Medicare on life support: will it survive?

This Issue Brief discusses Medicare reform. The Balanced Budget Act of 1997 reduces spending in the Medicare program by $115 billion between 1998 and 2002. Most of the reduction in spending comes from reducing payments to providers, and most of the savings (36 percent) occur in 2002. By 2007, the Part A trust fund is expected to be insolvent, four years before the baby-boom generation reaches the current Medicare eligibility age of 65. Congress is likely to revisit Medicare reform in the near future. A number of reforms received a significant amount of attention during the Medicare reform debate, but were not included in the final legislation. The Senate-passed legislation would have increased the Medicare eligibility age from 65 to 67, imposed means testing on Medicare Part B, and imposed a Part B home health copayment of $5. While these provisions were not included in the Balanced Budget Act of 1997, they may be the focal point of future Medicare reform. Many changes to the Medicare program are likely to significantly affect employment-based health plans for both active and retired workers. Raising the Medicare eligibility age would undoubtedly affect both workers and retirees. Unless workers are willing to work until age 67, their likelihood of becoming uninsured would increase. In 1995, 15.8 percent of retirees ages 55-64 were uninsured, compared with 11.5 percent of workers in the same age group. Early retirees might also find themselves unable to afford health insurance in the private market. An Employee Benefit Research Institute/Gallup poll indicates a direct link between the availability of retiree health benefits and a worker's decision to retire early. In 1993, 61 percent of workers reported that they would not retire before becoming eligible for Medicare if their employer did not provide retiree health benefits. If workers responded to an increase in the retirement age by working longer, employment-based health plans would probably experience an increase in costs, because older workers are the most costly to cover. Some employers might respond to an increase in the Medicare eligibility age by dropping coverage altogether. The message for future beneficiaries is becoming very clear: expect less from Medicare at later ages and higher premiums. As was true prior to the enactment of Medicare in 1965, workers will increasingly need to include retiree health insurance as an expected expense as they plan and save for retirement.     

Medicare and the affordable care act

The recently enacted Patient Protection and Affordable Care Act made modest changes to improve Medicare and obtained a substantial share of funding for the Act's broader reforms from future spending reductions in the program. Drug benefits and preventive services were improved. While painful, the spending reductions will have only moderate impacts on beneficiaries and should help achieve the goals of health care reform: encouraging better primary and preventive care, making providers conscious of finding ways to increase the productivity of care delivered and changing the relative levels of payment across certain providers. Additional costs to beneficiaries will arise from changes in private plan payments and increasing income-related premiums.     

Demographic and employment shifts: implications for benefits and economic security

This Issue Brief examines factors affecting the population's age distribution and composition, such as mortality rates, fertility rates, and immigration. In addition, it examines factors affecting labor force composition, such as immigration, increased labor force participation of women, and retirement trends, and discusses the potential impact of these changes on publicly financed programs: Medicare, Medicaid, Social Security, and federal employee retirement systems. The discussion also highlights the implications of these population and labor force changes on employers, employees, and retirees. The elderly population--now 31.8 million, representing 12.6 percent of the population--is projected to experience tremendous growth between 2010 and 2030, when the baby boom generation reaches age 65, rising from 39.7 million, or 13.3 percent of the population, to 69.8 million, or 20.2 percent of the population. Growth in the elderly population has implications for retirement and health care systems. Population projections suggest that the traditionally pyramid-shaped work force, with a proportionately greater number of younger workers than older workers, will be replaced with a more even age distribution. Consequently, significant and continued modifications to benefit packages, such as changes in compensation structures in which earnings automatically rise with age, are likely to occur. Women's labor force participation began to accelerate in the mid-1950s, rising 75 percent among women aged 25-44 in 1991, although there is some indication that this growth may be flattening. With women comprising a greater part of the labor force, employers will be encouraged to develop and implement programs to better accommodate their needs. Increased life expectancy, a decreased percentage of entry level workers, changes in Social Security's normal retirement age from 65 to 67, and employer plans to raise the normal age of retirement or provide incentives to delay retirement, could raise the average age of retirement. However, other factors, such as poor health, other sources of retirement income, and individual preferences for retirement, could still dominate the retirement decision. The combination of increased average life expectancy guaranteeing more years of retirement to finance and rising dependency ratios increases the future cost of Social Security financing. Medicare financing is also an important policy issue because the program is projected to experience financial difficulties in the short term, resulting from explosive health care costs. In addition, Medicaid expenditures are consuming increasing amount of shrinking state budget resources--a large portion of which is used to finance nursing home care for a growing elderly population.     

