Supplementary Medical Insurance

The second part is a voluntary insurance program for persons age sixty-five and older. Monthly premiums were $46. 10 in 1995, and general tax revenues finance expenses not covered by premiums (about 75 percent as present). The cost of the insurance is so low that 98 percent of the elderly elect to buy coverage. Part B covers physicians’ services, outpatient hospital services, and other medical services. After the yearly deductible of $100 is met, Medicare pays 80 percent of allowed charges (the maximum fees that the government specifies) for covered services.

Physician who accept Medicare fees and bill the program directly receive more rapid payment, and patients are responsible only for the 20 percent coinsurance. Physicians not accepting assignment may charge higher fees, but no more than 115 percent of the Medicare-approved fees, and they must collect directly from patients, who the claim Medicare reimbursement themselves. (Relman). Many of the elderly choose to purchase private health insurance to cover those parts of their care not covered by Medicare Part A or B. These are referred to as “medigap” policies.

Coverage and rules for such policies are regulated by federal law. Elderly persons whose income makes them eligible for Medicaid are automatically covered by Medicare in most states, which have elected to “buy in” to the program by paying the recipient’s premiums, deductibles, and coinsurance (Callahan). Medicare costs The costs of Medicare have far exceed original estimates and have been prime contributors to health cost inflation. Medicare costs were $143 billion in 1993 and were expected to hit $175 billion by 1995.

The reasons for this growth are clear: Inflation in hospital costs and physician’s fees, paid by Medicare, have already been discussed. Other increases came when the disabled and chronic renal disease patients were added in 1974. Moreover, because the proportion of the elderly is growing and they are living longer the increase in beneficiaries and the years they are covered contribute substantially to cost increase (Callahan). Because of the problem of rapidly growing Medicare costs, a series of actions was taken in the 1980s to change the way hospitals and physicians are reimbursed.

These policy changes have slowed the rate of growth, but not its overall tendency. Medicare first replaced its system of reimbursements to hospitals with a system of prospective payments. Then, in 1984, Congress further curtailed Medicare costs by imposing a series of freezes on Medicare fees charged by doctors and by increasing the monthly premiums for Part B, the voluntary medical insurance part of the program. Finally, it mandated a new system of physician reimbursement (Starr). Prospective payment The most significant of these changes is the prospective payment system.

Instead reimbursing hospital for their claimed “reasonable costs” for patient care, as in the past, the new system is based on a fixed scale for treating 468 different conditions (Diagnosis Related Groups, or DRGs) the hospitals have incentives for cutting costs and making sure that only necessary service are given to patients, for if their costs are higher than the set fee for their treatments, they must still accept the DRG-established fee as payment in full and may not charge the patient the difference.

On the other hand, if their costs are below the established fee, they are allowed to keep the difference. (Relman). Early result form the Medicare charges show the Part A expenses, which had risen 10 percent annually from 1973 to 1982, rose more slowly in the late 1980s. the Hospital Insurance Trust Fund, which had been expected to be bankrupt by the late 1980s or early 1990s, is now safe until approximately 2002. Medicare hospital admissions declined 1. 7 percent from 1983 to 1984, and the average patient’s length of stay dropped from 9. 5 days to 7. 5 days.

These results hold down rising costs. Whether they adversely affect patient care and health, as critics charge, is difficult to determined. One unintended consequence of these changes has been that hospitals have now moved may procedures from an in-patient to an out-patient basis and have developed satellite clinics to perform many procedure formerly covered in the hospital. This change is a partly a reflection of new technology, but also a response to the fact that out-patient procedures are less subject to the DRG system than in-patient procedures. (Anders & Hulse).

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