76: Public Policy Intersecting with an Aging Society

The continuum of care that supports older Americans is at a crossroads. The major policy initiatives framing financing and system design in both the public and private sectors are approximately 50 years old and were designed for a very different time and population. When the Medicare and Medicaid programs became law in 1965, the average life expectancy in the United States was 70 years (Figure 76–1), and most hospitals did not have technologies to significantly prolong life following a life-threatening incident.

Over the course of the twentieth century, particularly in the last 25 years, the United States has experienced a dramatic increase in life expectancy, largely as a result of far more sophisticated medical interventions and treatments. Even though social policy has evolved over this period, the primary focus has been on incremental changes to the policy backbone built decades ago: Social Security, Medicare, and Medicaid. These programs now encompass services, such as dialysis and transplantations, or use delivery system approaches, such as managed care. Yet these programs have not changed substantially to meet the dramatic and different needs of current and future older adults.

What are the needs that all adults will face as they age? These needs can be categorized into 3 spheres of security: income, health, and functional (Figure 76–2). Public policy has historically focused on 2 of these 3 spheres: (a) health security through Medicare, Medicaid, and other insurance; and (b) income security through Social Security, defined retirement benefits, and savings programs such as 401Ks. Functional security, or those programs that support people in daily living who have functional challenges, is the sphere with the least-developed policy architecture. The increasing need for this type of security is a consequence of individuals living longer with more chronic illness and functional limitation than in any other previous period.

Most adults are simply not prepared for these substantial needs as they grow older, and often rely on the 2 spheres of income and health security to address them. Seventy percent of Americans who reach the age of 65 years will need some form of long-term services and supports (LTSS) in their lives for an average of 3 years. Most individuals desire to receive these services in their homes and communities rather than in an institution, such as a nursing home. The “oldest old,” or those age 85 years and older, have the most substantial need for this type of care, with approximately 30% having moderate-to-severe LTSS needs—three times the proportion among those 75–84 years old. The percentage of those age 85 years and older is expected to increase by more than 25% by 2030. The lack of a comprehensive policy approach to meeting the functional security needs of vulnerable elders remains a critical policy challenge.

The next sections outline the Medicare and Medicaid programs, describe new initiatives aimed at addressing functional security through these 2 programs, and provide a framework for future policy development in this area.

Medicare and Its Role in Supporting Older Americans

Enacted in 1965, Medicare is a federally administered health insurance program that provides coverage for individuals age 65 years and older, individuals younger than age 65 years with permanent disabilities who receive Social Security Disability Insurance payments, and individuals diagnosed with end-stage renal disease or amyotrophic lateral sclerosis. Medicare is funded through payroll taxes, general revenues, and beneficiary premiums and copays. As of 2010, 47 million people rely on Medicare for their health insurance coverage. This includes 39 million people age 65 years and older and 8 million people younger than age 65 with disabilities.

Medicare consists of 4 parts, each covering different benefits.

• Part A, also known as the Hospital Insurance program, covers inpatient hospital services, short-term rehabilitative care through a skilled nursing facility or home health agency, and hospice care. Part A is funded by a tax of 2.9% of earnings paid by employers and workers (1.45% each).

• Part B, the Supplementary Medical Insurance program, helps pay for physician, outpatient, home health, laboratory, and preventive services. Part B is funded by general revenues and beneficiary premiums ($104.90 per month in 2014). Beneficiaries who have higher annual incomes (greater than $85,000/individual, $170,000/couple) pay a higher, income-related monthly Part B premium.

• Part C, also known as the Medicare Advantage program, allows beneficiaries to enroll in a private plan, such as a health maintenance organization, preferred provider organization, or private fee-for-service plan, as an alternative to the traditional fee-for-service program. These plans receive payments from Medicare to provide all Medicare-covered benefits. Part C is not separately financed, but instead includes dollars from Parts A, B, and sometimes D if a plan includes prescription drug coverage (see Part D below). Special Needs Plans and the Program of All-inclusive Care for the Elderly (PACE) are included in this statute.

• Part D, the outpatient prescription drug benefit, launched in 2006. The benefit is delivered through private plans that contract with Medicare, either as standalone prescription drug plans or Medicare Advantage prescription drug plans. Part D is funded by general revenues, beneficiary premiums, and state payments. Individuals who sign up for a Part D plan generally pay a monthly premium. Those with modest income and assets are eligible for assistance with premiums and cost-sharing amounts.

