10.2 Medicare: Coverage, funding, and future sustainability

Medicare is a vital health insurance program for older adults in the US. It covers hospital stays, outpatient care, and prescription drugs through various parts and plans. Eligibility typically begins at 65, with special provisions for certain disabilities and conditions.

Funding for Medicare comes from payroll taxes, general revenue, and beneficiary premiums. However, rising healthcare costs and an aging population strain its financial sustainability. Policymakers are exploring reforms to ensure Medicare's long-term viability while maintaining quality care for seniors.

Medicare Coverage

Types of Medicare Plans

Top images from around the web for Types of Medicare Plans

• 

  Make Sensible Selections With These Life Insurance cove - hint from webs life View original

  Is this image relevant?

• 

  Category:Medicare statistics for the United States - Wikimedia Commons View original

  Is this image relevant?

• 

  R i g h t a r d i a: Medicare, Tricare and CHAMPVA. View original

  Is this image relevant?

• 

  Make Sensible Selections With These Life Insurance cove - hint from webs life View original

  Is this image relevant?

• 

  Category:Medicare statistics for the United States - Wikimedia Commons View original

  Is this image relevant?

1 of 3

Top images from around the web for Types of Medicare Plans

• 

  Make Sensible Selections With These Life Insurance cove - hint from webs life View original

  Is this image relevant?

• 

  Category:Medicare statistics for the United States - Wikimedia Commons View original

  Is this image relevant?

• 

  R i g h t a r d i a: Medicare, Tricare and CHAMPVA. View original

  Is this image relevant?

• 

  Make Sensible Selections With These Life Insurance cove - hint from webs life View original

  Is this image relevant?

• 

  Category:Medicare statistics for the United States - Wikimedia Commons View original

  Is this image relevant?

1 of 3

• Medicare divides into four distinct parts
  • Part A covers inpatient hospital stays, skilled nursing facility care, hospice care, and some home health care services
  • Part B covers outpatient care, preventive services, medical supplies, and certain doctors' services (specialist visits)
  • Part C (Medicare Advantage) combines Part A and B coverage, often including additional benefits (vision, hearing, dental care)
  • Part D provides prescription drug coverage through private insurance companies
• Medigap policies supplement Original Medicare (Parts A and B) by covering out-of-pocket costs (deductibles, copayments, coinsurance)

Eligibility and Enrollment

• Medicare coverage eligibility criteria include
  • Age 65 and older
  • Disability status
  • Certain medical conditions (End-Stage Renal Disease)
• Enrollment periods vary by plan type and individual circumstances
  • Initial Enrollment Period spans 7 months around 65th birthday
  • Annual Open Enrollment Period occurs October 15 - December 7
  • Special Enrollment Periods available for qualifying life events (job loss, relocation)

Coverage Details and Limitations

• Part A coverage includes
  • Inpatient hospital care (up to 60 days per benefit period with $0 coinsurance)
  • Skilled nursing facility care (up to 20 days per benefit period with $0 coinsurance)
  • Hospice care (little to no cost for terminally ill patients)
• Part B coverage includes
  • Preventive services (annual wellness visits, cancer screenings)
  • Durable medical equipment (wheelchairs, oxygen equipment)
  • Mental health services (outpatient and partial hospitalization)
• Coverage gaps and limitations exist
  • "Donut hole" in Part D prescription drug coverage
  • Limited coverage for long-term care and custodial services
  • Some services require prior authorization or have frequency limits (physical therapy sessions)

Medicare Funding

Primary Funding Sources

• Medicare funding comes from multiple sources
  • Payroll taxes finance Hospital Insurance (HI) Trust Fund for Part A
    • 2.9% tax shared equally between employers and employees
    • Additional 0.9% tax on high-income earners (over $200,000 individual/$250,000 couple)
  • General revenue from federal budget supports Supplementary Medical Insurance (SMI) Trust Fund for Parts B and D
  • Beneficiary premiums contribute to Parts B and D funding
    • Standard Part B premium in 2023 $164.90 per month
    • Part D premiums vary by plan, averaging $31.50 per month in 2023
• Interest earned on trust fund balances provides additional revenue

