Library Index :: Death and Dying Reference :: The Cost of Health Care - Increasing Costs, Government Health Care Programs, Who Pays For End-of-life Care?

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 65 years 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 (ESRD). In 2001, forty million older adults and people with disabilities were enrolled in Medicare, with total expenditures of nearly $245 billion. (See Table 9.3.)

Medicare

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

  • Part A, the hospital insurance plan, is funded by Social Security payroll taxes. It pays for inpatient hospital care, which includes physicians' fees, nursing services, meals, a semi-private 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.
  • Part B, the supplemental medical insurance plan, also called Medigap, is an elective medical insurance. Since Part A does not pay all health care costs and other expenses associated with hospitalization, many beneficiaries enroll in the Part B plan. Members pay a premium for this coverage. Member payments 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.

TABLE 9.1
National health expenditures, selected calendar years 1980–2002

Item 1980 1988 1990 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Amount in billions
National health expenditures $245.8 $558.1 $696.0 $888.1 $937.1 $990.2 $1,039.3 $1,092.8 $1,150.3 $1,222.6 $1,309.4 $1,420.7 $1,553.0
Private 140.9 331.7 413.5 497.7 509.7 533.6 556.8 589.2 629.0 669.7 714.9 768.4 839.6
Public 104.8 226.4 282.5 390.4 427.4 456.6 482.5 503.6 521.3 552.9 594.6 652.3 713.4
Federal 71.3 154.1 192.7 274.4 298.9 322.4 344.8 360.2 368.4 386.4 416.0 460.3 504.7
State and local 33.5 72.3 89.8 116.0 128.5 134.2 137.7 143.4 152.9 166.4 178.6 192.0 208.7
Number in millions
U.S. population1 230 249 254 263 265 268 270 273 275 278 280 283 285
Amount in billions
Gross domestic product $2,796 $5,108 $5,803 $6,642 $7,054 $7,401 $7,813 $8,318 $8,782 $9,274 $9,825 $10,082 $10,446
Per capita amount
National health expenditures $1,067 $2,243 $2,738 $3,381 $3,534 $3,698 $3,847 $4,007 $4,179 $4,402 $4,670 $5,021 $5,440
Private 612 1,333 1,627 1,895 1,922 1,993 2,061 2,161 2,285 2,411 2,550 2,716 2,941
Public 455 910 1,111 1,486 1,612 1,705 1,786 1,846 1,894 1,991 2,121 2,306 2,499
Federal 310 619 758 1,045 1,127 1,204 1,276 1,321 1,339 1,391 1,483 1,627 1,768
State and local 146 290 353 442 485 501 510 526 556 599 637 679 731
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 57.3 59.4 59.4 56.0 54.4 53.9 53.6 53.9 54.7 54.8 54.6 54.1 54.1
Public 42.7 40.6 40.6 44.0 45.6 46.1 46.4 46.1 45.3 45.2 45.4 45.9 45.9
Federal 29.0 27.6 27.7 30.9 31.9 32.6 33.2 33.0 32.0 31.6 31.8 32.4 32.5
State and local 13.6 13.0 12.9 13.1 13.7 13.6 13.2 13.1 13.3 13.6 13.6 13.5 13.4
Percent of gross domestic product
National health expenditures 8.8 10.9 12.0 13.4 13.3 13.4 13.3 13.1 13.1 13.2 13.3 14.1 14.9
Average annual percent growth from previous year shown
National health expenditures 11.72 10.8 11.7 8.5 5.5 5.7 5.0 5.1 5.3 6.3 7.1 8.5 9.3
Private 10.22 11.3 11.7 6.4 2.4 4.7 4.4 5.8 6.7 6.5 6.7 7.5 9.3
Public 14.82 10.1 11.7 11.4 9.5 6.8 5.7 4.4 3.5 6.0 7.5 9.7 9.4
Federal 17.52 10.1 11.8 12.5 9.0 7.8 7.0 4.4 2.3 4.9 7.6 10.7 9.7
State and local 11.52 10.1 11.4 8.9 10.8 4.4 2.6 4.2 6.6 8.8 7.3 7.5 8.7
U.S. population 1.12 1.0 1.1 1.1 1.0 1.0 0.9 0.9 0.9 0.9 1.0 0.9 0.9
Gross domestic product 8.72 7.8 6.6 4.6 6.2 4.9 5.6 6.5 5.6 5.6 5.9 2.6 3.6
1July 1 Census resident based population estimates for each year 1980–2002.
2Average annual growth between 1960 and 1980.
Note: Numbers and percents may not add to totals because of rounding.
SOURCE: "Table 1. National Health Expenditures Aggregate and Per Capita Amounts, Percent Distribution, and Average Annual Percent Growth, by Source of Fund: Selected Calendar Years 1980–2002," in National Health Expenditures Tables, Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group, Baltimore, MD [Online] http://www.cms.hhs.gov/statistics/nhe/historical/tables.pdf

