Health insurance and the elderly: data from MCBS - Medicare Current Beneficiary Survey

Health Care Financing Review, Spring, 1993 by George S. Chulis, Franklin J. Eppig, Mary O. Hogan, Daniel R. Waldo, Ross H. Arnett, III

INTRODUCTION

This article presents information on supplemental health insurance coverage and Medicare per capita spending levels for Medicare beneficiaries 65 years of age or over in 1991. The data are from the MCBs, a continuous panel survey of beneficiaries.(1) The data in this article were prepared from a public use data file that links survey data and Medicare administrative bill records. Although Medicare covers both elderly and disabled persons, this article focuses on the elderly.

There is considerable interest in proposals change Medicare in ways that can slow the growth in program spending. Possible changes to Medicare under consideration include proposals to increase beneficiary cost sharing, restructure Medicare benefits, change the program's financing arrangements, modify the structure of private insurance, or institute cost control programs directed at providers. In conjunction with Medicare, supplemental insurance affects the point-of-service price of care to the beneficiary and thereby influences the beneficiary's access to health services.(2) Supplemental insurance also influences the amount of money spent by the Medicare program, since it eliminates or lowers financial barriers to care. Because Medicare is not a closed insurance system, the distribution of supplementary insurance and measurements of the influence of additional insurance on Medicare expenditures are important in evaluating proposals to change Medicare.

We begin with an overview of Medicare. This is followed by a description of the types of supplemental insurance. Then we discuss the 1991 distribution of persons by insurance category from the MCBS. The following section examines past survey data to see the current distribution of supplemental insurance in historical context. We then examine the elderly population's insurance holdings by a number of demographic and health characteristics. The focus then shifts to Medicare spending per person. We examine differences in Medicare spending per person data by insurance category. The spending data is then examined holding health status constant across insurance categories. The article closes with policy implications.

BACKGROUND

The Design of Medicare

The Medicare program was created in 1965 to provide the elderly with improved access to acute health care services.(3) It includes inpatient hospital care, outpatient hospital care, physician care in and out if hospitals, and medical equipment and supplies. Medicare also covers some skilled nursing care, home health services, and hospice care, with a focus on short-term active treatment, not long-term care. Medicare has cost-sharing features including premiums, deductibles, coinsurance payments, and limits on benefits. (For further information see Health Care Financing Administration [1991].) In addition, Medicare does not have an aggregate cap or limit on out-of-pocket expenses for serious and/or long-term illnesses.

Medicare's cost-sharing features were designed to limit program spending. Deductibles and copayments reduce program costs directly, by requiring the beneficiary to pay a share of medical care costs, and indirectly, by establishing out-of-pocket prices that deter use of unnecessary or limited-value services.

Private and Public Supplemental Insurance Development

On average, Medicare covers about 45 percent of the personal health expenditures of the elderly (Waldo, Sonnefeld, McKusick et al., 1989). Over the years, a system of private and public health insurance has developed to cover Medicare cost sharing and non-covered services (Carroll and Arnett, 1979; Cafferata, 1984; Garfinkel and Corder, 1985; Monheit and Schur, 1989). While there are a wide variety of private insurance plans for sale, there are two primary types of private health insurance coverage: employer-sponsored retirement insurance and individually purchased medigap insurance policies (Morrisey, Jensen, and Henderlite, 1990; Rice and McCall, 1985). In addition, Medicare beneficiaries with incomes and assets below certain levels can be entitled to Medicaid benefits (McMillan et al., 1983).

Concern with Medicare Spending Increases

Medicare and the public and private supplemental insurance have greatly, improved access to health care services. This access has been maintained during a period when medical care prices and health spending in general have grown much faster than the rest of the economy. Medicare Hospital insurance Trust Fund expenditures nearly tripled from $25.5 billion in 1980 to $72.6 billion in 1991 (Board of trustees of the Federal Hospital Insurance Trust Fund, 1992). Spending from the! Medicare supplementary medical insurance (SMI) program more than quadrupled from $11.2 billion in 1980 to $48.8 billion in 1991 (Board of Trustees of the Supplementary Medical Insurance Fund, 1992). The large increases in spending growth for Medicare and Medicaid are threatening efforts to control the long-term Federal budget deficit (U.S. Congressional Budget Office, 1992).

Failure of Medicare Catastrophic Insurance Program