Growth in prescription drug spending among insured elders.

We examine growth in prescription drug use and spending in a well-insured elderly population in 1997 and 2000. We describe the high-cost segment of this population, identifying how it differs from the rest of the elderly regarding use and types of medications, and how stable this group is over time. Drug spending by the insured elderly rose more than 18 percent annually between 1997 and 2000. High-cost elders use more brand-name drugs, treat more conditions, and use more medications per condition. Once an insured elder becomes a high-cost user of prescription drugs, that person is likely to remain so. Our study suggests that a growing population of elderly is using many medications and may require considerable drug management.

The Medicare home health benefit implications of recent payment changes.

The interim payment system (IPS) for Medicare home health services, enacted in the Balanced Budget Act of 1997, was intended to slow the growth of home health expenses until HCFA could design a new prospective system. Instead, the IPS has acted like a per-case payment system without case-mix adjustment. Its impact on agencies, along with other policy pressures, has been first to slow and then to reverse the dramatic expansion of the home health sector. In this paper, we identify the impetus for payment changes in the recent history of the Medicare home health benefit. We then present emerging evidence about the effects of IPS and other recent policies on home health. Finally, we draw several lessons from this experience for the impending prospective payment system.

Applying disease management strategies to Medicare.

Medicare coverage begins for many when they have already developed one or more chronic diseases, and it often pays for the latest and costliest phases. Population-based disease modeling, patient screening, and monitoring would be appropriate interventions for chronic renal disease. Patients who have not yet advanced to end-stage renal disease would benefit from management of diabetes and hypertension, avoidance of nephrotoxic substances, and better preparation for dialysis. Administrative support could take the form of clinical guidelines, physician-led multidisciplinary teams, integrated delivery systems, provider and patient education, and new information technologies. Medicare reflects the long-term public perspective, and thus should further this new direction by supporting education, reimbursing for prevention efforts and allied health services, encouraging efficiency, and monitoring cost and quality outcomes.

Health care spending: can the United States control it?

Health care spending in the United States has continued to outpace the growth in national income and the growth in spending in other countries. And yet many Americans are without sufficient health care. Since the failure of national health care reform proposals put forward by the Clinton administration and others, the United States has had to look for other solutions to the problem of how to control spending in this sector. Can the new competitive approach of managed care succeed where other cost control measures of the past have failed? This chapter begins with an examination of the problems facing health care today, outlines recent trends in health care spending, and details reasons why spending is rising so rapidly at this time. The historical context of health care reform proposals and government attempts to control spending are described next and the reasons why some of these plans made no progress are explained. The health care payment systems of other industrialized nations that have seen some success in controlling costs are analyzed. Comparison of these systems with proposed plans for reforming the U.S. system provide insights and lessons for the United States. Finally, the chapter describes managed care and managed competition and makes the argument that managed care has the potential to respond to many of the health care spending problems facing the United States. However, more data on this subject are needed, and the authors call for a national monitoring entity to assess the progress of managed care in meeting the health care needs of the public.

Managed care for people with disabilities: caring for those with the greatest need.

Disability is discussed in terms of three categories: conditions that result from biomedical conditions and chronic, lifelong illnesses; role or social functioning difficulties that result from behavioral, developmental, or brain disorders; and conditions that limit physical functioning. The range and depth of services needed by the disabled result in higher costs of health care for this population. Because their service needs vary so widely, no single program can address all of the needs equally. Currently, no integrated public policy or program is specifically designed to serve people with disabilities. Rather, they are served by a range of programs that provide specific benefits (e.g., health, social services, and income). Section 1 of this chapter provides an overview on extending the concept of managed care to disabled populations. Special attention is paid to the financing of health care, the delivery of care, reforming the health care system, the cost-containment potential of managed care, and the need to align care with the nature of the individual disability. In sections 2 and 3, the current status of managed care for two special populations--children and the mentally ill--is discussed in greater detail. Section 2 addresses the characteristics of chronically ill and disabled children, public and private health insurance coverage of children with disabilities, other public programs for chronically ill children, and current directions and strategic choices for managed pediatric care. Section 3 describes the mentally ill and the system of providers that currently supplies care to them, offers some conclusions regarding how managed care is changing the policy debate in mental health care, assesses the key factors affecting policy choices in managed care, and considers prospects for the future shape of managed behavioral health care.

