88-444 L
CRS Report for Congress
Catastrophic Health Insurance:
Bibliography-in-Brief
Edith Sutterlin
Senior Bibliographer, Education and Public Welfare
Library Services Division
August 1989
CRS
Congressional Research Service The Library of Congress
The Congressional Research Service works exclusively for the Congress, conducting re-
search, analyzing legislation, and providing information at the request of committees,
Members, and their staffs.
The Service makes such research available, without partisan bias, in many forms includ-
ing studies, reports, compilations, digests, and background briefings. Upon request,
CRS assists committees in analyzing legislative proposals and issues, and in assessing the
possible effects of these proposals and their alternatives. The Service's senior specialists
and subject analysts are also available for personal consultations in their respective fields
of expertise.
CATASTROPHIC HEALTH INSURANCE:
BIBLIOGRAPHY-IN-BRIEF
SUMMARY
This bibliography focuses on reactions to passage of the Medicare
Catastrophic Coverage Act of 1988 (P.L. 100-360) and issues involved in
financing catastrophic health care costs. A previous bibliography, CRS report
no. 88-401, lists many congressional hearings and reports related to this
legislation's consideration and passage.
Selection of citations was made from the Library of Congress
Computerized Catalog and the Congressional Research Service Public Policy
Literature data base.
CATASTROPHIC HEALTH INSURANCE:
BIBLIOGRAPHY-IN-BRIEF
Beyond Medicare. Consumer reports, V. 54, June 1989: 375-391.
LRS89-5401
Contents.--What insurance do you need?--Which policies are
best?--What an insurance package costs.--The top-rated plans: where
they are sold.--The insurance hard sell.--Deceptive sales tactics.
Catastrophic health insurance: info pack. Washington, Congressional
Research Service. Updated as needed.
IP370C
This collected material discusses the Medicare Catastrophic
Protection Act, signed into law on July 1, 1988. The law provides
insurance to Medicare beneficiaries against the catastrophic expenses of
serious illness or injury. The expanded benefits are financed through
increases in Medicare premiums.
Donlan, Thomas G.
Just what the doctor ordered? Catastrophic health insurance: the
benefits and the cost. Barron's, V. 68, Mar. 7, 1988: 13, 48-53.
LRS88-3580
Asserts that the legislation "is a classic example of the
two-steps-forward, one-step-back school of legislating
It's an
equally classic example of budget gimmickry,
of
...
a
legislative
pig
in
a poke,
and of promising more than could be delivered."
Dopkeen, Jonathan. Rappaport, Anna. Bergthold, Linda.
Crisis or opportunity? Business and health, V. 6, Nov. 1988: 24-29.
LRS88-13246
The Medicare Catastrophic Care Act of 1988 "presents an
opportunity for employers to think through and redesign retiree
medical plans that wrap around Medicare at a time when the future of
these plans is under intense discussion. This redesign could take the
form of cash as well as service benefits, long-term care as well as acute
services, and even flexible benefits."
England, Robert S.
The catastrophic health care blunder. American spectator, V. 21, Nov.
1988: 25-28, 30.
LRS88-9054
"The story of how Ronald Reagan, Otis Bown, and a rogue
Congress came up with what might be the most expensive piece of
social legislation since the Great Society--and still failed to provide real
catastrophic care for our elderly."
CRS-2
Esenwein, Gregg A.
Financing catastrophic health care: possible effects on marginal and
average income tax rates. Feb. 15, 1989. Washington, Congressional
Research Service, 1989. 12 p.
89-132 E
Catastrophic health care will be partially financed through a new
supplemental premium based on the covered individual's Federal
income tax liability. The supplemental premium is, in essence, a
surtax, and as such will effectively raise the marginal and average
income tax rates of covered individuals. This report provides an
overview of the design characteristics of the supplemental catastrophic
health care premium and analyzes how it will affect marginal and
average income tax rates. The implications for investment behavior
are also addressed.
Greenwald, Mathew.
Bad news for the baby boom. American demographics, V. 11, Feb.
1989: 34-37.
LRS89-1793
"Although demographers can already see the impact of the aging
of the baby boom, the boomers themselves are only dimly aware of
what awaits them. Their financial needs in old age will pose a
tremendous challenge to employers and government, and the best way
to meet the challenge is to begin now."
Haislmaier, Edmund F.
Catastrophic health legislation: Congress's case of Medicare
malpractice. Washington, Heritage Foundation, 1988. 15 p. (Issue
bulletin no. 139)
LRS88-4257
This April bulletin suggests alternatives involving private
insurance and cutting health care costs rather than congressional
proposals to "tax and spend."
Iglehart, John K.
Medicare's new benefits: 'catastrophic' health insurance. New England
journal of medicine, V. 320, Feb. 2, 1989: 329-336.
LRS89-948
Reviews the history and coverage of the Medicare Catastrophic
Coverage Act.
Jackson, Wendy.
Catastrophic health care coverage bill: Medicare beneficiaries be alert!
Employee benefits journal, V. 13, Sept. 1988: 26-28.
LRS88-14629
"Whether the Catastrophic Health Care Coverage Bill does more
harm than good remains to be seen. Its designers have good
intentions--to provide some federal aid to Medicare beneficiaries so
that, when a catastrophic illness or condition occurs, their total
savings will not be depleted."
CRS-3
Martin, Sara.
The Medicare drug benefit: challenges for pharmacists. American
pharmacy, V. NS29, July 1989: 22-25.
LRS89-5605
Analyzes drug-utilization review, and the coverage of prescribed
medications specified in the 1988 Medicare Catastrophic Coverage Act.
Medicare Catastrophic Coverage Act: collection of editorials, May 31, 1988
through July 6, 1989. July 14, 1989. Compiled by the Library
Services Division, CRS. 15 p.
LRS89-5459
Collects viewpoints showing a range of reactions to the 1988
Medicare catastrophic health insurance law from selected newspapers
from around the nation.
Melbinger, Michael S. O'Donnell, Timothy.
The Medicare Catastrophic Coverage Act of 1988 and its impact on
employer-sponsored retiree medical plans. Employee relations law
journal, V. 14, winter 1988: 399-406.
LRS88-12207
"The Medicare Catastrophic Coverage Act of 1988 (MECCA)
significantly enlarges the scope of federally funded health care benefits
for elderly Americans. Since Medicare's inception in 1965, several
inadequacies have become apparent, especially the absence of coverage
for catastrophic illnesses. Now MECCA inhibits the potential financial
ruin of elderly Americans faced with overwhelming, extended medical
costs. The Act is budget-neutral and can reduce employers' Social
Security payroll tax costs."
O'Sullivan, Jennifer.
Catastrophic health insurance: Medicare; issue brief. Washington,
Congressional Research Service. Regularly updated. 14 p.
IB87106
Catastrophic medical costs are broadly defined as large
unpredictable health care expenses usually associated with a major
illness or serious injury. Since enactment of the Medicare
Catastrophic Coverage Act, a number of issues have been raised,
particularly about the financing mechanism. Several bills have been
raised to amend, delay, or repeal the Act.
Health insurance that supplements Medicare: background material and
data, by Jennifer O'Sullivan and David Koitz. July 19, 1989.
Washington, Congressional Research Service, 1989. 35 p. 89-421 EPW
Most Medicare enrollees do have other forms of health insurance,
and some of them are now questioning the need for the new Medicare
benefits and having to pay new premiums. This paper provides
background information on the nature and extensiveness of these
various forms of supplementary health benefits.
CRS-4
Medicare Catastrophic Coverage Act of 1988 (P.L. 100-360). Mar. 3,
1989. Washington, Congressional Research Service, 1989. 150 p.
89-155 EPW
Provides an overview of the new law, including a
summary of the provisions, background and legislative history,
potential impact, implementation status, and a review of current
issues.
Robinson, Michele L.
Taxes and health policy: worlds apart. Hospitals, V. 63, Mar. 20, 1989:
52-56, 58.
LRS89-1692
Argues that "the special tax that Congress created to finance
Medicare catastrophic benefits is just one indication that Congress is
using the U.S. tax code in more innovative ways to influence the
consumption, distribution, and financing of health care benefits."
Rovner, Julie.
Catastrophic-coverage law narrowly survives test. Congressional
quarterly weekly report, V. 47, June 10, 1989: 1400-1402. LRS89-5322
Reports on Senate debate on making changes to the new Medicare
catastrophic insurance program.
Panel may pave way for death of catastrophic-costs law. Congressional
Quarterly weekly report, V. 47, July 15, 1989: 1781-1783. LRS89-5604
Reports that House "Ways and Means members seek ideas on how
to cut premiums without jettisoning most valuable benefits."
Rubin, Rosie M. Wiener, Joshua M. Meiners, Mark R.
Private long-term care insurance. Medical care, V. 27, Feb. 1989:
182-193.
LRS89-1296
Research "results indicate 1) the potential market for private
long-term care insurance is substantial, 2) moderately comprehensive
long-term care policies are affordable by a significant minority of the
elderly, 3) policies are considerably more affordable to those under age
65, and 4) long-term care insurance has somewhat less potential to pay
for nursing home costs for high risk groups than for other elderly."
Smith, William.
The Catastrophic Coverage Act of 1988: past proposals, current law,
and future options. Washington, House Republican Research
Committee, 1989. 8 p. (RRC occasional paper)
LRS89-1196
"Generally, there is a cross section of opinion about the new law
among Republicans. But as the new Medicare premiums take effect,
the new law may be given additional scrutiny. The following report is
a short history of the early Republican proposals and the final
legislation, as well as a number of options currently being discussed."
CRS-5
U.S. Congress. Conference Committees, 1988.
Medicare Catastrophic Coverage Act of 1988; conference report to
accompany H.R. 2470. Washington, G.P.O. 1988. 273 p. (Report,
House, 100th Congress, 2nd session, no. 100-661)
LRS88-3835
U.S. Dept. of Health and Human Services.
Expenses incurred by Medicare beneficiaries for prescription drugs:
report to Congress. [Rockville, Md.] U.S. Dept. of Health and Human
Services, 1989. 41, 12 p.
LRS89-5403
Addresses the extent of third-party insurance coverage of
outpatient drugs and "the potential for induced demand resulting from
the coverage of covered outpatient drugs," under Medicare.
U.S. Office of Personnel Management.
A report on offering Medicare supplemental plans to Federal
annuitants. Prepared by the Office of Personnel Management as
required by section 423 of Public Law 100-360, the Medicare
Catastrophic Coverage Act of 1988. Washington, O.P.M., 1989. [48] p.
LRS89-5404
Partial contents.-Medicare and the FEHBP [Federal Employees
Health Benefits Program].--The case for and against Medicare
supplemental plans.--Medicare supplemental program.
Where coverage ends: catastrophic illness and long-term health care costs.
Washington, Employee Benefit Research Institute, 1988. 274 p.
(EBRI-ERF policy forum)
LRS88-6789
Partial contents.--The emerging politics of catastrophic and long-
term care policy.--Private insurance policies for catastrophic and long-
term health care coverage.--The optimal role for the Federal
Government in financing catastrophic and long-term care.
CRS
Congressional Research Service
The Library of Congress
Washington, D.C. 20540
Medicare and Medicaid
IP 67M
Medicare and Medicaid are the popular names given to two programs
enacted by Congress in 1965 that help the aged and certain low-income
individuals pay for the costs of their medical care. Medicare is a nationwide
health insurance program for the aged and disabled, while Medicaid is a
federally-aided, State-operated-and-administered program for certain categories
of low-income persons.
Recent legislation enacted by Congress has made significant changes in
the Medicare and Medicaid programs, focusing largely on ways to reduce
spending. In addition to providing general background information on
Medicare and Medicaid, we include information on provisions of recently
enacted or proposed legislation. For more detailed information on prospective
payments to hospitals and physician reimbursement under Medicare, see Info
Pack 317M.
Members of Congress who want further information on this topic may
contact CRS at 707-5700. Additional CRS Reports may be identified by
looking in the current Guide to CRS Products (for congressional use only)
under "Medicare" and "Medicaid" and in the latest Update under "Health."
Additional information can be located at a local library by consulting
periodical indexes such as the Readers' Guide to Periodical Literature, Public
Affairs Information Service Bulletin (PAIS), and various newspaper indexes.
Individuals who wish to determine their eligibility and coverage under
Medicare should check with their local Social Security office; for Medicaid they
should check with their local human services office. Both are listed in the
telephone directory.
We hope this information will be helpful.
Congressional Reference
Division
89-134 EPW
CRS Report for Congress
Medicare: Its Use, Funding,
and Economic Dimensions
Prepared at the Request of the
Senate Committee on Finance
David Koitz
James Reuter
Specialist in Social Legislation
Mark Merlis
Analyst in Social Legislation
Education and Public Welfare Division
March 1, 1989
(With Revisions)
CRS
Congressional Research Service The Library of Congress
The Congrescional Research Service works exclusively for the Congress, conducting re-
search, analyzing legislation. and providing information at the request of committees,
Members, and their staffs.
The Service makes such research available, without partisan bias in many forms includ-
ing studies, reports, compilations, digests, and background briefings. Upon request,
CRS assists committees in analyzing legislative proposals and issues, and in assessing the
possible effects of these proposals and their alternatives. The Service's senior specialists
and subject analysts are also available for personal consultations in their respective fields
of expertise.
MEDICARE: ITS USE, FUNDING, AND ECONOMIC DIMENSTIONS
SUMMARY
Medicare is a nationwide health insurance program providing benefits to
30 million aged and 3 million disabled individuals. In general terms, it is an
acute-care insurance program. That is, while it provides coverage for most
acute-care medical services, it does not provide extensive coverage for long-
term care services, such as extended nursing home stays. The program
consists of two separate but complimentary programs--each provides coverage
for a different group of benefits and is separately financed. Part A, the
Hospital Insurance (HI) program provides protection against hospital and
related institutional costs. Part B, the Supplementary Medical Insurance
(SMI) Program, covers physician services and a range of other outpatient
health services.
Medicare expenditures have been rising rapidly. Benefit payments have
been growing at the rate of 12.2 percent per year between 1980 and 1989.
While expenditures under both parts rose rapidly in the early 1980s,
enactment of the Prospective Payment System (PPS) for hospitals in 1983
slowed the rate of growth in Part A to only 4.6 percent per year between 1985
and 1989. Over the same period, expenditures under Part B, primarily for
physician services, have continued to grow at a rapid rate, 15.5 percent per
year.
Medicare benefits are financed through a combination of payroll taxes
on current wage earners (58 percent of total Medicare revenues in 1988),
general revenues, and premiums paid by current beneficiaries. The payroll tax
finances the HI program. This tax is based on a flat rate (1.45 percent) on
both workers and employers (2.9 percent total tax) on the first $48,000 of
earned income. The Part B program is financed by a combination of
beneficiary premiums (25 percent of program costs) and transfers from general
revenues. The Part B premium is $27.90 per person per month in 1989.
Medicare's new catastrophic benefits are financed by a combination of an
increase in the Part B premium ($4 in 1989) and an income tax surcharge (15
percent for the 1989 tax year) for Medicare beneficiaries, up to a maximum
of $800 per person.
Medicare has increasingly become a significant and growing part of the
Federal budget, national health expenditures, and the economy. Medicare
outlays represent a substantial portion of the Federal budget (7.6 percent of
outlays in FY89) and of national health expenditures (18 percent in calendar
1987). By itself, Medicare represents 1.8 percent of the Gross National
Product (GNP). The program's tax revenues account for nearly 7 percent of
total Federal revenues. The magnitude of the Medicare program combined
with its persistent rapid growth raises a variety of issues, including the role
of Medicare in deficit reduction efforts, whether the program is adequately
financed now and in the foreseeable future, and the effects of continued
growth on the Federal budget and the economy.
CONTENTS
INTRODUCTION
1
I.
HOW MEDICARE WORKS
2
II. BENEFITS
5
Part A Benefits
5
Part B Benefits
7
Outpatient Prescription Drugs
8
Exclusions
9
III. EXPENDITURES AND USE OF SERVICES
14
General Trends
14
Components of Part A and Part B Cost
16
Inpatient Hospital Services
17
Physician Services
20
IV. FUNDING AND BOOKKEEPING
24
HI Financing Sources
25
SMI Financing Sources
27
Catastrophic Protection Financing Sources
30
Medicare Trust Funds
32
V. POSITION IN THE ECONOMY
35
Medicare as a Part of the Overall Economy
35
Medicare as a Federal Health Program
37
Medicare's Insurance Value for Its Recipients
39
Medicare as a Federal Tax
40
VI. RELATIONSHIP TO THE FEDERAL BUDGET
43
Medicare's Growing Position in the Budget
43
How Medicare is Treated under Gramm-Rudman-Hollings
46
How Medicare Affects the Deficits
46
MEDICARE: ITS USE, FUNDING, AND ECONOMIC DIMENSIONS
INTRODUCTION
Medicare is a nationwide health insurance program providing benefits to
30 million aged and 3 million disabled individuals. In general terms, it is an
acute-care insurance program. That is, while it provides coverage for most
acute-care medical services, it does not provide extensive coverage for long-
term care services, such as extended nursing home stays. The program
consists of two separate but complimentary programs--each provides coverage
for a different group of benefits and is separately financed. Part A, the
Hospital Insurance (HI) program provides protection against hospital and
related institutional costs. Part B, the Supplementary Medical Insurance
(SMI) Program, covers physician services and a range of other outpatient
health services.
Medicare expenditures have been rising rapidly. Benefit payments have
been growing at the rate of 12.2 percent per year between 1980 and 1989.
While expenditures under both parts rose rapidly in the early 1980s,
enactment of the Prospective Payment System (PPS) for hospitals in 1983
slowed the rate of growth in Part A to only 4.6 percent per year between 1985
and 1989. Over the same period, expenditures under Part B, principly for
physician services have continued to grow at a rapid rate, 15.5 percent per
year. Given its size, the Medicare outlays represent a substantial portion of
the Federal budget (7.6 percent of outlays in FY89) and of total national
health expenditures (18 percent in calendar 1987). The magnitude of the
Medicare program combined with its rapid growth raises a variety of issues,
including the role of Medicare in deficit reduction efforts, whether the
program is adequately financed now and in the foreseeable future, and the
effects of continued growth on the Federal budget and the economy.
The authors would like to give special thanks to Ilene Shapiro for her
assistance in preparing the charts and graphs used in this report.
CRS-2
I.
HOW MEDICARE WORKS
As a health financing program, Medicare's purpose is to pay claims for
services rendered to its enrollees by providers of health care. The program
has two basic parts: Hospital Insurance (HI), sometimes referred to as Part
A, pays claims for hospitalization and related nursing home and home health
care. Supplementary Medical Insurance (SMI), sometimes referred to as Part
B, pays claims for physician, outpatient, other auxiliary medical services, and
for dialysis for those with end-stage renal (kidney) disease. New catastrophic
benefits limit out-of-pockets costs enrollees must bare under both aspects of
the program and for prescription drug expenses.
Most people gain eligibility for HI in the same way they do social
security: by paying the HI tax while they work. The HI tax is part of the
social security tax, sometimes referred to as the payroll tax. Working in
employment where the tax is levied gives a worker credit toward HI in the
form of quarters of coverage. With a minimum number of quarters, an
individual can become entitled to HI coverage at age 65 or after being on the
social security Disability Insurance (DI) rolls for at least 2 years.¹ A spouse
also can obtain coverage through the worker's earnings credits. The basic
coverage is free, however, an income-related premium is now required of
people eligible for HI or who would be if they applied to cover the costs of
catastrophic protection. Aged individuals who are not otherwise eligible for
HI may purchase coverage.
Eligibility for SMI does not require a work record. It is available on an
optional basis to all resident citizens age 65 and older (and certain aliens)
and to people who have been on the DI rolls for at least 2 years. Those who
enroll must pay a fixed-rate monthly premium, part of which goes for basic
coverage and another part for catastrophic protection. The basic portion is
designed to cover only one-fourth of the program's non-catastrophic costs.
The catastrophic portion together with a portion of the income-related
premiums covers the full cost of the catastrophic protection.
Various arms of the Government administer the programs: The Treasury
Department has the tax collection and disbursement functions; the Social
Security Administration (SSA) takes enrollment applications and serves as the
first point of contact with the public; and the Health Care Financing
Administration (HCFA), through its 88 contractors (Blue Cross/Blue Shield
¹People reaching age 65 in 1994 or later will need 40 quarters of coverage
to be eligible. DI recipients may become eligible with less than 40 quarters
(depending on their age when the disabling conditions began), but they must
have worked in covered employment fairly recently before their disabling
conditions began. The 24-month waiting period does not apply to people with
end-stage renal disease, but they are subject to a 3 month waiting period
unless they are enrolled in a self-dialysis training program or scheduled for
a kidney transplant.
CRS-3
and other private insurers), operates the claims processing and program
management side.
Some 32.6 million people are covered for HI services, and 32.5 million are
covered by SMI. Approximately 6,700 hospitals, 7,400 skilled nursing facilities,
and 5,800 home health agencies serve the enrollees.
In a broad sense Medicare is a multi-faceted Government-run money
machine. In part it resembles a private insurance operation: it takes in
premiums and provides protection to those who pay them. However, to a
much larger extent, the program is underpinned by the principle that people
finance the program while they work so that they may receive benefits when
they retire or become disabled. In effect, they build credit toward their later
eligibility. Moreover, while eligibility is earned, the money people pay is not
set aside to meet their own health expenses. Instead, it is used to pay the
health bills of those who are immediately eligible.² In a contemporaneous
sense, this makes Medicare what economists call an "income-transfer" program,
where income is taxed away from one group so that it can be redirected to
another, presumably with a bias toward taking resources from those who have
them and spending them on others in need. Taking the long view, it is an
intergenerational transfer program where today's workers pay for the health
expenses of their parents, with the expectation that their children will pay for
theirs.
Thus, Medicare represents a blend of insurance and social welfare
features. As such, it is called social insurance. The Government is the
insurer, underwritten by its power to tax. The Nation's workers are a
"mandatorily" insured group, but for protection that is deferred until
retirement or disability occurs, and the current elderly and disabled
populations are the immediate risk group.
2While the recent enactment of "catastrophic" coverage will increase the
share of the program financed by premiums paid by enrollees, the vast share
of the program's costs will continue to be financed through payroll taxes and
general receipts of the Government. The Congressional Budget Office (CBO)
estimates that premiums from enrollees will cover only 14.9 percent of
aggregate Medicare payments in 1993 (i.e., after catastrophic protection
becomes fully effective), in contrast to 10.3 percent today. See U.S. Congress.
Congressional Budget Office. The Medicare Catastrophic Coverage Act of 1988.
Staff working paper, Oct. 1988. p. 34.
CRS-4
CHART 1. HOW MEDICARE OPERATES
Medicare
Hospitals,
enrollees
doctors, &
receive
other providers
services from
Bills are
Contractors
processed
(BC/BS &
by
others)
SSA
handles
enrollment
HCFA makes
Federal
policies &
roles
oversees
contractors
Treasury
handles receipts
& disbursements
CRS-5
II. BENEFITS
Medicare is a nationwide health insurance program providing benefits to
30 million aged and 3 million disabled individuals. In general terms, it is an
acute-care insurance program. That is, while it provides coverage for most
acute-care medical services, it does not provide extensive coverage for long-
term care services, such as extended nursing home stays. As described in
chapter I, the program consists of two separate but complimentary programs,
each providing coverage for different groups of benefits. Part A, the Hospital
Insurance (HI) program provides protection against hospital and related
institutional costs. Part B, the Supplementary Medical Insurance (SMI)
Program, covers physician services and a range of other health services
including outpatient hospital services, physical therapy, diagnostic laboratory
and X-ray services, and certain medical equipment. Beginning in 1990, under
the provisions of the recently passed Medicare Catastrophic Coverage Act of
1988 (P.L. 100-360), coverage of outpatient prescription drugs is being phased
in.
This section provides a basic description of Medicare's current scope of
benefits under both Part A and Part B. This section also includes a separate
brief discussion of how the benefits under each Part were changed by the
Medicare Catastrophic Coverage Act (MCCA).
Part A Benefits
Inpatient hospital services. Medicare covers all expenses without limit
for acute-care inpatient hospital services, subject to a single annual deductible
($560 in 1989) paid by the enrollee. Since October 1983, payments for
inpatient hospital services have been made under the Prospective Payment
System (PPS) for Hospitals. Under PPS, hospitals are paid a predetermined
fixed price for each discharge that varies depending on the diagnosis of the
patient. Hospitals also receive payments for certain other costs that are
excluded from the PPS. While Medicare's payment may be higher or lower
than the hospital's actual charges or costs, enrollees are not liable for any
amount other than the annual deductible. There were 6,715 hospitals
participating in Medicare in 1988. As described in the following section,
hospital services account for the vast majority of benefit payments under Part
A.
Skilled nursing home services. Part A provides coverage for up to
150 days per year in a skilled nursing facility (SNF) for patients requiring
daily skilled nursing care. Such services include: nursing care; bed and board;
physical, occupational and speech therapies; medical social services; drugs,
biologicals, appliances and equipment furnished for use in the facility that are
ordinarily provided by the facility; and certain other services. Stays in
nursing homes by patients that do not meet the qualifying criteria or in
nursing homes that are not certified by Medicare as an SNF are not a covered
benefit. SNFs generally are reimbursed for their services on a reasonable
cost basis, subject to certain limits. Enrollees are liable for a daily
CRS-6
coinsurance amount equal to 20 percent of the national average daily cost for
SNF services for the first 8 days of SNF care in each year. The coinsurance
amount for 1989 is $25.50 per day. Prior to January 1, 1989, SNF coverage
was limited to individuals who were recently discharged from a hospital. This
prior hospitalization requirement was eliminated by the MCCA. There were
7,379 SNFs participating in Medicare in 1988.
Home health services. Medicare provides unlimited coverage for home
health care visits for beneficiaries who, as a result of their medical condition,
are qualified to receive such care. To qualify, the individual must be confined
to his or her home, and must be in need of intermittent skilled nursing care,
or physical or speech therapy. As defined by law, Medicare home health
services include: part-time or intermittent nursing care; physical, occupational
or speech therapy; medical social services provided under the direction of a
physician; to the extent permitted in regulation, the services of a home health
aide; medical supplies and durable medical equipment, and certain other
services. Both the HI and SMI programs provide coverage for home health
services. Persons covered under both programs (the majority of enrollees)
have payments for these services made under Part A. Persons enrolled in
Part B but not Part A have their home health benefits paid under Part B.
There is no limit on the number of home health visits covered, no prior
hospitalization requirement, and no deductible or coinsurance charges to
enrollees. Program guidelines generally limited daily home health care to 2
to 3 weeks. The MCCA clarified the extent to which intermittent skilled
nursing care is covered on a daily basis. That is, the limit on consecutive
days of care is raised to 38 days on January 1, 1990. Medicare pays for home
health services on a per visit basis, subject to certain cost limits. There were
5,769 home health agencies participating in Medicare in 1988.
Hospice services. Effective November 1, 1983, Medicare covers stays in
a hospice for terminally ill beneficiaries with a life expectancy of 6 months
or less. Subject to certain limits, benefits under a hospice program include:
home health services; outpatient drugs and biologicals; physician services;
counseling with respect to care of the terminally ill patient and adjustment
to his or her death; and short term inpatient care (in a hospital, skilled
nursing facility or free-standing inpatient unit associated with the hospice) for
pain control, symptom management, and respite care. Under Medicare, an
enrollee who elects to receive hospice care waives entitlement to Medicare
benefits related to the treatment of the terminal condition or related
conditions, except for the services of the patient's attending physician.
Medicare payments for hospice services are made under a prospective
reimbursement system and vary depending on the intensity of care provided
each day. Payments also are subject to a cap per enrollee per year, $8,406
for the 12 month period ending October 31, 1988. Enrollees are liable for
copayments for outpatient drugs and respite services. Coverage for hospice
services is currently subject to a lifetime limit of 210 days. Beginning in 1990,
coverage will be extended beyond this limit. There were 449 hospices
participating in Medicare in 1988.
CRS-7
Part B Benefits
Physician services. Part B of Medicare provides coverage of physician
services, including surgery, consultations, and office, home and institutional
visits. This includes the services of licensed doctors of medicine and
osteopathy. Under certain limited circumstances, the term "physician" is
defined in Medicare law to include services provided by dental surgeons,
podiatrists, optometrists, and chiropractors. Physician services are reimbursed
on a fee-for-service, "reasonable charge" basis. That is, separate payments are
made for each service, and Medicare determines a reasonable charge for each
service. Generally, the reasonable charge is the smallest of the actual charge,
the physician's usual charges for the service, and the prevailing charge for the
service by other physicians in the same locality. Payments for these services,
as well as payments for most other Part B benefits, are made at 80 percent
of Medicare's reasonable charge and are subject to the $75 annual Part B
deductible. Enrollees are liable for the deductible, a coinsurance payment
equal to 20 percent of the reasonable charge, and in some cases for the
difference between Medicare's reasonable charge and the physician's actual
charge for the service. Payments for physician services account for over 70
percent of total benefit payments under Part B.
Medical and other health services. Part B also provides coverage for
a wide variety of medical services that are known as "medical and other health
services." Payments for these services are generally made on a reasonable
charge basis, and enrollees are liable for the annual Part B deductible, 20
percent coinsurance, and in some cases the difference between Medicare's
reasonable charge and the actual charge for the service. The rules for
determining the reasonable charge vary depending on the specific service
provided. As defined in the law, medical and other health services include:
(1) outpatient hospital services; (2) diagnostic laboratory and X-ray services;
(3) therapeutic radiology services; (4) outpatient occupational and physical
therapy; (5) rural health clinic services; (6) services of clinical psychologists
in certain settings; (7) kidney dialysis services including home dialysis supplies
and equipment; (8) immunosuppressive drugs furnished in the first year
following a Medicare covered transplant procedure; (9) durable medical
equipment including prosthetic and orthotic devices; (10) services of certified
registered nurse anesthetists (CRNAs); (11) services of physician assistants in
certain settings; and (12) services in ambulatory surgical centers.
Effective January 1, 1990, the MCCA adds three new services to the scope
of benefits under Part B. Mammography screening will be covered once every
other year for women over age 65. Intravenous (IV) drug therapy services
provided in the home will be a covered benefit. IV drug therapy services are
defined to include nursing, pharmacy and related services. The cost of the IV
drugs themselves will be covered under the new drug benefit described below.
There are no Part B deductible or coinsurance for IV drug therapy services.
Eighty hours of in home care for a chronically dependent individual would be
covered for persons who meet either the catastrophic cap or the outpatient
prescription drug deductible. This type of services is known as respite care
CRS-8
and is intended to relieve the routine caretaker (a spouse, family member, or
other person living with the patient and providing daily care without pay)
from the daily responsibility of caring for the chronically dependent individual.
Health maintenance organizations and competitive medical plans.
Health maintenance organizations (HMOs) and competitive medical plans
(CMPs) are organizations that provide health care services on a prepaid basis.
These plans generally provide a specified scope of benefits in return for a fixed
monthly premium known as a capitation payment. These organizations differ
from traditional health insurance plans in that they not only perform an
insurance function, but also directly provide or arrange for the provision of
services. HMOs and CMPs may enter into so-called "risk-sharing" contracts
with Medicare. Under these contracts, a plan may enroll Medicare enrollees
and is paid a predetermined monthly capitation payment for each such
individual. If the HMO or CMP provides services for less than the plan's
capitation revenues, it keeps the residual as profits; if services to enrollees
cost more than the capitation payments, the HMO or CMP loses money. Each
participating HMO and CMP must provide, at minimum, the same benefits
that are otherwise available under Medicare, including both Part A and Part
B benefits if the enrollee is eligible for both Parts. These plans may, subject
to certain limits, charge enrollees additional premiums, coinsurance, or
copayment amounts. Persons enrolling in these plans agree to receive all
covered services through the plans. Out-of-plan services are only covered on
an emergency basis and are paid for by the HMO or CMP. Enrollees are
liable for the cost of non-emergency out-of-plan services that have not been
authorized by the HMO or CMP.
Cap on out-of-pocket expenses. Effective January 1, 1990, the MCCA
provides for a maximum enrollee liability for the Part B deductible and
coinsurance charges. After the cap is reached, Medicare would pay any
coinsurance amounts due on Part B claims. Cost-sharing payments under
Part A are not included under the cap and enrollees would still be liable for
these amounts. The outpatient prescription drug deductible and coinsurance
charges also are not included under the cap. The cap is set at $1,370 in 1990,
and is indexed such that 7 percent of enrollees would exceed the cap in
subsequent years.
Outpatient Prescription Drugs
Under the MCCA, an outpatient prescription drug benefit is to be phased
in, beginning in 1990. In the first year, coverage is limited to home IV drugs
and immunosuppressive drugs provided after the first year following a
transplant; immunosuppressive drugs in the first year after a transplant are
already a covered benefit under Part B. Reasonable charges for covered drugs
vary depending on whether the drug is a single source or multiple source
drug. Payments are subject to a $550 deductible in 1990, except that the
deductible does not apply to home IV drugs initiated during a hospital stay.
Coinsurance amounts are 20 percent for home IV drugs and 50 percent for
immunosuppressive drugs. Effective January 1, 1991, the drug benefit
CRS-9
expands to include all outpatient prescription drugs subject to a $600 annual
deductible and 50 percent coinsurance charges. The deductible changes to
$652 in 1992, and in future years is indexed such that 16.8 percent of
beneficiaries will reach the deductible each year. The coinsurance rate is
slated to be lowered to 40 percent in 1992 and to 20 percent in 1993. The
drug benefit is separately financed from other Part B benefits, and the
Secretary has limited authority to implement special cost control measures in
1993 and 1994 if financing for the drug benefit is inadequate.
Exclusions
While Medicare covers most acute-care medical services, there are certain
services that are specifically excluded. Explicit exclusions are provided for
cosmetic surgery, routine physical checkups, services which constitute personal
comfort items (e.g., a telephone during an inpatient hospital stay), expenses
for custodial care, routine dental care, routine foot care, services that are paid
for directly or indirectly by a governmental entity, and certain other specified
services. In addition, there is a general exclusion for services that are "not
reasonable and necessary for the diagnosis or treatment of illness or injury or
to improve the functioning of a malformed body member." This has been
interpreted to exclude payment for experimental procedures or procedures
whose value has not been proven. For example, Medicare does not pay for
liver transplants for adults even though it would pay for the same service
provided to enrollees who are under 18 years of age and who have certain
medical conditions. With the exception of immunosuppressive drugs in the
first year following a transplant, self-administered outpatient drugs have been
excluded from coverage. However, coverage for these drugs will be phased in
beginning in 1990 as described below.
Modifications to Medicare Benefits Due to the Catastrophic Health
Insurance Benefits Act of 1988
The MCCA provides for changes to existing benefits and adds new
benefits under Medicare (many already described). These include expanded
coverage for institutional services under Part A as well as new benefits and
an out-of-pocket expense limit under Part B. The only new benefits under
MCCA that are already effective are the expanded coverage for inpatient
hospital, SNF services, and hospice services. Most other new benefits will
become effective on January 1, 1990. The outpatient drug benefit is being
phased in, beginning in 1990. The following table summarizes the changes in
Medicare's benefits under the MCCA.