Social Context and Personal Expenditures for Health Care: Federal Policy and the Experience of Older Adults in the 1970s

The relationship between the intent and the outcome of legislated social policy is discussed. Specifically, this study documents some effects of federal health reimbursement and income policy in the late 1960s and early 1970s on health care behavior and expenditures in the decade 1970-1980. The Longitudinal Retirement History Study (LRHS), containing information on a panel of 6,270 men and unmarried women aged 58 to 63 in 1969, was used to provide information on the personal health expenditures in this decade. Medicare and Medicaid and the indexing of Social Security became operational at the beginning of the study, which permitted the exploration of intended and observed effects of legislation designed to make health care more accessible and affordable for older adults. As policy intended, utilization increased over the decade as indicated by both increases in the number of panelists with health care bills and increases in the size of total bills (constant dollars). Consistent with federal policy to reduce personal costs, out-of-pocket expenditures and the proportion of total bills paid out of pocket decreased. However, the effects of these federal policy initiatives were constrained by reimbursement rules and the social location of users. For instance, even at the end of the 1970s, out-of-pocket health care expenditures across subpopulations persisted. The 1980s and early 1990s have brought increased concern over the cost of health care and renewed concern over access. Data suggest that future proposals aimed at providing universal coverage along with high out-of-pocket costs may not result in equitable programs, and are likely to have a limited impact on constraining health care costs. The LRHS data indicate that utilization increased despite continued high out-of-pocket costs for all except the lower-income groups, who may be limited in their ability to purchase increasingly costly care.     

Social context and personal expenditures for health care: federal policy and the experience of older adults in the 1970s

The relationship between the intent and the outcome of legislated social policy is discussed. Specifically, this study documents some effects of federal health reimbursement and income policy in the late 1960s and early 1970s on health care behavior and expenditures in the decade 1970-1980. The Longitudinal Retirement History Study (LRHS), containing information on a panel of 6,270 men and unmarried women aged 58 to 63 in 1969, was used to provide information on the personal health expenditures in this decade. Medicare and Medicaid and the indexing of Social Security became operational at the beginning of the study, which permitted the exploration of intended and observed effects of legislation designed to make health care more accessible and affordable for older adults. As policy intended, utilization increased over the decade as indicated by both increases in the number of panelists with health care bills and increases in the size of total bills (constant dollars). Consistent with federal policy to reduce personal costs, out-of-pocket expenditures and the proportion of total bills paid out of pocket decreased. However, the effects of these federal policy initiatives were constrained by reimbursement rules and the social location of users. For instance, even at the end of the 1970s, out-of-pocket health care expenditures across subpopulations persisted. The 1980s and early 1990s have brought increased concern over the cost of health care and renewed concern over access. Data suggest that future proposals aimed at providing universal coverage along with high out-of-pocket costs may not result in equitable programs, and are likely to have a limited impact on constraining health care costs. The LRHS data indicate that utilization increased despite continued high out-of-pocket costs for all except the lower-income groups, who may be limited in their ability to purchase increasingly costly care.     

Lessons from the evolution of 401(k) retirement plans for increased consumerism in health care: an application of behavioral research

Employment-based health and retirement benefit programs have followed a similar path of evolution. The relative decision-making roles of the employer and the worker have shifted from the employer to the worker, and workers are more responsible than perhaps they ever have been for their well being--both in terms of their health in general and their financial security during retirement. This shift has been supported, in part, by legislation--namely ERISA, the HMO Act of 1973, the Revenue Act of 1978, and most recently, the Pension Protection Act. This Issue Brief does not pass judgment on this development or address who should bear the responsibilities of preparing workers for retirement or of rationing health care services. The current trend in health care design is toward increased "consumerism." Consumer-driven health is based on the assumption that the combination of greater cost sharing (by workers) and better information about the cost and quality of health care will engage workers to become better health care decision makers. It is hoped that workers will seek important, necessary, high-quality, cost-effective care and services, and become less likely to engage providers and services that are unnecessary and ineffective from either a quality or cost perspective. As employers look ahead toward continually improved plan design, there may be benefits in considering the lessons learned from studying worker behaviors. Specifically, there is evidence about the effects of choice, financial incentives, and information on worker decision making. As a result of research in this area, many retirement plan sponsors have moved toward plan designs and programs that recognize the benefits of well-designed defaults, simplified choices, required active decision making, framing, and commitment to future improvements. With respect to choice, it is now known that more is not always better and may even be worse in some cases. Just as fewer shoppers actually bought a jar of jelly when it was one of 24 as opposed to one of six, evidence has shown that people tend to be less likely to join a company-sponsored retirement plan when more investment options are offered. More choice can also lead to lower satisfaction. It is also known that workers may not be able to appropriately sort through many complex alternatives and that education is not always as effective as employers would hope. Decision complexity often forces people to find a way to simplify, and one of the easiest rules of thumb is to pick the option with the lowest short-term cost, even when that alternative is more costly in the longer run. It is also known that, for good or for bad, choices are constructed on the fly; preferences are dynamic, and logic does not always apply. Financial incentives are helpful in motivating behavior, but they do not affect everyone's decisions. Despite significant financial incentives to participate in 401(k) plans, many workers choose not to. Similarly, despite many of the financial incentives embedded in health care plan design, it can be expected that these incentives will not effectively motivate and engage all workers. One seemingly rational approach to improve workers' decision making is to provide education and guidance to help them sort through complex alternatives and to demonstrate the value of financial incentives. Certainly, providing education and guidance in the form of decision support tools may be an employer's responsibility. However, some studies have shown that, even when "educated" workers have the intent to make improved decisions, they often lack follow-through and fail to take action. In short, education and guidance may not be enough to foster improved health care consumerism. Some employers have begun to design benefit programs with a view toward overcoming behavioral tendencies that negatively affect workers' well-being. Newer retirement plan designs involve careful consideration of default choices. These defaults apply unless workers actively choose a different alternative. Typically, the default attempts to "nudge" workers toward optimal behavior. In the case of 401(k) retirement plan design, more employers are moving toward a default of automatic enrollment in the plan, with automatic investment in a diversified portfolio. Still, additional empirical research and experimentation may be needed to further understand the effects of new retirement plan design features. Future work may also precisely illuminate how the lessons discussed in this Issue Brief may apply to health care plan design that results in improved health-related behaviors. Given the impressive preliminary results in improving retirement planning behaviors, such research and experimentation are likely to be worthwhile.     

