SECTION 2. MEDICARE
CONTENTS
Overview
Eligibility and Coverage
Aged
Disabled
Number of Beneficiaries
Benefits and Beneficiary Cost Sharing
Part A
Part B
Financing
Hospital Insurance Trust Fund--Income
Supplementary Medical Insurance Trust Fund--Income
Financial Status of Hospital Insurance Trust Fund
Financial Status of Supplementary Medical Insurance Trust
Fund
Comparison of Medicare Lifetime Benefits with Beneficiary
Contributions
Part A Services--Coverage and Payments
Inpatient Hospital Services
Skilled Nursing Facility Services
Home Health Services
Hospice Services
Part B Services--Coverage and Payments
Physicians Services
Services of Nonphysician Practitioners
Clinical Laboratory Services
Durable Medical Equipment and Prosthetics and Orthotics
Hospital Outpatient Department Services
Ambulatory Surgical Center Services
Other Part B Services
End-Stage Renal Disease Services
Coverage
Reimbursement
Private Health Plans in Medicare
Plan Options and Rules for Enrollment Before the Balanced
Budget Act of 1997
Trends in Plan Availability and Enrollment
Plan Options and Rules for Enrollment in Medicare+ Choice
Payments to Plans Through 1997
Medicare+Choice Payments to Plans
County Payment Rates, 1997-2003
Adjusted Community Rate (ACR)
Required Noncovered Services
Additional Benefits and Premiums in the Medicare Risk Program
Beneficiary Protections
Plan Standards
Demonstrations Authorized by the Balanced Budget Act
Selected Issues
Utilization and Quality Control Peer Review Organizations
Secondary Payer
Supplementing Medicare Coverage
Qualified Medicare Beneficiaries (QMBs)
Legislative History, 1980-97
CBO Savings and Revenue Estimates for Budget Reconciliation
Acts, 1981-93
Medicare Historical Data
References
OVERVIEW
Medicare is a nationwide health insurance program for the
aged and certain disabled persons. The program consists of two
parts--part A; hospital insurance and part B, supplementary
medical insurance. Total program outlays were $194.2 billion in
fiscal year 1996. Net outlays after deduction of beneficiary
premiums were $174.2 billion.
Coverage
Almost all persons over age 65 are automatically entitled
to Medicare part A. Part A also provides coverage, after a 24-
month waiting period, for persons under age 65 who are
receiving Social Security cash benefits on the basis of
disability. Most persons who need a kidney transplant or renal
dialysis may also be covered, regardless of age. In fiscal year
1997, part A covered an estimated 38.1 million aged and
disabled persons (including those with chronic kidney disease).
Medicare part B is voluntary. All persons over age 65 and
all persons enrolled in part A may enroll in part B by paying a
monthly premium--$43.80 in 1997 and 1998. In fiscal year 1997,
part B covered an estimated 36.5 million aged and disabled
persons.
Benefits
Part A provides coverage for inpatient hospital services,
up to 100 days of posthospital skilled nursing facility (SNF)
care, home health services, and hospice care. Patients must pay
a deductible ($760 in 1997 and $764 in 1998) each time their
hospital admission begins a benefit period. (A benefit period
begins when a patient enters a hospital and ends when she has
not been in a hospital or SNF for 60 days.) Medicare pays the
remaining costs for the first 60 days of hospital care. The
limited number of beneficiaries requiring care beyond 60 days
are subject to additional charges. Patients requiring SNF care
are subject to a daily coinsurance charge for days 21-100 ($95
in 1997 and $95.50 in 1998). There are no cost-sharing charges
for home health care and limited charges for hospice care.
Part B provides coverage for physicians' services,
laboratory services, durable medical equipment, outpatient
hospital services, and other medical services. The program
generally pays 80 percent of Medicare's fee schedule or other
approved amount after the beneficiary has met the annual $100
deductible. The beneficiary is liable for the remaining 20
percent.
Payments for Services
Taken together, spending for inpatient hospital and
physicians' and related services accounts for close to 70
percent of Medicare benefit payments. Medicare makes payments
for inpatient hospital services under a prospective payment
system (PPS); a predetermined rate is paid for each inpatient
stay based on the patient's admitting diagnosis. Payment for
physicians' services is made on the basis of a fee schedule.
Specific payment rules are also used for other services.
Administration
Medicare is administered by the Health Care Financing
Administration (HCFA) within the Department of Health and Human
Services (DHHS). Much of the day-to-day work of reviewing
claims and making payments is done by intermediaries (for part
A) and carriers (for part B). These are generally commercial
insurers or Blue Cross Blue Shield plans.
Financing
Medicare part A is financed primarily through the hospital
insurance (HI) payroll tax levied on current workers and their
employers. Employers and employees each pay a tax of 1.45
percent on all earnings. The self-employed pay a single tax of
2.9 percent on earnings.
Part B is financed through a combination of monthly
premiums levied on program beneficiaries and Federal general
revenues. In 1997 and 1998, the premium is $43.80. Beneficiary
premiums have generally represented about 25 percent of part B
costs; Federal general revenues (that is, tax dollars) account
for the remaining 75 percent.
Federal Outlays
Total program outlays were $194.2 billion in fiscal year
1996. Net outlays (that is, net of premiums beneficiaries pay
for enrollment, largely for part B) were $174.2 billion.
Tables 2-1, 2-2, and 2-3 provide historical spending and
coverage data for Medicare. Table 2-4 provides State-by-State
information for fiscal year 1996.
TABLE 2-1.--MEDICARE OUTLAYS, FISCAL YEARS 1967-2007
[In millions of dollars]
----------------------------------------------------------------------------------------------------------------
Percent
Total Medicare Net increase
Fiscal year Part A Part B Medicare premium Medicare (over
outlays offsets outlays prior
year)
----------------------------------------------------------------------------------------------------------------
1967.......................................... $2,597 $798 $3,395 ($647) $2,748 .........
1968.......................................... 3,815 1,532 5,347 (698) 4,649 69.2
1969.......................................... 4,758 1,840 6,598 (903) 5,695 22.5
1970.......................................... 4,953 2,196 7,149 (936) 6,213 9.1
1971.......................................... 5,592 2,283 7,875 (1,253) 6,622 6.6
1972.......................................... 6,276 2,544 8,820 (1,340) 7,480 13.0
1973.......................................... 6,842 2,637 9,479 (1,427) 8,052 7.6
1974.......................................... 8,065 3,283 11,348 (1,708) 9,640 19.7
1975.......................................... 10,612 4,170 14,782 (1,907) 12,875 33.6
1976.......................................... 12,579 5,200 17,779 (1,945) 15,834 23.0
TQ............................................ 3,404 1,401 4,805 (541) 4,264 NA
1977.......................................... 15,207 6,342 21,549 (2,204) 19,345 NA
1978.......................................... 17,862 7,350 25,212 (2,443) 22,769 17.7
1979.......................................... 20,343 8,805 29,148 (2,653) 26,495 16.4
1980.......................................... 24,288 10,746 35,034 (2,945) 32,089 21.1
1981.......................................... 29,248 13,240 42,488 (3,340) 39,148 22.0
1982.......................................... 34,864 15,559 50,423 (3,856) 46,567 19.0
1983.......................................... 38,551 18,317 56,868 (4,253) 52,615 13.0
1984.......................................... 42,295 20,374 62,669 (4,942) 57,727 9.7
1985.......................................... 48,667 22,730 71,397 (5,562) 65,835 14.0
1986.......................................... 49,685 26,217 75,902 (5,739) 70,163 6.6
1987.......................................... 50,803 30,837 81,640 (6,520) 75,120 7.1
1988.......................................... 52,730 34,947 87,677 (8,798) 78,879 5.0
1989.......................................... 58,238 38,316 96,554 (11,590) 84,964 7.7
1990.......................................... 66,687 43,022 109,709 (11,607) 98,102 15.5
1991.......................................... 70,742 47,021 117,763 (12,174) 105,589 7.6
1992.......................................... 81,971 50,285 132,256 (13,232) 119,024 12.7
1993.......................................... 91,604 54,254 145,858 (15,305) 130,553 9.7
1994.......................................... 102,770 59,724 162,494 (17,747) 144,747 10.9
1995.......................................... 114,883 65,213 180,096 (20,241) 159,855 10.4
1996.......................................... 125,300 68,946 194,246 (20,088) 174,158 8.9
1997 \1\...................................... 136.1 72.7 208.8 (20.2) 188.6 8.3
1998 \1\...................................... 141.1 79.6 220.7 (21.2) 199.5 5.8
1999 \1\...................................... 144.6 88.8 233.4 (23.4) 210.0 5.3
2000 \1\...................................... 147.9 98.4 246.3 (25.8) 220.4 5.0
2001 \1\...................................... 156.7 112.8 269.5 (28.6) 241.0 9.3
2002 \1\...................................... 157.9 121.0 278.9 (31.8) 247.1 2.5
2003 \1\...................................... 168.6 138.5 307.0 (35.5) 271.6 9.9
2004 \1\...................................... 178.8 154.3 333.1 (39.8) 293.4 8.0
2005 \1\...................................... 195.6 174.2 369.8 (44.2) 325.6 11.0
2006 \1\...................................... 200.7 182.8 383.5 (48.7) 334.8 2.8
2007 \1\...................................... 219.8 207.7 427.5 (53.5) 374.0 11.7
----------------------------------------------------------------------------------------------------------------
\1\ CBO projections (excludes discretionary spending; in billions of dollars).
Note.--Totals may not add due to rounding. TQ = transitional quarter.
Source: Office of the President, 1997.
