National Center for Policy Analysis

MONTH IN REVIEW

Health Care
September, 1996

MEDICARE PAYING FOR LONG-TERM HOME CARE

Home health care, primarily home visits by nurses and health aides, is one of the fastest-growing categories of Medicare expenditures. While home visits were intended to ease the transition from hospital care, it is most frequently used as a form of long-term care for chronic conditions, according to a new study.

By examining Medicare claims data for 1993, researchers determined that:

Roughly three million Medicare enrollees received more than 160 million home health care visits in 1993.
About 35 percent of the visits occurred more than a month after hospital discharge and 43 percent were not associated with any inpatient care during the previous six months.
The visits were most frequently for long-term care, with 61 percent of the visits to enrollees who received home health care for six months or more, and 30 percent of the recipients receiving more than 50 visits each.

The researchers found no evidence that home health care was substituted for hospital care. For instance, those urban areas with higher rates of home health care did not have fewer hospital admissions or shorter lengths of stay. However, other evidence suggests that home care may lower hospital costs for severely disabled veterans and elderly patients with congestive heart failure.

Medicare reimbursements for home health care grew from $2 billion in 1988 to $12.7 billion in 1994 and now account for more than 8 percent of Medicare's total budget. This growth was mostly the result of more liberal rules and standardized coverage for home care in 1988 and 1989. Medicare does not cover long-term institutional care, such as in nursing homes, but Medicaid and some private insurers do.

Source: H. Gilbert Welch et al., "The Use of Medicare Home Health Care Services," New England Journal of Medicine, August 1, 1996.

For more information on Medicare, visit the NCPA's Health page at http://www.public-policy.org/~ncpa/pi/health/hedex.html

STATES TAKE UP MEDICAID REFORM

Absent any help from Washington, some states are beginning to take action on their own to revamp their Medicaid programs and cut costs. While the federal government finally achieved certain reforms in welfare this year, Medicaid -- which is much more costly than other general welfare programs -- went untouched. Medicaid provides health assistance to the poor.

While 12.8 million people receive benefits under the Aid to Families with Dependent Children program, Medicaid covers 37.5 million.
The three largest welfare programs -- AFDC, food stamps and Supplemental Security Income -- cost $77 billion per year, compared to $156 billion for Medicaid.
On average, the proportion of states' budgets devoted to welfare is 4 percent, while Medicaid eats up 19.2 percent.
Combined state and federal spending for Medicaid consumes nearly 20 cents of every tax dollar.

Republicans believe that states can do a more efficient, cost-effective job, and want to turn management of the programs over to them. President Clinton wants Washington to retain control.

To the extent they can get exemptions from federal rules, the states are deciding what health and nursing-home care to provide to whom, and at what cost. These hard choices are necessitated by the explosion in Medicaid coverage and costs.

The Medicaid caseload has grown from 10 million in 1967 to today's 37.5 million.
Costs have skyrocketed from $5 billion in 1970 to $156 billion last year.

Sixteen states plan Medicaid reductions in their 1997 budgets.

California plans to eliminate nine optional classes of benefits.
Florida plans to move more nursing home residents into community-based settings.
New York, the state with the most generous Medicaid program, plans to scale back its commitment to managed care.

Many states are opting to cut back on managed care, since about one-third of all recipients are in managed care plans. Other ways states attempt to control costs:

Iowa put mental-health services up for bid at no more than 86 percent of current per-person expenses -- thereby immediately saving 14 percent of expenditures.
Michigan put 80 percent of its Medicaid clients into managed care and cut the escalation of costs from 11 percent to 1 percent in a year.
Wisconsin has used home and community care for the elderly to cut its nursing-home population by 17 percent since 1980 -- even while it was rising by nearly 50 percent nationally.

Currently, 11 percent of Medicaid patients receive Medicare -- and consume 30 percent of Medicaid's costs. Medicare covers hospitalization, while Medicaid pays for long-term care. Federal rules prohibit managed-care plans from being forced on Medicare recipients.

Experts say Medicaid's complexity remains an obstacle to reform.

