Medicare: past, present and future

The history of the Medicare program, including changes that have been enacted over the years in an effort to control spiraling costs, is reviewed. Medigap insurance and preventive medical care for the elderly are examined, as is the impact of Medicare coverage for the terminally ill. Trends indicate that the Medicare system as presently structured is not financially viable. The question is: what will replace it?     

Older Women's Health and Financial Vulnerability

Elderly women and men have different patterns of disease and utilize health services differently. This essay examines the extent to which Medicare covers the specific conditions and services associated with women and men. Elderly women experience higher rates of poverty than elderly men; consequently, elderly women are especially likely to be unable to pay high out-of-pocket costs for health care. Using a new method for simulating out-of pocket costs, the Illness Episode Approach, the essay shows that Medicare provides better coverage for illnesses which predominate among men than for those which predominate among women. In addition, women on Medicare who supplement their basic coverage by purchasing a typical private insurance "Medigap" policy do not receive as much of an advantage from their purchases as do men. The calculations also show that the Medicare Catastrophic Coverage Act would have had little impact on the gender gap in financial vulnerability.     

Do determinants of medicare supplemental coverage choice vary by income

Using data from the Community Tracking Study Household Survey (1998-99), we estimate the relationship between Medigap premiums and senior Medicare beneficiaries' supplemental coverage decisions. All seniors are more likely to be enrolled in an HMO in markets with higher Medigap prices. Lower income seniors are particularly sensitive to Medigap premiums and are more likely to have no supplemental coverage when faced with higher Medigap premiums. As Medicare supplemental options evolve in response to the 2003 Medicare Modernization Act, it is important to consider that lower income beneficiaries may respond to price changes and other factors differently than their higher income counterparts.     

Medigap premiums and Medicare HMO enrollment

OBJECTIVE: Markets for Medicare HMOs (health maintenance organizations) and supplemental Medicare coverage are often treated separately in existing literature. Yet because managed care plans and Medigap plans both cover services not covered by basic Medicare, these markets are clearly interrelated. We examine the extent to which Medigap premiums affect the likelihood of the elderly joining managed care plans. DATA SOURCES: The analysis is based on a sample of Medicare beneficiaries drawn from the 1996-1997 Community Tracking Study (CTS) Household Survey by the Center for Studying Health System Change. Respondents span 56 different CTS sites from 30 different states. Measures of premiums for privately-purchased Medigap policies were collected from a survey of large insurers serving this market. Data for individual, market, and HMO characteristics were collected from the CTS, InterStudy, and HCFA (Health Care Financing Administration). STUDY DESIGN: Our analysis uses a reduced-form logit model to estimate the probability of Medicare HMO participation as a function of Medigap premiums controlling for other market- and individual-level characteristics. The logit coefficients were then used to simulate changes in Medicare participation in response to changes in Medigap premiums. PRINCIPAL FINDINGS: We found that Medigap premiums vary considerably among the geographic markets included in our sample. Measures of premiums from different insurers and for different types of Medigap policies were generally highly correlated across markets. Our models consistently indicate a strong positive relationship between Medigap premiums and HMO participation. This result is robust across several specifications. Simulations suggest that a one standard deviation increase in Medigap premiums would increase HMO participation by more than 8 percentage points. CONCLUSIONS: This research provides strong evidence that Medigap premiums have a significant effect on seniors' participation in Medicare HMOs. Policy initiatives aimed at lowering Medigap premiums will likely discourage enrollment in Medicare HMOs, holding other factors constant. Although the Medigap premiums are just one factor affecting the future penetration rate of Medicare HMOs, they are an important driver of HMO enrollment and should be considered carefully when creating policy related to seniors' supplemental coverage. Similarly, our results imply that reforms to the Medicare HMO market would influence the demand for Medigap policies.     

Who Switches from Medigap to Medicare HMOs?

OBJECTIVE: To determine the factors affecting whether Medigap owners switch to Medicare managed care plans. DATA SOURCES: The primary data were the 1993-1996 Medicare Current Beneficiary Survey (MCBS) Cost and Use Files. These were supplemented by data available from the Centers for Medicare & Medicaid Services (CMS) website. STUDY DESIGN: Individuals on the MCBS files with Medigap coverage in the period 1993-1996 were included in the study. The person-year was the unit of analysis. We used multivariate logistic regression analysis to determine whether or not a Medigap owner switched to a Medicare-managed care plan during a particular year. Independent variables included measures of affordability, need for services, health insurance benefits, sociodemographics, and supply of managed care plans. PRINCIPAL FINDINGS: We did not detect strong evidence that beneficiaries in poorer health were more likely than others to switch from Medigap coverage to Medicare-managed care. In addition, higher Medigap premiums did not appear to induce beneficiaries to switch into managed care. CONCLUSIONS: We examined selection bias in joining managed care plans among the subset of Medicare beneficiaries who have Medigap policies. No strong evidence of selection bias was found in this population. We conclude that there was no evidence that the Medigap market is becoming prohibitively expensive as a result of unfavorable selection.     