TABLE 2-2.--NUMBER OF AGED AND DISABLED ELIGIBLE ENROLLEES AND BENEFICIARIES, AND AVERAGE MEDICARE BENEFIT PAYMENTS PER ENROLLEE, SELECTED YEARS 1975-99
[Beneficiaries in thousands]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Projected
Average Average average
1975 1980 1985 1990 1994 1995 1996 1997 1998 1999 annual annual annual
Fiscal year (actual) (actual) (actual) (actual) (actual) (actual) (est.) \1\ (est.) \1\ (est.) \1\ (est.) \1\ growth growth growth
1975-85 1985-95 1995-99
(percent) (percent) (percent)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Part A
Persons enrolled (monthly average):
Aged........................................... 21,795 24,571 27,121 30,050 32,233 32,650 32,925 33,114 33,312 33,521 2.2 1.9 0.7
Disabled....................................... 2,047 2,967 2,943 3,313 4,181 4,489 4,750 5,003 5,249 5,504 3.7 4.3 5.2
--------------------------------------------------------------------------------------------------------------------------------------------
Total...................................... 23,842 27,538 30,064 33,363 36,414 37,139 37,675 38,117 38,561 39,025 2.3 2.1 1.2
============================================================================================================================================
Beneficiaries receiving reimbursed services:
Aged........................................... 4,906 5,943 6,168 6,314 7,010 7,080 7,170 7,250 7,340 7,430 2.3 1.4 1.2
Disabled....................................... 456 721 672 675 862 920 975 1,035 1.090 1,150 4.0 3.2 5.7
--------------------------------------------------------------------------------------------------------------------------------------------
Total...................................... 5,362 6,664 6,840 6,989 7,872 8,000 8,145 8,285 8,430 8,580 2.5 1.6 1.8
============================================================================================================================================
Average annual benefit per person enrolled: \2\ \3\
Aged........................................... $432 $853 $1,563 $1,947 $2,794 $3,078 $3,323 $3,616 $3,876 $4,151 13.7 7.0 7.8
Disabled....................................... 460 948 1,809 2,176 2,700 2,874 3,054 3,256 3,442 3,638 14.7 4.7 6.1
--------------------------------------------------------------------------------------------------------------------------------------------
Total...................................... 434 863 1,587 1,970 2,783 3,053 3,289 3,569 3,817 4,079 13.8 6.8 7.5
============================================================================================================================================
Part B
Persons enrolled (average):
Aged........................................... 21,504 24,422 27,049 29,426 31,335 31,622 31,891 32,177 32,361 32,547 2.3 1.6 0.7
Disabled....................................... 1,835 2,698 2,672 2,907 3,638 3,874 4,087 4,304 4,545 4,780 3.8 3.8 5.4
--------------------------------------------------------------------------------------------------------------------------------------------
Total...................................... 23,339 27,120 29,721 32,333 34,973 35,496 35,978 36,481 36,906 37,327 2.4 1.8 1.3
============================================================================================================================================
Beneficiaries receiving reimbursed services:
Aged........................................... 11,311 16,034 20,199 23,820 26,118 26,681 27,044 27,544 27,952 28,332 6.0 2.8 1.5
Disabled....................................... 797 1,669 1,933 2,184 2,867 3,093 3,289 3,503 3,733 3,962 9.3 4.8 6.4
--------------------------------------------------------------------------------------------------------------------------------------------
Total...................................... 12,108 17,703 22,132 26,004 28,985 29,774 30,333 31,047 31,685 32,294 6.2 3.0 2.1
============================================================================================================================================
Average annual benefit per person enrolled: \2\
Aged........................................... $153 $348 $705 $1,250 $1,601 $1,728 $1,797 $2,011 $2,197 $2,410 16.5 9.4 8.7
Disabled....................................... 259 610 1,022 1,603 2,154 2,282 2,408 2,370 2,500 2,657 14.7 8.4 3.9
--------------------------------------------------------------------------------------------------------------------------------------------
Total...................................... 161 374 734 1,282 1,658 1,788 1,867 2,054 2,234 2,441 16.4 9.3 8.1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Represents projections of current law. Does not include legislative proposals. \2\ Does not include administrative cost. \3\ Includes part A catastrophic benefits in fiscal year
1990.
Source: Health Care Financing Administration, Division of Budget.
TABLE 2-3.--BENEFIT PAYMENTS BY SERVICE UNDER MEDICARE PART A AND PART B, SELECTED FISCAL YEARS 1975-98
[Dollars in millions]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1975 1980 1985 1990 1995 1998 (est.) \1\ Average annual growth
--------------------------------------------------------------------------------------------------------------------- (percent)
--------------------------------
Percent Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Amount 1975-85 1985-95 1995-98
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Part A
Inpatient hospital services............... 70.5 $9,947 67.4 $22,860 65.0 $45,218 55.3 $59,285 49.4 $87,441 47.6 $109,299 16.3 6.8 7.7
Skilled nursing facility services......... 1.9 273 1.2 392 0.8 550 2.6 2,821 5.1 9,104 6.0 13,779 7.3 32.4 14.8
Home health services...................... 0.9 133 1.5 524 2.7 1,908 3.1 3,297 8.5 14,995 9.5 21,879 30.5 22.9 13.4
Hospice services.......................... 0 0 0 0 0 34 0.3 318 1.0 1,854 1.0 2,214 NA 49.2 6.1
-----------------------------------------------------------------------------------------------------------------------------------------------------
Total benefit payments................ 73.3 10,353 70.1 23,776 68.6 47,710 61.3 65,721 64.1 113,394 64.1 147,171 16.5 9.0 9.1
=====================================================================================================================================================
Part B
Physician services \2\.................... 21.7 3,067 23.0 7,813 24.1 16,788 27.0 28,922 22.8 40,376 20.2 46,325 18.5 9.2 4.7
Outpatient services....................... 3.7 529 5.3 1,803 5.6 3,917 7.8 8,365 8.2 14,576 8.7 19,902 22.2 14.0 10.9
Other medical and health services......... 1.2 169 1.6 528 1.6 1,103 3.9 4,165 4.8 8,530 7.1 16,229 20.6 22.7 23.9
-----------------------------------------------------------------------------------------------------------------------------------------------------
Total benefit payments................ 26.7 3,765 29.9 10,144 31.4 21,808 38.7 41,452 35.9 63,482 35.9 82,456 19.2 11.3 9.1
=====================================================================================================================================================
Total parts A and B............... 100.0 14,118 100.0 33,920 100.0 69,518 100.0 107,173 100.0 176,876 100.0 229,627 17.3 9.8 9.1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Represents law in effect prior to enactment of the Balanced Budget Act of 1997. \2\ Includes other services.
NA--Not available.
Note.--Totals may not add due to rounding.
Source: Health Care Financing Administration, Division of Budget.
TABLE 2-4.--MEDICARE ESTIMATED BENEFIT PAYMENTS BY STATE, FISCAL YEAR 1996
----------------------------------------------------------------------------------------------------------------
Medicare Estimated
estimated HI and/or SMI benefit
State benefit Medicare payments per
payments \1\ enrollment \2\ enrollee
----------------------------------------------------------------------------------------------------------------
Alabama......................................................... $3,349,478 650,941 $5,146
Alaska.......................................................... 155,548 35,281 4,409
Arizona......................................................... 2,949,642 613,992 4,804
Arkansas........................................................ 1,749,406 426,645 4,100
California...................................................... 21,688,154 3,690,130 5,877
Colorado........................................................ 2,021,955 432,283 4,677
Connecticut..................................................... 2,810,930 506,169 5,553
Delaware........................................................ 474,232 103,216 4,595
District of Columbia............................................ 1,206,754 77,271 15,617
Florida......................................................... 16,046,099 2,654,681 6,044
Georgia......................................................... 4,444,248 848,854 5,236
Hawaii.......................................................... 612,461 152,948 4,004
Idaho........................................................... 522,788 152,673 3,424
Illinois........................................................ 7,792,373 1,623,430 4,800
Indiana......................................................... 3,770,224 829,586 4,545
Iowa............................................................ 1,641,893 475,130 3,456
Kansas.......................................................... 1,630,982 385,357 4,232
Kentucky........................................................ 2,610,256 595,583 4,383
Louisiana....................................................... 3,937,599 585,918 6,720
Maine........................................................... 791,042 205,132 3,856
Maryland........................................................ 3,005,428 609,601 4,930
Massachusetts................................................... 5,884,023 942,272 6,245
Michigan........................................................ 6,565,577 1,360,512 4,826
Minnesota....................................................... 2,593,008 635,709 4,079
Mississippi..................................................... 2,016,230 401,697 5,019
Missouri........................................................ 4,122,022 838,377 4,917
Montana......................................................... 469,724 131,847 3,563
Nebraska........................................................ 933,547 250,284 3,730
Nevada.......................................................... 1,003,697 202,347 4,960
New Hampshire................................................... 652,613 159,275 4,097
New Jersey...................................................... 5,958,095 1,177,159 5,061
New Mexico...................................................... 799,360 215,930 3,702
New York........................................................ 14,860,448 2,653,492 5,600
North Carolina.................................................. 4,688,836 1,048,981 4,470
North Dakota.................................................... 438,228 103,170 4,248
Ohio............................................................ 7,870,293 1,676,437 4,695
Oklahoma........................................................ 2,471,759 491,628 5,028
Oregon.......................................................... 1,801,354 472,197 3,815
Pennsylvania.................................................... 11,468,028 2,077,870 5,519
Rhode Island.................................................... 866,931 169,186 5,124
South Carolina.................................................. 2,144,121 520,408 4,120
South Dakota.................................................... 446,865 117,421 3,806
Tennessee....................................................... 4,486,558 783,385 5,728
Texas........................................................... 12,732,603 2,116,951 6,015
Utah............................................................ 812,811 191,387 4,247
Vermont......................................................... 306,150 84,454 3,625
Virginia........................................................ 3,277,225 833,145 3,934
Washington...................................................... 2,826,104 698,966 4,043
West Virginia................................................... 1,372,605 331,343 4,143
Wisconsin....................................................... 2,909,048 766,625 3,795
Wyoming......................................................... 197,719 61,465 3,217
Puerto Rico..................................................... 952,913 489,944 1,945
All other areas................................................. 36,142 321,269 112
-----------------------------------------------
Total all areas............................................. 191,176,132 37,979,904 5,034
----------------------------------------------------------------------------------------------------------------
\1\ In thousands of dollars.
\2\ As of September 30, 1996.
Note.--Benefit payments for all areas represent actual Department of Treasury (DOT) disbursements. Distribution
of benefit payments by State is based on a methodology which considered actual payments to HMOs and estimated
payments for other providers of Medicare services. Estimated payments were determined by applying the relative
weight of each State's share of total fee-for-service provider payments for fiscal year 1996 to the DOT
disbursements net of managed care payments.
Source: Health Care Financing Administration.
ELIGIBILITY AND COVERAGE
Aged
Part A
Most Americans age 65 or older are automatically entitled
to protection under part A. These individuals (or their
spouses) established entitlement during their working careers
by paying the HI payroll tax on earnings covered by either the
Social Security or Railroad Retirement Systems.
The HI tax was extended to Federal employment with respect
to wages paid on or after January 1, 1983. Beginning January 1,
1983, Federal employment is included in determining eligibility
for protection under Medicare part A. A transitional provision
allows individuals who were in the employ of the Federal
Government both before and during January 1, 1983, to have
their prior Federal employment considered as employment for
purposes of providing Medicare coverage. Employees of State and
local governments, hired after March 31, 1986, are also liable
for the HI tax.
Persons age 65 or older who are not automatically entitled
to part A may obtain coverage, providing they pay the full
actuarial cost. The 1997 monthly premium is $311 ($187 for
persons who have at least 30 quarters of covered employment).
The 1998 monthly premium is $309 ($170 for persons who have at
least 30 quarters of covered employment).
Part B
Part B of Medicare is voluntary. All persons age 65 or
older (even those not entitled to part A) may elect to enroll
in the SMI Program by paying the monthly premium. The 1997 and
1998 premium is $43.80 per month. Persons who voluntarily
enroll in part A are required to enroll in part B.
Disabled
Part A
Part A also covers, after a 2-year waiting period, people
under age 65 who are either receiving monthly Social Security
benefits on the basis of disability or receiving payments as
disabled Railroad Retirement System annuitants. (Dependents of
the disabled are not eligible.) In addition, most people who
need a kidney transplant or renal dialysis because of chronic
kidney disease are entitled to benefits under part A regardless
of age.
Part B
Persons eligible for part A by virtue of disability or
chronic kidney disease may also elect to enroll in part B.