Financial Challenges

• Rising healthcare costs strain Medicare's financial resources
  • Prescription drug price increases outpace inflation (specialty drugs for cancer, rheumatoid arthritis)
  • Advanced medical technologies drive up treatment costs (robotic surgery, personalized medicine)
• Demographic shifts impact Medicare's funding structure
  • Baby boomer generation entering Medicare eligibility increases beneficiary numbers
  • Declining ratio of workers to beneficiaries reduces payroll tax revenue
• Increasing prevalence of chronic diseases raises per-capita expenditures
  • Multiple chronic conditions (diabetes, heart disease, obesity) require ongoing management
  • Complex health needs of aging population lead to higher utilization of services
• Medicare fraud and abuse continue to drain resources
  • Estimated $60 billion lost annually to fraudulent claims and improper payments
  • Schemes include billing for unnecessary services, upcoding, and identity theft

Medicare Sustainability

Demographic Trends

• U.S. population aging rapidly affects Medicare's long-term sustainability
  • Medicare beneficiaries projected to increase from 65 million in 2023 to over 80 million by 2030
  • Ratio of workers to beneficiaries declining from 3.3 in 2005 to projected 2.3 in 2030
• Increasing life expectancy extends benefit payout periods
  • Average life expectancy at 65 increased from 15.2 years in 1972 to 19.6 years in 2020
  • Longer benefit periods potentially exceed lifetime contributions to the program

Healthcare Cost Projections

• Healthcare cost inflation historically outpaces general inflation
  • Average annual increase in healthcare spending 4.6% from 2008-2018
  • Projected 5.4% annual growth in national health expenditures 2019-2028
• Advancements in medical technology strain Medicare's budget
  • New treatments for previously untreatable conditions (gene therapies, immunotherapies)
  • High costs of cutting-edge medical devices (artificial organs, advanced imaging equipment)
• Chronic disease prevalence expected to rise
  • Projected 80% of adults 65 and older will have at least one chronic condition by 2030
  • Multiple chronic conditions increase complexity and cost of care

Trust Fund Projections

• Hospital Insurance Trust Fund faces insolvency threat
  • Projected depletion date 2028 according to 2023 Medicare Trustees Report
  • Insolvency would result in reduced payments to providers, potentially affecting access to care
• Supplementary Medical Insurance Trust Fund more stable due to annual adjustments
  • General revenue and premium adjustments maintain solvency
  • However, increasing general revenue requirements may strain federal budget

Policy Solutions for Medicare

Payment and Delivery Reform

• Implement value-based care models to incentivize quality over quantity
  • Accountable Care Organizations (ACOs) coordinate care to improve outcomes and reduce costs
  • Bundled payments for episodes of care encourage efficiency and reduce unnecessary services
• Expand competitive bidding for medical equipment and supplies
  • Demonstrated success in reducing costs for durable medical equipment (wheelchairs, oxygen supplies)
  • Potential expansion to other areas (lab tests, imaging services)

Cost Containment Strategies

• Reform prescription drug pricing system
  • Allow Medicare to negotiate drug prices directly with pharmaceutical companies
  • Implement reference pricing for drugs with therapeutic alternatives
• Increase Medicare eligibility age
  • Gradual increase to align with Social Security full retirement age (currently 67 for those born after 1960)
  • Potential savings estimated at $113 billion over 10 years
• Implement means-testing for Medicare premiums or benefits
  • Higher-income beneficiaries pay larger share of costs
  • Income-related monthly adjustment amounts (IRMAA) already in place for Parts B and D

Structural Reforms

• Explore transition to premium support model
  • Government provides fixed contribution towards purchase of private insurance plans
  • Encourages competition among insurers to offer best value to beneficiaries
• Integrate Medicare more closely with private insurance markets
  • Allow Medicare beneficiaries to enroll in employer-sponsored plans with premium support
  • Expand Medicare Advantage options to increase competition and efficiency

Prevention and Management

• Expand preventive care and chronic disease management programs
  • Increase coverage for evidence-based preventive services (vaccinations, screenings)
  • Implement comprehensive care management programs for high-risk beneficiaries
• Enhance care coordination and transitions
  • Improve communication between providers to reduce duplicative services and medical errors
  • Support smooth transitions between care settings (hospital to home, skilled nursing to community)