Download Year Medicaid Increase Number of Medicaid

CHAPTER THREE. AMERICAN HEALTH CARE FINANCING: THE PUBLIC
PAYERS
A. AN INTRODUCTION TO THIS CHAPTER
While health care financing in the United States relies heavily on private
third party financing arrangements -- unlike the more socialized schemes in
virtually all other industrialized countries -- the role of government in
financing American health care is, nonetheless, extensive. Local, state, and
federal governments provide health financing for their employees, the mentally
ill and other institutionalized people, various specifically-defined categories
of people, and, since the enactment of Medicaid and Medicare, virtually everyone
who is 65 years of age or older and a significant portion of the disabled and
the poor. In addition, as discussed supra, the exclusion of employer-purchased
health benefits from federal and state taxation represents an indirect
government subsidy of a good portion of the privately purchased health financing
arrangements.
These public financing efforts have grown substantially over the last
three decades. In 1965, local, state, and federal government programs combined
spent only $10.3 billion on health care, 25 percent of total NHEs. A good
portion of this represented state and local financing of public hospitals and
clinics. Only two years later, following the implementation of Medicaid and
Medicare, total government spending for health care had jumped to $19 billion,
and had grown to nearly 37 percent of all health expenditures. Between 1968 and
1980, government spending continued to grow fairly rapidly, increasing at an
average annual rate of over 14 percent, and bringing with it increased
government involvement in virtually every aspect of health care delivery. By
1980, government was spending over $100 billion annually for health care,
representing over 41 percent of all health spending and nearly 60 percent of all
hospital spending. Most of the rapid growth in government spending during this
time can be attributed to the implementation of Medicaid and Medicare,
particularly in the first decade of those programs. The lion's share of this
increase came from the federal budget. The state and local share of total health
care spending actually declined by 25 percent from 1967 to 1983.
During the 1980s, the overall rate of growth in government spending for
health care stabilized, growing at about the same rate as overall national
health spending, although, again, the federal share grew more rapidly than the
state share. Nonetheless, the ability -- and willingness -- of both the federal
and the state governments to continue to commit resources to health care became
increasingly controversial and government health spending programs became
increasingly visible targets for policymakers concerned with limited revenue
bases and growing budget deficits. In the early 1990s, when the government share
of NHEs again began to grow more rapidly, reaching over 46 percent in 1995,
debates over the state and federal roles in health care financing in general and
over the future of the Medicaid and Medicare programs in particular became even
more heated than they had been in previous decades.
In the mid-1990s, the rate of growth of total spending for all government
health programs slowed. In fact, in 1998, the public share of total health
spending actually declined for the first time in over a decade and total
Medicare expenditures, for the first time in the history of the program,
declined slightly. These figures can be attributed to the robust status of the
American economy in the late 1990s and to various programmatic changes mandated
by the 1997 budget legislation, as will be discussed infra. Nonetheless, they
also reflected a re-alignment of the political forces that had sustained
programs like Medicaid and Medicare through their first 40 years.
In the first few years of the 21st century, the rate of growth of
Medicare, Medicaid, and other government health spending programs continued to
grow at relatively modest rates. In 2003, the last year for which good,
comparative data are available, total government spending for health care
increased 6.6 percent (as compared to 9.7 percent in 2002); in that same year,
private sector spending rose 8.6 percent. For additional analysis of this data,
see Smith et al., Health Spending Growth Slows in 2003, 24 Health Affairs 185
(2005) (updated annually); for additional statistical updates since 2003, see
Centers for Medicare and Medicaid Services, Office of the Actuary, National
Health Statistics Group at http://www.cms.hhs.gov/ (last visited September
2006).
2
Figure IV.
Private and Public Shares of National Health Expenditures,
Selected Years
1965
Private Health
Insurance
24%
Our of Pocket
Payments
45%
Other Private
Sources
6%
Gov't Programs
25%
1998
Out of Pocket
Payments
17%
Privat e Healt h
Insurance
Other Government
Programs
12%
32%
M edicaid
15%
M edicare
19%
Other Private
Sources
5%
1980
Our of Pocket
Payments
24%
Public Health
Insurance
29%
Other Gov't
Programs
17%
Other Private
Sources
5%
M edicaid
10%
Other Private
Sources
5%
Out of Pocket
Payments
14%
Other Government
Programs
12%
M edicaid
16%
M edicare
15%
2003
Private Health
Insurance
36%
M edicare
17%
3
Source: Data derived from http://www.cms.hhs.gov/NationalHealthExpendData/
last visited September 2006).
4
B. THE MEDICAID PROGRAM
The Medicaid program should be studied for a number of reasons. First and
foremost, Medicaid plays a very important role in financing health care in the
United States. In 2005, Medicaid was the primary source of payment for over 50
million Americans -- at a cost to the state and federal budgets of over $300
billion. But studying Medicaid is also important for another reason. To
understand Medicaid, what it is and what it is not, how it has been implemented,
and the problems that it has encountered, is to understand much about American
political and social attitudes towards health care and American legal and
governmental institutions.
But while Medicaid is very important, it is also extremely complicated.
Medicaid is not one but 52 programs (50 states and 2 territories participated in
2005), varying widely from state to state and, sometimes, within a state. While
some state Medicaid programs resemble traditional insurance-type schemes, other
states have built programs around capitated contracts, "managed care"
strategies, or other innovative arrangements. And no Medicaid program is static:
the Medicaid programs are constantly adjusted by state and federal lawmakers and
by the necessarily complicated network of local, state, and federal agencies
that administer Medicaid programs. Even viewed in the aggregate, Medicaid is not
one but several intertwined programs. Medicaid can be viewed quite differently
from the perspective of those beneficiaries who rely on Medicaid for nursing
home or other forms of long term care, as opposed to the perspective of those
who view Medicaid primarily as a program that finances hospital, physician, and
other acute care services. Conversely, for those who provide those services,
Medicaid is a program of provider reimbursement and the means through which
state and federal governments attempt to regulate their services. For that
matter, it is difficult to view Medicaid apart from its relationship to Social
Security, Medicare, and, particularly, the cash benefit and other social welfare
programs to which Medicaid has been partially affixed.
For these and many other reasons, Medicaid must be studied not simply as
the "government health program for the poor," but as a complicated state-federal
arrangement that must be examined in considerable detail and in a manner that
reflects both its complexity and its unique role in American health care
financing.
