From the Health Care Financing Administration
Title XVIII & Title XIX of The Social Security Act as of January 28, 1997 with data for 1995
NOTE: These are very brief, simple versions of complex subjects. They should be used only as general overviews and guides to the Medicare and Medicaid programs.
BACKGROUND INFORMATION
Since early in this century, health care issues have continued to escalate in importance for our Nation. Beginning in 1915, various efforts to establish government health insurance programs have been initiated every few years. From the 1930s on, there was broad agreement on the real need for some form of health insurance to alleviate the unpredictable and uneven incidence of medical costs. The main health care issue at that time was whether health insurance should be privately or publicly financed.
Private health insurance coverage expanded rapidly during World War II, when fringe benefits were increased to compensate for the government limits on direct wage increases. This trend continued after the war. Private health insurance (mostly group insurance financed through the employment relationship) was especially needed and wanted by middle-income people. Yet not everyone could obtain or afford private health insurance. Government involvement was sought. Various national health insurance plans, financed by payroll taxes, were proposed in Congress starting in the 1940s; however, none was ever brought to a vote.
In 1950, Congress acted to improve access to medical care for needy persons who were receiving public assistance. This permitted, for the first time, Federal participation in the financing of State vendor payments to the providers of medical care for costs incurred by public assistance recipients. In 1960, the Kerr-Mills bill provided medical assistance for aged persons who were not so poor, yet still needed assistance with medical expenses. But a more comprehensive improvement in the provision of medical care, especially for the elderly, became a major congressional priority.
After various considerations and approaches, and after lengthy national debate, Congress passed legislation in 1965 which established the Medicare and the Medicaid programs as Title XVIII and Title XIX of the Social Security Act. Medicare was established in response to the specific medical care needs of the elderly (and in 1972, the severely disabled and certain persons with kidney disease), and Medicaid was established in response to the widely perceived inadequacy of the "welfare medical care" under public assistance.
Subsequent to their enactment, both Medicare and Medicaid have been subject to numerous legislative and administrative changes. The legislatures and administrations seek to make improvements, with financial considerations, in the provision of health care services to the aged and poor. Since 1965, growth rates in health care expenditures have consistently out paced growth in general revenues for all levels of government. National data for (CY) 1995 shows that the Nation's health care bill totaled $988.5 billion for the 273 million persons residing in the United States. The 1995 total health care spending within our country amounted to $3,621 per person, -- 5.5 percent higher than in 1994.
Health care is funded through a variety of private payers and public programs. Private funds include out-of-pocket expenditures, private health insurance, philanthropy and non-patient revenues (e.g., gift shops, parking lots, etc.), as well as health services that are provided in industrial settings. For the years 1974 through 1991, these private funds paid for 58 to 60 percent of all health care expenditures. But by 1995, the private share of health expenditures had dropped to 53.8 percent of our Nation's total health care expenditures. The share of health care provided by public spending continues to increase.
Public spending represents expenditures by Federal, State, and local governments. Of the publicly funded health care expenditures for our Nation, each of the following account for a small percentage of the total: the Department of Defense health care programs for military personnel; the Department of Veterans' Affairs health programs; payments for health care under Workers' Compensation programs; health programs under the State-only general assistance programs; non-commercial medical research; and the construction of medical facilities. Other activities which are also publicly funded include: maternal and child health services; public health clinics; school health programs; Indian health care services; migrant health care services; vocational rehabilitation services; and drug, alcohol and mental health activities. The largest shares of public health expenditures, however, are by the Medicare and Medicaid programs.
The total spending for all aspects of publicly-funded health care in the United States in CY 1995 was $456.4 billion. The increase in the Federal share of total public spending for health care rose from 28.1 percent in CY 1990 to 33.2 percent in CY 1995. This increase in the Federal share resulted almost exclusively from growth in Medicare spending and in Federal Medicaid payments. In CY 1995, Medicare was responsible for 18.9 percent, and Medicaid (including State funds) for 14.3 percent of the total national expenditures for health care in the U.S. Medicare and Medicaid had combined expenditures of $328.0 billion in CY 1995.