Number of Beneficiaries
In fiscal year 1996, 32.9 million aged and 4.8 million
disabled had protection under part A. Of those, 7.2 million
aged and 1.0 million disabled actually received reimbursed
services. In fiscal year 1996, 31.9 million aged and 4.1
million disabled were enrolled in part B. About 27.0 million of
the aged and 3.3 million of the disabled actually received
reimbursed services (table 2-2).
BENEFITS AND BENEFICIARY COST SHARING
Part A
Part A coverage includes:
Inpatient hospital care.--The first 60 days of inpatient
hospital services in a benefit period are subject to a
deductible ($760 in calendar year 1997; $764 in 1998). A
benefit period begins when a patient enters a hospital and ends
when he has not been in a hospital or SNF for 60 days. For days
61-90 in a benefit period, a coinsurance amount ($190 in
calendar year 1997; $191 in 1998) is imposed. When more than 90
days are required in a benefit period, a patient may elect to
draw upon a 60-day lifetime reserve. A coinsurance amount ($380
in calendar year 1997; $382 in 1998) is imposed for each
reserve day.
Skilled nursing facility care.--SNF care is up to 100 days
(following hospitalization) in a skilled nursing facility for
persons in need of continued skilled nursing care and/or
skilled rehabilitation services on a daily basis. After the
first 20 days, there is a daily coinsurance ($95 in calendar
year 1997; $95.50 in 1998) amount.
Home health care.--Home health visits are provided to
persons who need skilled nursing care on an intermittent basis,
or physical therapy, or speech therapy. The Balanced Budget Act
of 1997 gradually transfers from part A to part B home health
visits that are not part of the first 100 visits following a
beneficiary's stay in a hospital or SNF (that is,
postinstitutional visits) and during a home health spell of
illness. The transfer will be phased in over 6 years, between
1998 and 2003, with the Secretary transferring one-sixth of the
aggregate expenditures associated with transferred visits in
1998; two-sixths in 1999; three-sixths in 2000; four-sixths in
2001; five-sixths in 2002; and six-sixths in 2003. Beginning
January 1, 2003, part A will cover only postinstitutional home
health services for up to 100 visits during a home health spell
of illness, except for those persons with part A coverage only,
who will be covered for services without regard to the
postinstitutional limitation.
Hospice care.--Hospice care services are provided to
terminally ill Medicare beneficiaries with a life expectancy of
6 months or less for two 90-day periods, followed by an
unlimited number of 60-day periods. The medical director or
physician member of the hospice interdisciplinary team must
recertify, at the beginning of 60-day periods, that the
beneficiary is terminally ill.
Part B
Part B of Medicare generally pays 80 percent of the
approved amount (fee schedule, reasonable charge, or reasonable
cost) for covered services in excess of an annual deductible
($100). Services covered include:
Doctor's services.--This category includes surgery,
consultation, and home, office and institutional visits.
Certain limitations apply for services rendered by dentists,
podiatrists, and chiropractors and for the treatment of mental
illness.
Other medical and health services.--Laboratory and other
diagnostic tests, x-ray and other radiation therapy, outpatient
hospital services, rural health clinic services, DME, home
dialysis supplies and equipment, artificial devices (other than
dental), physical and speech therapy, and ambulance services
are also required.
Specified preventive services.--These services include a
screening mammography once every 2 years for persons over age
65 and at specified intervals for the disabled; and effective
January 1, 1998 annual mammograms for all women over age 40. A
screening pap smear (and, effective January 1, 1998, a
screening pelvic exam) is authorized once every 3 years, except
for women who are at a high risk of developing cervical cancer.
Effective January 1, 1998, coverage is provided for specified
colorectal screening procedures. Effective July 1, 1998,
coverage is authorized for diabetes self-management training
services and bone mass measurements for high-risk persons.
Prostate cancer screenings are covered beginning January 1,
2000.
Drugs and vaccines.--Generally Medicare does not pay for
outpatient prescription drugs or biologicals. Part B pays for
immunosuppressive drugs for 30 months following an organ
transplant (extended to 36 months after 1997), erythropoietin
for treatment of anemia for persons with chronic kidney
failure, and certain specified oral cancer drugs. The program
also covers flu shots, pneumococcal pneumonia vaccines, and
hepatitis B vaccines for those at risk.
Home health services.--Home services include an unlimited
number of medically necessary home health visits for persons
not covered under part A. The 20-percent coinsurance and $100
deductible do not apply for such benefits. As noted above, the
Balanced Budget Act of 1997 gradually transfers some home
health costs from part A to part B, beginning in 1998.
Table 2-5 illustrates the deductible, coinsurance and
premium amounts for both part A and part B services from the
inception of Medicare.
TABLE 2-5.--PART A AND PART B DEDUCTIBLE, COINSURANCE AND PREMIUMS, \1\ 1966-98
--------------------------------------------------------------------------------------------------------------------------------------------------------
Inpatient hospital \2\ HI monthly premium \6\ SMI premium
------------------------------------------ Skilled ------------------------------- --------------------
60 lifetime nursing
Calendar year First 60 61st-90th reserve days facility 21st- SMI
days day (nonrenewable) 100th day Effective Full Reduced deductible Effective Amount
deductible coinsurance coinsurance per coinsurance date amount amount date
per day \3\ day \4\ per day \5\
--------------------------------------------------------------------------------------------------------------------------------------------------------
1966.......................... $40 $10 (\7\) (\7\) ......... ........ NA $50 7/66 $3.00
1967.......................... 40 10 (\7\) $5.00 ......... ........ NA 50 ......... 3.00
1968.......................... 40 10 $20 5.00 ......... ........ NA 50 4/68 4.00
1969.......................... 44 11 22 5.50 ......... ........ NA 50 ......... 4.00
1970.......................... 52 13 26 6.50 ......... ........ NA 50 7/70 5.30
1971.......................... 60 15 30 7.50 ......... ........ NA 50 7/71 5.60
1972.......................... 68 17 34 8.50 ......... ........ NA 50 7/72 5.80
1973.......................... 72 18 36 9.00 7/73 $33 NA 60 \8\ 9/73 6.30
1974.......................... 84 21 42 10.50 7/74 36 NA 60 7/74 6.70
1975.......................... 92 23 46 11.50 7/75 40 NA 60 ......... 6.70
1976.......................... 104 26 52 13.00 7/76 45 NA 60 7/76 7.20
1977.......................... 124 31 62 15.50 7/77 54 NA 60 7/77 7.70
1978.......................... 144 36 72 18.00 7/78 63 NA 60 7/78 8.20
1979.......................... 160 40 80 20.00 7/79 69 NA 60 7/79 8.70
1980.......................... 180 45 90 22.50 7/80 78 NA 60 7/80 9.60
1981.......................... 204 51 102 25.50 7/81 89 NA 60 7/81 11.00
1982.......................... 260 65 130 32.50 7/82 113 NA 75 7/82 12.20
1983.......................... 304 76 152 38.00 ......... 113 NA 75 ......... 12.20
1984.......................... 356 89 178 44.50 1/84 155 NA 75 1/84 14.60
1985.......................... 400 100 200 50.00 1/85 174 NA 75 1/85 15.50
1986.......................... 492 123 246 61.50 1/86 214 NA 75 1/86 15.50
1987.......................... 520 130 260 65.00 1/87 226 NA 75 1/87 17.90
1988.......................... 540 135 270 67.50 1/88 234 NA 75 1/88 24.80
1989.......................... \9\ 560 NA NA \10\ 25.50 1/89 156 NA 75 1/89 31.90
1990.......................... 592 148 296 74.00 1/90 175 NA 75 1/90 28.60
1991.......................... 628 157 314 78.50 1/91 177 NA 100 1/91 29.90
1992.......................... 652 163 326 81.50 1/92 192 NA 100 1/92 31.80
1993.......................... 676 169 338 84.50 1/93 221 NA 100 1/93 36.60
1994.......................... 696 174 348 87.00 1/94 245 184 100 1/94 41.10
1995.......................... 716 179 358 89.50 1/95 261 183 100 1/95 46.10
1996.......................... 736 184 368 92.00 1/96 289 188 100 1/96 42.50
1997.......................... 760 190 380 95.00 1/97 311 187 100 1/97 43.80
1998.......................... 764 191 382 95.50 1/98 309 170 100 1/98 43.80
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ For services furnished on or after January 1, 1982, the coinsurance amounts are based on the inpatient hospital deductible for the year in which the
services were furnished. For services furnished prior to January 1, 1982, the coinsurance amounts are based on the inpatient hospital deductible
applicable for the year in which the individual's benefit period began.
\2\ For care in psychiatric hospital there is a 190-day lifetime limit.
\3\ Always equal to one-fourth of inpatient hospital deductible through 1988 and for 1990 and later; eliminated for 1989.
\4\ Always equal to one-half of inpatient hospital deductible through 1988 and for 1990 and later; eliminated for 1989.
\5\ Always equal to one-third of inpatient hospital deductible through 1988 and for 1990 and later. For 1989 it was equal to 20 percent of estimated
Medicare covered average cost per day.
\6\ Not applicable prior to July 1973. Applies to aged individuals who are not fully insured, and to certain disabled individuals who have exhausted
other entitlement. The reduced amount is available to aged individuals who are not fully insured but who have, or whose spouse has or had, at least 30
quarters of coverage under title II of the Social Security Act. The reduced amount is 75 percent of the full amount in 1994, 70 percent in 1995, 65
percent in 1996, 60 percent in 1997, and 55 percent in 1998 and thereafter.
\7\ Not covered.
\8\ For August 1973 the premium was $6.10.
\9\ In 1989, the HI deductible was applied on an annual basis, not a benefit period basis (unlike the other years).
\10\ In 1989, the SNF coinsurance was on days 1-8 of the 150 days allowed annually; for the other years it is on days 21-100 of 100 days allowed per
benefit period.
NA--Not available.
Note.--In addition to the deductible and coinsurance amounts shown in the table, the first three pints of blood are not reimbursed by Medicare.
Currently there is no deductible or coinsurance on home health benefits. From January 1973 to June 30, 1982, there was a $60 annual deductible and
prior to July 1, 1981, benefits were limited to 100 visits per benefit period under part A and 100 visits per calendar year under part B. Special
limits apply to certain benefits: (1) Outpatient physician services for mental illness; 50 percent of approved charges, up to a maximum of $250 in
benefits per year; July 1, 1966, through December 31, 1987; $450 in benefits per year, January 1, 1988, through December 31, 1988; $1,100 in benefits
per year, January 1, 1989, through December 31, 1989; beginning January 1, 1990, the limit was removed; (2) physical and occupational therapy services
furnished by physical therapists in independent practice: maximum annual approved charges July 1, 1973 through December 31, 1981, $80 per year;
January 1, 1982 through December 31, 1982, $400 per year; January 1, 1983 through December 31, 1989, $500 per year; January 1, 1990 through December
31, 1993, $750 per year; and January 1, 1994 and thereafter, $900 per year.
Source: Health Care Financing Administration, Office of the Actuary.