Source: Richard Wolf, "Medicaid Outcome Will Affect All," USA Today, September 9, 1996.

For more information on Medicaid, visit the NCPA's Health page at http://www.public-policy.org/~ncpa/pi/health/hedex.html

ACHIEVING CLINTON HEALTH CARE PIECEMEAL

Political observers say that President Clinton may be on the way to imposing the type of health care plan that Congress decidedly rejected several years ago. This time he is achieving his goal of government-run care bit-by-bit.

Clinton has said that the Kennedy-Kassebaum law -- which forces insurers to write policies for people with pre-existing conditions -- has gotten him 30 percent of the way to his goal.
Clinton wants the government to set minimum services that every health insurance policy must cover, regardless of the cost to consumers -- in fact, consumers couldn't pay less to buy less.
Helping his agenda along, the House of Representatives voted to force insurers that offer mental health benefits to make the coverage the same as for physical ailments.
The President is also out to subsidize health insurance for nearly four million persons out of a job, at a cost of $8.5 billion over four years -- as well as spend $24 billion to insure now uninsured children of working parents.

Costs would certainly escalate, as they did in Minnesota after that state set up a $1.3 million program to provide basic health care for low-income, uninsured pregnant women and children under age eight. By 1994, costs for the program had swelled to $1 billion a year.

Source: Editorial, "Slow Boat to ClintonCare?" Investor's Business Daily, September 16, 1996.

LETTING THE PATIENT KNOW

Some 16 states have adopted laws this year to protect the rights of doctors associated with health Maintenance Organizations (HMOs) to discuss costly treatment options with their patients. Some HMOs have recently been criticized for encouraging doctors to remain silent about potentially expensive treatment options, so as to hold costs down at patients' expense.

HMOs contend that they favor open communication with patients on medical questions but should be able to withhold confidential business information or the details of contracts with doctors.
Observers say that limits on what doctors can say has suddenly become a hot political issue, emerging only last December.
More than 60 million Americans are in HMO plans, with maybe another 90 million in other managed-care plans.

The states are handling the issue in various ways.

The Georgia law says, "No health care provider may be penalized for discussing medically necessary or appropriate care with or on behalf of his or her patient."
Some laws, such as that in Maine, guarantee that doctors cannot be punished if they serve as advocates for their patients.
Some states stipulate that doctors may tell patients about their financial arrangements with HMOs, including contracts that reward doctors for controlling health costs and limiting the use of medical specialists.

Congress is also considering a measure to prevent HMOs from restricting doctor-patient communications.

Source: Robert Pear, "Laws Won't Let H.M.O.'s Tell Doctors What to Say," New York Times, September 17, 1996.

SURVEY SHOWS MANY FAVOR MEDICAL SAVINGS ACCOUNTS

A recent survey from the Kaiser Family Foundation and Harvard University confirms that medical savings accounts (MSAs) are popular. The Kaiser-Harvard Program on the Public and Health/Social Policy sponsored a nationwide survey that determined whether or not people would choose an MSA if given that choice.

Under MSA plans, employers would purchase high-deductible insurance and could put the premium savings into MSAs that employees could use to pay medical expenses, save for the future or withdraw (as taxable income).

The random survey of 1,011 adults found that:

If the deductible were $2,000, 43 percent said they would be "very likely" or "somewhat likely" to choose an MSA.
If the deductible were $5,000, 37 percent would be likely to choose an MSA.

The results are consistent with market studies by the national Blue Cross Blue Shield Association that found 43 percent of employees would "definitely or probably" switch to an MSA if it were offered to them.

Source: "Survey of Americans on Health Policy: Questionnaire and National Toplines - July 30, 1996," Kaiser-Harvard Program on the Public and Health/Social Policy, Harvard School of Public Health, 677 Huntington Avenue, Boston, MA 02115, (617) 432-4502 and Kaiser Family Foundation, 2400 Sand Hill Road, Menlo Park, CA 94025, (415) 854-9400.

