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What Medicare Has Meant To Older Americans

Marilyn Moon, Ph.D.

INTRODUCTION 1963, just 56 percent of all persons 65 years

of age or over had insurance against the
In marking Medicare's 30th year in costs of hospital care, compared with 75
operation, it is fitting to focus on the percent of those 35-44 years of age and 71
program's successes. The fiscal pressures percent of those 45-54 years of age
facing Medicare on both its own financing (Andersen, Lion, and Anderson, 1976). But
base and that of the Federal Government that share of the population covered rose
as a whole, and the rapid changes occur- immediately for those 65 years of age or
ring elsewhere in the health care system, over upon the introduction of Medicare. As
have led to a raft of criticisms of the pro- shown in Figure 1, by 1970, the proportion
gram in recent years. Although Medicare of the population covered by insurance had
could certainly be improved, pausing to re- increased to 97 percent of older Ameri-
flect on the positive aspects of the program cans, while rising only modestly for
can offer some balance to the current younger persons. Since then, Medicare
debate on Medicare's future. has steadily remained at around 97 percent
Medicare is the largest public health of persons 65 years of age or over, while
program in the United States, providing private coverage of younger persons has
the major source of insurance for the acute actually declined.'
medical care needs of elderly and disabled Although attention is now focusing ap-
persons. Its administrative costs are low, propriately on future growth in the benefi-
and it is popular with both its beneficiaries ciary population, Medicare has already
and the population as a whole. It has deliv- successfully absorbed a doubling of the
ered on its promises. The success of Medi- number of people it serves in its first 30
care from the perspective of older Americans years. That is, Medicare has expanded
can be summarized in four broad areas. from 19.1 million elderly beneficiaries in
1966 to 33.4 million elderly and 4.8 million
UNIVERSAL COVERAGE disabled persons in 1996 (Health Care Fi-
nancing Administration, 1996). The share
The Medicare program has achieved of the U.S. population now covered by
nearly universal coverage for persons 65 Medicare stands at 14.3 percent, up from
years of age or over-a major achievement 9.7 percent in 1966 (U.S. Bureau of the
on behalf of older Americans. When Medi- Census, 1994). And by 2020, Medicare's
care was introduced in 1965, only a little share of the population will reach 18.4 per-
more than one-half of older persons had cent. Thus, each year since its inception,
even hospital insurance, and elderly per- Medicare has played an ever-more-impor-
sons were considerably less well insured tant role in the overall system of health
than younger families. For example, in
' Not only is this an important issue in itself, but it also reminds
us that comparisons between the costs of Medicare and private
Marilyn Moon is a Senior Fellow at The Urban Institute. The health insurance should always be undertaken on a per capita
opinions expressed are those of the author and do not necessar- basis, because the number of beneficiaries under Medicare is
ily reflect those of The Urban Institute or the Health Care rising each year at a rate much faster than that for private
Financing Administration (HCFA). insurance.

HEALTH CARE FINANCING REVIEW/Winter 1996/volume 18, Number2 49

Figure 1
Percent of Persons in Selected Age Groups Having Insurance Coverage: Selected Years, 1953-93

100--- 97 98 98 98
45-64 Years o Age --

90 -
Q 65 Years of A le or Over
84 84
\ 81
80 -

70 - 67
m 59
`m 60- 56
t 50 -
3 43
30 -

20 - \\
\ \

10 - v

1953 1958 1963 1970 1974 1980 1984 1993
NOTE: Between 1953 and 1970, insurance coverage is for hospital care.
SOURCES: (Andersen, Lion, and Anderson, 1976), (National Center for Health Statistics, 1976, 1995), (U.S. Bureau of the
Census, 1960-92).

insurance in the United States. And that necessary to choose new doctors, hospi-
role is projected to rise steadily in the future. tals, and other providers of services. When
For those eligible, coverage cannot be workers move, new plans may be less gen-
lost as beneficiaries get older or sicker, or erous or more restrictive than the previous
face other changes of status such as widow- plans. At worst, coverage for those with
hood or retirement. Thus, in addition to the health problems may be denied for a pe-
share of persons covered, these protec- riod of time or new coverage may not be
tions for beneficiaries give Medicare a sub- available at all. Medicare, on the other
stantial advantage over our system of pri- hand, offers some choices through its
vate insurance coverage. The employer- health maintenance organization (HMO)
based system for younger workers has option, but people can always remain in the
many more gaps in the certainty of cover- traditional program and are free to switch
age and continuity over time. Coverage is back and forth even when serious health
not fully portable for many Americans, de- problems arise.
spite recent legislation. At best, younger Medicare's presence also has stimulated
workers obtain coverage through a new the supplemental insurance market for this
plan if they change jobs, often resulting in population (Figure 2). Almost from the be-
discontinuities in care when it becomes ginning, private insurers have been willing