(For more information, data details, and an explanation of the various aspects of health care spending, see the HCFA/Office of National Health Statistics/Office of the Actuary report entitled "National Health Expenditures, 1995" by Katharine Levit, et.al., in the Health Care Financing Review, Fall, 1996, Vol. 18, No. 1)
MEDICARE: A BRIEF SUMMARY
OVERVIEW
Title XVIII of the Social Security Act, entitled "Health Insurance for the Aged and Disabled," is commonly known as "Medicare." As part of the Social Security Amendments of 1965, the Medicare legislation established a health insurance program for aged persons to complement the retirement, survivors and disability insurance benefits under other titles of the Social Security Act.
When first implemented in 1966, Medicare covered most persons age 65 and over. Since then, legislation has added other groups. Starting in 1972, persons who are entitled to disability benefits for 24 months or more, and persons with end-stage renal disease (ESRD) requiring dialysis or kidney transplant are considered entitled to Medicare benefits; and in 1973, certain otherwise non-covered persons who elect to buy into Medicare were added.
Medicare consists of two parts: hospital insurance (HI), also known as "Part A"; and supplementary medical insurance (SMI), also known as "Part B". When Medicare began on July 1, 1966, there were 19.1 million persons enrolled in the program. By the end of 1966, 3.7 million persons had received at least some health care services covered by Medicare. In 1995, more than 37 million persons were enrolled in one or both parts of the Medicare program. About 83 percent (84 percent of the aged) of all Medicare "enrollees" used some HI and/or SMI service in fiscal year (FY) 1995, and thus are referred to as the Medicare "beneficiaries" for 1995.
MEDICARE (HI and SMI) COVERAGE
Hospital Insurance (Part A) is generally provided automatically to persons age 65 and over and to most persons who are disabled for 24 months or more who are entitled to Social Security or Railroad Retirement benefits. In 1995, the HI program provided protection against the costs of hospital and other medical care to more than 37 million people (33 million aged and four million disabled enrollees.) Approximately 22 percent of these individuals received medical services covered by HI during the year. From 1994 to 1995, the HI benefits increased 13 percent to total $116.4 billion, with average expenditures per enrollee up 11 percent to $3,170.
The health care services for which Part A of Medicare reimburses participating institutional providers, -- inpatient hospital, skilled nursing facility, home health, and hospice services that are available to beneficiaries enrolled in Part A, -- are described below:
Inpatient hospital care coverage includes costs of a semi-private room, meals, regular nursing services, operating and recovery room, intensive care, drugs, laboratory tests, X-rays, and all other medically necessary services and supplies provided in the hospital.
Skilled nursing facility (SNF) care is covered by Medicare HI only if it follows within 30 days (usually) of a hospitalization of three or more days, and is certified as medically necessary. Covered services are similar to those for inpatient hospital, but also include rehabilitation services and appliances. The number of SNF days provided under Medicare is limited to 100 per benefit period (defined below), with a co-payment required for days 21 through 100. Medicare HI does not cover nursing facility care at all if the patient does not require skilled nursing or skilled rehabilitation services which must be given only in an inpatient hospital or skilled nursing facility setting.
Home Health Agency (HHA) care, including a home health aide, may be furnished by a home health agency in the residence of a home-bound beneficiary if intermittent or part-time skilled nursing, physical therapy or rehabilitation care is necessary. There must be a plan of treatment and periodical review by a physician. Home health care under HI has no time limitations, no co-payment, and no deductible. However, full-time nursing care, food, blood, and drugs are not provided as HHA services.
Hospice care, added in 1983, is a service provided to those terminally ill persons with a life expectancy of six months or less who elect to forgo traditional medical treatment for the terminal illness and to receive only limited (hospice) care. Such care includes pain relief, supportive medical and social services, physical therapy, nursing services and symptom management for a terminal illness. However, if a hospice patient requires treatment for a condition that is not related to the terminal illness, Medicare will pay for all covered services necessary for that condition. For the hospice program, the Medicare beneficiary pays no deductibles, but does pay a very small coinsurance amount for drugs and the cost of respite care.