National health expenditure limits: the case for a global budget process.

The health reform cost-containment debate has set up a dichotomy between market and regulatory approaches. Expenditures are excessive in the American health system because there is no effective constraint on aggregate demand, and the rigid limits imposed by sectoral global budgets in other nations do not effectively use supply side forces to achieve efficiency. The case for an intermediate option is presented, a process that can flexibly encompass both what buyers are willing to pay and what suppliers are willing to accept. A negotiated contracting process for multiple payors and multiple providers could constrain aggregate demand and harness provider incentives.

Redefining rate regulation in a competitive environment.

Neither rate regulation nor market competition alone is likely to contain health care spending in the long run. We need an approach to cost containment that can simultaneously address the major causes of rising health expenditures: higher prices, greater intensity, and new technologies. Whereas rate regulation and market competition have been viewed as alternative strategies, an innovative approach would include a rate-regulatory system that is compatible with an evolving competitive market. We discuss the Maryland hospital rate-setting system as an illustration of the compatibility of a regulatory approach within a competitive market. In addition, we consider the feasibility of expanding a hospital rate-setting system nationwide and to the nonhospital sectors.

Bringing managed care incentives to Medicare's fee-for-service sector.

The Health Care Financing Administration (HCFA) could work with eligible physician organizations to generate savings in total reimbursements for their Medicare patients. Medicare would continue to reimburse all providers according to standard payment policies and mechanisms, and beneficiaries would retain the freedom to choose providers. However, implementation of new financial incentives, based on meeting targets called Group-Specific Volume Performance Standards (GVPS), would encourage cost-effective service delivery patterns. HCFA could use new and existing data systems to monitor access, utilization patterns, cost outcomes and quality of care. In short, HCFA could manage providers, who, in turn, would manage their patients' care.

Understanding the factors behind the decision to purchase varying coverage amounts of long-term care insurance.

OBJECTIVE: This article examines the factors related to an individual's decision to purchase a given amount of long-term care insurance coverage. DATA SOURCE AND STUDY SETTING: Primary data analyses were conducted on an estimation sample of 6,545 individuals who had purchased long-term care (LTC) insurance policies in late 1990 and early 1991, and 1,248 individuals who had been approached by agents but chose not to buy such insurance. Companies contributing the two samples represented 45 percent of total sales during the study year. STUDY DESIGN: A two-stage logit-OLS (ordinary least squares) choice-based sampling model was used to examine the relationship between the expected value of purchased coverage and explanatory variables that included: demographic traits, attitudes, risk premium, nursing home bed supply, and Medicaid program configurations. DATA COLLECTION: Mail surveys were used to collect information about individuals' reasons for purchase, attitudes about long-term care, and demographic characteristics. Through an identification code, information on the policy designs chosen by these individuals was linked to each of the returned mail surveys. The response rate to the survey was about 60 percent. PRINCIPAL FINDINGS: The model explains about 47 percent of the variance in the dependent variable-expected value of policy coverage. Important variables negatively associated with the dependent variable include advancing age, being married, and having less than a college education. Variables positively related include being male, having more income, and having increasing expected LTC costs. Medicaid program configuration also influences the level of benefits purchased: state reimbursement rates and the presence of comprehensive estate recovery programs are both positively related to the expected value of purchased benefits. Finally, as the difference between the premium charged and the actuarially fair premium increases, individuals buy less coverage. CONCLUSIONS: An important finding with implications for policymakers is that changes in Medicaid policy affect the decisions of consumers regarding the acquisition of private LTC policies as well as the level of protection chosen. This is particularly important to states interested in pursuing public-private partnerships in long-term care financing.

Long-term care insurance and Medicaid.

