Lecture Issues in economics today - Chapter 22

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When you finish this chapter, you should: Define the key terms of economics and opportunity cost and understand how a production possibilities frontier exemplifies the trade-offs that exist in life, distinguish between increasing and constant opportunity cost and understand why each might happen in the real world, analyze an argument by thinking economically, while recognizing and avoiding logical traps.

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Nội dung Text: Lecture Issues in economics today - Chapter 22

Chapter 22 Medicare McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Chapter Outline • PUBLIC INSURANCE AND THE ELDERLY • MEDICARE’S NUTS AND BOLTS • COST CONTROL PROVISIONS • MEDICARE TRUST FUND McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Background • Medicare – covers health care for those over 65 – was established in 1964 – was fully in force in 1967 – part of President Johnson’s Great Society Programs – paired with Medicaid (which covers health care for the poor) – is a federally-administered program McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Public Insurance and the Elderly: Why It Is Needed • A private insurance market for the elderly is likely to fail because of – Adverse Selection • the problem in insurance in which those who need it the most will be the only ones willing to pay for it driving the price up and driving out those who need it somewhat less – Lack of a group • Most private health insurance is obtained through employers and a group is formed to overcome the problem of adverse selection. Because most Medicare recipients are retired, there is no group. McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Public Insurance and the Elderly: Who Should Pay? • Those over 65 have a poverty rate that is typically 2-3 percentage points lower than the rest of the nation. • The cost-split was intended to be 50-50 with the taxpayer and recipient paying roughly equal shares. Today that split is 75-25 with taxpayers carrying the larger share. McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Why Medicare’s Costs Are High • The elderly are susceptible to much more costly illnesses and treatments for these illnesses are expensive. • Costs to patients are relatively low so there is the problem of the Third Party Payer – when someone other than the producer or consumer pays the costs of a good or service and as a result neither is cost conscious • New treatments are available for ailments that in prior times would have led to the patient dying. These treatments are expensive. McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Costs of Medicare $ (0 0 0 0 0 0 ) Real Medicare in 1998 Dollars 50000 00000 50000 00000 50000 0 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 Year McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Retrospective Payments • Most payments for services are made after the service has been rendered. • When there are third-party payments this can inflate costs. • Gatekeepers can be used to limit these costs. – doctors who treat general afflictions and who are charged with referring patients to specialists McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Medicare Nuts and Bolts • Medicare Part A – Pays for hospital care – Mandatory • Medicare Part B – Pays for doctor visits – voluntary McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Provider Types • Health Maintenance Organizations (HMOs) • Non-HMOs Fee-for-service McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Medicare, Part A • Premiums – In 1999 • $309 for those between 65 and 72.5 • $170 for those over 72.5 • Deductible – In 1999 • $768 first the first day in the hospital • After the first day – Medicare pays all • of the next 60 days • But $192 per day from 60-90 days • But $384 per day from 90 days on until reserve days are gone. • There is a 60 day reserve McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Prospective Payments and the DRG • All incidents are categorized by Diagnosis Related Groups (DRGs). • There are more than 400 DRGs • Hospitals receive payment from Medicare based on the DRG not costs. • Prospective payments are designed to keep costs down. McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Medicare, Part B • Premium – In 1999 $45 per month (much lower than market prices) • Deductible – In 1999 $100 per year (also much lower than market alternatives.) • Subsidy – General tax revenues make the program 75% paid by taxpayers and 25% paid by recipients. McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
No Prospective Payments • Because it would be impossible to track expenses for Part B by individual provider prospective payments are not attempted in Part B. McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Medicare HMOs • Health Maintenance Organizations are offered as an option for Medicare, Part B. • Many HMO’s stopped covering Medicare patients in 2000. McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
No Coverage • Prescription Drugs • Long Term Care – Nursing Homes – Hospice McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Medicare Trust Fund • Like Social Security, the Trust Fund is made up of bought-back government debt. • Depending on assumptions, the trust funds will be out of bonds to sell in 2025 under their “intermediate” assumptions McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Trust Fund Estimates Medicare Part A Tr Actual Balance and Projec $ B illio n s 800 600 400 200 0 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 Year Actual Balance Intermediate Cost Low Cost High Cost McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.
Taxes Necessary to Pay for Medicare P e rc e n t a g e o f P a y ro l Payroll Taxes Needed to 16 14 High Cost 12 10 Intermediate Cos 8 6 Low Cost 4 2 Current Rate 2000 2010 2020 2030 2040 2050 2060 2070 Year McGrawHill/Irwin © 2002 The McGrawHill Companies, Inc., All Rights Reserved.