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SOURCES: House Select Committee on Aging, October 1988; Health Care Financing Administration, July 1984 and October 1988; Census Bureau, 1988.

What did this rise in health care costs cost the elderly in terms of lost purchasing power? If the rate of increase for health costs had been restrained to the rate of increase for elderly income, the elderly in 1988 would have spent the same percentage (12.7 percent) of their income as they did in 1980. The failure to stabilize that percentage at the 1980 level meant that the elderly spent $21.9 billion more on health care in 1988 than if they were still spending at the 12.7 percent level. This $21.9 billion total translates into increased out-of-pocket health costs of $718 per elderly person as compared to 1980.

Unless there is some major intervention in the next several years, this trend appears likely to continue for the foreseeable future.

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Average Federal benefit is $340 a month; $510 for a couple (set at 75 percent of poverty level for individuals; 90 percent of poverty for couples).

Only about one-third of elderly poor receive benefits.

Limit on assets a major problem for elderly ($1,800 for individuals; $2,700 for couples).

Raising it to $3,000 and $4,500 would cost $48 million.

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Out of control (1986 was 10.6 percent of GNP; by 2000, it will be 15 percent of GNP--$ 458 billion now; $1.5 trillion by 2000).

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In 1966, average cost of treating a Medicare patient was $445. By 1980, it jumped 490 percent to $2,640.

Elderly spend two-and-one-half times as much on health care as the non-elderly.

Increases in out-of-pocket costs in Reagan era..

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Between 1980 and 1985, Medicare enrollee costs
increased 34 percent, or about $162 per enrollee.

(Deductible and Premium Cost Increases)

Part A deductible jumped 155%.

1981-1987, Part B deductible jumped 86.5%;
38.5% more in 1988.

Recommendations

1984 part d'Heredictible = 6356,1960*592
1985 Part B
premium =82480, 1990 198.co

138.00
+29760/your

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Table 3.23 Operations of the Medicare supplementary medical insurance trust fund: Calendar years 1966-84 Income

Disbursements

Trust fund
Premiums

Interest on
Total from Government Investments and

Total

Benefit Administrative Net Year-end Year noome participants bontributions! other income disbursements

payments expenses change balance

Amount in millions 1966

$322

so
$2

$203
$128
$75

$ + 121 $122 1967 1.597 640

933
24

1,307
1.197
110
+290

412 1968 1.711

832
858
21

1.702
1.518
184

+9

421 1969 1.839

914
907

18

2.061
1.865
196

-222 199 1970 2.201 1.096

1.093

12

2.212
1.975
237

- 11

188 1971 2.639 1.302

1.313

24

2.377
2.117
260

+262 450 1972 2.806 1.382

1.389

37
2.614 2.325

289

+ 194

643 1973 3.312 1.550

1.705

57

2,844
2.526
318

468

1,111 1974 4.124 1.804

2.225

95

3,728
3.318
410

+ 396

1.506 1975 4.673 1.918

2.648
107

4.735
4.273
462

-62

1.444 1976 5.977 2.060

3.810
107

5.622
5.080
542

+355

1.799 1977 7.805 2.247

5.386
172

6.505
6.038

467

+ 1.300 3.099 1978 9.056 2.470

6.287
299

7.755
7.252

503
+ 1.301

4.400 1979 9.768 2.719

6,645
404

9,265
8.708
557

+ 503 4.902 1980 10,874 3.011

7.455
408
11,245 10.635

610

- 371 4.530 1981 15,374 13.722 911.291

361
14.028 13.113

915

+ 1.346 5.877 1982 16,580 »3.697 912,284

599
16.227 15,455

772

+353

6,230 1983 19,824 4.236 14.861

727
18.984 18.106

878

+840

7.070 1984 23.180 5.167

17,054

959
20,552 19.661

891

+2,628 9.698 • The payments shown as temg trom the general hund of the U.S. Treasury include certain interest-adjustment nems. • Other income includes recoveries of amounts reimbursed from the trust fund that are not obligations of the trust lund and other miscellaneous income • Section 708 ot title Vll of the Social Security Act modified the provisions for the delivery of social securiny benefit checks when the regularly designated lelivery day talls on a Saturday, Sunday, or legal public holiday. Delivery of benefit checks normally due January 1, 1982, occurred on December 31, 1981. Consequently, the supplementary medical insurance (SMH premiums withheld from the checks ($264 million) and the general revenue matching contributions (5883 million) were added to the SMi vust hund on December 31, 1981. These amounts are excluded from the premium income and general revenue income for calendar year 1982 SOURCE. Board of Trustees, Federal Supplementary Medical Insurance Trust Fund: 1987 Annual Report of the Board of Trustees of the Federal Supplementary Medical Insurance Trust Fund Washington. U.S. Government Printing Office, Mar. 31, 1987,

cash hemelits. The 1983 Amendments to the Social
Security Act changed the premium adjustment period
from a 12-numth perieul ending Junc 1983 to onc cnding
Decemiver 198.). Therefore. premium adjustments are
now made for a calendar year. The Part B premium was
set al 25 percent of the expected average cost for aged
enrollees for January 1984 through December 1985.
DEFRA of 1984 cxicnded this provision through 1987,
and OBRA of 1985 further extended it through 1988.