TABLE 1. Capsule Summary of Major Benefit Changes in MCCA
Before implementation of MCCA
After implementation of MCCA
Coverage/beneficiary
Coverage/beneficiary Effective date
Benefit
charges
charges
PART A
Inpatient hospital
services
--Per spell of ill-
Unlimited number of
1/1/89
ness a/
days subject to 1
--First 60 days-
annual deductible
deductible ($540 in
($560 in 1989) b/
1988) b/
--6lst-90th day-
daily coinsurance
($135 in 1988) b/
--60 lifetime reserve
days-daily coinsurance
($270 b/ in 1988)
CRS-10
Skilled nursing
100 days post-
150 days per year
1/1/89
facility (SNF)
hospital care per
--First 8 days:
services
spell of illness a/
daily coinsurance
--First 20 days-no
(25.50 in 1989) b/
coinsurance
--9th-150th day-no
--21st-100th day-
coinsurance
daily coinsurance
($67.50 in 1988) b/
Home health services
No coinsurance
Consecutive days of
1/1/90
Consecutive days of
care limited to 38
care limited to 21
Hospice
Lifetime limit of 210
Limit may be extended
1/1/89
days
Blood
Deductible-3 units
Deductible-3 units
1/1/89
per spell of illness
per year (reduced by
any Part B blood
deductible)
See footnotes at end of table.
TABLE 1. Capsule Summary of Major Ben
Changes in MCCA--continued
Before implementation of MCCA
After implementation of MCCA
Coverage/beneficiary
Coverage/beneficiary
Effective date
Benefit
charges
charges
PART B
Physicians and other
medical services
--$75 deductible on
Same, except limit
1/1/90
approved charges
($1,370 in 1990) c/
--20 percent coin-
on beneficiary
surance on approved
deductible and
charges
coinsurance charges
-- --Beneficiary pays
any amount above
approved amount on
unassigned claims
("balance billing")
CRS-11
Screening Mammograms
Not covered
Biennial screenings
1/1/90
subject to payment
limit and Part B
coinsurance charges
Respite Care
Not covered
80 hours a year if the
1/1/90
beneficiary reaches
either the
catastrophic or
prescription drug
limit; subject to 20
percent coinsurance
charges
Home Intraveneous
Therapy
Not covered
Covered (drugs paid
1/1/90
under drug benefit)
See footnotes at end of table.
TABLE 1. Capsule Summary of Major Benefit Changes in MCCA--continued
Before implementation of MCCA
After implementation of MCCA
Coverage/beneficiary
Coverage/beneficiary
Effective date
Benefit
charges
charges
Outpatient
Immunosuppressive
Same
Prescription
drugs for 1st year
drugs
after organ
transplant-covered
under regular Part B
program
Phase-in catastrophic
prescription drug
program:
Coverage
--Home intravenous
1/1/90
(IV) drugs and
CRS-12
immunosuppressive
drugs after 1st year
following an organ
transplant
--All outpatient
1/1/91
prescription drugs
Deductible d/
--$550
1/1/90
--$600
1/1/91
--$652 e/
1/1/92
Coinsurance
1/1/90
--20 percent for home
IV drugs
1/1/90
--50 percent for
other drugs f/
See footnotes at end of table.
A spell of illness is defined as beginning whe beneficiary enters a hospital and ending
when he or she has not been an inpatient in a hospital or SNF for 60 days.
b/ Part A deductible and coinsurance amounts are increased annually. Before implementation of
MCCA, SNF coinsurance was a percentage of the hospital deductible; after implementation of MCCA, it is
20 percent of estimated reasonable SNF costs.
c/ Amount indexed annually so that an estimated 7 percent of beneficiaries would be eligible for
benefits each year.
d/ Does not apply for IV drugs furnished in connection with home IV therapy services initiated in
the hospital.
e/ Amount indexed each year so that an estimated 16.8 percent of beneficiaries would be eligible
for benefits each year.
f/ Coinsurance slated to decrease to 40 percent in 1992 and 20 percent thereafter.
CRS-13
CRS-14
III. EXPENDITURES AND USE OF SERVICES
Medicare is one of the fastest growing components of the Federal budget.
Its share of total Federal outlays has risen from 3.9 percent in FY 1975 to 7.6
percent in FY 1989. The effects of rising Medicare costs on the Federal deficit
and on the Medicare trust funds themselves are discussed further in section
V. This section provides an overview of the trends in Medicare spending
during the last decade and identifies some of the factors contributing to those
trends.
General Trends
Table 2 shows the growth in program enrollment and payments during
the 1980s. (The figures for FY 1990 are HCFA current law estimates and
include the impact of the Medicare catastrophic legislation.) The growth of
enrollment has been fairly steady in both parts A and B, averaging about 2
percent a year. Expenditure trends, however, are very different for the two
programs. Costs for both parts were rising sharply in the early part of the
decade, but the rate of increase in part A payments has moderated, largely as
a result of the implementation of the PPS for inpatient hospital services in
1983. Part B costs, on the other hand, continue to grow rapidly.
Population growth plays only a minor part in increased program
expenditures. More important are changes in the proportion of enrollees who
actually use covered services, the quantity of services they consume, and the
price Medicare pays for those services.
As table 2 indicates, the percentage of Part A enrollees using services
has actually dropped slightly over the last 10 years. This may reflect the
substitution of outpatient (Part B) services for inpatient hospital care, a
phenomenon to be discussed later in this section. Under Part B, however, the
proportion of enrollees receiving covered services has grown considerably.
This is partly attributable to the fact that the Part B deductible, the amount
an enrollee must pay for services during a year before Medicare will cover any
charges, has been held at $75 since 1982, even though medical care prices
were rising. This means that some enrollees whose charges during a year
would once have been insufficient to meet the deductible may now, using the
same amount of services, reach the $75 limit.
Finally, Parts A and B show different patterns of growth in the amounts
paid for each enrollee using services. Early in the decade, payments per user
rose at about the same rate under both programs, 13.2 percent for Part A and
12.5 percent for Part B. Part A growth has since dropped sharply, to 4
percent a year, again because of PPS. Annual growth in costs for users of
Part B services has continued almost unabated.
CRS-15
TABLE 2. Medicare Enrollment and Payments,
FY 1980-FY 1990
Annual
Annual
growth
growth
rate (%)
rate (%)
1980
1985
1990ª
1980-85
1985-90
Hospital insurance
(Part A):
Enrollees (thousands)
27,531
30,109
33,228
1.8
2.0
Payments (millions)
$23,776
$47,710
$63,069
14.9
5.7
Average payment
per enrollee
$864
$1,585
$1,898
12.9
3.7
Number of enrollees
receiving reimbursed
services (thousands)
6,660
7,175
7,790
1.5
1.7
Percent receiving
services
24.19%
23.83%
23.44%
-0.3
-0.3
Average payment per
user of services
$3,570
$6,649
$8,096
13.2
4.0
Supplementary medical
insurance (Part B):
Enrollees (thousands)
27,120
29,781
32,778
1.9
1.9
Payments (millions)
$10,144
$21,808
$46,145
16.5
16.2
Average payment
per enrollee
$374
$732
$1,408
14.4
14.0
Number of enrollees
receiving reimbursed
services (thousands)
17,787
21,227
26,581
3.6
4.6
Percent receiving
services
65.59%
71.28%
81.09%
1.7
2.6
Average payment per
user of services
$570
$1,027
$1,736
12.5
11.1
Total payments,
Parts A and B
$33,920
$69,518
$109,214
15.4
9.5
"Current law projection, including proposed regulatory changes and effect
of Medicare catastrophic legislation.
Source: Health Care Financing Administration.
CRS-16
Components of Part A and Part B Cost
Table 3 shows the breakdown by service type of Part A and Part B
expenditures.
TABLE 3. Components of Medicare Expenditures,
FY 1980-FY 1990
Annual
Annual
growth
growth
rate (%)
rate (%)
1980
1985
1990
1980-85
1985-90
Inpatient hospital
22,842
45,017
58,620
14.5
5.4
Skilled nursing
facility
387
567
1,202
7.9
16.2
Home health
547
2,111
3,187
31.0
8.6
Hospice
0
15
160
0.0
60.5
Total Part A
23,776
47,710
63,169
14.9
5.8
Physician
7,814
16,789
31,275
16.5
13.2
Hospital outpatient
1,847
3,903
10,190
16.1
21.2
Other
483
1,116
4,680
18.2
33.2
Total Part B
10,144
21,808
46,145
16.5
16.2
Grand total
33,920
69,518
109,314
15.4
9.5
"Current law projection, including proposed regulatory changes and effect
of Medicare catastrophic legislation.
Source: Health Care Financing Administration.
Under Part A, while inpatient services remain by far the most important
component of spending, their share is expected to drop somewhat, from 96
percent in FY 1980 to 93 percent in FY 1990. Rapid growth in payments for
skilled nursing facility services is expected, largely because the Medicare
catastrophic legislation extended coverage and reduced coinsurance
requirements for these services.
CRS-17
Growth in payments for home health services, once the fastest rising
component of Part A spending, has slowed significantly for two reasons. First,
payment limitations beginning in 1984 have reduced the annual growth in the
average charge per visit from 10 percent a year during 1980-85 to 6 percent
a year in the 1985-90 period. Second, the period of rapid growth in the use
of Medicare home health services appears to have ended. Annual visits per
enrollee quadrupled in the decade ended 1984, from 0.3 to 1.3, but have
remained stable ever since. Finally, payments for hospice services, first
covered in 1984, have been growing rapidly, although they remain an
insignificant part of program expenditures.
Under Part B, the share of expenditures accounted for by physician
services has dropped from 77 percent in FY 1980 to a projected 68 percent in
FY 1990. Payments for outpatient hospital services, which were rising at
about the same rate as physician payments in the first half of the decade,
have since grown much more rapidly. This change, too, is partially
attributable to the substitution of outpatient for inpatient services. For
example, surgical procedures or diagnostic tests which would once have
required a hospital admission may now be performed on an ambulatory basis.
The services labeled "other" in table 3 include some of the fastest growing
components of Part B expenditures. Payments for independent laboratory
services grew from $114 million in calendar year 1980 to $878 million in
calendar year 1987, rising almost 34 percent a year. Payments for group
practice plans, such as HMOs, grew nearly as rapidly, from $203 million in
1980 to $1,361 million in 1987.
Although the share of total Medicare expenditures accounted for by
inpatient hospital and physician services has dropped somewhat, they remain
the most important components of program expenditures and program growth.
The remaining parts of this section look more closely at the trends in use and
costs for these two major services.
Inpatient Hospital Services
For most of its history, the Medicare program paid for inpatient hospital
care on a retrospective cost basis. Medicare paid in full the reasonable costs
a hospital incurred in providing services to Medicare enrollees. Although
attempts to contain the rate of increase in these costs began early in the
1970s, they were generally unsuccessful. By 1981, outlays for inpatient
services were rising at an annual rate of 21 percent. In 1982, the Tax Equity
and Fiscal Responsibility Act (TEFRA, P.L. 97-248) imposed limits on the rate
of increase in a hospital's costs for each case. A hospital whose costs rose
faster than the target rate would be reimbursed only for costs below those
limits. This change immediately reduced the rate of increase in Medicare
inpatient costs to 10 percent between 1982 and 1983. The TEFRA limits
were, however, a one way system. A hospital that failed to improve its
efficiency could lose money, but any savings achieved by a hospital benefited
only the Medicare program; the hospital could not share. The hospital
CRS-18
industry therefore initially supported the shift to the current PPS for
inpatient services, established by the Social Security Amendments of 1983
(P.L. 98-21).
Hospitals included in PPS are paid a predetermined fixed payment rate,
which varies depending on which of the approximately 470 Diagnosis Related
Groups (DRGs) the patient has been classified into. The DRG payment is
intended to cover the cost of treating the typical case in that DRG in a
reasonably efficient hospital. Since hospitals are allowed to keep any
difference between the PPS payment and their actual costs, PPS provides
incentives for hospitals to contain costs, thus potentially reducing costs to the
Medicare program. The new system was phased in over a 4 year period,
beginning in FY 1984. Initially, each hospital's PPS rates were based largely
on that hospital's historic costs. Now most hospitals are paid on the basis of
national average rates.
Payment rates under PPS are adjusted to allow for differences among
hospitals in the types of patients treated and services provided, through such
mechanisms as an adjustment for teaching hospitals. The payment rates are
also adjusted to account for differences in local hospital market conditions,
through an area wage adjustment and different payment rates for urban and
rural hospitals. PPS hospitals are also eligible for additional payments
intended to cover certain additional costs of maintaining a hospital (e.g.,
capital-related costs such as interest expense, depreciation, etc.), operating
special programs (e.g., medical education programs) or operating in special
circumstances (e.g., serving low-income patients).
For the first 2 years, PPS rates were supposed to be "budget neutral,"
set at levels projected to result in the same annual increase in total Medicare
inpatient expenditures as would have occurred under the previous system of
TEFRA cost limits. Beginning in the third year, FY 1986, rates would
increase according to an annual update factor established by the Secretary.
This factor would take into account inflation, as measured by the market
basket index, a gauge of the prices hospitals pay for the goods and services
they purchase. The Secretary was also authorized to consider other trends,
such as increased hospital efficiency or changes in medical technology. The
final update factor could, then, be higher or lower than the rate of increase
in the market basket index.
The 99th and 100th Congresses repeatedly postponed the Secretary's
authority to set the update factor, and instead set the factors for FY 1986
through FY 1989 directly in legislation. (Under current law, the factor for
FY 1990 and later years is to be equal to the market basket index.) As table
4 indicates, these update factors were below the market basket index. At the
same time, however, the average Medicare payment per case rose faster than
the update factors. This is because the update factor is not the only element
affecting payment increases. For example, there have been changes in policies
relating to add-on payments (such as those for medical education,
disproportionate share hospitals, and capital costs). More important, there has
CRS-19
been a steady change in the kinds of Medicare cases hospitals have reported
treating; each year, more cases fall into the higher-paying DRGs and fewer
into the lower-paying ones. The "case mix index" shown on table 4 is a
measure of this trend. Part of the change is real, reflecting hospitals'
decisions to admit only more seriously ill patients while treating others on an
outpatient basis, while part of the change results from improved accuracy in
hospitals' reporting on their patients.
TABLE 4. Historical Trends in Factors Affecting the PPS Rates
and Average Payments per Case
(percentage change from the previous year)
1982
1983
1984
1985
1986
1987
1988
1989
1990
Market basket
index
8.3
5.9
4.9
4.1
3.1
4.5
4.7
5.4
4.7
Annual update
factor
0.5
1.115
1.6
3.3
4.7
Case mix index
8.4
2.5
2.7
2.4
2.0
1.0
1.0
Average payment
per discharge
14.0
10.4
10.4
14.9
7.1
4.1
2.9
3.8
7.7
Average payment
per enrollee
15.4
11.7
7.2
6.3
2.9
1.8
2.4
4.7
9.0
GNP deflator
6.4
3.8
3.9
3.4
2.9
3.2
3.1
4.0
3.6
NOTE: Update factor for FY 1986 effective beginning with the eighth month of the fiscal year.
Factors for FY 1988 and FY 1989 are weighted averages of the separate update factors for large
urban, other urban, and rural areas, effective Apr. 1, 1988.
Source: U.S. Congress. House. Committee on Ways and Means. Background Material and
Data on Programs within the Jurisdiction of the Committee on Ways and Means. [1989 volume in
press.] Based on data from the Health Care Financing Administration.
CRS-20
While PPS was the major factor in moderating the growth in Medicare
inpatient costs, other recent trends have affected the use of services by both
Medicare and non-Medicare patients. The average length of hospital stays
began declining in the late 1970s. Much of the decline in length of stay for
the elderly occurred before PPS, although it accelerated slightly just after PPS
was implemented in late 1983. A similar drop in length of stay was occurring
for all patients, not just those over 65. Among the factors that may have
contributed to earlier discharges are new technologies and changes in medical
practice, the greater availability of home health services and other post-
hospital care, and stricter utilization review by third party payers. More
recently, length of stay for all patients has leveled off.
A second major change has been a drop in total hospital admissions.
Admissions for younger patients were already declining in the early 1980s, at
a time when those for patients over 65 were still rising. For those over 65,
the drop did not come until the implementation of PPS. The decline in
admissions for the Medicare population as a result of PPS was not anticipated.
It had been thought that, in the face of limitations on revenues from each
individual case, hospitals might admit more patients or admit some patients
more than once. As noted earlier, however, hospitals apparently chose to treat
some kinds of cases on an outpatient basis, admitting only the more severely
ill as inpatients. This may explain why length of stay leveled off shortly after
PPS was implemented. Although the fixed payment system gave hospitals a
continued incentive to reduce length of stay, further reductions might not
have been possible when hospitals began admitting more seriously ill patients.
The drop in total admissions for patients over 65 apparently ended in
1987. In 1988, admissions in this age group are estimated to have increased
by 2.4 percent, approximately the same as the growth in the over 65
population. This may mean that admission rates are now steady, and that
total Medicare admissions may be expected to rise in proportion to the size
of the elderly population. As this change is very recent, however, it is too
soon to know whether it is really the beginning of a long-term trend.
Physician Services
The increase in Part B expenditures for physician services is due to
several factors. First, as noted earlier, the number of persons enrolled in
Part B has been growing at a rate of approximately 2 percent per year. In
addition, medical care prices have increased. The prices recognized by
Medicare have increased somewhat more slowly than the rate of inflation in
medical care prices in general, due in part to limits placed on increases in
Medicare's allowed charges.
Medicare's basic fee-for-service payment system for physician services,
modeled after reimbursement systems in use in the private sector, has
remained relatively unchanged since the program's inception. Generally,
separate payments are made for each individual service rendered. The price
Medicare recognizes for each service is based on what is known as the
CRS-21
reasonable charge for the service. Medicare generally pays 80 percent of the
reasonable charge. The patient is liable for 20 percent of the reasonable
charge plus, in some cases, the difference between the actual charge and the
reasonable charge.
The reasonable or approved charge for a service (in the absence of
unusual circumstances) is the smallest of:
the actual charge for the service by the physician;
the physician's usual or customary charge for the service wherein the
customary charge is usually defined as the median charge for that
service by that physician during a preceding time period; and
the "prevailing charge" for the same or similar services billed by all
(or all similar) physicians in the locality (set at a level no higher
than is necessary to cover the 75th percentile of physicians'
customary charges for the service in the locality).
The customary and prevailing charge amounts are known as "fee screens" and
are used to limit the amount Medicare pays for any individual service.
Before 1984, fee screens were updated annually on the basis of actual
charges submitted by physicians in the preceding year. Since 1975, these
annual updates have been subject to limits based on an economic index known
as the Medicare Economic Index (MEI), which reflects changes in operating
expenses and earnings levels of physicians. Physicians' actual fees generally
have increased at a faster rate than this economic index. Between 1973 and
1984, the MEI increased by 106 percent while physician fees, as measured by
the physician services component of the Consumer Price Index (CPI-U),
increased 157 percent. Thus each year, an increasing percentage of
physicians' actual and customary charges have exceeded the index-adjusted
prevailing charge screens.
Since 1984, Congress has repeatedly acted to restrain increases in
allowable physician fees. Physicians' customary and prevailing charges were
frozen from July 1, 1984 through April 30, 1986: the annual update in the
fee screens did not occur. Subsequent updates have been subject to
congressionally mandated limits on MEI increases. Some categories of
physicians or types of services have received special treatment. The first
update after the freeze, on May 1, 1986, applied to "participating" physicians
only (participating physicians are those who agree to accept Medicare's
approved charge as payment in full). In later updates, participating physicians
have been granted higher increases than non-participating ones. Higher
increases have also been granted for primary care services, such as office
visits, than for such services as surgical procedures. In addition to limiting
the overall rate of increases in allowable charges, Congress applied special
limits on payments for certain services believed to be relatively overpriced,
such as cataract surgery and coronary artery bypasses. Finally, the Secretary
CRS-22
of Health and Human Services (HHS) may reduce charges not found to be
"inherently reasonable," because the charges for a service are in excess of the
estimated costs of the resources used in performing that service.
Largely as a result of congressional limitations, allowed charges for
physician services under Medicare increased at a rate of about 5.5 percent
per year over the 5 year period 1981-1986, as compared to about 9 percent
per year for the physician services component of the Consumer Price Index.
Increases in allowed charges per service, together with population growth,
accounted for only about half of the annual rate of growth in physician
payments over this interval.
The remaining growth in expenditures for physician services, often
referred to as the "net residual" amount, is due to several factors including
changes in the volume of services per enrollee, changes in technology,
changing patterns of practice, and increasing intensity of care. In some cases,
these changes may be related to increasing the quality of care or improving
access to necessary services. On the other hand, some believe that not all of
the increases in volume and intensity or changes in technology and patterns
of practice are medically necessary and appropriate. That is, some portion of
the "net residual" may represent unnecessary services that could be reduced
or eliminated as part of an overall effort to control the growth in Part B
expenditures.
Table 5 shows the shares of total allowed physician charges in 1987
attributable to different types of practitioners and different types of services.
Surgery, the most important single component of spending, accounts for about
the same share in 1987 as in 1980. However, there has been a shift in the
performance of surgery from inpatient to outpatient settings. In 1987, allowed
charges for surgery in outpatient departments and physicians' offices made up
46 percent of total allowed surgical charges, up from just 15 percent in 1980.
The major change in recent years has been in expenditures for laboratory,
radiology, and other diagnostic services. In 1987, diagnostic services accounted
for 21 percent of total Part B expenditures (this figure includes expenditures
for non-physician services), up from 15 percent in 1980.4 The share of
expenditures attributable to medical services, such as office and hospital visits,
has declined proportionately. Part of this change may be due to the increased
practice of "defensive medicine," the use of more diagnostic tests because of
concerns about potential malpractice liability. The implementation of PPS for
inpatient hospital services may also have had an impact. For example,
hospitals often require a battery of diagnostic tests for each patient admitted.
If these tests are performed on an inpatient basis, their cost is included in the
³Physician Payment Review Commission. Annual Report to Congress.
Washington, Mar. 1988. p. 22.
"Tbid.
CRS-23
flat PPS payment for the case. If they are performed on an outpatient basis
just before the admission, they are billable under Part B. (This "site shifting"
is one of the factors considered by the Prospective Payment Assessment
Commission and others in recommending PPS rate increases below the rate
of inflation for the last several fiscal years.)
TABLE 5. Medicare Allowed Charges for Physicians' Services,
by Type of Practitioner and Type of Service, 1987
Allowed
Percent
Percent
amounts
of
inpatient
(millions)
total
Type of practitioner:
Primary care physicians
and clinics
$7,809
32.3
40.6
Nonsurgical specialists
3,989
16.5
56.3
Surgical specialists
8,717
36.1
48.6
Radiologists, pathologists
and anesthesiologists
3,548
14.7
53.7
Osteopaths
87
0.4
26.4
Total
$24,151
100.0
47.9
Type of service:
Medical care
$8,199
33.9
43.0
Surgery and assistance
at surgery
8,805
36.4
57.9
Anesthesia
1,051
4.4
78.7
Diagnostic lab & radiology
4,187
17.4
31.1
Therapeutic radiology
351
1.5
11.5
Consultations
1,081
4.5
68.5
Other
477
2.0
10.3
Source: Health Care Financing Administration. Based on tables
scheduled to appear in U.S. Congress. House. Committee on Ways and
Means. Background Material and Data on Programs within the Jurisdiction
of the Committee on Ways and Means. [1989 edition in press.]
CRS-24
IV. FUNDING AND BOOKKEEPING
Unlike ordinary health insurance, Medicare does not rely on prepayments
or premiums from enrollees. Instead, its primary income sources are Federal
taxes levied on workers earnings (payroll taxes) and so-called internal
payments from the Government (i.e., credits from one Government account to
another). Premiums play a relatively small role. On an aggregated basis (HI
and SMI combined) in fiscal year 1988, 58 percent of Medicare's financing
came from payroll tax levies, 33 percent came from internal payments from
the Government, and 9 percent came from premiums. Even with the intro-
duction of additional premiums this year for coverage against catastrophic
health expenses, aggregate premiums will still represent a small share of the
program's total income.⁶
CHART 2. SOURCES OF MEDICARE INCOME, FY 1988
Taxes
58%
Premiums
Other (mostly Federal SMI
9%
25%
contributions)
Interest
2%
Federal employer
6%
share of taxes
Note: HI and SMI combined
Source: Office of Management and Budget
⁵CBO estimates show that if the new catastrophic provisions had been
fully effective in 1988, premium receipts would have represented 15 of overall
Medicare income, instead of 9 percent.
CRS-25
Payroll tax receipts are the primary source of funding for HI. People
who work pay the tax, with few exceptions. Even people who are currently
enrolled in Medicare must pay it if they work. Thus, HI's costs are borne by
virtually everyone who has earnings in the economy. Relying heavily on
general resources of the Government, most of SMI's funding ultimately comes
from income taxes and public borrowing. Thus, SMI's costs also are borne
broadly within the economy, although through very different means than HI.
In contrast, the costs of the catastrophic protections--funded entirely through
premiums--are borne exclusively by those who are eligible, largely the aged.
The receipts and expenditures of the program are accounted for through
separate trust funds that are maintained by the Treasury Department.
However, the trust funds themselves do not actually provide the program's
financing. Money received and spent for Medicare purposes is through the
general treasury. The trust funds hold non-marketable Federal securities.
When the Government receives revenues on behalf of the program, the
Treasury Department posts securities to the appropriate trust fund. As
payments are made from the treasury for the program, the balance of
securities recorded in the trust funds is reduced. In effect, the receipts and
outgo of the program occurs through the Federal treasury and is reflected by
a rise or fall in the securities balances of the trust funds. As long as there
are balances posted to the trust funds, the Treasury Department is authorized
to make expenditures on the program's behalf.
HI Financing Sources
HI's financing is very similar to that of the social security programs. Its
primary source is taxes under the Federal Insurance Contributions Act (FICA)
and Self-Employment Contributions Act (SECA), commonly referred to as
FICA and SECA taxes. In 1988, 90 percent of HI's income came from these
taxes.
The FICA tax is a flat-rate tax on earnings of wage and salary workers
(i.e., people in the employ of others). It is paid by workers with a matching
amount paid by their employers (the employer is responsible for withholding
and submitting both its own and its employees' shares). The SECA tax is a
flat-rate tax on net self-employment income. There is a limit on the amount
of earnings that can be taxed in a given year ($48,000 this year); thus, not
all earnings are necessarily taxed. Moreover, neither the FICA nor SECA tax
is levied on non-work income, i.e., dividends, interest, capital gains, or other
forms of investment income. Only earnings from work are affected.
The other 10 percent of HI's income comes (1) from credits from the
Government itself in the form of interest earned on non-marketable securities
held by its trust fund--the HI trust fund--and reimbursement for various other
purposes, and (2) premiums paid by people not otherwise eligible.
The HI tax rate. Today, the FICA tax rate is 7.51 percent, 15.02
percent when the employee's and employer's shares are combined; the SECA
CRS-26
rate also is 15.02 percent, but the law provides a 2 percentage point credit
that effectively lowers the rate to 13.02 percent. Both FICA and SECA taxes
have three components: two are for the social security programs of Old Age
and Survivors Insurance (OASI) and Disability Insurance (DI) and the third
is for HI. The HI component is 1.45 percent for the employee and employer
each (2.9 percent on a combined basis) and 2.9 percent for the self employed.
Wage earners, salaried workers, and their employers account for about 95
percent of HI tax receipts; the self employed account for the other 5 percent.
About 19 percent of FICA and SECA receipts is allocated to HI.
Although increases in the social security portions of the tax rates are
currently scheduled to take effect in January 1990, the HI portions are fixed
in the law for the indefinite future.
TABLE 6. FICA and SECA Tax Rates under Current Law
FICA
SECA
OASDI
HI
Total
OASDI
HI
Credit
Total
(employee/employer each)
1988-89
6.06
1.45
7.51
12.12
2.9
(2.0)
13.02
1990
6.20
1.45
7.65
12.40
2.9
*
15.3*
*
The self-employment credit expires at the end of 1989, but beginning
in 1990 self-employment taxes will be computed on a lower net earnings basis
and half of SECA taxes will be deductible for income tax purposes.
The taxable earnings base. FICA and SECA taxes are levied on
earnings up to an annual ceiling or cap known as the taxable earnings base.
Earnings above the base are not taxed. Usually, payment of FICA and SECA
taxes commences at the beginning of a calendar year and continues
throughout the year until the cap is reached. Thus, someone whose earnings
reach the cap by July would stop paying the tax at that point and would not
resume paying it until the beginning of the next year.
Starting at $3,000 in 1937 (when the social security tax was first levied),
the base has been increased 23 times and stands at $48,000 in 1989. When
the HI portion of the tax was first levied in 1966, the base was $6,600. It
has been raised 19 times since then. Under current law, an increase in the
base is triggered whenever social security recipients are granted an automatic
cost-of-living adjustment (COLA). Earnings base increases have occurred
annually since 1972, although many of the hikes were not automatic. Since
CRS-27
1982, the increases consistently have matched the growth in average earnings
in the economy. The base is projected to rise to $65,700 by 1995.6
Most workers pay the HI tax on all their earnings. In 1986, an estimated
94 percent of workers who were required to pay the HI tax in 1985 had
annual earnings below the taxable earnings base, and 91 percent of all
earnings in covered employment was taxable (up from 88.5 percent in 1980
and 78 percent in 1970).
HI "buy-in" premiums. Although a minor income source, premiums are
paid by people who buy HI coverage. People age 65 and older who are not
otherwise eligible for HI, i.e., they do not have sufficient quarters of coverage
or do not have a spouse who has earned eligibility, can purchase HI for a
monthly premium. The premium is $156 a month during 1989 ($1,872 on an
annual basis). It will be increased automatically in future years. Premiums
represented only 0.1 percent of the program's aggregate income in 1988.
The 1989 premium is lower than the 1988 level of $234 a month. This
was done as part of the new Medicare catastrophic provisions to better reflect
the costs to the program. The procedures used prior to the change tended to
overstate the actuarial value of the program. The new procedures tie the
premium to the average per capita amount payable from HI for aged enrollees.
Interest on securities and other internal payments. Also providing
financing to the program are interest on securities held by the HI trust fund
and other internal credits from the Government. The other internal credits
are for the costs of HI benefits provided to certain uninsured individuals,⁷ and
those resulting from gratuitous wage credits given to military personnel.
Interest is by far the largest of these internal payments, comprising 8 percent
of all income posted to the HI trust fund in 1988.
SMI Financing Sources
In contrast to HI, the SMI program does not rely on payroll taxes.
General resources of the Government are its principal source of funding with
monthly premiums paid by people enrolled in the program accounting for most
of the remaining portion.
SMI standard monthly premiums. SMI is voluntary; most people 65
and older can enroll in it regardless of whether they elect HI coverage or
⁶Under revised 1988 Trustees' report Intermediate II-B assumptions.
⁷People who attained age 72 before 1968 and who generally are not
eligible under other provisions of the program because of little or no earnings
credits.
CRS-28
social security benefits.⁸ When the program began in 1966 monthly premiums
paid by enrollees were set in the law to finance half of the program's costs.
Over the years, however, the premium's growth did not keep pace with the
rapidly rising costs of the program. As a result, the basic program (i.e., the
non-catastrophic portion--see following description of catastrophic protection
financing sources) currently receives only one-fourth of its financing from
premiums.
Annually, the Secretary of HHS determines what the basic or so-called
standard monthly premium will be, based on the projected costs to be incurred
by enrollees age 65 and older for the year in which the premium will be in
effect.9 For the past few years, the law required that the standard premium
be set so that aggregate premium receipts cover 25 percent of the aged's SMI
costs. Thus, the premium rose roughly in tandem with program costs.
However, beginning in 1990 the law reinstates a limit on how much the
premium can rise--a limit that was in effect prior to 1984. It will preclude the
premium from rising at a faster rate than social security COLAs. The COLAs
are based on the general level of inflation in the economy as measured by
increases in the CPI. If SMI costs continue to rise faster than the overall CPI
after 1989, the share of the program financed through premiums will decline
again.
⁸People receiving social security cash benefits are automatically enrolled
in HI and SMI when their Medicare entitlement begins. They have to decline
SMI coverage, if they do not want it. SMI is not voluntary for people who
"buy into" HI (the "uninsured"); they must also enroll in SMI. People with
end-stage renal disease who enroll in SMI must also take HI coverage.
While SMI costs vary by type of enrollee--aged, disabled, and those
suffering from end-stage renal disease--the premium rate is derived from the
costs of the aged and is the same for all enrollees.
CRS-29
TABLE 7. Level of Standard SMI Premiums, 1966-89
Calendar
Standard
Annual cost
SMI premium
year
monthly
to enrollee
income as % of
premium
total SMI income
1970
$5.30
63.60
49.8%
1980
9.60
115.20
27.7
1985
15.50
186.00
22.4
1989
27.90*
334.80*
25.4
*
These figures exclude the new catastrophic coverage premium; which
for most SMI enrollees is $4.00 a month. This add-on makes the 1989 SMI
premium $31.90 a month.
Source: Derived from 1988 SMI trustees' report and supplemented by
data from the Health Care Financing Administration.
Government contributions to SMI. The Government, through internal
credits to the SMI trust fund, matches the standard premiums paid by
enrollees (the non-catastrophic portion) with so-called "Government
contributions." In contrast to the single premium level applicable to all SMI
enrollees, separate matching rates are determined for the aged and disabled
(including enrollees suffering from end-stage renal disease) based on the
projected costs to be incurred by each group. The matching rates are basically
intended to cover the difference between the premium income and costs of the
program. Appropriate adjustments are made to reflect interest earnings and
the amount needed to maintain an adequate contingency reserve in the SMI
trust fund.
Government contributions are the largest source of financing for the
program. The Government's matching rate grew steadily from a little more
than one-to-one in the early years of the program to roughly three-to-one by
the early part of this decade. In recent years the rate has remained fairly
steady as a result of repeated congressional action to hold it at the three-to-
one level for the aged. However, after 1989, when the law will again limit the
premium increase to the percentage increase in social security COLAs, the rate
will resume growing if SMI costs continue to rise faster than the overall cost
of living--i.e., the Government's share will start rising again.
Interest on securities. Interest on securities held by the SMI trust
fund also provides financing to the program. As with interest earned by the
HI trust fund and the Government's contributions to SMI, SMI's interest is
CRS-30
basically an internal credit from the Government. It has never been a major
factor in financing the program. At its peak in 1985, it was equal to roughly
5 percent of SMI expenditures. In 1988, it was equal to only 2 percent.
Catastrophic Protection Financing Sources
New Medicare protection against unusually large health expenses--so-
called catastrophic expenses--was enacted with passage of the Medicare
Catastrophic Coverage Act of 1988 and is being phased in over a 5 year period
beginning in 1989. It improves the benefits provided through HI (beginning
in 1989) and SMI (beginning in 1990) by affording broader coverage of health
expenses and placing limits on the out-of-pocket costs enrollees pay for
medical goods and services. In addition, in 1991 the program will begin
phasing in prescription drug coverage (very few prescription drug costs were
previously covered). The enactment of these benefits introduced a new
concept in the financing of the program: the costs were to be borne entirely
by the recipient population.
There actually are two components of the new financing, both of which
are in the form of premiums paid by those who are eligible for or enrolled in
Medicare. Envisioned in the legislation is that, at least to start, 63 percent
of the financing would come from an income-related premium--basically a
surtax on the income tax liabilities of the affected population. CBO estimates
that about 36 percent of Medicare enrollees will pay it in 1989, rising to 42
percent by 1993. The remaining 37 percent would come from a flat-rate
monthly premium added to the standard SMI premium. Each of these
premiums is divided into (1) a basic catastrophic component and (2) a
prescription drug component. Congress intended that together these new
premiums would fully cover the costs of the new benefits.
Supplemental premiums. An income-related premium--referred to as
the supplemental premium--is mandatory for people who are (1) enrolled in
HI for at least 6 months during the year or (2) even if they are not enrolled,
would be eligible if they did. This encompasses most of the population 65 and
older and those people eligible for Medicare because they have been receiving
social security disability benefits for 2 years or more. The premium is derived
from their income tax liabilities. In 1989, the premium is $22.50 for each
$150 of income tax liability incurred, up to a maximum premium of $800 for
the year ($1,600 for a couple when both are eligible). In effect, the premium
amounts to a surtax of 15 percent (up to a dollar limit). The law specifies
larger premium levels for 1990 through 1993 that effectively impose
progressively higher surtaxes.