A major aspect of HI is the "benefit period," defined as the measurement of time-duration for inpatient care, starting when the beneficiary first enters a hospital and ending when there has been a break of at least 60 consecutive days since inpatient hospital or skilled nursing care was provided. There is no limit to the number of benefit periods covered by HI during a beneficiary's lifetime; however, co-payment requirements (detailed later) by the Part A beneficiary do apply for days 61 through 90 of a benefit period. If a beneficiary exhausts the 90 days of inpatient hospital care available in a benefit period, he or she can elect to use days of Medicare coverage from a nonrenewable "lifetime reserve" of up to 60 (total) additional days of inpatient hospital care.
Supplementary Medical Insurance (Part B) benefits are available to: almost all resident citizens age 65 and over; certain aliens age 65 or over -- even to those who are not entitled (based on eligibility for Social Security or Railroad Retirement benefits) to Part A Medicare services; and disabled beneficiaries who are entitled to Medicare's Part A. Part B coverage is optional, and must be paid for through a monthly premium. Almost all persons entitled to Part A also choose to enroll in Part B. In 1995, the SMI program provided protection against the costs of physician and other medical services to nearly 36 million people. About 84 percent of these persons received services covered by SMI during 1995, with total SMI benefits on their behalf amounting to $65.0 billion.
SMI is often thought of primarily as coverage for physician services (in both hospital and non-hospital settings). However, SMI also covers certain other non-physician services, including: clinical laboratory tests, durable medical equipment, most supplies, diagnostic tests, ambulance services, flu vaccinations, drugs which (except for certain anticancer drugs) cannot be self-administered, some other therapy services, certain other health care services, and blood which was not supplied by HI.
The expenditures for institutional services in hospital out-patient departments, ambulatory surgical centers and certain other centers are also covered. All services must be medically necessary to be covered. Certain medical services and related care are subject to special payment rules. These include: deductibles (for blood); maximum approved amounts (for Medicare-approved physical or occupational therapists in independent practice); or higher cost-sharing requirements (such as that for out-patient treatments for mental illness).
Non-covered services under Medicare include long term nursing care or custodial care, and certain other health care needs -- such as dentures and dental care, eyeglasses, hearing aids, prescription drugs (except certain self-administered anticancer drugs), etc. These are not a part of either the Part A or the Part B program unless they are a part of a special "managed care plan."
MANAGED CARE PLANS
Managed Care Plans (prepaid health care plans), such as competitive medical plans (CMPs) and health maintenance organizations (HMOs), are options for Medicare beneficiaries. Managed care plans function on a basis different from regular fee-for-service plans. Under managed care plans, Medicare beneficiaries receive their medical services at a comprehensive health care setting within a service area. The selected public or private organization provides health care services at a per-person payment rate that, regardless of frequency or extent of utilization by its enrollees, is predetermined. Coordination of all health care services is central to the HMO and CMP concept. To ensure this coordination, all of the health care services, except for emergency services, are obtained by the beneficiary only from the professionals and facilities affiliated with the HMO or CMP which the beneficiary has selected.
In addition to those services which are usually provided under Medicare fee-for-service plans, the managed care plans often cover services such as preventive care, eyeglasses, dental care, or hearing aids. Electing to participate in a managed care plan may also serve as an alternative to purchasing "medigap insurance" (described later) which is often wanted if the beneficiary is in a traditional fee-for-service plan. And, although there are certain restrictions and limitations, the managed care plan's larger fixed monthly premiums and smaller coinsurance payments help to provide more predictability for out-of-pocket costs for the beneficiaries who do not have medigap insurance.
PROGRAM FINANCING, BENEFICIARY LIABILITIES & VENDOR PAYMENTS
The Medicare program's expenses (for provided benefits and for administration) are paid for primarily from two separate trust funds. HI's revenues accrue mainly from a tax on individuals' employment earnings. SMI's revenues come from the payment of premiums by or on behalf of individuals, plus significant contributions from the general revenue of the Federal government. Most services covered by Medicare also require some form of cost-sharing from beneficiaries.