5
Year
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
TABLE I
MEDICAID EXPENDITURES AND RECIPIENTS
1967 - 2005
Medicaid
Increase
Number of Medicaid
(billions)
(%)
Recipients (millions)
$ 3.1
3.5
4.2
5.4
6.7
8.4
9.5
11.1
13.5
15.3
17.5
19.6
22.4
26.1
30.4
32.1
35.4
38.2
41.2
45.5
50.5
55.1
62.2
75.4
94.0
106.4
121.7
134.6
146.1
154.1
160.0
170.0
183.6
200.1
219.9
246.7
264.0
290.0
N/A
13%
20%
29%
24%
25%
13%
17%
22%
13%
14%
12%
14%
17%
16%
6%
10%
8%
8%
10%
11%
9%
13%
21.2%
24.7%
13.2%
13.4%
10.6%
8.5%
5.5%
4.9%
5.5%
8.0%
9.0%
9.9%
12.2%
8.8%
7.9%
N/A
N/A
N/A
N/A
N/A
N/A
17.6
19.6
21.5
22.0
22.8
22.8
22.0
21.5
21.6
22.0
21.6
21.6
21.6
21.8
22.5
23.1
22.9
23.5
25.3
28.3
30.9
33.4
35.1
36.3
36.1
N/A
N/A
42.9
44.5
48.4
51.4
53.3
54.6
N/A
6
Source: data derived from estimates of personal health expenditures found at
http://www.cms.hhs.gov/NationalHealthExpendData/ (last visited September 2006);
and http://www.cms.hhs.gov/Medicaid/ (last visited September 2006).
7
1. An Introduction to Medicaid in the 21st Century
As described in Chapter 1, Medicaid evolved somewhat unexpectedly from the
political debates over the enactment of the Medicare program in 1965 and was
pre-designed in large part by the patchwork of state and federal social welfare
programs spawned by the New Deal and its Great Society progeny. As originally
structured, it was intended to be a state-administered, health care financing
program for welfare recipients, providing a range of benefits that would be
largely defined by each state, and financed jointly from state and federal
funds. The states also were given the option of providing Medicaid benefits to
people who fell into the welfare categories (the blind, the aged, the disabled,
and families with dependent children) with income or resources slightly above
the welfare cash grant limits.
Since 1965, Medicaid has been constantly evolving, in some cases by design
and in other cases by its linkage to changes in welfare cash grants and other
programs, as in the case of the 1972 Social Security Amendments and the creation
of the Supplemental Security Income (SSI) program. See discussion in Chapter 1.
The federal Medicaid legislation has been periodically amended to allow and, in
some cases, require states to extend Medicaid eligibility to other categories of
people, e.g., mandating eligibility for some specially-defined categories of
children and pregnant women otherwise ineligible for welfare cash grants. The
federal law also gives considerable discretion to each state in determining the
income and resource standards to determine Medicaid eligibility, discretion that
the states have frequently exercised. As a result, these standards vary widely
from state to state, and, in any one year, few states actually cover more than
one-half to one-third of the population below the federal poverty level.
Notwithstanding this discretion, the total number of Medicaid
beneficiaries has grown throughout the history of the program, albeit somewhat
fitfully, and, again, sometimes as a result of changes in state and federal
Medicaid policies, but sometimes in response to changes in other programs,
swings in the economy, and other extrinsic factors. In the late 1980s, for
example, it appeared that the total number of Medicaid recipients had stabilized
and in 1988 it actually declined. In the early 1990s, in response to federally
mandated changes in Medicaid eligibility and an increase in the level of
unemployment, the total number of recipients jumped substantially, although,
again, these figures disguise considerable variations from state to state during
these same years. Conversely, in 1996, the total number of Medicaid recipients
declined slightly, apparently a result of changes in the welfare cash grant
programs. Since that time the number of Medicaid recipients has continued to
grow and grow, in some years, rather rapidly. See Table I supra. As of 2006,
over 50 million Americans were receiving services through Medicaid.
The federal Medicaid legislation has always allowed each state a great
deal of discretion in fashioning the scope and limits on service coverage and
the terms and condition imposed on provider participation. Grossly oversimplified, at least through the Fall of 2006, a participating state is required
by the federal Medicaid legislation to provide all "categorically needy" -people who the state is required to cover if it has a Medicaid program plus a
few other groups of people that the state can choose to treat as "categorically
needy" -- with a basic range of services, allowed to provide them many
additional services, and given wide latitude in setting various limits on the
services that are covered. States opting to provide services to the "medically
needy" -- people who the state can choose to cover -- have greater latitude in
defining the scope and range of coverage to these beneficiaries. In many states,
8
the range of services covered by Medicaid is limited to those services that are
federally mandated and Medicaid eligibility is available only to the "mandatory
eligibles." Other states can boast that their Medicaid programs cover a broader
range of services for both the "categorically" and the "medically needy" than
most private health financing plans. But in all states, both the level of
benefits and the definition of who is eligible to receive them are a continuing
source of controversy. Throughout the history of the program, the states have
repeatedly reworked their eligibility standards and the coverage of their
programs, sometimes under federal pressure to do so and sometimes under economic
or political pressures from within the state. The specific results are often
difficult to describe and, in some cases, difficult to rationalize. But even in
the best of times, in the most generous states, one simple observation remains
true: The Medicaid program only covers some, but not all, the poor for some, but
not all, their needs.
Even for people whose needs are covered, Medicaid has many shortcomings.
The federal law allows states considerable discretion in determining the type or
level of Medicaid payments, discretion that has been frequently at the heart of
state efforts to contain Medicaid costs. In exercising this discretion, the
states often set provider reimbursement levels far below the rates paid by
Medicare and private payers and, as a result, many providers are reluctant to
accept Medicaid patients. Neither the state nor federal Medicaid laws require
providers to accept Medicaid patients. For most covered services, Medicaid
assures that a provider will be reimbursed only if the beneficiary can find one
willing to accept Medicaid. (But see discussion of EPSDT infra.) In many areas
of the country, Medicaid is a realistic source of health care financing only
through public clinics and hospitals, so-called "Medicaid mills," or the efforts
of some dedicated but frequently disgruntled providers. Many states have
attempted to enroll their Medicaid beneficiaries in HMOs or other capitated
arrangements. These efforts are generally more successful in urban areas,
however, and can leave beneficiaries in rural areas with little or no access to
covered services.
In the eyes of many state and federal policymakers, however, the critical
problem with the Medicaid program has not been its limited eligibility, the
patchwork nature of its coverage, or any of its other inadequacies, but its
costs. As described in Chapter 1, virtually from the inception of the program,
Congress and the states have had to struggle to find some way to keep the costs
of Medicaid within politically acceptable limits. That struggle has resulted in
a hodgepodge of cost-containing strategies, ranging from straightforward service
and eligibility reductions to attempts to encourage more efficient and costeffective services to a whole range of reforms and limits on Medicaid
reimbursement. At times, Congress has appeared reluctant to allow the states too
much discretion and, on occasion, has even required expansion of the program or
coverage of specific services or prohibited certain state practices. At other
times, both Congress and the federal administration have been aggressively costconscious and demonstrably tolerant of state program reductions.
9
TABLE II
WHO IS ELIGIBLE FOR MEDICAID?
