3.3 Public Health Insurance & Systems
Sections:
3.3.1 Medicare Federal Insurance Program
Medicare was established in 1965 as Title XVIII of the Social Security Act (Center for Medicare and Medicaid Services [CMS], 2021). It was legislated as a complement to Social Security retirement, survivors, and disability benefits. It originally covered people aged 65 and over, but in 1972 the program expanded to cover certain people with disabilities and people with end-stage renal disease (ESRD) under 65 years of age. In 2001, legislation was passed to add amyotrophic lateral sclerosis (ALS), also known as Lou Gehrig’s Disease, as a qualifying condition for Medicare coverage. People under age 65 who receive Social Security Disability Insurance (SSDI) payments generally become eligible for Medicare after a two-year waiting period, while those diagnosed with end-stage renal disease (ESRD) and amyotrophic lateral sclerosis (ALS) become eligible for Medicare with no waiting period.
The Medicare program was further expanded in 2003 with the Medicare Prescription Drug, Improvement, and Modernization Act, which included a prescription drug benefit for all Americans with Medicare beginning January 1, 2006 (CMS, 2021). Medicare routinely processes over one billion fee-for-service (FFS) claims annually, accounting for approximately 11% of the federal budget. Since 1966, Medicare enrollment has increased from 19 million to 63 million individuals (CMS, 2022a). In summary, the Medicare program provides health insurance coverage to nearly all Americans aged 65 and older, disabled Americans under 65 who have received federal disability payments for two or more years, as well as people with ESRD and ALS under 65 years of age (CMS, 2021). The following Medicare timeline provides an overview of changes that have shaped the Medicare program over the past five decades.
Review timeline (Kaiser Family Foundation, 2015): Medicare Timeline
I. Breadth of Coverage
Medicare is a combination of the following four programs:
- Hospital Insurance (Part A)
- Supplementary Medical Insurance (Part B)
- Medicare Advantage (Part C)
- Medicare Prescription Drug Benefit (Part D).
Part A – Hospital insurance
Medicare Part A is hospital coverage that all Medicare recipients receive at no cost. It was initially developed based on the 1960 Blue Cross plan. Part A includes hospital care and some post-acute nursing home, home health, and hospice care. Over time, Part A expanded to include not only the aged but also individuals certified as disabled and people with end-stage renal disease. In addition, individuals and their spouses aged 65 and older who worked for at least ten years, during which time they contributed federal payroll taxes that supported both Social Security (the United States statutory retirement pension system) and Medicare, are entitled to Part A coverage.
Initially, Part A was paid on a cost-plus fee-for-service basis with minimal oversight. Hospitals found this a rich source of income and quickly embraced Medicare as a payment mechanism. This rich payment method and rapid adoption by hospitals fueled a rapid rise in medical inflation that a number of administrative and legislative actions has unsuccessfully addressed. Two of the most significant cost-control actions have been the implementation of prospective (rather than retrospective) payment systems known as Diagnostic-Related Groups (DRGs) and Ambulatory Payment Classification (APC). The development of DRG and APC codes was based upon an extensive examination of normal time and payment for diagnoses in the inpatient (DRGs) and outpatient (APC) arenas. Current Procedural Terminology (CPT) codes followed a similar developmental course focused on medical and surgical procedures. Lastly, ICD stands for the International Classification of Disease. The ICD provides a method of classifying diseases, injuries, and causes of death. The World Health Organization (WHO) publishes the ICDs to standardize the methods of recording and tracking instances of diagnosed disease all over the world, making it possible to conduct research on diseases, their causes, and their treatments (National Cancer Institute, 2018).
According to H1 (2023):
DRG, ICD, and CPT are all codes used with Medicare and insurers, but they communicate different things. ICD codes are used to explain the diagnosis, and CPT codes describe procedures that the healthcare provider performs. Both diagnosis (i.e., ICD codes) and procedure (i.e., CPT codes) are used to determine DRG. The DRG determines the single payment the hospital will receive for treating the patient — not for each syringe, swab, X-ray image, room supply, or pill, but one cost that covers the entire care episode. If a patient could be classified according to two DRGs, the hospital will receive the higher reimbursement amount.
The significant evolution since the onset of Medicare started with payment for services plus capital costs, then shifted to payment for services based on diagnosis, and has now moved to payment for service outcomes. The Patient Protection and Affordable Care Act (ACA), passed in 2010, “was designed to improve healthcare quality and patient experience by leveraging financial carrots and sticks to encourage hospitals to follow established best clinical practices and improve patient satisfaction scores through the development of several Pay for Performance (P4P) programs” (NEJM Catalyst, 2018). In 2012, these P4P programs began reimbursing hospitals based on the quality of health care they deliver (i.e., payment for service outcomes), rather than the quantity of services delivered (James, 2012). Medicare generally pays about 60% of the charges. While this is a higher payment than Medicaid, it is still a low payment that places a significant financial strain on hospitals and health systems.
