Medicare: The Basics

Part Two

A Henry J. Kaiser Family Foundation Report

Coverage Under Managed Care Plans and Other Options

The vast majority of Medicare beneficiaries have their health care bills paid directly by Medicare’s traditional fee-for-service program. The rest-nearly 6 million people-are covered under managed care plans, mostly HMOs, which contract with Medicare. Since the mid-1980s, a growing number of beneficiaries have elected to receive the benefits covered by Medicare Parts A and B under managed care plans, or health maintenance organizations (HMOs). Compared with traditional fee-for-service Medicare, Medicare HMOs typically have lower cost-sharing requirements and offer more generous benefits, such as outpatient prescription drug coverage.

This picture may change in the future due to the expansion in the number and types of plans that will soon be available to beneficiaries. A new program called Medicare+Choice permits Medicare to contract with other types of private health plans, in addition to Medicare HMOs. Under Medicare+Choice, beneficiaries will have the option to enroll in preferred-provider organizations (PPOs), provider-sponsored organizations (PSOs), and private fee-for-service plans, if offered in their area. They may also choose to be covered by medical savings accounts (MSAs) coupled with high-deductible insurance plans. Beneficiaries who enroll in Medicare+Choice plans will continue to pay the monthly Part B premium, but must get all Medicare-covered benefits through their private plan.

When these new options become available, people on Medicare will have a broader choice of health plans but will not be obligated to make a change in their health insurance coverage. Beneficiaries who are satisfied with their existing coverage, including those who are in the traditional fee-for-service Medicare program, will not be required to change plans.

Under the new Medicare+Choice program beneficiaries will continue to be able to enroll in a plan, switch plans, or disenroll from a plan at any time during the year until 2002 when certain restrictions will go into effect. Beginning in 2003, they will generally be required to stay in their plan until the next annual enrollment period.

HMO: Beneficiaries enrolled in an HMO obtain services from a designated network of doctors, hospitals, and other health care providers usually with little or no out-of-pocket payments.PPO: Beneficiaries obtain services from a network of health care providers established by a health plan. Unlike an HMO, beneficiaries can choose to go to providers who are not in the plan’s network and the plan will pay a portion of the costs.PSO: PSOs are similar to HMOs except they are set up by a group of doctors and hospitals who assume the financial risk of providing comprehensive services to Medicare enrollees.Private Fee-for-Service: A private indemnity health insurance policy does not limit beneficiaries to using a network of providers. Under this type of plan there is no limit on the monthly premium that beneficiaries may be charged for basic Medicare benefits.MSA: With this option, offered on a demonstration basis, beneficiaries select a high deductible catastrophic plan. Medicare pays the monthly premium for this plan and makes a deposit into a tax-free medical savings account on behalf of the beneficiary. A beneficiary may draw from their MSA to meet any health care expenses.

What’s the Medicare Debate About?As you may already know, Medicare reform is being debated widely. Given the program’s popularity and achievements, what’s the debate all about? In a nutshell, it is being driven by concern over the cost of the program and financing health coverage for an aging population.With the growth in the Medicare population, advances in medical technology, and the rise in medical costs generally, Medicare spending has consumed more and more of the federal budget, increasing from nearly 6 percent in 1980 to12 percent today. Rising health care costs under Medicare have resulted in higher payroll taxes to support the program, from 1.05 percent in 1980 to 1.45 percent. Yet even as Medicare’s costs are escalating, its benefits package barely covers half of beneficiaries’ health care expenses. Nor does it include coverage for extended long-term care services that are important for elderly people.The Balanced Budget Act of 1997 eased the short-term financial crisis that was facing Medicare only a short while ago by making revisions that extended the life of the Hospital Insurance Trust Fund to cover Part A services for the next decade. Beginning in 2008, as the program is currently structured, there will be insufficient revenues to cover all Part A expenses unless policymakers take action, as they have in the past, to shore up the trust fund. With the decline in the number of workers per Medicare beneficiary, there will be proportionately fewer people contributing payroll taxes to support the growing number of Medicare beneficiaries. This will result in a shortfall for the Part A Trust Fund, but does not affect Part B financing which relies on premiums and general revenues.In the longer term, Medicare’s rolls are projected to swell to 76 million by the year 2030-about twice as many beneficiaries as today due largely to aging of the baby-boom generation and longer life spans of Americans. As the population grows, so too will Medicare spending. Medicare spending is expected to more than double as a share of the nation’s economy from 2.6 percent in 1998 to 5.9 percent in 2030.

