More from the MedPAC Report On Health Spending

By August 16, 2017 Commentary

Today we continue with highlights from the recent MedPAC report on national health and Medicare spending.   (link in yesterday’s post)  As in other populations, Medicare fee-for-service spending is concentrated in a few beneficiaries, with the top 5% of beneficiaries, ranked by annual spending, accounting for 42% of all Medicare FFS costs, while the bottom 50% represent only 4%.  Let that sink in, and ask yourself, do the bottom 50% really need Medicare?  People who are in Medicare because they have end-stage renal disease have average spending seven times greater than non-ESRD beneficiaries.  High-cost beneficiaries tend to be dually-eligible for Medicare, in the last year of life and/or have multiple chronic conditions.  46% of beneficiaries are aged 65 to 74 and they represent 35% of spending.  12.5% are over age 85 and they account for 17% of spending.  Self-reported health status is also correlated with spending.  45% of Medicare members say they are in excellent or very good health and they represent 25% of spending, while 8.3% say they are in poor health and account for 18% of expenses.

About 33% of non-institutionalized beneficiaries are in Medicare Advantage plans; while 40% have some supplemental coverage and 13% are dually-eligible for Medicaid.  Medicare paid for only about 65% of beneficiaries’ total health spending.  Total spending varied dramatically, averaging $439 for the year for the lowest 10% and $74,130 for the top 10%.  People with more expenses generally have higher out-of-pocket spending as well, but if they were covered by Medicaid as well, this burden was lower.  Per capita spending for Medicare rose 23% from 2007 to 2016.  In the same time period, commercial health insurance premiums rose over 50%.  Medicare dictates prices, and providers likely went over private plans for higher reimbursement as a result.  In 2013, 18% of beneficiaries were dual-eligibles and they accounted for 32% of program spending, at almost $20,000 annually for each one.  They are obviously in worse health than non-dual-eligibles.  Their high expenses explain why special programs to coordinate and manage their care are widespread.  These beneficiaries are dragging down both Medicare and Medicaid.

After spending a lot of time and effort on quality measurement and reporting, and forcing providers to also spend a lot of money and be subject to financial penalties, performance on quality measures (which may or may not be correlated with actual better health for the patient) improved modestly at best and was generally stable in recent years.  Medicare Advantage plans generally have high scores on quality measures and have likely plateaued in performance.  Up to 72 of what the commission defines as low-value services were provided per 100 beneficiaries per year, costing Medicare a few billion dollars.  What is low-value, however, is subject to debate.  The proportion of beneficiaries with at least one hospitalization a year has dropped by several percent over the last decade.  Patient satisfaction scores with hospital care have risen a small amount in the last few years as well.   Readmission rates have dropped slightly and discharges to home have declined, but this is likely due to sicker patients being admitted to a hospital in the first place.  Hospitals on average lost 7% treating Medicare patients, and only 34% of hospitals had a positive Medicare margin.  Think that is sustainable?    Total margin across all business was positive, at an average of 7%, suggesting just how profitable privately insured patients are.  In fact, hospitals’ revenue to cost ratio for private insurance rose from 1.15 in 1999 to 1.5 in 2015.  Think that is sustainable?  More tomorrow.

Kevin Roche

Author Kevin Roche

The Healthy Skeptic is a website about the health care system, and is written by Kevin Roche, who has many years of experience working in the health industry through Roche Consulting, LLC. Mr. Roche is available to assist health care companies through consulting arrangements and may be reached at khroche@healthy-skeptic.com.

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