Program financing:
For Part A, financing is, primarily, through a mandatory payroll deduction ("FICA tax") of 1.45 percent of taxable earnings (paid by each employee and by the employer for each), as well as 2.90 percent for self-employed persons who pay into the HI trust fund. The taxes paid each year are used mainly to pay benefits for current beneficiaries. Income that is not needed to pay current benefits and related expense is invested in U.S. Treasury securities. The hospital insurance trust fund money is used only for the HI program, and SMI trust funds cannot be transferred for HI use.
For Part B, financing is through premium payments ($43.80 per month in 1997) which are usually deducted from monthly Social Security benefit checks of those who are voluntarily enrolled in the SMI plan, and through significant contributions (64 percent of the total in 1997 from general revenue of the U.S. Treasury. Income not needed to pay current benefits and related expense is held in the SMI trust fund, and invested in U.S. Treasury securities.
Beneficiary payment liabilities:
For Parts A and B, beneficiaries are responsible for charges not covered by the Medicare program, and for various cost-sharing aspects of both HI and SMI. These liabilities may be paid: (1) by the Medicare beneficiary, (2) by some other third party such as private "medigap" insurance purchased by the Medicare beneficiary, or (3) by Medicaid, if the person is eligible. The term "medigap" is used to mean private health insurance which, within limits, pays most of the health care service charges not covered by Parts A or B of Medicare. These policies, which must meet federally-imposed standards, are offered by Blue Cross (for Part A) and Blue Shield (for Part B), and various commercial health insurance companies.
For Part A, the beneficiary's payment share includes a one-time deductible amount at the beginning of each benefit period ($760 in 1997). This covers the beneficiary's part of the first 60 days of each spell of inpatient hospital care. If continued inpatient care is needed beyond the 60 days, additional coinsurance payments ($190 per day in 1997) are required through the 90th day of a benefit period. Medicare pays nothing after day 90, unless the beneficiary elects to use "lifetime reserve" days, forwhich a co-payment ($380 per day in 1997) is required from the beneficiary.
For skilled nursing care covered under Part A, the first 20 days of SNF care are fully covered by Medicare. But for days 21 through 100, a co-payment ($95 per day in 1997) is required from the beneficiary. After 100 days of SNF care per benefit period, Medicare pays nothing for SNF care. Home health care has no deductible or co-insurance payment by the beneficiary. In any Part A service, the beneficiary is responsible for fees to cover the first three pints or units of non-replaced blood per calendar year. The beneficiary has the option to pay the fee or have the blood replaced.
There are no premiums for the HI portion of Medicare for most people aged 65 and over. Eligibility for HI is generally earned through the work experience of the beneficiary, or that of a spouse. However, some persons who are otherwise unqualified for Medicare may purchase HI coverage if they also buy the SMI coverage. The cost is determined by a formula: if they have 30 to 39 quarters of coverage as defined by the Social Security Administration, the 1997 cost of HI is reduced to $187 per month; if not, the HI cost is $311 per month.
For Part B, the beneficiary's payment share includes: one annual deductible (currently $100); the monthly premiums; the co-insurance payments for Part B services (usually 20 percent of the allowable charges); a deductible for blood; and payment for any services which are not covered by Medicare. These "cost-sharing" contributions are required of the beneficiaries for SMI services. For ESRD patients, Medicare Part B covers kidney dialysis and transplants. Regular Part B cost-sharing requirements also apply for ESRD services.
Vendor payments:
For Part A, prior to 1983, payment to vendors was made on a "reasonable cost" basis. Medicare payments for most inpatient hospital care are now (phased in starting in 1983) under a plan known as the Prospective Payment System (PPS). Under the PPS, a hospital is paid a predetermined amount, based upon the patient's diagnosis within a "diagnosis related group" (DRG), for providing whatever medical care is required during that person's inpatient hospital stay. In some cases the payment received is less than the hospital's actual costs; in other cases it is more. The hospital absorbs the loss or makes a profit. Certain payment adjustments exist for extra-ordinarily costly cases. Payments for home health, for hospice and for skilled nursing care coverage continue to be paid under the reasonable cost methodology, with each service having some restrictions and limitations.