As of September 2006, to be eligible for federal Medicaid funds, a state must
cover the "mandatory eligible" or "categorically needy":
-- all people who would have received AFDC (Aid to Families with Dependent
Children) under the state's AFDC standards as of July 16, 1996 ((AFDC has
been phased out and replaced by TANF (Temporary Aid to Needy Families)
except those excluded from TANF for certain specified "penalties;"
-- pregnant or postpartum women and children under age 6 with family
incomes within 133 percent of Federal Poverty Level (FPL),
-- all children under age 19 within 100 percent of FPL,
-- recipients of adoption assistance and foster care under Title IV-E of
Social Security,
-- all SSI (Supplemental Security Income) recipients or, in "209(b)
states," those SSI recipients who meet more restrictive income and
resource standards,
-- some specially-defined categories of Medicare-eligible people (for whom
Medicaid pays their Part B Medicare premiums and cost-sharing under Parts
A and B),
-- undocumented aliens who meet other Medicaid requirements (for whom
Medicaid pays only for emergency medical conditions including labor and
delivery), and
-- "Pickle people," (many but not all) recipients of both SSI and Social
Security who have lost their SSI benefits because of Social Security costof-living adjustments.
A state may cover "optional eligibles" (and treat them as "categorically
needy"):
-- TANF recipients who would not have qualified from AFDC on July 16,
1996, if the state's standards are higher than those on July 16, 1996
-- infants up to one year of age and pregnant women above 133 percent of
FPL, but below 185 percent;
-- certain aged or disabled adults with incomes above the SSI level but
below the FPL;
-- children under 21, 20, 19, or 18 (at state's option) who meet income
and resource requirements for AFDC but who are not otherwise eligible for
TANF;
-- caretaker relatives (of covered children) who meet income and resource
standards of TANF; or
-- aged, blind, or disabled receiving state-funded supplementary payments.
A state may cover the "medically needy":
-- people who would qualify under any of the optional or mandatory groups
listed above except that their income and resources are too high; they may
be covered after they have "spent down" excess income and resources to a
state-prescribed level.
10
TABLE III
WHAT DO MEDICAID RECIPIENTS GET?
As of September 2006, to be eligible for federal Medicaid funds, a state:
must cover for "mandatory eligible" and "optional eligible"
-- inpatient hospital services,
-- outpatient hospital services,
-- rural health clinic services,
-- services by a (federally qualified) health center,
-- laboratory and x-ray services,
-- nursing facility services for adults,
-- early and periodic screening, diagnosis, and treatment for
beneficiaries under age 21,
-- family planning services (except abortion),
-- physician services,
-- medical services by a dentist,
-- home health services,
-- nurse midwife services, and
-- pediatric nurse practitioner services;
may cover for "mandatory eligible" and "optional eligible" any of 19 other
categories of services outlined in the federal statute (virtually any
medical service other than abortion).
If it provides coverage for the medically needy, a state must provide:
-- prenatal care and delivery services,
-- postpartum services,
-- ambulatory services for beneficiaries under age 18 and for
institutionalized beneficiaries, and
-- home health services for any individual entitled to nursing facility
care.
Services provided to the "mandatory eligibles" and "optional eligibles"
may not be less in amount, duration and scope than those provided to the
"medically needy."
Each service must be of sufficient amount, duration, and scope to achieve
the purpose of the program.
A mandatory service may not be denied or decreased in amount, scope, or
duration solely because of the recipient's diagnosis, illness, or
condition.
Amount, duration, and scope must be the same for all beneficiaries within
"mandatory eligible" and "optional eligible" categories; and within all
groups who are "medically needy."
11
The net results are hard to characterize. During the late 1980s, it
appeared that these efforts had been successful, at least in the sense that the
total costs of the Medicaid program were growing relatively slowly and the size
of the Medicaid population had virtually stabilized. On the other hand, in the
early 1990s, both the total costs of the program and the number of beneficiaries
jumped dramatically. But even during the 1980s, in some years and, particularly,
in some states with budget deficits or declining revenue bases, the costs of
even a "stabilized" Medicaid program had been increasingly controversial -- and
thus became even more so following the rapid increases of the early 1990s.
At the same time, Medicaid has demonstrated repeatedly its remarkable
political resilience in the face of an almost constant political onslaught. Few
states have even discussed withdrawing from the program. Even when making the
most draconian Medicaid reductions, policymakers have always insisted that they
were containing costs, not reducing the level of benefits or number of
beneficiaries. And almost as often as Congress or the states have considered
reducing Medicaid, there have been public debates -- and occasional successful
legislative action -- concerning the need to expand the program. Most
importantly, only rarely, at either the federal or state level, has the basic
notion that the government should maintain a health care financing program for
the poor been directly attacked. As detailed in Chapter 1, even at the height of
his popularity, Ronald Reagan was rebuffed in his efforts to overtly rework the
federal government's role in Medicaid and forced to repackage his Medicaid
funding cuts as cost-containing measures, not program reductions.
On the other hand, Medicaid's political resilience almost reached its
breaking point in the mid-1990s. Throughout the 1990s, Congress debated a series
of dramatic changes in the Medicaid program, a debate driven by both ideological
and budgetary concerns. Following the Republican takeover of Congress in 1994,
many of the original Reagan proposals were revived, and throughout 1995 and 1996
Congress engaged in a heated debate over various limits on the federal fiscal
support of Medicaid, expansion of the discretion of each state in determining
eligibility and coverage, and other changes in the federal Medicaid statute that
would have totally restructured the Medicaid program and fundamentally altered
its role in American health care financing. Some of the proposals that reached
the floors of Congress only suggest the range of possibilities:
-- convert Medicaid to a block grant program that would award each state a
fixed budget and, thereafter, annual increases (capped by various budgetdriven limits);
-- federalize the Medicaid program, unbundling it from the AFDC or TANF
cash grant programs, as part of a trade-off for giving the states full
fiscal and administrative responsibility over the cash grant programs;
-- split Medicaid into two programs, one for long term care and the other
for acute and primary care, giving the states more fiscal and
administrative responsibility for long term care;
-- limit the federal match to a maximum ceiling or eliminate altogether
the federal match for administrative costs;
-- make per enrollee-capitation payments to the states;
-- eliminate coverage for non-citizens.
12
None of these measures was adopted, although each reached the floor of
either the House or the Senate at one point during the 1990s. In fact, in the
1990s Medicaid proved, once again, to be remarkably resistant to political
efforts to reduce or limit the basic federal commitment to a federally
sponsored, state administered program for the poor. But Medicaid only just
survived. Indeed, at one point in the mid-1990s, it appeared that Congress would
include Medicaid benefits along with the cash grant, food stamps, and other
social service reductions that were wrought by the Personal Responsibility and
Work Opportunity Reconciliation Act of 1996 which drastically curtailed the
federal support for those programs and, in the political lexicon, "ended welfare
as we knew it." President Clinton vetoed the original version of the act that
included Medicaid among the re-worked welfare programs. After lengthy
negotiations, the final bill excluded Medicaid, as part of the political
compromise that secured the final enactment of the welfare reform legislation
and the President’s signature.
The political significance of the severance of the Medicaid reform
provisions from the 1996 welfare reform legislation can be read several ways. In
some ways, it reaffirmed the remarkable political support that the program has
maintained even when it is drawn to the center of critical ideological and
budgetary controversies. On the other hand, the political story of Medicaid in
the 1990s could prove to be only the penultimate chapter in a longer story to be
continued and then completed in the first decade of the 21st century.