Incentive and selection effects of Medigap insurance on inpatient care

The Medicare program, which provides insurance coverage to the elderly in the United States, does not protect them fully against high out-of-pocket costs. For this reason private supplementary insurance, named Medigap, has been available to cover Medicare gaps. This paper studies how Medigap affects the utilization of inpatient care, separating the incentive and selection effects of supplementary insurance. For this purpose, we use two alternative estimation methods: a standard recursive bivariate probit and a discrete multivariate finite mixture model. We find that estimated incentive effects are modest and quite similar across models. There seems to be very significant selection, with the presence of both adversely and advantageously selected individuals, stemming from the multidimensional nature of residual heterogeneity.     

Consumer information and biased selection in the demand for coverage supplementing Medicare.

This study examines how the relationship between health insurance knowledge and the health status of health insurance consumers influences their decisions to purchase insurance coverage. Data from the federal Medicare health insurance program for the elderly in the United States are used. The basic Medicare program provides a limited amount of coverage for health care services obtained from any provider in the private fee-for-service (FFS) market. Beneficiaries of this program may choose to supplement the basic coverage which they receive by two mechanisms: either they may purchase private insurance designed to fill some of the gaps left by the federal program ('Medigap' policies), thereby remaining in the FFS market and preserving their choice of provider, or they may enroll in health maintenance organizations (HMOs), thereby leaving the FFS market and agreeing to use only those providers affiliated with the HMO, and in return receiving broader coverage at little additional out-of-pocket cost. The study was made possible by a unique data set which combines measures of beneficiary knowledge of Medicare coverage with measures of perceived health status, socio-economic characteristics, and insurance coverage choices for a sample of Medicare beneficiaries who participated in an educational workshop about their insurance coverage options. These data were used to estimate a multinomial logistic model of the determinants of insurance choices, where the options included the two listed above and a basic Medicare option. The study explicitly recognizes the interaction between insurance information and health status in health plan choice. These results show that knowledge of coverage does have a differential impact on the decision to purchase health insurance depending on health status. With a high level of knowledge, sicker beneficiaries are less likely to have basic Medicare alone, compared with HMOs or Medigap policies, while healthier beneficiaries are less likely to be enrolled in HMOs, compared with Medigap policies. This finding has important implications for the use of health status measures to adjust capitated payment formulas when knowledgable consumers have the option to enroll in HMOs or remain in the FFS environment. In the absence of health status adjusters for the HMO capitation payments, high levels of coverage knowledge may exacerbate inherent selection bias among these coverage options by healthier and sicker consumers of health insurance.     

Adverse selection, moral hazard, and wealth effects in the Medigap insurance market

Using data from a longitudinal study of the recently retired we attempt to separate the moral hazard effect of Medicare supplementary (Medigap) insurance on health care expenditures from the adverse selection effect of poor health on Medigap coverage. We find evidence of adverse selection, but its magnitude is unlikely to create serious efficiency problems. Taking adverse selection into account reduces the estimate of the moral hazard effect. In addition, we find a strong positive wealth effect on the demand for supplementary insurance.     

The Medicare mix: efficient and inefficient combinations of social and private health insurance for U.S. elderly

This paper explores two theories about the reason why the United States provides mixed public (Medicare) and private (Medigap) insurance for the elderly: that this represents an efficient combination of financing methods for a public good, or that it represents public provision of a private good for distributional reasons. It is argued that the first theory has more support than the second, but that the current configuration of Medicare and Medigap is not optimal. Two main problems are identified: the absence of coordination between public and private insurers, and the provision of overly generous coverage to the well off. Recent Medicare reforms have helped with the first problem, but the second remains to be solved.     

Insurance Coverage of Prescription Drugs and the Rural Elderly

CONTEXT: Rural impacts of a Medicare drug benefit will ultimately depend on the number of elderly who are currently without drug coverage, new demand by those currently without coverage, the nature of the new benefit relative to current benefits, and benefit design. PURPOSE: To enhance understanding of drug coverage among rural elderly Medicare beneficiaries and their expenditures for pharmaceuticals. METHODS: Estimates of the extent of coverage, expenditures, and sources of drugs were obtained using data are from the 1997 Medicare Current Beneficiary Survey and the Pharmacy Verification and Household Components of the 1996 Medical Expenditure Panel Survey. FINDINGS: Three-quarters of the urban elderly had some type of drug coverage in 1997 versus 59% of the elderly in rural areas. Urban residents were more likely to have obtained their drug coverage from an employer-sponsored supplemental plan, and rural residents were more likely to have self-purchased Medigap drug coverage. Expenditures and use of drugs by Medicare beneficiaries are greater for those with than without coverage, and differences are invariant with respect to geographic location. Coverage under self-purchased supplemental plans appears less generous than under employer-sponsored plans in both rural and urban areas. Rural and urban elderly are more than twice as likely to receive at least 1 prescribed medication through the mail than the general population. CONCLUSION: A well-designed Medicare drug benefit would be especially beneficial to the rural elderly because relatively more rural elderly currently lack coverage or have less generous coverage than urban beneficiaries. Mail-order distribution may help contain future program expenditures.     

