The Cost of Health Care - Government Health Care Programs

Unlike most developed countries, the United States does not have a universal health care program. Two government entitlement programs that provide health care coverage for older adults (age sixty-five and older), the poor, and the disabled are Medicare and Medicaid. Enacted in 1965 as amendments to the Social Security Act of 1935 (PL 89-97), these programs went into effect in 1966. In 1972 amendments to Medicare extended medical insurance coverage to those disabled long term and those with chronic kidney disease or end-stage renal disease. In 2004 nearly forty-two million older adults and people with disabilities were enrolled in Medicare, with total expenditures of nearly $309 billion. (See Table 9.3.)

The Original Medicare Plan

The Original Medicare Plan, enacted under Title XVIII ("Health Insurance for the Aged") of the Social Security Act, comprises two health-related insurance plans:

• Part A (hospital insurance) is funded by Social Security payroll taxes. It pays for inpatient hospital care, which includes physicians' fees, nursing services, meals, a semiprivate room, special care units, operating room costs, laboratory tests, and some drugs and supplies. It also pays for skilled nursing facility care after hospitalization, home health care visits by nurses or medical technicians, and hospice care for the terminally ill.

TABLE 9.1 National health expenditures, selected calendar years 1960–2004 "Table 1. National Health Expenditures Aggregate and Per Capita Amounts, Percent Distribution, and Average Annual Percent Growth, by Source of Funds: Selected Calendar Years 1960–2004," in NHE Web Tables, Centers for Medicare and Medicaid Services, Office of the Actuary, http://www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf (accessed February 28, 2006)

TABLE 9.1
National health expenditures, selected calendar years 1960–2004
Item	1960	1970	1980	1990	1993	1997	1998	1999	2000	2001	2002	2003	2004
*Census resident based population less armed forces overseas and less the population of outlying areas.
Note: Numbers and percents may not add to totals because of rounding. Dollar amounts shown are in current dollars.
SOURCE: "Table 1. National Health Expenditures Aggregate and Per Capita Amounts, Percent Distribution, and Average Annual Percent Growth, by Source of Funds: Selected Calendar Years 1960–2004," in NHE Web Tables, Centers for Medicare and Medicaid Services, Office of the Actuary, http://www.cms.hhs.gov/NationalHealthExpendData/downloads/tables.pdf (accessed February 28, 2006)
	Amount in billions
National health expenditures	$27.6	$75.1	$254.9	$717.3	$916.5	$1,129.7	$1,195.6	$1,270.3	$1,358.5	$1,474.2	$1,607.9	$1,740.6	$1,877.6
Private	20.7	46.8	147.6	427.3	514.2	614.1	662.3	710.2	756.3	807.2	881.4	957.2	1,030.3
Public	6.8	28.3	107.3	290.0	402.3	515.6	533.2	560.1	602.2	667.0	726.5	783.4	847.3
Federal	2.9	17.7	71.6	193.9	277.7	365.1	372.5	390.0	418.4	465.0	509.5	554.4	600.0
State and local	4.0	10.6	35.7	96.2	124.7	150.5	160.7	170.1	183.8	202.0	217.1	229.0	247.3
U.S. population*	186	210	230	254	265	278	281	284	287	290	293	296	299
	Amount in billions
Gross domestic product	$526	$1,039	$2,790	$5,803	$6,657	$8,304	$8,747	$9,268	$9,817	$10,128	$10,470	$10,971	$11,734
	Per capita amount
National health expenditures	$148	$357	$1,106	$2,821	$3,461	$4,070	$4,257	$4,471	$4,729	$5,079	$5,485	$5,879	$6,280
Private	111	222	640	1,680	1,942	2,212	2,358	2,500	2,633	2,781	3,007	3,233	3,446
Public	37	135	466	1,140	1,520	1,857	1,899	1,971	2,096	2,298	2,478	2,646	2,834
Federal	15	84	311	762	1,049	1,315	1,326	1,373	1,456	1,602	1,738	1,873	2,007
State and local	21	50	155	378	471	542	572	599	640	696	740	774	827
	Percent distribution
National health expenditures	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0
Private	75.2	62.3	57.9	59.6	56.1	54.4	55.4	55.9	55.7	54.8	54.8	55.0	54.9
Public	24.8	37.7	42.1	40.4	43.9	45.6	44.6	44.1	44.3	45.2	45.2	45.0	45.1
Federal	10.4	23.6	28.1	27.0	30.3	32.3	31.2	30.7	30.8	31.5	31.7	31.9	32.0
State and local	14.4	14.1	14.0	13.4	13.6	13.3	13.4	13.4	13.5	13.7	13.5	13.2	13.2
	Percent of gross domestic product
National health expenditures	5.2	7.2	9.1	12.4	13.8	13.6	13.7	13.7	13.8	14.6	15.4	15.9	16.0
	Average annual percent growth from previous year shown
National health expenditures		10.5	13.0	10.9	8.5	5.4	5.8	6.3	6.9	8.5	9.1	8.2	7.9
Private		8.5	12.2	11.2	6.4	4.5	7.9	7.2	6.5	6.7	9.2	8.6	7.6
Public		15.3	14.2	10.5	11.5	6.4	3.4	5.0	7.5	10.8	8.9	7.8	8.2
Federal		20.0	15.0	10.5	12.7	7.1	2.0	4.7	7.3	11.1	9.6	8.8	8.2
State and local		10.3	12.9	10.4	9.0	4.8	6.8	5.8	8.1	9.9	7.4	5.5	8.0
U.S. population		1.2	0.9	1.0	1.4	1.2	1.2	1.2	1.1	1.0	1.0	1.0	1.0
Gross domestic product		7.0	10.4	7.6	4.7	5.7	5.3	6.0	5.9	3.2	3.4	4.8	7.0