The analyses of the legal and political issues that follow in the next
subsections of this chapter should be read first as descriptions of how those
issues have been resolved under current law; but they should also be read for
the purpose of anticipating how those issues will be addressed if proposals for
Medicaid reform again take center stage.
To make some sense of what is at stake here, for Medicaid as well as other
American social welfare programs, consider the distinction between a program
that is an entitlement and one that is essentially a discretionary spending
program. In the context of American Social Security and welfare programs, the
term entitlement has had at least two meanings. First, it is a description of
the statutory structure of a benefits program. Until the 1996 welfare reform
legislation, all of the federal welfare programs (AFDC, SSI, and related
programs that provide food stamps and social services), Social Security,
Medicare, and Medicaid were structured as entitlements. That is, the
authorization statute defines who is eligible for the program's benefits and
requires that anyone who meets these eligibility standards be given prescribed
benefits. As such, eligible beneficiaries are statutorily entitled to the
benefits. There is no upper limit on the amount of benefits that can be provided
in a given year, either directly set out in the authorization legislation or
fixed by annual appropriation legislation. Nor is the program authorized for a
fixed number of years. Under most other government spending programs, even some
programs that provide health care or other social services, no one is
automatically eligible for benefits and no one can demand benefits that exceed
the annual appropriations for the program (or the maximum authorization levels
in the program's authorization statute).
The fact that some social welfare programs are designed as statutory
entitlements strongly implies that they are political entitlements as well. That
is to say, there is a popular perception that there is a permanent government
commitment to continue to provide the benefits to program beneficiaries.
Medicare and Social Security are the classic political entitlements. As a
constitutional matter, either program could be curtailed or repealed altogether
13
at any time; see discussion supra. As a political matter, however, any
suggestion that either program be limited or reduced would provoke a firestorm
of protest. Programs like Medicaid (and AFDC until the welfare reform
legislation of 1996) have not enjoyed the same degree of political
invulnerability, as has been demonstrated by the repeated efforts over the years
to contain their costs. But the basic notion of a Medicaid program, a federal
commitment to underwrite the costs of health care for the poor and structured as
a statutory entitlement program, has been and continues to be regarded as a
political entitlement and, therefore, a permanent government commitment -- or at
least it has through the end of the 1990s.
Consider whether Medicaid should be an entitlement program -- in either
meaning of the term. Should the federal government maintain such a commitment?
If there is a federal commitment, should it be open-ended, as it has been
historically, or should it be in the form of a block grant to the states?
Assuming there is some future limit on federal Medicaid spending, should the
states consider Medicaid a political entitlement and, if so, should they
structure their programs as statutory entitlements? If either level of
government does so, how does this affect the manner in which legislatures set
priorities and make other spending (and taxing) decisions? Obviously any program
that is tied to the availability of revenue or funded exclusively out of one
revenue source is something less than an entitlement. Is that sound public
policy? Does it make a difference that you are talking about health benefits for
the poor -- who are less likely to have effective access to political decision
makers? You may want to compare your answers here to your answers to questions
concerning the future of the Medicare program raised in the next subsection;
your answers to questions concerning your preferences for participation in
various private financing arrangements supra; and your answers to questions
concerning the reform of both private and public health care financing that will
be raised in Chapter 8. For that matter, your views concerning the future of the
Medicaid program, whatever they may be, should be tempered by the facts that
Medicaid, even as it is currently structured covers only some, not all of the
nation's poor, and that if Medicaid's scope is curtailed it will only add to a
problem that is already considered by many to be one of the most fundamental and
perplexing questions facing American health policymakers: the number of
Americans who have little or no third party financing for their health care
needs -- both of which will be discussed further in the next section of this
chapter.
14
2. Problems in Medicaid Coverage and Eligibility
MEMORIAL HOSPITAL v. MARICOPA COUNTY, 415 U.S. 250 (1974)
Marshall, Justice.
*
*
*
Appellant Henry Evaro is an indigent suffering from a chronic asthmatic
and bronchial illness. In early June 1971, Mr. Evaro moved from New Mexico to
Phoenix in Maricopa County, Arizona. On July 8, 1971, Evaro had a severe
respiratory attack and was sent by his attending physician to appellant Memorial
Hospital, a nonprofit private community hospital. Pursuant to the Arizona
statute governing medical care for indigents, Memorial notified the Maricopa
County Board of Supervisors that it had in its charge an indigent who might
qualify for county care and requested that Evaro be transferred to the County's
public hospital facility. In accordance with the approved procedures, Memorial
also claimed reimbursement from the County in the amount of $1,202.60, for the
care and services it had provided Evaro.
Under Arizona law, the individual county governments are charged with the
mandatory duty of providing necessary hospital and medical care for their
indigent sick. But the statute requires an indigent to have been a resident of
the County for the preceding 12 months in order to be eligible for free nonemergency medical care. Maricopa County refused to admit Evaro to its public
hospital or to reimburse Memorial solely because Evaro had not been a resident
of the County for the preceding year. Appellees do not dispute that Evaro is an
indigent or that he is a bona fide resident of Maricopa County.
This action was instituted to determine whether appellee Maricopa County
was obligated to provide medical care for Evaro or was liable to Memorial for
the costs it incurred because of the County's refusal to do so. This controversy
necessarily requires an adjudication of the constitutionality of the Arizona
durational residence requirement for providing free medical care to indigents.
The trial court held the residence requirement unconstitutional as a violation
of the Equal Protection Clause. . . . [T]he Arizona Supreme Court upheld the
challenged requirement. . . .
II
In determining whether the challenged durational residence provision
violates the Equal Protection Clause, we must first determine what burden of
justification the classification created thereby must meet, by looking to the
nature of the classification and the individual interests affected. The Court
considered similar durational residence requirements for welfare assistance in
Shapiro v. Thompson, 394 U.S. 618 (1969). The Court observed that those
requirements created two classes of needy residents "indistinguishable from each
other except that one is composed of residents who have resided a year or more,
and the second of residents who have resided less than a year, in the
jurisdiction. On the basis of this sole difference the first class [was] granted
and second class [was] denied welfare aid upon which may depend the ability . .
. to obtain the very means to subsist -- food, shelter, and other necessities of
life." Id., at 627. The Court found that because this classification impinged on
the constitutionally guaranteed right of interstate travel, it was to be judged
by the standard of whether it promoted a compelling state interest. Finding such
15
an interest wanting, the Court held the challenged residence requirements
unconstitutional.
Appellees argue that the residence requirement before us is
distinguishable from those in Shapiro, while appellants urge that Shapiro is
controlling. We agree with appellants that Arizona's durational residence
requirement for free medical care must be justified by a compelling state
interest and that, such interests being lacking, the requirement is
unconstitutional.