USE OF MEDICARE VARIES BY RACE AND INCOME

There are wide disparities between blacks and whites in the use of many Medicare services, according to a new report in the New England Journal of Medicine. The study compared usage of various Medicare services for 26.3 million seniors in 1993.

The study determined that black and low-income beneficiaries had fewer visits to doctors for outpatient care, mammograms and flu shots and were hospitalized more frequently. For example,

For every 100 women, there were 26.0 mammograms among whites and 17.1 among blacks.
Compared with mammography rates for the highest income group, rates in the least affluent group were 33 percent lower among whites and 22 percent lower among blacks.
Likewise, for every 1,000 beneficiaries, there were 515 influenza immunizations among whites and 313 among blacks.
And compared to the most affluent groups, the immunization rate among in the lowest income group was 26 percent lower among whites and 39 percent lower among blacks.

The authors did not find wide variations by race and socioeconomic status in the use of nonelective services -- such as hip-fracture repair. The study did not examine factors that might have influenced the different rates of usage of elective services, such as health status, education, individual preferences, supplementary insurance and service availability.

The study also found that blacks and people in lower-income groups have higher mortality rates, respectively, than whites and people in higher-income groups -- which other studies have found is true across all age groups.

Source: Marian E. Gornick et al., "Effects of Race and Income on Mortality and Use of Services Among Medicare Beneficiaries," New England Journal of Medicine,. September 12, 1996.

NEW LAWS REGULATE MANAGED CARE

In response to reports of growing complaints about managed care providers, lawmakers are considering coverage mandates and stricter regulations. Complaints have focused on denials of necessary care, lack of access to providers and lack of information on plan rules.

State legislatures considered more than 1,000 bills on managed care in 1996, and 56 were enacted into law in 35 states. This is a slightly higher rate than in 1995, says a patient-interest group, Families USA, in a nationwide report on legislation.

Last year, six states adopted standards for minimum coverage of inhospital stays of newborns and their mothers; this year 22 states did.
Laws were also passed by 14 states to stop so-called gag clauses in physicians' contracts that prevent doctors from talking to patients about treatment options not covered by a plan or revealing financial incentives to limit care.
Bills regulating coverage of emergency services have passed in seven states; typically the laws prohibit requiring prior authorization for emergency care and require payment for reasonable "false alarms."

Managed care providers say increased regulation is an overreaction to isolated problems and that compliance costs will increase premiums.

Source: Leigh Page, "State Legislators Spent Busy Year Trying to Manage Managed Care," American Medical News, September 9, 1996.

MEDICAID PAYING FOR LONG-TERM, MIDDLE-CLASS CARE

At age 65, your odds of spending a year or more in a nursing home are one in four -- a risk that many are willing to run, says financial writer Jane Bryant Quinn. But Quinn cautions baby boomers to plan on paying more toward their old-age expenses.

Today private money accounts for a bit more than half of the $66 billion spent on nursing-home care for the elderly.
Almost all the rest comes from Medicaid -- a welfare program designed for the poor and financed by federal and state taxpayers.
But the middle-class elderly are relying on Medicaid, since Medicaid will pick up the bill after they run out of money for the $28,000 to $70,000 annual cost of nursing home care.
Over the next 25 years, the elderly nursing home population will increase by almost two-thirds, say researchers, leading to ballooning costs for Medicaid.

In fact, growing numbers of the elderly are setting up trusts to make themselves appear poorer, in order to qualify for Medicaid.

Researchers estimate such stratagems will cost Medicaid about $1 billion this year.
Another $2 billion or so in housing assets belong to unmarried nursing home residents receiving Medicaid who die.
The states are supposed to recover these assets to reimburse Medicaid; but Oregon, which is best at it, recaptures only about 2.5 percent of its costs and Texas and Michigan don't even try.

An individual long-term care policy for a 50-year-old (with level lifetime premiums) is something over $500 a year, and group coverage costs less. But Quinn says many people won't buy policies as long as they think the government will pick up the tab.

Source: Jane Bryant Quinn, "Aging: The Endgame," Newsweek, September 30, 1996.