PART ONE

WHAT THE ELDERLY PAY FOR HEALTH CARE In fiscal year 1966, just before the advent of Medicare, the elderly of the United States accounted for approximately 21 percent of the $36.8 billion paid for the health care costs in that year. A total of $7.8 billion was spent on the aged in fiscal year 1966, 69 percent from private sources and 31 percent from public funds. Seventeen percent of the aggregate was from State and local funds, 14 percent Federal. As chart E makes clear, Medicare changed the situation dramatically. The total health bill for the elderly in fiscal year 1967 was $9.2 billion, up $1.8 billion. Private funds paid $3.8 billion (41 percent) of the new total. This percentage will only drop slightly when the aged use Medicare fully. Chart F shows how the per capita expenditures differ by age.

What are public funds now used for?

I. THE NATIONAL SCENE: PUBLIC AND PRIVATE

SPENDING

The source of expenditures changed in character under Medicare. State and local expenditures for the aged dropped nearly $300 million; Federal expenditures rose by $3.3 billion so $3 billion more tax moneys were used to finance the aged's health needs. At the same time, private expenditures, by and for the aged, decreased by $1.7 billion. In the first full year of Medicare, fiscal 1967, public funds accounted for 59 percent of the medical bill of the aged. (Table I and chart G.) For hospital care, 92 percent was financed by public funds. About 46 percent of the money spent on physicians' care on behalf of the aged, came from tax sources. That only 24 percent of the combined expenditures for dentists, drugs, eyeglasses, nursing home care, et cetera, was met by tax moneys, arises from the gaps in Medicare coverage.

1 The Social Security Administration estimate of public spending includes the $4 monthly premium charge paid by Part B Medicare enrollees. Asked by the Senate Special Committee on Aging whether such payments might be listed as private expenditures, SSA replied: "It seems to us much more realistic to treat the entire program as a public program, and to treat the premium payments just as we treat employee contributions for social insurance." SSA acknowledged that the $300 million paid by enrollees. "if added to private outlays, would increase private as a percent of the total personal health care expenditures of the aged from 41.2 percent to 44.5 percent."

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TABLE 1.-ESTIMATED PERSONAL HEALTH CARE EXPENDITURES OF PERSONS AGED 65 AND OVER BY TYPE OF EXPENDITURE AND SOURCE OF FUNDS, FISCAL 1967

The $5.4 billion expenditures by public programs consist of Medicare (59 percent), public assistance vendor medical payments (20 percent). veterans hospital and medical care (10 percent), other public hospital and medical care (9 percent), and other (2 percent). Only 11.5 percent of the total is now derived from State and local funds, down from 17 percent.

Although the Federal Medicare program has replaced a large segment of private spending for health care, 41 percent remains as a personal responsibility to be met out of Social Security benefits, other income, and assets, and by relatives and friends, and by their private insurance.

II. WHAT COSTS MEAN IN PERSONAL TERMS

However significant and imposing the national statistics are, they must be translated into individual terms, if we are to understand the grave medical cost problems facing millions of older Americans today.

The most striking attribute of such costs is their uneven distribution.

The amount of hospital care required annually varies from none for 87 percent to two or more stays for some of the elderly. Older persons with $10,000 or more income were heavier than average users of hospitals. Those with two or three hospital episodes required more than two or three times as many days of care as those hospitalized only once.

-See footnote a

* Source: NCIS

50 p. 5. "Persons Hospitalized" June-July 1966.

Visits to doctors also vary by age, sex, and by physical condition, as well as by city and by income. The per capita visits rise with age. This is one reason why aged females average more doctor visits than males. Only 27-30 percent of the population aged 65 and over goes through a year without seeing a doctor-7 percent see a doctor 13 or more times a year, or more than once a month.

Thus, costs can range from nothing to $400 or more, just for doctor visits outside the hospital.

Prescribed drug usage varies widely; those with chronic illnesses require more than the average number of prescriptions, so their costs can be sizable. This is one of the gaps in Medicare; it is one of the large segments of expenditures under Medicaid. And it is the largest area of per capita private expenditure by the aged.

A. MEDICARE: THE BENEFITS, THE GAPS

As Table 1 showed, Medicare pays a large portion of the hospital bills of the aged. The deductible of the first $44 of the hospital bill and the coinsurance in the later days of hospital and extended care facility stay do not affect many aged people in the course of a year. Under Part B of Medicare, however, enrollees not only pay a $48 annual premium but the first $50 of the insured services and 20 percent of the remainder of the charges. When a person sees a doctor, quite often other charges, such as for laboratory work, prescriptions, X-rays, and so forth, are also incurred. Some or all of these charges represent gaps in Medicare coverage.*

Still another kind of gap exists in Medicare which might be called a "communication gap" though some observers react with such disbelief that it might be labeled a "credibility gap" instead.