Medicare Funding for Graduate Medical Training

Medicare has historically provided substantial support to train the next generation of medical professionals, initially funding this on a cost basis. However, when Medicare began paying for inpatient hospital services through the Prospective Payment System in 1983, it recognized that teaching hospitals often serve a vulnerable population and, as a result of the teaching process itself, care in these institutions is more costly than in other hospitals. For this reason, Medicare makes an adjustment to the discharge payment rates in hospitals that train residents called the Indirect Medical Education payment. Also, since 1985, Medicare compensates hospitals for a portion of the costs directly related to training residents through its Direct Graduate Medical Education (DGME) payment. DGME is based on a per-resident amount, which generally includes salaries and fringe benefits for interns and residents, supervisory teaching physician costs, and overhead associated with operating a medical residency training program.

Medicaid and Its Role in Supporting Low-Income Older Americans

Also enacted in 1965, Medicaid is the federal–state jointly funded program that provides medical services and LTSS to millions of low-income Americans across the 50 states, the District of Columbia, and the Territories. Medicaid is the responsibility of both the states and the federal government, with states having primary administrative responsibility. Within national guidelines, each state operates its Medicaid program under a state plan, which describes the populations the state intends to cover, as well as the nature and scope of services it plans to offer. States can establish their own eligibility standards for the program; determine the type, amount, duration, and scope of services that will be provided; and set payment rates for these services. However, Medicaid is an entitlement program, meaning that states must provide certain mandatory services to specified populations in order to receive federal funding. Although participation is voluntary, all states currently participate in the program.

Medicaid financing is a shared responsibility of the federal and state governments. States incur Medicaid costs by making payments to service providers and performing administrative activities and are then reimbursed by the federal government for the “federal share” of these costs. The amount of the federal contribution to Medicaid relative to state dollars is termed the “federal medical assistance percentage” (FMAP) and is determined by a statutory formula set in law that establishes higher FMAPs for states with per capita personal income levels lower than the national average and lower FMAPs for states with per capita personal income levels that are higher than the national average. An FMAP of 50% is the statutory minimum. For fiscal year 2012, state FMAPs ranged from 50% to 74%.

To qualify for Medicaid coverage, an applicant’s income and assets must meet program financial requirements. States are required to serve select groups of individuals, also known as “categorically needy” populations, as part of their state plans. At their discretion, states may choose to cover additional “categorically related” groups beyond those required by law. States must also provide certain services through Medicaid, consisting of a basic set of mandatory medical care services (eg, hospital, physician, laboratory services) and institutional LTSS, such as long-stay custodial care in a nursing home. States may choose to offer optional services (eg, dental care, hospice), which vary by state as part of each state’s Medicaid plan.

States may also apply to the Centers for Medicare and Medicaid Services to waive certain federal requirements in order to modify their Medicaid programs and implement new approaches in the delivery and payment of services. Medicaid waivers allow states to limit services to special populations (eg, individuals with AIDS) or those with particular needs (eg, care management to older adults with nursing home levels of care) while still being eligible to receive federal matching payments for these services.

Long-Term Services and Supports

As Americans continue to live longer than in previous generations, often with chronic conditions and functional impairment, the number of individuals needing LTSS is expected to increase. LTSS is defined as assistance with activities of daily living (including bathing, dressing, eating, transferring, walking) and instrumental activities of daily living including meal preparation, money management, house cleaning, medication management, transportation) to older people and other adults with disabilities who cannot perform these activities on their own because of a physical, cognitive, or chronic health condition that is expected to continue for an extended period of time, typically 90 days or more. LTSS include such things as human assistance, supervision, assistive technologies, and care and service coordination for people who live in their own home, a residential setting, or an institutional setting, such as a nursing facility. LTSS also include supports provided to family members and other unpaid caregivers.

The cost of LTSS is substantial, impacting family financial resources and their potential to engage in the labor market. Private market costs of LTSS can far exceed most families’ resources, particularly for families of older and disabled Americans. In 2011, personal care at home averaged $20 an hour, or about $21,000 annually for part-time help. For people who need extensive assistance through nursing home care, the average annual cost is $78,000 for a semiprivate room.