Estimation of a hedonic pricing model for Medigap insurance

OBJECTIVE: This paper uses a unique database to examine premiums paid by beneficiaries for Medigap supplemental coverage. Average premiums charged by insurers are reported, as well as premiums by enrollee age and gender, and additional policy characteristics. Marginal prices for Medigap benefits are estimated using hedonic price regressions. In addition, the paper considers how additional policy characteristics and geographic differences in the use and cost of medical care affect premiums. DATA SOURCES/STUDY SETTING: A comprehensive database on premiums paid by beneficiaries for newly issued Medigap policies in the year 2000 along with state-level characteristics. STUDY DESIGN: Hedonic pricing equations are used to estimate implicit prices for Medigap benefits. DATA COLLECTION/EXTRACTION METHODS: The Centers for Medicare & Medicaid Services contracted for the creation of a detailed database on Medigap premiums. Data were collected in three stages. First, letters were sent directly to insurers requesting premium data. Second, letters were directly to state insurance commissioner's offices requesting premium data. Last, each state insurance commissioner's office was visited to collect missing data. PRINCIPAL FINDINGS: With the exceptions of the part B deductible and drug benefit, Medigap supplemental insurance is priced consistent with the actuarial value of benefits offered under the standardized plans. Premiums vary substantially based on rating method, whether the policy is guaranteed issue, Medigap Select, or explicitly for smokers. Premiums increase with enrollee age, but do not vary between men and women. The relationship between premiums and enrollee age varies across rating methods. Attained-age policies show the strongest relationship between age and premiums, while community-rated premiums, by definition, do not vary with age. Medigap supplemental insurance premiums are higher in states with poorer health, greater utilization, and greater managed care penetration. CONCLUSIONS: Despite the high cost, Medigap plans are generally priced in accordance with the actuarial value of benefits. The primary exception is the drug benefit, which appears to be subject to substantial adverse selection. Benefits such as the part B deductible and at-home recovery benefit offer little value to consumers. Several states require insurers to community rate premiums. Such regulation has important implications for premiums, and research needs to consider the impact of such regulation on the Medigap market.     

The impact of Medicare coverage policies on health care utilization

Objective. To determine whether Medicare coverage policies affect utilization of services in Medicare.
Data Sources. We constructed an analysis data set for eight different procedures using secondary data obtained from Medicare claims (1999–2002) and Medicare coverage policies posted on Center for Medicare and Medicaid Services website.
Study Design. We analyzed the impact of coverage policies using difference-in-difference approach in a regression framework.
Principal Findings. We found that in only one case (transesophageal echocardiography) out of eight did utilization change (reduced by 13.6 percent) after the effective date of the local policies. There is no systematic pattern that policies affect utilization, and the type of coverage policy does not seem to play an important role in its impact.
Conclusions. Coverage policies have the potential but do not consistently impact utilization as policy makers intend and expect them to do. These findings raise significant policy questions about the effectiveness of Medicare coverage policies, which deserve further study.     

Pharmacy utilization and the Medicare Modernization Act

To control expenditures and use medications appropriately, the Medicare drug coverage program has established pharmacy utilization management (PUM) measures. This article assesses the effects of these strategies on the care of seniors. The literature suggests that although caps on drug benefits lower pharmaceutical costs, they may also increase the use of other health care services and hurt health outcomes. Our review raises concerns regarding the potential unintended effects of the Medicare drug program's PUM policies for beneficiaries. Therefore, the economic and clinical impact of PUM measures on seniors should be studied further to help policymakers design better drug benefit plans.     

Politics of prevention: expanding prevention benefits in the Medicare program

It is critical that public health advocates understand the structure of the Medicare program and the impact of the political process on Medicare's benefit set. This article provides an overview of the design of Medicare and its explicit exclusion of prevention benefits in the original legislation. We then provide a history of subsequent legislation authorizing coverage of specific prevention benefits over the last twenty years. We critique the current process in light of innovation in preventive services and the influence of politics in the decision-making. We conclude with a discussion of policy options to improve access to an appropriate range of evidence-based preventive services in Medicare within the context of new technology innovation and rising health care costs.