50 HEALTH CARE FINANCING REVIEW/Winter 1996/volume IS, Number 2

Figure 2
Percent of Elderly Persons With Health Insurance Supplementing Medicare: 1977 and 1991

1977 1991

Employer-Sponsored Employer-Sponsored
24% 38%

NOTES: Totals may sum to more than 100 percent due to rounding. Private insurance supplementing Medicare rose from 65 to 75
percent of elderly beneficiaries over the period measured.
SOURCE: (Chulis et al., 1993).

to supplement Medicare, although they One of the consequences of the univer-

had not been willing to serve as primary sal coverage that Medicare has achieved is
insurers. This supplemental coverage ex- also the common stake that many people
tends beneficiaries' insurance protection, feel in the system. Medicare remains one
because the Medicare program offers a of the most popular of Federal programs. It
limited benefit package. But the willing- has delivered on its original promise to
ness of private insurers to write such poli- change the nature of health care access for
cies should not be taken as an indication older Americans, and it has continued to
that all would be willing to take on compre- serve its role as the primary insurer of
hensive insurance for everyone in this acute health care services for those Ameri-
group. Nor are employers willing to foot cans who are least likely to be attractive to
the bill for unlimited retiree coverage.' private companies.
Rather, Medicare's basic coverage limits
the risks for the private sector, which then FINANCIAL RELIEF
is willing to fill in the gaps. Even this
supplemental coverage is limited in terms Although the costs of health care have
of the ability of beneficiaries to move to gone up steadily over time, and the elderly
new insurers after the initial period of open pay a substantial share of their incomes to-
enrollment, and such coverage is often not ward these costs, Medicare still has
available at all for disabled Medicare brought considerable relief from the costs
beneficiaries. of care to its beneficiaries. Certainly with-
out Medicare, the costs of care to older per-
I Moreover, there are early signs that many employers may be- sons would be much higher than they are
gin to cut back on what they are willing to offer to future retir-
ees in the form of health benefits (Mazo, 1994). today. In 1995, Medicare expenditures

HEALTH CARE FINANCING REVIEW/ Winter 1996/volume 1s, Number 2 51

Figure 3
Per Capita Medicare Expenditures': Net Medicare Payment and Beneficiary Liability:
Selected Years, 1965-95

$6,000 - $5,651

0 Net Medicare Payment

• Beneficiary Liability
5,000 -

d 4,000 -
W $4,300

3,000 -
rn $2,505
r 2,000 -

1,000 -
$910 $799
1965 1977 1983 1995
' Adjusted for inflation.
NOTES: 1965 figure represents out-of-pocket spending on hospital, physician, and other professional services. Bolded
numbers at top of columns represent total per capita Medicare expenditures.
SOURCES: (Fisher, 1980), (Health Care Financing Administration, 1995).

averaged $5,561 per beneficiary-$4,300 of $910, or 13 percent of the typical older

which was paid by Medicare. The remain- person's income. The effects of health care
ing $1,261 represented the liability for ben- inflation and the use of expanded services
eficiaries in terms of Part B premiums, have driven up the costs of care faster than
copayments, and deductibles (Figure 3). the incomes of the elderly otherwise could
This liability averages about 11 percent of have absorbed. Although total expendi-
the income of a typical elderly beneficiary tures on all these services would likely be
in 1995 (Figure 4). 3 If the whole amount of lower in the absence of Medicare, the sav-
Medicare spending were charged to ben- ings to individuals are certainly substan-
eficiaries, it would have consumed 47 per- tial, cutting at least by half (and likely by
cent of the median elderly person's income. even more) the share of income beneficia-
Compare this share with the 1965 out-of- ries devoted to these services.
pocket spending of an elderly person of Although many analysts cite problems
faced by the elderly from continuing high
' Most beneficiaries would pay an even higher share of their in- out-of-pocket spending, this is not because
come once other non-Medicare expenditures are taken into ac-
count. For 1994, expenditures by the elderly out of pocket and Medicare is doing very little but rather be-
on various insurance premiums claimed 21 percent of the aver-
age elderly person's income (Moon and Mulvey, 1995). cause the costs of health care are so large.

