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53Public
Finance
and
Public
PolicyCoJpoynraitghatn©G2ru0b10erWoFritfhtPhuEbdlitsihoenrsCopyright
©
2016
Worth
Publishers16Heather
Luea
and
Dan
SacksThe
Medicaid
Program
for
Low-Income
FamiliesWhatAre
the
Benefits
of
the
Medicaid
Program?The
Medicare
ProgramWhat
Are
the
Effects
of
the
Medicare
Program?Long-Term
CareHealth
Care
Reform
in
the
United
StatesConclusionP
R
E
P
A
R
E
D
B
YHealth
Insurance
II:
Medicare,Medicaid,
andHealth
Care
ReformPublic
Finance
and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
53C
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and
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Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316Introduction:
The
Patient
Protection
and
AffordableCare
ActFundamental
reform
of
the
U.S.
health
care
system
hasbeen
a
constant
source
of
political
debate
for
much
ofthe
past
century.
In
2010,
President
Barack
Obamasigned
into
law
a
sweeping
overhaul
of
the
U.S.
healthcare
system.C
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Finance
and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316Introduction:
The
Patient
Protection
and
AffordableCare
ActThe
Patient
Protection
and
Affordable
Care
Act
(ACA)makes
five
fundamental
changes
to
the
U.S.
health
caresystem.
It
bans
insurers
from
denying
coverage
because
ofpre-existing
conditions.
It
bans
insurers
from
charging
different
prices
todifferent
people
based
on
their
health.
It
mandates
all
U.S.
residents
be
covered
by
healthinsurance.
It
requires
the
federal
government
extensivelysubsidize
health
insurance
coverage
for
the
poor.It
takes
a
variety
of
actions
to
lower
health
care
costC
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Finance
and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316Introduction:
The
Patient
Protection
and
AffordableCare
ActThis
legislation
was
highly
controversial
and
passedthrough
Congress
with
a
very
slim
margin
in
a
strictlypartisan
vote
(no
Republicans
voted
for
it).
The
right
worried
that
the
law
would
lead
to
restrictepatient
choice
and
a
bloated
government
bureaucracy.
Those
on
the
left
believed
that
this
proposalrepresented
a
retreat
from
the
government-runsingle-payer
system
that
might
more
efficientlyexpand
coverage
and
control
costs.C
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Finance
and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
53that
provides
health
insurance
to
all
elderly
over
age65
and
disabled
persons
under
age
65.
Medicaid:
Federal
and
state
program,
funded
bygeneral
tax
revenues,
that
provides
health
care
forpoor
families,
elderly,
and
disabled.16Health
Insurance,
II:
Medicare,
Medicaid,andHealthCare
ReformThis
chapter
focus
on
Medicare,
Medicaid,
and
healthcare
reform.Medicare:
Federal
program,
funded
by
a
payroll
tax,C
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F
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Finance
and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316.1The
Medicaid
Program
for
Low-Income
FamiliesMedicaid:
Federally
mandated,
state
administered.Serves
low-income
families,
with
different
incomethresholds
in
different
states.
Children’s
Health
Insurance
Program
(CHIP):Program
introduced
in
1997
to
expand
eligibility
ochildren
for
public
health
insurance
beyond
theexisting
limits
of
the
Medicaid
program,
generallyup
to
200%
of
the
poverty
line.
Generous
coverage:
Little
cost
sharing,
lowpremiums.C
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Finance
and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
53National
eligibility
rules:Everyone
18
or
younger,
up
to
100%
of
the poverty
line.Children
under
age
6,
pregnant
women,
133%
of the
poverty
line.
In
most
states,
eligibility
extends
further
for
bothchildren
and
pregnant
women:
A
typical
state
coversboth
groups
up
to
200%
of
the
poverty
line.
There
was
a
massive
expansion
of
the
Medicaid
program
put
in
place
by
the
ACA,
which
extendedeligibility
to
all
families,
regardless
of
family
strbelow
138%
of
the
federal
poverty
line.16.1Who
Is
Eligible
for
Medicaid?C
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Finance
and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316.1The
Medicaid
Program
for
Low-Income
FamiliesWhat
Health
Services
Does
Medicaid
Cover?Required
to
cover
physician
and
hospital
care.States
also
cover
dental
and
prescription
drugs.How
Do
Providers
Get
Paid?Payment
set
by
states.In
most
states,
Medicaid
reimbursement
is
low.Many
physicians
refuse
to
see
Medicaid
patients.C
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Finance
and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316.2Does
Medicaid
Improve
Health?