TABLE 9.2 Consumer price index and average annual percent change for general items and medical care components, selected years 1960–2004

TABLE 9.2
Consumer price index and average annual percent change for general items and medical care components, selected years 1960–2004
[Data are based on reporting by samples of providers and other retail outlets]
Items and medical care components	1960	1970	1980	1990	1995	2000	2001	2002	2003	2004
	Consumer price index (CPI)
All items	29.6	38.8	82.4	130.7	152.4	172.2	177.1	179.9	184.0	188.9
All items excluding medical care	30.2	39.2	82.8	128.8	148.6	167.3	171.9	174.3	178.1	182.7
All services	24.1	35.0	77.9	139.2	168.7	195.3	203.4	209.8	216.5	222.8
Food	30.0	39.2	86.8	132.4	148.4	167.8	173.1	176.2	180.0	186.2
Apparel	45.7	59.2	90.9	124.1	132.0	129.6	127.3	124.0	120.9	120.4
Housing	—	36.4	81.1	128.5	148.5	169.6	176.4	180.3	184.8	189.5
Energy	22.4	25.5	86.0	102.1	105.2	124.6	129.3	121.7	136.5	151.4
Medical care	22.3	34.0	74.9	162.8	220.5	260.8	272.8	285.6	297.1	310.1
Components of medical care
Medical care services	19.5	32.3	74.8	162.7	224.2	266.0	278.8	292.9	306.0	321.3
Professional services	—	37.0	77.9	156.1	201.0	237.7	246.5	253.9	261.2	271.5
Physicians' services	21.9	34.5	76.5	160.8	208.8	244.7	253.6	260.6	267.7	278.3
Dental services	27.0	39.2	78.9	155.8	206.8	258.5	269.0	281.0	292.5	306.9
Eye glasses and eye carea	—	—	—	117.3	137.0	149.7	154.5	155.5	155.9	159.3
Services by other medical professionalsa	—	—	—	120.2	143.9	161.9	167.3	171.8	177.1	181.9
Hospital and related services	—	—	69.2	178.0	257.8	317.3	338.3	367.8	394.8	417.9
Hospital servicesb	—	—	—	—	—	115.9	123.6	134.7	144.7	153.4
Inpatient hospital servicesb, c	—	—	—	—	—	113.8	121.0	131.2	140.1	148.1
Outpatient hospital servicesa, c	—	—	—	138.7	204.6	263.8	281.1	309.8	337.9	356.3
Hospital rooms	9.3	23.6	68.0	175.4	251.2	—	—	—	—	—
Other inpatient servicesa	—	—	—	142.7	206.8	—	—	—	—	—
Nursing homes and adult day careb	—	—	—	—	—	117.0	121.8	127.9	135.2	140.4
Medical care commodities	46.9	46.5	75.4	163.4	204.5	238.1	247.6	256.4	262.8	269.3
Prescription drugs and medical supplies	54.0	47.4	72.5	181.7	235.0	285.4	300.9	316.5	326.3	337.1