TABLE 9.2
Consumer price index and average annual percent change for general items and medical care components, selected years 1960–2002
[Data are based on reporting by samples of providers and other retail outlets]

Items and medical care components 1960 1970 1980 1990 1995 1999 2000 2001 2002
Consumer price index (CPI)
All items 29.6 38.8 82.4 130.7 152.4 166.6 172.2 177.1 179.9
All items excluding medical care 30.2 39.2 82.8 128.8 148.6 162.0 167.3 171.9 174.3
All services 24.1 35.0 77.9 139.2 168.7 188.8 195.3 203.4 209.8
Food 30.0 39.2 86.8 132.4 148.4 164.1 167.8 173.1 176.2
Apparel 45.7 59.2 90.9 124.1 132.0 131.3 129.6 127.3 124.0
Housing - - - 36.4 81.1 128.5 148.5 163.9 169.6 176.4 180.3
Energy 22.4 25.5 86.0 102.1 105.2 106.6 124.6 129.3 121.7
Medical care 22.3 34.0 74.9 162.8 220.5 250.6 260.8 272.8 285.6
Components of medical care
Medical care services 19.5 32.3 74.8 162.7 224.2 255.1 266.0 278.8 292.9
Professional services - - - 37.0 77.9 156.1 201.0 229.2 237.7 246.5 253.9
Physicians' services 21.9 34.5 76.5 160.8 208.8 236.0 244.7 253.6 260.6
Dental services 27.0 39.2 78.9 155.8 206.8 247.2 258.5 269.0 281.0
Eye glasses and eye care1 - - - - - - - - - 117.3 137.0 145.5 149.7 154.5 155.5
Services by other medical professionals1 - - - - - - - - - 120.2 143.9 158.7 161.9 167.3 171.8
Hospital and related services - - - - - - 69.2 178.0 257.8 299.5 317.3 338.3 367.8
Hospital services2 - - - - - - - - - - - - - - - 109.3 115.9 123.6 134.7
Inpatient hospital services2 - - - - - - - - - - - - - - - 107.9 113.8 121.0 131.2
Outpatient hospital services1 - - - - - - - - - 138.7 204.6 246.0 263.8 281.1 309.8
Hospital rooms 9.3 23.6 68.0 175.4 251.2 - - - - - - - - - - - -
Other inpatient services1 - - - - - - - - - 142.7 206.8 - - - - - - - - - - - -
Nursing homes and adult day care - - - - - - - - - - - - - - - 111.6 117.0 121.8 127.9
Medical care commodities 46.9 46.5 75.4 163.4 204.5 230.7 238.1 247.6 256.4
Prescription drugs and medical supplies 54.0 47.4 72.5 181.7 235.0 273.4 285.4 300.9 316.5
Nonprescription drugs and medical supplies1 - - - - - - - - - 120.6 140.5 148.5 149.5 150.6 150.4
Internal and respiratory over-the-counter drugs - - - 42.3 74.9 145.9 167.0 175.9 176.9 178.9 178.8
Nonprescription medical equipment and supplies - - - - - - 79.2 138.0 166.3 176.7 178.1 178.2 177.5

MEDICARE HEALTH MAINTENANCE ORGANIZATIONS (HMOS).

In an effort to control costs and ensure quality medical care, Medicare began offering its beneficiaries a managed care option in 1985. Medicare beneficiaries could choose between Medicare managed care insurance and traditional Medicare insurance. In 1985, 44,100 beneficiaries signed up with Medicare health maintenance organizations (HMOs).

For monthly prepaid premiums, HMO enrollees receive benefits not available under Medicare, such as preventive care, routine physical exams, prescription drugs, dental care, eyeglasses, and hearing aids. The HMOs, in turn, receive fixed payments from the Centers for Medicare and Medicaid Services (CMS) (which was known as the Health Care Financing Administration, or HCFA, until June 14, 2001), the federal agency responsible for the management and implementation of the Medicare and Medicaid insurance programs.

MEDICARE+CHOICE.

In 1997 Medicare offered the senior population additional private health plans, including preferred provider organizations (PPOs) and provider-sponsored organizations (PSOs). This change, known as Medicare+Choice, is a result of the Balanced Budget Act of 1997 (PL 105-33), aimed at saving Medicare more money. The act was also designed to reduce fraud and abuse. These factors contributed to the reduction of Medicare spending growth from 6.0 percent in 1997 to 2.5 percent in 1998 and 1.5 percent in 1999 (according to CMS statistics). The number of people in these private plans reached a peak of 6.3 million, or 16 percent of beneficiaries, in late 1999.

The decline in Medicare spending growth was short-lived. In 2000 Medicare spending grew 5.6 percent; in 2001 it grew 9.5 percent; and in 2002 it grew 8.4 percent. Over that time, several insurance plans opted out of the Medicare programs, citing escalating costs and inadequate reimbursement. Some health plans pulled out of Medicare entirely, while others withdrew only from certain counties.