CRS-31
TABLE 8. Income-Related Catastrophic Premiums, 1989-93
Maximum potential premiums
Calendar Premium per $150
Implicit
year
of tax liability
surtax rate
for individual for couple¹
1989
$22.50
15%
$800
$1,600
1990
37.50
25
850
1,700
1991
39.00
26
900
1,800
1992
40.50
27
950
1,950
1993
42.00
28
1,050
2,100
For years after 1993 the law prescribes procedures for raising the
premium rate if necessary to help keep new premium income and expenditures
in line. The new income would be expected to rise as the affected
population's tax liabilities rise, but if the new expenditures rise faster--as
determined by measures of actual recent per capita experience of both, not
projections--the Secretary of Health and Human Services (HHS) is required to
raise the premium rate accordingly. Additional adjustments are required to
reflect the recent inflation rate (the latter serving primarily as an added
contingency margin in the event inflation accelerates) and to maintain
adequate balances in new trust funds created for the expanded coverage. The
premium rate cannot go up by more than $1.50 in any year (per $150 of tax
liability), and if that precludes the new premiums from rising in tandem with
the new expenditures, the new flat-rate premium is to be increased to make
up the difference.
Flat-rate catastrophic premiums. The new flat-rate catastrophic
premium is an add-on to the standard SMI premium. It is not mandatory in
¹⁰This is the maximum potential premium when both members are eligible
and file a joint return. However, where only one member of a couple that
files a joint return is eligible for at least 6 months during the year, the
maximum premium is limited to the amount that applies to single persons
(e.g., $800 in 1989) and the premium is computed using only one-half of the
couple's income tax liability. This does not apply to a member of a couple
filing separate returns who must count all of his or her respective tax
liabilities, and each is subject to a couple's maximum--$1,600 in 1989. If both
are Medicare eligible, the potential maximum is $3,200 in 1989. Further, if
they did not live apart the entire year, both are deemed to be Medicare
eligible even if only one member is.
CRS-32
the same way as the income-related premium. It must be paid only if an
individual is actually enrolled in SMI. The law explicitly establishes the
premium levels for 1989 through 1993.
TABLE 9. Flat Rate Monthly Catastrophic Premiums, CY 1989-93
Calendar
1989
1990
1991
1992
1993
year
$4.00
$4.90
$7.40
$10.20
$10.20
*Alternative pre-set premiums are established for (1) residents of Puerto
Rico and other U.S. Commonwealths and territories, (2) for people enrolled in
Part B only, and (3) for those who buy into HI.
As with the income-related premium, for years after 1993, the law
specifies procedures for indexing the flat-rate premium in order to keep the
costs and financing of the new benefits in balance. 11 If necessary, additional
adjustments are required to make up for any potential revenue loss caused by
limitations on how much the income-related premium can be raised.
Medicare Trust Funds
Medicare's financial operations are accounted for through four trust funds
and a special catastrophic coverage account, all of which are maintained by
the Department of the Treasury. Two separate trust funds have existed since
the beginning of the program for HI and SMI and two additional funds were
created this year for the new catastrophic benefits: one for the new drug-
related benefits and another for the expansion of HI protections. In addition,
a special catastrophic coverage account--referred to as the Account--has been
established to separately keep track of the full range of new HI and SMI
receipts and expenditures.
Three out of four of these trust funds reflect both income and outgo
flows. One, however, a new HI catastrophic coverage reserve fund, reflects
only income flows. Expenditures recorded against the basic HI and SMI trust
funds include their standard benefits and expenses and, as well, their
respective shares of the new catastrophic costs. HI payroll tax receipts and
other internal payments from the Government are credited to the HI fund,
however, HI's share of the new catastrophic premiums are credited to the new
reserve fund. All of the new income-related premiums (the non-drug portion)
"The indexing procedures become effective in earlier years for Puerto
Rico and the Commonwealths and territories.
CRS-33
are first credited to the reserve fund, and then, to the extent these premiums
exceed HI's new catastrophic-related expenditures, they are credited (or
transferred) to the SMI fund. The law currently does not permit any
transfers from the reserve fund to the HI fund to recognize the new HI
expenditures, however, the conference report accompanying the new law states
that the conferees anticipated that Congress "may at some future time transfer
funds from the reserve fund to the HI trust fund to bolster the solvency of
the fund." The standard SMI premiums, the Government's matching
contributions and other internal payments, and the new catastrophic "add-
ons" to the standard SMI premiums are all credited to the SMI trust fund.
Beginning in 1990, the Catastrophic Drug Insurance fund will be credited with
its shares of the income-related and flat-rate premiums.
The new catastrophic coverage account is not credited or debited with
receipts and expenditures in the same way as the various trust funds--Federal
securities are recorded to the trust funds; but not to this account. It serves
as a centralized means of keeping track of catastrophic receipts and
expenditures overall and the separate HI and SMI components. Its primary
function is to be a record keeping device for measuring whether and by how
much the new catastrophic premiums need to be raised.
The trust funds themselves are not actually repositories for money. In
a sense, like the new catastrophic coverage account, they are record keeping
devices. When it is said that one or another of them receives income what is
being described is the crediting of securities to them by the Treasury
Department. However, the money received by the Government (payroll taxes
and premiums) and the money spent by the Government to pay claims and
administrative expenses moves in and out of the treasury along with other
governmental receipts and payments. As Medicare taxes and premiums are
paid into the treasury, a corresponding amount of new securities is posted to
the trust funds. Similarly, when internal credits from the Government are
due to the trust funds--e.g., for interest on securities held by the funds--new
securities are posted to them. Conversely, when Medicare expenditures are
made, the money is paid out of the treasury and a corresponding amount of
securities is deleted from the trust funds.
In any given accounting period, income posted to the trust funds (the new
securities) is always a larger figure than the actual Medicare receipts the
Government takes in. Interest income, for instance, is not derived from sources
outside of the Government, since the trust funds only hold securities of the
Government itself. Interest is simply a credit from one Government account
to another. The Government's SMI contributions are similarly just internal
¹²In effect, the expenditures are recorded against one trust fund and the
corresponding premiums are credited to another, but no transfer is permitted
between them. See conference report on the Medicare Catastrophic Coverage
Act of 1988, p. 225.
CRS-34
transactions; the securities of the SMI trust fund are raised when that posting
is made, but the Government has not actually received any new money.
The securities held by the trust funds function like a checking account
balance. As long as there are securities in the funds, the Treasury
Department has authority to write checks to meet the program's
commitments. This is in contrast to many other Government programs where
Congress must give express approval each year to keep payments flowing by
enacting appropriations laws. The balances of the trust funds, in a sense,
provide indefinite approval to spend on behalf of the program.
CRS-35
V. POSITION IN THE ECONOMY¹³
How significant is Medicare in the economy? How much does it finance
of what the Nation spends on health? How much do the Nation's hospitals,
doctors, and other medical providers receive from it? What is its share of the
Federal budget and the amount the Government spends on health programs?
How much do its enrollees depend on it? And how big of a tax bite does it
take? Simply put, how big is Medicare as a financial institution?
Medicare As a Part of The Overall Economy
In 1987, expenditures made in the U.S. economy for health-related
services and activities were $500 billion, or 11.1 percent of the Gross National
Product (GNP). In lay terms, $1 out of every $9 spent in the economy was
for health purposes. This represented more than a three-fold rise in dollar
terms from 1965 (in constant 1987 dollars), and nearly a doubling of the share
of the Nation's spending directed at the health sector. Moreover, projections
suggest sizeable future growth, with health spending increasing by 200 percent
by the year 2000 and accounting then for nearly $1 out of every $6 of GNP.
Medicare has been part of and is expected to remain a contributor to this
growth. By itself the program represents a notable element of the economy
with expenditures equaling 1.8 percent of GNP (in 1987). Its payments
account for one-sixth of national health expenditures with their greatest
impact being in the hospital sector where the program pays for almost 30
percent of the services provided. It has a similar marked impact on physician
services where it finances $1 out of every $5 of care.
Thus, in a little more than 2 decades Medicare has assumed a major role
in financing the Nation's medical care. Implemented in 1966, the program's
spending grew at an average annual rate of 15 percent from fiscal year 1970
to 1988 (11.9 percent from 1980 to 1988). This was a faster pace than the
overall inflation rate (as measured by the CPI), wages in the economy, GNP,
and national health expenditures generally.
1ˢThe information contained in this section was derived from three HCFA
studies of national health spending; one reported through a press release on
Nov. 18, 1988, and the other two reported in the summer 1987 and fall 1986
issues of the Health Care Financing Review.
CRS-36
CHART 3. MEDICARE'S SHARE OF NATIONAL HEALTH EXPENDITURES
1970 AND 1987
Other
Other
Federal
State
Federal
13.6%
and Local
12.5%
Medicare
State and Local
12.5%
10.0%
13.5%
Medicare
16.4%
Private
Private
62.9%
58.6%
1970
1987
Source: Dept. of HHS and Medicare trustees' reports.
CHART 4. MEDICARE'S RATE OF GROWTH COMPARED TO
OTHER ECONOMIC MEASURES, FY 1970-88
(average annual growth rate in percent)
Percent
20
15.13
15
10.96
9.87
10
6.39
5
O
CPI-U
Total Federal
National Health
Medicare
Outlays
Expenditures
Source: Derived from HCFA data
CRS-37
While Medicare's rate of growth has moderated some in recent years,
current projections suggest that the program will continue to grow faster than
GNP, and by 2000 its expenditures would exceed of three percent of GNP--
representing more than a 50 percent increase.¹ 14 Moreover, these projections
do not reflect the impact of the new catastrophic provisions, which may
increase Medicare expenditures by 7 percent or more.¹⁵
TABLE 10. Projected Average Annual Growth Rate of GNP,
National Health Expenditures, Federal Health Expenditures,
and Medicare, 1986-2000
Projected average annual growth rate in percent
1986-2000
GNP National health Federal health Medicare
expenditures
expenditures
6.5
9.0
9.8
10.8
NOTE: Figures do not reflect new catastrophic expenditures.
Medicare As a Federal Health Program
In 1965 the Federal Government accounted for 13 percent of the Nation's
health spending; by 1987, its share had grown to 29 percent. The entire
amount of that growth can be attributed to Medicare. In 1987 Medicare's
expenditures accounted for 57 percent of all Federal health spending (up from
42 percent in 1970) and nearly 17 percent of national health expenditures (up
from 10 percent in 1970). 16
Prior to the advent of Medicare and Medicaid in 1965, the Federal
Government had a relatively modest role in paying for personal medical
services, which was mostly confined to veterans and the military. Its presence
was more pronounced in the medical research, hospital construction, and
public health fields. However, from 1965 to 1987, the Government's share in
14See National health expenditures, 1986-2000, loc. cit.
16See CBO, Oct. 1988, loc. cit.
¹⁶Dept. of HHS press release, Nov. 18, 1988, loc. cit.; and 1988 HI and
SMI trustees' reports.
CRS-38
the financing of personal medical care rose from 10 to 30 percent, while the
combined shares paid by individuals and private insurers dropped from 78
percent to 60 percent. Medicare was the dominant factor in that growth, with
the means-tested Medicaid program running second.
CHART 5. MEDICARE'S SHARE OF
FEDERAL HEALTH EXPENDITURES, 1967-87
Dollars in billions
150
i44 7
123.1
100
82.0
71.0
72.3
50
37.0
36.8
17.7
16.3
11.9
47
7.5
O
1967
1970
1975
1980
1985
1987
Medicare
Total Federal Spending
(including Medicare)
Source: Derived from National Health Expenditure data.
CRS-39
Medicare's Insurance Value for its Recipients
In 1984, 97 percent of the population 65 and older was covered by one
or both parts of Medicare and nearly 70 percent of these enrollees were served
by the program--i.e., Medicare payments were made on their behalf or to them
directly. The program is not a source of cash income to the aged in the same
way social security, earnings from work, or private pensions are. It does not
provide regular periodic payments, not everyone enrolled in it receives
reimbursement every year, and when reimbursement does occur it can vary
widely depending on utilization. However, Medicare has substantial value to
the aged as a source of insurance. While the aged comprise about 12 percent
of the population, they account for nearly one-third of the Nation's
expenditures for hospital care and one-fifth of those for physician care.
Overall, Medicare payments covered almost 50 percent of the per capita health
expenditures incurred by people 65 and older, with an equivalent value of 20-
25 percent of their reported money income for the year.¹⁷
CHART 6. SOURCE OF FINANCING OF ELDERLY'S
MEDICAL COSTS, 1984
Out of Pocket
25%
Medicare
49%
(HI 33%
Other
SMI 16%)
6%
Private Insurance
7%
Medicaid
13%
Source: Waldo and Lazenby. Demographic characteristics and
health care use and expenditures by the aged in the United States: 1977-1984.
¹⁷Derived from national health expenditure data; Demographic
characteristics and health care use and expenditures by the aged in the United
States: 1977-1984, by Daniel R. Waldo and Helen C. Lazenby. Health care
financing review. fall 1984; and Income and resources of the population 65
and over. SSA. Washington, U.S. Gov't. Print Off. SSA publication no. 13-
11727. Using data from the Bureau of the Census' March 1985 Current
Population Survey, SSA estimated the median money income of aged
households with social security payments to be $10,260 in 1984. For aged
households not receiving social security payments, the median was $8,020.
HCFA estimated that Medicare financed $2,051 of the per capita health
expenditures incurred by the population 65 and older in that year.
CRS-40
Medicare As a Federal Tax
As have social security and other forms of Federal social insurance taxes,
Medicare receipts have become a very substantial source of Federal revenues.
In FY 1988 HI taxes of $60 billion make up 18 percent of the $334 billion
in social insurance taxes and contributions collected by the Government and
6.6 percent of the $909 billion in total Federal receipts (excluding public
borrowing). SMI premiums added another $8.8 billion although they are
treated by the Treasury as offsets to outlays (most are deducted directly from
social security recipients' checks). Overall, Medicare was the Government's
fourth largest source of receipts.
The HI tax is broad based, with more than 95 percent of the workforce
required to pay it. The only major group still exempted are employees of
State and local governments who have been with their respective government
employers since March 31, 1986, and have not elected social security or HI-
only coverage. Federal workers were mandatorily covered in 1983.
CHART 7. HI AS A SOURCE OF FEDERAL FINANCING, FY 1988
($'S in billions)
Individual Income Taxes
$401
OASDI Taxes
$241
HI Taxes
$60
Corporate Income Taxes
$94
Public Borrowing
$116
All Other Taxes
$113
Source: Final Treasury statement for FY 1988
CRS-41
The HI tax is a flat-rate tax on earnings from work. Thus, low wage
earners pay less than high wage earners. A person earning minimum wages
(about $7,000 per year) pays only $100 in HI taxes (excluding the employer
share). A person earning over $48,000 per year pays about $700 in HI tax.
A person with average earnings ($20,000) pays $290.18
From the perspective of how much the tax weighs on families at different
income levels, data derived from a Congressional Budget Office (CBO) study
shows that 80 percent of social insurance taxes, of which HI taxes are a part,
are paid by families in the upper half of the income spectrum (above $26,000
annually in 1988 dollars), with 25 percent coming from those in the highest
10 percent (above $68,000 annually).¹⁹ However, these taxes represent a
smaller share of the total Federal taxes they pay than it does for those in the
lower half. As shown in table 11, for persons at the lowest income levels, the
HI tax represents about 10 percent of Federal tax liability. The HI tax
represents only 4 percent of Federal tax liability for persons in the highest
income category. This is due in part to the fact that social insurance taxes
are levied only on wages, and wages are a greater share of the income of
people in the lower half of the income spectrum, and because income taxes
have an increasingly greater effect on the higher income brackets.
18 Higher amounts apply to the self employed.
19 U.S. Congressional Budget Office. The Changing Distribution of
Federal Taxes: 1975-1990. Oct. 1987.
CRS-42
TABLE 11. Significance of HI Tax as a Federal Tax,
by Income Level
Income
HI taxes as a percent of the total 1988
levels
Federal taxes paid by people in the:
lowest 10th
9.3%
2nd
"
12.4
3rd
"
11.8
4th
"
10.4
5th
"
9.7
6th
#
9.3
7th
"
8.9
8th
"
8.9
9th
"
8.2
highest 10th
4.1
Source: Derived from distributional data on social insurance taxes
contained in the CBO study, The Changing Distribution
loc. cit.
,
While the HI tax is a more significant form of Federal taxation for people
in the lower half of the income spectrum, the effective HI tax bite is still
small. According to the CBO study, HI taxes absorb only 1 percent of the
incomes of families in the lowest tenth of the income spectrum, with the
figure rising to no more than 2 percent for those with average incomes. The
smaller percentage at the lower levels is due to the fact the nontaxable
transfer payments are a major income source for families in those income
brackets. A much more significant bite is taken by social security retirement
and disability taxes and Federal excise taxes.
CRS-43
VI. RELATIONSHIP TO THE FEDERAL BUDGET
Medicare's Growing Position in The Budget
Currently, Medicare is counted in the Federal budget. With FY 1988
outlays representing 7.4 percent of Federal spending, and revenues
representing 6.6 percent of Federal tax receipts, Medicare has acquired a
significant position in the budget.
Rapid growth of entitlement programs caused spending on human
resource programs to jump from 33 percent of Federal outlays in 1968 to
almost 55 percent 10 years later.20 While the human resource share has since
leveled out at about 50 percent, Medicare's spending has continued to surge.
Its share of Federal outlays rose from 3.9 percent in 1975 to 5.4 percent in
1980 to 7.4 percent in 1988, making the program one of the fastest growing
segments of Federal spending. Coupling this rapid growth with the financial
strain caused by large overall deficits, proposals to constrain Medicare
spending have been high on the list of congressional budget options.
TABLE 12. Medicare: Comparing its Growth to Other
Forms of Federal Spending, 1975-88
Share of total Federal outlays
Fiscal
Medicare
Social
Other human
National
Interest
year
security
resource
defense
on debt
programs
(in percent)
1975
3.9
19.5
28.7
26
7
1980
5.4
20.1
27.5
22.7
8.9
1988*
7.4
20.6
22.1
27.3
14.3
Source: U.S. Library of Congress. Congressional Research Service.
1990 Budget Perspectives: Federal Spending for the Human Resource
Programs. CRS Report for Congress No. 89-87 EPW, by Gene Falk and Keith
Hurt. Washington, Feb. 2, 1989. Figures do not total to 100 percent.
20 The major human resource programs include social security, medicare,
other health programs, veterans' benefits, education and social services, and
other cash benefits, e.g., unemployment insurance and civil service retirement.
CRS-44
While HI's growth tended to slow in the 1980s, SMI's continued to surge.
In 1967, SMI accounted for one-fourth of Medicare spending. By 1988, its
share had grown to 40 percent. In the last 7 years, it grew three-fold, while
HI doubled, and Federal spending overall only grew by 20 percent. Thus,
SMI is likely to draw particular attention in the ongoing debate about the
budget deficit and the appropriate level of Federal spending.
CHART 8. GROWTH OF HI AND SMI EXPENDITURES, FY 1970-88
(In 1988 constant dollars)
Billions of dollars
60
53.4
53.2
52.9
52.7
50
45.7
40
35.5
34.9
32.0
30
28.0
23.9
24.9
21.7
20
15.3
15.7
9.4
10
6.8
O
1970
1975
1980
1983
1985
1986
1987
1988
SMI
HI
Source: Historical Tables, Budget of the U.S. Government
CRS-45
CHART 9. SMI AS A PERCENT OF TOTAL MEDICARE EXPENDITURES,
FY 1968-88
Percent
40
39.9
34.5
325
30.7
30.7
30.9
29
28.3
28.9
29.2
29.2
20
0
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
Source: Derived from Historical Tables. Budget of the U.S. Government
CRS-46
How Medicare is Treated under Gramm-Rudman-Hollings
In 1985 Congress adopted special procedures to deal with the Federal
budget deficits, which had grown from $74 billion in 1980 to $212 billion in
1985. The procedures, designed to bring the budget back into balance, have
come to be known as the Gramm-Rudman-Hollings deficit-reduction law.
Originally set to expire in FY 1991, the procedures were modified in 1987 and
extended for 2 years, with the goal of bringing the budget into balance by FY
1993. Under the procedures a deficit estimate must be made prior to the
beginning of each fiscal year. If the estimate exceeds the target by a certain
defined margin, automatic spending reductions must be made by the President
unless Congress intercedes and passes alternative deficit-reduction measures. 21
In computing the estimated deficit, virtually all Federal income and outgo
are counted under a so-called "unified" budget concept. Medicare's income and
outgo are included (as are social security's). Thus, if the program's receipts
are higher or lower than its expenditures, Medicare can affect the Gramm-
Rudman-Hollings deficit figure and the amount of deficit reductions that may
have to be implemented by the President or enacted by Congress. If the
President must take action under the automatic procedures, Medicare
reductions must be part of that action. However, the law limits the reduction,
so that the so-called "sequester" order causes no more than 2 percent reduction
in the projected benefit payout. 22
In summary, under the current budgeting law Medicare directly affects
the size of the overall Federal deficit, and benefit changes to constrain its
spending may be part of the actions taken by the Administration or Congress
to achieve certain prescribed budget goals.
How Medicare Affects the Deficits
People sometimes ask why, if Medicare is financed through trust funds,
is it part of any budget discussions?
Since Medicare receipts and expenditures flow in and out of the general
treasury, the difference between what the Government receives and spends for
the program helps to shape the Government's overall financial condition.
There is no defined use of excess Medicare receipts, and there are no
defined Federal resources earmarked to cover a Medicare shortfall. Excess HI
taxes, for instance, are not used automatically to reduce the deficit. People
²¹The law- requires the President to act, if the estimated deficit exceeds
the Gramm-Rudman-Hollings target by more than $10 billion in FY89-92; if
it exceeds zero in FY93.
²The reduction could be less than 2 percent, if the "uniform reduction"
pertaining to non-defense spending is smaller.
CRS-47
sometimes assume, ipso facto, that because excess HI receipts cause the
Treasury Department to increase the securities posted to the HI trust fund,
the Government "is simply borrowing money from the trust fund" rather than
from financial markets. Since the amount the treasury borrows from financial
markets represents the deficit, the immediate supposition is that excess HI
taxes reduce the deficit.
However, while the law requires the Treasury Department to post
securities to the HI trust fund when it receives HI taxes, it does not
determine the ultimate use of the money. As with all other forms of Federal
receipts, on a day-to-day basis the money is deposited in the treasury and
pooled with other resources, and thereby helps to meet the Government's
expenses as they arise. There is no way to track explicitly the flow of any
Federal taxes from receipt to use. It can no more be said for HI taxes than
for income taxes that they are used first to reduce government borrowing and
then to meet spending obligations. The taxes become fungible once they reach
the treasury. As the Government's bills come in, the monies in the treasury
are used to pay them regardless of how the monies were raised or what the
bills are for.
"Lower borrowing from the public" is only one of three possible uses that
can be made of excess HI taxes. Ultimately, how excess taxes are used
depends of fiscal policy decisions made by Congress and the Administration,
not by the Treasury Department's day-to-day management of cash flow or
accounting. To the extent policymakers are influenced to spend more or tax
less because of the existence of one or more forms of excess taxes, then it
could be said that the excess taxes haven't reduced the deficit. The basic
point is that so long as excess HI taxes are part of the general operating pool
of resources available to the Government, their use is determined by overall
fiscal policy decisions.
By the same token a shortfall of HI receipts and the Government's
contributions to SMI (the 75 percent share of SMI costs not covered by
enrollee premiums) do not automatically cause the deficit to be higher. The
Government may be making up the difference between Medicare receipts and
expenditures with general resources, but this in turn could cause other
spending to be lower or other taxes to be higher. Again, the impact is
intertwined with aggregate fiscal policy decisions.
In summary, Medicare directly affects the Government's overall fiscal
condition: how much it borrows, how much it spends, how much it taxes, and
what the deficits are. However, there is no concrete way to determine exactly
how, since it is difficult to ascertain how any one Federal program by itself
influences the ultimate outcome of fiscal policy decisions.
Order Code IB90045
CRS Issue Brief
Medicare: FY1991 Budget
Updated June 19, 1990
by
Celinda M. Franco and Kathleen M. King
Education and Public Welfare Division
CRS
Congressional Research Service . The Library of Congress
CONTENTS
SUMMARY
ISSUE DEFINITION
BACKGROUND AND ANALYSIS
Description of Medicare
FY1991 Budget
Administration Proposals Affecting Outlays
Part A Expenditures
Part B Expenditures
Physician Payments
Other Part B Proposals
Regulatory Proposals
Initiatives Affecting Both Parts A and B
Administration Proposals Affecting Receipts and Revenues
Program Management Budget
NOTE: For additional information on Medicare, see CRS Report 89-134, Medicare:
Its Use, Funding and Economic Dimensions; and CRS Issue Briefs 87106,
Catastrophic Health Insurance: Medicare; 87180, Medicare: Prospective Payments for
Inpatient Hospital Services; and 89116, Medicare: Physician Fee Schedule.
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Medicare: FY1991 Budget
SUMMARY
Medicare provides health insurance protection for 33 million aged and disabled
individuals. Medicare outlays for FY1990 are estimated to be $96.6 billion ($108.2
billion in gross outlays, offset by $11.6 billion in beneficiary premium payments). The
program is composed of two parts: Hospital Insurance (Part A) covers inpatient
hospital and related institutional care; Supplementary Medical Insurance (Part B)
covers physician services and other related medical services and supplies. Payments
for inpatient hospital services under Part A are made according to a prospective
payment system.
President Bush's proposed FY1991 budget, released on Jan. 29, 1990, includes
legislative proposals to save $5.6 billion from the baseline estimates, plus $70 million
in regulatory proposals, for a total of $5.67 billion in program reductions in FY1991.
In addition, the budget would add $1.9 billion in FY1991 Medicare trust fund
revenues by mandating program participation by all State and local government
employees, some of whom are currently exempt from participation. The
Administration estimates that total Medicare outlays for FY1991 would be $98.6
billion if the proposals contained in the proposed budget were enacted, and would
account for 8% of Federal spending.
The budget includes reductions of $3.4 billion in reimbursement for inpatient
hospital services paid under Medicare's prospective payment system (PPS), including
a $70 million reduction in payments for skilled nursing facilities, offset by $100
million increase in HMO payments for Part A services. The largest Part A savings
would result from two proposals: reducing payment for capital-related costs (15%
reduction for rural hospitals, 25% reduction for urban hospitals), and reducing the
indirect medical education adjustment from the current level of 7.7% to 4.05%.
The President recommends reductions of $2.234 billion in Part B payments,
offset by an $80 million increase in payments to HMOs for a net reduction of $2.154
billion. The reductions would be $1.065 billion in physicians' services, with the
remaining $1.169 billion in other Part B services, excluding $80 million in increased
Part B payments to HMOs. The recommended reductions in physicians' services
largely expand cost-savings measures implemented in previous years pending the
implementation of a new physician payment structure in 1992. The largest single
reduction in physicians' services would reduce outlays by $450 million by freezing
fee updates except for primary care services. Most of the reductions recommended
for nonphysician Part B services are similar to those offered in past years. The
largest single cut in other Part B services would be a 10% reduction in payments for
hospital outpatient services, which is projected to save $570 million in FY1991.
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ISSUE DEFINITION
On Jan. 29, 1990, President Bush submitted his proposed FY1991 budget to
Congress. The budget projects FY1991 Medicare outlays under current policy of
$104.2 billion ($116.1 billion in expenditures offset by $11.9 billion in beneficiary
premiums). The budget includes legislative proposals to save $5.6 billion from the
baseline estimates, plus a reduction of $70 million in regulatory proposals. In
addition, the budget would add $1.9 billion in FY1991 Medicare trust fund revenues
by mandating program participation by all State and local government employees,
some of whom are currently excluded.
BACKGROUND AND ANALYSIS
Description of Medicare
Medicare provides health insurance protection for 33 million aged and disabled
individuals. The program covers hospital services, physician services, and other
medical services for those eligible, regardless of income. Medicare includes two parts:
Hospital Insurance (Part A) and Supplementary Medical Insurance (Part B).
Medicare outlays for FY1990 are estimated to be $96.6 billion ($108.2 billion in
outlays, offset by $11.6 billion in premiums and collections).
Part A of Medicare covers inpatient hospital care. In some cases, it also covers
short-term skilled nursing facility care after a hospital stay, home health agency
visits, and hospice care. Patients are responsible for a deductible ($592 in 1990) each
time a hospital admission begins a new benefit period (i.e., the period beginning
when a patient enters a hospital and ending when he or she has not been in a
hospital or skilled nursing facility for 60 days). Part A is financed chiefly from
Hospital Insurance payroll taxes. A small number of persons over age 65 are not
entitled to Medicare because they are not eligible for Social Security or railroad
retirement benefits; these persons may enroll under Part A by paying a monthly
premium.
Medicare pays for inpatient hospital services according to a prospective payment
system (PPS). Under this system, each Medicare patient is classified according to his
or her medical condition into diagnosis-related groups (DRGs). Hospitals are paid a
predetermined rate for each patient treated within a given DRG. Hospitals with
costs below the payment rate are allowed to keep the surplus, while hospitals with
costs above the payment rates must absorb the loss. (For more information, see CRS
Issue Brief 87180, Medicare: Prospective Payments for Inpatient Hospital Services.)
Part B, the Supplementary Medical Insurance (SMI) program, is a voluntary
program; individuals must enroll and pay a premium to receive benefits. All persons
entitled to Part A and all persons over age 65 are eligible to enroll. The program
covers the services of physicians, outpatient hospital care, laboratory and x-ray
services, and other related medical services and supplies. The program is financed
by beneficiary premiums and general revenues. The premium ($28.60 in 1990)
accounts for about 25% of program costs. Medicare generally pays 80% of the
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reasonable charges for covered services, after the beneficiary has met the $75 annual
deductible. The beneficiary is liable for 20% of the reasonable charge, an amount
known as coinsurance.
Medicare pays for most Part B services of a reasonable charge. The reasonable
charge is the lesser of the actual charge, the physician or supplier's customary charge
for the service, and the prevailing charge for the service in the community. By
accepting "assignment" on a claim, a physician or supplier agrees to accept Medicare's
reasonable charge as payment in full. If assignment is not accepted, the beneficiary
is liable for the full difference between what Medicare pays (i.e., 80% of the
reasonable charge) and the actual charge. There are incentives for physicians and
suppliers to enter into agreements to accept assignment on all Medicare claims.
Persons who enter into such agreements are known as participating physicians and
suppliers.
The Omnibus Budget Reconciliation Act of 1989 (OBRA 89), P.L. 101-239,
enacted a new payment system for physicians' services. Instead of a reasonable charge
basis, physicians' services will be paid on a fee schedule that uses a resource-based
relative value scale (RBRVS). Under RBRVS, physician payments will be determined
according to the resources and effort (including physician time) needed to perform a
service. In general terms, the fee schedule will reduce payments for most surgical
services, while increasing payments for primary care services such as office visits.
The fee schedule will be phased in over a 5-year period beginning in 1992. (For
further information, see CRS Issue Brief 89116 EPW, Medicare: Physician Fee
Schedule.)
Medicare is administered by the Health Care Financing Administration (HCFA)
in the Department of Health and Human Services. Many of the day-to-day
operations, including reviewing and paying claims, are performed by organizations
such as Blue Cross/Blue Shield plans or private insurers under contract to HCFA.
These organizations are referred to as Part A intermediaries and Part B carriers.
FY1991 Budget
On Jan. 29, 1990, President Bush submitted his proposed budget. As published,
the budget projects FY1991 Medicare outlays under current policy of $104.2 billion
($116.1 billion in expenditures offset by $11.9 billion in beneficiary premium
payments). The budget includes legislative and regulatory proposals that, according
to the Administration, would reduce Medicare outlays for FY1991 by $5.6 billion
($3.35 billion for Part A, $2.15 billion for Part B, and $0.1 billion for administration).
The baseline estimate includes $98 million in administrative savings for which
legislative authority is required. As a result, these savings should be included with
legislative proposals (see TABLE 1). The budget also includes proposals that would
increase Medicare trust fund revenues by $1.9 billion.
CRS-3
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TABLE 1. Impact of FY1991 Budget Proposals on
Total Medicare Outlays
($ in millions)
Percent
change,
1989
1990
1991
1990-91
Current policy:
Part A benefits
$55,365
$59,844
$65,352
9.20
Part B benefits
36,854
42,964
47,980
11.67
Regulatory proposals:
(70)
PROs
129
456
381
-16.45
Administration
2,254
2,412
2,471
2.46
Gross outlays
96,557
108,225
116,114
7.35
Less premium income
(11,590)
(11,609)
(11,899)
2.50
Net outlays
84,967
96,616
104,215
7.94
Legislative proposals:
Part A
(3,350)
Part B
(2,154)
Administration
(98)
Premiums
2
Total legislative savings
(5,600)
Final net outlays
84,964
96,616
98,615
2.07
Source: CRS analysis of President's FY1991 budget.
-
Increases in Medicare expenditures continue to outstrip general inflation and
fuel concern over growing Federal budget deficits. Rising Medicare expenditures also
limit the government's ability to expand services. The Administration estimates that
outlays for Medicare will increase at a rate of 7.9% in FY1991 under current law.
The President's budget includes legislative proposals that would reduce outlays by
an estimated $5.6 billion (excluding $70 million in regulatory proposals), limiting
program growth to 5.1% in FY1991 (see TABLE 1).
Administration Proposals Affecting Outlays
Part A Expenditures
The Administration budget proposal for FY1991 includes reductions of $3.4
billion in reimbursement for inpatient hospital services paid under Medicare's
prospective payment system (PPS) and a $70 million reduction in payments for
skilled nursing facilities. Some of these reductions would be applied equally to all
PPS hospitals, while others would affect only certain types of hospitals. As shown
in TABLE 2, the largest Part A savings would result from two proposals: reducing
payment for capital-related costs (15% reduction for rural hospitals, 25% reduction
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for urban hospitals), and reducing the indirect medical education adjustment from the
current level of 7.7% to 4.05%.
TABLE 2. Impact of FY1991 Budget Proposals
on Medicare Part A Outlays
($ in millions)
Benefit payments, current law
$65,352
Legislative proposals:
Capital -- Rural hospitals at 85%
(170)
Capital -- Urban hospitals at 75%
(1,360)
PPS update factor
(640)
Indirect medical education at 4.05%
(1,030)
Cap intern-resident to bed ratios
(10)
Reduce direct medical education
(170)
Eliminate SNF return on equity
(70)
Pay HMOs at 100% of AAPCC
100
Total legislative savings --
(3,350)
Net Part A
$62,002
Source: CRS analysis of President's FY1991 budget.
~
Capital payments. Hospitals' capital-related expenses, including such costs as
interest, depreciation, and rental costs, are excluded from the PPS payment and are
reimbursed separately on a reasonable cost basis. Medicare's share of these costs is
computed by multiplying a hospital's total capital costs by Medicare's share of the
hospital's total inpatient services. For FY1987 through FY1990, Congress reduced
capital payments by fixed percentage amounts, so that Medicare actually pays less
than its computed share of capital costs. For FY1990, the reduction is 15%. Under
current law, Medicare would resume paying a full 100% of its share of capital costs
during FY1991. By Oct. 1, 1991, the Secretary is required to establish a system for
including capital costs in the hospital's regular PPS payments.
The President's FY1991 budget proposal would extend the current 15% reduction
in capital payments to rural hospitals, and increase the capital payment reduction to
25% for urban hospitals. The Administration contends that continued reductions are
necessary because, under the reasonable cost system currently in place, hospitals
would otherwise have no incentive to control their expenditures for expanded
facilities or new equipment. The capital payment reduction of 15% for rural hospitals
is estimated to save Medicare $170 million, and the 25% capital payment reduction
for urban hospitals is estimated to save the program $1.36 billion in FY1991.