For Part B, physicians are paid on the basis of "reasonable charge." This was initially defined as the lowest of (1) the physician's actual charge, (2) the physician's customary charge, or (3) the prevailing charge for similar services in that locality. Starting January, 1992, reasonable charges are now defined as the lesser of: the submitted charges, or a fee schedule based on a relative value scale (RVS). Durable medical equipment and clinical laboratory services are based on a fee schedule. Outpatient services and HHAs are reimbursed on a reasonable cost basis.
If a doctor or supplier agrees to accept the approved rate as payment in full (known as "takes assignment"), then payments provided must be considered as payments in full (after co-payments have been met) for that service. No added payments may be sought from the beneficiary or insurer. If the provider does not "take assignment," the beneficiary will be charged for the excess (which may be paid by medigap insurance). Limits now exist on the excess which providers can charge. However, since Medicare beneficiaries may select their doctors, they have the option to choose those who do take assignment, and thus require no added payments.
MEDICARE CLAIMS PROCESSING
Medicare contractors (intermediaries and carriers) may be public or private organizations or agencies (currently, all are private insurance agencies) that contract to serve as the fiscal agent between providers and the Federal government to locally administer Medicare's HI and SMI.
Medicare "intermediaries" process HI claims for institutional services, including inpatient hospital claims, skilled nursing facilities, home health agencies, and hospice services. They also process outpatient claims for SMI. Examples of intermediaries are the
ADMINISTRATION of MEDICARE
The overall responsibility for administration of the Medicare program lies with the Department of Health and Human Services (DHHS), with the assistance of the Social Security Administration (SSA). The Health Care Financing Administration (HCFA) and the Public Health Service (PHS) are components of DHHS. HCFA has primary responsibility for Medicare, including: formulation of policy and guidelines; contract oversight and operation; maintenance and review of utilization records; and general financing of Medicare. PHS is responsible for administering the professional health aspects of Medicare. And SSA is responsible for the initial determination of an individual's Medicare entitlement, and has overall responsibility for maintaining the Medicare master beneficiary record.
A Board of Trustees, which is composed of two appointed members and four ex-officio members, holds the trust funds for both Part A and Part B. The Secretary of the Department of Treasury is the managing trustee. The Board of Trustees reports the status and operation of the Medicare trust funds to Congress on the first day of April each year.
State agencies (usually State Health Departments under agreements with HCFA) assist by helping DHHS to identify, survey, and inspect provider and supplier facilities or institutions wishing to participate in the Medicare program. In consultation with HCFA, they then certify those that are qualified. The State agency also assists providers as a consultant, and coordinates the various State programs to assure effective and economical endeavors.
MEDICARE SUMMARY and TRENDS
The Medicare program covers 95 percent of our Nation's aged population, plus those eligible persons who are on Social Security because of disability. In calendar year (CY) 1995, Medicare Part A covered more than 37 million enrollees at a cost of $117.6 billion (expected to be $129.5 billion in 1996), and Part B covered 36 million enrollees at a cost of $66.6 billion (expected to be $73.0 billion in 1996.) Administrative costs were 1.1 percent of HI and 2.4 percent of SMI disbursements for 1995. Of those persons who were entitled to Medicare in 1995, more than 84 percent use Supplementary Medical Insurance services, while only 22 percent use the Hospital Insurance services. The combined HI and SMI benefit payments for all Medicare services in CY 1995 averaged $4,978 per enrollee.
The rising cost of health care is a major consideration for HCFA, for the President, and for Congress. The present schedule for financing the Part A program is sufficient to ensure the payment of benefits only until early in the year 2001, when the funds are expected to be exhausted. And although the Part B program is currently actuarially sound, the past and projected growth in the cost of the program is of grave concern. The long range intermediate assumptions are: the SMI program costs are projected to increase from 0.92 percent of the Nation's gross domestic product (GDP) in CY 1995 to 3.79 percent of the GDP in CY 2070; and the HI program costs are projected to increase from 1.63 percent of the GDP in CY 1995 to 5.04 percent of the GDP in CY 2070.