Policymakers thus face a challenge: finding a way to maintain health insurance coverage for the nation’s elderly and disabled people in the future, without placing too great a financial burden either on Medicare beneficiaries or on American taxpayers.A new 17-member National Bipartisan Commission on the Future of Medicare is charged by the Congress with recommending, in March 1999, ways to strengthen and improve the program in time for the retirement of the baby-boom generation. During its deliberations, the Commission-and indeed the entire nation-will grapple with some tough choices pertaining to Medicare’s future.Should Medicare be restructured into a program that costs less in the future than is currently projected, and perhaps provides less to beneficiaries as a consequence? Or should it be turned into a program that provides better coverage for beneficiaries, but that would probably cost more? Or, are there ways to maintain the current level of coverage under the program while meeting the demands of an aging population?Numerous reform options are being discussed. Some would reduce the growth in Medicare spending while maintaining the program’s basic framework. Examples of this approach include cutting the growth in Medicare payments to hospitals, doctors, and managed care plans; or raising the eligibility age to shrink the number of people on Medicare. Also being debated are ways to generate new revenues, such as asking beneficiaries to pay a greater share of Medicare costs through higher premiums, making wealthier beneficiaries pay higher Part B premiums, or increasing payroll taxes.Others would fundamentally restructure Medicare itself. One proposal-a “defined contribution” system or “voucher” plan-would have Medicare provide beneficiaries with a choice of health plans and pay a fixed amount per person to help pay for whichever plan the beneficiary selects. Another option would fundamentally restructure today’s program, establishing a new system of individual, investment-based health savings accounts. This proposal basically requires workers to save a certain amount of their wages during their working years to pay for medical expenses during retirement.Others call for improving benefits and the level of financial protection under Medicare, although these would be expensive and would therefore require additional financing. For example, some advocate improving the Medicare benefits package by adding prescription drug and long-term care coverage, or by enhancing financial protections from rising health care costs for poor and near-poor beneficiaries.Clearly, this debate is likely to be a front-burner policy issue for some time. Changes to the program could have a big impact on the health and financial security of elderly Americans — today and tomorrow. Whether you are young, old, or somewhere in between, it’s important to understand the basics as the debate over Medicare’s future evolves.

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Medicare: The Basics was prepared for A Public Dialogue on Health Care: The Future of Medicare, a joint project of The League of Women Voters Education Fund and The Henry J. Kaiser Family Foundation, launched in the fall of 1998. This report was edited by Lynn L. Lewis and designed by Gibson Creative.The League of Women Voters Education Fund encourages informed and active participation of citizens in government and works to increase understanding of major public policy issues. It complements the membership and political advocacy activities of The League of Women Voters of the United States.The Henry J. Kaiser Family Foundation is a nonprofit, independent health care philanthropy and is not associated with Kaiser Permanente or Kaiser Industries.

Medicare: The Basics

Part One Part Two Options for Reform

Fall 1998

• Fact Sheet:

• Report:

A public education brochure describing Medicare reform options that are being considered by Congress. This fact sheet is also a part of a packet of information as part of a joint public information project between Kaiser Family Foundation and League of Women Voters of public meetings held across the United States in October 1998 (#1427, available in print).

• Report
• Report

Health News Index September/October, 1998

The September/October 1998 edition of the Kaiser Family Foundation/Harvard Health News Index includes questions about major health stories covered in the news, including questions about the Uninsured, Late Term Abortions and Emergency Contraception. The survey is based on a national sample of 1,202 Americans conducted October 10-18, 1998 which measures public knowledge on health stories covered in the news media during the previous month. The Health News Index is designed to help the news media and people in the health field gain a better understanding of which health stories in the news Americans are following and what they understand about those health issues. Every two months, Kaiser/Harvard issues a new index report.

Medicare: Options for Reform, A Public Dialogue on Health Care: The Future of Medicare – (Spanish)

• Report: Medicare: Opciones para la reforma

This study examines whether the ratings assigned to television shows accurately reflect their content, according to the guidelines developed by the industry. The study analyzes the level and intensity of violence, sex or adult language in a show as well as the context in which it was presented.

This full report is available only in print (Publication #1434). The executive summary and chartpack is available below.

A companion survey of parents views on the TV ratings system, Parents, Children and the Television Ratings System: Two Kaiser Family Foundation Surveys (#1398), is available separately.

• News Release: Major New Study of the V-Chip TV Rating System
• Chart Pack
• Executive Summary

The survey was designed and analyzed by researchers at the Kaiser Family Foundation and Harvard University; and was conducted by telephone by Princeton Survey Research Associates with 1,200 adults, 18 years or older, nationwide, between August 6 and August 20, 1998.