Only about half of the physicians caring for Medicare patients accept assignments of the benefits. "Assignment of benefit" means that the aged person has instructed the Medicare fiscal intermediary to pay his doctor directly ("assign his benefits" to the doctor). When a doctor accepts assignment, he binds himself not to send a separate and additional bill directly to the old person; he collects 20 percent of the bill from the beneficiary and 80 percent from the Trust Fund via the fiscal intermediary. Surgeons, whose bills are usually larger than those of other physicians, are more and more showing a willingness to accept assignment rather than to struggle to collect from the beneficiary who may only be able to pay after receiving the claims payment himself.

Here is how a comparison of a surgeon's bill can work with and without assignment:

The absence of prescription drug coverage is discussed in Part III. Coverage of mental illness under medicare is subject to special limitations on days of care (190 days in a lifetime) and on out-of-hospital treatment (50 percent coinsurance and a limit of $250 annually as well as the $50 deductible). While 68 percent of all mental hospitals with 74 percent of all mental beds, participate in Medicare, the proportions vary by region of the country and by sponsorship. The problem was described in some detail by Dr. Robert W. Gibson, representing the American Psychiatric Association and the National Association of Psychiatric Private Hospitals at U.S. Senate hearings on the Social Security Amendments in 1967:

"Under the supplementary medical insurance benefits for the aged, outpatient treatment may be paid for after a $50 deductible, with the patient paying 20 percent, and with no top limit. But, in the case of psychiatric treatment, the patient must pay 50 percent after the deductible, and there is a top limit of $250. This limitation seriously curtails outpatient psychiatric treatment for the aged patient. Many elderly patients can be successfully treated on an outpatient basis. If such treatment is denied because of financial limitation, the inevitable result will be hospitalization. Such unwarranted hospitalization may not serve the best interests of the patient, and will most certainly add to the cost of the hospital insurance program."

32-346 O-70-16

Case: A CATARACT OPERATION WITH OPHTHALMOLOGIST'S BILL AMOUNTING TO $700

WITH ASSIGNMENT

Fiscal intermediary finds $700 exceeds usual and customary by $150:

Doctor sends bill to patient who pays $700 to doctor and sends bill to fiscal intermediary:

Intermediary pays patient..
Patient has to pay balance..

$440

110

550

$440

260

700

Total paid....

Prior to Medicare, physicians often showed an understanding of their patients' economic circumstances and did not raise the fees they had been charging old patients for years on end. With Medicare, fees have been "adjusted" upward so that it is not too unusual to have the aged family spending as much out of pocket as before the program began, or even more, especially if the $48 in Part B premiums is counted among their expenses, as it should be.

The disadvantages of nonassignment are fivefold: (1) the aged person must pay the doctor's charges, whatever their level, without such deterrents as are imposed by having the fiscal intermediary screen for reasonableness and relationship to other doctors' charges; (2) the aged must themselves complete forms, submit claims, pay the bill, etc.; (3) the higher charges soon become the accepted level of charges and are subsequently paid by the fiscal intermediary; (4) the dollar cost of the coinsurance of 20 percent mounts; and (5) workers pay more social security taxes as demands on the trust fund rise.

Certain types of health care notably long-term nursing care for chronic illness, as distinct from posthospital extended care-are almost exclusively the domain of the aged. In a 1964 survey, only 12 percent of the residents of nursing and personal care homes were under age 65. Forty-eight percent were females aged 75 and over. More than 50 percent were men and women in their eighties.

In Michigan, under Medicaid, nursing homes cost $420 a month on the average, or $5,040 a year. How can elderly people by definition long since separated from the labor market and entitled in the main to the minimal social security cash benefits afford the cost of nursinghome care? The average extended-care facility under Medicare 5 costs more than $500 a month.

Not surprisingly, the per enrollee benefit payments under
Parts A and B of Medicare vary widely by State.

That the spread is as wide as it is, is as much related to the relative availability and use made of hospital and physician services as it is a reflection of geographic differentials in costs. For hospitals, the lower wage scales of the Southern States enter into the cost differentials.

"Staff Data Relating to Medicaid-Medicare Study," July 1, 1969, Committee Print, U.S. Senate Committee on Finance.