Projections for the more immediate future indicate that: if expenditures continue at the current rate, with normal growth expectations for the population, and if there are no significant changes to the health care programs, then disbursements for the Medicare program are estimated to rise from $203 billion in 1996 to almost $244 billion for 1998.
MEDICAID: A BRIEF SUMMARY
OVERVIEW
Title XIX of the Social Security Act is a Federal-State matching entitlement program which provides medical assistance for certain vulnerable and needy individuals and families with low incomes and resources. This program, known as Medicaid, became law in 1965 as a jointly funded cooperative venture between the Federal and State governments to assist States in the provision of more adequate medical care to eligible needy persons. Medicaid is the largest program providing medical and health-related services to America's poorest people.
Within broad national guidelines which the Federal government provides, each State: (1) establishes its own eligibility standards; (2) determines the type, amount, duration, and scope of services; (3) sets the rate of payment for services; and (4) administers its own program. Medicaid policies for eligibility and services are complex, and vary considerably even among similar-sized and/or adjacent States. A person who is eligible for Medicaid in one State might not be eligible in another State. Services provided by one State may differ considerably in amount, duration, or scope from services provided in a similar or neighboring State. And Medicaid eligibility and/or services within a State can change during the year. Thus, although there are cerain Federal guidelines and mandates, the Medicaid programs vary considerably from State to State, and within each State over time.
THE MEDICAID - MEDICARE RELATIONSHIP
Persons who are qualified for Medicare and are poor may also receive help from Medicaid. There are four groups who receive at least some help from the Medicaid programs:
Dual eligibles. Persons in this category are eligible to receive the Medicare services for which they are entitled as well as other services available under that State's Medicaid program. This means that services beyond those offered under Medicare (such as hearing aids, eyeglasses and nursing facility care beyond the 100 days covered by Medicare) may be provided to these persons by the Medicaid program. And the Medicaid program pays all of the cost-sharing portions (the premiums, deductibles and coinsurance) for both HI and SMI parts of Medicare for these "dual eligible" persons who fully meet the requirements for both Medicaid and Medicare eligibility. However, Medicaid is always the "payor of last resort"; that is, if a person is a Medicare beneficiary, payments for any services covered by Medicare are made by the Medicare program before any payments are made by the Medicaid program.
QMBs (qualified Medicare beneficiaries). QMBs are the elderly and the disabled persons who are entitled to Medicare, whose incomes are at or below 100 percent of FPL (but above the limits for full Medicaid eligibility) and whose resources are at or below 200 percent of the SSI limit. States are required to pay all Medicare cost-sharing for QMBs.
SLMBs (specified low-income Medicare beneficiaries). SLMBs are persons who meet the QMB requirements except that their income is above QMB levels yet below 120 percent of FPL. States must pay the Medicare Part B premiums, but no other Medicare cost-sharing unless the persons are otherwise entitled to full Medicaid benefits (e.g., if they are or become Medically Needy in a State with that provision.)
QDWIs (qualified disabled and working individuals). QDWIs are disabled persons who were previously entitled to Medicare Part A on the basis of disability, who lost their entitlement because of earnings from work, yet who continue to have a disabling condition. Such persons may pay the HI premiums to regain Medicare coverage for Part A. But for QDWIs with incomes below 200 percent of FPL and resources below 200 percent of the SSI limit, the State Medicaid program must pay the premiums for the HI (only) part of Medicare.
According to State-reported 1995 data, Medicaid made payments for 5.9 million persons who were Medicare beneficiaries in the above four categories. Expenditures for these totaled $53 billion, of which about $10 billion was for Medicare cost-sharing, about $5 billion for other acute care services (mainly prescription drugs), and about $38 billion for long term care.
CONCLUSION
The Department of Health and Human Services, the individual States, and the United States Congress continually seek to make improvements in the Medicare and Medicaid programs' extent, quality and effectiveness of health care services. However, Medicare and Medicaid must function within the various Federal and State constraints of serious economic, social, and political factors. Thus, the Federal and State regulations and laws continue to be reviewed for these very expensive yet vitally important health care programs.