While there has been much attention to the few abortions that occur late in pregnancy, there has been little focus on what options are available during the early weeks, even days, of pregnancy, when most women seek abortions. The drugs mifepristone (also known as RU-486) and misoprostol have been available in France, England, and Sweden for much of the last decade as an earlier medical alternative to surgical abortion. Since becoming available, an estimated one-half million women in Europe have used the drugs to end unintended pregnancies. In the United States, mifepristone, is still undergoing the Food and Drug Administration’s (FDA) approval process, and has been available only to a limited group of women participating in clinical trials.

In this Emerging Issues in Reproductive Health Briefing a panel of experts including Janet Benshoof, JD, President, Center for Reproductive Law and Policy and Beverly Winikoff, MD, Senior Medical associate, the Population Council discussed the availibility of mifeprestone, methotrexate, and other very early methods of abortion in this country, as well as what is currently available, what is on the horizon, who provides these options today, and who is likely to in the future. A companion survey also released at this briefing is available separately as #1431 Two National Surveys: Views of Americans and Health Care Providers on Medical Abortion.

• Fact Sheet
• News Release

New Survey Finds The Public More Worried About Managed Care And More Supportive Of Patient Protection Legislation, But Criticisms Still Register

September 17 1998

Most Say Congress is Playing Politics with Patients Rights in an Election Year

Washington, D.C. – A new survey released today shows that Americans are increasingly concerned about managed care and support for consumer protection proposals has grown. However, criticisms by opponents that regulation will drive up costs and cause employers to drop coverage continue to register with the public. In addition, most people believe that politicians have been using the issue to gain political advantage in an election year, rather than making a serious attempt to pass laws to protect consumers.

The Kaiser/Harvard Survey on Americans’ Views on the Consumer Protection Debate found that since last fall more people are following the managed care debate, and the increased scrutiny has taken a toll on the managed care industry. Compared with previous Kaiser/Harvard surveys, more Americans see managed care plans as doing a “bad job” in serving consumers and worry that their plans are more concerned about profits than about their health care. More people are also reporting that they or someone they know has had problems with their health plans.

In addition, at a time when the public has been wary of “big government” and opponents of managed care regulation have taken to the airwaves, when presented with the arguments for and against regulation, respondents’ support for government involvement to protect consumers in managed care plans has risen from 52 percent in September 1997 to 65 percent.

“The President’s troubles may have sidetracked legislative action for now, but this issue is likely to return to the legislative agenda because the public’s underlying concerns are still there,” said Drew Altman, Ph.D., President of the Kaiser Family Foundation.

Attitudes Towards Health Plans

More Americans now see managed care plans as doing a bad job serving consumers (36 percent, up from 21 percent a year ago) than a good job (30 percent, down from 34 percent). The public also appears to be increasingly worried about how their health plan will treat them, with 33 percent “very” worried that their plan is more interested in saving money than in providing them with the best treatment if they are sick, up from 18 percent just a year ago.

Such worries are most common for those in the most restrictive forms of managed care (43 percent very worried). At the same time, the percentage of those reporting that they or someone they know has had at least one problem with their health plan rose from 48 percent to 57 percent in an eight-month period.

And although managed care issues have been prominent in the news, those who hold unfavorable views continue to report that they base their opinions more on their own experience (37 percent) or the experience of friends and family (35 percent) than on media coverage (18 percent). In fact, 30 percent of Americans report that they or someone they know has had an HMO or other managed care plan deny treatment or payment for something a doctor recommended.

Attitudes Towards Regulation

The number of Americans supporting government regulation of health plans has risen significantly in the past year. When presented with arguments for and against regulation, 65 percent say “government needs to protect consumers from being treated unfairly and not getting the care they need” versus 28 percent who say “additional government regulation is a bad idea and would raise the cost of health insurance.” By comparison, 52 percent responded favorably towards government regulation when presented with this tradeoff in September 1997.

Support has also risen for the most controversial and hotly debated consumer protection measure – the right of consumers to sue their health plans – from 64 percent in December 1997 to 73 percent.

However, as with our earlier surveys, support for consumer protection drops substantially when possible consequences are raised:

• Support for comprehensive consumer protection legislation drops from 78 to 40 percent (with 40 percent opposed) when people are told that it could raise the cost of a typical family health insurance policy by $200 per year (approximately the cost estimated by the Congressional Budget Office for a leading patient protection proposal).
• While an overwhelming majority support specific consumer protection measures, support for these also drop substantially when respondents are presented with criticisms made by opponents that they may get the government too involved in the health care system, raise costs, or cause employers to drop health coverage.