The Patient Protection and Affordable Care Act: A Dissenting Opinion

This paper asks whether the Patient Protection and Affordable Care Act achieves its goals of significantly expanding health insurance coverage, while reducing costs and increasing the quality of the care provided. An examination of the early results and current future projections suggests that while PPACA will increase the number of Americans with health insurance, it will fall significantly short of universal coverage. In addition, PPACA fails to control health care costs, and will likely result in higher costs for government, as well as many businesses, and individuals. The author concludes that PPACA is not the most effective vehicle for achieving US health care reform, and that a more market-oriented approach offers a better alternative.     

The Crisis in Retiree Health Benefits

Over 7 million retirees currently are covered by employer-sponsored health benefits plans in which the employer contributes all or a portion of the premium cost. Almost one-third of these retirees are under age 65 and therefore lack Medicare coverage. The annual cost to employers for this coverage is now $9 billion and is expected to be $22 billion in 20 years. However, inflation in health care costs, recent court decisions, the aging of America, and a major proposed accounting rule change by the Financial Accounting Standards Board have combined to produce a "crisis in retiree health benefits" in the business sector. As a result, employers are rapidly redesigning retiree benefit plans to shift future health care cost increases to their retirees. Until now, the aging network has been largely oblivious to this transformation in financing. Yet, this "crisis" begs for public/private sector dialogue and partnership, and the White House Conference on Aging could be a major forum for this dialogue.     

The failed Patient Self-Determination Act and policy alternatives for the right to die

The empirical evidence regarding the implementation and impact of the federal Patient Self-Determination Act is examined in this article. The Act was designed to increase the use of advance medical directives in light of the U.S. Supreme Court's Cruzan decision. Research shows that the law has had little effect and that the use of advance directives has scant relation to medical treatment and care. Various policy alternatives for the right to die are also examined. The authors conclude with an analysis of the likely impact of medical costs, fruitless treatment, and rationed health care on limiting life-prolonging treatment.     

The retirement system in transition: the 2007 Retirement Confidence Survey

WORKERS SLOW TO SEE OR ADAPT TO A CHANGING U.S. RETIREMENT SYSTEM: The 17th annual wave of the Retirement Confidence Survey (RCS) suggests that American workers may be slow to recognize how the U.S. retirement system is changing, and those who are aware of these changes may not be adapting to them in ways that are likely to secure them a comfortable retirement. HALF OF WORKERS LESS CONFIDENT ABOUT PENSION BENEFITS: The RCS finds pension-plan changes by employers have left nearly half of workers less confident about the benefits they will receive from a traditional pension plan, but that those experiencing a decline in retirement benefits often fail to react constructively. Moreover, although Americans will rely increasingly on 401(k) retirement savings plans and other personal savings and investments to fund their retirement security, data suggest that many may not follow professional investment advice when it is offered to them. MANY WORKERS COUNTING ON BENEFITS THAT WON'T BE THERE: Many workers are counting on employer-provided benefits in retirement that are increasingly unavailable. Only 41 percent of workers indicate they or their spouse currently have a defined benefit pension plan, yet 62 percent say they are expecting to receive income from such a plan in retirement. Likewise, workers are as likely to expect as retirees are to receive retiree health insurance through an employer, even though the number of employers offering this benefit to future retirees is declining. MANY WORKERS UNLIKELY TO HEED INVESTMENT ADVICE EVEN IF THEY GET IT: More than half of workers indicate they would be likely to take advantage of professional investment advice offered by companies that manage employer-sponsored retirement plans. However, two-thirds of these workers say they would probably implement only some of the recommendations they receive and 1 in 10 think they would implement none of them. AMERICANS OVERESTIMATE LONG-TERM CARE COVERAGE: One-quarter of workers and more than one-third of retirees report they have long-term care insurance (separate from health insurance, Medicare, and Medicaid) to help pay for care they might need in a nursing home, assisted living facility, or at home. But only 10 percent of Americans age 65 and older are estimated to have had private long-term care insurance in 2002, suggesting that many are counting on coverage they do not actually have. MOST SAVINGS LEVELS ARE MODEST: Almost half of workers saving for retirement report total savings and investments (not including the value of their primary residence or any defined benefit plans) of less than $25,000. The majority of workers who have not put money aside for retirement have little in savings at all: Seven in 10 of these workers say their assets total less than $10,000. CONTINUED IGNORANCE ABOUT SOCIAL SECURITY COVERAGE: Despite the longstanding increase in the eligibility age for Social Security, only a small minority of workers are aware of the age at which they can receive full retirement benefits from Social Security without a reduction for early retirement.     

