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.