Many Americans are not prepared for the likelihood of needing these services at some point in their lives. When the need for LTSS arises, individuals and families initially finance this care by utilizing their own resources. Families draw on their income and assets, and family caregivers provide a substantial amount of unpaid care. In 2009, nearly 62 million family caregivers in the United States provided care to an adult with LTSS needs at some time during the year. The estimated economic value of their unpaid contributions was approximately $450 billion in 2009, up from an estimated $375 billion in 2007. Businesses in the United States lose up to $33 billion per year in productivity from full-time caregiving employees. Private long-term care insurance plays a small role in financing LTSS, as about 6–7 million private policies are in force.

When individuals and families have exhausted their resources and can no longer shoulder the costs of LTSS on their own, they reach to Medicaid for help. Individuals who qualify for financial assistance through Medicaid for LTSS generally need this help for the rest of their lives. LTSS services covered by Medicaid include institutional services, such as those provided in a nursing facility or intermediate care facilities for the mentally retarded. LTSS that are provided outside of institutional settings over an extended period of time are referred to collectively as home- and community-based services (HCBS). Noninstitutional LTSS covered by Medicaid include home health, private duty nursing, rehabilitative services, personal care services, PACE, and a variety of HCBS provided through Medicaid waivers.

Nationally, Medicaid is the primary payer of LTSS for millions of Americans. Of the almost $208 billion in total U.S. spending on LTSS in 2010, Medicaid paid for more than 62% ($129.3 billion). These payments represent almost one-third of all Medicaid spending. Individuals age 65 years and older represented approximately 8% of Medicaid enrollees, but approximately 20% of all program expenditures. Of Medicaid LTSS spending for fiscal year 2010, slightly more than half (53%) was for institutional care. This proportion of spending on institutional care relative to HCBS varies across states.

Special Emphasis on Those Eligible for Medicaid and Medicare

There are more than 9 million individuals who are eligible for both Medicaid and Medicare (“dual eligibles”). While dual eligibles account for a smaller percentage of enrollees in both programs, they account for a disproportionate share of the costs. Duals represent 15% of Medicaid enrollees but account for 39% of Medicaid costs. These individuals are universally acknowledged to be a vulnerable and medically fragile group. Thirty-three percent of dual eligibles have 1 or more of the following chronic conditions: diabetes, stroke, dementia, and/or chronic obstructive pulmonary disease. These conditions often result in functional limitations and may require the use of personal care and supportive services. Dual eligibles are more likely to have multiple chronic conditions, use more health services and LTSS, and have higher per capita spending than Medicare-only beneficiaries. For these individuals, the Medicare and Medicaid programs were meant to complement each other, with Medicare covering medical services, while Medicaid provides assistance with Medicare premiums and cost sharing, as well as coverage for LTSS. However, misalignments between the 2 programs often make it challenging for dually eligible individuals to access needed services in a timely and customer-focused manner. Several efforts are currently underway to address these misalignments, including regulatory review and reconciliation at the federal level and development of programs that integrate the delivery of services and financing at the state and local levels.

The passage of the Patient Protection and Affordable Care Act (ACA, P.L. 111-148) on March 23, 2010, laid the groundwork for wide-ranging reform of the continuum of care that serves older adults. Although several provisions sought to increase preventative care and reduce cost sharing for key services (eg, prescription drugs), many provisions focused on improving care delivery for individuals with chronic conditions and functional impairment who interact often with the health and long-term care systems. The ACA created new programs to better incentivize providers and organizations to improve service arrangements for vulnerable populations served by the Medicare program. Examples include the creation of Accountable Care Organizations (ACOs), medical homes, and bundled payment programs for acute and postacute services, as well as the Community-Based Care Transitions Program and Independence at Home Demonstration. The ACA also created 2 new offices to enhance the continued pursuit of alternative models for financing services and organizing care through pilot testing: the Center for Medicare and Medicaid Innovation and the Federal Coordinated Health Care Office (now called the Medicare-Medicaid Coordination Office), focusing on bridging the gap between Medicare and Medicaid. The ACA also called for increased efforts to bolster the health care workforce. It established a National Health Care Workforce Commission, provided increased payment incentives for primary care providers, and encouraged states to directly enhance their supply of direct care workers (eg, Certified Nursing Assistants) through workforce development grants.