FINANCING
The Medicare Hospital Insurance Trust Fund (HI) finances
services covered under Medicare part A. The Supplementary
Medical Insurance Trust Fund (SMI) finances services covered
under Medicare part B. The trust funds are maintained by the
Department of the Treasury. Each trust fund is actually an
accounting mechanism; there is no actual transfer of money into
and out of the fund. Income to each trust fund is credited to
the fund in the form of interest-bearing government securities.
The securities represent obligations that the government has
issued to itself. Expenditures for services and administrative
costs are recorded against the fund.
Hospital Insurance Trust Fund--Income
The primary source of income to the HI fund is HI payroll
taxes. This source accounted for $106.9 billion (88.3 percent)
of the total $121.1 billion in income for fiscal year 1996.
Additional income sources include premiums paid by voluntary
enrollees, government credits, interest on Federal securities,
and taxation of a portion of Social Security benefits.
Payroll taxes
The HI Trust Fund is financed primarily through Social
Security payroll tax contributions paid by employees and
employers. Each pays a tax of 1.45 percent on all earnings in
covered employment. The self-employed pay 2.9 percent. Prior to
1994, there was an upper limit on earnings subject to the tax.
An upper limit of $68,400 in 1998 continues to apply under
Social Security. Table 2-6 shows the history of the
contribution rates and maximum taxable earnings base for the HI
Programs.
Other income
The following are additional sources of income to the HI
fund:
1. Railroad retirement account transfers.--In fiscal year
1996, $401 million was transferred from the railroad
retirement fund. This is the estimated amount that
would have been in the fund if railroad employment had
always been covered under the Social Security Act.
2. Reimbursements for uninsured persons.--HI benefits are
provided to certain uninsured persons who turned 65
before 1968. Persons who turned 65 after 1967 but
before 1974 are covered under transitional provisions.
Similar transitional entitlement applies to Federal
employees who retire before earning sufficient quarters
of Medicare-qualified Federal employment provided they
were employed before and during January 1983. Payments
for these persons are made initially from the HI Trust
Fund, with reimbursement from the general fund of the
Treasury for the costs, including administrative
expenses, of the payments. In fiscal year 1996, $419
million was transferred to HI on this basis.
TABLE 2-6.--CURRENT LAW SOCIAL SECURITY PAYROLL TAX RATES FOR EMPLOYERS AND EMPLOYEES AND TAXABLE EARNINGS
BASES, 1977-98
----------------------------------------------------------------------------------------------------------------
Employee and employer rates,
each (percent) HI taxable
Calendar year ------------------------------ earnings Maximum HI
OASDI OASDHI base tax
combined HI combined
----------------------------------------------------------------------------------------------------------------
1977...................................................... 4.95 0.90 5.85 $16,500 $148.50
1978...................................................... 5.05 1.10 6.05 17,700 194.70
1979...................................................... 5.08 1.05 6.13 22,900 240.45
1980...................................................... 5.08 1.05 6.13 25,900 271.95
1981...................................................... 5.35 1.30 6.65 29,700 386.10
1982...................................................... 5.40 1.30 6.70 32,400 421.20
1983...................................................... 5.40 1.30 6.70 35,700 464.10
1984...................................................... 5.70 1.30 7.00 37,800 491.40
1985...................................................... 5.70 1.35 7.05 39,600 534.60
1986...................................................... 5.70 1.45 7.15 42,000 609.00
1987...................................................... 5.70 1.45 7.15 43,800 635.10
1988...................................................... 6.06 1.45 7.51 45,000 652.50
1989...................................................... 6.06 1.45 7.51 48,000 696.00
1990...................................................... 6.20 1.45 7.65 51,300 743.85
1991...................................................... 6.20 1.45 7.65 \1\ 125,00
0 1,812.50
1992...................................................... 6.20 1.45 7.65 130,200 1,887.90
1993...................................................... 6.20 1.45 7.65 135,000 1,957.50
1994...................................................... 6.20 1.45 7.65 \2\ none no limit
1995...................................................... 6.20 1.45 7.65 none no limit
1996...................................................... 6.20 1.45 7.65 none no limit
1997...................................................... 6.20 1.45 7.65 none no limit
1998...................................................... 6.20 1.45 7.65 none no limit
----------------------------------------------------------------------------------------------------------------
\1\ Prior to 1991, the upper limit on tax earnings was the same as for Social Security. The Omnibus Budget
Reconciliation Act of 1990 raised the limit in 1991 to $125,000. Under automatic indexing provisions, the
maximum was increased to $130,200 in 1992 and $135,000 in 1993.
\2\ The Omnibus Budget Reconciliation Act of 1993 eliminated the indexing provision entirely beginning in 1994.
Source: Health Care Financing Administration.
3. Premiums from voluntary enrollees.--Certain persons not
eligible for HI protection either on an insured basis
or on the uninsured basis described above may obtain
protection by enrolling in the program and paying a
monthly premium ($311 in 1997; for persons who have at
least 30 quarters of covered employment, $187 in 1997).
This accounted for an estimated $1,107 million of
financing in fiscal year 1996.
4. Payments for military wage credits.--Sections 217(g) and
229(b) of the Social Security Act, prior to
modification by the Social Security Amendments of 1983,
authorized annual reimbursement from the general fund
of the Treasury to the HI Trust Fund for costs arising
from the granting of deemed wage credits for military
service prior to 1957, according to quinquennial
determinations made by the Secretary of Health and
Human Services. These sections, as modified by the
Social Security Amendments of 1983, provided for a
lump-sum transfer in 1983 for costs arising from such
wage credits. In addition, the lump-sum transfer
included combined employer-employee HI taxes on the
noncontributory wage credits for military service after
1965 and before 1984. After 1983, HI taxes on military
wage credits are credited to the fund on July 1 of each
year. The Social Security Amendments of 1983 also
provided for: (1) quinquennial adjustments to the lump-
sum amount transferred in 1983 for costs arising from
pre-57 deemed wage credits; and (2) adjustments as
deemed necessary to any previously transferred amounts
representing HI taxes on noncontributory wage credits.
In fiscal year 1996, this adjustment, including the
quinquennial adjustment, was $2.3 billion.
5. Tax on Social Security benefits.--Beginning in 1994, the
trust fund acquired an additional funding source. The
Omnibus Budget Reconciliation Act of 1993 (OBRA 1993)
increased the maximum amount of Social Security
benefits subject to income tax from 50 to 85 percent
and provided that the additional revenues would be
credited to the HI Trust Fund. Revenue from this source
totaled $4.1 billion in fiscal year 1996.
6. Interest.--The remaining income to the trust fund consists
almost entirely of interest on the investments of the
trust fund. Interest amounted to an estimated $10.5
billion in fiscal year 1996.
Supplementary Medical Insurance Trust Fund--Income
Part B is financed from premiums paid by the aged, disabled
and chronic renal disease enrollees and from general revenues.
The premium rate is derived annually based on the projected
costs of the program for the coming year. The monthly premium
amount in calendar years 1997 and 1998 is $43.80.
When the program first went into effect in July 1966, the
part B monthly premium was set at a level to finance one-half
of part B program costs. Legislation enacted in 1972 limited
the annual percentage increase in the premium to the same
percentage by which Social Security benefits were adjusted for
changes in cost of living (that is, cost-of-living adjustments
or COLAs). Under this formula, revenues from premiums soon
dropped from 50 to below 25 percent of program costs because
part B program costs increased much faster than inflation as
measured by the Consumer Price Index on which the Social
Security COLA is based.
Since the early 1980s, Congress has regularly voted to set
part B premiums at a level to cover 25 percent of program
costs, in effect overriding the COLA limitation. The 25-percent
provisions first became effective January 1, 1984. General
revenues covered the remaining 75 percent of part B program
costs. Congress took this general approach again in OBRA 1990.
However, OBRA 1990 set specific dollar figures, rather than a
percentage, in law for 1991-95. These dollar figures reflected
the Congressional Budget Office's (CBO) estimates of what 25
percent of program costs would be over the 5-year period.
Program costs grew at a slower rate than anticipated, in part
due to subsequent legislative changes. As a result, the 1995
premium of $46.10 covered an estimated 31.5 percent of program
costs.
OBRA 1993 extended the policy of setting the part B premium
at a level to cover 25 percent of program costs for 1996-98. As
was the case prior to 1991, a percentage rather than a fixed
dollar figure was used. As a result, the 1996 premium was
$42.50, a full $3.60 less than the 1995 premium. The 1997 and
1998 premiums are $43.80. The Balanced Budget Act of 1997
permanently sets the part B premium equal to 25 percent of
program costs.
Financial Status of Hospital Insurance Trust Fund
The Hospital Insurance Trust Fund balance is dependent on
total income to the HI Trust Fund exceeding total outlays from
the fund. Tables 2-7 and 2-8 show historical information from
the 1997 Trustees' Report on the operation of the trust fund.
The Trustees' Report also included projections. However, the
Congress subsequently passed the Balanced Budget Act of 1997
which substantially changed the expected operations of the
fund. Tables 2-7, 2-8, and 2-9 show preliminary projections for
the 1997-2007 period made following the enactment of the
Balanced Budget Act.
The 1997 Trustees' Report (Board of Trustees, Hospital
Trust Fund, 1997) stated that the program failed to meet both
short-range and long-range tests of financial adequacy.
Disbursements began to exceed income in 1995. Under the
trustee's 1997 intermediate assumptions, the fund would have
become insolvent in 2001. The Trustees' Report had projected
that the fund's shortfall would be $23.4 billion at the end of
calendar 2001. The shortfall would continue to build each year,
rising to $429.8 billion at the end of fiscal year 2006 and
$471.6 billion at the end of calendar year 2006.
The projections included in the 1997 Trustees' Reports
have been substantially modified as a result of the enactment
of the Balanced Budget Act (table 2-9). This legislation
provides for the transfer of a portion of home health spending
(currently the fastest growing part A expenditure) from part A
to part B. It also includes additional provisions designed to
stem the growth in part A expenditures. These provisions
include the implementation of prospective payment systems for
home health services and skilled nursing facility services and
limits on the increases in hospital payments. When the Balanced
Budget Act of 1997 was enacted, CBO projected that the
insolvency date would be postponed from 2001 to fiscal year
2007. Subsequently, the administration estimated that the year
of exhaustion would be 2010 (see table 2-9).
Despite short-term improvements, the fund still faces
insolvency. Beginning in fiscal year 1996, HI costs began to
rise faster than income. The CBO expects this trend to
continue, though at a somewhat slower pace as the result of the
Balanced Budget Act of 1997. The administration projects that
income will still slightly exceed costs over the short term and
costs will again exceed income after 2007. Historically, the
shortfall has been primarily attributable to the increase in
hospital payments which have accounted for over 65 percent of
HI benefit payments.
Beginning in 2011, the program will begin to experience the
impact of major demographic changes. First, baby boomers
(persons born between 1946 and 1964) begin turning age 65.
Second, there will be a shift in the number of covered workers
supporting each HI enrollee. In 1996, there were 3.9 workers
for every beneficiary; in 2030 there will only be an estimated
2.3.