Nonprescription drugs and medical suppliesa	—	—	—	120.6	140.5	149.5	150.6	150.4	152.0	152.3
Internal and respiratory over-the-counter drugs	—	42.3	74.9	145.9	167.0	176.9	178.9	178.8	181.2	180.9
Nonprescription medical equipment and supplies	—	—	79.2	138.0	166.3	178.1	178.2	177.5	178.1	179.7
	Average annual percent change from previous year shown
All items	…	2.7	7.8	4.7	3.1	2.5	2.8	1.6	2.3	2.7
All items excluding medical care	…	2.6	7.8	4.5	2.9	2.4	2.7	1.4	2.2	2.6
All services	…	3.8	8.3	6.0	3.9	3.0	4.1	3.1	3.2	2.9
Food	…	2.7	8.3	4.3	2.3	2.5	3.2	1.8	2.2	3.4
Apparel	…	2.6	4.4	3.2	1.2	−0.4	−1.8	−2.6	−2.5	−0.4
Housing	…	—	8.3	4.7	2.9	2.7	4.0	2.2	2.5	2.5
Energy	…	1.3	12.9	1.7	0.6	3.4	3.8	−5.9	12.2	10.9
Medical care	…	4.3	8.2	8.1	6.3	3.4	4.6	4.7	4.0	4.4
Components of medical care
Medical care services	…	5.2	8.8	8.1	6.6	3.5	4.8	5.1	4.5	5.0
Professional services	…	—	7.7	7.2	5.2	3.4	3.7	3.0	2.9	3.9
Physicians' services	…	4.6	8.3	7.7	5.4	3.2	3.6	2.8	2.7	4.0
Dental services	…	3.8	7.2	7.0	5.8	4.6	4.1	4.5	4.1	4.9
Eye glasses and eye carea	…	—	—	—	3.2	1.8	3.2	0.6	0.3	2.2
Services by other medical professionalsa	…	—	—	—	3.7	2.4	3.3	2.7	3.1	2.7
Hospital and related services	…	—	—	9.9	7.7	4.2	6.6	8.7	7.3	5.9
Hospital servicesb	…	—	—	—	—	—	6.6	9.0	7.4	6.0
Inpatient hospital servicesb, c	…	—	—	—	—	—	6.3	8.4	6.8	5.7
Outpatient hospital servicesa, c	…	—	—	—	8.1	5.2	6.6	10.2	9.1	5.4
Hospital rooms	…	9.8	11.2	9.9	7.4	—	—	—	—	—
Other inpatient servicesa	…	—	—	—	7.7	—	—	—	—	—
Nursing homes and adult day careb	…	—	—	—	—	—	4.1	5.0	5.7	3.8

• Part B (medical insurance) is an elective medical insurance. Because Part A does not pay all health care costs and other expenses associated with hospitalization, many beneficiaries enroll in the Part B plan. Most people pay a monthly premium for this coverage. Those monthly premiums and general federal revenues finance Part B. Coverage includes physicians' and surgeons' services, diagnostic and laboratory tests, outpatient hospital services, outpatient physical therapy, speech pathology services, home health care services, and medical equipment and supplies.