PPS Update Factor. The overall increase in PPS payment rates each year is
determined by an update factor. This factor is based in part on the projected
increase in "market basket index" (MBI), which estimates the costs of the goods and
services hospitals must purchase to provide care. However, other factors that may
affect costs, such as changes in hospital efficiency or the adoption of new medical
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technologies, may also be considered in determining the update factor. It may
therefore be higher or lower than the projected increase in the MBI. Beginning with
FY1986, Congress has repeatedly set the update factor at a level below the MBI
increase. However, current law provides that the update factor for FY1991 and all
later years is to be equal to the projected change in the MBI. The President's budget
proposed instead to set the average update factor for FY1991 at 4.1%, an amount 1.5
percentage points less than the projected MBI increase. The Administration estimates
the FY1991 savings from this proposal to be $640 million.
Congress in past years set update factors below the rate of inflation because of
evidence that most hospitals were realizing a profit on their Medicare payments
under PPS. More recent data indicate that these profits have been shrinking and
that as many as half of all hospitals are receiving Medicare payments that are below
their costs for treating Medicare patients. However, the Administration argues that
hospitals are not yet operating at maximum efficiency and that a smaller increase
should be enough to allow hospitals to maintain high quality care.
Indirect Medical Education. Medicare currently pays PPS teaching hospitals
for the indirect costs associated with approved intern and resident programs. These
indirect costs may be due to a variety of factors, such as extra demands placed on
hospital staff due to the teaching activity, additional tests and procedures ordered by
residents, or more severely ill patients treated at teaching hospitals. The payment
adjustment is currently based on a formula that increases the DRG payment by
approximately 7.7% for each 10% increase in the ratio of interns/residents to beds.
The increase is calculated on a curvilinear basis (e.g., an increase in the resident-
to-bed ratio does not result in a proportional increase in payment). In FY1995, the
factor is scheduled to increase to 8.3%. (This increase is intended to coincide with
the scheduled expiration of a separate PPS payment adjustment for hospitals which
treat a disproportionate share of low-income patients.)
The FY1991 budget proposes a reduction of the factor used to calculate
payments for hospital indirect medical education costs to 4.05% indefinitely. This
figure was derived from a 1985 Congressional Budget Office (CBO) analysis that
separated costs clearly related to teaching activity from some of the other costs
teaching hospitals might incur, such as those possibly related to treating more
severely ill patients. The payment adjustment has been set higher than 4.05% in the
belief that some costs of teaching hospitals are not adequately reflected in other
components of the PPS payment. The Administration's position is that the indirect
medical education payments should be used solely to pay for teaching-related costs
and not to compensate for other perceived inadequacies in PPS. A recent report by
the General Accounting Office (GAO) concurs in this view. However, representatives
of teaching hospitals argue that the adjustment was not merely intended to
compensate hospitals for costs directly attributable to teaching activities. They note
that congressional report language indicates that the adjustment also was meant to
account for other factors not already considered in PPS, such as greater severity of
illness in patients hospitalized in teaching hospitals. Savings to the Medicare
program from the proposal is estimated to be $1.03 billion in FY1991.
Cap on Intern-Resident-to-Bed Ratio. Under current law there is no limit
on the intern-and-resident-to-bed (IRB) ratio used to determine the indirect medical
education adjustment. The President's budget for FY1991 proposes a cap on the IRB
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ratio at FY1989 levels. The proposal is intended to discourage hospitals from closing
beds solely to raise their IRB ratios and receive higher payments. This proposal is
estimated to save the Medicare program $10 million in FY1991.
Direct Medical Education. Under current law, teaching hospitals also receive
additional payment for the direct costs of medical education programs, such as the
salaries and other education costs of interns, residents, nurses, and allied health
professionals. These costs are not included in the PPS payment rates. Instead,
payments for graduate medical education are currently based on Medicare's share of
each hospital's historic costs per resident, as updated each year by the consumer price
index.
The FY1991 budget proposes revising payments for the direct costs of graduate
medical education (i.e., internship and residency training programs for physicians) by
basing the payment on a per-resident payment derived from the national average of
FY1987 salaries paid to residents, updated by the CPI. The proposal would also
include a system of different weights applied to primary care residents, nonprimary
care residents in their initial residency period, and nonprimary care residents not in
their initial residency period. Payments for primary care residents would be weighted
at 180% of the per-resident amount, those for nonprimary care residents in their
initial residency period would be weighted at 140% of the per-resident amount, and
those for nonprimary care residents not in their initial residency period would be
weighted at 100%.
The Administration's view is that the present diversity in graduate medical
education payments results from historical patterns of hospital accounting practices
and that uniform per-resident payments are more equitable.
Payments for the direct costs of medical education for nurses and allied health
professionals would not be affected by this proposal. The expected FY1991 savings
to Medicare from enactment of the proposal are estimated to be $170 million.
Eliminate Return on Equity (ROE) Payments to Skilled Nursing
Facilities (SNFs). Under current law, proprietary SNFs receive a return on equity
payment from Medicare. Return on equity payments are intended to provide the
owners of such facilities a reasonable return on their investment. SNFs are the only
providers receiving ROE payments. The President's FY1991 budget proposes
eliminating the ROE payments for SNFs. The FY1991 Medicare savings from this
proposal are estimated to be $70 million.
Part B Expenditures
TABLE 3 provides summary information regarding projected savings from all
Part B spending reductions for FY1991. Part B outlays, excluding the President's
proposals, would result in outlays of $47.9 billion, 11.5% higher than FY1990
projected outlays. Enactment of all the President's budget proposals would result in
net Part B outlays of $45.7 billion or an increase of 6.1% over expected FY1990
outlays.
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TABLE 3. Impact of FY1991 Budget Proposals
on Medicare Part B Benefit Payments
($ in millions)
Benefit payments, current policy
$47,980
Regulatory savings:
Eliminate coverage of seat-lift chairs
(40)
Eliminate coverage of glasses
after cataract surgery
(30)
Net benefit payments, current law
47,910
Legislative proposals:
Reduce overpriced procedures
(110)
Reduce radiology and anesthesiology
(230)
Update for primary care physicians only
(450)
Reduce overvalued localities
(50)
Reduce payments for surgery services
(170)
New physician customary charges
(50)
Physician assistant offset
(5)
Reduce outpatient capital payments
(100)
Reduce outpatient payments by 10%
(570)
Durable medical equipment proposals
(250)
Reduce clinical laboratory payments
(60)
Technical component of diagnostic service
(60)
Prior authorization by carriers
(64)
Extend ESRD secondary payer period
(30)
Reduce direct medical education payments
(35)
Pay HMOs at 100% of AAPCC
80
Total legislative savings --
(2,154)
Net Part B Benefits
$45,756
Source: CRS analysis of President's FY1991 budget.
~
Physician Payments
In OBRA 89, Congress enacted a 3-part physician payment reform measure
consisting of: a Medicare fee schedule based on a resource-based relative value scale
(RBRVS); volume performance standards; and increased research on effectiveness of
medical care. The impetus for physician payment reform arose from a long-standing
recognition of the inequities in the reasonable charge reimbursement system, in which
physicians performing "high-tech" procedures and physicians practicing in urban areas
tended to receive much higher reimbursement. Volume performance standards were
enacted to slow the rapid rate of growth in volume of physicians' services delivered
to Medicare beneficiaries in recent years. The anticipated outcome of increased
funding for medical effectiveness research is improved quality and reduced delivery
of unnecessary medical care.
In addition to physician payment reform, other 1990 budget reconciliation
provisions mandated short-term savings in physicians' expenditures. The President's
FY1991 budget proposal assumes the 1992 implementation of the Medicare fee
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schedule and offers short-term savings similar to those enacted in 1989 as a bridge
to its implementation.
Reduce Payments for Overvalued Procedures. Under current law, payment
for physician services cannot exceed the prevailing charge for the service in the
community. Subject to certain limits, the prevailing charge is based on historical
charges for the service. OBRA 89 provided for reductions of up to 15% for a list of
procedures that were identified as being at least 10% overvalued by the Physician
Payment Review Commission. The amount of the reduction equaled one third of the
difference between the 1989 prevailing charge and a locally adjusted reduced
prevailing charge up to a maximum of 15%.
The President's 1991 budget proposes deeper reductions in payments for an
expanded list of overvalued procedures by reducing the remaining two-thirds of the
amount by which the procedures are overvalued, up to a maximum of 25%. This
year's proposal expands the list to include procedures overvalued by least 5%. With
this proposal, the Administration is clearly signalling its intent to continue reducing
payments it considers excessive during the interim period before the implementation
of the RBRVS fee schedule. The Administration projects savings of $110 million in
FY1991 if this measure is adopted.
Reduce Payments for Radiology and Anesthesiology Services. Current
law provides for some delays in payment updates for radiologists and anesthesiologists
until Apr. 1, 1990; a 1% reduction in fee schedule updates for radiologists after that;
and a more precise measurement of time for anesthesiologists that slightly reduces
payments to them.
In FY1991, the Administration proposes to reduce payments for radiology and
anesthesiology services by a maximum of 25% for any locality. The reductions are
to be based on estimates of the amount that current payments exceed payments that
would be made under a RBRVS fee schedule. HCFA would estimate the fee schedule
by reducing the national average conversion factor by 10% and then adjusting it by
a geographic cost-of-practice adjustment factor. Whether the Administration's
proposal would result in overall reductions larger or smaller than those anticipated
under the Medicare fee schedule is unclear because of the uncertain effects of using
a geographic adjustment factor. A likely outcome is that the reductions will be less
than RBRVS reductions in some geographic areas and greater in others where the
geographic adjustment factor has more pronounced effects.
The Administration also proposes to pay the same amount for anesthesia services
regardless of whether an anesthesiologist personally performs the service or medically
directs a certified registered nurse anesthetist (CRNA). This measure is designed to
reduce duplicative payments for anesthesia services. To accomplish this, payment to
an anesthesiologist would be equal to the difference between the amount that would
be paid if the anesthesiologist personally performed the service and the Medicare
payment for the CRNA. Payments to CRNAs would not be reduced. Implementation
of both of these measures is expected to save $230 million in FY1991.
Freeze MEI for Physician Nonprimary Care Services. Under current law,
increases in prevailing charges for services are limited by the increase in the Medicare
Economic Index (MEI). In the past several years, Congress has granted less than a
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full MEI update in an attempt to control physician expenditures. In the most recent
years, primary care services have been granted a higher update than other types of
services. Current law delays the 1990 update until Apr. 1, 1990 (except for
ambulance services and clinical lab services) and specifies that the MEI 1990 update
for radiology, anesthesiology and overpriced procedures is zero. The update is 2% for
all other services, except primary care services, which will receive a full MEI update.
The President's FY1991 budget follows a similar strategy by recommending a full
MEI update only for primary care services, with a freeze for all other services. In
addition, the budget proposes to consolidate prevailing and customary charges by
locality in 1991, so that the reasonable charge for a service would consist of the
lower of the actual charge or the weighted average of the prevailing and customary
charge. As in past years, frozen or reduced fee updates are being recommended as
one of the primary tools to constrain increases in expenditures. In the absence of
strong volume controls, price constraints such as these generally had limited effects.
This measure is anticipated to save $450 million in FY1991.
Reduce Payments for Overvalued Localities. The Administration's budget
proposes to reduce payments for certain procedures in localities where payments have
been overvalued relative to the national average, after the national average has been
adjusted by a geographic practice cost index. The maximum reduction proposed is
25%, and no reductions would be made in payments for procedures reduced by other.
measures.
Although this is the first time a proposal of this type has been made, it
addresses a long-standing problem of payment inequities among localities. Data show
that average allowed charges in very large metropolitan areas are 23% higher than
the national average, while rural areas have average allowed charges 10% below the
national average. If enacted, this proposal is not expected to rectify the fundamental
inequities in the current locality structure, but it will produce savings and lessen
payment differences across localities. The Administration projects $50 million in
savings in FY1991.
Reduce Payments for Assistants-at-Surgery and Surgical Global Fees.
Medicare reimbursement is currently made to assistants-at-surgery under certain
circumstances. Typically, payments for the services of an assistant-at-surgery are set
at 20% of the prevailing charge in the locality for the surgical procedure performed
by the primary care physician. Based on data showing wide geographic variation in
the use of assistants-at-surgery and use of primary care physicians as assistants-at-
surgery, the Administration proposes to pay the same amount for a surgery regardless
of whether an assistant-at-surgery is used. This would be accomplished by reducing
the payment to the primary surgeon by the amount that is paid to the assistant-
at-surgery. Its intent is to reduce arbitrary and unnecessary use of assistants-at-
surgery.
The Administration also proposes to reduce total payments for global surgical
services to account for the reduced number of inpatient hospital visits attributable
to a decline in length in hospital stay since the implementation of PPS. The
reduction would either be a procedure specific amount (where data are available) or
2% across the board. The Administration anticipates that $170 million will be saved
in FY1991 from implementing this measure.
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Other Physician Payment Proposals. The budget includes three other
legislative proposals to reduce physician payments. Under current law, an 80% limit
applies to the first year practice in a locality and an 85% limit applies to the second
year of practice. The budget proposes to establish limits on the Medicare customary
charges of new physicians on the grounds that charges of new physicians should not
be as high as those of established physicians. The additional limits would be 90%
in the third year and 95% in the fourth year, with no limits after the fourth year.
The President's budget also proposes to limit payments made for the technical
component of rendering diagnostic and radiology services. The technical component
payment, which covers costs such as equipment, technician and supply costs
associated with tests, is made in addition to a professional fee for interpretation of
the test. The proposal would limit payment for the technical component to 100%
of the national median for radiology and diagnostic tests. Third, the Administration's
budget proposes to reduce duplicate payments for physicians' services in hospital
settings by subtracting the amount paid for physicians' assistants services in hospitals
from payments made to hospitals. Finally, the Administration's budget also includes
a proposal that would not result in lower federal Medicare spending, but would save
beneficiaries money. This proposal would extend the participating physician concept
to hospitals. A hospital could sign a participation agreement with Medicare so that
assignment would be accepted for emergency, radiology, anesthesia, pathology and
consultation services. Beneficiaries could benefit substantially because these are
services in which they frequently have little or no choice of physician and must pay
unexpected balance bills. Hospitals could gain a competitive advantage because they
could advertise the fact that beneficiaries would not incur balance bills.
A total of $115 million in savings in FY1991 is anticipated from implementing
these three cost savings measures.
Other Part B Proposals
Reduce Hospital Outpatient Capital Payments. Payments for services in
hospital outpatient departments represent one of the fastest growing components of
the Part B program. Current law applies a 15% reduction in reimbursement for
capital expenditures related to outpatient services. The Administration's budget
proposes an expansion of this policy. The 15% reduction would be maintained for
rural hospitals, while urban hospitals would be subject to a 25% reduction. Sole
community hospitals would be exempt from the reduction. Implementation of this
proposal is expected to decrease projected outlays by $100 million.
Reduce Hospital Outpatient Payments. The budget would reduce payments
10% across the board for certain hospital outpatient department services. Services
otherwise reduced by other budget proposals would be exempt from the reductions.
This proposal is expected to save $570 million in FY1991.
National Cap on Durable Medical Equipment (DME) Fee Schedules.
Current law provides fee schedules for six categories of Durable Medical Equipment.
The budget proposes to limit payments for two categories of equipment: a category
actually titled durable medical equipment, which includes manual wheelchairs and
hospital beds; and other items which are not considered to be durable medical
equipment, which includes prosthetics and orthotics. The Administration considers
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payments for these categories of DME to be excessive. Payments under the fee
schedule for these two items would be limited to the median fee schedule amount for
each item. In addition, fees above the median limit would receive no update in 1991.
Modify Fee Schedule for Durable Medical Equipment Rentals. Current
law payments for five of the six categories are based on average reasonable charges
from a previous period. The fee schedule for items in the sixth category, DME
provided on a rental basis (such as wheelchairs and hospital beds), is based on
average submitted charges, which are about 25% higher than average reasonable
charges. The budget proposal would base payments for rental items on average
reasonable charges to make it consistent with the other five categories.
Reduce Oxygen Payments. Current law payments for oxygen and oxygen
equipment and supplies is set at 95% of the local average reasonable charge in 1986,
updated by the increase in the Consumer Price Index (CPI) for the last 6 months of
1987. For 1990 and subsequent years, regional fee schedules are phased-in to replace
the local ones and recognized payment amounts are gradually restricted. The
Administration proposes to reduce current payments by an additional 5% based on
evidence that payments are still unreasonably inflated.
Fee Schedules for Enteral Products. Enteral nutritional products and
supplies are used by patients who, as a result of chronic illness or traumatic injury,
cannot ingest food orally. Under current law, payment for enteral products is the
lowest of: the actual charge, the customary charge, the prevailing charge, a "lowest
charge level" screen, or an inflation adjusted charge. The Administration believes this
system produces excessive Medicare payments and recommends that fee schedules be
based on wholesale and retail price information.
Combined DME fee reductions are expected to save $250 million in FY1991.
Clinical Laboratory Services. Clinical laboratory services are currently paid
on the basis of area-wide fee schedules, subject to a nationwide cap equal to 93% of
the median value of the area-wide fee schedules. The President's budget for FY1991
proposes to further limit the payment to 90% of the median for nonprofile tests and
80% for profile tests standardized test packages. Profile tests are done in
standardized groupings and are cheaper to perform. The budget also proposes no fee
update for tests above the limit. In addition, the budget would require independent
clinical laboratories to report charges for the same test when provided to a non-
Medicare patient. The Administration believes that prices charged to non-Medicare
patients are higher than those charged to Medicare patients and would use these
charge data to reduce carrier fee schedules in future years. These measures are
estimated to save $60 million in FY1991.
Regulatory Proposals
Eliminate Coverage for Seat-Lift Chairs. The Administration proposes a
regulatory initiative to eliminate coverage of seat-lift chairs on the grounds that they
are not medically necessary and have been subject to abuse. Implementation of this
measure is expected to save $40 million in FY1991.
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Eliminate Coverage of Eyeglasses After Cataract Surgery. Through
regulation, the Administration proposes to eliminate coverage of eyeglasses after
cataract surgery. In FY1991, this measure is expected to produce $30 million in
savings.
Initiatives Affecting Both Parts A and B
Extend Secondary Payor Period for End Stage Renal Disease. Under
current law, Medicare is a secondary payor to employer-based health plans for the
first 12 months of beneficiaries' eligibility for Medicare if their eligibility is based
solely on having end stage renal disease. The Administration proposes to extend this
period to 18 months, so that employers would pay full primary benefits for an
additional six months. Their reasoning is that employer-based insurance should be
used to defray the high costs of treating ESRD patients. This measure is expected
to save $30 million in FY1991.
Increase in Payments to Medicare's Risk-Contracting Health
Maintenance Organizations (HMOs). Under current law, Medicare pays risk-
contracting HMOs at a level equal to 95% of the estimated per capita cost for
beneficiaries served by fee-for-service providers, the adjusted average per capita cost
(AAPCC.) The Administration's budget for FY1991 would increase the payment level
to 100% of the AAPCC. A portion of the payment increase would be provided
directly to beneficiaries in the form of a reduction or partial rebate of their Part B
premium. HMOs would receive the remainder of the payment increase, allowing
them to expand benefits or reduce enrollee premiums. This provision represents a
deliberate attempt by the Administration to make HMO enrollment more attractive.
The Administration estimates the cost of this provision to be $180 million in FY1991
($100 million in Part A funds and $80 million in Part B funds).
Administration Proposals Affecting Receipts and Revenues
Part A Premium. Most of the elderly over 65 are automatically eligible to
coverage under Part A of Medicare. Persons over 65 who are not insured may obtain
coverage by paying monthly premiums for Part A benefits. In 1990, the monthly
premium is $175.
The premium is based on the average cost of funding Part A benefits. Revenues
from the Part A premium offset program spending for services. The Administration's
FY1991 budget proposal includes provisions to lower Part A benefit outlays. Since
the Part A premium is based on average costs, if the average cost of Part A is
lowered, then the premium would be expected to decrease and program outlays would
increase. If all the budget proposals are enacted, outlays for FY1991 are projected
to increase by $2 million.
Part B Premium. From 1984 through 1990, the Part B premium has been set
at 25% of program costs for the elderly, including an appropriate reserve and an
adjustment for interest income. The remaining 75% is covered by general revenues.
In 1991, however, the method for calculating the premium will revert to the formula
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used prior to 1984 when increases in the Part B premium will be limited by the
Social Security cost-of-living adjustment (COLA).
The premium originally covered 50% of program costs. However, due to
legislation in 1972 limiting the annual increase to the Social Security COLA, this
share declined to 23% until 1983 when the 25% rule was enacted. The
Administration considers the 25% share to be a reasonable split of the burden of
program costs between the government and beneficiaries. However, others are
concerned that out-of-pocket medical care costs are consuming a growing portion of
the income of the elderly.
The Administration's FY1991 budget includes a proposal to set a floor on the
premium rate increase in CY1991 so that the premium increases would be equal to
the greater of the amount needed to finance 25% of costs or the Social Security
COLA rate increase. Current premium costs are projected at $29.90 for FY1991.
The Administration argues that if their Part B program cuts are adopted, the costs
of providing Part B services would drop and the projected Part B premium would
drop to $29.70 in FY1991. However, if the Administration's proposal for a Part B
premium floor is enacted, then the actual Part B premium would be $29.90, which
results from using the Social Security COLA.
State and Local Government Employees. Under current law, Medicare
coverage and payment of Hospital Insurance taxes are mandatory for new State and
local government employees hired on or after Apr. 1, 1986. States have the option
to extend Medicare coverage (without extending Social Security coverage) to State and
local government employees hired before Apr. 1, 1986. The President's FY1991
budget proposes to mandate Medicare coverage (and payment of Hospital Insurance
taxes) for all State and local government employees, including those hired before Apr.
1, 1986.
The Administration's view is that this proposal would correct an inequity in the
current program. Most State and local government employees become eligible for
Medicare because they work outside government for some part of their career, or
because their spouses do. Such employees receive Medicare benefits without having
to pay Hospital Insurance taxes throughout their working lives. Because of the
payroll tax which employers are required to pay, this proposal could have had a
significant financial impact on those State and local governments (or certain
departments within those governments) that have not already enrolled a large share
of their employees. In addition, the Office of the Inspector General examined a
sample of retirees from State and local agencies not covered by Medicare and found
that approximately 85% of the retirees were enrolled in Part A. The Administration's
position is that since many of these individuals receive full Medicare benefits, the
proposal would require that these individuals contribute their fair share to the HI
trust fund. The increase in revenue from this proposal is estimated to be $1.87
billion in FY1991.
Catastrophic Health Insurance. In 1989, Congress repealed the Catastrophic
Health Insurance (CHI) Act of 1988. The Act had expanded Part A benefits for
hospitalization and SNF care, set a maximum on out-of-pocket expenses under Part
B, and created a new Medicare outpatient prescription drug program. The Part A
benefits were in effect in CY1989, and the other provisions under CHI were to be
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phased in over the next four years. The financing of CHI was through a combination
of tax-related supplemental premiums and monthly flat premiums.
Although the supplemental premiums were not scheduled to go into effect until
1990, some premiums were paid by those individuals who file estimated quarterly tax
returns. With the repeal of the law, all collected funds are to be refunded. In
anticipation of expanded Part B benefits, the monthly flat premium under CHI was
paid during 1989 and deposited in the SMI trust fund. No Part B benefits were paid
during 1989 from the SMI trust fund. The Administration proposes that the monthly
flat premiums currently in the SMI trust fund be transferred into the HI trust fund
to offset the costs of catastrophic hospital and SNF benefits paid from the trust fund
during 1989.
Program Management Budget
The President's FY1991 budget also included funding requests for HCFA's
administration and research activities.
Research, Demonstrations and Evaluations. The FY1991 budget requests
$36 million for HCFA's research, demonstration and evaluation activities. This
represents a decrease of $14 million from FY1990. Much of the decrease is
attributable to a proposal to cease further funding of the rural health care transition
grant program authorized by OBRA 87. HCFA's general ongoing level of research
would be increased by $4 million.
Medicare Contractors. The FY1991 budget requests $1.5 billion for Medicare
contractors, primarily Part A intermediaries and Part B carriers who review and
process claims. This figure is $129 million above FY1990. The increased funding
was requested to invest in productivity improvements to facilitate implementation of
OBRA 89, including $173 million in contingency funds set aside primarily for
unanticipated workloads and the implementation of OBRA 89 provisions.
Medicare State Survey and Certification. The Administration proposes to
finance health facility surveys through user fees assessed on the facilities themselves.
Under the proposal, health facilities would be required to pay a fee covering the costs
associated with the survey, including indirect costs. Facilities requiring additional or
extended surveys will pay additional fees. Revenues generated would be deposited in
the Survey and Certification Revolving Fund, and all outlays will be made from the
same fund.
The FY1991 budget assumes total survey and certification funding of $510
million, including $183 million for Clinical Laboratory Improvement Amendments of
1988 (CLIA) workloads. These expenditures would be wholly offset by user fees.
Federal Administrative Costs. The FY1991 budget requests $285 million for
Federal administrative costs, a decrease of $12 million from FY1990 level. The
request includes a decrease in personnel as a result of the repeal of the Catastrophic
Health Insurance program.
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CRS Issue Brief
Medicaid: FY1991 Budget
and Child Health Initiatives
Updated May 31, 1990
by
Melvina Ford
Education and Public Welfare Division
CRS
Congressional Research Service
The Library of Congress
CONTENTS
SUMMARY
ISSUE DEFINITION
BACKGROUND AND ANALYSIS
Description of Medicaid
Eligibility
Services
Payment for Services
Alternative Delivery Systems
FY1991 Budget
Maternal and Child Health Initiatives
Eligibility for Pregnant Women and Children
Other Medicaid Child Health Proposals
Maternal and Child Health Block Grant
LEGISLATION
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
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Medicaid: FY1991 Budget
and Child Health Initiatives
SUMMARY
Medicaid, authorized by Title XIX of the Social Security Act, is a Federal-State
matching program providing medical assistance to approximately 26 million low-
income persons who are aged, blind, disabled, or members of families with children.
The Federal share of program expenditures for Medicaid is from general revenues. It
is expected that the Federal share for FY1989 will total $34.8 billion while the
Federal share for FY1990 is projected to reach over $40 billion. Each State designs
and administers its own Medicaid program, setting eligibility and coverage standards
within broad Federal guidelines. The Federal share of expenditures for Medicaid
services is tied to a formula inversely related to the square of a State's per capita
income. For FY1990, the Federal matching percentages range from 50% to 80.18%.
Federal matching for State program administration is generally at 50%. However,
current law provides higher matching rates for certain activities, such as operation
of data systems and health care quality monitoring.
The Bush Administration's FY1991 budget proposal includes proposals for
increasing beneficiaries' participation in managed care plans and for eliminating
Federal costs of inspecting and certifying institutional Medicaid providers. The 101st
Congress is considering a variety of Medicaid changes, including expansion of
community services for the frail elderly and the developmentally disabled. However,
options for improving coverage for low-income mothers and children have received the
greatest attention, because of concerns about the Nation's infant mortality rate and
the problem of access to care for children without health insurance coverage. The
Omnibus Budget Reconciliation Act of 1989 (P.L. 101-239), includes expansion of
eligibility for pregnant women and infants, and increases the availability of providers
for them. The Act also makes substantial changes to another major Federal health
program targeted at mothers and children, the Maternal and Child Health Block
Grant program.
Many proposals in the 101st Congress focus on Medicaid eligibility. They would
either mandate or permit coverage of individuals at higher income levels and would
remove other barriers to coverage, such as assets tests, and delays in eligibility
determination. Other bills address issues beyond basic eligibility for benefits. There
are proposals to increase provider participation in Medicaid, to ease the Medicaid
application process and to provide home visitation services to high-risk pregnant
women and infants.
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ISSUE DEFINITION
Medicaid is a Federal-State matching program providing medical assistance to
approximately 26 million low-income persons. In FY1989, the Federal share of
Medicaid costs was $34.8 billion. The FY1990 total Federal cost of Medicaid is
expected to reach $40.2 billion, a 15.5% increase over FY1989. The Omnibus Budget
Reconciliation Act of 1989 (P.L. 101-239) expanded Medicaid coverage to larger
numbers of pregnant women and children and took other measures to improve access
to prenatal and early childhood health care. The FY1991 budget includes $300
million for this expansion. Under the Administration's budget, Federal Medicaid
expenditures in FY1991 would increase by $4.8 billion to $45.0 billion, 12% over the
FY1990 level. Two legislative proposals included in the budget would have the net
effect of reducing Federal outlays in FY1991 by $88.5 million. One proposal is
intended to extend the use of managed care and is projected to cost $25 million in
FY1991. The other would assess annual fees on nursing facilities and suppliers to
cover the program and administrative costs of surveying and certifying the facilities
and is intended to save $113.5 million in FY1991.
BACKGROUND AND ANALYSIS
Description of Medicaid
Medicaid, authorized by Title XIX of the Social Security Act, is a Federal-State
matching program providing medical assistance to a projected 26 million low-income
persons in FY1989. FY1990 program expenditures are expected to reach $70.5 billion,
of which the Federal share will be $40.2 billion. Although Federal funds account for
56.9% of total program expenditures, each State designs and administers its own
Medicaid program, setting eligibility and coverage standards within broad Federal
guidelines. Thus, there is considerable variation among the States in terms of
eligibility requirements, range of services offered, limitations placed on those services,
and reimbursement policies.
Every State except Arizona participates in the Medicaid program, as do the
District of Columbia, American Samoa, Guam, Puerto Rico, the Virgin Islands, and
the Northern Mariana Islands. (Arizona currently provides federally funded medical
assistance through a demonstration program that has received waivers of certain
Medicaid requirements.) At the State level, Medicaid is administered by a designated
single State agency. Federal oversight of the Medicaid program is the responsibility
of the Health Care Financing Administration (HCFA) within DHHS.
The Federal share of expenditures for Medicaid services is tied to a formula
inversely related to the square of a State's per capita income. For FY1990, the
Federal matching percentages range from 50% to 80.18%. In FY1991, the highest
match is expected to be 79.93% for Mississippi. The matching rate for administrative
costs is generally 50% for all States. Higher matching, at levels ranging from 75%
to 90%, is available for certain management and control activities. The remaining
costs of the program are paid by the State; in some States local governments may
also contribute.
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Eligibility
Eligibility for Medicaid benefits has traditionally been linked to actual or
potential receipt of cash assistance under either of two programs: Aid to Families
with Dependent Children (AFDC), and Supplemental Security Income (SSI) for the
aged, blind, and disabled. Recently States have been given the option to extend
Medicaid to other low-income groups. Coverage of some of these new populations
was made mandatory by the Medicare Catastrophic Coverage Act of 1988 (P.L. 100-
360). Although P.L. 101-234 repealed the Medicare provisions of the Act, Medicaid
provisions were left intact.
All States must cover the categorically needy. These include all persons
receiving AFDC and, in most States, persons receiving SSI. States have the option
of limiting Medicaid coverage of SSI beneficiaries by using more restrictive standards
for Medicaid, if those standards were in effect on Jan. 1, 1972 (before implementation
of SSI). Fourteen States continue to use more restrictive standards. States must
also cover as categorically needy a number of groups that are not receiving AFDC or
SSI. The following are among the more important of these groups:
-- Pregnant women, infants, and children up to age six, with family incomes
up to 133% of the poverty level, by Apr. 1, 1990.
-- Certain persons whose family income and resources are below AFDC
standards but who fail to qualify for AFDC for other reasons, such as family
structure. These include pregnant women, as well as children born on or
after Oct. 1, 1983, to age 7.
-- Families losing AFDC benefits as a result of increased employment
income or working hours or increased child or spousal support
payments. States must continue coverage for these families for various
periods, depending on the reason for the loss of AFDC benefits.
-- Persons who have been receiving both Social Security and SSI benefits
and who become ineligible for SSI because of increases in their Social
Security payments.
-- Certain disabled people who lose SSI after returning to work but who
remain disabled and who could not continue working if their Medicaid
benefits were terminated.
In addition to the mandatory groups, there are several optional groups that
States may elect to treat as categorically needy for Medicaid purposes. These include
families with unemployed parents and "Ribicoff children" in families with income
below AFDC standards; these are children whom the State is not required to cover
but who are under a maximum age set by the State, which may be 18, 19, 20, or 21.
States may also cover persons in institutions who meet a special institutional
financial standard set by the State; this standard may not exceed 300% of the SSI
payment level. Finally, States may cover disabled children who are not in an
institution but who would be eligible if they were in an institution.
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Thirty-nine States and other jurisdictions also provide Medicaid to the
medically needy. These are persons whose income or resources exceed the
standards for the cash assistance programs but who meet a separate medically needy
financial standard established by the State and also meet the nonfinancial standards
for categorical eligibility (such as age, disability, or being a member of a family with
dependent children). The separate medically needy income standard may not exceed
133.3% of the maximum AFDC payment for a household of similar size. Persons
may qualify as medically needy after their incurred medical expenses are deducted
from their income or resources. This process, known as "spenddown", is a frequent
route to Medicaid eligibility for persons in nursing facilities.
Beginning with the Omnibus Budget Reconciliation Act of 1986 (P.L. 99-509),
Congress has permitted States to extend Medicaid coverage to certain target
populations, using eligibility standards which are not directly linked to those used
in the cash assistance programs. The Act allowed States the option of covering
pregnant women and young children and/or aged and disabled persons meeting
State-established income standards as high as 100% of the Federal poverty level.
The Medicare Catastrophic Coverage Act of 1988 (P.L. 100-360) converted the
options to mandates for several of the target groups. States were required to phase
in coverage of pregnant women and infants under 1 year old, and aged and disabled
persons eligible for Medicare with family incomes below 100% of poverty. Coverage
for the aged and disabled may be restricted to Medicare premiums and cost-sharing
amounts. States may choose to cover older children with family incomes below 100%
of poverty. This option permits States to cover children through age 7 beginning
Oct. 1, 1990.
The Omnibus Budget Reconciliation Act of 1987 (P.L. 100-203) further expanded
States' options by allowing coverage, beginning July 1, 1988, of pregnant women and
children up to age 1 with incomes less than 185% of the Federal poverty level. The
State may impose a premium for this coverage, equal to no more than 10% of the
amount by which the family's income exceeds 150% of the poverty level.
The Omnibus Budget Reconciliation Act of 1989 (P.L. 100-239), mandated
coverage of pregnant women and infants with family incomes up to 133% of the
Federal poverty level by Apr. 1, 1990.
Services
All States must cover a minimum set of services under Medicaid and may at
their option offer additional services. The minimum service requirements differ for
the categorically needy and the medically needy. For the categorically needy, the
State must provide inpatient and outpatient hospital services, ambulatory services
provided by federally qualified health centers, physician services, laboratory and
x-ray, family planning, skilled nursing facility (SNF) services for those over age 21,
and home health care for persons entitled to SNF care. The State must also provide
early and periodic screening, diagnosis, and treatment (EPSDT), a preventive health
program for persons under 21. As required by OBRA 89 (P.L. 100-239), States must
provide coverage for treatment to correct physical or mental problems identified
during EPSDT screening, even if the follow-up services are not otherwise covered by
the State. If the State covers the medically needy it must provide, at a minimum,
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ambulatory care for children and prenatal and delivery services for pregnant women.
States may limit coverage for the mandatory services in a variety of ways. They may
impose ceilings on the number of inpatient days or physician visits that will be
reimbursed, require prior authorization or second surgical opinions, and deny
coverage for services deemed to be experimental.