TABLE 2-7.--OPERATIONS OF THE HOSPITAL INSURANCE TRUST FUND, SELECTED FISCAL YEARS 1970-2007
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Income Disbursements Trust fund
----------------------------------------------------------------------------------------------------------------------------------------------------------------
Income Payments
Fiscal year \1\ from Railroad Reimbursement Premiums for Interest Net Fund at
Payroll taxation retirement for uninsured from military and other Total Benefits Administrative Total increase end of
taxes of account persons voluntary wage income \2\ income payments \3\ expenses \4\ disbursements in fund year
benefits transfers enrollees credits
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Historical data (in millions of dollars):
1970....................... $4,785 ........ $64 $617 ......... $11 $137 $5,614 $4,804 $149 $4,953 $661 $2,677
1975....................... 11,291 ........ 132 481 $6 48 609 12,568 10,353 259 10,612 1,956 9,870
1980....................... 23,244 ........ 244 697 17 141 1,072 25,415 23,790 497 24,288 1,127 14,490
1985....................... 46,490 ........ 371 766 38 86 3,182 50,933 47,841 813 48,654 \5\ 4,103 21,277
1986....................... 53,020 ........ 364 566 40 \6\ -714 3,167 56,442 49,018 667 49,685 \7\ 17,370 38,648
1987....................... 57,820 ........ 368 447 40 94 3,982 62,751 49,967 836 50,803 11,949 50,596
1988....................... 61,901 ........ 364 475 42 80 5,148 68,010 52,022 707 52,730 15,281 65,877
1989....................... 67,527 ........ 379 515 42 86 6,567 75,116 57,433 805 58,238 16,878 82,755
1990....................... 70,655 ........ 367 413 113 107 7,908 79,563 65,912 774 66,687 12,876 95,631
1991....................... 74,655 ........ 352 605 367 \8\ -1,011 8,969 83,938 68,705 934 69,638 14,299 109,930
1992....................... 80,978 ........ 374 621 484 86 10,133 92,677 80,784 1,191 81,974 10,703 120,633
1993....................... 83,147 ........ 400 367 622 81 \9\ 12,484 97,101 90,738 866 91,604 5,497 126,131
1994....................... 92,028 $1,639 413 506 852 80 10,676 106,195 101,535 1,235 102,770 3,425 129,555
1995....................... 98,053 3,913 396 462 998 61 10,963 114,847 113,583 1,300 114,883 -36 129,520
1996....................... 106,934 4,069 401 419 1,107 3 10,496 121,135 124,188 1,229 125,317 -4,182 125,338
Preliminary projections made following enactment of the Balanced Budget Act of 1997 (in billions of
dollars):
1997....................... ........ ........ .......... ............. ......... .......... .......... 128.8 ............ .............. 138.1 -9.3 116.0
1998....................... ........ ........ .......... ............. ......... .......... .......... 125.6 ............ .............. 131.5 -5.9 110.1
1999....................... ........ ........ .......... ............. ......... .......... .......... 129.3 ............ .............. 131.5 -2.2 107.9
2000....................... ........ ........ .......... ............. ......... .......... .......... 137.6 ............ .............. 134.3 3.3 111.2
2001....................... ........ ........ .......... ............. ......... .......... .......... 146.0 ............ .............. 139.3 6.7 117.9
2002....................... ........ ........ .......... ............. ......... .......... .......... 155.4 ............ .............. 146.8 8.6 126.5
2003....................... ........ ........ .......... ............. ......... .......... .......... 165.5 ............ .............. 156.8 8.7 135.2
2004....................... ........ ........ .......... ............. ......... .......... .......... 173.8 ............ .............. 166.9 6.9 142.1
2005....................... ........ ........ .......... ............. ......... .......... .......... 183.6 ............ .............. 177.2 6.3 148.4
2006....................... ........ ........ .......... ............. ......... .......... .......... 191.4 ............ .............. 188.2 3.2 151.6
2007....................... ........ ........ .......... ............. ......... .......... .......... 200.9 ............ .............. 200.5 0.4 152.1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Fiscal years 1970 and 1975 consist of the 12 months ending on June 30 of each year; fiscal years 1980 and later consist of the 12 months ending on September 30 of each year.
\2\ Other income includes recoveries of amounts reimbursed from the trust fund which are not obligations of the trust fund and a small amount of miscellaneous income.
\3\ Includes costs of peer review organizations (beginning with the implementation of the prospective payment system on October 1, 1983).
\4\ Includes costs of experiments and demonstration projects.
\5\ Includes repayment of loan principal from the OASI Trust Fund of $1,824 million.
\6\ Includes the lump-sum general revenue adjustment of -$805 million, as provided for by section 151 of Public Law 98-21.
\7\ Includes repayment of loan principal from the OASI Trust Fund of $10,613 million.
\8\ Includes the lump-sum general revenue adjustment of -$1,100 million, as provided for by section 151 of Public Law 98-21.
\9\ Includes $1,805 million transfer from the SMI catastrophic coverage reserve fund, as provided for by Public Law 102-394.
Note.--Fiscal years 1997-2007 reflect estimated operations of fund under present law with effects of the Balanced Budget Act of 1997 on the basis of the midsession review of the fiscal year
1998 budget assumptions.
Source: Board of Trustees, Federal Hospital Insurance Trust Fund (1997) and Social Security Administration unpublished tables.
TABLE 2-8.--OPERATIONS OF THE HOSPITAL INSURANCE TRUST FUND, SELECTED CALENDAR YEARS 1970-2007
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Income Disbursements Trust fund
----------------------------------------------------------------------------------------------------------------------------------------------------------------
Income Payments
Calendar year from Railroad Reimbursement Premiums for Interest Net Fund at
Payroll taxation retirement for uninsured from military and other Total Benefits Administrative Total increase end of
taxes of account persons voluntary wage income \1\ income payments \2\ expenses \3\ disbursements in fund year
benefits transfers enrollees credits
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Historical data (in millions of dollars):
1970....................... $4,881 ........ $66 $863 ......... $11 $158 $5,979 $5,124 $157 $5,281 $698 $3,202
1975....................... 11,502 ........ 138 621 $7 48 664 12,980 11,315 266 11,581 1,399 10,517
1980....................... 23,848 ........ 244 697 18 141 1,149 26,097 25,064 512 25,577 521 13,749
1985....................... 47,576 ........ 371 766 41 \4\ -719 3,362 51,397 47,580 834 48,414 \5\ 4,808 20,499
1986....................... 54,583 ........ 364 566 43 91 3,619 59,267 49,758 664 50,422 \6\ 19,458 39,957
1987....................... 58,648 ........ 368 447 38 94 4,469 64,064 49,496 793 50,289 13,775 53,732
1988....................... 62,449 ........ 364 475 41 80 5,830 69,239 52,517 815 53,331 15,908 69,640
1989....................... 68,369 ........ 379 515 55 86 7,317 76,721 60,011 792 60,803 15,918 85,558
1990....................... 72,013 ........ 367 413 122 \7\ -993 8,451 80,372 66,239 758 66,997 13,375 98,933
1991....................... 77,851 ........ 352 605 432 89 9,510 88,839 71,549 1,021 72,570 16,269 115,202
1992....................... 81,745 ........ 374 621 522 86 10,487 93,836 83,895 1,121 85,015 8,821 124,022
1993....................... 84,133 ........ 400 367 675 81 \8\ 12,531 98,187 93,487 904 94,391 3,796 127,818
1994....................... 95,280 $1,639 413 506 907 80 10,745 109,570 103,282 1,263 104,545 5,025 132,844
1995....................... 98,421 3,913 396 462 954 61 10,820 115,027 116,368 1,236 117,604 -2,577 130,267
1996....................... 110,585 4,069 401 419 1,199 \9\ 2,293 10,222 124,603 128,632 1,297 129,929 -5,325 124,942
Preliminary projections made following enactment of the Balanced Budget Act of 1997 (in billions of
dollars):
1997....................... ......... ........ .......... ............. ......... ......... .......... 129.1 ............ .............. 138.2 -9.1 115.8
1998....................... ......... ........ .......... ............. ......... ......... .......... 124.5 ............ .............. 128.2 -3.7 112.1
1999....................... ......... ........ .......... ............. ......... ......... .......... 131.1 ............ .............. 131.4 -0.3 111.8
2000....................... ......... ........ .......... ............. ......... ......... .......... 139.6 ............ .............. 134.6 5.0 116.8
2001....................... ......... ........ .......... ............. ......... ......... .......... 148.8 ............ .............. 140.2 8.6 125.5
2002....................... ......... ........ .......... ............. ......... ......... .......... 158.1 ............ .............. 148.1 10.0 135.4
2003....................... ......... ........ .......... ............. ......... ......... .......... 169.5 ............ .............. 158.2 11.3 146.8
2004....................... ......... ........ .......... ............. ......... ......... .......... 177.8 ............ .............. 168.4 9.5 156.2
2005....................... ......... ........ .......... ............. ......... ......... .......... 186.7 ............ .............. 178.8 7.9 164.2
2006....................... ......... ........ .......... ............. ......... ......... .......... 195.7 ............ .............. 190.0 5.7 169.9
2007....................... ......... ........ .......... ............. ......... ......... .......... 205.7 ............ .............. 203.3 2.3 172.2
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Other income includes recoveries of amounts reimbursed from the trust fund which are not obligations of the trust fund and a small amount of miscellaneous income.
\2\ Includes cost of peer review organizations (beginning with the implementation of the prospective payment system on October 1, 1983).
\3\ Includes costs of experiments and demonstration projects.
\4\ Includes the lump-sum general revenue adjustment of -$805 million, as provided for by section 151 of Public Law 98-21.
\5\ Includes repayment of loan principal from the OASI Trust Fund of $1,824 million.
\6\ Includes repayments of loan principal from the OASI Trust Fund of $10,613 million.
\7\ Includes the lump-sum general revenue adjustment of -$1,100 million, as provided for by section 151 of Public Law 98-21.
\8\ Includes $1,805 million transfer from the SMI catastrophic coverage reserve fund, as provided for by Public Law 102-394.
\9\ Includes the lump-sum general revenue adjustment of -$2,366 million provided for by section 151 of Public Law 98-21.
Note.--Fiscal years 1997-2007 reflect estimated operations of the fund under present law with effects of the Balanced Budget Act of 1997 on the basis of the midsession review of the fiscal
year 1998 budget assumptions.
Source: Board of Trustees, Federal Hospital Insurance Trust Fund (1997) and Social Security Administration, unpublished tables.