The Original Medicare Plan coverage (Part A and Part B) has "gaps," which means that it does not cover all medical costs and services. Medigap insurance is supplemental Medicare insurance sold by private

TABLE 9.2 Consumer price index and average annual percent change for general items and medical care components, selected years 1960–2004 [CONTINUED] "Table 120. Consumer Price Index and Average Annual Percent Change for All Items, Selected Items, and Medical Care Components: United States, Selected Years 1960–2004," in Health, United States, 2005, Centers for Disease Control and Prevention, National Center for Health Statistics, November 2005, http://www.cdc.gov/nchs/data/hus/hus05.pdf (accessed February 27, 2006)

TABLE 9.2
Consumer price index and average annual percent change for general items and medical care components, selected years 1960–2004 [CONTINUED]
[Data are based on reporting by samples of providers and other retail outlets]
Items and medical care components	1960	1970	1980	1990	1995	2000	2001	2002	2003	2004
aDecember 1986=100.
bDecember 1996=100.
cSpecial index based on a substantially smaller sample.
Notes: "—"=Data not available. "…"=Category not applicable. Consumer price index for all urban consumers (CPI-U) U.S. city average, detailed expenditure categories. 1982–84=100, except where noted. Data are not seasonally adjusted.
SOURCE: "Table 120. Consumer Price Index and Average Annual Percent Change for All Items, Selected Items, and Medical Care Components: United States, Selected Years 1960–2004," in Health, United States, 2005, Centers for Disease Control and Prevention, National Center for Health Statistics, November 2005, http://www.cdc.gov/nchs/data/hus/hus05.pdf (accessed February 27, 2006)
Medical Care commodities	…	−0.1	5.0	8.0	4.6	3.1	4.0	3.6	2.5	2.5
Prescription drugs and medical supplies	…	−1.3	4.3	9.6	5.3	4.0	5.4	5.2	3.1	3.3
Nonprescription drugs and medical suppliesa	…	—	—	—	3.1	1.2	0.7	−0.1	1.1	0.2
Internal and respiratory over-the-counter drugs	…	—	5.9	6.9	2.7	1.2	1.1	−0.1	1.3	−0.2
Nonprescription medical equipment and supplies	…	—	—	5.7	3.8	1.4	0.1	−0.4	0.3	0.9

insurance companies to pay these gaps in Original Medicare Plan coverage. Except in Massachusetts, Minnesota, and Wisconsin, there are ten standardized plans labeled Plan A through Plan J. Medigap policies only work with the Original Medicare Plan.

Medicare Advantage Plans

Medicare Advantage Plans are offered by private companies that have contracts with Medicare to provide Medicare services. Although there are generally lower copayments (the amounts patients pay for each medical service) and extra benefits with Medicare Advantage Plans versus the Original Medicare Plan, patients generally must see physicians that belong to the plan and go to certain hospitals to get services. Medicare Advantage Plans include Medicare Health Maintenance Organizations (HMOs), Medicare Preferred Provider Organizations (PPOs), Medicare Special Needs Plans (designed for specific groups of people), and Medicare Private Fee-for-Service Plans (PFFS).

Other Medicare Health Plans

Other types of Medicare Health Plans include Medicare Cost Plans, Demonstrations, and Programs of All-inclusive Care for the Elderly (PACE). Medicare Cost Plans are limited in number and combine features of both Medicare Advantage Plans and the Original Medicare Plan. Demonstrations are special projects that test possible future improvements in Medicare costs, coverage, and quality of care. PACE provides services for frail elderly Americans.

Medicare Prescription Drug Plans

On January 1, 2006, Medicare began to offer insurance coverage for prescription drugs to everyone with Medicare. Its Medicare Prescription Drug Plans typically pay half a person's prescription drug costs. Most people pay a monthly premium for this coverage. Medicare Prescription Drug Plans are available with the Original Medicare Plan, Medicare Advantage Plans, and the other Medicare health plans.

Medicaid

The Medicaid health insurance program, enacted under Title XIX ("Grants to States for Medical Assistance Programs") of the Social Security Act, provides medical assistance to low-income people, including those with disabilities and members of families with dependent children. Jointly financed by federal and state governments, Medicaid coverage includes hospitalization, physicians' services, laboratory fees, diagnostic screenings, and long-term nursing home care.

In 2001, while people age sixty-five and older made up only 8.3% of all Medicaid recipients, they received slightly more than one-fourth (25.9%) of all Medicaid benefits. The average payment was $12,725 per older adult, compared with $11.318 for the blind and disabled, $2,059 for adults in families with dependent children, and $1,448 for children under the age of twenty-one. (See Table 9.4.)