Part B – Supplementary medical insurance
Medicare Part B is a voluntary program with the same eligibility requirements as Part A. However, this coverage is optional for Medicare recipients and comes with a small fee that is automatically deducted from the recipient’s Social Security check. Also known as Supplementary Medical Insurance (SMI), this program is voluntary and available to nearly all people aged 65 and over, people with disabilities, and people with ESRD. Medicare Part B (i.e., SMI) helps cover doctors’ services and outpatient care. The SMI program pays for physician care, outpatient hospital services, some home healthcare, laboratory tests, durable medical equipment, designated therapy, some outpatient prescription drugs, and other services not covered by Part A, such as some of the services of physical and occupational therapists. SMI helps pay for these covered services and supplies when they are medically necessary (CMS, 2021).
Part C – Medicare advantage
The Balanced Budget Act of 1997 established the Medicare+Choice program, now known as Part C or the Medicare Advantage Program, to provide more healthcare coverage choices for individuals with Medicare (CMS, 2021). Therefore, Part C is an alternative to Parts A and B. Enrollment is voluntary. It provides coverage for the same services and, at the discretion of the organization offering coverage, sometimes additional benefits such as vision, hearing, and/or dental care. One of the main differences between Part C and Parts A and B (which are sometimes called ‘traditional Medicare’) is that Part C coverage is offered through private organizations such as health maintenance organizations, rather than through a public insurer (i.e., Medicare).
When a beneficiary receives a service under Part A or B, the Medicare program pays the provider directly for services, though payments are processed through private organizations called Medicare Administrative Contractors (MACs). In contrast, under Part C, Medicare pays the Medicare Advantage plan a fixed amount per month for each enrollee based on the characteristics (e.g., demographics, medical diagnoses) of the particular enrollees in the plan. Those who are eligible because of age (65 or older) or disability may choose to join a Medicare Advantage (MA) plan servicing their area if they are entitled to Part A and enrolled in Part B. Those who are eligible for Medicare because of ESRD could join a MA plan beginning January 1, 2021. Many MA plans offer additional services such as prescription drugs, vision, and dental benefits. MA plans may also cover some or all of an enrollee’s out-of-pocket costs. MA plans assume full financial risk for care provided to their Medicare enrollees (CMS, 2021).
Part D – Prescription drug benefit
Part D prescription drug coverage began in 2006 and is also voluntary. Prior to that, Medicare did not provide coverage for prescription drugs received outside the hospital. Similar to Part C, Part D benefits are provided through private organizations such as private insurers, health maintenance organizations, or preferred provider organizations. In 2018, there were approximately two dozen choices among Part D plans in each state. Like Part C, premiums and benefits vary by plan, with competition occurring based not only on premium differences but also on differences in benefits. In particular, drugs included a plan’s formulary are listed as ‘preferred’ drugs and are subject to lower or zero patient co-payments.
Review issue brief (Kaiser Family Foundation [KFF], 2019b): An Overview Of Medicare
II. Scope of Coverage
In general, Medicare covers most medically necessary services as determined by providers. Unlike many private health insurance plans, pre-authorization is not required for hospitalizations. With the onset of coverage of outpatient prescription drugs in 2006 and the gradual increase in coverage for preventive services in recent years, the main services not covered are extended long-term care and dental care. There are a few other explicit exclusions: cosmetic surgery, acupuncture, hearing aids, and glasses, except in limited circumstances. Some of these services, however, are covered under selected Medicare Advantage plans.
The largest of these excluded services is extended long-term care. Precisely which services are covered by Medicare is rather complex because the program does include some coverage for nursing home and home healthcare. This coverage, however, is aimed at acute-care illnesses needing skilled care (e.g., rehabilitation). Skilled care must be deemed medically necessary by a physician; custodial care is not covered. Moreover, nursing home care can only be covered by Medicare if it follows an inpatient hospital stay of at least three days and coverage is provided for a maximum of 100 consecutive days.
Definition: Custodial care is non-medical care that can be safely provided by non-licensed caregivers. It can take place at home or in a nursing home and involves help with daily activities like bathing and dressing. In some cases where care is received at home, care can also include help with household duties such as cooking and laundry. It may be covered by Medicaid if care is provided in a nursing home setting and not at home (CMS, n.d.-b).