TABLE 2-9.--PROJECTIONS MADE FOLLOWING PASSAGE OF THE BALANCED BUDGET ACT OF 1997 FOR THE HOSPITAL INSURANCE TRUST FUND OF INCOME AND OUTLAYS, FISCAL
YEARS 1997-2007, UNDER CBO AND ADMINISTRATION ASSUMPTIONS
[In billions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
--------------------------------------------------------------------------------------------------------------------------------------------------------
CBO projections:
Income........................................ $127.7 $131.0 $136.5 $142.3 $147.9 $154.2 $160.6 $166.9 $173.6 $180.4 $187.2
Outlays....................................... 137.4 142.3 145.9 149.3 158.2 159.4 170.1 180.4 197.3 202.4 221.6
-------------------------------------------------------------------------------------------------------
Net increase in fund........................ -9.7 -11.3 -9.4 -7.0 -10.3 -5.2 -9.5 -13.6 -23.7 -22.1 -34.4
-------------------------------------------------------------------------------------------------------
Balance at end of year..................... 115.6 104.3 94.9 87.9 77.6 72.4 62.9 49.3 25.7 3.6 -30.8
=======================================================================================================
Administration projections:
Income........................................ 128.8 125.6 129.3 137.6 146.0 155.4 165.5 173.8 183.6 191.4 200.9
Outlays....................................... 138.1 131.5 131.5 134.3 139.3 146.8 156.8 166.9 177.2 188.2 200.5
-------------------------------------------------------------------------------------------------------
Net increase in fund........................ -9.3 -5.9 -2.2 3.3 6.7 8.6 8.7 6.9 6.3 3.2 0.4
-------------------------------------------------------------------------------------------------------
Balance at end of year..................... 116.0 110.1 107.9 111.2 117.9 126.5 135.2 142.1 148.4 151.6 152.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Congressional Budget Office, August 1997, and Social Security Administration, October 1997, unpublished tables.
The combination of expenditure and demographic factors is
also reflected in the increasing size of the HI Program
relative to other sectors of the economy. According to the 1997
Trustees' Report, the program's cost is expected to rise from
1.7 percent of gross domestic product (GDP) in 1996 to about 5
percent of GDP in 2070. This estimate was made prior to
enactment of the Balanced Budget Act of 1997.
Financial Status of Supplementary Medical Insurance Trust Fund
Because the SMI Trust Fund is financed through beneficiary
premiums and Federal general revenues, it does not face the
prospect of depletion, as does the HI Trust Fund. However, the
rising cost of the program is placing a burden on the trust
fund, and by extension on beneficiaries (in the form of
premiums) and Federal general revenues. Table 2-10 shows
historical information from the 1997 Trustees' Report (Board of
Trustees, Federal Hospital Insurance Trust Fund, 1997).
Comparison of Medicare Lifetime Benefits with Beneficiary Contributions
Medicare beneficiaries typically get back considerably more
in Medicare benefits than they contribute in payroll taxes and
premiums over their lifetimes. CBO has estimated (based on the
1996 Trustees' Report) the extent to which Medicare enrollees'
contributions (through the HI payroll tax and the SMI premium)
cover the expected value of their benefits under the program.
Results are presented only for self-insured men and women (that
is, those who obtain benefits on the basis of their own work
history) who worked each year at an average wage from 1966
until retirement at age 65. Three groups of persons are shown--
persons who reach 65 as of 1985, 1995, and 2005. All estimates,
which were made prior to the enactment of the Balanced Budget
Act of 1997, are dependent on uncertain projections of future
health spending.
For a self-insured man who worked continuously at an
average wage from 1966 (when Medicare began) until retirement
in 1985, the present discounted value of their contributions is
about 29 percent of the expected value of lifetime Medicare
benefits. For men retiring in 1995, contributions represent
about 37 percent of benefits; for those retiring in 2005,
contributions represent about 41 percent. Contributions through
HI payroll taxes increases relative to HI benefits for later
retirees because the HI payroll tax (which began in 1966) was
paid for a greater proportion of their working years.
Conversely, contributions through SMI premiums relative to SMI
benefits decline because, under the law in effect prior to the
Balanced Budget Act of 1997, after 1998 annual premium
increases were limited by the percentage increase in the Social
Security COLA (see table 2-11).
TABLE 2-10.--OPERATIONS OF THE SUPPLEMENTARY MEDICAL INSURANCE TRUST FUND (CASH BASIS), SELECTED FISCAL YEARS 1970-96
[In millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Income Disbursements
------------------------------------------------------------------------------------------------------- Balance at
Fiscal year \1\ Interest end of
Premium from Government and other Total Benefit Administrative Total year \4\
enrollees contributions \2\ income \3\ income payments expenses disbursements
--------------------------------------------------------------------------------------------------------------------------------------------------------
Historical data:
1970............................. $936 $928 $12 $1,876 $1,979 $217 $2,196 $57
1975............................. 1,887 2,330 105 4,322 3,765 405 4,170 1,424
1980............................. 2,928 6,932 415 10,275 10,144 593 10,737 4,532
1985............................. 5,524 17,898 1,155 24,577 21,808 922 22,730 10,646
1986............................. 5,699 18,076 1,228 25,003 25,169 1,049 26,218 9,432
1987............................. 6,480 20,299 1,018 27,797 29,937 900 30,837 6,392
1988............................. 8,756 25,418 828 35,002 33,682 1,265 34,947 6,447
1989............................. \5\ 11,548 30,712 \5\ 1,022 \5\ 43,282 36,867 \5\ 1,450 \5\ 38,317 \5\ 11,412
1990............................. \5\ 11,494 33,210 \5\ 1,434 \5\ 46,138 41,498 \5\ 1,524 \5\ 43,022 \5\ 14,527
1991............................. 11,807 34,730 1,629 48,166 45,514 1,505 47,019 15,675
1992............................. 12,748 38,684 1,717 53,149 48,627 1,661 50,288 18,535
1993............................. 14,683 44,227 1,889 60,799 \6\ 54,214 1,845 56,059 23,276
1994............................. 16,895 38,355 2,118 57,368 58,006 1,718 59,724 20,919
1995............................. 19,244 36,988 1,937 58,169 63,491 1,722 65,213 13,874
1996............................. 18,731 61,702 1,392 82,025 67,176 1,771 68,946 26,953
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ For 1970 and 1975, fiscal years cover the interval from July 1 through June 30; fiscal years 1980-2005 cover the interval from October 1 through
September 30.
\2\ General fund matching payments, plus certain interest-adjustment items.
\3\ Other income includes recoveries of amounts reimbursed from the trust fund which are not obligations of the trust fund and other miscellaneous
income.
\4\ The financial status of the program depends on both the total net assets and the liabilities of the program.
\5\ Includes the impact of the Medicare Catastrophic Coverage Act of 1988 (Public Law 100-360).
\6\ Includes the impact of the transfer to the HI Trust Fund of the SMI catastrophic coverage reserve fund on March 31, 1993 as specified in Public Law
102-394. Actual benefit payments for 1993 were $52,409 million and the amount transferred was $1,805 million.
Source: Board of Trustees, Federal Supplementary Medical Insurance Trust Fund (1997).
TABLE 2-11.--CONTRIBUTIONS AS A PERCENT OF EXPECTED LIFETIME BENEFITS
UNDER MEDICARE FOR SELECTED SELF-INSURED ENROLLEES REACHING AGE 65 AS OF
1985, 1995, OR 2005
------------------------------------------------------------------------
Year
Category -----------------------------
1985 1995 2005
------------------------------------------------------------------------
Self-insured men who earned average wages:
Hospital insurance.................... 31.6 50.4 66.2
Supplementary medical insurance....... 24.3 17.8 11.5
-----------------------------
Medicare total.................... 28.9 37.3 41.0
=============================
Self-insured women who earned average
wages:
Hospital insurance.................... 26.0 42.7 56.9
Supplementary medical insurance....... 24.5 16.9 11.8
-----------------------------
Medicare total.................... 25.5 31.8 36.0
------------------------------------------------------------------------
Note.--Contributions include employers' and employees' hospital
insurance (HI) payroll taxes, interest, and supplementary medical
insurance (SMI) premiums. Any other taxes paid by enrollees are not
included. Estimates are for beneficiaries with sufficient work history
to qualify for benefits. However, up to 20 percent of Medicare
beneficiaries qualify on the basis of their spouse's work history, not
their own. For spouse-insured beneficiaries, contributions as a
percent of benefits are lower because spouse-insured beneficiaries
paid little or no HI payroll taxes. Estimates assume an expected
lifetime at age 65 of 15 years for men (to age 80) and 19 years for
women (to age 84). Present discounted values for expected benefits
were obtained using the average interest rate projected for HI Trust
Fund earnings over the same years.
Source: Congressional Budget Office.
Contributions by self-insured women as a percentage of
expected benefits are smaller than they are for men. Actual
contributions by men and women are the same in the illustrative
calculations. However, a woman's lifetime benefits are larger
because a woman's lifetime expectancy is 4 years longer at age
65 (table 2-11).
In 1995 dollars, the present discounted value of Medicare
benefits net of contributions (that is the net transfer or
subsidy value) is estimated at $32,222 for men and $41,355 for
women who retired in 1985. For those retiring in 1995, the
value is estimated at $51,813 for men and $68,777 for women.
CBO projects that values will continue to increase in the
future, reaching $71,868 for men and $91,594 for women by 2005
(table 2-12).
TABLE 2-12.--PRESENT DISCOUNTED VALUE OF LIFETIME BENEFITS,
CONTRIBUTIONS, AND NET TRANSFER UNDER MEDICARE FOR SELECTED SELF-INSURED
ENROLLEES REACHING AGE 65 IN 1985, 1995, OR 2005
[In constant 1995 dollars]
------------------------------------------------------------------------
Year
Category --------------------------------------
1985 1995 2005
------------------------------------------------------------------------
Self-insured men who earned
average wages:
Benefits..................... $45,305 $82,599 $121,898
Contributions................ 13,083 30,787 50,030
--------------------------------------
Net transfer............. 32,222 51,813 71,868
======================================
Self-insured women who earned
average wages
Benefits..................... 55,483 100,862 143,036
Contributions................ 14,128 32,084 51,442
--------------------------------------
Net transfer............. 41,355 68,777 91,594
------------------------------------------------------------------------
Note.--Contributions include employers' and employees' HI payroll taxes,
interest, and SMI premiums. Any other taxes paid by enrollees are
included. Net transfer is benefits net of contributions. Estimates are
for beneficiaries with sufficient work history to qualify for
benefits. However, up to 20 percent of Medicare beneficiaries qualify
on the basis of their spouse's work history, not their own. For spouse-
insured beneficiaries qualify on the basis of their spouse's work
history, not their own. For spouse-insured beneficiaries,
contributions as a percent of benefits are lower and the net transfer
is larger because spouse-insured beneficiaries paid little or no HI
payroll taxes. Estimates assume an expected lifetime at age 65 to 15
years for men (to age 80) and 19 years for women (to age 84). Present
discounted values for unexpected benefits were obtained using the
average interest rate projected for HI Trust Fund earnings over the
same years. The CPI-U was used to get constant 1995 dollars.
Source: Congressional Budget Office.
PART A SERVICES--COVERAGE AND PAYMENTS
Inpatient Hospital Services
Medicare part A provides reimbursement for inpatient
hospital care through the prospective payment system (PPS),
established by Congress in the Social Security Amendments of
1983 (Public Law 98-21). Before the enactment of PPS, Medicare
paid hospitals retrospectively for the full costs they
incurred, subject to certain limits and tests of
reasonableness. Congress had previously acted to contain
growing hospital costs by placing certain limits on routine
inpatient care operating costs. However, medical costs
continued to grow faster than the rate of inflation in the
early 1980s, so PPS was enacted to constrain the growth of
Medicare's inpatient hospital costs by providing incentives for
hospitals to provide care more efficiently (see appendix D for
further information about hospital services).
