Developing Medicare and Medicaid Substance Abuse Treatment Spending Estimates. A. Overview of Medicare Coverage of SA Treatment


In this section, we first describe the SA treatment services covered under the Medicare program. Then, we describe the approaches Medicare uses to reimburse providers for these services.

1. Service Coverage

Medicare covers a full spectrum of SA treatment services:

  • Inpatient hospital care--Medicare covers medically necessary inpatient hospital care for SA with the same coinsurance levels (for example, $1,156 deductible for 2012) and length of stay restrictions (up to 90 days in a benefit period, with a one-time 60-day reserve) as other types of hospitals stays. Medicare covers only a total of 190 days spent in a psychiatric hospital for an entire lifetime. Medicare may cover further inpatient mental health care in a general hospital, but not a psychiatric hospital.

  • Outpatient treatment--Medicare Part B covers outpatient SA treatment. Visits to a doctor or other health professional to diagnose a SA disorder are covered with a 20 percent coinsurance amount. Outpatient treatment of SA is covered with a 40 percent coinsurance in 2012. This coinsurance amount will decrease until 2014, when it will be 20 percent. Partial hospitalization is covered by Medicare if inpatient treatment would be necessary otherwise.

  • Preventive treatment--In October 2011, Medicare Part B initiated a new preventive benefit related to SA. This comprises an annual screening for alcohol misuse and up to four counseling visits to reduce alcohol misuse. Medicare fully covers these services from providers who accept assignment.

  • Prescribed drugs--Medicare Part D covers prescribed drugs for SA treatment at the same coverage levels as other prescribed drugs.

It should be noted that Medicare coverage of SA treatment is increasing from 2010 through 2014 including the reduction in coinsurance for outpatient services to 20 percent by 2014. This increase in coverage results from the implementation of mental health parity and the addition of preventive alcohol use screening in 2011. These enhanced benefits are likely to result in a higher use rate and greater expenditures for SA treatment over time.

2. Payment Method

Medicare provides Part A and B services to beneficiaries through the traditional Medicare FFS or MA managed care plans. When beneficiaries elect to enroll in MA, Medicare pays health plans chosen by beneficiaries a monthly premium to manage their care. For beneficiaries covered under the traditional Medicare FFS program, Medicare maintains administrative data on the services received and the associated Medicare payment amounts. However, until 2012, for beneficiaries enrolled in MA, Medicare maintained administrative data only on premium payment amounts but did not require the MA plans to submit data on the services they provided to their enrollees. Thus, through 2011 for individuals enrolled in FFS Medicare, Medicare administrative data can be used to calculate the number of beneficiaries using SA treatment services and expenditures related to these services. However, for individuals covered under MA, Medicare administrative data cannot be used to analyze service use.

Beginning in 2012, MA plans are required to submit encounter data enumerating the services provided to MA enrollees. It is expected that initial submissions may be incomplete or that other data quality issues may exist (for example, non-uniform coding across plans). The quality of the MA data likely will improve over time, but the analysis of the MA encounter data likely will be more resource intensive in the initial years, as it will require assessment of reporting quality and adjustments to allow for incomplete, inconsistent, or inaccurate reporting. Analyses based on the initial encounter data are also likely to be less accurate. Thus, it likely will be necessary to allow time for the Centers for Medicare and Medicaid Services (CMS) to assess encounter data reporting and work with plans to improve such data before undertaking research using them. Thus, in the near future, we recommend that estimates of Medicare SA spending not rely on MA encounter data reporting and instead use FFS data to impute SA spending among MA enrollees.

Medicare prescription drug coverage, known as Medicare Part D, is provided through private companies approved by Medicare. Medicare pays these plans a monthly premium amount for each Medicare beneficiary covered. Utilization of Part D services is recorded in the CMS administrative data. These utilization data can be used to estimate SA related expenditures for prescribed drugs under Part D.

Table 1 displays the number of MA enrollees in each state and the District of Columbia for the last five years. MA enrollment has been increasing at a rate of 9.4 percent annually, with the rate of increase varying across states. Table 2 displays MA enrollment as a share of overall Medicare enrollment by state for 2011. Overall, almost one-quarter of Medicare enrollees are in an MA plan. Since MA enrollees represent a significant share of overall Medicare enrollment, the expenditures estimated for this population will represent a significant share of the overall estimate of SA treatment spending in Medicare.

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