Politics and Patient Rights

When asked how important candidates’ stands on specific issues will be in the upcoming election, 47 percent cited education, 42 percent taxes, and 40 percent Social Security as important factors to their vote. Managed care regulation was cited by 34 percent, as was Medicare, ahead of two other major issues that have been hotly contested by the Congress: tobacco regulation (17 percent) and campaign finance reform (15 percent).

Republicans (77 percent), Democrats (78 percent) and Independents (79 percent) are equally supportive of consumer protection legislation, including controversial measures like allowing consumers to sue health plans. While support for the right to sue plans has increased slightly among Democrats (increasing from 70 percent to 75 percent in eight months), it has increased more significantly among Republicans, rising from 56 percent to 74 percent over the same period.

“Regulation of managed care ranks higher as an issue for the public than others currently being debated by the Congress, such as regulation of tobacco and campaign finance reform,” said Robert J. Blendon, Sc.D., Professor of Health Policy and Political Analysis at Harvard University.

The increasingly combative nature of the managed care debate has also registered with the public. Forty-one percent of those surveyed said they have seen, heard or read television, radio and print ads that are being used by candidates and interest groups to influence the debate. The public is cynical, however, about the motives of elected officials, with 66 percent saying that Members of Congress are using the debate over consumer protection to gain political advantage in an election year, and only 25 percent saying that they are serious about consumer protection.

In terms of trust in handling this issue, the public gives neither party a big edge. However, should the Congress fail to pass consumer protection legislation, those surveyed would be more likely to hold Republicans responsible (35 percent) than Democrats (20 percent). Seventeen percent would blame both parties equally.

Consumer Protection Legislation Generally Includes Five Broad Measures

Proposals before Congress to expand the regulation of health plans include a number of consumer protection measures, including:

• Requiring plans to provide more information to enrollees
• Making it easier for people to obtain coverage for an emergency room visit
• Providing easier access to ob-gyns, pediatricians, and other medical specialists
• Allowing consumers to appeal a health plan’s decision to an independent reviewer
• Giving consumers with employer-sponsored health coverage expanded rights to sue their health plans

Methodology

This Kaiser Family Foundation/Harvard University Survey of Americans’ Views on the Consumer Protection Debate was designed and analyzed by researchers at the Kaiser Family Foundation and Harvard University. The survey was conducted by telephone by Princeton Survey Research Associates with 1,200 adults, 18 years and older, nationwide between August 6 and August 20, 1998. The margin of error is plus or minus 3 percent for the national sample. The margin of sampling error may be higher for some of the sub-sets in this analysis.

Because many people are unsure – or don’t know – what kind of health insurance they have, insured respondents under age 65 in this survey (715 respondents) were asked a series of questions about their health plan to establish what kind of coverage they have. They were asked if they were required to do any of the following by their plan: choose doctors from a list and pay more for doctors not on the list; select a primary care doctor or medical group; and/or obtain a referral before seeing a medical specialist or doctor outside the plan. Respondents were listed as being in “heavy” managed care if they reported their plans had all of the characteristics described above. Respondents were listed as being in “light” managed care if they reported their plans had some but not all of the characteristics listed above. And, respondents were listed as having “traditional” insurance if they reported their plans as having none of the characteristics.

Previous Kaiser/Harvard surveys are cited for the purpose of comparison. They are: the Kaiser/Harvard National Survey of Americans’ Views on Consumer Protections in Managed Care with 1,204 adults (age 18 or older) between December 12-30, 1997 (margin of error plus or minus 3 percent); and the Kaiser/Harvard 1997 National Survey of Americans’ Views on Managed Care with 1,204 adults nationwide between August 22 and September 23, 1997 (margin of error plus or minus 3 percent). Additional comparisons are made with preliminary data from a new Kaiser/Harvard national survey.

The Kaiser Family Foundation, based in Menlo Park, California, is a non-profit, independent national health care philanthropy and is not associated with Kaiser Permanente or Kaiser Industries.

Copies of the questionnaire and top line data for the findings reported in this release are available by calling the Kaiser Family Foundation’s publications request line at 1-800-656-4533 (Ask for publication #1438). Also available are the top line data from the Kaiser/Harvard National Survey of Americans’ Views on Consumer Protections in Managed Care (#1356) and the Kaiser/Harvard 1997 National Survey of Americans on Managed Care (#1328).

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New Survey Finds The Public More Worried About Managed Care And More Supportive Of Patient Protection Legislation, But Criticisms Still RegisterPress Release Survey (PDF Format Only) Chart Pack (PDF Format Only)