The ANA engaged CHPS Consulting to estimate costs and savings for a broad range of potential revisions to the Medicare program. This appendix briefly outlines the overall framework and describes the cost estimate. Detailed justification for methods and estimates and references to sources of information are provided elsewhere (Hogan, C., Karr, D., Miller, H., Restructuring Medicare for the Baby-Boom Generation: Final Report to the American Nurses Association, Center for Health Policy Studies. (Columbia, MD: January 28, 1999)).
- Overview of Approach
CHPS goal was to provide a simple approach to estimating the cost and revenue impacts of a wide variety of changes to the Medicare program. This is not an intensive actuarial analysis, but instead provides an approximate guide for the economic impact of these proposed changes.
In keeping with this goal, the analysis was made as uncomplicated as possible, given the degree of accuracy required. First, estimates reflect 1997 Medicare costs, revenues, and spending patterns, and all changes are expressed as a percentage of the 1997 baseline. Second, no long-term projections are provided. Estimates of Medicare spending over the 30 year period of baby-boom retirement are necessarily complex, highly uncertain, and typically not credible. A one-year analysis, by contrast, is easily understood and makes no potentially misleading statements about essentially unpredictable Medicare spending in the distant future. Finally, analysis of secondary insurance is greatly simplified. Beneficiaries have a wide variety of secondary insurance coverages, such as Medigap, Medicaid, and employer-sponsored coverage. Rather than track these individually, CHPS tracks all co-payment and deductible amounts as if they were paid directly out-of-pocket.
- Estimates For Specific Changes to The Medicare Program
This section provides capsule descriptions of data, methods, and results for cost and revenue estimates. Individual changes are discussed briefly, followed by a summary table.
Revise the Benefit Package: The ANA proposal combines Part A and Part B, institutes a common $500 deductible with $3,000 "stop-loss" protection, eliminates Medigap insurance,
and provides a drug benefit with $250 deductible and 20 percent co-payment. Because these elements interact strongly, the cost estimates were developed with all elements included simultaneously. Together, these changes are estimated to raise Medicare program outlays by 7.7 percent.
To estimate the impact on 1997 spending, CHPS used published distributions of Medicare spending for various services based on the 1995 Medicare Current Beneficiary Survey, inflated to match 1997 Medicare spending of $5,400 per beneficiary. Estimated drug spending was inflated to match $850 total (beneficiary and insurance payments) based on other published studies of drug spending. The spending distribution was used to estimate spending above and below the deductible and "stop-loss" amounts.
The main impact of these changes was to reallocate existing spending between taxpayers and beneficiaries. On net, only $340 in total cost savings was assumed, $280 from elimination of Medigap and a $60 recovery of Medicaid costs savings that arise from the shifting of drug coverage to Medicare. Other than the Medicaid drug savings, these estimates do not capture any reductions in spending by beneficiaries or by employers providing retiree health insurance.
Reduce Taxpayer Subsidy for Those Able to Pay More: CHPS used tabulations of beneficiary income from the Current Beneficiary Survey to determine the increase in revenue that would occur if beneficiaries earning more than $30,000 were asked to pay an increased share of Medicare costs. If this were phased in so that beneficiaries earning in excess of $50,000 covered one-quarter of combined Part A and Part B costs, Medicare would collect additional premiums amounting to 1.7 percent of program outlays.
Integrate Physician and Facility Payments for Inpatient Care: Combining Medicare facility and physician payments for inpatient care should lead to greater efficiencies in the management of inpatient episodes. Based on evidence from the Medicare Participating Heart Bypass Center demonstration and analysis of a prior proposal to profile hospital medical staffs (Miller, M., Welch, W., Analysis of Hospital Medical Staff Volume Performance Standards: Technical Report, Urban Institute, (Washington, DC: March 1993)), CHPS estimates that total Medicare outlays could be reduced 1 percent with this proposal.
Transfer DRG Payments to Account for Increased Post-Acute Costs: Recent analyses by the Medicare Payment Advisory Commission argue that the annual update in Medicare hospital payments should be reduced by between 1 percent and 3 percent to account for the "product change" occurring in inpatient care (Medicare Payment Advisory Commission. Report to the Congress: Medicare Payment Policy, (Washington, DC: March 1998)). This change would reduce total Medicare outlays between 0.5 percent and 1.5 percent.
Competitive Bidding: Medicare has two demonstrations of competitive bidding in process,
one for medical equipment and supplies, and one for Medicare+Choice plans. Based on the percentage of Medicare outlays in these categories and making relatively conservative assumptions about the net discount that is likely to occur from current Medicare rates, CHPS estimates that system-wide competitive bidding in these areas would reduce program outlays by 0.4 percent.
Revising and Expanding Home Health Coverage: The Balanced Budget Act of 1997 substantially reduced and restricted payment for home health care. These provisions were scored for savings amounting to 1.3 percent of program outlays, so repealing the BBA 97 home health provisions would raise program outlays roughly 1.3 percent.
Additional Preventive Services Including Telehealth Demonstration: The ANA has proposed a wide-ranging expansion of preventive care services. Cost of dental coverage was estimated from National Medical Expenditures Survey spending projections. Costs of obesity and smoking cessation counseling were projected from National Health Interview Survey data on prevalence of smoking and obesity. Cost of a free comprehensive preventive checkup was approximated from private fees for this service. Costs for telehealth were approximated from British National Health Service programs in this area. Costs for additional screening blood tests were assumed to be negligible based on prior Medicare experience with coverage of mammograms. In total, this enhanced package of preventive services is estimated to raise Medicare outlays by 4.9 percent.
Mental Health Parity: The only major lack of parity in Medicare mental health coverage is an additional 30 percent co-payment for outpatient mental health services. Because total Medicare billings for these services is small (under $1 billion), estimated costs are correspondingly small. Even doubling estimated current spending to reflect potential doubling of use as occurred in the late 1980s (Rosenbach, M., Ammering, L. "Trends in Medicare Part B mental health utilization and expenditures: 1987-92," Health Care Financing Review, 18(3):19-42 1997)), gives estimated costs of 0.3 percent of Medicare spending.
Reducing Age of Eligibility: An Administration proposal to allow voluntary, self-funded "buy- in" was examined by Health Care Financing Administration actuaries in 1998. They judged the proposal as structured to be budget-neutral, so there is no cost to the program.
Extending Elements of the Balanced Budget Act of 1997 Beyond 2003: The Balanced Budget Act of 1997 reduces annual updates for most provider services, but these update reductions are scheduled to expire in 2002. Extending them would reduce Medicare spending growth by roughly 0.6 to 0.8 percent annually. Extending them for one decade would reduce cumulative outlays through 2012 by 2.6 percent. This average cost reduction is factored into the 1997 baseline cost estimate.
- Summary Cost Estimate
The entire package of changes is projected to increase Medicare program outlays by roughly 7.5 percent, or about $15.5 billion in 1997 program spending. These cost estimates do not address the issue of the potential for savings through greater management of care, nor do they consider the potential for certain categories of services to grow at faster rates over time. Instead, the estimate is a single-year summary of the net effect of these changes on Medicare program outlays.