Since the 1972 Amendments to the Social Security
Act, the major source of income for the SMI trust fund
has heen Federal Government contributions, which made
up 74 percent of total income in 1984. Enrollees'
premiums made up 22 percent, and the remainder was
interest on investments,

serve as a center for comunicating with providers, or audit provider records. Al intermediarics makc payments for outpatient hospital services and homic health services covered hy SMI. In Table 3.24, workload and cost data for III intermediarics are summarized for the period 1975-84.

Reasonable costs of services are determined by regulations of the Secretary of DHHS. Charges for covered services generally are submitted by the provider, who is reimbursed for reasonable costs of covered services less thc deductible and coinsurance amounts. The bencficiary pays these amounts and also pays for noncovered services,

The provider's intermediary reviews claims for payment and pays the provider. Payments for claims are made on the basis of interim rates established by both provider and interinediary. Final scillcmcnt for cach provider's operating year is based on the provider's cost report and is subject to an independent audit.

Medicare's retrospective cost-based system continues to apply 10 SNF's and HITA's but not to most hospitals. Under the prospective payment system (PPS), which hegan October 1983, most hospitals providing inpatient services 10 Medicare cnrollees are no longer paid on a reasonable-cost basis. Under PPS, the intermediary assigns the appropriale diagnosis-related group code to cach paticni bill record and then pays the hospital a predetermined fixed rate for cach discharge according to ihc DRG. In general, PPS payments for a given case are considered full payment except for deductible and coinsurance amounts.

Administration

HI intermediaries

Unuler III, groups or assoxiations of providers may nominato a national, State, or other public or private agency or organization to he their intermediary. Under an agreement with the Secretary of DHHS, the intermediary determines reasonable costs for covered items and services, makes payment, and guards against unnecessary use of covered services. Under the agreement, the intermediary may also furnish consultative services 10assist prowiders in cstablishing and maintaining the fiscal records needed to qualify as providers of service,

Figure 3.1 Percent distribution of physicians' charges due for Medicare aged and disabled persons reimbursed:

Calender year 1984

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Percent

Reimbursed
by Medicare

70.4

Reimbursed
by Medicare

67.3

Aged

Disabled

SOURCE: Health Care Financing Administration. Bureau of Data Management and Strategy: Data from the
Division of Information Analysis.

Mr. PALLONE. Now, I should mention we were originally expecting that Congressman Saxton, who also represents Ocean County, would be able to come today.

However, this hearing was originally supposed to be about 3 weeks ago and we expected to be out of session then. Obviously, because of what happened with the budget, it kept being postponed and postponed until today, which is the first day since Congress has adjourned, and Congressman Saxton called to say that he couldn't be here because of problems with scheduling conflicts—it's only 1 week left now before the election.

So he will not be here, but I wanted to say that he has been very supportive of all of the senior issues, the same senior issues that I've talked about, and he also voted against the budget measures that I've briefly mentioned here in my opening statement, for largely the same reasons.

We have with us today our first panel from health care consumers, who represent the health consumers, and I'll just introduce them. We have Mr. Barry Sperling from Brick, who is a consumer affected by rising health care costs who is going to represent that point of view; Mr. Frank Vergano of Toms River, again, a consumer affected by the high cost of pharmaceuticals; and then also Ms. Linda Furlong of Lakewood, who is a caregiver for her grandmother.

So what we're going to do is we're going to start the first panel by basically having some consumers talk about their problems.

And I should mention to all of you that since this is a hearing of an official House subcommittee, the Subcommittee on Housing and Consumer Interests, of which I am a member, of the Select Committee on Aging, that everything is being transcribed.

And what we're doing today is not just for us and for the audience that's out here, but also for the record so that we can use it during our proceedings in Congress on a national level to decide how we should deal with Medicare and some of these rising costs of Medicare.

I also wanted to say that we have the staff director of the subcommittee, Mr. Brian Lindberg, who is behind me here, and also Mr. Jim McCann, who is my district representative at the office in Toms River, in East Dover on Fisher Boulevard. And Molly Brault from the Aging Committee, over in the back there. Thank you for being here as well.

So without further ado, I'd like to start. We'll begin with Mr. Barry Sperling from Brick Township. Thank you, sir.

STATEMENT OF BARRY SPERLING, BRICK TOWNSHIP, NJ Mr. SPERLING. Good morning. Part of what I'd like to bring out is the problem of just getting into the system. I had a massive heart attack in March of 90 and lost most of the function of my heart, when I went to Social Security, they told me I'd have to wait 5 months before they could do anything. I had no insurances or any; thing of that nature, and I had to wait 5 months before they would even consider me for Medicaid that would allow me to purchase medications and so on and so forth. It was suggested to me to go to

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