III
The right of interstate travel has repeatedly been recognized as a basic
constitutional freedom. Whatever its ultimate scope, however, the right to
travel was involved in only a limited sense in Shapiro. The Court was there
concerned only with the right to migrate, "with intent to settle and abide,” or,
as the Court put it, "to migrate, resettle, find a new job, and start a new
life." Even a bona fide residence requirement would burden the right to travel,
if travel meant merely movement. But, in Shapiro, the Court explained that
"[t]he residence requirement and the one-year waiting-period requirement are
distinct and independent prerequisites" for assistance and only the latter was
held to be unconstitutional. . . .
IV
. . . Appellant Evaro has been effectively penalized for his interstate
migration, although this was accomplished under the guise of a county residence
requirement. What would be unconstitutional if done directly by the State can no
more readily be accomplished by a county at the State's direction. The Arizona
Supreme Court could have construed the waiting-period requirement to apply to
intrastate but not interstate migrants; but it did not do so, and "it is not our
function to construe a state statute contrary to the construction given it by
the highest court of a State."
V
Although any durational residence requirement impinges to some extent on
the right to travel, the Court in Shapiro did not declare such a requirement to
be per se unconstitutional. The Court's holding was conditioned by the caveat
that some "waiting-period or residence requirements . . . may not be penalties
upon the exercise of the constitutional right of interstate travel." The amount
of impact required to give rise to the compelling-state-interest test was not
made clear. The Court spoke of the requisite impact in two ways. First, we
considered whether the waiting period would deter migration. . . . Second, the
Court considered the extent to which the residence requirement served to
penalize the exercise of the right to travel.
The appellees here argue that the denial of non-emergency medical care,
unlike the denial of welfare, is not apt to deter migration; but it is far from
clear that the challenged statute is unlikely to have any deterrent effect. A
person afflicted with a serious respiratory ailment, particularly an indigent
whose efforts to provide a living for his family have been inhibited by his
incapacitating illness, might well think of migrating to the clean dry air of
Arizona, where relief from his disease could also bring relief from unemployment
and poverty. But he may hesitate if he knows that he must make the move without
the possibility of falling back on the State for medical care should his
16
condition still plague him or grow more severe during his first year of
residence.
It is true, as appellees argue, that there is no evidence in the record
before us that anyone was actually deterred from traveling by the challenged
restriction. But neither did the majority in Shapiro find any reason "to dispute
the 'evidence that few welfare recipients have in fact been deterred [from
moving] by residence requirements.' Indeed, none of the litigants had themselves
been deterred." . . .
. . . .
Thus, Shapiro . . . stand[s] for the proposition that a classification
which "operates to penalize those persons . . . who have exercised their
constitutional right of interstate migration," must be justified by a compelling
state interest. . . . In Dunn v. Blumstein, [405 U.S. 330 (1972)], the Court
found that the denial of the franchise, "a fundamental political right," . . .
was a penalty requiring application of the compelling-state-interest test. In
Shapiro, the Court found denial of the basic "necessities of life" to be a
penalty. Nonetheless, the Court has declined to strike down state statutes
requiring one year of residence as a condition to lower tuition at state
institutions of higher education.
Whatever the ultimate parameters of the Shapiro penalty analysis, it is at
least clear that medical care is as much "a basic necessity of life" to an
indigent as welfare assistance. And, governmental privileges or benefits
necessary to basic sustenance have often been viewed as being of greater
constitutional significance than less essential forms of governmental
entitlements. It would be odd, indeed, to find that the State of Arizona was
required to afford Evaro welfare assistance to keep him from discomfort of
inadequate housing or the pangs of hunger but could deny him the medical care
necessary to relieve him from the wheezing and gasping for breath that attend
his illness.
Nor does the fact that the durational residence requirement is
inapplicable to the provision of emergency medical care save the challenged
provision from constitutional doubt. As the Arizona Supreme Court observed,
appellant "Evaro was an indigent person who required continued medical care for
the preservation of his health and well being . . . ," even if he did not
require immediate emergency care. The State could not deny Evaro care just
because, although gasping for breath, he was not in immediate danger of stopping
breathing altogether. To allow a serious illness to go untreated until it
requires emergency hospitalization is to subject the sufferer to the danger of a
substantial and irrevocable deterioration in his health. Cancer, heart disease,
or respiratory illness, if untreated for a year, may become all but irreversible
paths to pain, disability, and even loss of life. The denial of medical care is
all the more cruel in this context, falling as it does on indigents who are
often without the means to obtain alternative treatment.
. . . .
VI
We turn now to the question of whether the State has shown that its
durational residence requirement is "legitimately defensible,” in that it
furthers a compelling state interest. A number of purposes are asserted to be
served by the requirement and we must determine whether these satisfy the
17
appellees' heavy burden of justification, and insure that the State, in pursuing
its asserted objectives, has chosen means that do not unnecessarily burden
constitutionally protected interests.
. . . .
First, a State may not protect the public fisc by drawing an invidious
distinction between classes of its citizens [citing Shapiro]. [A]ppellees must
do more than show that denying free medical care to new residents saves money.
The conservation of the taxpayers' purse is simply not a sufficient state
interest to sustain a durational residence requirement which, in effect,
severely penalizes exercise of the right to freely migrate and settle in another
State.
Second, to the extent the purpose of the requirement is to inhibit the
immigration of indigents generally, that goal is constitutionally impermissible.
And, to the extent the purpose is to deter only those indigents who take up
residence in the County solely to utilize its new and modern public medical
facilities, the requirement at issue is clearly overinclusive. The challenged
durational residence requirement treats every indigent, in his first year of
residence, as if he came to the jurisdiction solely to obtain free medical care.
. . . Moreover, "a State may no more try to fence out those indigents who seek
[better public medical facilities] than it may try to fence out indigents
generally." An indigent who considers the quality of public hospital facilities
in entering the State is no less deserving than one who moves into the State in
order to take advantage of its better educational facilities.
. . . .
The appellees also argue that eliminating the durational residence
requirement would dilute the quality of services provided to longtime residents
by fostering an influx of newcomers and thus requiring the County's limited
public health resources to serve an expanded pool of recipients. Appellees
assert that the County should be able to protect its longtime residents because
of their contributions to the community, particularly through the past payment
of taxes. We rejected this "contributory" rationale both in Shapiro and in
Vlandis v. Kline, 412 U.S. 441, 550 n. 6 (1973), by observing:
[Such] reasoning would logically permit the State to bar new residents
from schools, parks, and libraries or deprive them of police and fire
protection. Indeed it would permit the State to apportion all benefits and
services according to the past tax contributions of its citizens. The
Equal Protection Clause prohibits such an apportionment of state
services.". . .
Appellees express a concern that the threat of an influx of indigents
would discourage "the development of modern and effective [public medical]
facilities." It is suggested that whether or not the durational residence
requirement actually deters migration, the voters think that it protects them
from low income families' being attracted by the county hospital; hence, the
requirement is necessary for public support of that medical facility. A State
may not employ an invidious discrimination to sustain the political viability of
its programs. . . .