Among the additional services that States may choose to provide are prescription
drugs, dental care (some dental coverage is mandatory for children under EPSDT),
eyeglasses, and care in inpatient psychiatric facilities for persons under 21 or over 65.
In terms of overall expenditures, the most important optional Medicaid service is care
in intermediate care facilities (ICFs). All of the States and the District of Columbia
cover ICF services, and every State except Wyoming also covers services in an ICF
for the mentally retarded, or ICF-MR.
Whatever services the State chooses to cover, it must offer them uniformly
throughout the State and must, with minor exceptions, offer comparable coverage to
all persons in the categorically needy groups. Finally, beneficiaries must generally
be allowed to obtain services from any qualified provider. All three of these
requirements -- statewideness, comparability, and freedom of choice -- may be waived
under circumstances described below.
Payment for Services
States are generally free to develop their own reimbursement methodologies and
levels for covered services. There are statutory guidelines for certain services, with
only three rules applicable to every service type. First, providers must accept
Medicaid payment as payment in full and may not seek to collect from beneficiaries.
Second, Medicaid pays only after any other insurance or third party payment source
available to the beneficiary has been exhausted. In particular, when beneficiaries are
eligible for both Medicaid and Medicare, Medicare pays first for the services it covers.
Medicaid pays what would ordinarily be the beneficiary's share (deductible or
coinsurance) and covers services not available under Medicare. Finally, P.L. 101-239
codified the regulatory requirement that payments be sufficient to enlist enough
providers so that covered services will be available to Medicaid beneficiaries at least
to the extent they are available to the general population in a geographic area. That
Act also requires States to pay federally-qualified health centers 100% of their
reasonable costs, effective Apr. 1, 1990.
States use two basic payment methodologies for institutional care: retrospective
and prospective. In a retrospective system, payment amounts are determined after
services are rendered and are based on the actual costs incurred by the provider in
furnishing those services. In a fully prospective system, payment amounts are
determined in advance. The provider receives a specified rate for each defined unit
of service, such as a day of care or a total hospital stay, regardless of whether the
provider's actual costs are more or less than that rate. States are increasingly
shifting towards prospective systems for both hospital and nursing facility care.
For services of physicians or other individual practitioners, payment amounts
are usually the lesser of the provider's actual charge for the service and a maximum
allowable charge established by the State. In setting these maximums, some States
use methods comparable to those used by Medicare in establishing reasonable charges
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for physician services. Other States have developed fixed fee schedules, specifying a
flat maximum payment amount for each type of service; the maximum may be
unrelated to actual provider charges.
Alternative Delivery Systems
States are permitted to develop alternative ways of providing Medicaid benefits,
through a variety of structured systems. Use of some of these alternatives is wholly
at the State's option; others require waivers of Federal requirements approved by the
Secretary.
First, States may contract with health maintenance organizations (HMOs), or
other prepaid health plans for the enrollment of Medicaid beneficiaries. For each
beneficiary enrolled in a plan, the State issues a fixed monthly premium payment,
out of which the plan provides all covered services.
Second, States may obtain waivers to restrict the providers from whom
beneficiaries may obtain services. Some States have used this option, established by
Section 2175 of the Omnibus Budget Reconciliation Act of 1981 (P.L. 97-35, OBRA
81), to enter into selective contracting arrangements. The State may, for example,
choose participating hospitals through a system of competitive negotiation. The more
common use of the 2175 waiver authority is to establish primary care case
management programs. Beneficiaries are required to select a single primary care
provider. Except in an emergency, care from other providers must be authorized by
the primary care physician.
Finally, States may obtain waivers, authorized by Section 2176 of OBRA 81, to
provide home and community-based services to persons who would otherwise require
continuing care in hospitals or nursing homes. The waivers allow the State to
design a comprehensive package of medical and social services to allow a target
population, such as the frail elderly or the mentally retarded, to remain in the
community.
FY1991 Budget
Federal Medicaid outlays for FY1989 were $34.8 billion. The Administration
projects that under current law, Federal outlays will reach $40.2 billion in FY1990,
and $45.0 billion in FY1991. President Bush's FY1991 budget includes two
legislative proposals. One proposal is intended to increase the use of managed care
in the Medicaid program at a cost of $25 million in FY1991. The other would have
users pay the costs of Medicaid survey and certification activities. This new activity
is expected to reduce Federal Medicaid costs by $113.5 million in FY1991.
Current law permits States to enter into risk contracts with health maintenance
organizations (HMOs), or other prepaid entities. Under a full risk contract, the
organization agrees to make available the set of Medicaid covered services to an
individual beneficiary in return for a fixed monthly premium payment issued by the
State Medicaid program. Enrolled beneficiaries may obtain services covered by the
contract only from providers affiliated with the contractor. If the beneficiaries use
more, or more costly, services than anticipated, the organization may suffer a loss.
If enrollees use fewer services than anticipated, the organization may realize a profit.
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The risk arrangement is intended to give the organization a financial incentive to
provide appropriate services efficiently. States are also permitted to enter into
contracting arrangements known as primary care case management programs. These
programs restrict the providers from whom beneficiaries may obtain services. The
primary care physician/case manager (who is not at financial risk) controls the
overall care of the patient. Patients assigned to the manager must obtain all covered
services from or with the authorization of the manager, except in emergencies.
Under the Administration's proposal to extend the use of managed care, States
would receive financial incentives to increase managed care enrollment. Beginning
in FY1991, States would receive a 3 percentage point bonus over their normal
matching rate for expenditures made on behalf of beneficiaries newly enrolled into
full risk HMO-type managed care plans. Beginning in FY1993, the 3 percentage
point bonus would be available for beneficiaries who were already enrolled in
managed care plans. Also beginning in FY1993, the matching rate paid to States for
expenditures under traditional fee-for-service systems would be reduced to offset the
cost of the higher matching rates paid for managed care. Reductions could be as
high as 1 percentage point in FY1993, 2 percentage points in FY1994, and 3
percentage points in FY1995 and beyond. Reductions would not apply to payments
made on behalf of beneficiaries living in rural or underserved areas, pregnant women
and infants, or individuals in nursing facilities. Nor would penalties be assessed for
beneficiaries restricted to nonrisk managed care arrangements.
Currently, States cannot require recipients to enroll in a managed care system
unless they apply for waivers of requirements. The Administration's proposal would
allow States the option of implementing mandated managed care programs without
having to apply for waivers. Finally, the proposal would relax certain requirements
for HMO participation in Medicaid programs. The Administration's FY1991 budget
adds $25 million for the managed care initiative to the $45.0 billion Medicaid outlay
projected at current law levels.
The Administration's position is that managed care arrangements ensure access
to primary care, continuity of care and coordination of special services, and contain
costs as care is delivered efficiently and appropriately. However, some say providers
under risk contracts may have incentives to reduce costs by underserving enrollees;
they maintain that States will need to exercise care in provider selection, set
performance standards, and implement monitoring and evaluation procedures to
assure that access and quality of care are not compromised.
Nursing facilities and certain suppliers participating in the Medicaid (or
Medicare) program are subject to at least annual survey and certification procedures.
States are responsible for conducting inspections to determine whether providers can
be certified as meeting the standards and conditions for Medicaid participation. The
Federal matching rate to States for survey and certification activities is 75%. The
Administration's FY1991 budget includes a proposal to create a HCFA Survey and
Certification Revolving Fund. The fund would finance Medicaid survey and
certification activities through annual fees assessed on providers and suppliers
requesting certification. Fees deposited into the revolving fund account would be
available to pay all Medicaid survey and certification activities and associated HCFA
administrative expenses. This change would make survey and certification activities
self-supporting in conformance with the precedence set by the Clinical Laboratory
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Improvement Amendments of 1988. The Administration estimates that
implementation of the revolving fund will reduce Federal Medicaid expenditures by
$113.5 million in FY1991. Critics question whether any savings would be as high as
the Administration estimates. As allowable costs, user fees would be reimbursable
by Medicaid. In addition, to cover the increased expense, some payers may increase
rates to all payers.
Maternal and Child Health
The last three Congresses have gradually expanded both mandatory and optional
Medicaid coverage for pregnant women and children. At least two major factors have
contributed to congressional interest in Medicaid expansion. The first is growing
concern over the incidence of infant mortality and other unfavorable outcomes of
pregnancy. The United States had an infant mortality rate in 1987 of 10.1 deaths
per thousand live births, higher than that of many other major industrial nations.
Rates are higher for minorities and residents of inner cities. Beyond the children
who die, there are many more low birth-weight infants and others with preventable
problems that are costly to treat and that can result in lifelong disabilities. There
is evidence that access to prenatal and well baby care is an important factor in these
outcomes.
A second source of interest in Medicaid expansion has been the growth in the
number of Americans without health insurance coverage. The proportion of the
population without insurance has been going up in this decade, from about 14.6% of
the nonelderly in 1979 to 17.5% in 1986. In that year, 37 million persons lacked
coverage; of these, 12 million were children under age 18. More than half of these
children were in families with incomes below the Federal poverty level. In 1987,
Medicaid covered only 53% of children in poverty. Many poor children were excluded
because Medicaid maximum income standards in most States were well below the
poverty level, while others were excluded on categorical grounds, such as restrictions
on enrollment of two-parent families with an employed parent. Recent changes in
Medicaid eligibility standards, both financial and categorical, are often spoken of as
having severed the traditional link between Medicaid and the welfare programs.
These changes are only beginning to be implemented, and their impact cannot yet be
measured.
Other proposals considered in the 101st Congress provide for broader
expansions affecting other Federal programs as well as Medicaid. H.R. 3299 as
originally passed by the House would have expanded coverage beyond the measures
enacted by P.L. 101-239. Medicaid expansion is facing increasing opposition from
State governments. The National Governors' Association has called for a 2-year
moratorium on Medicaid expansion, arguing that past expansions have strained State
budgets and detracted from other priorities, such as education.
Eligibility for Pregnant Women and Children
Proposals in the 101st Congress would raise the optional or mandatory
maximum income standards for pregnant women and children and would also address
other potential barriers to Medicaid coverage for these groups, such as limits on
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allowable assets, delays in the application and eligibility determination process, and
discontinuous eligibility. OBRA 89 (P.L. 101-239), raises the mandatory maximum
income standards for pregnant women and children and also provides for potential
increases in the numbers of health care providers available to these groups.
Income Standards
Pregnant women and infants. Before the enactment of P.L. 101-239, States
were required to cover pregnant women and infants under 1 year old with family
incomes up to 100% of the Federal poverty level by July 1, 1990. P.L. 101-239
requires States to cover pregnant women and children up to age six in families with
incomes up to 133% of the Federal poverty level beginning Apr. 1, 1990. States
may, at their option, establish a higher maximum income standard for pregnant
women and infants, up to 185% of the Federal poverty level. H.R. 3931 and S. 2198
would phase in mandatory coverage of pregnant women and infants up to 185% of
the poverty level by July 1, 1993. A similar provision was included in H.R. 3299 as
originally passed by the House.
Children over 1 year old. States have the option of providing Medicaid to
children aged 1 through 7 who were born after Sept 30, 1983, and whose family
incomes meet a State-established standard no higher than 100% of the Federal
poverty level. H.R. 3932 would permit States to extend Medicaid to children up to
age 6 with family incomes below 185% of the poverty level, beginning Jan. 1, 1991.
S. 2198 would allow States to cover children up to age 6 with incomes below 185%
of the poverty level beginning July 1, 1991. H.R. 3932 would mandate coverage of
children to age 18 and born after Sept 30, 1983, with incomes up to 100% of the
poverty level. H.R. 3299 as passed by the House, included a similar provision. S.
2198 would mandate coverage of such children up to age 19. H.R. 3932 would
required Section 209(b) States, those that do not automatically provide Medicaid to
all recipients of SSI benefits, to cover all children under age 18 who are SSI-eligible.
H.R. 3299 as passed by the House, included a similar provision. H.R. 3932 would
allow States to cover foster children and children in group homes or private
institutions to age 18 with incomes below 100% of the poverty level. H.R. 3299, as
passed by the House, would also have covered foster children.
One alternative that has been offered to expansion of Medicaid as an
entitlement is a Medicaid "buy-in" program, under which individuals or families
whose incomes exceed Medicaid eligibility levels could obtain coverage by paying a
premium. To make the coverage affordable, the premium might be set below the
actual cost of coverage, with the difference made up through a public subsidy.
President Bush advanced this idea in the 1988 campaign, but the Administration has
not offered a concrete buy-in proposal. P.L. 101-239 provides for three-year
demonstration projects to study the effect of allowing States to extend coverage to
pregnant women and children under age 20 who are not otherwise eligible for
Medicaid and whose family incomes are below 185% of the poverty line. The
Secretary of DHHS may enter into agreements with several States to test
alternatives for Medicaid extension which could be enrollment under an employer
plan, a State uninsured plan, an HMO or other arrangement. Individuals or families
with incomes over 100% of the poverty level must be charged premiums according to
a sliding scale. Federal funding for these projects is limited to $10 million for each
of the fiscal years 1990, 1991, and 1992.
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Other Eligibility Standards
In establishing Medicaid eligibility for pregnant women and children, a State
must determine income using the same methodology used in the State's AFDC
program. States have the option of applying a resource standard (a limit on
allowable family assets), but are not required to do so. H.R. 3931 and S. 2198 would
forbid the use of a resource standard for mandatory coverage groups of pregnant
women and children. In calculations of income, both bills would disregard child-care
costs necessary for the employment of the pregnant woman or the infant's caretaker.
Presumptive Eligibility
To insure early access to prenatal care, States have the option of establishing
"presumptive eligibility" for low-income pregnant women. Qualified providers such
as Federally funded clinics, may make a preliminary determination that a pregnant
woman seeking treatment is potentially eligible for Medicaid. The woman may then
receive ambulatory prenatal care for up to 45 days, or until the State completes an
eligibility review, whichever is earlier. Even if the woman is ultimately found to be
ineligible, the provider may be reimbursed for services furnished during the
presumptive eligibility period. However, if the woman fails to apply for Medicaid
within 14 days, presumptive eligibility ceases. As of January 1989, 20 States
provided for a presumptive eligibility period. H.R. 3931 and S. 2198 would eliminate
the 45-day limit and extend the time to apply for Medicaid to the last day of the
month following the month during which the preliminary determination was made;
eligibility would continue until the State had completed its review of the Medicaid
application. S. 1201 would also provide 45 days of coverage even if the woman never
applied for Medicaid. As passed by the House, H.R. 3299 would have left
presumptive eligibility optional, but would have continued eligibility until the
completion of State review. H.R. 2216/S. 902 would mandate presumptive eligibility
and would extend eligibility for 60 days even if the woman is determined ineligible
before that date. S. 440 and S. 949 would allow States to establish presumptive
eligibility for children, through age 17 under S. 440 and through age 20 under S.
949.
Other Medicaid Child Health Proposals
Although congressional interest has centered on financial eligibility for medical
care, there have been concerns that mere extension of Medicaid coverage may not
ensure that all mothers and children will receive appropriate services. Low-income
people may face other barriers to access. First, not all providers of care will accept
Medicaid reimbursement, largely because of low Medicaid payment rates. Second,
some low-income mothers may be unaware of the availability of Medicaid benefits or
may need help in applying for them. Third, some women may need special services
to keep appointments and reduce risks of poor outcomes. Provisions of OBRA 89
(P.L. 101-239) and proposals in the 101st Congress address these issues.
Medicaid Provider Participation
Low rates of provider participation, and especially physician participation, have
been a historic problem under Medicaid. Surveys of physicians have generally found
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that low Medicaid reimbursement, relative to the physicians' usual charges, is an
important factor in the decision to refuse Medicaid patients.
Federal regulations require that a State's Medicaid payment rates "must be
sufficient to enlist enough providers so that services under the [State Medicaid] plan
are available to recipients at least to the extent that those services are available to
the general public." (42 CFR 447.204.) P.L. 101-239 incorporates this rule in the
Medicaid statute, requires DHHS to determine the adequacy of States' payment rates
for obstetrical and/or pediatric services, and permits States to pay more for
obstetrical and pediatric services furnished in rural areas than for services furnished
in metropolitan areas.
P.L. 101-239 requires States to include in their Medicaid benefit packages
ambulatory services provided in federally qualified health centers and to pay these
providers 100% of their reasonable costs. In addition, the Act requires States to pay
for the services of certified pediatric and family nurse practitioners regardless of
whether they are under the supervision of or associated with a physician or other
provider.
Some proposals would expand current provisions under which States are
required to give special treatment to hospitals serving a disproportionate share of
low-income patients. Currently, States must provide increased payment rates to such
hospitals for all inpatient services, make extra payments for infants with very long
stays or high costs and must waive any durational limits on covered services for
infants. H.R. 3932 and S. 2198 would extend these provisions to all children under
age 18. H.R. 3299 as passed by the House contained a similar provision.
Application Assistance and Home Visiting
Some mothers may find the Medicaid application process difficult, or may lack
the transportation or child care necessary to get to benefits or services. Others may
be unaware of the importance of prenatal and well baby care, or may need special
counseling to reduce risks for themselves and their infants. Current proposals
address these concerns. S. 2198 would require States to provide for receipt of
applications at locations other than welfare offices, such as hospitals or clinics. S.
2198 and H.R. 3931 would give States the option of covering home visitation services,
as prescribed by a physician, to high-risk pregnant and postpartum women and to
infants under age one.
Maternal and Child Health Block Grant
The Maternal and Child Health (MCH) Block Grant program, authorized by
Title V of the Social Security Act, provides grants to States for a variety of health
programs, including direct provision of preventive and primary care services to
mothers and children, health screening, immunizations, and rehabilitation services
for children with special health care needs (formerly referred to as crippled children).
The appropriation for FY1990 is $561 million. Of this amount, $470,582,950
(approximately 84%) is available for block grants. The rest is available for grants
under the special projects of regional and national significance (SPRANS) set-aside
authority. The Administration budget for FY1991 requests a total of $579 million
which includes $554 million for the MCH Block Grant Program and an additional
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$25 million for a "one-stop shopping" program to be administered in conjunction with
the block grant.
P.L. 101-239, the Omnibus Budget Reconciliation Act of 1989, substantially
revamped the MCH program. The bill increased the permanent authorization from
$561 million to $686 million and authorized an additional 12-3/4% set-aside whenever
the amount appropriated for the fiscal year is over $600 million. The new Federal
set-aside would be used for several initiatives including case management provided
in the home by either professional or qualified nonprofessional workers; projects
designed to increase the participation of obstetricians and pediatricians in both the
MCH and the Medicaid programs; integrated delivery systems; rural or hospital-based
MCH projects; and community-based programs including day care for children who
usually receive services through inpatient care.
P.L. 101-239 requires that both the Secretary and the States set goals and carry
out activities consistent with the goals and objectives established under the Public
Health Service Act for the year 2000. The bill also tightens controls on the use of
funds allotted to States while increasing the services States may provide.
To receive an MCH grant, States have to submit an application containing a
statewide needs assessment, a plan for meeting the needs identified in the assessment
and a description of how MCH grant funds would be used to meet the needs. States
are required to use at least 30% of the funds for preventive and primary care
services for pregnant women, mothers and infants up to age 1, 30% for services to
children and 30% for services for children with special needs. Funds for
administrative expenses are limited to 10% of the allotment. P.L. 101-239 also
requires States to comply with new detailed reporting requirements related to the use
of funds and the extent to which the State has met its goals and objectives and the
national health objectives.
LEGISLATION
P.L. 101-239, H.R. 3299 (Panetta)
Omnibus Budget Reconciliation Act of 1989. Clean bill reported by the House
Budget Committee Sept. 20, 1989. Passed House with amendments, Oct. 5, 1989.
Passed Senate with amendments Oct. 13, 1989. Conference report filed in House,
Nov. 21, 1989. Both House and Senate agreed to conference report Nov. 22, 1989.
Mandates Medicaid expansion for pregnant women and children up to age 6 with
family incomes up to 133% of poverty level by Apr. 1, 1990. Codifies current
regulatory requirement that payments must be sufficient to enlist enough providers
so that covered services will be available to Medicaid beneficiaries to at least the
extent they are available to the general population in a particular area. Requires
State Medicaid programs to cover services of certified pediatric or family nurse
practitioners and ambulatory services in federally qualified health centers. Requires
State Medicaid plans to provide for coordination between Medicaid and WIC
programs. In the Maternal and Child Health Block Grant, P.L. 101-239 increases
authorization of appropriations to $686 million per year; adds a new 12 3/4% set-
aside to support infant mortality initiatives and community-based services for
children; provides for demonstration projects to cover uninsurable children; and
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requires both DHHS and States to set goals consistent with health objectives for the
year 2000.
H.R. 3931 (Collins)
Medicaid Infant Mortality Amendments of 1990. Introduced Feb. 1, 1990;
referred to Committee on Energy and Commerce. Mandates phased-in coverage of
pregnant women and infants up to 185% of poverty; prohibits application of resource
standard for this group and disregards child care costs in income calculations. For
presumptive eligibility, removes 45-day limit and extends application period. Permits
States to cover home visitation services for high-risk pregnant and postpartum
women and infants.
H.R. 3932 (Slattery)
Medicaid Child Health Amendments of 1990. Introduced Feb. 1, 1990; referred
to Committee on Energy and Commerce. Mandates phased-in coverage of individuals
under age 18 with family incomes under 100% of poverty. Permits coverage of
children up to age 6 with incomes under 185% of poverty. Requires increased
payments to disproportionate share hospitals for services to children up to age 18.
Requires States to provide Medicaid to disabled children who are SSI-eligible.
Permits States to provide Medicaid for foster children up to 100% of poverty.
S. 2198 (Bradley)
Infant Mortality Amendments of 1990. Introduced Feb. 28, 1990; referred to
Committee on Finance. Mandates phased-in coverage of pregnant women and infants
up to 185% of poverty; prohibits application of resource standard for this group and
disregards child care costs in income calculations. Permits coverage of children up
to age 6 with incomes under 185% of poverty. Provides for phased-in mandatory
coverage of children through age 18 with incomes up to 100% of poverty. For
presumptive eligibility, removes 45-day limit and extends application period. Requires
increased payments to disproportionate share hospitals for services to children up to
age 18. Permits States to cover home visitation services for high-risk pregnant and
postpartum women and infants.
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
U.S. Congress. House. Committees on Education and Labor, and Energy and
Commerce, and the Senate Special Committee on Aging. Insuring the
uninsured: options and analysis. Oct. 1988. Education and Labor Serial No.
100-DD. Energy and Commerce Serial No. 100-BB. Special Committee on Aging
Serial No. 100-O. 212 p.
U.S. Congress. House. Committee on Energy and Commerce. Subcommittee on
Health and Environment. Medicaid Source Book: Background Data and
Analysis. November 1988. House Energy and Commerce Committee Print
100-AA. 501 p.
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IP067M
Old Age, Disability Fund
A&S
Washington Post, May 7, 1988, p. A7
Gets Clean Bill of Health
By Spencer Rich
the hospital insurance trust fund,"
Washington Post Staff Writer
Secretary of Health and Human
Services Otis R. Bowen said in a
The Social Security old age and
statement, the report calculates
disability system remains in good
that "either benefits would have to
shape for at least the next six dec-
be reduced 14 percent or Medicare
ades, while the Medicare hospital
contributions increased 16 per-
trust fund is in better shape than
cent."
projected a year ago because of ef-
The report warned that because
forts to hold down outlays, the So-
the baby-boom generation will be-
cial Security system trustees said
gin retiring in the first quarter of
yesterday.
the next century, Medicare long-
: Although Medicare is still in deep
term burdens could be increased
trouble because of rising health-
further and that the trust fund faces
care costs, the trustees said that it
huge deficits in the long term.
should have enough money to keep
The report said the doctor-insur-
going 17 years, three years longer
ance part of Medicare (Part B),
than estimated last year.
which is not a true trust fund and
The old age and disability fund is
in much better shape than Medicare
because of steps taken to revise the
system in 1983. Without additional
The old age and
changes, that fund should avoid
bankruptcy through at least 2048,
disability fund
the trustees said.
: Of the 7.51 percent Social Secu-
should avoid
rity payroll tax, levied on the first
$45,000 of annual wages, 6.06 per-
bankruptcy through
centage points go to old age and
disability pensions, and 1.45 per-
at least 2048, the
centage points to Medicare hospital
payments. Employers pay a like
trustees said.
amount for each worker.
For years, the Medicare hospital
trust fund has been projected to go
which is financed three-quarters
broke within a relatively short time
from Treasury general revenue
because of rises in health-care costs
rather than from the Medicare por-
Congressional Research Service with permission of copyright claimant.
© 1988 The Washington Post Company. Reproduced by the Library of Congress,
throughout the economy-not just
tion of the Social Security tax, also
in Medicare-far exceeding the
faces large increases in costs.
general rate of inflation. That fore-
The report said the Social Secu-
cast is not essentialy changed in the
rity old age and disability system is
latest report on the financial sound-
in much better shape than Medicare
ness of the system.
because of the 1983 financial res-
But steps to hold down outlays
cue package that Congress and the
under the Medicare hospital pro-
president put together.
gram taken in recent years, plus
Under the "intermediate scenar-
general economic recovery, have
io," the combined old age and dis-
somewhat improved the day of
ability trust fund reserves are ex-
reckoning, yesterday's report indi-
pected to build up enormously in
cated.
the next few decades to a level five
: Under the "intermedi eco-
times as high as needed to pay a
nomic and demographic forecasts
year's benefits by 2010 to 2020.
by the system's actuaries-the one
But then as the baby-boom gen-
considered most likely to occur-
eration retires, the fund will decline
the trustees said the hospital trust
rapidly and become insolvent by
fund should remain in sound finan-
2048 unless economic and demo-
cial shape until 2005, three years
graphic conditions prove better
longer than estimated last year.
than projected or Social Security
Under a somewhat more pessi-
taxes are increased somewhat.
mistic set of assumptions, it could
Under a more pessimistic scenar-
go belly-up by 1999, the trustees
io, the combined trust funds would
said. Under the most optimistic sce-
face insolvency in 2026.
nario, it could last until 2044 with
The system's trustees are the
no changes in financing.
secretaries of HHS, Labor and the
"In order to produce long-term
Treasury, plus several public mem-
solvency over the next 25 years for
bers.
Order Code IB89116
CRS Issue Brief
Medicare: Physician Fee Schedule
Updated May 7, 1990
by
Jennifer O'Sullivan
Education and Public Welfare Division
CRS
Congressional Research Service
The Library of Congress
CONTENTS
SUMMARY
ISSUE DEFINITION
BACKGROUND AND ANALYSIS
Current Payment Rules
Current System Issues
Initial Development of Relative Value Scale (RVS)
OBRA 1989
Overview
Fee Schedule
Medicare Volume Performance Standard Rates of Increase
Limitation on Beneficiary Liability
Other Provisions
OBRA 1989 Implementation
Potential Impact
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
FOR ADDITIONAL READING
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Medicare: Physician Fee Schedule
SUMMARY
Medicare is a nationwide health insurance program for 31 million aged and 3
million disabled persons. The program consists of two parts. Part A, the Hospital
Insurance program, provides protection against the costs of inpatient hospital and
related services. Part B, the Supplementary Medical Insurance program, provides
protection against the costs of physicians' and other medical services. Medicare
spending for physician services is estimated at $30 billion in FY1990. Between
FY1984 and FY1990, Medicare spending for physicians' services increased at an
average annual rate of 12%. About 40% of the increase is attributable to increases
in the price per unit of service, 15% to the increase in the number of beneficiaries,
and 45% to increases in the volume and intensity of services.
From 1984-87 Congress, as part of the budget reconciliation process, approved
a number of amendments to Medicare's physician payment provisions which were
designed to stem these expenditure increases. Despite these legislative changes,
Medicare's basic payment system remained relatively unchanged. Payments have been
made, subject to certain limitations, for each service rendered. Many analysts have
suggested that both the individual prices and the unit of payment (i.e., the individual
service) are inflationary and permit certain price distortions. Some believe that these
imbalances have created financial incentives that inappropriately influence physicians'
decisions about what services to provide, location of their practices, and specialty
choice.
On Dec. 19, 1989, the President signed into law P.L. 101-239, the Omnibus
Budget Reconciliation Act of 1989 (OBRA 1989). This measure provides for the
establishment of a new payment system for physicians services paid for by Medicare.
Payments are to be made under a fee schedule based on a relative value scale (RVS).
An RVS is a method of valuing individual services in relationship to each other.
Implementation of an RVS system alone would not result in a decrease in the volume
of services. Thus, the legislation also provides for the establishment of annual
volume performance standards which are target rates of increase in physician
expenditures. The relationship of actual expenditures to the volume performance
standards is one factor that will be considered by the Congress in determining the
annual update for the fee schedule.
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ISSUE DEFINITION
Between FY1984 and FY1990, Medicare spending for physicians' services
increased at an average annual rate of 12%. Spending for such services is estimated
to exceed $30 billion in FY1990. About 40% of the increase is attributable to
increases in the price per unit of service, 15% to the increase in the number of
beneficiaries, and 45% to increases in the volume and intensity of services. From
1984-1987, Congress, as part of the budget reconciliation process, approved a number
of amendments to Medicare's physician payment rules which were designed to stem
these expenditure increases. Despite these changes, Medicare's basic payment system
remained relatively unchanged.
On Dec. 19, 1989, the President signed into law P.L. 101-239, the Omnibus
Budget Reconciliation Act of 1989 (OBRA 1989). This measure provides for the
establishment of a new payment system for physicians services paid for by Medicare.
Payments are to be made under a fee schedule based on a resource-based relative
value scale (RBRVS). The legislation provides for the establishment of annual
volume performance standards. The relationship of actual expenditures to the volume
performance standards is one factor which will be considered by the Congress in
determining the annual update for the fee schedule.
BACKGROUND AND ANALYSIS
Current Payment Rules
Medicare pays for physicians services on the basis of reasonable charges. A
reasonable charge for a service cannot exceed (1) the physician's actual charge for
the service; (2) the physician's customary charge for the service; or (3) the
prevailing charge for the service in the locality. (There are approximately 240
prevailing charge localities nationwide.) Medicare generally pays 80% of the
reasonable charge after the beneficiary has met the $75 deductible. The beneficiary
is responsible for the remaining 20%, known as the coinsurance.
Customary and prevailing charge fee screens (i.e., benchmarks against which
individual charges are compared) are updated annually. The increase in the
prevailing charge screen is subject to a limitation known as the Medicare Economic
Index (MEI). The MEI is a limit on the cumulative changes in prevailing charges
since 1973. Prior to 1984 (when fees were temporarily frozen) the MEI was based
on changes in operating expenses of physicians and in earnings levels. Recently,
Congress has specified the allowable increases in the MEI. Congress has also placed
limits on prevailing charges for certain "overpriced procedures" such as cataract
surgery.
Medicare payments are made directly to the physician or the patient, depending
on whether the physician has accepted assignment for the claim. In the case of
assigned claims, the physician bills the program directly and is paid an amount equal
to 80% of the reasonable charge (less any deductible where applicable). The patient
is liable for the 20% coinsurance. The physician may not charge the beneficiary more
than the applicable deductible and coinsurance amounts. In the case of nonassigned
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claims, Medicare payment is made to the beneficiary. The beneficiary pays the
physician's bill. In addition to the deductible and coinsurance amounts, the
beneficiary is liable for the difference between the physicians's actual charge and
Medicare's approved charge; this is known as the balance billed amount.
A physician may become a participating physician. A participating physician
is one who voluntarily enters an agreement with the Secretary of the Department of
Health and Human Services (DHHS) to accept assignment on all claims for the
forthcoming year. The law includes a number of incentives to encourage physicians
to participate. For example, the difference between the MEI-adjusted prevailing
charges for participating and nonparticipating physicians is 5%.
The program specifies a limit on actual charges of nonparticipating physicians.
This is referred to as the maximum allowable actual charge or MAAC.
Nonparticipating physicians whose actual charge for a service in the preceding year
equals or exceeds 115% of the current year's prevailing charge, may increase their
actual charges by no more than one percent. Nonparticipating physicians whose
actual charge for the preceding year is below 115% of the current year's prevailing
charge may increase their actual charges over a 4-year period (1987 - 1990), such that
in 1990 their MAAC for the service equals 115% of the 1990 prevailing charge.
In 1988, 76.3% of claims (representing 79.4% of charges) were paid on an
assigned basis. In 1989, 40.7% of physicians have signed participation agreements,
which will account for over 60% of covered charges.
Medicare is administered by the Health Care Financing Administration (HCFA)
within DHHS. The day-to-day functions of reviewing Part B claims and paying
benefits are performed by entities known as carriers; these are generally Blue Shield
plans or commercial insurance companies. Carriers are also responsible for
delineating prevailing charge localities.
Current System Issues
From 1984-87 Congress, as part of the budget reconciliation process, approved
a number of amendments to Medicare's physician payment provisions. These included
placing a temporary freeze on and subsequently limiting allowable increases in
physician payment rates, establishing the participating physician program, limiting
balance billing charges on unassigned claims, and placing limits on prevailing charges
for specified "overpriced procedures." Taken together these provisions were intended
to achieve two main purposes: (1) stemming the annual increases in Medicare
payments; and (2) protecting beneficiaries from a substantial increase in liability on
nonassigned claims which might result if physicians balance billed for all charges not
paid by Medicare. Congress also established a Physician Payment Review Commission
(PPRC) to advise it on reforms of the methods used to pay physicians for services to
Medicare beneficiaries.
Despite legislative changes, Medicare's basic payment system remained relatively
unchanged. Payments have been made, subject to certain limitations, for each service
rendered. Many analysts have suggested that both individual prices and the unit
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of payment (i.e., the individual service) are inflationary and permit certain price
distortions. With respect to the pricing system itself, analysts have cited the wide
variations that exist by geographic region in physicians fees; they also note that
while there is no uniform policy, physicians in different specialties may receive
different payments for the same service. The system has also been criticized for the
fact that while a high price may initially be justified for a new procedure, prices do
not generally decline over time even when the procedure becomes part of the usual
pattern of care. Further, it has been suggested that the differentials between
recognized charges for physicians visits and similar services versus those for surgical
and procedural services may be in excess of those justified by the resources used.
Increases in the price per service is only one component of overall price
increases. The other major component is increases in volume. This service growth
may reflect a number of factors. It can represent a greater intensity of care provided
per enrollee, i.e., using a greater number of services and/or using more costly
treatment modes. It may also reflect unbundling, i.e., billing separately for services
previously consolidated into a larger payment unit. Further, it may reflect upcoding,
i.e., describing a service by a procedure code with a higher allowable charge (e.g., a
"brief visit" may become an "intermediate visit"). While some increase in volume may
be appropriate, it has been argued that the current system provides no incentive to
use alternative less costly treatment patterns. Previous efforts to control Medicare
spending focused on controlling prices for individual services, not volume.
Initial Development of Relative Value Scale (RVS)
For several years, Congress and the Administration explored a number of options
for reforming the physician payment mechanism under Medicare. The approach
selected is that which bases physician payments on a relative value scale (RVS). An
RVS is intended to establish "fairer" relative prices for individual services, thereby
lessening the financial incentives that may inappropriately influence physician
decisions. A relative value scale is a method of valuing individual services in
relationship to each other. Each service is assigned an abstract index number or
weight. If one service has an assigned value of 1.2 and a second service has an
assigned value of 2.4, the second service is considered to have twice the value of the
first. An RVS scale is not a fee schedule. It is converted to fee schedule by use of
a "conversion factor" or multiplier. For example, if the conversion factor is $10, a
service with an RVS value of 2.4 would be priced at $24. The conversion factor is
selected so as to achieve a particular level of total physician spending.
Hsiao Report. In 1986, legislation was enacted that required the Secretary,
with the advice of the newly established PPRC to develop a RVS. As the first step,
HHS entered into a cooperative agreement with the Harvard School of Public Health
to develop a resource-based RVS (RBRVS). William Hsiao was the principle
investigator, and the American Medical Association (AMA) was a subcontractor. With
the assistance of the AMA and 30 specialty societies, 100 physicians were appointed
to technical consulting groups. The "Hsiao report," representing Phase I of the
study, was released in September 1988.