An estimated 934,000 Medicare beneficiaries were dropped by their Medicare HMO plans in 2000, and by December 31, 2001, a total of more than 1.7 million Medicare beneficiaries had lost their HMO plans. As of January 20, 2004, only about 4.6 million beneficiaries, or 11 percent of the 41 million people enrolled in Medicare, were in HMOs, down from the peak of 6.3 million (16 percent

TABLE 9.2
Consumer price index and average annual percent change for general items and medical care components, selected years 1960–2002
[Data are based on reporting by samples of providers and other retail outlets]

Items and medical care components 1960 1970 1980 1990 1995 1999 2000 2001 2002
Average annual percent change from previous year shown
All items … 2.7 7.8 4.7 3.1 2.3 3.4 2.8 1.6
All items excluding medical care … 2.6 7.8 4.5 2.9 2.2 3.3 2.7 1.4
All services … 3.8 8.3 6.0 3.9 2.9 3.4 4.1 3.1
Food … 2.7 8.3 4.3 2.3 2.5 2.3 3.2 1.8
Apparel … 2.6 4.4 3.2 1.2 −0.1 −1.3 −1.8 −2.6
Housing … - - - 8.3 4.7 2.9 2.5 3.5 4.0 2.2
Energy … 1.3 12.9 1.7 0.6 0.3 16.9 3.8 −5.9
Medical care … 4.3 8.2 8.1 6.3 3.3 4.1 4.6 4.7
Components of medical care
Medical care services … 5.2 8.8 8.1 6.6 3.3 4.3 4.8 5.1
Professional services … - - - 7.7 7.2 5.2 3.3 3.7 3.7 3.0
Physicians' services … 4.6 8.3 7.7 5.4 3.1 3.7 3.6 2.8
Dental services … 3.8 7.2 7.0 5.8 4.6 4.6 4.1 4.5
Eye glasses and eye care1 … - - - - - - - - - 3.2 1.5 2.9 3.2 0.6
Services by other medical professionals1 … - - - - - - - - - 3.7 2.5 2.0 3.3 2.7
Hospital and related services … - - - - - - 9.9 7.7 3.8 5.9 6.6 8.7
Hospital services2 … - - - - - - - - - - - - - - - 6.0 6.6 9.0
Inpatient hospital services2 … - - - - - - - - - - - - - - - 5.5 6.3 8.4
Outpatient hospital services1 … - - - - - - - - - 8.1 4.7 7.2 6.6 10.2
Hospital rooms … 9.8 11.2 9.9 7.4 - - - - - - - - - - - -
Other inpatient services1 … - - - - - - - - - 7.7 - - - - - - - - - - - -
Nursing homes and adult day care … - - - - - - - - - - - - - - - 4.8 4.1 5.0
Medical care commodities … −0.1 5.0 8.0 4.6 3.1 3.2 4.0 3.6
Prescription drugs and medical supplies … −1.3 4.3 9.6 5.3 3.9 4.4 5.4 5.2
Nonprescription drugs and medical supplies1 … - - - - - - - - - 3.1 1.4 0.7 0.7 −0.1
Internal and respiratory over-the-counter drugs … - - - 5.9 6.9 2.7 1.3 0.6 1.1 −0.1
Nonprescription medical equipment and supplies … - - - - - - 5.7 3.8 1.5 0.8 0.1 −0.4
- - - Data not available.
… Category not applicable.
1December 1986 100.
2December 1996 100.
Note: 1982–84 100, except where noted.
SOURCE: "Table 113. Consumer Price Index and Average Annual Percent Change for All Items, Selected Items, and Medical Care Components: United States, Selected Years 1960–2002," in Health, United States, 2003, Centers for Disease Control and Prevention, National Center for Health Statistics, National Vital Statistics System, Hyattsville, MD, 2003

of beneficiaries) enrolled in 1999. Enrollees who were dropped were able to return to traditional Medicare fee-for-service coverage or join other Medicare HMO plans.

In early 2004 President George W. Bush increased Medicare payments to HMOs and other private health plans by 10.6 percent to try to persuade them to enter or re-enter the Medicare market and increase benefits for the elderly. This increase was approximately five times as large as the typical annual increase, and the government hoped that the influx of money would reverse the trend of HMOs leaving the Medicare program. The goal of the Bush administration was to triple enrollment in private plans within three years.

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 2000, while persons age 65 and over made up only 8.7 percent of all Medicaid recipients, they received more than one-fourth (26.4 percent) of all Medicaid benefits. The average payment was $11,929 per older adult, compared with $10,559 for the blind and disabled, $2,030 for adults in families with dependent children, and $1,358 for children under the age of 21 years. (See Table 9.4.)

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