Restrictiveness of Eligibility Determination and Medicaid Enrollment by Low-Income Seniors

Medicaid is an important source of supplemental health care coverage for low-income seniors, yet little is known about the effect of state policy on Medicaid enrollment by eligible elderly. Data from a nationally representative survey were used to examine Medicaid enrollment by elderly, low-income Medicare beneficiaries living in states that liberalize or restrict Medicaid eligibility criteria using the 1986 Omnibus Budget Reconciliation Act or provision 209(b) of the 1972 Social Security Act Amendment, respectively. Controlling for demographics and health status, residence in states applying these laws was significantly, though modestly, associated with Medicaid enrollment. Additionally, 73% of eligible elderly Medicare beneficiaries were not enrolled in Medicaid, and most have serious chronic health problems. These findings suggest that a significant number of eligible elderly are not enrolled in Medicaid and that liberalizing or tightening Medicaid eligibility criteria can have an impact on Medicaid enrollment by low-income elderly patients.     

The costs of pursuing accreditation for methadone treatment sites: results from a national study

The use of accreditation has been widespread among medical care providers, but accreditation is relatively new to the drug abuse treatment field. This study presents estimates of the costs of pursuing accreditation for methadone treatment sites. Data are from 102 methadone treatment sites that underwent accreditation as part of the Center for Substance Abuse Treatment's evaluation of the Opioid Treatment Program Accreditation Project. The analysis represents the most comprehensive analysis of the costs of pursuing accreditation by a health care provider. Importantly, it is the first analysis of the costs of pursuing accreditation by drug treatment providers. Policy makers and drug treatment providers can use this analysis to plan the labor requirements and costs of future accreditation initiatives.     

A 10-foot rope for a 50-yard drop: the CLASS Act in the patient protection and Affordable Care Act

The Community Living Assistance Services and Supports (CLASS) Act, part of the 2010 health care reform, would have paid a daily cash payment toward the costs of long-term care. This article points out that although the CLASS Act may have been sufficient to cover the costs of most home- and community-based services, it was an inadequate response to the most pressing long-term care financing problem facing baby boomers: nursing home care costs. The risk of needing a nursing home is higher than other catastrophic risks. Boomers lack savings to pay those costs. CLASS aimed to encourage people to use home- and community-based services to substitute for nursing home care, but research spanning decades shows there is little substitution effect.     

Can Bundled Payment Improve Quality and Efficiency of Care for Patients with Hip Fractures?

The current Medicare reimbursement for hip fractures lacks accountability and promotes cost cutting. A bundled payment system—analogous to the Medicare Acute Care Episodes Demonstration for Orthopedic and Cardiovascular Surgery—may help curtail costs, foster communication among health care providers, and improve their accountability for patient outcomes. In hip fracture care, bundled payment may spur development of multidisciplinary best practice guidelines, quality assessment, and reporting, and result in benchmarking and best practices sharing. However, its implementation may face challenges: the need for quality assessment criteria and risk adjustment methods and possible risks of pushing costs outside of Medicare boundaries.     

The Failed Patient Self-Determination Act and Policy Alternatives for the Right to Die

ABSTRACT

The empirical evidence regarding the implementation and impact of the federal Patient Self-Determination Act is examined in this article. The Act was designed to increase the use of advance medical directives in light of the U.S. Supreme Court's Cruzan decision. Research shows that the law has had little effect and that the use of advance directives has scant relation to medical treatment and care. Various policy alternatives for the right to die are also examined. The authors conclude with an analysis of the likely impact of medical costs, fruitless treatment, and rationed health care on limiting life-prolonging treatment.