Under PPS, fixed hospital payment amounts are established
in advance of the provision of services on the basis of a
patient's diagnosis. Hospitals that are able to provide
services for less than the fixed PPS payment may keep the
difference. Hospitals with costs that exceed the fixed PPS
payment lose money on the case. The system's fixed prices are
determined in advance on a cost-per-case basis, using a
classification system of over 500 diagnosis-related groups
(DRGs). Each Medicare case is assigned to one of the DRGs based
on the patient's medical condition and treatment. DRGs are
assigned relative weights to reflect the variation in the costs
of treating a particular diagnosis. The DRG-based payment rate
is designed to represent the national average cost per case for
treating a patient with a particular diagnosis. Payments for a
particular DRG will vary among different hospitals depending on
the hospital's location and certain other characteristics. In a
particular hospital, all cases assigned to the same DRG are
reimbursed at the same predetermined rate.
The PPS payment rates are updated each year using an update
factor which is determined, in part, by the projected increase
in the hospital market basket index (MBI). The hospital MBI
measures the cost of goods and services that are purchased by
hospitals, yielding one price inflator for all hospitals in a
given year.
In addition to the basic DRG payment for each case, PPS
hospitals may also receive certain supplemental Medicare
payments. Additional hospital payments include indirect medical
education costs, disproportionate-share hospital payments,
outlier payments, and payments for inpatient dialysis provided
to end-stage renal disease beneficiaries. Certain categories of
hospital expenses are not included in the PPS rates and are
reimbursed in some other way, including direct medical
education costs and capital-related costs. Certain facilities
receive special treatment under PPS, particularly certain types
of isolated or essential hospitals in rural areas, including
regional referral centers (RRCs), sole community hospitals
(SCHs), and Medicare-dependent small rural hospitals.
Specialized facilities are excluded from PPS and are paid
on the basis of reasonable costs subject to rate of increase
limits. PPS-exempt facilities include psychiatric hospitals,
rehabilitation hospitals, children's hospitals, cancer research
centers, and long-term care hospitals. States are also allowed
to apply for a waiver from PPS and establish a prospective
system for setting hospital rates instead of what would be paid
under PPS; Maryland is the only State that continues to operate
under such a waiver.
Table 2-13 provides 1995 data on the utilization of
inpatient hospital services by type of enrollee and type of
hospital.
Skilled Nursing Facility Services
Coverage
The Medicare Program covers extended care services provided
in nursing homes for beneficiaries who require additional
skilled nursing care and rehabilitation services following a
hospitalization. These extended care services, commonly known
as skilled nursing facility (SNF) benefits, are covered under
part A of the program for up to 100 days per spell of illness
and must be provided in a skilled nursing facility certified to
participate in Medicare. A spell of illness is that period
which begins when a beneficiary is furnished
TABLE 2-13.--USE OF INPATIENT HOSPITAL SERVICES BY MEDICARE ENROLLEES, BY TYPE OF ENROLLEE AND TYPE OF HOSPITAL,
CALENDAR YEAR 1995 \1\
----------------------------------------------------------------------------------------------------------------
Bills \2\ Covered days of care Reimbursement
-----------------------------------------------------------------------------------
Type of enrollee and type of Amount
hospital Number in Per 1,000 Number in Per bill Per 1,000 in Per bill Per
thousands enrollees thousands enrollees millions enrollee
----------------------------------------------------------------------------------------------------------------
All enrollees:
All hospitals............. 12,474 336 86,041 6.9 2,317 $76,519 $6,134 $2,061
Short stay.............. 11,260 303 72,124 6.4 1,942 69,261 6,151 1,865
Long stay............... 1,214 33 13,917 11.5 375 7,258 5,979 195
Psychiatric........... 302 8 2,688 8.9 72 937 3,103 25
All other............. 912 25 11,229 12.3 302 6,321 6,931 170
Aged:
All hospitals............. 10,610 324 73,165 6.9 2,235 65,980 6,219 2,015
Short stay.............. 9,848 301 63,695 6.5 1,945 60,572 6,151 1,850
Long stay............... 762 23 9,470 12.4 289 5,408 7,097 165
Psychiatric........... 90 3 902 10.0 28 342 3,800 10
All other............. 672 21 2,295 3.4 70 5,066 7,539 155
Disabled:
All hospitals............. 1,864 424 12,876 6.9 2,931 10,539 5,654 2,399
Short stay.............. 1,412 321 8,429 6.0 1,919 8,689 6,154 1,978
Long stay............... 452 103 4,447 9.8 1,012 1,850 4,093 421
Psychiatric........... 213 48 1,787 8.4 407 596 2,798 136
All other............. 239 54 2,660 11.1 605 1,254 5,247 285
----------------------------------------------------------------------------------------------------------------
\1\ Preliminary data. Totals may not add due to rounding.
\2\ Discharges not available by type of hospital.
Note.--Only services rendered by inpatient hospitals are included.
Source: Health Care Financing Administration, Bureau of Management and Strategy.
inpatient hospital or SNF care and ends when the beneficiary
has been neither an inpatient of a hospital nor an SNF for 60
consecutive days. A beneficiary may have more than one spell of
illness per year.
In order to be eligible for SNF care, the beneficiary must
have been an inpatient of a hospital for at least 3 consecutive
days and must be transferred to a SNF, usually within 30 days
of discharge from the hospital. Furthermore, a physician must
certify that the beneficiary is in need of skilled nursing care
or other skilled rehabilitation services, which as a practical
matter can only be provided on an inpatient basis and which are
related to the condition for which the beneficiary was
hospitalized.
Covered SNF services include the following:
--Nursing care provided by or under the supervision of a
registered nurse;
--Room and board;
--Physical or occupational therapy or speech-language
pathology;
--Medical social services;
--Drugs, biologicals, supplies, appliances, and equipment
ordinarily furnished by a SNF for the care of patients;
--Medical services of interns and residents in training under
an approved teaching program of a hospital with which
the SNF has a transfer agreement; and
--Other services necessary to the health of patients that are
generally provided by SNFs.
Reimbursement
Medicare has reimbursed the great bulk of skilled nursing
facility (SNF) care on a retrospective cost-based basis. This
has meant that SNFs have been paid after services were
delivered for the reasonable costs (as defined by program) they
incurred for the care they provided. For these purposes, the
costs SNFs incurred for providing services to beneficiaries
were divided into three major categories: (1) routine service
costs--nursing, room and board, administrative, and other
overhead costs; (2) ancillary services, such as therapy
services, laboratory, radiology procedures, supplies and other
equipment; and (3) capital-related costs, including net
depreciation expense, taxes, lease and rental payments,
improvements that extend the life of or increase productivity
of assets, net interest expense, and so forth.
Routine costs have been subject to national average per
diem limits, adjusted to reflect differences in wage levels
from area to area. Ancillary service and capital costs have
been paid on the basis of reasonable costs and neither have
been subject to limits.
Beginning July 1, 1998, the Balanced Budget Act of 1997
phases in a prospective payment system for SNFs that will pay a
Federal per diem rate for covered SNF services. Covered
services will include part A SNF as well as all services for
which payment may be made under part B during the period when
the beneficiary is provided covered SNF care (excluding,
however, physician services, certain nurse practitioner and
physician assistant services, certified nurse-midwife services,
qualified psychologist services, services of a certified
registered nurse anesthetist, certain dialysis services and
drugs, and in 1998 only, the transportation costs of
electrocardiogram equipment).
The Federal per diem payment will cover routine service
costs, ancillary costs, and capital-related costs, but will not
include costs associated with approved educational activities.
The actual per diem rate received by a facility will include
adjustments for case mix based on a resident classification
system established by the Secretary to account for relative
resource utilization of different patient types. The labor-
related portion of the rate will also include budget-neutral
adjustments to reflect the relative levels of wages and wage-
related cost for the geographic area in which the facility is
located.
The resident classification system used by the Secretary
for the new SNF prospective payment system is expected to be
similar to that developed under a Health Care Financing
Administration demonstration known as resource utilization
groups (RUGs)-III. Under RUGs-III, classification is based on
residents' clinical conditions; extent of services needed, such
as nursing care, rehabilitation, respiratory/ventilator care of
tube feedings; and functional status, such as the amount of
support needed to eat or toilet. This new system pays, for
example, three times more for bedridden, severely ill patients
needing a variety of therapies than for ambulatory patients who
need only posthospital monitoring and surgical wound treatment.
For a beneficiary residing in a SNF (or a part of a
facility that includes a SNF) but no longer eligible for part A
SNF care, payments for part B covered services will have to be
made to the facility whether or not the item or service was
furnished by the facility, by others under arrangement, or
under any other contracting or consulting arrangement. This
requirement is often referred to as the ``consolidated
billing'' provision of the new law. Payment for part B items
and services must include a code identifying the items or
services delivered. In addition, bills submitted by physicians
must include the SNFs provider number.
Growth in payments
For the past several years, SNF care has been one of
Medicare's fastest growing benefits. SNF spending in calendar
year 1990 stood at $2.5 billion; by calendar year 1996 it had
increased to $11.7 billion, for an average annual growth rate
of 29 percent (see table 2-14). Because spending for SNF care
has been growing at a faster rate than other benefits, both its
share of total Medicare spending as well as its share of total
part A expenditures have increased significantly, actually
doubling during this same period. Table 2-14 presents
historical SNF spending data on a calendar year basis.
Table 2-15 shows that since 1990 the number of Medicare
beneficiaries receiving SNF care grew from 638,000 to 1,145,000
in 1996 or by 79.5 percent; the number of covered days grew
from 25.1 million to 40.2 million or by 60 percent. Payment per
day, however, tripled, increasing by 198 percent during the
period, and reached $292 per day.
TABLE 2-14.--ESTIMATED MEDICARE PAYMENTS FOR SKILLED NURSING FACILITY
CARE BY TYPE OF SERVICE, 1983-96 \1\
------------------------------------------------------------------------
Payments
(in Percent
billions) change \2\
------------------------------------------------------------------------
Calendar year:
1983...................................... $0.5 ...........
1984...................................... 0.6 6.9
1985...................................... 0.6 2.9
1986...................................... 0.6 0.2
1987...................................... 0.6 8.8
1988...................................... 0.9 47.1
1989...................................... 3.5 275.7
1990...................................... 2.5 -29.0
1991...................................... 2.9 18.4
1992...................................... 4.5 55.3
1993...................................... 6.5 44.4
1994...................................... 8.4 29.2
1995 \1\.................................. 10.4 23.8
1996 \1\.................................. 11.7 12.5
------------------------------------------------------------------------
\1\ Estimated.
\2\ Rounding in payments may not reflect actual change.
Note.--Payments reported here are incurred expenditures, net of
beneficiary copayments.
Source: Health Care Financing Administration, Office of the Actuary, and
Prospective Payment Assessment Commission (1995, 1996).