Specific to Medicaid, the ACA seeks to rebalance LTSS in the states toward increased use of HCBS and away from institutional care by enhancing federal matching for states to implement HCBS and improve the operational efficiency of state LTSS systems. The goal of these initiatives is to encourage a broader range of available services. However, the ACA does not fundamentally recalibrate the financial imbalance that currently favors institutional care services given that they are mandatory.

Focus on Person and Function Versus Patient and Disease

Over the past 2 decades, significant dollars have been spent tackling the assumption that chronic illness alone drives health care use. Even though some tangible improvements have been achieved, there is little evidence that “fixing” the disease will directly result in better care and health outcomes at a lower cost. The reason is that targeting efforts have not been refined enough and have missed a key part of the equation—how chronic disease (and often multiple diseases) impacts a person’s daily living, which requires a more robust discussion of functional status.

Our current health care system is built for “patients”—those people who are vessels for illness ideally on the road to wellness under the care of the medical system. This approach works well for a relatively healthy person facing an acute illness where a cure is almost always achievable. This model is fundamentally flawed however for individuals with serious chronic health conditions, as many will never be fully “well” the way a healthy 20-year-old recovers from pneumonia. As a result, people with chronic conditions risk getting stamped as “patients” for life. They get “patient-centered care” for their list of chronic illnesses as opposed to “person-centered care” focused on their desires to retain choice and independence in their lives inclusive of health conditions and functional status.

Addressing both the patient and the underlying person—the illness and its functional impact—is the key to more effective targeting. About 110 million people in the United States live with chronic illness and nearly 32 million have serious functional limitations. Of key interest is the overlap in these 2 populations, accounting for 27 million people. More than 30% of older Medicare beneficiaries in the top spending quintile have both chronic conditions and functional limitations. On average, Medicare spends almost 3 times more per capita on seniors who live with chronic health conditions and functional impairment compared to seniors with chronic conditions alone. They were nearly twice as likely to have a hospital stay than those with chronic conditions alone. While roughly half of seniors with chronic conditions and functional limitations qualify for Medicaid (dually eligible), more importantly the other half do not. When an older adult with chronic conditions and functional limitations has a daily living crisis, even if not primarily medical in nature, the medical system and particularly hospitals are often the backstop. These data clarify that a chronic disease, “patient-only” perspective to care delivery is simply too broad an assumption for good targeting.

Focus on Quality

Given that older adults have care needs and preferences that are much different from those of a younger population, assessing the performance of providers and organizations should account for the comprehensive set of services delivered to this population.

In addition to existing quality metrics that are tested and validated, additional measures are needed to evaluate truly person-centered functional outcome measures that are site-neutral, focused on the coordination of services, and based on individual needs and preferences for care. For example, an older adult with severe diabetes complicated by visual problems and neuropathy may identify “the ability to walk safely within the home” as a core preference-based outcome measure. This individual’s desired outcome, with these complex health and functional challenges, also has substantial medical and cost implications. The number of providers, sites of care, and services delivered to achieve this outcome may be many. However, the singular fact remains that functional improvement is what the older adult is seeking. The provision of these services and achievement of this outcome could forestall or mitigate negative and costly incidents, such as a fall resulting in a hip fracture and nursing home placement. None of the existing patient satisfaction or quality of care metrics adequately identifies or measures this functional-based, yet medically driven indicator of improvement. Therefore, it is critical that these types of measures be created when evaluating all forms of delivery system improvements, including ACOs, medical/health homes, Special Needs Plans, bundling and other pilot projects, and Innovation Center efforts.

To adequately address the challenges of improving health care quality and reigning in rising costs, providers need to target the right needs with the right intervention, while always considering a person’s health and functional status. Solutions include seeing the patient first as a person and focusing on their daily function in light of existing health conditions. These are the keys to a more cost-effective and humane system of care—something that all of us want as we grow older. Moving public policy toward a continuum focus that puts community-based services on par with institutional services, supports choice and self-direction, uses conflict-free care coordination, measures quality outcomes regardless of the site of care, and develops new funding models to allow individuals to prefund these needs are key features of future policy debates.

The Henry J. Kaiser Family Foundation. Health Reform Gateway. Accessed April 25, 2012. http://healthreform.kff.org/

The Henry J. Kaiser Family Foundation. Medicare: A Primer. 2010. http://www.kff.org/medicare/upload/7615-03.pdf

U.S. Department of Health and Human Services. Medicare Basics. http://www.Medicare.gov