National Perspective : PUBLIC POLICY : The Cost of Fixing Medicare

Medicare is federal health insurance for those age 65 and over and certain disabled people The program’s financial woes will be the hot political issue in Washington for the coming months, the centerpiece of the struggle between the Democratic White House and the Republican Congress. Here is an overview of the structure and problems of Medicare:

WHO GETS MEDICARE

There are 36 million total beneficiaries. The program covers those over 65, about 32 million, and the disabled, about 4 million.

PART A

Benefits: Helps pay the cost for hospital care, skilled nursing facilities, and hospice care. Beneficiaries pay for the first day, $716, and Medicare pays for the next 59 days of hospital care.

Financing: Workers and their companies each pay 1.45% of all wages. Self-employed people pay 2.9%. Money from this tax goes to the hospital trust fund, which is projected to go broke in the year 2002.

PART B

Benefits: Helps pay doctor bills, laboratory services, outpatient hospital treatment and home health care. Patient pays $100 annual deductible, and 20% co-payment for doctor bills, based on Medicare approved fees.

Financing: Beneficiaries pay premium of $46.10 a month, which covers about 25% of total costs. But the bulk of the money comes each year from general tax revenues. Fast-rising spending for Part B will worsen the federal budget deficit, with spending expected to triple by 2004.

MEDICARE SPENDING, UP AND UP

Republican lawmakers hope to slow growth rate in spending from 10% to 7%

Part A (Hospital) Part B (Doctors) 2002 $199 billion $145 billion

DIFFERENCES IN CALIFORNIA

Beneficiaries in California differ from those elsewhere in the nation in several ways.

They are less likely to undergo surgery . . .

Coronary bypass operations per 100,000 enrollees U.S.: 157 California: 134

. . . hospital stays are shorter . . .

Typical stay for gall bladder removal New York: 13.9 days Los Angeles: 8.4 days

. . . And Californians are more likely to be enrolled in managed care under Medicare.

Medicare enrollees in managed care U.S.: 9% California: 28%

THE BREAKING POINT

The money devoted to hospital care, Part A

WHAT CONGRESS WANTS TO DO ABOUT IT

There are many ways to slow the growth in Medicare spending. The more realistic possibilities under discussion would involve higher payments by beneficiaries, and reduced payments to hospitals and doctors. Proposals being considered in Congress, mostly among GOP House members:

Beneficiaries

Part B monthly premium, $46.10, is scheduled to reach $60.80 by 2002. Instead, increase it by an additional $5 a month for the next four years, and then by $6 a month. Savings: $36 billion.

Part B deductible is now $100 a year. Raise it to $200 in two years and then adjust annually for growth in the program. Savings: $21 billion.

Impose a 20% co-payment for home health services, clinical laboratory charges and skilled nursing services. Exempt beneficiaries below 150% of poverty line from this extra charge. Savings: $45 billion.

Beneficaries now pay 20% share of approved doctor charges under Part B. Raise this co-payment to 25%. Savings: $23 billion

Link Part B premium to income, with higher payments for individuals with income more than $70,000 and couples more than $90,000. Maximum premium payment would be $164 a month, for those with incomes exceeding $95,000 for individuals and $115,000 for couples. Savings: $18 billion.

Create a preferred provider option, with lists of doctors who would treat Medicare patients for discounted fees. Savings: $26 billion.

Starting in 1999, charge an extra $20 a month under Part B for beneficiaries who remain in traditional Medicare system, picking any doctor they want. Savings: $4 billion.

Hospitals

Reduce the annual inflationary adjustment in fees paid to hospitals. Savings: $26 billion.

Phase out special payments to hospitals serving large numbers of poor and uninsured. Savings: $29 billion.

Reduce payments to hospitals for indirect costs of medical education. Savings: $21 billion.

Cut payments to hospitals to cover costs of construction and other capital projects. Savings: $10 billion to $15 billion.

Doctors

Set growth targets for total spending on doctor services. Savings: $6 billion to $8 billion.

Limit payments to doctors at hospitals with costs above national median. Savings: $6 billion.

Reduce Medicare fee schedule for doctors. Savings: $3 billion to $5 billion.

New Revenues

Impose Medicare payroll tax on the nation’s 3 million state and local government workers, hired before 1986, who currently are exempt. Savings: $7 billion.

Sources: Report by Reps. Christopher Shays (R-Conn.), Dan Miller (R-Fla.), David L. Hobson (R-Ohio), and Steve Largent (R-Okla.); House Budget Committee; American Assn. of Retired Persons; Federation of American Health Systems; Heritage Foundation; National Committee to Preserve Social Security and Medicare; 1995 Annual Trustees report