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1989 PPRC Report. The 1989 PPRC report contained a package of
recommended physician payment reforms. The first key recommendation was for the
establishment of a Medicare fee schedule based on an RVS. The recommendations for
an RVS built on those contained in the Hsiao report, though a number of
modifications were suggested. The PPRC shared the concern of others, including
the Administration, that the use of an RVS approach by itself would not control
physician expenditures. This is because an RVS alone does not include limitations
on the volume of services. PPRC therefore recommended use of a national
expenditure target (ET). If total physician expenditures in a year exceeded the ET,
a reduction would be made in the conversion factor in the subsequent year. The
PPRC plan also included several additional policies to slow increases in expenditures.
These included increased Federal support for building knowledge of effectiveness and
appropriateness of medical practices and development and dissemination of practice
guidelines.
Development of OBRA 1989 Provisions. Many groups supported the basic
outlines of the RVS portion of the PPRC proposal. However, a number of conceptual
and methodological issues were raised regarding the actual construct of the fee
schedule. For example, one concern was the appropriate way to reflect in the fee
schedule geographic variations in practice costs. However, the most controversial
aspect of the PPRC proposal was that calling for an expenditure target. As noted,
PPRC viewed the target as a means to control overall expenditures. It was
characterized as a means of encouraging the physician community to respond with
practice guidelines and other mechanisms to encourage appropriate delivery patterns.
Further, proponents of the ET approach stated an overall Medicare spending limit
was needed given the uncertainty surrounding what changes in volume and mix of
services might occur with implementation of an RVS. Opponents of the expenditure
target approach saw it solely as a means of limiting Medicare expenditures. They
suggested that a target level set in this fashion might not fully cover those costs
that they feel are reasonable and necessary to meet the elderly's health care needs.
Some contended that physicians might respond to these economic incentives by
rationing care, i.e., by limiting, postponing, or restricting access to care. OBRA 1989
provides for use of volume performance standards rather than expenditure targets.
OBRA 1989
Overview
On Dec. 19, 1989, the President signed into law P.L. 101-239, the Omnibus
Budget Reconciliation Act of 1989 (OBRA 1989). This measure provides for the
establishment of a new payment system for physicians' services paid for by Medicare.
Payments are to be made under a fee schedule. The schedule will apply to all
physicians service including diagnostic tests and X-ray services furnished in
connection with physicians services. It will not apply to clinical diagnostic laboratory
tests and other items and services the Secretary may chose to exclude.
The legislation also provides for the establishment of annual volume performance
standards. The relationship of actual expenditures to the volume performance
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standards is one factor which will be considered by Congress in determining the
annual update for the fee schedule.
Fee Schedule. The fee schedule amount for a service is equal to the product
of: (1) the relative value for the service; (2) the conversion factor for the year; and
(3) the geographic adjustment factor for the service for the fee schedule area. The
relative value for a procedure is made up of three components: a work component,
practice expense component and a malpractice component. The proportions that each
component consists of the total relative value varies by service based on a weighted-
average of specialty specific practice expense and malpractice data. The conversion
factor is expected to be set by the Congress. (See update discussion below.)
The geographic adjustment factor is intended to account for cost differentials in
various areas. Geographic adjustments are to be made to the practice expense and
malpractice components and 1/4 of the work component. Together the practice
expense and malpractice components represent about 46% of the average fee while
the work component represents about 54%. Thus, about 60% of the fee will be
adjusted. Current prevailing charge localities are retained; they are the basis for the
adjustment.
Medicare payments will equal 80% of the fee schedule amount with beneficiaries
responsible for the 20% coinsurance. The fee schedule amount for nonparticipating
physicians equals 95% of such amount for participating physicians. A 10% bonus is
added to payments for services provided in health manpower shortage areas.
Phase-In. The fee schedule is phased in over the 1992-96 period. Prior to this
time, certain transition policies are implemented. Payments are reduced for certain
services, so-called "overvalued procedures", which have been identified as being
overpriced. The list of overvalued procedures is substantially expanded in 1990. The
legislation also requires publication of a model fee schedule in 1990.
Limits on Beneficiary Liability. New limits on actual charges of non-
participating physicians are phased in beginning in 1991. For 1993 and subsequent
years the limiting charge is 115% of the recognized payment amount for non-
participating physicians for the year.
Volume Performance Standards/Update. Each year a volume performance
standard rate of growth is established for physicians services under Medicare;
services included in the standard are all physicians services, other items and services
commonly furnished in physicians offices such as clinical diagnostic laboratory tests,
or services commonly performed by physicians. The law specifies the factors that
must be included in the calculation of the standard for FY1990; these include
inflation, growth in the beneficiary population, historical changes in the volume and
intensity of services; and a performance standard. In subsequent years, the Secretary
is to recommend a standard to Congress, and the PPRC is to comment on such
recommendation. Generally, Congress is expected to specify the standard. In the
absence of congressional action, the default performance standard for FY1991 and
subsequent years is similar to the one established for FY1990.
Each year (beginning in 1991), the Secretary is required to recommend to
Congress, the update to the conversion factor that will apply for the following
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year. In making the recommendation, the Secretary is required to consider inflation,
growth in the beneficiary population, growth in actual expenditures in the previous
fiscal year compared to the performance standard for that year; and changes in
volume and intensity of services. PPRC is required to comment on the
recommendation. Congress is generally expected to specify the update. In the absence
of congressional action a uniform update is to be applied for all services. The update
is equal to the MEI increased or decreased by the percentage difference between the
increase in actual expenditures and the performance standard for the second
preceding fiscal year. However, the law specifies a lower limit on this default update.
The following sections provide a detailed explanation of the new law.
Fee Schedule
Establishment of Fee Schedule. The Secretary is required to establish a fee
schedule before January 1 of each year (beginning in 1992), which establishes
payment amounts for all physicians services furnished in all fee schedule areas for
the year. The fee schedule amount for a service is equal to the product of
(1) the relative value for the service; (2) the conversion factor for the year
and (3) the geographic adjustment factor for the service for the fee
schedule area.
Phase-In. The law provides for a transition to the fee schedule over the 1992-
1996 period. If the adjusted historical payment basis is less than 15% over or under
the fee schedule amount, payment is to be made on the basis of the fee schedule
beginning in 1992. The adjusted historical payment basis is defined as the weighted
average prevailing charge applied in the locality in 1991, adjusted to reflect payments
for services with customary charges below the prevailing charge or other payment
limitations. The historical payment basis is determined without regard to physician
specialty.
A transition is provided in the case of differences larger than 15% over or under
the fee schedule. In 1992, the adjusted historical payment basis amounts are
increased or decreased by 15% of the fee schedule amount, whichever is appropriate.
For 1993-95, payment is based on a blended amount. In 1993, 75% is based on the
previous year's amount adjusted by the update factor specified for the fee schedule
for that year and 25% is based on the fee schedule amount for the year. The
percentage attributable to the previous year's fee is reduced to 67% in 1994 and 50%
in 1995. All fees are paid on the basis of the fee schedule beginning in 1996.
Determination of Relative Values for Physicians Services. The relative
value for each service has three components:
Work Component: the portion of the resources used that reflects physician
time and intensity including activities before and after patient contact. For
surgical procedures the term is to reflect a global definition including pre-
and post-operative services.
Practice Expense Component: the portion of the resources used in
furnishing the service that reflects the general categories of practice
expenses, such as office rent and wages of personnel. The term includes all
expenses, excluding malpractice expenses, physician compensation, and
physician fringe benefits.
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Malpractice Component: the portion of resources used reflecting
malpractice expenses.
The Secretary is to develop a method for combining the relative values
determined for each component for each service in order to produce a single relative
value for the service. Where specific data are not available, the Secretary may use
extrapolation and other techniques to determine relative values. The Secretary is to
consider the recommendations of the PPRC and physician organizations when
determining relative values this way.
The Secretary is required to update the relative values at least every five years
to take into account changes in medical practice, coding changes, new data on relative
value components, or the addition of new procedures. The Secretary is to publish an
explanation of the basis for any adjustments. Any adjustments for a year may not
cause expenditures to differ by more than $20 million from what would otherwise
have been expended. The Secretary is required to consult with the PPRC and
physician organizations in making these adjustments.
Calculation of Relative Value Units for Components. The proportion that
the work, practice expense, and malpractice components represent of the total relative
value varies between services. These proportions are based on a weighted average of
specialty-specific practice expense and malpractice data. The weights reflect the
proportion of each procedure provided by each specialty to Medicare patients. The
following is an explanation of how this calculation is made.
The Secretary is required to determine the number of relative value units for
each component. The number of work relative value units is based on the relative
resources used reflecting physician time and intensity. The number of practice
expense relative value units is the product of:
the base allowed charges for the service (national average allowed charges
for the service in 1991), and
the practice expense percentage for the service.
Similarly, the number of malpractice value units is equal to the product of the base
allowed charges for the service and the malpractice percentage for the service.
The Secretary is required to determine a work percentage, a practice expense
percentage, and a malpractice percentage as follows.
First, determine the average percentage of each service or class of services
performed nationwide by physicians in each specialty.
Second, for each service or class of service, determine the average percentage
division of resources among each of the three components which are used
by physicians in each specialty. The percentages are to be based on national
data that describe the elements of physician practice costs and revenues by
physician specialty. Extrapolation may be used when adequate data are not
available.
Third, determine the work percentage for the service which is the sum (for
all physician specialties) of the average percentage for the work component
for each physician specialty multiplied by the proportion of such service (or
services) performed by physicians in that specialty. A similar calculation is
made for the practice expense percentage and the malpractice percentage.
These percentages may be recomputed from time to time.
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Specialties. The Secretary may not vary the number of relative value units or
the conversion factor for a service based on whether the physician furnishing the
service is a specialist or based on the type of specialty of the physician.
Radiology and Anesthesiology Services. The Secretary is required to base
relative values for radiology services on the relative value scale developed pursuant
to the OBRA 1987 fee schedule with appropriate modifications to assure that relative
values are consistent with those established for similar or related services. For
anesthesia services, the Secretary is to use, to the extent practicable, the relative
value guide required by OBRA 1987, with appropriate adjustment of the conversion
factor to assure that the fee schedule amount for anesthesia services are consistent
with fee schedule amounts for other comparable services. The Secretary is to adjust
the conversion factor by geographic adjustment factors in the same manner such
adjustments are made for other services. The Secretary is to consult with the PPRC
and physician organizations in making these calculations.
Coding. The Secretary is required to establish a uniform coding system for all
physicians. The Secretary is to provide for an appropriate coding structure for visits
and consultations. However, the use of time may not be incorporated in the coding
for such services until after Jan. 1, 1993. The Secretary is required to consult with
the PPRC and physician organizations in establishing the coding system.
Conversion Factor. As noted above, physician fees under the fee schedule
equal the product of the relative value for the service, the conversion factor, and the
geographic adjustment factor for the service for the area. The conversion factor for
each year is the previous year's conversion factor adjusted by the update for the
year involved. For purposes of 1992 only, the conversion factor used for the
calculation is that which if it had applied in 1991 would have been budget neutral.
During the last 15 days of October 1991, the Secretary is required to publish the
conversion factor and update for 1992. The Secretary is required to publish the
applicable update during the last 15 days of October in each succeeding year.
By April 15 each year (beginning in 1991), the Secretary is required to report
recommendations to the Congress on the appropriate update (or updates) in the
conversion factor (or factors) for all physicians services for the following year. The
Secretary may recommend a uniform update or different updates for different
categories or groups of services. The Secretary is required to consider the following
in making the recommendations:
the increase in the MEI for the year;
the percentage change in actual physician expenditures in the preceding
fiscal year;
this percentage change in expenditures compared to the volume performance
standard for the fiscal year;
changes in volume and intensity of services;
access to services; and
other factors that may contribute to changes in volume or access.
For the 1992 recommendation, the Secretary is required to make a separate
calculation for surgical services of the increase in expenditures and a comparison of
such increase to the volume performance standard.
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The Secretary may also consider unexpected changes by physicians in response
to implementation of the fee schedule, unexpected changes in outlay projections,
changes in quality or appropriateness of care and other relevant factors not reflected
in the resource-based payment methodology.
The Secretary's required annual update report is to include the update
recommended for each category of physicians services. A category of services is
defined as surgical services, all other physicians services other than surgical services,
and such other category or categories as the Secretary may from time to time define.
The report is also to include the recommended update for each of the following
groups of services: nonsurgical services, visits, consultations and emergency room
services. The report is also to include the rationale for the recommended update for
each of these categories and the underlying data and analyses for the
recommendations.
The Secretary is required to include in the annual update report a budget
neutral adjustment which is a statement of the percentage by which actual
expenditures in the previous fiscal year differed from projected expenditures.
Projected expenditures for that year are defined as the previous year's actual
expenditures (1) increased by the weighted average percentage increase permitted for
physicians services in the fiscal year, (2) adjusted to reflect population changes, (3)
adjusted to reflect volume and intensity changes over the five fiscal-year period
ending in the previous fiscal year, and (4) adjusted to reflect changes in laws or
regulations.
PPRC review and recommendations are required by May 15 each year.
Congress is generally expected to specify the update. In the absence of
Congressional action, a uniform default update is to be applied for all services.
This update is equal to the Secretary's estimate of the MEI increased or decreased
by the percentage difference between the increase in actual expenditures and the
volume performance standard for the second previous fiscal year. The law specifies
a lower limit on this default update. It is the MEI minus 2 percentage points in
1992 and 1993, MEI minus 2 1/2 percentage points in 1994 and 1995, and MEI minus
3 percentage points in subsequent years.
Geographic Adjustment Factor. As noted, physician fees under the fee
schedule equal the product of the relative value for the service, the conversion factor,
and the geographic adjustment factor for the service for the area. The Secretary is
required to establish a geographic adjustment factor for all physicians services for
each fee schedule area. This geographic adjustment factor is equal to the sum of the
following:
Geographic Cost of Practice Adjustment Factor. This is the product
of:
the proportion of total relative value units for the service reflecting the
practice expense component, and
the geographic cost-of practice index value for the area for the service.
This index reflects the relative costs of the mix of goods and services
comprising practice expenses in the different fee schedule areas compared
to the national average. The Secretary may establish class-specific indices
if the application of a single index would be substantially inequitable.
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Geographic Malpractice Adjustment Factor. This is the product of:
the proportion of total relative value units for the service reflecting the
malpractice component, and
the geographic malpractice index value for the area. This index reflects
the relative costs of malpractice expenses in the different fee schedule
areas compared to the national average.
Geographic Physician Work Adjustment Factor. This is the product
of:
the proportion of total relative value units for the service reflecting the
work component, and
the geographic physician work index value for the area. This index
reflects 1/4 of the difference between the relative value of physicians
work effort in each of the different fee schedule areas compared to the
national average.
Medicare Volume Performance Standard Rates of Increase
In General. The law provides for the establishment of volume performance
standard rate of increase beginning for FY1990. The Secretary is required to publish
the FY1990 performance standard by Jan. 1, 1990. The law provides that the
standard for FY1990 is the sum, reduced by 1/2 percent, of the Secretary's estimate
of (a) the weighted average percentage increase in reasonable charges for physicians
services in 1989 and 1990; (b) percentage change in Part B enrollees; (c) average
annual percentage growth in volume and intensity of services for FY1985 - FY1989;
and (d) percentage change in physician expenditures from FY1989 -FY1990 (not taken
into account in (a)) resulting from changes in laws or regulations.
By April 15 of each year (beginning in 1990) the Secretary is required to
recommend for the upcoming fiscal year an overall performance standard and separate
standards for the categories of surgical services and such other categories of services
the Secretary may establish by regulation. In making recommendations, the Secretary
is required to confer with physician groups. The Secretary is to consider inflation,
changes in the number of Part B enrollees, changes in the age composition of
enrollees, changes in technology, evidence of inappropriate utilization of services,
evidence of lack of access to necessary physicians services, and such other factors as
the Secretary considers appropriate. PPRC is required to review the Secretary's
recommendation and submit its recommendation to Congress by May 15. The
Secretary must publish the performance standard during the last 15 days of October.
Default Volume Performance Standard. Generally, the Congress is expected
to specify the performance standard. In the absence of Congressional action, the
default standard for FY1991 and subsequent fiscal years is similar to the one
established for FY1990. This performance standard is the sum of the:
Secretary's estimate of the weighted average percentage increase in fees for
physicians services in the calendar years included in the fiscal year involved;
Secretary's estimate of the percentage change in Part B enrollees;
Secretary's estimate of the average annual percentage growth in volume and
intensity of services for the five fiscal year period ending with the preceding
fiscal year;
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Secretary's estimate of the percentage change in physician expenditures in
the fiscal year (not taken into account above) which will result from changes
in laws or regulations; and
the performance standard factor. This factor is minus one percentage point
in FY1991, minus 1 1/2 percentage point in FY1992, and minus 2 percentage
points for subsequent years.
The Secretary is required to establish procedures for reporting on a quarterly
basis to PPRC, CBO, CRS, Committees on Ways and Means, Energy and Commerce,
and Finance, on compliance with performance standards.
Group Specific Standards. The Secretary may establish separate group
specific performance standards. However this may not be done before submission of
the required Secretary's report on this issue (due July 1, 1990) nor before Oct. 1,
1991. Subsequently, the Secretary shall implement a plan under which qualified
physicians groups could annually elect separate performance standard rates. The
Secretary is required to develop criteria to determine which physician groups are
eligible to elect to have separate performance rates applied and the methods by which
such group specific rates would be accomplished. The Secretary is required to report
on criteria and methods by Apr. 15, 1991. PPRC review and comments are required
by May 15, 1991. Before implementing such standards, the Secretary is required to
provide for notice in the Federal Register and to consult with physician groups.
However, the plan may not be implemented unless specifically approved by Congress.
Limitation on Beneficiary Liability
Current law establishes limits, known as MAAC limits, on extra-billing charges
by nonparticipating physicians. (See current law description.) MAAC limits are
physician specific and are based on historical charging patterns. Beginning in 1991,
new limits are phased in. These limiting charges are set at a maximum percentage
above the recognized payment amount (i.e. prevailing charge in 1991 and fee schedule
amount in future years) for nonparticipating physicians. Recognized payment
amounts for nonparticipating physicians are 95% of such amounts for participating
physicians. The limiting charges are therefore a percentage of this reduced amount.
In 1991, a physicians limiting charge is the same percentage (not to exceed 25%)
above the 1991 recognized payment amount as their 1990 MAAC was above the 1990
recognized payment amount. This is referred to as the 125% limit. For 1992, a
physicians limiting charge is the same percentage (not to exceed 20%) above the 1992
payment amount as their 1991 limiting charge was above the 1991 recognized
payment amount. This is referred to as the 120% limit. For 1993, and subsequent
years, the limiting charge for all physicians is 115% of the recognized payment
amount for nonparticipating physicians for the year.
The law specifies that physicians are required, effective Apr. 1, 1990, to accept
assignment on all claims for persons who are dually eligible for Medicare and
Medicaid. This includes "qualified Medicare beneficiaries" (i.e. persons with incomes
below poverty for whom Medicaid is required to pay Medicare premiums and cost-
sharing charges.)
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Other Provisions
Sending Information to Physicians. Before the beginning of each year
(beginning for 1992), the Secretary is required to send to each physician furnishing
Part B services information for commonly performed services on fee schedule amounts
for participating and nonparticipating physicians in the area and information on the
applicable limiting charge.
Physician Submission of Claims. Effective Sept. 1, 1990, physicians,
suppliers, and other Part B providers are required to submit all claims, including
nonassigned claims, on a standard claim form on behalf of beneficiaries. Further,
claims are to be submitted within one year of the date of service.
Electronic Billing. The Secretary is required to encourage electronic billing and
direct deposit of payments for participating physicians. The Secretary is required to
submit a plan to Congress on these requirements by May 1, 1990.
Monitoring. The Secretary is required to monitor actual charges of
nonparticipating physicians after Jan. 1, 1991. Further, the Secretary is to monitor
changes (by specialty, type of service, and geographic area) in the proportion of
services provided by participating physicians, the proportion of services paid on
assignment, and the amounts charged above recognized payment amounts. The
Secretary is required to report by April 15 each year (beginning in 1992) to Congress
on such changes. If the Secretary finds that there has been a significant reduction
in participation or assignment rates or an increase in balance billing charges, he is
required to develop a plan to address the problem and submit recommendations to
the Congress. The PPRC is required to review any such plan and submit its
comments and recommendations to Congress.
The Secretary is also required to monitor: (1) changes in utilization and access
within geographic, population and service related categories; (2) possible sources of
inappropriate utilization which contribute to the overall expenditure level; and (3)
factors underlying these changes and their interrelationship. The Secretary is
required to report to Congress by April 15 (beginning in 1991) on utilization changes
including an examination of factors which may contribute to such changes. The
Secretary is to include recommendations concerning patterns of inappropriate
utilization, utilization review, physician education or patient education, problems of
beneficiary access to care identified in the monitoring process, and on such other
matters the Secretary deems appropriate. The PPRC is required to comment on the
Secretary's recommendations. In developing its recommendations, PPRC is to convene
and consult a panel of physician experts to evaluate implications of medical
utilization patterns on quality and access.
Carriers are required to monitor and profile physician billing patterns and
provide comparative data to physicians whose utilization patterns differ significantly
from other physicians in the same payment locality.
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Studies. The legislation requires the following studies:
GAO Study of Alternative Payment Methodology for Malpractice Component
(due Apr. 1, 1991). Requires examination of alternative ways of paying for
malpractice expenses (including no fault and mandatory arbitration).
DHHS Study of Payments to Risk-Contracting Plans (due Apr. 1, 1990).
Requires an examination of how physician payment reform will affect
payments to risk-contracting plans.
DHHS Study of Volume Performance Standard Rates of Increase by
Geography, Specialty, and Type of Service (due July 1, 1990). Requires a
study of the feasibility of establishing separate volume performance
standards by geographic area, specialty, type of service, or combinations of
these. Also required is a study of services included in or excluded from
volume performance standards.
DHHS Visit Code Modification Study (due July 1, 1991). Requires a study
of the desirability of including time as a factor in visit codes.
PPRC Study of Practice Expenses (due July 1, 1991). Requires a study of
extent to which practice expenses and malpractice costs vary by geographic
locality, extent to which available indices accurately reflect costs in rural
areas, which geographic units would be most appropriate in measuring and
adjusting these costs, appropriate methods for allocating malpractice
expenses to particular procedures, the effect of alternative methods of
allocating malpractice expenses on Medicare expenditures, and special
circumstances of rural independent laboratories.
PPRC of Geographic Payment Areas (due July 1, 1991). Requires a study
of the appropriateness of using Metropolitan Statistical Areas or other
payment areas for purposes of physician payment.
PPRC Study of Payment for Non-Physician Providers of Medicare Services
(due July 1, 1991). Requires study of the implications of using a resource-
based fee schedule for non-physician practitioners (such as physician
assistants, clinical psychologists, and nurse midwives) whose services can be
billed on a fee-for-service basis under Medicare.
PPRC Study of Physician Fees Under Medicaid (due July 1, 1991). Requires
a study of Medicaid physician fees to determine adequacy, physician
participation, and beneficiary access to care.
GAO Study of Beneficiary Anti-Trust Issues (due July 1, 1991). Requires a
study of the effect of anti-trust laws on the ability of physicians to act in
groups to educate and discipline peers. Also, the study is to address anti-
trust issues as they relate to adoption of practice guidelines by third-party
payers and the role that practice guidelines might play as a defense in
malpractice cases.
Medical Care Outcomes and Effectiveness Research. OBRA 1989 creates
a new agency, the Agency for Health Care Policy and Research under the Public
Health Service Act. One function of this agency is to coordinate and expand the
outcomes and effectiveness research program. This program promotes research with
respect to patient outcomes for selected medical treatments and surgical procedures
for purposes of assessing their appropriateness, necessity, and effectiveness.
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OBRA 1989 Implementation
OBRA 1989 required DHHS to set the volume performance standard (VPS) rate
of increase for 1990 using the formula discussed above. The Department set the level
at 9.1% for FY1990. The law also required the Secretary to recommend a rate of
increase in the level for future years. For FY1991, DHHS recommended a VPS rate
of increase of 8.7% for surgery, 10.5% for nonsurgical services, and 9.9 percent for
all services together. In its required comments on the DHHS recommendation, the
PPRC recommended a slightly larger FY1991 increase. Specifically it recommended
an overall increase of 11.2%, with a 9.3% increase for surgical services and 12.1% for
nonsurgical services. The overall figures compare to a projected rate of increase of
13.2%. The reduction proposed by the Commission is less than that proposed by
DHHS primarily due to a lower allowance by the Department for growth in the
volume and intensity of services. The PPRC feels that it may not be realistic for the
medical profession to meet the DHHS level. The recommendations are currently
under review by the Congress which is expected to set the FY1991 VPS rate of
increase. (Otherwise the default standard would kick in, as described above.)
Potential Impact
The PPRC 1990 annual report to Congress provides an estimate of the impact
of OBRA 1989 on physicians and beneficiaries. PPRC simulations suggest that if the
fee schedule had been in effect in 1989, payments for primary care services would
have been 30% higher, while payments for surgical procedures generally would have
been lower. Overall payments for medical specialists (internists and family
practitioners) would have increased by 20%. Overall, payments to surgical specialists
would have decreased by 11%, though payments for some specialties, such as
ophthalmologists and thoracic surgeons, would decrease by a substantially larger
amount. The substantial variation in the magnitude of the change for different
surgical specialists partly reflects the difference in the mix of services they provide.
The PPRC simulations also show that with a 115% balance billing limit,
beneficiary balance billing charges would decrease by 75%. Sixty-eight percent of
beneficiaries would receive a reduction in the amount they spend for coinsurance
and balance bills, while another 21% would have increases of no more than $10 per
year.
The PPRC assumed no change in physician behavior, either in the mix of
services or percentage of services provided on assignment. However, a change in
physician behavior could modify these results, though the type of change is difficult
to predict. Some suggest that there may be a shift from surgeries/procedures to
evaluation and management services. Others suggest that while there may not be
a reduction in the volume of surgeries, there may be an increase in the number of
visits as surgeons attempt to offset lost revenues. There is also the possibility that
physicians could alter their assignment policy. Previous experience with policies
designed to limit Medicare expenditures per service have shown that physicians have
responded by increasing volume to offset lost revenues. However, there is little
experience with policies designed to realign the price structure as well as stem price
increases.
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Over time, implementation of volume performance standards will have the effect
of stemming increases in Medicare expenditures. One goal of the VPS system is to
encourage physicians to be more cost conscious in their provision of services. A
number of specialty societies are developing practice guidelines to assist physicians
in this effort.
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
U.S. Congress. House. Committee of Conference. Omnibus Budget Reconciliation Act
of 1989; conference report to accompany H.R. 3299. Nov. 21, 1989. Washington,
U.S. Govt. Print. Off., 1989. (101st Congress, 1st session. H.Rept. no. 101-386)
FOR ADDITIONAL READING
Physician Payment Review Commission. Annual Report to Congress, 1990.
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IP317M
AS
[EXCERPT]
PROSPECTIVE PAYMENT
ASSESSMENT COMMISSION
MEDICARE
PROSPECTIVE PAYMENT
AND THE AMERICAN
HEALTH CARE SYSTEM
REPORT
TO THE CONGRESS
JUNE 1989
Reproduced by the Library of Congress, Congressional Research Service.
Executive Summary
The delivery and financing of health care
Growth in hospital capital costs has stabilized
services in the United States are undergoing signif-
at a rate lower than that of the past decade.
icant changes. Medical advances, the growth of
While the industry has become increasingly
services outside the hospital, and attempts to con-
capital-intensive in the 1980s, capital's share
trol health care spending continue to affect health
of total costs has recently leveled off. In 1988,
care delivery. Maintaining access to quality care at
capital costs grew at the same rate as total
a cost the country can afford is still a major
costs; capital accounts for 8.5 percent of total
challenge facing the American health care system.
costs.
The Medicare prospective payment system (PPS),
implemented in 1983, contributed to changing the
Again this year, ProPAC has identified no
health care system. The complex and poorly un-
systemic problems associated with quality of
derstood interactions between payment policy and
care. Studies of hospital readmissions and
service delivery frequently make it impossible to
transfers and of targeted population groups at
identify causal relationships. Therefore, five years
special risk do not indicate the existence of
after the introduction of PPS, many questions con-
quality problems. There is evidence of sub-
cerning its impact remain unanswered.
stantial growth in the number of specialized
procedures. Greater concentration of these pro-
In this report, the Prospective Payment Assess-
cedures, in general, would be desirable in
ment Commission (ProPAC) describes and com-
view of the finding that concentration pro-
ments on the major changes in the American health
motes both better health outcomes and lower
care system. The Commission especially wishes to
costs. However, ProPAC's study of concentra-
note the following findings.
tion of services indicated that there has been
little consolidation of procedures in high-
The growth of total health care expenditures
volume centers.
for the nation has not slowed despite the cost
containment efforts of the government and the
private sector. While Medicare inpatient hos-
Rural hospitals, which make up almost half of
pital expenditure growth has declined since
all of the hospitals in the United States, have
PPS, primarily because of dramatic declines in
fared poorly under PPS. Because PPS is a
hospital admissions, Medicare admissions ap-
per-case payment system, the most serious
pear to be increasing again. Spending for non-
problem facing rural hospitals is the declining
inpatient hospital services, however, has grown
rate of admissions; total admissions have de-
continuously and rapidly. Other payers have
creased almost 5 percent annually, on average,
experienced similar patterns.
since 1981. Although recent policy changes
have helped, a high and growing proportion of
The recent declines in overall hospital finan-
rural hospitals have negative PPS margins.
cial status appear to be leveling off. Total
margins reported by the American Hospital
Association (AHA) averaged 4.8 percent in
A re-examination of traditional approaches to
1988, compared with 4.7 percent in 1987.
the financing of care is needed. The Commis-
PPS operating margins, however, are projected
sion believes that the challenges facing the
to continue declining through the sixth year of
American health care system may require a
PPS. There continues to be wide variation in
new set of organizational and financing ar-
PPS operating margins across hospitals, and
rangements. The traditional definition of hos-
the number of hospitals with negative PPS
pitals and the requirements placed on these
margins is growing.
institutions should be re-examined.
3
4
HOSPITAL PERFORMANCE
Hospitals have also pursued strategies to in-
The implementation of PPS represented a major
crease or replace revenues. Most hospitals turned
change in the way hospitals were paid for a large
to outpatient services, such as ambulatory surgery
portion of their inpatient admissions. Hospitals
and special diagnostic clinics. The number of ex-
could make a profit or lose money treating individ-
empt psychiatric and rehabilitation units has also
ual Medicare patients.
grown rapidly since PPS was implemented. While
some of these activities were designed to reduce
Financial pressures on hospitals are also related
inpatient costs, others created new opportunities to
to the slow growth of total revenue, especially
provide services to patients who might otherwise
inpatient revenue, primarily because of decreased
have foregone care.
admissions and length of stay (LOS) for all age
groups. At the same time, Medicare and other
Studies of concentration of services and market-
payers have restricted the growth of per-case
ing strategies conducted by ProPAC point to an-
payments.
other revenue increasing strategy: the addition of
new, usually technology-intensive services to en-
Some cost reduction efforts have taken place,
hance competitive position and attract physicians
such as the reduction of LOS, movement of ser-
and patients. Some hospitals have dropped unprof-
vices to other settings, and group purchasing of
itable services, but many more have added services
supplies. Other factors continue to increase costs.
they perceive necessary to increase revenues.
Hospitals have added information systems and as-
sociated personnel to analyze costs and market
Since the implementation of PPS, hospital ef-
new services to deal with PPS and the so-called
forts to reduce costs and generate revenue interacted
competitive environment. Additional costs have
with Medicare and other third-party payment to
also been incurred to expand medical records,
produce a rapid increase in margins initially, which
quality assurance, and discharge planning activities.
was followed by a decline in margins. During the
first year of PPS, hospitals engaged in extensive
cost containment activities. As a result, a relatively
While hospital labor productivity improved in
small increase in costs case occurred in 1984.
the early years of PPS, it has recently declined
Revenue per case increased 50 percent faster than
despite continued incentives to reduce costs. Dur-
costs, resulting in historically high margins.
ing 1984 and 1985, total labor hours per discharge
decreased due to reductions in services per
During the next three years, hospitals did not
discharge, or intensity. Intensity declines resulted
control costs to the same degree as they did in the
primarily from reductions in LOS. Since 1985,
first year of PPS. It is possible that cost reductions
intensity levels have not changed, while labor hours
with the greatest impact were made in the first year
per service have increased. This has resulted in
or that higher margins removed some of the cost-
increases in total labor hours per discharge and a
saving incentives. Over the same period, growth in
productivity level roughly equal to the level in
revenues per case was much slower than in 1984.
1983.
Consequently, margins declined over these three
years. In 1988, costs per case rose at the slowest
Although capital costs are a larger percentage of
rate since 1984, and revenue per case rose at about
total costs than before PPS, growth in capital costs
the same rate. Total hospital margins in 1988
has slowed in recent years. In 1988, capital costs
remained at the same level as in 1987. It appears
grew at the same rate as total costs. This was the
that uncertainty about revenues and declining mar-
first year since 1980 that capital expenses did not
gins may again be affecting the growth of costs per
grow relative to total costs. Medicare capital pay-
case.
ment policy continues to provide incentives for
some hospitals to favor capital over operating ex-
Data from the AHA show that the hospital
penses, even if it is not the most efficient mix of
industry as a whole had a patient margin of about
resources. It also encourages hospitals to turn over
zero and a total margin of just under 5 percent in
capital assets earlier.