Medicare is not involved in determining whether a particular service to a specific beneficiary is covered. Rather, these decisions are generally made by private organizations that contract with Medicare. This process is a result of a compromise between legislators and providers to assuage provider concerns about the government making coverage decisions, dating back to the mid-1960s when the Medicare legislation was being debated in Congress. Under Parts A and B, Medicare contracts with Medicare Administrative Contractors (MACs). Coverage decisions are made directly by the private health plan under Parts C and D. The Medicare program has a formal appeals process when disputes occur.
Review infographic (CMS, 2022a): Medicare Beneficiaries at a Glance: Who’s Covered by Medicare – 2020
Review infographic (CMS, n.d.-b): Custodial Care Vs. Skilled Care
3.3.2 Medicaid & CHIP Joint Insurance Programs
I. Medicaid
Enacted in 1965 as Title XIX of the Social Security Act, Medicaid is administered by CMS in partnership with the states (CMS, 2021). Although the federal government establishes certain parameters for all states to follow, each state administers its Medicaid program differently, resulting in variations in Medicaid coverage across the country. States have flexibility in determining Medicaid benefit packages within federal guidelines; however, states are required to cover certain mandatory benefits. In addition, states have additional options for coverage and may choose to cover other groups, such as individuals receiving home and community-based services (HCBS) and children in state-funded foster care. States and the federal government jointly fund the Medicaid program. CMS provides matching payments to the states and territories for Medicaid program expenditures and related administrative costs. Medicaid provides access to comprehensive health coverage that may not be affordable otherwise for millions of Americans, including eligible low-income adults, children, pregnant women, elderly adults, and people with disabilities. Medicaid is the primary source of healthcare for more than 83 million individuals. Over 10 million people are dually eligible for both Medicare and Medicaid (CMS, 2021).
Review fact sheet (CMS, 2020a): Dually Eligible Individuals
The main population groups covered by Medicaid are:
- low-income children
- low-income pregnant women
- low-income disabled persons
- low-income senior citizens
- low-income parents of dependent children.
Medicaid is a federal / state cooperative agreement, with the state needing to vote into law the agreement to provide Medicaid for its residents. States agreeing to provide Medicaid for their residents agree to administer the program and provide a minimum set of healthcare services based upon income eligibility (less than 133% of the federal poverty level with expanded Medicaid, less than 100% in states that did not expand Medicaid) and demographic characteristics such as female, pregnant female, child, disabled, and poor older adult. The federal government provides a sliding scale level of support for the program ranging from 50% – 78% based on the state per capita income, with states with the lowest per capita income getting the highest matching level. Providers are often reluctant to take patients on Medicaid due to the low payment rate of approximately 40% of billed charges. To control administrative costs, most states moved their Medicaid populations to Medicaid Managed Care contracts during the 1990s (Medicaid.gov, n.d.-a).
The passage of the ACA in 2010 increased eligibility for Medicaid coverage to a variety of demographic groups, with the largest group being single men and the next group being older adults (KFF, 2023). As of 2023, “40 states (including DC) have adopted the Medicaid expansion, and 11 states have not adopted the expansion” (KFF, 2023). As often stated, to be eligible for Medicaid pre-ACA, a person had to be poor plus something (e.g., female, child, old, disabled); post-ACA, a person just had to be poor. According to Norris (2023):
States will never be responsible for more than 10% of the cost of expansion. The federal government paid the full cost of expansion for the first three years (2014 through 2016). The federal government’s portion gradually dropped to 90% by 2020. For perspective, under traditional Medicaid (i.e., the non-expansion Medicaid population), states can pay up to 50% of the cost.
For states that expand Medicaid, the federal funding they receive will always dwarf the amount that the state has to spend. And although states have to cover 10% of the cost of Medicaid expansion, their net spending can be much less than that — even negative in some cases
Medicaid provides healthcare payments for eligible recipients. The four largest healthcare expenditure categories are: hospitals, physicians and clinics, retail prescriptions, and long-term care. Long-term care (nursing homes) is a unique area of Medicaid expenditures where individuals requiring long-term care initially enter long-term care facilities under Medicare (e.g., for short-term skilled care), private insurance, or self-pay. Once an individual has exhausted these private funding options and only has minimal remaining personal assets (i.e., house, car, and minimal savings) and are therefore considered impoverished, they transition to Medicaid for the remainder of their long-term care stay.
II. Children’s Health Insurance Program
The Children’s Health Insurance Program (CHIP) was created through the Balanced Budget Act of 1997 and provides low-cost health coverage to children in families that earn too much money to qualify for Medicaid (Rudowitz et al., 2014). In some states, CHIP covers pregnant women. Household income eligibility for CHIP varies by state and ranges from 133% to 400% of the federal poverty level. To be eligible for this benefit program, applicants must live in the state in which they apply and meet all of the following criteria (Benefits.gov., n.d.; Medicaid.gov, n.d.-b):
- Either 18 years of age and under or a primary caregiver with a child(ren) 18 years of age and under, and
- A United States (U.S.) Citizen, National, or a Non-Citizen legally admitted into the U.S., and
- Uninsured (and ineligible for Medicaid).