Medicaid
intended
to
provide
insurance
coverage
tolow-income
people,
thereby
improving
their
health.How
might
Medicaid
affect
health?Medicaid
leads
to
increased
insurance
coverage……Leading
to
lower
prices
increases
access
to
care…Leading
to
more
utilization
of
health
care……Leading
to
better
health……At
potentially
low
cost
if
it
increases
preventi care.C
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F
O
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M16.2Does
Medicaid
Improve
Health?Public
Finance
and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
53C
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and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316.2How
Does
Medicaid
Affect
Health?
EvidenceDoes
Medicaid
Increase
Insurance?
Take-Up1982−2000:Hugeincrease
in
program
eligibility.Only
10−25%
of
newly
eligible
people
actually signed
up.Crowd-OutMany
newly
eligible
people
did
not
sign
up because
they
already
had
health
insurance.But
many
may
have
dropped
their
private coverage
to
obtain
more
generous
Medicaid coverage.Overall,
20−50%
crowd
out.C
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and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316.2How
Does
Medicaid
Affect
Health?
EvidenceHealth
Care
Utilization
and
Healtho
Medicaid
still
substantially
reduces
the
number
ofuninsured,
so
expansions
may
affect
the
utilizatioof
health
care
services.o
Medicaid
eligibility
increases
preventive
care
anreduces
infant
mortality.
Oregon
lottery
studyconfirms
that
Medicaid
improves
health
overall.C
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Finance
and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316.2How
Does
Medicaid
Affect
Health?
EvidenceCost-Effectivenesso
It
cost
Medicaid
roughly
$1
million
per
infant
lifesaved
through
its
expansions.
This
is
much
lowerthan
the
cost
of
many
alternative
governmentinterventions
designed
to
save
lives,
such
as
foodregulation
or
seat-belt
safety.o
This
finding
suggests
that
investing
in
low-income
health
care
may
be
a
cost-effectivemeans
of
improving
health
in
the
UnitedStates.C
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and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316.2EVIDENCE:
Using
State
Medicaid
Expansions
toEstimate
Program
Effects
State
Medicaid
expansions
between
1982
and
2000are
a
natural
experiment
for
Medicaid’s
impact
onhealth.
Medicaid
eligibility
rose
much
faster
in
Missouri
thain
Michigan.o
State-specific
trends
might
bias
the
comparisonbetween
Michigan
and
Missouri.
Eligibility
for
13-year-olds
in
D.C.
rose
much
fasterfor
newborns.C
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M16.2EVIDENCE:
Using
State
Medicaid
Expansions
toEstimate
Program
EffectsEligibility
for
All
Children,
by
StatePublic
Finance
and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
53YearMissouri
EligibilityMichigan
Eligibility198212%20%200076%34%Eligibility
for
Children
by
Age
in
Washington,
D.C.YearAge
13Age
0198218%48%200059%56%C
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Finance
and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316.3How
Medicare
WorksMedicare:
Largest
public
health
insurance
program
in
the
UnitedStates.Administered
at
the
federal
level.
All
U.S.
citizens
who
have
worked
and
paid
payrolltaxes
for
ten
years,
and
their
spouses,
are
eligible.
Ineligible
citizens
can
purchase
Medicare
coverage
aits
full
cost.C
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Finance
and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316.3Medicare
Is
Really
Three
Different
Programs
Medicare
Part
A:
Part
of
the
Medicare
program
thatcovers
inpatient
hospital
costs
and
some
costs
of
longterm
care;
financed
from
a
payroll
tax.
Medicare
Part
B:
Part
of
the
Medicare
program
thatcovers
physician
expenditures,
outpatient
hospitalexpenditures,
and
other
services;
financed
fromenrollee
premiums
and
general
revenues.
Medicare
Part
D:
Part
of
the
Medicare
program
thatcovers
prescription
drug
expenditures.(There
is
no
Part
C
to
consider
in
this
discussion.)C
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and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316.3Medicare
Has
High
Patient
Costs
Relative
to
private
health
insurance,
the
Medicareprogram
has
fairly
high
copayments
and
deductiblesand
a
relatively
lean
benefits
package.
This
greatly
lowers
the
consumption-smoothing
valueof
Medicare
since
there
is
still
some
risk
of
very
highmedical
expenditures
if
you
are
ill.
