Welcome back. I'm going to talk today about two major federal government health insurance programs, Medicare and Medicaid, and the way that they interact historically and currently. This lecture will then focus mostly on the Medicare system and its basic structure and some key developing issues. A following lecture, we'll return to Medicaid and talk about some of the key issues involving that program today. But for starters, I want to talk about the two programs together. They were passed in the same year in 1965 as part of Lyndon Johnson's Great Society program. In some ways, the most important thing constitutionally and legally and from a big picture point of view to understand about these two programs is the very fact that there are two programs instead of one says something pretty important about the way health policy has developed in the US and about our current fragmented incremental health insurance system. It's very characteristic of health insurance policy in the US and very uncharacteristic of some other countries that we slice up our health insurance world incrementally. Some certain people, certain types of demographics are covered by one type of program. Others are covered by another. So to remind you all, Medicare, of course, covers most people of age 65 or older, as well as the number of disabled individuals. Medicaid covers some but not all poor people. Of course, that's only the start of the fragmentation in our health care system. More than half of Americans get their insurance through their jobs, as part of a private, large group or small group market. Others get their insurance through government programs or the VA, hospital or through these new exchanges set up through the Affordable Care Act. So what we've done through the decades, as we've gradually intervened as a federal government into the health insurance system, is added complexity, added incrementalism without ever smoothing out or reducing it. So even the Affordable Care Act, which we'll turn to in a few lectures, took Medicare and Medicaid and the private employment insurance system as it found it and just added new devices on. So we have a very fragmented, complex system which adds cost for providers and adds confusion with respect to patients. We don't have to look far to find another model just North of the border in Canada or across in England with the National Health Service. You see countries where the vast majority, more than 85 percent of the public, is covered by a single payer system, and there's a much more uniform health care policy there, which actually then inflects the politics. So if we go back to 1965, and we continue through to the present day there, there are political implications and causes for this fragmented health care system in the US. In 1965, seniors then, as they are now, were important voting bloc. Lyndon Johnson and his advisers wanted to be sure to pass a good uniform national health care statute for them, and they did so in the form of Medicare. There was less political support then as now for health care for the poor. So you saw a less well-funded, more state-driven program in the form of Medicaid. Some of those problems with Medicaid and the Medicaid politics still exists today. So these are historical facts that resound forward even into current health policy debates. Let me underscore one important similarity between the two programs, and this is very important for American health care policy as well. Both of them, although they are government programs, in terms of the insurance function, rely for the provision of care on the existing private medical system, private doctors, private hospitals, private pharmaceutical companies. There's no government intervention in running hospitals, in hiring doctors, in conscripting pharmaceutical company. So it's a single payer system in the case of Medicare, but emphasis on the word payer. It is not a government takeover of all aspects of the medical function like again we do see in some other countries. Let me speak more directly to Medicare, and I'll return to Medicaid in the next lecture. But I do want to highlight the central distinction between the two. Medicare is, was, and remains very much a centralized national government program. It is funded by the national government, it is administered by the federal government, and it is fairly uniform around the country. Benefit levels, the options that seniors would have, the revenue models, the reimbursement rates are a relatively standardized around the country. This is a true national program. Medicaid, on the other hand, although a federal statute, is a federal-state partnership. So from the beginning through to the present day, states are the primary implementers of Medicare. They have been the primary ones to set basic policy choices. As I'll describe more in the next lecture, there's huge variation from state to state in very basic coverage and reimbursement issues around Medicaid. So that's the biggest difference between Medicare and Medicaid, is the role of the federal government versus the role of the states. So Medicare, as I said, is a very fairly, standard, basic, uniform program. It's a fairly successful, fairly popular program. Who's in Medicare? Well, the most visible group, the one that we most associate with Medicare is the elderly citizens, 65 years and older, so long as their spouse is eligible for social security, which means working for 10 years or 40 quarters during their entire lifetime. In addition