52 HEALTH CARE FINANCING REVIEW/ Winter 1996/Volume 18, Number 2

Figure 4
Net Medicare Payment and Beneficiary Liability as a Percent of Median Income for the Elderly:
Selected Years, 1965-95

50 -

0 Net Medicare Payment

40 - • Beneficiary Liability
c 30 37 Percent

20 23 Percent
18 Percent

13 Percent
11 Percent
7 Percent 8 Percent

1965 1977 1983 1995


NOTE: 1965 figure represents out-of-pocket spending on hospital, physician, and other professional services.
SOURCES: (Fisher, 1980); (Health Care Financing Administration, 1995).

For all Americans, spending on health care cost-sharing than would otherwise be the
has risen substantially since 1965, and case. For example, coinsurance for physi-
Medicare has shielded its beneficiaries cian services is 20 percent of what Medi-
from a substantial portion of that increase. care deems reasonable, and Medicare's
The large risk pool created by Medicare fees tend to be below what physicians and
means that out-of-pocket costs for vulner- hospitals charge others. Limits on balance
able groups are lower than they would oth- billing and pressures on physicians to ac-
erwise be. Particularly in the case of Part B cept Medicare's fee as the total amount
premiums, all beneficiaries pay the same charged have also kept cost sharing lower
monthly amount for Part B coverage. The than it would otherwise be. In fact, bal-
very old and the sick would face much ance-billing burdens on Medicare benefi-
higher premiums in an environment with ciaries have declined from a high of $89
no cross-subsidies. That is, the Part B pre- per enrollee in 1985 to just $15 in 1993
mium represents about 9.5 percent of the (Health Care Financing Administration,
costs of total Medicare services received 1995).
by Medicare beneficiaries. But for those 80 Attention to the services not covered by
years of age or over, the Part B premium Medicare often distracts from its benefits.
pays for only about 7.5 percent of benefits Medicare does require high copayments
received. and deductibles, and its lack of coverage of
Over time, Medicare has held the line on prescription drugs, long-term care, and
payments to providers of care, particularly other services means that older and dis-
hospitals and physicians, resulting in lower abled persons are still left with substantial
HEALTH CARE FINANCING REVIEW/ Winter 1996/volume 18, Number 2 53
burdens. But in counting Medicare's suc- If coverage is truly universal, we should
cesses, it is crucial to recognize the high expect to see groups with high levels of
costs of the services covered. Indeed, be- need receiving high levels of services. The
cause many persons also have supplemen- oldest old, those with chronic illnesses, and
tal coverage, they are often unaware of ex- the disabled should be disproportionately
actly what share of their health care costs served by the program. Indeed, between
are paid by what source. Medicare has al- 1966, when Medicare first came into being,
ways paid a larger share of the average and 1993, the differences in reimburse-
beneficiary's expenses than private supple- ment per enrollee and per person served
mental coverage, a fact not recognized by increased by age category (Figures 5 and
many older beneficiaries. 6). By 1993, the very old, whose needs are
greater, were receiving considerably more
EXPANDED ACCESS in benefits than younger enrollees.
In other areas where income or discrimi-
One test of whether an insurance pro- nation might play a role in denying.access,
gram expands not just insurance coverage a successful universal program should re-
but access to care rests on whether the duce differences among beneficiaries
most vulnerable beneficiaries receive ben- when their varying characteristics do not
efits. When the Medicare legislation was reflect differences in the need for care.
passed in 1965, there was concern that pro- That is, equal access should, over time, di-
viders of services would not accept Medi- minish differences by income, race, and
care beneficiaries or would provide sub- geographic location, unless warranted by
standard care (Moon, 1996). But the differences in health status. Although
program proved to be remarkably success- Medicare is not yet a fully uniform pro-
ful from the beginning. Large numbers of gram by these standards, between 1966
the elderly enrolled, and use of services and 1993, differences between the percent-
expanded rapidly. There was no noticeable age of white persons and persons of races
boycott by health care providers. In the other than white receiving services de-
first 3 years of Medicare, about 100,000 eli- clined 4 (Figure 7). Although the appropri-
gible enrollees were admitted to hospitals ate level should not necessarily be exactly
each week (Myers, 1970). Medicare led to the same, there certainly is no good reason
a major increase in the elderly's use of for the large differences that existed in
medical care. For example, hospital dis- 1966 to be sustained.' Medicare may still
charges averaged 190 per 1,000 elderly have a problem in ensuring reasonable ac-
persons in 1964 and 350 per 1,000 by 1973, cess for minorities, but certainly major
with most of the change occurring in the progress has been made over the period.
early years (Davis and Schoen, 1978). An- Differences by income status have also
other study found that the proportion of declined, further aided by the introduction
the elderly using physician services of the Qualified Medicare Beneficiary
jumped from 68 to 76 percent between (QMB) and Specified Low-Income Benefi-
1963 and 1970 (Andersen et al., 1973). ciary (SLMB) programs (discussed in
Since that time, use of services under greater detail in Rowland, 1996). These
Medicare has continued to climb. In 1993, 4
Forty-five percent fewer persons of races other than white re-
81.2 percent of all beneficiaries received ceived services in 1966; in 1978, that figure was 11 percent, and
in 1993, 7 percent.
Medicare services (Health Care Financing
I Other articles in this issue also describe Medicare's crucial
Administration, 1995). role in desegregating hospitals in the United States.