1988. In addition, the PPS margin is estimated to
5
have been approximately zero. These aggregate
use of ambulatory and other alternative sites to
statistics fail to show the variability of hospital
substitute for part or all of a hospital inpatient stay
financial performance, however. For example, 10
and the inadequate quality measures in these sites,
percent of hospitals had PPS margins of - 24 per-
however, have raised new concerns.
cent or lower in the fourth year of PPS, while
another 10 percent had margins of 18 percent or
The Commission is aware that the ability to
higher. This variation, while not fully understood,
define, identify, and measure quality is not well
is in part due to changes in Medicare and other
developed, and it is important to consider many
third-party payment practices that allow hospitals
aspects of this issue. The increased use of outpa-
to realize a profit or risk a loss.
tient settings and alternative sites like ambulatory
surgery centers and rehabilitation units may be
Admission and LOS decreases have exacerbated
appropriate and consistent with PPS incentives.
the problem of overcapacity in the industry, and
Measurement and monitoring systems are not as
hospitals have been slow to reduce unused capac-
extensive for these services, however. Conse-
ity. In 1986, average occupancy was at its lowest in
quently, it is difficult to draw conclusions about
ten years (63.4 percent). By 1988, the occupancy
how quality might have changed given the move-
rate had increased only slightly, to 64.5 percent.
ment of services out of the traditional inpatient
setting. Improvements in the quality assurance
While the total number of hospital closures has
mechanisms used in these sites are necessary.
increased during the past few years, many hospi-
tals have opened or converted to other uses. As a
Changes in readmission and transfer rates and
result, the total number of hospital beds has not
patterns could indicate quality problems. Results
been reduced substantially. Hospitals that closed
of a ProPAC analysis of this subject do not provide
tended to be smaller and have both lower occu-
any evidence that should cause concern. Rates of
pancy rates and higher costs than open hospitals of
readmission and transfer from 1984 to 1986 have
comparable size. Over time, more hospital clo-
not changed substantially from the pre-PPS period.
sures have occurred in rural areas. Admission de-
The pattern of transfers and readmissions appears
clines began in rural hospitals in 1981 but did not
to be appropriate. Patients are transferred from
begin in urban hospitals until 1984. Since 1984,
smaller rural and urban hospitals to larger urban
admissions have fallen much more rapidly for rural
ones, as might be expected. If patients are read-
than for urban hospitals. PPS may have influenced
mitted, they are generally readmitted to a larger
the pattern of admissions. Urban hospitals, eager
hospital.
to increase admissions and revenue, have tried
marketing their services to physicians and patients
It also appears that access to services involving
in rural areas. Moreover, physicians seeking to
new technologies has not been reduced. In fact,
provide the latest technology to their patients may
while PPS was expected to prompt hospitals to
send them to rural referral centers or urban
specialize in certain services, this has not hap-
hospitals.
pened. ProPAC's study of concentration of services
shows that the volume of services has increased
QUALITY AND ACCESS
across-the-board, without the consolidation of pro-
cedures in a few high-volume facilities. This sug-
The recent declining financial performance of
gests that access has not been impeded. As vol-
many hospitals and the increasing number of hos-
umes increase, costs are lowered and mortality
pital closures are raising new questions about the
decreases. This means that cost and quality might
quality of and access to health care services. Indi-
be improved if more concentration occurred.
vidual occurrences of quality of care problems
continue to be reported as they were before PPS. In
In addition to the analyses described above,
some cases, these problems could be attributed to
ProPAC has studied groups particularly at risk of
PPS incentives, but they may also be due to many
lower quality care related to the incentives of PPS.
other factors. The Commission has not found evi-
No problems were identified in this study. The
dence of systematic quality problems with inpa-
work of the Peer Review Organizations (PROs) has
tient care since the implementation of PPS. The
been examined; a low percentage of cases screened
6
out by the PROs actually have quality of care
the higher rates of spending in the U.S. are uncer-
problems.
tain. In addition, whether Americans are receiving
value commensurate with the greater spending lev-
Concern about access to care in rural areas has
els is unclear.
grown as the number of rural hospital closures has
increased. Developing an appropriate policy to
Reimbursement changes and cost control efforts
deal with rural hospitals presents special problems.
have apparently reallocated health care spending
Attracting and retaining physicians, nurses, and
rather than slowed its growth. While Medicare
other hospital staff in rural areas is difficult. In
inpatient expenditures slowed after 1983 due to
some areas, distances between facilities require the
decreases in admissions and constraints on pay-
availability of sophisticated equipment even though
ment, outpatient and physician costs have been
patient volumes do not cover expenses; even a
growing at about 16 percent annually. Although
minimum level of capacity entails large expenses.
the decreases in LOS can be attributed to the
Admissions of all patients, not just Medicare pa-
incentives of PPS, the decreases in admissions
tients, have been declining faster in rural than in
cannot. Private payers have reported similar growth
urban hospitals. This is a particularly serious prob-
in non-inpatient expenses. The growth rate in pri-
lem because PPS is a case-based payment system;
vate spending for health care was greater in 1986
declines in admissions lead directly to decreased
and 1987 than the growth in government spending.
revenues. Maintaining access to care for Medicare
The percentage of health care spending paid by
beneficiaries is a concern. ProPAC has supported
private sources has grown from 59.8 percent in
several mechanisms for providing increased pay-
1985 to 60.4 percent in 1987.
ments to rural hospitals under PPS. Increasing
payment for the care furnished to Medicare pa-
Congress has recently begun to deal with Medi-
tients, however, will not by itself solve the prob-
care non-inpatient hospital expenditures. It has
lems of all rural hospitals.
legislated a number of changes in outpatient pay-
ment policy that limit reimbursement for some of
Finally, efforts to evaluate the appropriateness
these services. The Physician Payment Review
and effectiveness of care have recently been initi-
Commission (PPRC) recently proposed a funda-
ated by a variety of organizations. The goal of
mental change in the way Medicare pays physi-
these new efforts is to develop practice standards
cians. PPRC is recommending a relative value
or guidelines. Too often procedures and treatments
scale as part of a national fee schedule and expen-
have been adopted without vigorous testing to
diture targets.
identify the patients and situations most likely to
benefit from the new practices. This new informa-
In addition, Congress has expressed interest in
tion should allow providers to determine which
changing the system of paying for hospital outpa-
course of treatment will be most beneficial for
tient services. As a first step toward this goal,
their patients. The development and use of such
payment for hospital ambulatory surgery has been
guidelines should represent a major improvement
changed. Congress has asked ProPAC to provide its
in quality of care.
views on this subject to the Secretary of the De-
partment of Health and Human Services. ProPAC's
SPENDING ON HEALTH CARE
report on ambulatory surgery was submitted on
April 1, 1989.
The United States spends over $500 billion a
year and an increasing portion of its gross national
The Medicare program and some other third-
product (GNP) on health care. In 1987, more than
party payers have been constraining hospital reim-
11 percent of GNP was spent on health care.
bursement to encourage efficiency and limit the
Health care expenditures in 1989 are expected to
cost of treatment. Many hospitals contend, how-
reach $600 billion, and by the mid-1990s are likely
ever, that they are unable to provide high-quality
to represent more than 12 percent of GNP. On a
services for all patients at current payment levels.
per capita basis, the U.S. spends more than any
other country, 41 percent more than Canada, which
To ensure that all patient care and other ex-
spends the next greatest amount. The reasons for
penses are covered, hospitals try to make up for
7
perceived shortfalls in revenues from some payers
An aging and expanding beneficiary population
by maximizing payments from others. This behav-
will also require greater resources from all Medi-
ior is usually called "cost shifting." The Commis-
care programs. Over the next 30 years, the over 65
sion believes that "revenue shifting" is a more
population, especially those over 85, is projected
appropriate term because it focuses on hospital
to grow faster than the rest of the population. This
behavior aimed at obtaining revenues adequate to
older population will have many more chronic
cover total expenses. Those hospitals experiencing
diseases, requiring a variety of medical and other
losses under PPS, for example, may attempt to
services.
recoup them through other revenue sources. Hospi-
tals earning profits from one payer, however, may
The continued growth in health spending also
use surpluses to maintain lower prices to other
affects beneficiaries' liabilities. Of the $150 billion
payers. Thus, hospitals may shift revenues to gov-
spent on health care for the elderly in 1986, 25
ernment payers from private payers and vice versa.
percent was paid for by the elderly themselves or by
their families. Medicare paid about 45 percent of
The Commission believes that more research is
the costs, while Medicaid paid 20 percent and
necessary to determine the costs of providing an
private sources paid for the remaining 10 percent.
efficient level of care and the reasons for variations
The largest out-of-pocket expense for the elderly
in costs. Better understanding of the relationship
was nursing home care. The elderly paid 50 per-
between costs and revenues becomes even more
cent of nursing home costs, or $16 billion a year.
critical as larger variations in hospital financial
performance emerge. Such information is neces-
The substitution of services for all or part of a
sary for both payers and hospitals to ensure that
hospital admission influences the amount benefici-
hospital revenues from all sources appropriately
aries must pay for health care. While substituting
reflect hospital expenses associated with efficient
ambulatory surgery for an inpatient stay reduces
provision of care.
beneficiary liability in many cases, skilled nursing
care or rehabilitation services following an inpa-
The Medicare program provides 40 percent of
tient stay probably increase out-of-pocket costs.
hospital inpatient revenues; no other individual
payer controls nearly this amount of hospital pay-
ments. Hospitals do not have the opportunity to
negotiate prices with Medicare as they do with
THE HEALTH CARE SYSTEM IN 1990
some other payers. The legislative process is used
AND BEYOND
to set Medicare prices. It is appropriate that the
Federal government continue to establish tight lim-
The health care system in the United States
its on what it pays hospitals for Medicare patients.
continues to adopt many remarkable scientific and
The Commission believes, however, that the gov-
medical advances. At the same time, however, the
ernment should take into consideration the overall
public has voiced concern about increasing costs
financial circumstances of hospitals. This is espe-
and dissatisfaction with the existing system. The
cially true as the traditional mechanisms for fi-
present organization and financing of the health
nancing uncompensated care and other activities
care system have failed to fulfill society's expecta-
are being limited.
tions. Improving the system, given the demands
that will be placed on it, is the challenge of the
Despite continued constraints on PPS rates, vari-
future.
ous factors will probably increase the growth of
Medicare expenditures. After several years of de-
The forces that have contributed to increased
creases in admissions for those over age 65, admis-
medical spending will continue. New medical ca-
sions for this group grew by almost 2 percent in
pabilities will become available, new sites of ser-
1988; this growth rate is almost equal to the growth
vice will be developed, and people will be living
of the beneficiary population. Furthermore, Medi-
longer and require more care. Dealing with these
care costs per case grew 10 percent annually
forces while limiting the growth of health care
through 1987.
spending will be difficult.
8
When the present system of health insurance
often conflicting or inappropriate. Finally, increases
was established, health care was provided primar-
in health care expenditures have not been slowed
ily by hospitals and physicians. Medicare was pat-
by the approaches that have been tried so far.
terned after these existing private insurance plans.
Over time, the health care system has evolved to
Given the inadequacies of the current system, it
include home health care, freestanding ambulatory
is time to consider alternative organizational and
surgery centers, and specialized outpatient clinics.
financial arrangements in this country. These ef-
Health insurance plans, including Medicare, have
forts should include an examination of the role of
changed incrementally to take these new providers
the hospital and other providers in the delivery of
into account. As the government and private insur-
health care. The structure of health care benefits,
ers have seen expenditures increase for all types of
including Medicare, also should be reviewed.
care, they have instituted financing changes that
limit reimbursement to the cost of care for their
beneficiaries.
Difficult decisions have to be made that will
shape the health care system of the 1990s and
These cost containment efforts and incremental
beyond. The Federal government, as a major payer
changes, while dealing with specific issues, high-
of health care services, will play a vital role. It has
light important deficiencies in the present system
been suggested that limited increases in Medicare
that need to be addressed. First, although the
and Medicaid budgets will restrict access to care
United States spends more money per capita than
for the elderly, the poor, and those in rural areas.
any other developed country, 15 percent of the
Questions concerning access will have to be bal-
population, or approximately 37 million people,
anced with economic considerations. Public policy
lack health insurance and thus have limited access
debate on this and other issues related to the health
to health care. Other issues include who should
care system is essential and should include a dis-
pay and how to pay for medical education and
cussion of the role of the government, other third-
clinical research and what funding levels are suffi-
party payers, and the general public. This debate
cient for these activities. In addition, present poli-
should help identify solutions that will provide
cies do not adequately recognize changes in health
everyone with quality care at a cost that the public
care delivery. The incentives of current policies are
views as acceptable.
IP317M
THE WASHINGTON POST
November 23, 1989
p.
A4
AS
Medicare Incentives to Go Low-Tech
New Fee Scale Would Reward Doctors for 'Hands-On' Medicine
year. taking into account population
By Spencer Rich
Washington Post Staff Writer
growth. increases in the costs of
supplies and devices that doctors
Today, a doctor treating a Medi-
must buy and similar factors. If the
care patient can use all the costly
amount subsequently paid in that
high-tech machines he wants for
year exceeded the target, Congress
diagnosis and treatment, charge his
could retard the growth of Medi-
customary fee, and, within limits,
care fes in the next year to make up
the government will pay the bill,
for part of the excess.
even if it is markedly different from
Paul Ginsburg. director of the
the fee being paid to a colleague
Physician Payment Review Com-
down the hall treating the same ill-
mission, said he expects that gov-
ness.
ernment goals would eventually be
That is now changing. Under leg-
met as doctors, aware of Medicare
islation passed by Congress in the
priorities, began acting through
final hours of the session that ended
their professional organizations to
early yesterday, the government
try to hold down unnecessary
would impose a uniform national fee
costs-primarily through develop-
scale setting the payments doctors
ment of practice codes and medical
receive and would provide incen-
effectiveness research.
tives for doctors who practice
SEN. DAVE DURENBERGER
At the urging Rep. Bill Gradison
"hands-on" medicine that does not
would reward "primary" care
(R-Ohio), the measure contains
rely on expensive technology.
funding for studies on the effective-
ness of different treatment strat-
These would be two of the biggest
tions every doctor will receive the
changes ever imposed by the gov-
egies.
same fee for any specific service. A
ernment on the practice of medicine
In a provision to be phased in by
major benefit would be to reward
1993, doctors would be forbidden to
in this country.
doctors in rural areas more highly
One major goal of the changes is
charge a Medicare patient more
than now so that they would be less
than 15 percent over the amount
to help solve the national problem
likely to move out and leave the
allowed by Medicare for a specific
of soaring health-care costs. Medi-
area with no doctor.
service. This would place a cap on
care outlays to doctors have been
The fee for any given service
"balance billing," instances where
increasing at 16 percent to 17 per-
would not be based on reimburse-
the doctor charges the patient more
cent annually for a decade, triple
ment rules that tend to reward high
than Medicare will help pay and the
the typical consumer price index.
technology and surgery at rates
patient is forced to pay the extra
"This is the first major change in
that many experts consider exces-
amount out of pocket.
the way physicians are paid since
sive. Instead, fees would be based
The changes constitute a major
they stopped accepting chickens
on a new "relative value scale" mea-
step by Congress toward bringing
and pigs in payment," said Rep.
suring how much time, effort, phys-
Medicare outlays under control.
Fortney H. "Pete" Stark (D-Calif.),
ical labor, overhead and the like go
There were clear signals during
one of the lawmakers behind the
into providing a given service.
bargaining on the bill, which the
overhaul of the nation's biggest
This scale, under development,
American Medical Association has
health insurance system.
would reward surgery and high-
endorsed, that tougher steps will be
"It will make reimbursement to
tech doctoring relatively less well
considered down the road if the new
physicians far more fair and work-
than now and family practice or
program doesn't work. They could
able," said Sen. John D. "Jay"
hands-on medicine more.
include flat annual outlay targets
Rockefeller IV (D-W.Va.). The
A recent study by the govern-
with mandatory fee cuts large
overhaul will shift rewards to
ment's Physician Payment Review
enough to recapture the amount by
"tough primary diagnostic care" in-
Commission found that under one
which actual outlays exceeded the
stead of "high-tech," said Sen. Dave
version of the new scale, internal
target.
Durenberger (R-Minn.).
medicine generally would go up 17
"Health-care costs are out of con-
Under the measure, included in
percent and family practice up 38
trol-for the family and, obviously,
the budget-reconciliation bill that
percent, but surgery would would
for the family that's uninsured,"
President Bush is expected to sign:
drop 11 percent.
said Rockefeller, chairman of the
Medicare would create a uniform
Congress each year would spec-
Senate Finance Committee's Medi-
national fee scale for each of 7,000
ify an aggregate amount that it
care subcommittee. "Health-care
different types of doctor services,
wants to spend on outlays for Medi-
costs have spread fear in the Amer-
SO that with minor regional varia-
care doctor services in the coming
ican people."
1989 The Washington Post Company. Reproduced by the Library of Congress,
Congressional Research Service with permission of copyright claimant.
CRS
Congressional Research Service
The Library of Congress
Washington, D.C. 20540
Health Care Access:
Federal Policy Issues
IP 421H
There has been increasing public and congressional concern over access
to health care in the United States. Health care costs continue to rise while
an estimated 37 million Americans under age 65 are uninsured. Developments
in health care services, such as new hospital reimbursement policies which
make it more difficult to shift the costs of the uninsured and the large
percentage of poor not covered by Medicaid, have led to recent reports by
private organizations calling for reexamination of the Nation's health care
delivery system.
This Info Pack contains background material on the current health care
delivery system and recent proposals for change. Also included are articles on
the systems of health care in Great Britain and Canada, which are often
proposed as models for this country. In addition, the enclosed CRS reports
discuss current Congressional proposals to expand health care coverage to
certain populations.
Other Info Packs on related topics are: "Catastrophic Health Insurance"
(IP 370C), "Health Care Costs" (IP 223H), "Health Insurance: Employer
Benefits Required Under COBRA and Pending Proposals" (IP 389H), and
"Health: Long-Term Care" (IP 402H).
Members of Congress who want further information on this topic may
contact CRS at 707-5700. Additional CRS Reports may be identified by
looking in the current Guide to CRS Products (for congressional use only)
under "Health Insurance," "Medical Economics," and "Medicare and Medicaid"
and in the latest Update under "Health."
Constituents may find additional information on this topic in a local
library through the use of Readers' Guide to Periodical Literature, Public
Affairs Information Service Bulletin (PAIS), and various newspaper indexes.
Books on this subject may be identified through the library's catalog or the
most recent edition of Subject Guide to Books in Print.
We hope this information will be helpful.
Congressional Reference
Division
89-682 L
CRS Report for Congress
Access to Health Care:
Selected References, 1988-1989
Charles P. Dove
Bibliographic Specialist, Education and Public Welfare
Library Services Division
December 1989
CRS
Congressional Research Service The Library of Congress
The Congressional Research Service works exclusively for the Congress, conducting re-
search, analyzing legislation, and providing information at the request of committees,
Members, and their staffs.
The Service makes such research available, without partisan bias, in many forms includ-
ing studies, reports, compilations, digests, and background briefings. Upon request,
CRS assists committees in analyzing legislative proposals and issues, and in assessing the
possible effects of these proposals and their alternatives. The Service's senior specialists
and subject analysts are also available for personal consultations in their respective fields
of expertise.
ACCESS TO HEALTH CARE:
SELECTED REFERENCES, 1988-1989
SUMMARY
This bibliography contains references from the Public Policy Literature
Data Base of the Library of Congress. The focus of the selected references is
on the accessibility of all Americans to adequate medical care regardless of the
individual ability to pay. The groups that require improved access include the
homeless, the aged, children, and minorities. In addressing the issue of access
the material included in this bibliography discuss private health insurance,
national health insurance, patient dumping, indigent care, and closing of
hospitals.
ACCESS TO HEALTH CARE:
SELECTED REFERENCES, 1988-1989
Access to medical care for Black and white Americans. JAMA [Journal of
the American Medical Association], V. 261, Jan. 13, 1989: 278-281.
LRS89-2506
"A 1986 national survey of use of health services shows a
significant deficit in access to health care among black compared with
white Americans. This gap was experienced-by all income levels of
black Americans. In addition, the study points to significant underuse
by blacks of needed medical care."
Battistella, Roger M. Weil, Thomas P.
National health insurance reconsidered: dilemmas and opportunities.
Hospital & health services administration, V. 34, summer 1989:
139-165.
LRS89-3500
"The authors conclude that government intervention in the health
sector is bound to expand rather than contract because centralization
is the key to reconciling otherwise divergent political demands for
spending controls and greater equality of access to quality care for the
increasing number of uninsured or underinsured persons."
Bishirjian, Terry.
Rural health care in the 1990s: decade of decision and change.
Appalachia, V. 22, spring 1989: 31-37.
LRS89-5321
Addresses the challenges facing Appalachian health care in the
near future: costs, competitiveness, accessibility, affordable insurance,
skilled medical professionals, geographical barriers.
Cancer and the poor: a report to the nation; findings of regional hearings
conducted by American Cancer Society. Atlanta, American Cancer
Society [1989] 33, 52 p.
LRS89-6564
Reports findings from May-June 1989 hearings in Georgia,
Mississippi, New Jersey, Missouri, Texas, California, and Arizona in
which people from 47 States and territories testified about high
mortality rates and access to health care for poor persons who develop
cancer.
CRS-2
Cleeton, David L.
The medical uninsured. Public finance quarterly, V. 17, Jan. 1989:
55-83.
LRS89-743
Argues "that the present design of public asistance programs
creates a market failure by ruling out limited ceiling coverage for
individuals who consider public assistance programs to provide at least
partial coverage against losses. This is particularly relevant to the
state Medicaid needy programs and their spend-down provisions."
Cost and effects of extending health insurance coverage. Washington,
G.P.O., 1989. 176 p.
LRS89-3043
At head of title: Committee print.
"Education and Labor serial no. 100-EE; Energy and Commerce
serial no. 100-CC; Special Committee on Aging serial no. 100-P"
"Prepared for the Subcommittee on Labor-Management Relations
and the Subcommittee on Labor Standards of the Committee on
Education and Labor and the Subcommittee on Health and the
Environment of the Committee on Energy and Commerce, House of
Representatives and the Special Committee on Aging, United States
Senate by the Congressional Research Service, Library of Congress."
Crisis in the U.S. Health Care System: how should government and
industry respond? Washington, MAPI, 1989. 31 p. (MAPI policy
review PR-108)
LRS89-6548
"Examines the current U.S. system of health care delivery and its
problems. The mandated benefit proposal, as contained in S. 768, is
then reviewed, and finally, alternative approaches to improving access
to health care without further escalation of costs are discussed."
Davis, James E.
National initiatives for care of the medically needy. JAMA [Journal of
the American Medical Association], V. 259, June 3, 1988: 3171-3173.
LRS88-4839
"The provision of medical care to the underserved, the
underprivileged, and the financially needy is a compelling concern of
medicine, perhaps the most perplexing problem that confronts the
medical profession today."
Duncan, R. Paul.
Inpatient transfers and uncompensated care. Hospital and health
services administration, V. 33, summer 1988: 237-248.
LRS88-5073
Differentiates between "the concepts of patient transfer and
dumping and presents an empirical examination of a sample of
inpatient transfers including descriptions of patient, hospital, episode,
and compensation characteristics."
CRS-3
Enfield, Lisa M.
Patient dumping in the hospital emergency department: renewed
interest in an old problem. American journal of law & medicine, V. 13,
no. 4, 1988: 561-595.
LRS88-14978
"We conclude that the currently proposed solutions to patient
dumping will have limited effectiveness without more specific
incentives for the provision of health care to the medically indigent."
Estes, Carroll L.
Aging, health, and social policy: crisis and crossroads. Journal of aging
& social policy, V. 1, 1989: 17-32.
LRS89-7783
"In the 1980s, significant and growing problems of uninsurance
and underinsurance for health care have re-emerged. Simultaneously,
state Medicaid programs are characterized by their increasing variation
and inequities, while there has been a decline in access for the poor.
The future of aging policy will be decided in the context of four
socio-demographic realities: (1) population aging (2) trends in mortality
and morbidity (3) the relationship between income and health, and (4)
aging as a woman's issue."
Friedman, Emily.
Are risk pools being oversold as a solution? Hospitals, V. 62, Nov. 5,
1988: 100-104.
LRS88-10248
Charts characteristics of current State health insurance risk pools.
Assesses finance and feasibility of State plans to provide health
insurance coverage to those unable to get access to other health
insurance. Includes a report on public opinion of hospital responsi-
bility for the care of the uninsured by Jane Edgar of the Arthur D.
Little, inc.
Ginzberg, Eli.
Medical care for the poor: no magic bullets. JAMA [Journal of the
American Medical Association], V. 259, June 10, 1988: 3309-3311.
LRS88-5163
"The thrust of my analysis has been to highlight the inherent
limitations in a nonegalitarian society of continental proportions to
establishing a single acceptable level of care for all its population and
the inability to achieve this goal by passing more laws and
appropriating more money, although some new laws and more money
are definitely needed."
CRS-4
Goodman, John C. Robbins, Gary. Robbins, Aldona.
Mandating health insurance. Dallas, National Center for Policy
Analysis, 1989. 21, 14 p.
LRS89-1542
Argues against proposals for mandated health insurance and
concludes that "it would be far less expensive to subsidize unpaid
hospital bills from public funds. And close inspection of the market
for health insurance reveals that existing government regulation is a
major cause of the rising number of people without health insurance.
Before enacting new regulations, we should first repeal old ones and
give market forces a chance to work."
Haislmaier, Edmund F.
The health care quagmire. Consumers' research, V. 72, Sept. 1989:
10-16.
LRS89-7745
"There is a growing concern in America that the nation's health
care system needs intensive care. The most obvious problems are the
rapid escalation in the cost of medical care and, in part as a result of
such high costs, the fact that many Americans effectively are denied
access to necessary medical treatment."
Minimum Health Benefits Act: mandating new problems. Washington,
Heritage Foundation, 1988. 15 p. (Issue bulletin no. 136)
LRS88-3154
"There is a real danger, however, that this [minimum health
benefits] legislation would do more harm than good. While these
proposals might help some workers and employers, they still would
leave many Americans unprotected and, at the same time, would
destroy jobs and drive health care spending and costs even higher, to
the detriment of all Americans and the U.S. economy."
Hansen, Karen.
A painful prescription. State legislatures, V. 14, Nov.-Dec. 1988: 20-21.
LRS88-12431
"In this country, good medical care is available for the rich and
the middle class. For the poor and near poor it is being rationed, by
design or by default."
CRS-5
Health insurance and the uninsured: background data and analysis.
Washington, G.P.O., 1988. 172 p.
LRS88-14353
At head of title: Committee print.
"Education and Labor serial no. 100-Z; Energy and Commerce
serial no. 100-X; Special Committee on Aging serial no. 100-1"
"Prepared for the Subcommittee on Labor-Management Relations
and the Subcommittee on Labor Standards of the Committee on
Education and Labor and the Subcommittee on Health and the
Environment of the Committee on Energy and Commerce, House of
Representatives and the Special Committee on the Aging, United
States Senate by the Congressional Research Service, Library of
Congress."
Healthy children: investing in the future. Washington, Office of
Technology Assessment, for sale by the Supt. of Docs., G.P.O., 1988.
301 p.
LRS88-5975
Partial contents.--Children's access to health care.--Prevention of
childhood illness: selected topics. Prenatal care.--Newborn screening.--
Wellchild care. -Prevention of accidental childhood injuries. Prevention
of child maltreatment.
Hegarty, Stephen H. Kinzer, David M.
Mandated coverage: Massachusetts' ordeal. Hospitals, V. 62, July 20,
1988: 66-73.
LRS88-6519
"A Massachusetts law, signed in April 1988, provides health
coverage to all of that state's uninsured citizens. The law is a U.S.
'first' in the sense that it promises coverage to all citizens, regardless
of their employment status. The law, which will not be fully phased
in until 1992, is a complex one that not only addresses the uninsured
issue but also redesigns a regulatory system that for some years has
made the state's hospitals--voluntary and governmental--subject to
overall revenue controls."
Hospital closures and access to medical care. Lexington, Ky., Council of
State Governments, 1989. 11 p. (CSG backgrounder 078901)
LRS89-7029
"There is much debate concerning the economics of our nation's
health care system, and whether these hospital closings are the result
of unfair regulation practices, the health industry's own glut, or poor
fiscal management. The purpose of this paper is not to argue these
points, but to address the occurrence of hospital closings as a concern
for state and local officials who must deal with the consequences as
they affect public access to medical care."
CRS-6
Inequities in health services among insured Americans: do working-age
adults have less access to medical care than the elderly? New England
journal of medicine, V. 318, June 9, 1988: 1507-1512.
LRS88-5075
Concludes "that insured, working-age adults have less access to
medical care than the elderly, and that poor, black, or Hispanic
persons in this group are at risk for even greater problems with access
to care."
Insuring the uninsured: options and analysis. Washington, G.P.O., 1988.
212 p.
LRS88-14354
At head of title: Committee print.
"Education and Labor serial no. 100-DD; Energy and Commerce
serial no. 100-BB; Special Committee on Aging serial no. 100-O."
"Prepared for the Subcommittee on Labor-Management Relations
and the Subcommittee on Labor Standards of the Committee on
Education and Labor and the Subcommittee on Health and the
Environment of the Committee on Energy and Commerce, House of
Representatives and the Special Committee on Aging, United States
Senate by the Congressional Research Service, Library of Congress.
Jackson, Jesse L.
A prescription for America's health. State government news, V. 31,
Dec. 1988: 6-8.
LRS88-11806
Urges a national health program to support health care as a
constitutional right. "A federally administered program is the only way
to ensure adequate funding in poorer areas and to prevent regressive
state governments from blocking access to care."
Koska, Mary T.
Alternate care: indigent care and overcrowding threaten EDs
(emergency departments). Hospitals, V. 63, July 20, 1989: 66, 68, 70.
LRS89-5934
Presents evidence that for a growing number of hospital
emergency departments, "the constant flow of indigent patients and
increasing instances of overcrowding," are straining the acute health
care system.
Main, Karen.
1988 report on the medically indigent. Frankfort, Ky., Legislative
Research Commission, 1988. 96 p. (Research report no. 236)
LRS88-12401
Reports on Kentucky's problems involving "the uninsured and
people whose insurance is insufficient for any reason, including
exhausted benefits, exclusions on allowable procedures or types of care
and pre-existing conditions." Includes reports on trends in other
States' Medicaid programs for 1986 and 1987.
CRS-7
Man, Anthony.
Rural health care: closed hospitals only part of problem. Illinois
issues, V. 15, May 1989: 12-15.
LRS89-3490
"As the most visible symptoms of the ailments plaguing rural
health in Illinois, hospital closings will continue to get lots of
attention--the kind that spurs political and government activity."
Mueller, Keith J.
The role of policy analysis in agenda setting: applications to the
problem of indigent health care in the United States. Policy studies
journal, V. 16, spring 1988: 441-453.
LRS88-6004
"This discussion of the shaping of policies concerning indigent
health care is a call for more research concerning the shaping of state
policies using the agenda setting approach to explain the roles played
by various actors in shaping legislative suggestions. This approach can
also explain the difficulty experienced in moving from general
knowledge of a problem to actual policies."
Orr, Suezanne Tangerose. Charney, Evan. Straus, John.
Use of health services by Black children according to payment
mechanism. Medical care, V. 26, Oct. 1988: 939-947.
LRS88-11089
"The use patterns of approximately 2,600 black children,
categorized according to type of insurance (Medicaid, private health
insurance or no insurance), were analyzed. All children were enrolled
in an urban pediatric primary care program that attempted to increase
access to health care by poor children. Medicaid recipients used
health-care services more than their counterparts who had private or
no insurance. All groups received significant levels of preventive care."
Patricelli, Robert E.
Statement of the U.S. Chamber of Commerce on problems in access to
affordable health insurance for small business. Washington, U.S.
Chamber of Commerce, 1989. 7 p.
LRS89-9164
Addresses the problem of rising costs of health care plans in the
small business market.
Pincus, Carol R.
How your colleagues care for the uninsured. Medical economics, V. 65,
Aug. 1, 1988: 60-65.
LRS88-6439
A nationwide survey of doctors indicates that the uninsured can
make up 15% of a physician's practice and in some depressed areas the
numbers can be as high as 55%. Doctors cope by making special
payment arrangements, offering credit, and referring patients to clinics.
Some doctors require cash payments from uninsured patients.
CRS-8
Rosenbaum, Sara. Hughes, Dana C. Johnson, Kay.
Maternal and child health services for medically indigent children and
pregnant women. Medical care, V. 26, Apr. 1988: 315-332.
LRS88-2435
"Millions of low-income children and women of childbearing age
are completely uninsured. Medicaid, the nation's largest public health
financing program for the poor, is an inadequate resource for
uninsured families with children. By 1984, the program served only
46% of the poor and near-poor, down from 65% in 1976."
Russell, Louise B.
Proposed: a comprehensive health care system for the poor. Brookings
review, V. 7, summer 1989: 13-20.
LRS89-5107
Outlines a program that would make health care available to the
poor, even those not now covered by Medicaid.
Sager, Alan.
Prices of equitable access: the new Massachusetts health insurance law.
Hastings center report, V. 18, June-July 1988: 21-25.
LRS88-5805
"Massachusetts's new health insurance law has been shaped by
much more than presidential politics. Ten years of evolving policy on
health insurance and hospital finance have exerted powerful influences.
Ironically, enacting universal access required paying hospitals much
more money for their currently insured patients. This costly
compromise may destabilize the law's implementation."
Thorpe, Kenneth E. Siegel, Joanna E. Dailey, Theresa.
Including the poor: the fiscal impacts of medicaid expansion. JAMA
[Journal of the American Medical Association], V. 261, Feb. 17, 1989:
1003-1007.
LRS89-1801
"We estimate that expanding Medicaid coverage to all currently
uninsured nonelderly persons below the federal poverty line would cost
approximately $9 billion."
U.S. Congress. House. Committee on Education and Labor.
Subcommittee on Labor-Management Relations.
Oversight hearing on access to health insurance. Hearing, 100th
Congress, 2nd session. June 9, 1988. Washington, G.P.O., 1988.
367 p.
LRS88-12396
"Serial no. 100-94"
U.S. Congress. House. Committee on Energy and Commerce.
Subcommittee on Health and the Environment.
Health insurance coverage and reform. Hearing, 101st Congress, 1st
session. Mar. 9, 1989. Washington, G.P.O., 1989. 137 p.
"Serial no. 101-18"
LRS89-4792
CRS-9
Minimum health benefits for all workers. Hearings, 100th Congress,
2nd session on H.R. 2508. Apr. 14 and 15, 1988. Washington, G.P.O.,
1988. 345 p.
LRS88-12106
"Serial no. 100-174"
Includes discussion of the impact of the proposed bill on employers
and businesses.
U.S. Congress. House. Committee on Government Operations. Human
Resources and Intergovernmental Relations Subcommittee.
Equal access to health care: patient dumping. Hearing, 100th
Congress, 1st session. July 22, 1987. Washington, G.P.O., 1988.
463 p.
LRS88-1973
U.S. General Accounting Office.
Health insurance: a profile of the uninsured in Ohio and the nation;
report to the Honorable Howard M. Metzenbaum, U.S. Senate.
Aug. 30, 1988. Washington, G.A.O., 1988. 66 p.
LRS88-8683
"GAO/HRD-88-83, B-232117"
"Data compiled annually by the Bureau of the Census to identify
characteristics of the uninsured and changes in the uninsured
population since 1982."
Health insurance: an overview of the working uninsured; report to the
chairman, Committee on Finance, U.S. Senate. Feb. 24, 1989.
Washington, G.A.O., 1989. 54 p.
LRS89-1515
"GAO/HRD-89-45, B-230452"
Discusses "the characteristics of the working uninsured, [and] the
kinds of employers that do not offer health insurance."
Long-term care for the elderly: issues of need, access, and cost; report
to the Chairman, Subcommittee on Health and Long-Term Care, Select
Committee on Aging, House of Representatives. Nov. 28, 1988.
Washington, G.A.O., 1988. 54 p.
LRS88-14243
"GAO/HRD-89-4, B-226097"
Provides information on "(1) the number of elderly estimated to
need long-term care now and in the next century, (2) the types of
available long-term care services and access to them, and (3) public and
private expenditures to finance and deliver long-term care."
Order Code IB89031
CRS Issue Brief
Medicaid: FY90 Budget
and Child Health Initiatives
Updated December 8, 1989
(Archived)
by
Melvina Ford and Mark Merlis
Education and Public Welfare Division
CRS
Congressional Research Service The Library of Congress
CONTENTS
SUMMARY
ISSUE DEFINITION
BACKGROUND AND ANALYSIS
Description of Medicaid
Eligibility
Services
Payment for Services
Alternative Delivery Systems
FY90 Budget
Maternal and Child Health Initiatives
Eligibility for Pregnant Women and Children
Other Medicaid Child Health Proposals
Maternal and Child Health Block Grant
LEGISLATION
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
IB89031
12-08-89
Medicaid: FY90 Budget
and Child Health Initiatives
SUMMARY
Medicaid, authorized by Title XIX of the Social Security Act, is a Federal-State
matching program providing medical assistance to approximately 25 million low
income persons who are aged, blind, disabled, or members of families with children.
The Federal share of program expenditures for Medicaid is from general revenues. It
is expected that the Federal share for FY89 will total $34 billion while the Federal
share for FY90 is projected to reach over $37 billion. Each State designs and
administers its own Medicaid program, setting eligibility and coverage standards
within broad Federal guidelines. The Federal share of expenditures for Medicaid
services is tied to a formula inversely related to the square of a State's per capita
income. For FY90, the Federal matching percentages range from 50% to 80.18%.
