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"Medicare 101: Program Design and Finance"
January 30, 2001
AIM and the Progressive Policy Institute (PPI) co-sponsored a January 30
briefing to provide new Congressional staff with an overview of the Medicare program design, intent, benefit and financing mechanisms. Speakers included Dede Spitznagel, Vice President, Policy, Healthcare
Leadership Council and Maya MacGuineas, Member, Board of Directors, Third Millennium and Fellow, New America Foundation.
Jeff Lemieux also spoke on behalf of PPI. Finally, Tracey Moorhead, AIM Director, provided opening remarks and an overview of AIM's principles for comprehensive Medicare modernization.
Ms. Spitznagel highlighted Medicare milestones since the program's
creation in 1965 including expansions in coverage and changes in payment policies. She described benefits covered by Medicare Part A (hospital coverage) and Medicare Part B (outpatient services) and described
the different beneficiary cost-sharing formulations for each program. Ms. Spitznagel also outlined the numerous Medicare payment systems, describing in detail the systems for inpatient hospitals, physicians,
and Medicare managed care plans.
Finally, Ms. Spitznagel discussed concerns with current payment systems, including difficulties keeping payment rates updated to reflect new technologies, requirements on Congress to make medical decisions, insurer difficulties dealing with Medicare as a "business partner", and complexity of regulation and administrative requirements. Ms. Spitznagel stated that the Medicare program should be reformed to improve the quality of care provided through improved coverage and better benefits, reduce complexity by redirecting administrative resources toward patient care, reduce beneficiary liability by providing protection from catastrophic expenses, and improve the financial stability of the program for the baby boom and subsequent generations. The Healthcare Leadership Council (HLC) is a policy and advocacy organization for the chief executives of the health care industry leaders.
Ms. MacGuineas provided an overview of current Medicare program financing
and the expected impact on the US budget and younger generations as the baby boom generation begins to enter the Medicare system. Ms. MacGuineas described financing mechanism for Medicare Part A, largely
financed by a mandatory 2.9% payroll tax shared by both employers and employees, and Part B, financed by general revenues from the US Treasury and beneficiary premiums of $50 per month in 2000.
She also outlined projected changes in the ratio of workers to beneficiaries: in 1999, each Medicare beneficiary was support by four workers; in 2030, that ration will decline to 2.3 workers per beneficiary. Ms. MacGuineas used fiscal, population, and benefit data to illustrate the need to reform both Medicare financing mechanisms and benefit packages. Specifically, in 2000 Medicare had revenues of $250 billion and expenses of $221 billion with a population of 39 million Americans. In 2030, Medicare is projected to have a population of more than 79 million Americans (approximately 25 percent of the total US population) while Medicare Part A Hospital Insurance (HI) Trust Fund expenses are currently projected to outstrip revenues as early as 2025. Finally, Ms. MacGuineas discussed Medicare financing reform options to decrease program expenses and increase revenues but recognized that many of these options, including increased payroll taxes and eligibility ages, and reduced payments rates, are not feasible long-term solutions. Instead, Ms. MacGuineas advocated transformation of the Medicare market through increased competition based on a premium support model. The New America Foundation is a centrist, public policy think tank. Third Millennium is a non-profit group representing young Americans and "Generation X" - the generation born between 1961 and 1981.
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