The appellees also argue that the challenged statute serves some
administrative objectives. They claim that the one-year waiting period is a
convenient rule of thumb to determine bona fide residence. Besides not being
18
factually defensible, this test is certainly overbroad to accomplish its avowed
purpose. A mere residence requirement would accomplish the objective of limiting
the use of public medical facilities to bona fide residents of the County
without sweeping within its prohibitions those bona fide residents who had moved
into the State within the qualifying period. Less drastic means, which do not
impinge on the right of interstate travel, are available. . . .
The appellees allege that the waiting period is a useful tool for
preventing fraud. Certainly, a State has a valid interest in preventing fraud. .
. . [T]he challenged provision is ill-suited to that purpose. An indigent
applicant, intent on committing fraud, could as easily swear to having been a
resident of the county for the preceding year as to being one currently. And,
there is no need for the State to rely on the durational requirement as a
safeguard against fraud when other mechanisms to serve that purpose are
available which would have a less drastic impact on constitutionally protected
interests. . . .
*
*
*
19
HARRIS v. McRAE, 448 U.S. 297 (1980)
Stewart, Justice.
*
*
*
. . . The current version of the Hyde Amendment, applicable for fiscal
year 1980, provides:
[N]one of the funds provided by this joint resolution
perform abortions except where the life of the mother
if the fetus were carried to term; or except for such
necessary for the victims of rape or incest when such
been reported promptly to a law enforcement agency or
service.
shall be used to
would be endangered
medical procedures
rape or incest has
public health
This version of the Hyde Amendment is broader than that applicable for
fiscal year 1977, which did not include the "rape or incest" exception, but
narrower than that applicable for most of fiscal year 1978, and all of fiscal
year 1979, which had an additional exception for "instances where severe and
long-lasting physical health damage to the mother would result if the pregnancy
were carried to term when so determined by two physicians". . . .
III
Having determined that Title XIX does not obligate a participating State
to pay for those medically necessary abortions for which Congress has withheld
federal funding, we must consider the constitutional validity of the Hyde
Amendment. The appellees assert that the funding restrictions of the Hyde
Amendment violate several rights secured by the Constitution -- (1) the right of
a woman, implicit in the Due Process Clause of the Fifth Amendment, to decide
whether to terminate a pregnancy, (2) the prohibition under the Establishment
Clause of the First Amendment against any "law respecting an establishment of
religion," and (3) the right to freedom of religion protected by the Free
Exercise Clause of the First Amendment. The appellees also contend that, quite
apart from substantive constitutional rights, the Hyde Amendment violates the
equal protection component of the Fifth Amendment.
. . . .
The Hyde Amendment, like the Connecticut welfare regulation at issue in
Maher v. Roe [432 U.S. 464 (1977)], places no governmental obstacle in the path
of a woman who chooses to terminate her pregnancy, but rather, by means of
unequal subsidization of abortion and other medical services, encourages
alternative activity deemed in the public interest. The present case does differ
factually from Maher insofar as that case involved a failure to fund nontherapeutic abortions, whereas the Hyde Amendment withholds funding of certain
medically necessary abortions. Accordingly, the appellees argue that because the
Hyde Amendment affects a significant interest not present or asserted in Maher - the interest of a woman in protecting her health during pregnancy -- and
because that interest lies at the core of the personal constitutional freedom
recognized in [Roe v.] Wade, [410 U.S. 113 (1973)] the present case is
constitutionally different from Maher. It is the appellees' view that to the
extent that the Hyde Amendment withholds funding for certain medically necessary
abortions, it clearly impinges on the constitutional principle recognized in
Wade.
20
It is evident that a woman's interest in protecting her health was an
important theme in Wade. In concluding that the freedom of a woman to decide
whether to terminate her pregnancy falls within the personal liberty protected
by the Due Process Clause, the Court in Wade emphasized the fact that the
woman's decision carries with it significant personal health implications -both physical and psychological. In fact, although the Court in Wade recognized
that the state interest in protecting potential life becomes sufficiently
compelling in the period after fetal viability to justify an absolute criminal
prohibition of non-therapeutic abortions, the Court held that even after fetal
viability a State may not prohibit abortions "necessary to preserve the life or
health of the mother." Because even the compelling interest of the State in
protecting potential life after fetal viability was held to be insufficient to
outweigh a woman's decision to protect her life or health, it could be argued
that the freedom of a woman to decide whether to terminate her pregnancy for
health reasons does in fact lie at the core of the constitutional liberty
identified in Wade.
But, regardless of whether the freedom of a woman to choose to terminate
her pregnancy for health reasons lies at the core or the periphery of the due
process liberty recognized in Wade, it simply does not follow that a woman's
freedom of choice carries with it a constitutional entitlement to the financial
resources to avail herself of the full range of protected choices. The reason
why was explained in Maher: although government may not place obstacles in the
path of a woman's exercise of her freedom of choice, it need not remove those
not of its own creation. Indigency falls in the latter category. The financial
constraints that restrict an indigent woman's ability to enjoy the full range of
constitutionally protected freedom of choice are the product not of governmental
restrictions on access to abortions, but rather of her indigency. Although
Congress has opted to subsidize medically necessary services generally, but not
certain medically necessary abortions, the fact remains that the Hyde Amendment
leaves an indigent woman with at least the same range of choice in deciding
whether to obtain a medically necessary abortion as she would have had if
Congress had chosen to subsidize no health care costs at all. We are thus not
persuaded that the Hyde Amendment impinges on the constitutionally protected
freedom of choice recognized in Wade. [See footnote 19 at end of decision.]
Although the liberty protected by the Due Process Clause affords
protection against unwarranted government interference with freedom of choice in
the context of certain personal decisions, it does not confer an entitlement to
such funds as may be necessary to realize all the advantages of that freedom. To
hold otherwise would mark a drastic change in our understanding of the
Constitution. It cannot be that because government may not prohibit the use of
contraceptives, Griswold v. Connecticut, or prevent parents from sending their
child to a private school, Pierce v. Society of Sisters, government, therefore,
has an affirmative constitutional obligation to ensure that all persons have the
financial resources to obtain contraceptives or send their children to private
schools. To translate the limitation on governmental power implicit in the Due
Process Clause into an affirmative funding obligation would require Congress to
subsidize the medically necessary abortion of an indigent woman even if Congress
had not enacted a Medicaid program to subsidize other medically necessary
services. Nothing in the Due Process Clause supports such an extraordinary
result.
[The Court then rejected the arguments that the Hyde Amendment violates
the Establishment Clause and the Free Exercise Clause.]
21
It remains to be determined whether the Hyde Amendment violates the equal
protection component of the Fifth Amendment. This challenge is premised on the
fact that, although federal reimbursement is available under Medicaid for
medically necessary services generally, the Hyde Amendment does not permit
federal reimbursement of all medically necessary abortions. . . .
The guarantee of equal protection under the Fifth Amendment is not a
source of substantive rights or liberties, but rather a right to be free from
invidious discrimination in statutory classifications and other governmental
activity. It is well settled that where a statutory classification does not
itself impinge on a right or liberty protected by the Constitution, the validity
of classification must be sustained unless "the classification rests on grounds
wholly irrelevant to the achievement of [any legitimate governmental]
objective." . . .