Depending on length-of-stay, somewhere between 29 percent and 38 percent of long-term care insurance purchasers who use nursing homes would qualify for Medicaid payments if they did not own a policy. This is equivalent to between 13 percent and 17 percent of all policyholders. Owning such a policy would, however, reduce spend-down rates among policyholders by 39 percent. Thus, in the presence of long-term care insurance, only 8 to 10 percent of all policyholders would receive Medicaid. Medicaid would spend between $6,492 and $14,179 (in 1990 dollars) on nursing home entrants with long-term care insurance policies--$14,437 to $29,698 if entrants did not have insurance. The ultimate impact on Medicaid expenditures is reduced, however, because many policyholders voluntarily let their policies lapse before entering nursing homes. If policies paid reduced benefits for voluntary lapses, then Medicaid could reap more significant fiscal savings.

New perspectives on the affordability of long-term care insurance and potential market size.

A study of over 6,000 elderly long-term care insurance purchasers shows that the typical policy sold costs $102 per month, covers 5 years of nursing home care and pays $69 per day in benefits. Close to one-third of the purchasers have incomes less than $20,000, most (63%) use some savings to pay for premiums, 37% spend more than 5% of income on policies. Most nonpurchasers cited reasons unrelated to policy cost to explain why they did not buy a policy.

Simulating the fiscal and distributional impacts of Medicaid eligibility reforms.

About 43 percent of nursing home costs are paid by Medicaid for the poor and for those who spend-down assets to qualify for Medicaid. We estimate the costs and distributional impacts of changes in the Medicaid asset test and the effect on the number of people spending down to Medicaid eligibility levels. Increasing asset thresholds from $2,00 to $12,000 would cost less than $4 billion, reduce spend-down rates, and increase the proportion of people eligible for Medicaid on admission to a nursing home. Even after such a change, about 80 percent of Medicaid benefits accrue to individuals with incomes less than $10,000.

Financing long-term care: a practical mix of public and private.

Congress is considering proposals to improve its financing of long-term care. The key issue is whether it should support a social insurance program or a program targeted to a population group defined by income and assets. Social insurance is expensive, costing between $15 and $20 billion. For the most part, it provides benefits--primarily asset protection--to middle- and upper-income individuals. An improved Medicaid program, costing about $8 billion, benefits lower-income individuals but does not protect those with higher incomes. These two options cannot be viewed independently from trends in the private market. Sales of private long-term care policies have grown and between 30 percent and 40 percent of the elderly can be considered potential buyers. If private alternatives are available for those individuals who need asset protection, the case for a more targeted public approach--along with reliance on the private sector--becomes more compelling. Congress should consider a program that enhances Medicaid; improves consumer education; assists states in regulating long-term care policies, so as to enhance consumer protection and confidence; and clarifies taxes on long-term care insurance to encourage workers and the elderly to protect themselves against catastrophic expenses.

Managed care: practice, pitfalls, and potential.

The results of coordinating and changing patterns of health care using managed care activities and organizations are reviewed in this article. Although utilization review and high-cost case management programs reduce the use of expensive services, incentives for providers of care, placing them at risk, are important for managing the intensity of health care. Managed care appears capable of reducing health care costs substantially. However, this increased efficiency has not translated to lower insurance premiums or modulated total health care expenditures because either purchasers are not aware or are not concerned about securing care at the least cost. To correct these deficiencies and deliver the potential of managed care, the author suggests the need to separate insurance into its three components parts (financing, risk spreading, and program management) and developed policies for each.

Medicare risk contracting: determinants of market entry.

The Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 made it more attractive for health maintenance organizations (HMOs) and other competitive medical plans to enter into risk contracts with Medicare. Since the start of the TEFRA program in April 1985, more than 160 HMOs have had risk contracts with Medicare under the program. An investigation of factors associated with TEFRA risk-market entry at the end of 1986 revealed that high adjusted average per capita cost payment levels, prior Medicare cost-contract experience, and prior Federal qualification were the most important factors distinguishing market entrants from nonentrants.

Patterns of nursing home use in a prepaid managed care system: the continuing care retirement community.

The use of nursing home services among 3,316 residents of six continuing care retirement communities (CCRCs) was compared with that of the general elderly population. CCRC residents have a greater lifetime risk of nursing home entry and repeat entries. CCRC resident's length of stay per admission, however, is shorter. Findings from this comparative analysis provided insight into nursing home use in an insured and managed long term care program for a closed population.