Federal matching for State program administration is generally at 50%. However,
current law provides higher matching rates for certain activities, such as operation
of data systems and health care quality monitoring.
The Bush Administration's FY90 budget proposal included proposals for modest
expansions of Medicaid services for pregnant women and children. The Federal share
in the cost of these initiatives would be offset by a reduction in Federal contributions
to State administrative costs. The FY90 budget resolution approved by the Congress
provided a $200 million increase in Federal Medicaid funding over FY89 law levels,
and permitted further expansions if offsetting savings could be found in other
programs. The 101st Congress is considering a variety of Medicaid changes, including
expansion of community services for the frail elderly and the developmentally
disabled. However, options for improving coverage for low-income mothers and
children are receiving the greatest attention, because of concerns about the Nation's
infant mortality rate and the problem of access to care for children without health
insurance coverage. H.R. 3299, the Omnibus Budget Reconciliation Act of 1989, was
enacted by Congress Nov. 22, 1989 and is currently awaiting presidential action.
The Act includes expansion of eligibility for pregnant women and infants, and
increases the availability of providers for them.
Many proposals in the 101st Congress focus on Medicaid eligibility. They would
permit or mandate coverage of individuals at higher income levels and would remove
other barriers to coverage, such as assets tests, and delays in eligibility determination.
Other bills address issues beyond basic eligibility for benefits. There are proposals
to increase provider participation in Medicaid, to improve coordination between
Medicaid and other programs, and to provide outreach, education, and social services
to pregnant women and children. Some of these proposals would also expand another
major Federal health program targeted at mothers and children, the Maternal and
Child Health Block Grant program.
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ISSUE DEFINITION
Medicaid is a Federal-State matching program providing medical assistance to
approximately 25 million low income persons in FY89, at an expected total Federal
cost of $34.5 billion. The FY90 budget resolution approved by the Congress provided
for a $200 million increase in Federal Medicaid funding over FY89 law levels, and
permitted further expansions if offsetting savings could be found in other programs.
H.R. 3299, the budget reconciliation agreement recently enacted by the Congress but
not yet presented for presidential action, extended Medicaid eligibility to larger
numbers of pregnant women and children and took other measures to improve access
to prenatal and early childhood health care.
BACKGROUND AND ANALYSIS
Description of Medicaid
Medicaid, authorized by Title XIX of the Social Security Act, is a Federal-State
matching program providing medical assistance to a projected 25 million low income
persons in FY89. FY90 program expenditures are expected to reach $67 billion, of
which the Federal share will be $38 billion. Although Federal funds account for 56%
of total program expenditures, each State designs and administers its own Medicaid
program, setting eligibility and coverage standards within broad Federal guidelines.
Thus, there is considerable variation among the States in terms of eligibility
requirements, range of services offered, limitations placed on those services, and
reimbursement policies.
Every State except Arizona participates in the Medicaid program, as do the
District of Columbia, American Samoa, Guam, Puerto Rico, the Virgin Islands, and
the Northern Mariana Islands. (Arizona currently provides federally funded medical
assistance through a demonstration program that has received waivers of certain
Medicaid requirements.) At the State level, Medicaid is administered by a designated
single State agency. Federal oversight of the Medicaid program is the responsibility
of the Health Care Financing Administration (HCFA) within DHHS.
The Federal share of expenditures for Medicaid services is tied to a formula
inversely related to the square of a State's per capita income. For FY90, the Federal
matching percentages range from 50% to 80.18%. The matching rate for
administrative costs is generally 50% for all States. Higher matching, at levels
ranging from 75% to 90%, is available for certain management and control activities.
The remaining costs of the program are paid by the State; in some States local
governments may also contribute.
Eligibility
Eligibility for Medicaid benefits has traditionally been linked to actual or
potential receipt of cash assistance under either of two programs: Aid to Families
with Dependent Children (AFDC), and Supplemental Security Income (SSI) for the
aged, blind, and disabled. Recently States have been given the option to extend
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Medicaid to other low-income groups. Coverage of some of these new populations
was made mandatory by the Medicare Catastrophic Coverage Act of 1988 (P.L. 100-
360). Although H.R. 3607 repealed the Medicare provisions of the Act, Medicaid
provisions were left intact.
All States must cover the categorically needy. These include all persons
receiving AFDC and, in most States, persons receiving SSI. States have the option
of limiting Medicaid coverage of SSI beneficiaries by using more restrictive standards
for Medicaid, if those standards were in effect on Jan. 1, 1972 (before implementation
of SSI). Fourteen States continue to use more restrictive standards. States must
also cover as categorically needy a number of groups that are not receiving AFDC or
SSI. The following are among the more important of these groups:
-- Certain persons whose family income and resources are below AFDC
standards but who fail to qualify for AFDC for other reasons, such as
family structure. These include pregnant women, as well as children
born on or after Oct. 1, 1983, to age 7.
-- Families losing AFDC benefits as a result of increased employment
income or working hours or increased child or spousal support
payments. States must continue coverage for these families for various
periods, depending on the reason for the loss of AFDC benefits.
-- Persons who have been receiving both Social Security and SSI benefits
and who become ineligible for SSI because of increases in their Social
Security payments.
-- Certain disabled people who lose SSI after returning to work but who
remain disabled and who could not continue working if their Medicaid
benefits were terminated.
In addition to the mandatory groups, there are several optional groups that
States may elect to treat as categorically needy for Medicaid purposes. These include
families with unemployed parents and "Ribicoff children" in families with income
below AFDC standards; these are children whom the State is not required to cover
but who are under a maximum age set by the State, which may be 18, 19, 20, or 21.
States may also cover persons in institutions who meet a special institutional
financial standard set by the State; this standard may not exceed 300% of the SSI
payment level. Finally, States may cover disabled children who are not in an
institution but who would be eligible if they were in an institution.
Thirty-nine States and other jurisdictions also provide Medicaid to the
medically needy. These are persons whose income or resources exceed the
standards for the cash assistance programs but who meet a separate medically needy
financial standard established by the State and also meet the non-financial standards
for categorical eligibility (such as age, disability, or being a member of a family with
dependent children). The separate medically needy income standard may not exceed
133.3% of the maximum AFDC payment for a household of similar size. Persons
may qualify as medically needy after their incurred medical expenses are deducted
from their income or resources. This process known as "spenddown" is a frequent
route to Medicaid eligibility for persons in nursing facilities.
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Beginning with the Omnibus Budget Reconciliation Act of 1986 (P.L. 99-509),
Congress has permitted States to extend Medicaid coverage to certain target
populations, using eligibility standards which are not directly linked to those used
in the cash assistance programs. The Act allowed States the option of covering
pregnant women and young children and/or aged and disabled persons meeting
State-established income standards as high as 100% of the Federal poverty level.
The Medicare Catastrophic Coverage Act of 1988 (P.L. 100-360) converted the
options to mandates for several of the target groups. States were required to phase
in coverage of pregnant women and infants under 1 year old, and aged and disabled
persons eligible for Medicare with family incomes below 100% of poverty. Coverage
for the aged and disabled may be restricted to Medicare premiums and cost-sharing
amounts. States may choose to cover older children with family incomes below 100%
of poverty. This option permits States to cover children through age 7 beginning
Oct. 1, 1990.
The Omnibus Budget Reconciliation Act of 1987 (P.L. 100-203) further expanded
States' options by allowing coverage, beginning July 1, 1988, of pregnant women and
children up to age 1 with incomes less than 185% of the Federal poverty level. The
State may impose a premium for this coverage, equal to no more than 10% of the
amount by which the family's income exceeds 150% of the poverty level.
H.R. 3299, as enacted by Congress, mandates coverage of pregnant women and
infants with family incomes up to 133% of the Federal poverty level by Apr. 1, 1990.
Services
All States must cover a minimum set of services under Medicaid and may at
their option offer additional services. The minimum service requirements differ for
the categorically needy and the medically needy. For the categorically needy, the
State must provide inpatient and outpatient hospital services, physician services,
laboratory and x-ray, family planning, skilled nursing facility (SNF) services for those
over age 21, and home health care for persons entitled to SNF care. The State must
also provide early and periodic screening, diagnosis, and treatment (EPSDT), a
preventive health program for persons under 21. H.R. 3299 as enacted, adds
ambulatory services provided by federally qualified health centers, defined as
community or migrant health centers or health care for the homeless programs. If
the State covers the medically needy it must provide, at a minimum, ambulatory care
for children and prenatal and delivery services for pregnant women. States may limit
coverage for the mandatory services in a variety of ways. They may impose ceilings
on the number of inpatient days or physician visits that will be reimbursed, require
prior authorization or second surgical opinions, and deny coverage for services
deemed to be experimental.
Among the additional services that States may choose to provide are prescription
drugs, dental care (some dental coverage is mandatory for children under EPSDT),
eyeglasses, and care in inpatient psychiatric facilities for persons under 21 or over 65.
In terms of overall expenditures, the most important optional Medicaid service is care
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in intermediate care facilities (ICFs). All of the States and the District of Columbia
cover ICF services, and every State except Wyoming also covers services in an ICF
for the mentally retarded, or ICF-MR.
Whatever services the State chooses to cover, it must offer them uniformly
throughout the State and must, with minor exceptions, offer comparable coverage to
all persons in the categorically needy groups. Finally, beneficiaries must generally
be allowed to obtain services from any qualified provider. All three of these
requirements -- statewideness, comparability, and freedom of choice -- may be waived
under circumstances to be described below.
Payment for Services
States are generally free to develop their own reimbursement methodologies and
levels for covered services. There are statutory guidelines for certain services, with
only three rules applicable to every service type. First, providers must accept
Medicaid payment as payment in full and may not seek to collect from beneficiaries.
Second, Medicaid pays only after any other insurance or third party payment source
available to the beneficiary has been exhausted. In particular, when beneficiaries are
eligible for both Medicaid and Medicare, Medicare pays first for the services it covers.
Medicaid pays what would ordinarily be the beneficiary's share (deductible or
coinsurance) and covers services not available under Medicare. Finally, H.R. 3299 as
enacted, requires that payments be sufficient to enlist enough providers so that
covered services will be available to Medicaid beneficiaries to at least the extent they
are available to the general population in a geographic area.
States use two basic payment methodologies for institutional care: retrospective
and prospective. In a retrospective system, payment amounts are determined after
services are rendered and are based on the actual costs incurred by the provider in
furnishing those services. In a fully prospective system, payment amounts are
determined in advance. The provider receives a specified rate for each defined unit
of service, such as a day of care or a total hospital stay, regardless of whether the
provider's actual costs are more or less than that rate. States are increasingly
shifting towards prospective systems for both hospital and nursing facility care.
For services of physicians or other individual practitioners, payment amounts
are usually the lesser of the provider's actual charge for the service and a maximum
allowable charge established by the State. In setting these maximums, some States
use methods comparable to those used by Medicare in establishing reasonable charges
for physician services. Other States have developed fixed fee schedules, specifying a
flat maximum payment amount for each type of service; the maximum may be
unrelated to actual provider charges.
Alternative Delivery Systems
States are permitted to develop alternative ways of providing Medicaid benefits,
through a variety of structured systems. Use of some of these alternatives is wholly
at the State's option; others require waivers of Federal requirements approved by the
Secretary.
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First, States may contract with health maintenance organizations (HMOs), or
other prepaid health plans for the enrollment of Medicaid beneficiaries. For each
beneficiary enrolled in a plan, the State issues a fixed monthly premium payment,
out of which the plan provides all covered services.
Second, States may obtain waivers to restrict the providers from whom
beneficiaries may obtain services. Some States have used this option, established by
Section 2175 of the Omnibus Budget Reconciliation Act of 1981 (P.L. 97-35, OBRA
81), to enter into selective contracting arrangements. The State may, for example,
choose participating hospitals through a system of competitive negotiation. The more
common use of the 2175 waiver authority is to establish primary care case
management programs. Beneficiaries are required to select a single primary care
provider. Except in an emergency, care from other providers must be authorized by
the primary care physician.
Finally, States may obtain waivers, authorized by Section 2176 of OBRA 81, to
provide home and community-based services to persons who would otherwise require
continuing care in hospitals or nursing homes. The waivers allow the State to
design a comprehensive package of medical and social services to allow a target
population, such as the frail elderly or the mentally retarded, to remain in the
community.
FY90 Budget
Each of the last four budget reconciliation acts has provided for expansions of
the Medicaid program, chiefly by providing for optional or mandatory coverage of
additional groups of women and children. Partly as a result of these expansions,
Medicaid expenditures have recently been growing more rapidly than anticipated. In
its FY88 budget, the Administration projected that Federal outlays would grow from
$25 billion in FY86 to $28.2 billion in FY88, for a 2-year growth rate of about 13%.
Instead, FY88 outlays rose to $30.4 billion, nearly 22% above the FY86 level. The
Administration's original FY89 projections assumed further growth, under then
current policy, of 6.5%. However, later projections set FY89 Federal expenditures at
$34.3 billion, 12.8% above the FY88 level. Projections for FY90 under H.R. 3299, as
enacted by the Congress, stand at over $37 billion.
President Reagan's FY90 budget included legislative and regulatory proposals
intended to reduce Federal Medicaid outlays from a projected $37.6 billion to $36.0
billion. President Bush's revised proposal, presented to Congress on Feb. 9, 1989,
retained only one of the proposed legislative changes, a reduction in Federal funds
for State administrative costs. Savings would have been used to finance the Federal
share of costs for expanded services to pregnant women and children. The net effect
of this proposal was to maintain FY90 Federal spending at current law levels, with
costs for Medicaid eligibility and service expansions to be borne by the States.
The Bipartisan Budget Agreement accepted by the President and congressional
leadership in April 1989 provided for FY90 Medicaid funding at current law levels.
As passed by the House, H. Con. Res. 106, the FY90 budget resolution, provided for
a $200 million increase to be used to fund new initiatives in the area of infant
mortality and child health, expanded community services for the frail elderly and the
mentally retarded, as well as to make coverage of hospice services mandatory. As
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amended by the Senate, the budget resolution provided for Medicaid funding at
current law levels, with any program expansions to be funded through offsetting
savings in Medicaid or other programs. The budget conference agreement followed
the House provision, allowing a $200 million increase for program expansion. It also
permitted further expansion if the committees of jurisdiction could achieve offsetting
savings in other programs.
Both the Congressional Budget Office (CBO) and the Office of Management and
Budget (OMB) estimate that the expansion provisions of H.R. 3299 as enacted by the
Congress and currently awaiting presidential action, will cost $150 million in FY90.
The bill contains technical amendments which CBO estimates at no cost and OMB
estimates at up to $650 million. The difference is due to differences in the methods
used by the two agencies to compute their baseline costs for Medicaid.
Maternal and Child Health
The last three Congresses have gradually expanded both mandatory and optional
Medicaid coverage for pregnant women and children. At least two major factors have
contributed to congressional interest in Medicaid expansion. The first is growing
concern over the incidence of infant mortality and other unfavorable outcomes of
pregnancy. The United States had an infant mortality rate in 1987 of 10.1 deaths
per thousand live births, higher than that of many other major industrial nations.
Rates are higher for minorities and residents of inner cities. Beyond the children
who die, there are many more low birth-weight infants and others with preventable
problems that are costly to treat and that can result in lifelong disabilities. There
is evidence that access to prenatal and well baby care is an important factor in these
outcomes.
A second source of interest in Medicaid expansion has been the growth in the
number of Americans without health insurance coverage. The proportion of the
population without insurance has been going up in this decade, from about 14.6% of
the non-elderly in 1979 to 17.5% in 1986. In that year, 37 million persons lacked
coverage; of these, 12 million were children under age 18. More than half of these
children were in families with incomes below the Federal poverty level. In 1987,
Medicaid covered only 53% of children in poverty. Many poor children were excluded
because Medicaid maximum income standards in most States were well below the
poverty level, while others were excluded on categorical grounds, such as restrictions
on enrollment of two-parent families with an employed parent. Recent changes in
Medicaid eligibility standards, both financial and categorical, are often spoken of as
having severed the traditional link between Medicaid and the welfare programs.
These changes are only beginning to be implemented, and their impact cannot yet be
measured. However, they are expected to reach only a fraction of uninsured
children.
The Bush Administration proposal to finance expanded coverage through a
reduction in Federal matching for administrative costs was introduced as H.R. 2216/S
902. Other proposals considered in the first session of the 101st Congress provide
for broader expansions affecting other Federal programs as well as Medicaid. H.R.
3299, as passed by the House, would have expanded coverage beyond the measures
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adopted by the conference agreement. Medicaid expansion is facing increasing
opposition from State governments. The National Governors' Association has called
for a 2-year moratorium on Medicaid expansion, arguing that past expansions have
strained State budgets and detracted from other priorities, such as education.
Eligibility for Pregnant Women and Children
Proposals in the 101st Congress would raise the optional or mandatory
maximum income standards for pregnant women and children and would also address
other potential barriers to Medicaid coverage for these groups, such as limits on
allowable assets, delays in the application and eligibility determination process, and
discontinuous eligibility. H.R. 3299, as enacted, raises the mandatory maximum
income standards for pregnant women and children and also provides for potential
increases in the numbers of health care providers available to these groups.
Income Standards
Pregnant women and infants. Before the enactment of H.R. 3299, States
were required to cover pregnant women and infants under 1 year old with family
incomes up to 75% of the Federal poverty level by July 1, 1989, and up to 100% of
the Federal poverty level by July 1, 1990. As enacted, H.R. 3299 requires States to
cover pregnant women and children up to age six in families with incomes up to
133% of the Federal poverty level by Apr. 1, 1990. States may, at their option,
establish a higher maximum income standard for pregnant women and infants, up
to 185% of the Federal poverty level. S. 1201 would mandate a 185% standard for
pregnant women and children under age 6 by Jan. 1, 1991. S. 339 would phase in
mandatory coverage of pregnant women and infants up to 185% of the poverty level
by July 1, 1993. A similar provision was included in H.R. 3299 as passed by the
House; however, the provision was not included in the conference agreement. H.R.
1573 would phase in mandatory coverage up to 200% of the poverty level by July 1,
1993, and would permit States to raise their standards to 200% of poverty beginning
in July 1990.
Children over 1 year old. States have the option of providing Medicaid to
children aged 1 through 7 who were born after Sept. 30, 1983, and whose family
incomes meet a State-established standard no higher than 100% of the Federal
poverty level. S. 339 would mandate coverage of children under age 18 and born
after Sept. 30, 1983, with incomes up to 100% of the poverty level. H.R. 3299, as
passed by the House, included the same provision; however, the provision is not
included in OBRA 89. S. 949 would leave coverage optional, but would allow States
to cover 8-year-olds and would raise the maximum permissible income standard for
1 through 8-year-olds to 185% of the Federal poverty level. S. 949 would also allow
States to cover foster children and children in group homes through age 20 with
incomes below 100% of the poverty level. H. R. 3299, as passed by the House, would
have covered foster children up to age 18. S. 1201 would allow coverage of children
under age 19 with family incomes below 100% of poverty. S. 1201 and H.R. 3299,
as passed by the House, would require Section 209(b) States, those that do not
automatically provide Medicaid to all recipients of SSI benefits, to cover all children
under age 18 who are SSI-eligible.
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One alternative that has been offered to expansion of Medicaid as an
entitlement is a Medicaid "buy-in" program, under which individuals or families
whose incomes exceed Medicaid eligibility levels could obtain coverage by paying a
premium. To make the coverage affordable, the premium might be set below the
actual cost of coverage, with the difference made up through a public subsidy.
President Bush advanced this idea in the 1988 campaign, but the Administration has
not yet offered a concrete buy-in proposal. H.R. 3299, as enacted by the Congress,
provides for three-year demonstration projects to study the effect of allowing States
to extend coverage to pregnant women and children under age 20 who are not
otherwise eligible for Medicaid and whose family incomes are below 185% of the
poverty line. The Secretary of DHHS may enter into agreements with several States
to test alternatives for Medicaid extension which could be enrollment under an
employer plan, a State uninsured plan, an HMO or other arrangement. Individuals
or families with incomes over 100% of the poverty level must be charged premiums
according to a sliding scale. Federal funding for these projects is limited to $10
million for each of the fiscal years 1990, 1991 and 1992.
Other Eligibility Standards
In establishing Medicaid eligibility for pregnant women and children, a State
must determine income using the same methodology used in the State's AFDC
program. States have the option of applying a resource standard (a limit on
allowable family assets), but are not required to do so. H.R. 1573 and S. 339 would
allow States to use an income determination methodology less restrictive than that
for AFDC. These bills, along with S. 440, would forbid the use of a resource
standard for mandatory coverage groups of pregnant women and children. Under
H.R. 1573 and S. 440, States could continue to apply a resource standard for optional
coverage groups. S. 1201 would permit a resource standard for both mandatory and
optional groups, but would exclude from consideration non-liquid assets, such as
automobiles or insurance policies.
Presumptive Eligibility
To insure early access to prenatal care, States have the option of establishing
"presumptive eligibility" for low-income pregnant women. Qualified providers such
as Federally funded clinics, may make a preliminary determination that a pregnant
woman seeking treatment is potentially eligible for Medicaid. The woman may then
receive ambulatory prenatal care for up to 45 days, or until the State completes an
eligibility review, whichever is earlier. Even if the woman is ultimately found to be
ineligible, the provider may be reimbursed for services furnished during the
presumptive eligibility period. However, if the woman fails to apply for Medicaid
within 14 days, presumptive eligibility ceases. As of January 1989, 20 States
provided for a presumptive eligibility period.
H.R. 1573, S. 339, and S. 1201 would require all States to implement the
presumptive eligibility option, and would eliminate the 45 day limit; eligibility would
continue until the State had completed its review of the Medicaid application. S.
1201 would also provide 45 days of coverage even if the woman never applied for
Medicaid. As passed by the House, H.R. 3299 would have left presumptive eligibility
optional, but would have continued eligibility until the completion of State review.
The conference agreement, however, made no changes in current law. H.R. 2216/S.
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902 would mandate presumptive eligibility and would extend eligibility for 60 days
even if the woman is determined ineligible before that date. S. 440 and S. 949 would
allow States to establish presumptive eligibility for children, through age 17 under
S. 440 and through age 20 under S. 949.
Continuation of Coverage
Since July 1, 1989, States have had the option of continuing coverage for a
pregnant woman through the end of the second full month beginning after the end
of the pregnancy, even if the woman would otherwise become ineligible during that
period. H.R. 1573 and S. 339 would change this option to a mandate, and would
also require continued coverage of infants through the first year of life. S. 440
would mandate continuation of coverage for pregnant women only, while S. 1201
would continue coverage for infants only through the first 60 days of life. S. 339,
S. 440, and S. 949 would also permit, but not require, extended coverage for older
children. Eligibility could be deemed to continue for 1 year from the date of the last
previous determination of eligibility. H.R. 3299 as passed by the House, would have
required continued eligibility when a child ceased to qualify for Medicaid on one basis
(such as receipt of AFDC) until the State had determined that the child was not
eligible on any other basis (such as qualifying as medically needy). S. 1201 has a
similar provision applicable to AFDC and SSI recipients only. For other children, it
provides that eligibility must be established for 6 month periods, with no
redetermination in the middle of a period. Continuation of coverage was not
addressed in H.R. 3299, as enacted by Congress.
Other Medicaid Child Health Proposals
Although congressional interest has centered on financial eligibility for medical
care, there are concerns that mere extension of Medicaid coverage may not ensure
that all mothers and children will receive appropriate services. Low-income people
may face other barriers to access. First, not all providers of care will accept Medicaid
reimbursement, largely because of low Medicaid payment rates. Second, some low-
income mothers may be unaware of the availability of Medicaid benefits or may need
help in applying for them. Third, there may sometimes be insufficient coordination
between the Medicaid program and other medical and social services available to
mothers and children. Medicaid proposals in the 101st Congress seek to address each
of these problems. There are also proposals to modify Medicaid to address another
child health concern, declining rates of immunization for certain diseases.
Medicaid Provider Participation
Low rates of provider participation, and especially physician participation, have
been a historic problem under Medicaid. Surveys of physicians have generally found
that low Medicaid reimbursement, relative to the physicians' usual charges, is an
important factor in the decision to refuse Medicaid patients.
Federal regulations require that a State's Medicaid payment rates "must be
sufficient to enlist enough providers so that services under the [State Medicaid] plan
are available to recipients at least to the extent that those services are available to
the general population." (42 CFR 447.204.) H.R. 3299 incorporates this rule in the
Medicaid statute and requires DHHS to determine the adequacy of States' payment
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rates for obstetrical and/or pediatric services. S. 721 focusses on the availability of
obstetrical care in rural areas and would raise the Federal matching rate to 90% for
pregnancy related services in rural health manpower shortage areas if the State's
Medicaid rates for these services were equal to at least 80% of the rates paid by the
health insurance plan offered to State employees.
As enacted by the Congress, H.R. 3299 requires States to include in their
Medicaid benefit packages ambulatory services provided in federally qualified health
centers and to pay these providers 100% of their reasonable costs. In addition, H.R.
3299, as enacted, requires States to pay for the services of certified pediatric and
family nurse practitioners regardless of whether they are under the supervision of or
associated with a physician or other provider. Finally, H.R. 3299 as enacted, permits
States to pay more for obstetrical and pediatric services furnished in rural areas than
for services furnished in metropolitan statistical areas.
Several bills would expand current provisions under which States are required
to give special treatment to hospitals serving a disproportionate share of low-income
patients. Currently, States must provide increased payment rates to such hospitals
for all inpatient services, make extra payments for infants with very long stays or
high costs and must waive any durational limits on covered services for infants. S.
339 and S. 1201 would extend these provisions to all children under age 18. H.R.
3299, as passed by the House, contained a similar provision; however, the provision
wa S not included in the conference agreement. S. 1201 would also prohibit annual
dollar limits on inpatient coverage for children under 1 year old. Finally, S. 949
would require higher payment rates to disproportionate share hospitals for outpatient
as well as inpatient care.
Some providers may be deterred from accepting Medicaid patients, not just by
Medicaid payment rates, but because of problems in dealing with State Medicaid
agencies and delays in receiving Medicaid payment, or because of concerns about
potential malpractice liability. S. 339 and S. 949 would provide grants to States for
demonstration projects to test innovative ways of overcoming barriers to provider
participation, such as expedited reimbursement, changes in burdensome
administrative requirements, or sharing in the cost of malpractice insurance. Federal
funding for the projects would be available at enhanced matching rates. S. 1201
would require States to furnish providers with assistance with billing and other
paperwork.
Outreach and Application Assistance
Some mothers may be unaware of the importance of prenatal and well baby
care or the availability of Medicaid to pay for that care; others may find the
application process difficult. Some proposals would provide for outreach services, to
locate potentially eligible mothers or families, educate them about available benefits,
and/or assist in filing applications. H.R. 2216/S. 902 would require outreach
activities, while S. 430 would merely permit States to claim Federal matching for
such activities. There are also proposals to simplify the process of applying for
Medicaid. S. 339 and H.R. 1573 would require States to process applications at sites
other than welfare offices, such as hospitals or clinics. "Outstationing" of eligibility
workers could be included as an optional outreach service under S. 430. H.R. 1573,
and S. 1201 would also require DHHS to develop a uniform application for programs
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serving children under 6, including Medicaid, the MCH block grant, Head Start, and
the supplemental food program for women, infants, and children (WIC). The
requirement for a uniform application form is included in the conference agreement
on H.R. 3299, in amendments to the Maternal and Child Health Block Grant.
Coordination with Other Programs
Several proposals seek to improve the coordination between Medicaid and other
programs, such as the supplemental food program for women, infants, and children
(WIC), which is designed to prevent medical problems due to inadequate nutrition.
The conference agreement on H.R. 3299 requires States to make information about
WIC available to all eligible Medicaid beneficiaries. S. 949 would fund State
demonstration projects to improve the coordination of Medicaid, WIC, the MCH block
grant program, and other services. The Administration has proposed similar
demonstrations, to be funded at $40 million over a 2-year period.
Childhood Immunizations
Overall immunization rates for children have improved in recent years as a
result of requirements that children be immunized for certain diseases before
entering elementary school. However, immunization rates in the pre-school
population have declined for certain diseases, such as polio and
diphtheria/tetanus/pertussis. The Administration's Medicaid proposal (H.R. 2216/S.
902) would require States to cover immunizations for children under age 6 who are
receiving food stamps, regardless of whether these children were otherwise eligible
for Medicaid. The maximum income standard for food stamps is 130% of the poverty
level. With mandatory Medicaid coverage of children under age 6 up to 133% of the
poverty level, H.R. 3299, enacted by the Congress, but not yet acted upon by the
President, covers the children who would have been affected by the Administration
proposal.
Maternal and Child Health Block Grant
In addition to proposals for changes in Medicaid, several bills would expand the
current Maternal and Child Health (MCH) Block Grant program authorized by Title
V of the Social Security Act. This program provides grants to States for a variety
of health programs, including direct provision of preventive and primary care services
to mothers and children, health screenings, immunizations, and rehabilitation services
for children with special health care needs (formerly referred to as crippled children).
The appropriation for FY89 was $554 million. Of this amount, approximately 84%
was allocated to States; the rest was retained by DHHS to support "special projects
of regional and national significance" and to conduct research, training, and genetic
disease screening programs. The FY90 DHHS appropriations bill (P.L. 101-166)
provides for $561 million, the maximum authorized for MCH funding at the time of
its passage.
As enacted by the Congress, H.R. 3299 would substantially revamp the MCH
program, while increasing the permanent authorization to $686 million. Both the
Secretary and the States would be required to set goals and carry out activities
consistent with the goals and objectives established under the Public Health Service
Act for the year 2000. The Federal set-aside for special projects would remain at
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15%, and there would be an additional 12-3/4% set-aside whenever the amount
appropriated for the fiscal year is over $600 million. The bill would also tighten
controls on the use of funds allotted to States while increasing the services States
may provide.
The new Federal set-aside would be used for several initiatives including case
management provided in the home by either professional or qualified non-professional
workers; projects designed to increase the participation of obstetricians and
pediatricians in both the MCH and the Medicaid programs; integrated delivery
systems; rural or hospital-based MCH projects; and community-based programs
including day care for children who usually receive services through inpatient care.
The set-aside authorized by H.R. 3299 as enacted is 12 3/4% of the appropriated
amounts that exceed $600 million.
To receive an MCH grant, States would have to submit an application containing
a statewide needs assessment, a plan for meeting the needs identified in the
assessment and a description of how MCH grant funds would be used to meet the
needs. States would be required to use at least 30% of the funds for preventive and
primary care services for pregnant women, mothers and infants up to age one, 30%
for services to children and 30% for services for children with special needs. Funds
for administrative expenses would be limited to 10% of the allotment. H.R. 3299 as
enacted by the Congress would also require States to comply with new detailed
reporting requirements related to the use of funds and the extent to which the State
has met its goals and objectives and the national health objectives.
Various other provisions of H.R. 3299, as enacted, would increase access to
health services. The bill provides for a maternal and child health handbook to be
distributed to pregnant women and young families; a model application form that can
be used to apply for several maternal and child assistance programs simultaneously;
demonstration projects to provide insurance coverage to medically uninsurable
children up to age 19; and a national directory which lists the toll-free telephone
numbers States are required to provide for access to information.
LEGISLATION
Note: The provisions of the following bills are discussed in detail in the
preceding text. The following discussion includes only provisions not discussed above.
H.R. 1573 (George Miller)
Child Investment and Security Act of 1989. In addition to provisions relating
to the Medicaid, MCH, and Community and Migrant Health Center programs, the bill
includes expansions of the WIC and Head Start programs. Introduced Mar. 22, 1989;
referred to Committees on Energy and Commerce and Education and Labor.
H.R. 2216 (Michel)/S. 902 (Dole)
Medicaid Pregnant Women, Infants, and Children Amendments of 1989.
(Administration proposal.) Funds provisions relating to expanded Medicaid eligibility
and childhood immunization programs by reducing Federal matching payments for
administrative costs. Matching percentages for the following activities would be
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reduced to 50% on a timetable ending Sept. 30, 1994: compensation or training of
skilled professional medical staff, nursing home pre-admission screening and resident
review, nursing home survey and certification, contracts with utilization and quality
control peer review organizations (PROs) or similar entities, and immigration status
verification. The current 90% matching rate for family planning services would be
retained, but the rate for administrative costs associated with those services would
be reduced to 50%. H.R. 2216 introduced May 3, 1989; referred to Committee on
Energy and Commerce. S. 902 introduced May 3, 1989; referred to Committee on
Finance.
H.R. 2924 (Waxman)
Omnibus Budget Reconciliation Act of 1989. Energy and Commerce Committee
reconciliation package; also includes Medicare amendments and Medicaid amendments
unrelated to maternal and child health. Introduced July 18, 1989; incorporated in
H.R. 3299 as reported by the House Budget Committee.
H.R. 3299 (Panetta)
Omnibus Budget Reconciliation Act of 1989. Clean bill reported by the House
Budget Committee Sept. 20, 1989. Passed House with amendments, Oct. 5, 1989.
Passed Senate with amendments Oct. 13, 1989. Conference report filed in House,
Nov. 21, 1989. Both House and Senate agreed to conference report Nov. 22, 1989,
however, the bill as enacted has not yet been presented for presidential action.
Mandates Medicaid expansion for pregnant women and children up to age 6 with
family incomes up to 133% of poverty level by Apr. 1, 1990. Codifies current
regulatory requirement that payments must be sufficient to enlist enough providers
so that covered services will be available to Medicaid beneficiaries to at least the
extent they are available to the general population in a particular area. Requires
State Medicaid programs to cover services of certified pediatric or family nurse
practitioners and ambulatory services in federally qualified health centers. Requires
State Medicaid plans to provide for coordination between Medicaid and WIC
programs. In the Maternal and Child Health Block Grant, H.R. 3299 as enacted
increases authorization of appropriations to $686 million per year; adds a new 12
3/4% set-aside to support infant mortality initiatives and community-based services
for children; provides for demonstration projects to cover uninsurable children; and
requires both DHHS and States to set goals consistent with health objectives for the
year 2000.
S. 339 (Bradley)
Infant Mortality and Children's Health Act of 1989. Medicaid expansions for
pregnant women and children. Introduced Feb. 2, 1989; referred to the Committee
on Finance.
S. 430 (Daschle)
Optional Medicaid coverage of outreach services. Introduced Feb. 22, 1989;
referred to Committee on Finance.
S. 440 (Biden)
Health Care for Children Act of 1989. Medicaid expansions for children aged
1 through 18. Introduced Feb. 23, 1989; referred to Committee on Finance.
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S. 721 (Baucus)
Rural Obstetrical Care Access Act of 1989. Medicaid reimbursement increases.
Introduced Apr. 6, 1989. Referred to Committee on Finance.
S. 949 (Riegle)
Medicaid Children's Health Improvement Act of 1989. Medicaid expansion for
children aged 1 through 20. Introduced May 9, 1989; referred to Committee on
Finance.
S. 1201 (Bentsen)
Maternal and Child Health Act of 1989. Medicaid and MCH expansions. In
addition to general maternal and child health provisions, includes provisions for
increased flexibility in providing home and community-based care to children with
special needs. Introduced June 19, 1989; referred to Committee on Finance.
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
U.S. Congress. House. Committees on Education and Labor, and Energy and
Commerce, and the Senate Special Committee on Aging. Insuring the
uninsured: options and analysis. Oct. 1988. Education and Labor Serial No.
100-DD. Energy and Commerce Serial No. 100-BB. Special Committee on Aging
Serial No. 100-O. 212 p.
U.S. Congress. House. Committee on Energy and Commerce. Subcommittee on
Health and Environment. Medicaid Source Book: Background Data and
Analysis. Nov. 1988. House Energy and Commerce Committee Print 100-AA.
501 p.
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