This
is
not
as
big
a
concern
relative
to
Medicaid,
athe
Medicare
program
assists
all
elderly,
both
ricand
poor.C
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and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316.3Comparing
Medicaid
and
MedicareEligibility:Medicaid:
Families
on
welfare,
low-income children,
pregnant
women,
elderly,
disabled.Medicare:
Retirees
and
spouses
65+,
certain disabled
people,
people
with
kidney
failure.Premiums:Medicaid:
None.Medicare:
Physician
coverage
$100/month, variable
premiums
for
prescription
drug
coverage.C
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A
P
T
E
R
1
6
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H
E
A
L
T
HI
N
S
U
R
A
N
C
EI
I
:
M
E
D
I
C
A
R
E
,
M
E
D
I
C
A
I
D
,
A
N
D
H
E
A
L
T
H
C
A
R
E
R
E
F
O
R
MPublic
Finance
and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316.3Comparing
Medicaid
andMedicareDeductibles/copayments:Medicaid:
None
(or
very
small).Medicare:
Hospitals:
$1,260
deductible,
physician$147
deductible
and
20%
copay,
and
cost-sharingfor
drugs.Services
excluded:Medicaid:
None
(or
very
minor).Medicare:
Prescription
drugs
(until
2006),
routin checkups
(until
2010),
dental
care,
nursing
home care,
eyeglasses,
hearing
aids,
immunization
shotC
H
A
P
T
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1
6
■
H
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A
L
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H
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S
U
R
A
N
C
E
I
I
:
M
E
D
I
C
A
R
E
,
M
E
D
I
C
A
I
D
,
A
N
D
H
E
A
L
T
H
C
A
R
E
R
E
F
O
R
MPublic
Finance
and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316.3APPLICATION:
The
Medicare
Prescription
DrugDebate
In
1965,
Medicare
covered
hospital
and
doctor
costs,but
it
excluded
coverage
for
prescription
drugs.Drugs
not
very
important
in
1965.Today
they
are
used
to
treat
many
common conditions.
Democrats
wanted
government-provided
druginsurance
to
negotiate
prices
with
drug
companies.
Republicans
wanted
to
subsidize
private
druginsurance,
to
avoid
adverse
selection.
President
Bushsigned
into
law
a
bill
that
followed
this
approach.C
H
A
P
T
E
R
1
6
■
H
E
A
L
T
H
I
N
S
U
R
A
N
C
E
I
I
:
M
E
D
I
C
A
R
E
,
M
E
D
I
C
A
I
D
,
A
N
D
H
E
A
L
T
H
C
A
R
E
R
E
F
O
R
MPublic
Finance
and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316.3APPLICATION:
The
Medicare
Prescription
DrugDebateFor
basic
Part
D
plans,
individuals
receive
coverageNone
of
the
first
$250
in
drug
costs
each
year.
75%
of
costs
for
the
next
$2,250
of
drug
spending(up
to
$2,500
total).
0%
of
costs
for
the
next
$3,600
of
drug
spending(up
to
$5,100
total).95%
of
costs
above
$5,100
of
drug
spending.
Poor
insurance
design
intended
to
garner
politicalsupport.
May
have
adverse
effects
on
utilization.C
H
A
P
T
E
R
1
6
■
H
E
A
L
T
H
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S
U
R
A
N
C
E
I
I
:
M
E
D
I
C
A
R
E
,
M
E
D
I
C
A
I
D
,
A
N
D
H
E
A
L
T
H
C
A
R
E
R
E
F
O
R
MPublic
Finance
and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316.4What
Are
the
Effects
of
the
Medicare
Program?
Despite
broad
support,
there
is
surprisingly
littleevidence
that
the
Medicare
program
actuallyimproves
the
health
of
the
elderly.
Medicare
provides
valuable
risk
protection:Consumption-smoothing
alone
worth
half
the
cost.
Prospective
Payment
System
(PPS):
Medicare’ssystem
for
reimbursing
hospitals
based
on
nationallystandardized
payments
for
specific
diagnoses.C
H
A
P
T
E
R
1
6
■
H
E
A
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T
H
I
N
S
U
R
A
N
C
E
I
I
:
M
E
D
I
C
A
R
E
,
M
E
D
I
C
A
I
D
,
A
N
D
H
E
A
L
T
H
C
A
R
E
R
E
F
O
R
MPublic
Finance
and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316.4What
Are
the
Effects
of
the
Medicare
Program?
In
1983,
Medicare
switched
from
retrospective
toprospective
payment
system.
Prospective
Payment
System
(PPS):
Medicare’ssystem
for
reimbursing
hospitals
based
on
nationallystandardized
payments
for
specific
diagnoses.Diagnoses
for
hospital
admissions
grouped
into 467
“Diagnosis
Related
Groups,”
or
DRGs.Each
DRG
receives
a
fixed
payment,
depending
on cost
of
national
cost
of
treatment
and
local expenses.C
H
A
P
T
E
R
1
6
■
H
E
A
L
T
H
I
N
S
U
R
A
N
C
E
I
I
:
M
E
D
I
C
A
R
E
,
M
E
D
I
C
A
I
D
,
A
N
D
H
E
A
L
T
H
C
A
R
E
R
E
F
O
R
MPublic
Finance
and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316.4Empirical
Evidence
on
the
Move
to
the
PPSProspective
payment
reduced
utilization:
Average
length
of
a
hospital
stay
for
elderly
patientfell
from
9.7
days
to
8.4
days
in
just
one
year.