For the reasons stated above, we have already concluded that the Hyde
Amendment violates no constitutionally protected substantive rights. We now
conclude as well that it is not predicated on a constitutionally suspect
classification. In reaching this conclusion, we again draw guidance from the
Court's decision in Maher v. Roe. As to whether the Connecticut welfare
regulation providing funds for childbirth but not for non-therapeutic abortions
discriminated against a suspect class, the Court in Maher observed:
An indigent woman desiring an abortion does not come within the limited
category of disadvantaged classes so recognized by our cases. Nor does the
fact that the impact of the regulation falls upon those who cannot pay
lead to a different conclusion. In a sense, every denial of welfare to an
indigent creates a wealth classification as compared to non-indigents who
are able to pay for the desired goods or services. But this Court has
never held that financial need alone identifies a suspect class for
purposes of equal protection analysis. . . .
It is our view that the present case is indistinguishable from Maher in
this respect. Here, as in Maher, the principal impact of the Hyde Amendment
falls on the indigent. But that fact does not itself render the funding
restriction constitutionally invalid, for this Court has held repeatedly that
poverty, standing alone is not a suspect classification. That Maher involved the
refusal to fund non-therapeutic abortions, whereas the present case involves the
refusal to fund medically necessary abortions, has no bearing on the factors
that render a classification "suspect" within the meaning of the constitutional
guarantee of equal protection.
The remaining question then is whether the Hyde Amendment is rationally
related to a legitimate governmental objective. It is the Government's position
that the Hyde Amendment bears a rational relationship to its legitimate interest
in protecting the potential life of the fetus. We agree.
In Wade, the Court recognized that the State has an "important and
legitimate interest in protecting the potentiality of human life." That interest
was found to exist throughout a pregnancy, "grow[ing] in substantiality as the
woman approaches term." Moreover, in Maher, the Court held that Connecticut's
decision to fund the costs associated with childbirth but not those associated
with non-therapeutic abortions was a rational means of advancing the legitimate
state interest in protecting potential life by encouraging childbirth.
It follows that the Hyde Amendment, by encouraging childbirth except in
the most urgent circumstances, is rationally related to the legitimate
22
governmental objective of protecting potential life. By subsidizing the medical
expenses of indigent women who carry their pregnancies to term while not
subsidizing the comparable expenses of women who undergo abortions (except those
whose lives are threatened), Congress has established incentives that make
childbirth a more attractive alternative than abortion for persons eligible for
Medicaid. These incentives bear a direct relationship to the legitimate
congressional interest in protecting potential life. Nor is it irrational that
Congress has authorized federal reimbursement for medically necessary services
generally, but not for certain medically necessary abortions. Abortion is
inherently different from other medical procedures, because no other procedure
involves the purposeful termination of a potential life.
. . . .
Where, as here, the Congress has neither invaded a substantive
constitutional right or freedom, nor enacted legislation that purposefully
operates to the detriment of a suspect class, the only requirement of equal
protection is that congressional action be rationally related to a legitimate
governmental interest. The Hyde Amendment satisfies that standard. It is not the
mission of this Court or any other to decide whether the balance of competing
interests reflected in the Hyde Amendment is wise social policy. If that were
our mission, not every Justice who has subscribed to the judgment of the Court
today could have done so. But we cannot, in the name of the Constitution,
overturn duly enacted statutes simply "because they may be unwise, improvident,
or out of harmony with a particular school of thought." . . . Rather, "when an
issue involves policy choices as sensitive as those implicated [here] . . . ,
the appropriate forum for their resolution in a democracy is the legislature."
Maher v. Roe.
*
*
*
23
(FOOTNOTE 19 to Harris)
The appellees argue that the Hyde Amendment is unconstitutional because it
"penalizes" the exercise of a woman's choice to terminate a pregnancy by
abortion. See Memorial Hospital v. Maricopa County; Shapiro v. Thompson. This
argument falls short of the mark. In Maher, the Court found only a "semantic
difference" between the argument that Connecticut's refusal to subsidize nontherapeutic abortions "unduly interfere[d]" with the exercise of the
constitutional liberty recognized in Wade and the argument that it "penalized"
the exercise of that liberty. And, regardless of how the claim was
characterized, the Maher Court rejected the argument that Connecticut's refusal
to subsidize protected conduct, without more, impinged on the constitutional
freedom of choice. This reasoning is equally applicable in the present case. A
substantial constitutional question would arise if Congress had attempted to
withhold all Medicaid benefits from an otherwise eligible candidate simply
because that candidate had exercised her constitutionally protected freedom to
terminate her pregnancy by abortion. This would be analogous to Sherbert v.
Verner, where this Court held that a State may not, consistent with the First
and Fourteenth Amendments, withhold all unemployment compensation benefits from
a claimant who would otherwise be eligible for such benefits but for the fact
that she is unwilling to work one day per week on her Sabbath. But the Hyde
Amendment, unlike the statute at issue in Sherbert, does not provide for such a
broad disqualification from receipt of public benefits. Rather, the Hyde
Amendment, like the Connecticut welfare provision at issue in Maher, represents
simply a refusal to subsidize certain protected conduct. A refusal to fund
protected activity, without more, cannot be equated with the imposition of a
"penalty" on that activity.
24
PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA V. WALSH, 538 U.S. 644
(2003)
Stevens, Justice.
*
*
*
In response to increasing Medicaid expenditures for prescription drugs,
Congress enacted a cost-saving measure in 1990 that requires drug companies to
pay rebates to States on their Medicaid purchases. Over the last several years,
state legislatures have enacted supplemental rebate programs to achieve
additional cost savings on Medicaid purchases as well as for purchases made by
other needy citizens. The "Maine Rx" program, enacted in 2000, is primarily
intended to provide discounted prescription drugs to Maine's uninsured citizens
but its coverage is open to all residents of the State. Under the program, Maine
will attempt to negotiate rebates with drug manufacturers to fund the reduced
price for drugs offered to Maine Rx participants. If a drug company does not
enter into a rebate agreement, its Medicaid sales will be subjected to a "prior
authorization" procedure.
In this case, an association of nonresident drug manufacturers has
challenged the constitutionality of the Maine Rx Program, claiming that the
program is preempted by the federal Medicaid statute . . . . The association has
not alleged that the program denies Medicaid patients meaningful access to
prescription drugs or that it has excluded any drugs from access to the market
in Maine. Instead, it contends that the program imposes a significant burden on
Medicaid recipients by requiring prior authorization in certain circumstances
without serving any valid Medicaid purpose. . . .
. . . .
Prior to 1990 . . . some States designed and administered their own
formularies, listing the drugs that they would cover. States also employed
"prior authorization programs" that required approval by a state agency to
qualify a doctor's prescription for reimbursement. These programs were not
specifically governed by any federal law or regulations, but rather were made
part of the State Medicaid plans and approved by the Secretary because they
aided in controlling Medicaid costs.