Like Medicaid, CHIP is administered by the states but is jointly funded by the federal government and states. The Federal matching rate for state CHIP programs is typically about 15 percentage points higher than the Medicaid matching rate for that state (i.e., a State with a 50% Medicaid FMAP has an enhanced CHIP matching rate of 65%). Every state administers its own CHIP program with broad guidance from CMS. States have the flexibility to design their own CHIP program within federal guidelines, so benefits vary by state and by the type of program. States may choose between a Medicaid expansion program, a separate CHIP, or a combination of both programs. Regardless of the type of separate CHIP coverage a state elects, all states must provide well-baby and well-child care, dental coverage, behavioral healthcare, and vaccines (Benefits.gov, n.d.; Medicaid.gov, n.d.-b).
3.3.3 Public Health Systems
In addition to the Medicare, Medicaid, and CHIP public insurance programs, there are four public health systems that provide comprehensive health services to unique populations. These systems include the Indian Health Service, Military Health Service, Veterans Affairs Health Services, and the prison healthcare system.
As of 2021, the U.S. federal government provides health services for approximately 21.2 million Americans within unique populations, or 2.7% of the US population, through the Indian Health Service, Military Health Service, and Veterans Affairs Health Services (CMS, 2020b). These three services are generally provided through a comprehensive, integrated health system administered by the Department of Health and Human Services (Indian Health Services), Department of Defense (Military Health Services), and Department of Veterans Affairs (U.S. military veterans). These services provide complete medical, surgical, dental, vision, hearing, and mental health inpatient and outpatient services in facilities owned by the sponsoring agency through healthcare professionals employed by the same sponsoring agency. Even though these services are comprehensive, individuals covered under these services may be treated in the private sector when geographic or treatment barriers exist.
The final area of government provision of healthcare services is the prison healthcare system. Correctional health, provided by the prison healthcare system, encompasses all aspects of health and well-being for adults and juveniles who are justice syste from their arrest, during detention or incarceration, and through the time they return to their community (called reentry). Correctional health also includes the health of families and communities of persons who are justice system-involved and of the administrators and staff who work in facilities (Centers for Disease Control and Prevention, 2023).
I. Indian Health Service
The Indian Health Service (IHS) provides health services to American Indians and Alaskan Natives. It is a byproduct of the tribal governments to federal government relationships reaching back to the U.S. Constitution Article I, Section 8 (National Indian Health Board, 2015). The relationships between the tribal and federal governments are complex and, while constitutional, are also contractual and moral agreements with tribal governments due to land displacement through the early years of the United States. Comprehensive and integrated IHS healthcare services are provided through the Department of Health and Human Services (HHS), with the HHS acting as the owner of all facilities and employer of all personnel.
II. Military Health Service
The military provides healthcare services wherever military personnel are deployed. It is considered a moral obligation of society to care for the healthcare needs of those protecting and defending our country. These services can vary from medic-provided care in the field to complex medical or surgical care in state-of-the-art hospitals. It is unlikely that civilian healthcare professionals will interact with individuals in the military health system unless there is the need for an extremely rare medical or surgical intervention that cannot be provided within the system. TRICARE is an option of the military health system that provides healthcare services worldwide for uniformed service members, retirees, and service family members through a system that is very similar to the options available in the private insurance market. The Defense Health Agency manages TRICARE under the leadership of the Assistant Secretary of Defense (Health Affairs).
III. Veterans Affairs Healthcare System
The Veterans Affairs Healthcare System (VAHS) is a national system of clinics and hospitals that provides healthcare services for military veterans. The Department of Veterans Affairs administers the VAHS and, as with the military health system, is considered a moral obligation for the nation to provide for those who have served to protect and defend our country. As with the IHS and military healthcare systems, the VAHS is an integrated, comprehensive healthcare system that prefers to have its members receive services from VAHS facilities and providers. However, treatment may be authorized in more convenient private settings in recognition of patient geographic barriers or specialized treatment needs.
IV. Prison Healthcare System
Federal, state, and local governments have an obligation to care for the healthcare needs of inmates and do so through clinics and hospitals provided by the Department of Corrections. However, depending upon the severity of the healthcare condition and prison resources available, treatment may also be authorized through private facilities and providers. Inmates cared for in private settings are always accompanied by a guard to ensure the safety of the private facilities and providers delivering care.