Hospital
costs
under
Medicare
grew
at
only
3.0%
peryear
from
1983
to
1988,
after
growing
at
9.6%
peryear
from
1967
to
1982.Health
did
not
suffer.But
health
care
costs
soon
resumed
their
rapid
rise.C
H
A
P
T
E
R
1
6
■
H
E
A
L
T
H
I
N
S
U
R
A
N
C
E
I
I
:
M
E
D
I
C
A
R
E
,
M
E
D
I
C
A
I
D
,
A
N
D
H
E
A
L
T
H
C
A
R
E
R
E
F
O
R
MPublic
Finance
and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316.4Problems
with
PPSWhy
didn’t
the
PPS
solve
the
long-run
cost
growthproblems
of
the
Medicare
program?
Medicare
was
paying
a
fixed
price
per
diagnosis,
butthe
choice
of
a
diagnosis
is
something
the
hospital
hasome
control
over
when
patients
are
admitted.There
was
a
large
increase
in
reported
severity
ofadmission
diagnoses
for
the
elderly
around
the
time
ofPPS!
Almost
half
of
the
DRG
designations
are
based
notpurely
on
diagnosis
but
also
on
the
actual
treatmentused
for
the
patient.
It
reimburses
hospitals
per
admission,
providingincentive
to
raise
hospital
admissions.C
H
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6
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A
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T
H
I
N
S
U
R
A
N
C
E
I
I
:
M
E
D
I
C
A
R
E
,
M
E
D
I
C
A
I
D
,
A
N
D
H
E
A
L
T
H
C
A
R
E
R
E
F
O
R
MPublic
Finance
and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316.4Evidence:
Short
Stays
in
Long-Term
Care
Hospitals
An
unintended
effect
of
moving
to
PPS
for
hospitalswas
a
shift
toward
more
use
of
other
types
of
facilitiethat
were
exempt
from
this
system.
Long-term
care
hospitals
have
become
the
fastestgrowing
and
highest-paid
providers
of
post-acute
care[care
delivered
after
hospitalization]
in
the
Medicarprogram.
Part
of
this
growth
was
fueled
by
the
implementationof
PPS,
which
exempted
these
types
of
providers,creating
incentives
for
acute-care
hospitals
todischarge
patients
quickly
to
these
fee-for-servicehospitals.C
H
A
P
T
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1
6
■
H
E
A
L
T
H
I
N
S
U
R
A
N
C
E
I
I
:
M
E
D
I
C
A
R
E
,
M
E
D
I
C
A
I
D
,
A
N
D
H
E
A
L
T
H
C
A
R
E
R
E
F
O
R
MPublic
Finance
and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316.4Evidence:
Short
Stays
in
Long-Term
Care
Hospitals
To
remedy
this
situation,
in
October
2002
thegovernment
introduced
a
PPS
system
for
long-termcare
hospitals
that
was
to
be
phased
in
over
severalyears.
To
discourage
the
transfer
of
short-stay
patients
tothese
facilities,
the
system
included
a
reduction
inpayments
for
patients
discharged
before
a
thresholdlength
of
stay
(that
varied
by
condition).
Thisreduction
was
sizeable.C
H
A
P
T
E
R
1
6
■
H
E
A
L
T
H
I
N
S
U
R
A
N
C
E
I
I
:
M
E
D
I
C
A
R
E
,
M
E
D
I
C
A
I
D
,
A
N
D
H
E
A
L
T
H
C
A
R
E
R
E
F
O
R
MPublic
Finance
and
Public
Policy
Jonathan
Gruber
Fifth
Edition
Copyright
©
2016
Worth
Publishersof
5316.4Evidence:
Short
Stays
in
Long-Term
Care
Hospitals
The
question
addressed
by
a
2015
study
by
Kim
et
al,is
whether
long-term
care
facilities
responded
to
thiincentive
by
keeping
patients
beyond
the
29
daythreshold.
In
particular,
if
hospitals
are
responding
to
thisfinancial
incentive,
we
should
expect
to
see
increasedischarges
right
after
the
threshold,when
patientsqualify
for
the
higher
payments.C
H
A
P
T
E
R
1
6
■
H
E
A
L
T
H
I
N
S
U
R
A
N
C
E
I
I
:
M
E
D
I
C
A
R
E
,
M
E
D
I
C
A
I
D
,
A
N
D
H
E
A
L
T
H
C
A
R
E
R
E
F
O
R
M16.4Before
the
policy
change,
2%
of
patients
were
discharged
at
29
days.After
the
policy
change,
the
share
almost
tripled.
Clearly,
this
chanin
reimbursement
policy
influenced
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