54 HEALTH CARE FINANCING REVIEW/ Winter 1996/volume 18, Number 2

Figure 7
Number of Persons Served per 1,000 Medicare Enrollees, by Race: 1966, 1978, 1993
900 -
Races Other Than White
800 - M White 766

700 -

600 -

500 -

400 -

300 -

200 - 168

100 -

1966 1978 1993'

For 1993, category "Races Other Than White" includes only black persons.
SOURCES: (Health Care Financing Administration, 1982, 1995), (Social Security Administration, 1971).

programs reduce the problems of medical care, that they have access to the
affordability of health care posed by best and latest treatments on equal footing
Medicare's premiums and copayments. with other health care consumers. Indeed,
The QMB and SLMB programs are part of when Medicare was passed, efforts were
Medicaid, however, and require consider- made to make the program look as much
able documentation to obtain eligibility. like other private insurance as possible, so
Partly as a consequence, participation in that doctors and hospitals would agree to
the programs remains low. Nonetheless, participate in the program. Although a na-
because of benefits to those participating in tional strike by physicians was threatened
the QMB program, the share of incomes at the time of Medicare's passage, in prac-
spent by the poor on health care is now tice, beneficiaries were almost immediately
lower than for the near-poor, as about two- accepted and use of services and access to
thirds of those eligible are receiving subsi- care occurred as planned.
dies of nearly $2,000 per year (Moon, Beneficiaries have unlimited access to
Kuntz, and Pounder, 1996). specialists, nearly all of whom participate
in the program. As the health care system
ACCESS TO MAINSTREAM has changed, so has Medicare. Delivery of
MEDICAL CARE health care in the United States has in-
creasingly shifted from inpatient to am-
Another of Medicare's goals was to en- bulatory settings. Although Medicare's ba-
sure that beneficiaries receive mainstream sic package of benefits has changed little

56 HEALTH CARE FINANCING REVIEW/ Winter 1996/Volume 18, Number 2

since 1965, delivery of care has changed dures are generally delivered in inpatient
with the times. In 1966, inpatient hospital settings, and these two figures track the
services constituted two-thirds of Medi- growth rates of the procedures by age
care's total payments (National Center for group. In both cases, growth in the use of
Health Statistics, 1994). In 1995, that share treatments expanded rapidly from 1980
was just under one-half (Health Care through 1985 as they were being intro-
Financing Administration, 1996). duced and then slowed through 1993 on an
An additional way to track Medicare's adjusted-annual-rate-of-growth basis. In
ability to offer mainstream care is to look at these two examples, growth for the popula-
the use of various types of new treatments tion 65 years of age or over was much
and procedures to see whether older pa- greater than for those 45-64 years of age
tients are able to obtain such services on over both periods. At least in these cases,
an equal footing with younger patients. as well as others not shown here, Medicare
Again, more careful analysis would be nec- beneficiaries do not appear to be disadvan-
essary to determine what the relationship taged in terms of their access to services.
should be in terms of levels of use, but the They are benefiting from new technology
appropriate question to ask is this: Is the and at a rate sometimes greater than that of
rate of diffusion comparable across the younger persons.
groups? This should give some indication Another indicator of how our medical
of general access to care. Two examples care system is changing rapidly is the
are shown in Figures 8 and 9, which show movement toward managed care arrange-
the increases in rates of angiocardiography ments for the delivery of health care serv-
and cardiac catheterization for different ices. Although Medicare is behind the na-
age groups. These high-technology proce- tional average in this regard, the option of
Figure 8
Growth in Use of Angiocardiography Procedures, by Sex and Age Group: 1980-85 and 1985-93

70 -
Disabled (Under 65 Years of Age)
65-74 Years of Age
60 -
75 Years of Age or Over

50 -

- 40 -
0 33.0
IL 30 -
24.6 24.4

18.5 18.0
20 -

10 -

0 I I I I
Male Female Male Female
Average Growth 1980-85 Average Growth 1985-93

SOURCE: (National Center for Health Statistics, 1995).

