The overlooked cornerstone
of healthcare reform
June 8, 2013
Still basically the 1965 model
A “social insurance” program to help pay
for hospital and physician visits, diagnostic
tests, medical equipment, and many other
medical goods and services, paid on a
A prescription drug benefit was added 40
years later (decades after private plans
integrated drug and medical coverage).
Who gets Medicare?
Medicare will spend $600 billion this
year on health benefits
It covers 50 million people
–41 million senior citizens age 65 and over
–9 million disabled people
People with a physical or mental condition that
makes it impossible for them to work
People with End Stage Renal Disease receiving
A & B: Medicare’s Original Parts
Part A helps pay for hospital, home
health, hospice care and other institutional
care for the aged and disabled
Part B is an allegedly voluntary program
that helps pay for physician, outpatient
hospital, home health, and other services
C and D: Medicare’s newer parts
Part C is an alternative to traditional Medicare.
Beneficiaries can enroll in private “Medicare
Advantage” plans that contract with Medicare to
provide medical, hospital and sometimes drug
coverage to those who choose these plans
Part D is a voluntary program that provides
subsidized access to prescription drug
coverage for all beneficiaries and subsidies for
premiums and cost-sharing for low-income
Part D: Such a deal!
The Congressional Budget Office said that
spending for the prescription drug benefit
declined by nearly 40% compared to initial
estimates of its 10-year cost
It is saving seniors money as well. The average
monthly drug premium is about $30, far below
the $53 forecast originally.
SOURCE: Kaiser Family Foundation analysis of the Bureau of Labor Statistics Consumer Expenditure Survey Interview and Expense Files, 2002-2009,
“Health Care on a Budget, The Financial Burden of Health Spending by Medicare Households, An Updated Analysis of Health Care Spending as a Share
of Total Household Spending,” June 2011.
Average Health Insurance and Prescription Drug
Spending As a Share of Total Household Spending
by Medicare Households, 2002-2009
Part D: A model for Medicare reform
Seniors would get an annual subsidy to
purchase a Medicare-approved health plan.
The plan would allow seniors to pick the
health plan that meets their needs.
The older they are, the bigger the payment
they would get. Sicker people would get
Why changing to Medicare
Medicare as a Share of the Federal Budget,
1980 - 2020
1980 1990 2000 2010 2020
Federal spending (in billions)
Medicare spending (in billions)
Medicare as a share of the federal budget
5.8% 8.5% 12.1% 15.1% 18.0%
SOURCE: Historical spending for 1980 – 2010 from Congressional Budget Office (CBO) Budget and Economic Outlook: Historical Budget
Data (January 2011); projected spending for 2020 from CBO Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022
“I paid for my Medicare!”
A couple retiring today with both spouses
earning an average wage throughout their
careers would have paid $109,000 in
total Medicare payroll taxes during their
Yet the expected spending by Medicare
on the couple will be $343,000.
Historical and Projected Number of Medicare
Beneficiaries and Number of Workers Per Beneficiary
SOURCE: 2010 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds.
Number of Beneficiaries (in millions) Number of Workers Per Beneficiary
Beneficiaries can enroll in a private plan, such as
a health maintenance organization or preferred
Plans receive payments from the government to
provide all Medicare-covered benefits, often
including drug benefits, vision and dental
More than a quarter of all people in Medicare
have voluntarily enrolled in Medicare Advantage
Premiums and cost sharing
Medicare Advantage enrollees generally pay the
monthly Part B premium and possibly an
additional premium directly to their plan.
Premiums vary by plan type and are lower for
HMOs ($30 per month) than for PPOs ($64 per
Medicare Advantage plans are required to limit
beneficiaries’ total out-of-pocket spending each
year (the maximum is $6,700 in 2013). Cost-
sharing requirements vary widely across plans.
Medicare Benefit Payments By Type of Service,
Total Benefit Payments = $556 billion
NOTE: Does not sum to 100% due to rounding. Excludes administrative expenses and is net of recoveries. *Includes hospice, durable
medical equipment, Part B drugs, outpatient dialysis, ambulance, lab services, and other services.
SOURCE: Congressional Budget Office, Medicare Baseline, March 2012.
Part A and B
PFFS plans 5%
Regional PPOs 9%
Local PPOs 18%
Total Medicare Advantage Enrollment, 2011 = 11.9 Million
Distribution of Enrollment in
Medicare Advantage Plans, by Plan Type, 2011
SOURCE: MPR / KFF analysis of the Centers for Medicare and Medicaid Services (CMS) Medicare Advantage enrollment files, 2011.
Distribution of Medicare Advantage Plans
by Plan Type, 2007-2011
NOTE: Other includes cost and demonstration plans. Excludes SNPs, employer-sponsored (i.e., group) plans, demonstrations, HCPPs, PACE plans,
and plans for special populations (e.g., Mennonites). HMOs include Point of Service (POS) plans.
SOURCE: MPR/KFF analysis of CMS’s Landscape Files for 2007 - 2011.
Supplemental Coverage Among
Medicare Beneficiaries, by Income, 2008
NOTES: Numbers may not sum due to rounding.
SOURCE: Kaiser Family Foundation analysis of the CMS Medicare Current Beneficiary Survey Access to Care File, 2008.
5.9 million 8.9 million 6.8 million 6.4 million 7.7 million
Major Medicare policy initiatives
– Medicare Shared Savings Program
– Pioneer ACOs (CMMI)
– Advance Payment ACOs (CMMI)
Hospital Value Based Purchasing & Readmissions Penalties
Medicare Advantage Five-Star Bonus Program
Comprehensive Primary Care Initiative (CMMI)
Partnership for Patients (CMMI)
Bundled Payment Initiatives (CMMI)
Physician Value Modifier
Political dangers ahead
The ACA targets Medicare Advantage for a
disproportionate share of Medicare cuts.
UnitedHealth is cutting back on its Medicare
UnitedHealth Group CEO Stephen Hemsley: Medicare Advantage rates are still
far too low and that the company may shrink its business of managing care for
“We did not expect the fastest growing, most popular and most effective
Medicare benefit option serving America’s seniors to be underfunded to this
extent in 2014,” Hemsley said on a conference call with investment analysts.
UnitedHealth’s Medicare Advantage business, he added, “will likely experience
market exits as well as in market membership contraction as we reshape
Medicare networks and benefits to respond to the continuing underfunding of this
But it is the model for reform
Policy experts and many politicians
from the right and center-left see
Medicare Advantage as the platform for
reform in the future
It is not in political favor now, but
growing budget problems will force
Congress to act on Medicare spending,
and MA is the likely cornerstone
What we know for sure
• CHOICE: Americans value innovation,
diversity and choice to accommodate 300
• VALUE IN HEALTH SPENDING: Break down
payment silos to realize the promise of
personalized medicine and achieve overall cost
• FOCUS ON THE PATIENT: Doctors and
patients, not government, should make health
Source: Frank Hill, “The High Cost Impact of More Regulation and Admin/Executive Staff on Health Care Inflation,” Telemachus, July 22, 2012,
A market-based solution
“Defined contributions” for health coverage
A system that puts doctors and patients in charge of
Slowing spending while preserving choice and quality
Restructuring financing for a 21st century health
• Private Insurance
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