to those individuals, a population of citizens or US residents who have certain disabilities that would qualify them for social security insurance also participate in the Medicare system. Many of these individuals are under 65, and many of them are on a per patient basis, the most expensive patients that Medicare has. Medicare is administered by the national government and its agencies, health and human services and specialized agency center, CMS Center for Medicare and Medicaid Services. It is fairly basic and centralized uniformly. That doesn't mean that it's not complicated and it's not changing in certain ways. I think the most interesting ways that Medicare is changing is in the way it interacts with, reimburses, and directly or indirectly controls the behavior by providers. So historically, in 1965, Medicare was very controversial and very much opposed by large segments of the provider community. The AMA, American Medical Association, initially opposed Medicare. It had spokesman who wasn't that well-known then, but he was known to great things. Californian, named Ronald Reagan, was hired to speak about the dangers of government takeover that would happen if Medicare was passed. It was very touching go about whether Medicare would make it through Congress despite President Lyndon Johnson support. What ultimately sealed the deal and got the AMA to grudgingly support Medicare was a promise made in 1965, and really continued for several decades after that, that the federal government would write checks to doctors and hospitals, but it wouldn't do much more than that in terms of intervening in the care that was given, in terms of trying to control costs or shape the care that was given. So Medicare was very much a payer system by the federal government, but it really wasn't robust in terms of exerting any authority over the practice of medicine or the hospital practice in the United States. Predictably then, Medicare costs have gone up along with private health care costs such that for the past decade or more, it's been clear across several different administrations that Medicare needs to do more to control costs. Indeed, Medicare has done more and moved away from this model of robust physician autonomy. So you see CMS moving toward different reimbursement models, may be moving away from fee for service towards more blended models, managed care Medicaid, refusing to reimburse for certain kind of hospital events if it looks like the hospital probably did something wrong in terms of catheter infections or things like that. These have been successful in terms of Medicare costs growing more slowly than those of private insurance, and I think we're only going to see more of that. There's a little disgust part of the Affordable Care Act, which is still valid, which is going to be implemented in a couple years, called the Independent Payment Advisory Board, a very important potentially robust cost-control and overall reimbursement rates to hospital providers and others under Medicare. When that kicks in, we're going to see another round of debate over Medicare funding. We can expect to see providers and patients arguing for more funding, and it'll be interesting to see what the federal government's response is in the face of such lobbying from a very politically powerful group. Another issue we can predict on the horizon beyond these cost-control debates over Medicare is the issue of how Medicare continues to be funded. So the original Medicare statute, very much like social security, is funded not just from general revenues, but substantially, over a third of Medicare revenue in recent years comes from payroll taxes, which are widespread tax that was problematic from a theoretical basis in that they are more aggressive than other forms of taxation on income. But putting that aside, a system that is funded by payroll taxes depends for its existence on robust employment numbers and specifically in the case of a health care program for retirees depends on a good ratio of working people to then fund the benefits for the retirees. Now in a steady and unalterable demographic progression over the past few decades, the number of workers actively working and paying into the Medicare system to support a given single retiree has gradually diminished. Used to be as many as four workers for every retiree. Presently, it's between two and three workers for every retiree. We will soon be in a world where we have barely more than one worker working about one and a half active workers working for every retiree based on demographic projections and economic projections. So we can foresee pretty soon a world where the financing model for Medicare needs to be reworked. That's obviously will be another hugely problematic and complex political debate. But certainly from an actuarial perspective, we need to call control costs on Medicare. We need to reconfigure the financing model, and those are big issues that are going to come up soon within the next decade. So Medicare in some tremendously important, tremendously successful nationally uniform program relies on private providers. There are big issues looming about both cost-control and revenue for Medicare that will occupy policymakers and scholars in the decade ahead. In the next lecture, I'll look at the other major federal health care program enacted in 1965, which is quite different from Medicare, and that is the Medicaid program, which covers most but not all poor people in the US. Thank you.