HEALTH CARE FINANCING REVIEW/ Winter 1996/volume 18, Number 2 57

Figure 9
Growth in Use of Cardiac Catheterization Procedures, by Sex and Age Group:
1980-85 and 1985-93

30 -

\ Disabled (Under 65 Years of Age)

25 -
22.5 65-74 Years of Age
75 Years of Age or Over
20 -

cd 15.4
15 - 13.6
a 13.1 13.0 12.8 \

10 -

\ 6.0 \
5 -
Male Female Male Female
Average Growth 1980-85 Average Growth 1985-93
SOURCE: (National Center for Health Statistics, 1995).

enrolling in an HMO is available for many in the traditional fee-for-service system,

beneficiaries. Since 1991, when enrollment they have more choice than many younger
reached a little more than 2 million, the families in the employer-based market.
number of beneficiaries signing up for Finally, although it is not easy to link
HMOs has increased dramatically. By the overall health care spending with the
end of 1995, 3.8 million were enrolled health of the Nation, Medicare is ensuring
(Health Care Financing Administration, that the most up-to-date care is available for
1996). Rapid expansion in the number of older persons. The longer lives of these se-
participating plans means that more and nior citizens attest to this and other efforts
more beneficiaries will be able to choose to improve their quality of life. Since 1960,
these options should they wish to do so in the life expectancies of men and women 65
the future. New offerings, including point- years of age or over have risen by 2.7 and
of-service plans (in which HMO enrollees 3.1 years, respectively. This compares with
can be reimbursed for out-of-network serv- increases in life expectancy of only 1.3 and
ices), are also helping to keep Medicare 3.6 years for the period 1900-60 (National
closer to the mainstream of activity in the Center for Health Statistics, 1996).
private sector. In fact, Medicare may ben-
efit by lagging a bit behind the times, CONCLUSION
adopting private plans only after they have
proven themselves in the employer-based Medicare will face daunting challenges
environment. over the next 30 years, and it seems likely
And because beneficiaries can choose that major reforms will be legislated. But to
whether to go into managed care or remain a considerable degree, pressures arise
58 HEALTH CARE FINANCING REVIEW/ Winter 1996/Volume 18, Number 2

because of the successes of the program. Health Care Financing Administsration: Medicare
Summary, Use and Reimbursements by Person,
Medicare will go from serving 1 in 10 1976-1978. Washington, DC. U.S. Government
Americans to caring for nearly 1 in 5, as Printing Office, 1982.
baby boomers begin to retire. Because Health Care Financing Administration: Profiles of
Medicare serves the most vulnerable Medicare, 30th Anniversary. Washington, DC. U.S.
members of our population with up-to-date Government Printing Office, 1996.

care, it should not be surprising that costs Health Care Financing Administration: Health
Care Financing Review Medicare and Medicaid Sta-
of the program are high. Each older benefi- tistical Supplement, 1995. Washington, DC. U.S.
ciary can also expect to draw more years of Government Printing Office, 1995.
coverage from the system as a result of in- Mazo, J.F.: Introduction to Retiree Health Ben-
creased life expectancy. All of these factors efits. In Mazo, J.F., Rappaport, A.M., and Schieber,
have contributed to the costs of the pro- S.J., eds.: Providing Health Care Benefits in Retire-
ment. Philadelphia. Pennsylvania Press, 1994.
gram, but they are not indicators of failure.
Future reforms should build on Moon, M.: Medicare Now and in the Future. (Sec-
ond Edition). Washington, DC. The Urban Insti-
Medicare's strengths as well as learn from tute Press, 1996.
its weaknesses, recognizing the crucial Moon, M., Kuntz, C., and Pounder, L.: Protecting
role the program has played in the lives of Low Income Medicare Beneficiaries. Urban Institute
older Americans. Discussion Paper prepared for The Common-
wealth Fund. Washington, DC. The Urban Insti-
tute, July 1996.
Moon, M., and Mulvey, J.: Entitlements and the
Elderly: Protecting Promises, Recognizing Realities.
The author would like to acknowledge Washington, DC. The Urban Institute Press, 1995.
the help of Crystal Kuntz in developing the Myers, R.J.: Medicare. McCahan Foundation Book
figures used in this article. The author Series. Homewood, IL. Richard D. Irwin, 1970.
would also like to thank the Common- National Center for Health Statistics: Health United
wealth Fund for its sponsorship of related States 1975. Hyattsville, MD. Public Health Serv-
ice, May 1976.
National Center for Health Statistics: Health United
States 1993. Hyattsville, MD. Public Health Serv-
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HEALTH CARE FINANCING REVIEW/Winter 1996/Volume Is, Number2 59