TABLE 2-15.--MEDICARE SKILLED NURSING FACILITY UTILIZATION AND PAYMENTS PER PERSON SERVED, 1983-96
----------------------------------------------------------------------------------------------------------------
People served Days Payment per day
-----------------------------------------------------------------
Calendar year Number Per
Number Per 1,000 (in person Amount Percent
enrollees millions) served change
----------------------------------------------------------------------------------------------------------------
1983.......................................... 265,000 9 9.3 35.1 $56 .........
1984.......................................... 299,000 10 9.6 32.2 58 3.2
1985.......................................... 314,000 10 8.9 28.4 65 11.1
1986.......................................... 304,000 10 8.2 26.8 71 9.6
1987.......................................... 293,000 9 7.4 25.4 84 19.3
1988.......................................... 384,000 12 10.7 27.8 87 2.6
1989.......................................... 636,000 19 29.8 46.8 117 34.6
1990.......................................... 638,000 19 25.1 39.5 98 -16.1
1991.......................................... 671,000 20 23.7 35.3 123 25.9
1992.......................................... 785,000 22 29.0 36.9 157 27.1
1993.......................................... 908,000 25 34.4 37.9 188 20.1
1994.......................................... 1,068,000 29 37.1 39.7 226 20.1
1995.......................................... 1,110,000 30 39.8 35.1 267 18.1
1996 \1\...................................... 1,145,000 30 40.2 35.1 242 9.3
----------------------------------------------------------------------------------------------------------------
\1\ Estimated.
Source: Health Care Financing Administration, Office of the Actuary.
Tables 2-14 and 2-15 also show that SNF utilization and
spending first began to increase significantly in 1988 and
1989. These increases can be traced to significant changes that
occurred in the benefit at that time. First HCFA issued new
coverage guidelines that became effective early in 1988. The
guidelines provided SNFs a great deal more information than had
previously existed about criteria that must be met for a
beneficiary to receive Medicare coverage. Prior to this time,
studies had pointed to a lack of adequate written guidance on
coverage criteria that led to inconsistencies in coverage
decisions for a benefit that was intended to be uniform across
the country. As a result, many SNFs were reluctant to accept
Medicare beneficiaries because of the possibility that a
submitted claim would be retroactively denied. The 1988
guidelines clarified coverage criteria by providing numerous
examples of covered and noncovered care. Furthermore, the
guidelines explained that even when a patient's full or partial
recovery is not possible, care could be covered if it were
needed to prevent deterioration or to maintain current
capabilities. Previously, some care had been denied because
patients' health status was not expected to improve.
The second major, though temporary, change in Medicare's
SNF benefit came in 1988 with the enactment of the Medicare
Catastrophic Coverage Act (MCCA). Effective beginning in 1989,
this legislation: eliminated the SNF benefit's prior
hospitalization requirement; revised the coinsurance
requirement to be equal to 20 percent of the national average
estimated per diem cost of SNF services for the first 8 days of
care; and authorized coverage of up to 150 days of care per
calendar year (rather than 100 days per spell of illness).
These changes were repealed in 1989, and the SNF benefit's
structure assumed its prior form. Table 2-14 shows that
spending for SNF care decreased by 29 percent between 1989 and
1990, but did not drop back to 1988 levels. Studies have
suggested that the coverage guidelines and MCCA changes
together might have caused a long-run shift in the nursing home
industry toward Medicare patients that would not end with the
repeal of MCCA. This trend is reflected in data showing a 65-
percent increase, from 8,638 to 14,219, in facilities
participating in Medicare between 1989 and 1996.
As noted above, large average annual rates of growth in
Medicare SNF spending can be explained not only by increases in
volume of services covered, but also by significant increases
in reimbursements per day of care. Prospective Payment
Assessment Commission analysis has shown that Medicare
reimbursement policies may explain this increase. While routine
care costs are subject to per diem limits, ancillary services
are not. Higher ancillary service use, therefore, results in
greater Medicare payments. In addition, a SNF may claim high
ancillary service use as a justification for an exemption from
routine service cost limits, thereby increasing those payments.
In 1990, charges for physical, occupational, speech, and
respiratory therapy services were approximately 15 percent of
total Medicare SNF charges. By 1994, these services represented
over 30 percent of charges. Although final payments for therapy
and other ancillary services are based on costs rather than
charges, these estimates reveal the relative importance of
these services in the overall growth of Medicare Program
payments for SNF services. This growth is expected to be
controlled in the future by the new SNF prospective payment
system mandated by the Balanced Budget Act of 1997.
Home Health Services
Coverage
Both parts A and B of Medicare cover home health visits for
persons who need skilled nursing care on an intermittent basis
or physical therapy or speech therapy. Persons must also be
homebound and under the care of a physician who establishes and
periodically reviews a plan of care for the patient. While a
beneficiary cannot become eligible for home health on the basis
of needing only occupational therapy, this need can continue
eligibility for home health care coverage, even if intermittent
skilled nursing care or physical or speech therapy are no
longer needed.
Medicare's home health benefit is intended to serve
beneficiaries needing acute medical care that must be provided
by skilled health care personnel, and was never envisioned as
providing coverage for the nonmedical supportive care and
personal care assistance needed by chronically impaired
persons. If beneficiaries meet the required eligibility
criteria, they become entitled to an unlimited number of home
health visits. Home health visits are not subject to
deductibles or coinsurance.
For beneficiaries meeting the qualifying criteria,
Medicare's home health benefit covers the following services:
--Part-time or intermittent nursing care provided by or under
the supervision of a registered nurse;
--Physical or occupational therapy or speech-language
pathology services;
--Medical social services;
--Part-time or intermittent services of a home health aide
who has successfully completed a training program
approved by the Secretary;
--Medical supplies (excluding drugs and biologicals) and
durable medical equipment;
--Medical services provided by an intern or resident in
training under an approved training program with which
the agency may be affiliated; and
--Certain other outpatient services which involve the use of
equipment that cannot readily be made available in the
beneficiary's home.
In 1989, as a result of an agreement reached in a class
action lawsuit, Duggan v. Bowen, HCFA published new manual
instructions that clarified the criteria which must be met for
Medicare coverage of home health services. The coverage
guidelines, for example, specify that to meet the requirement
of needing ``intermittent'' skilled nursing care, an individual
must have a medically predictable recurring need for skilled
nursing services. This need can be met in most instances if the
individual requires these services at least once every 60 days.
The guidelines further provide that a service is not considered
a skilled nursing service merely because it is performed by or
under the direct supervision of a licensed nurse; instead the
inherent complexity of the service, the condition of the
patient, and accepted standards of medical and nursing practice
must be considered. Skilled nursing services may be justified
for such purposes as treatment of illness or injury;
observation and assessment of a patient's condition when only
the specialized skills of a medical professional can determine
a patient's status; management and evaluation of a patient care
plan to ensure that essential nonskilled care is achieving its
purpose; and teaching and training activities for the patient
and the patient's family or care givers.
The Balanced Budget Act included several provisions which
clarified coverage criteria for home health care:
--Persons will no longer be able to qualify for Medicare's
home health benefit on the basis of needing skilled
nursing care for venipuncture for the purpose of
obtaining a blood sample.
--Effective for services furnished on or after October 1,
1997, the Medicare statute includes definitions for
part-time and intermittent skilled nursing and home
health aide services. For purposes of receiving skilled
nursing and home health aide services, ``part-time or
intermittent'' is defined as skilled nursing and home
health aide services furnished any number of days per
week as long as they were furnished (combined) less
than 8 hours each day and 28 or fewer hours each week
(or, subject to review on a case-by-case basis as to
the need for care, less than 8 hours each day and 35 or
fewer hours per week). For purposes of qualifying for
Medicare's home health benefit because of a need for
intermittent skilled nursing care, ``intermittent'' is
defined as skilled nursing care that is either provided
or needed on fewer than 7 days each week, or less than
8 hours of each day for periods of 21 days or less
(with extensions in exceptional circumstances when the
need for additional care is finite and predictable).
--The Secretary of Health and Human Services is required to
conduct a study on the criteria that should be applied
for determining whether an individual should be
considered homebound for purposes of qualifying for
Medicare's home health benefit. The criteria should
include the extent and circumstances under which a
person may be absent from the home but nonetheless
qualify. The Secretary is required to report to
Congress by October 1, 1998, and make specific
recommendations on such criteria.
--Effective for services furnished on or after October 1,
1997, the Secretary is required to establish normative
guidelines for the frequency and duration of home
health services. Payments will be denied for visits
that exceed the normative standards. The Secretary is
also authorized to establish a process for notifying a
physician when the number of home health visits
furnished according to a prescription or certification
of the physician significantly exceeds the threshold
normative guidelines. The Secretary may adjust the
thresholds to reflect demonstrated differences in the
need for home health services among different
beneficiaries.
Reimbursement
Home health care agencies have been reimbursed on the basis
of reasonable costs, up to specified limits. Cost limits are
determined separately for each type of covered home health
service (skilled nursing care, physical therapy, speech
pathology, occupational therapy, medical social services, and
home health aide), and according to whether an agency is
located in an urban or rural area. Cost limits, however, have
been applied to aggregate agency expenditures; that is, an
aggregate cost limit is set for each agency that equals the
limit for each type of service multiplied by the number of
visits of each type provided by the agency.
The Balanced Budget Act reduces the per visit cost limits
from 112 percent of the mean labor-related and nonlabor per
visit cost to 105 percent of the national median of labor-
related and nonlabor costs for freestanding home health
agencies, effective for cost-reporting periods beginning
October 1, 1997 (in effect, delaying the cycle for updating the
limits).
In addition, home health agencies, for cost-reporting
periods beginning on or after October 1, 1997, will be paid the
lesser of: (1) their actual costs (that is, allowable
reasonable costs); (2) the per visit limits, reduced to 105
percent of the national median, applied in the aggregate; or
(3) a new blended agency-specific per beneficiary annual limit
applied to the agency's unduplicated census count of patients.
The blended per beneficiary limit will be based 75 percent on
an agency's own costs per beneficiary and 25 percent on the
average cost per beneficiary for agencies in the same census
region (adjusted for differences in labor costs). These costs
will be calculated from cost reports for cost-reporting periods
ending in fiscal year 1994, recognizing 98 percent of
reasonable costs for that period and updating them by the home
health market basket. The costs associated with nonroutine
medical supplies would be included in this calculation. For new
providers and those providers without a 12-month cost-reporting
period ending in fiscal year 1994, the per beneficiary limit
will equal the median of these limits (or the Secretary's best
estimates) applied to home health agencies. Home health
agencies that have altered their corporate structure or name
will not be considered new providers for these purposes. For
beneficiaries using more than one home health agency, the per
beneficiary limitation will be prorated among the agencies.
The Secretary is required to establish the per visit
limits in effect for fiscal year 1998 by January 1, 1998, and
the per beneficiary limits by April 1, 1998. For subsequent
fiscal years (beginning October 1), the Secretary will be
required to establish limits by the prior August 1.
Prospective payment for home health care
Beginning October 1, 1999, the Secretary i