Congress effectively ratified the Secretary's practice of approving state
plans containing prior authorization requirements when it created its rebate
program in an amendment [in 1990]. The new program had two basic parts. First,
it imposed a general requirement that, in order to qualify for Medicaid
payments, drug companies must enter into agreements either with the Secretary
or, if authorized by the Secretary, with individual States, to provide rebates
on their Medicaid sales of outpatient prescription drugs. The rebate on a
"single source drug" or an "innovator multiple source drug" is the difference
between the manufacturer's average price and its "best price," or 15.1% of the
average manufacturer price, whichever is greater. The rebate for other drugs is
11.1% of the average manufacturer price.
Second, once a drug manufacturer enters into a rebate agreement, the law
requires the State to provide coverage for that drug under its plan unless the
State complies with one of the exclusion or restriction provisions in the
Medicaid Act. For example, a State may exclude coverage of drugs such as
"[a]gents . . . used for cosmetic purposes or hair growth."
25
Most relevant to this case, Congress allowed States, "as a condition of
coverage or payment for a covered outpatient drug” to require approval of the
drug before it is dispensed. Thus . . . except for a narrow category of new
drugs, "[a] State may subject to prior authorization any covered outpatient
drug," § 1396r8(d)(1)(A), so long as the State's prior authorization program
(1) provides a response by telephone or other telecommunication device within 24
hours of a request for prior authorization, and, (2) except for the listed
excludable drugs, provides for the dispensing of at least a 72-hour supply of a
covered drug in an emergency situation . . . .
In the Omnibus Budget Reconciliation Act of 1993, Congress further amended
the Act to allow the States to use formularies subject to strict limitations.
That amendment expressly stated that a prior authorization program that complies
with the 24-hour and 72-hour conditions is not subject to the limitations
imposed on formularies. . . .
In 2000, the Maine Legislature established the Maine Rx Program "to reduce
prescription drug prices for residents of the State." The statute provides that
"the State [shall] act as a pharmacy benefit manager in order to make
prescription drugs more affordable for qualified Maine residents . . . . The
program is intended to enable individuals to buy drugs from retail pharmacies at
a discount roughly equal to the rebate on Medicaid purchases.
The statute provides that any manufacturer or "labeler" selling drugs in
Maine through any publicly supported financial assistance program "shall enter
into a rebate agreement" with the State Commissioner of Human Services
(Commissioner). The Commissioner is directed to use his best efforts to obtain a
rebate that is at least equal to the rebate calculated under the federal program
created in 1990. Rebates are to be paid into a fund administered by the
Commissioner, and then distributed to participating pharmacies to compensate
them for selling at discounted prices.
For those manufacturers that do not enter into rebate agreements, there
are two consequences: First, their nonparticipation is information that the
Department of Human Services must release "to health care providers and the
public." Second, and more importantly for our purposes, the "department shall
impose prior authorization requirements in the Medicaid program under this
Title, as permitted by law, for the dispensing of prescription drugs provided by
those [nonparticipating] manufacturers and labelers."
The statute authorizes the department to adopt implementing rules. . . .
The proposed rules also explain that Maine intends to appoint a "Drug
Utilization Review Committee," composed of physicians and pharmacists who will
evaluate each drug manufactured by a company that has declined to enter into a
rebate agreement to decide whether it is clinically appropriate to subject the
drug to prior authorization. The State represents that it "certainly will not
subject any single-source drug that fulfills a unique therapeutic function to
the prior authorization process" even if its manufacturer does not enter into a
rebate agreement. The determination "whether a particular drug should be
subjected to a prior authorization requirement will be based firmly upon
considerations of medical necessity, and in compliance with the State's
responsibilities as the administrator of the Maine Medicaid Program."
. . . .
[Petitioners argue that this will affect] the companies' methods of
26
distribution . . . . "Imposition of a prior authorization (PA) requirement with
respect to a particular drug severely curtails access to the drug for covered
patients and sharply reduces the drug's market share and sales, as the PA causes
a shift of patients to competing drugs of other manufacturers that are not
subject to a PA. Because a PA imposes additional procedural burdens on
physicians prescribing the manufacturer's drug and retail pharmacies dispensing
it, the effect of a PA is to diminish the manufacturer's goodwill that helped
foster demand for its drug over competing drugs produced by other manufacturers,
and to shift physician and patient loyalty to those competing drugs, perhaps
permanently."
Respondents . . . do not dispute the factual assertions concerning the
impact of prior authorization on the drug companies' market shares, but instead
comment on the benefits of prior authorization for patients. The State's
Medicaid Medical Director, Dr. Clifford, explained that "[p]hysicians in Maine
are already well acquainted with the extensive prior authorization programs of
the four HMO/Insurance programs which collectively cover nearly half the state's
residents" and that the State had taken steps to "ensure that physicians will
always be able to prescribe the safest and most efficacious drugs for their
Medicaid patients."
. . . [T]he District Court . . . held that the Medicaid Act preempted
Maine's Rx Program insofar as it threatened to impose a prior authorization
requirement on nonparticipating manufacturers. . . .
The Court of Appeals disagreed . . . . The question before us is whether
the District Court abused its discretion when it entered the preliminary
injunction.
The centerpiece of petitioner's attack on Maine's Rx Program is its
allegedly unique use of a threat to impose a prior authorization requirement on
Medicaid sales to coerce manufacturers into reducing their prices on sales to
non-Medicaid recipients. Petitioner argues, and the District Court held, that
the potential interference with the delivery of Medicaid benefits without any
benefit to the federal program is prohibited by the federal statute.
. . . .
The Court of Appeals identified two Medicaid-related interests that will
be served if the program is successful and rebates become available on sales to
uninsured individuals. First, the program will provide medical benefits to
persons who can be described as "medically needy" even if they do not qualify
for AFDC or SSI benefits. There is some factual dispute concerning the extent to
which the program will also benefit non-needy persons, but even if the program
is more inclusive than the Secretary thinks it should be, the potential benefits
for non-needy persons would not nullify the benefits that would be provided to
the neediest segment of the uninsured population. Second, there is the
possibility that, by enabling some borderline aged and infirm persons better
access to prescription drugs earlier, Medicaid expenses will be reduced. If
members of this borderline group are not able to purchase necessary prescription
medicine, their conditions may worsen, causing further financial hardship and
thus making it more likely that they will end up in the Medicaid program and
require more expensive treatment.
A third rather obvious Medicaid purpose will be fostered whenever it is
necessary to impose the prior authorization requirement on a manufacturer that
refuses to participate. As the record demonstrates, private managed care
27
organizations typically require prior authorization both to protect patients
from inappropriate prescriptions and "to encourage the use of cost-effective
medications without diminishing safety or efficacy." No doubt that is why
Congress expressly preserved the States' ability to adopt that practice when it
passed the Medicaid amendments in 1990. The fact that prior authorization
actually does produce substantial cost savings for organizations purchasing
large volumes of drugs is apparent both from the affidavits in the record
describing the impact of such programs on manufacturers' market shares . . . .
The fact that the Maine Rx Program may serve Medicaid-related purposes,
both by providing benefits to needy persons and by curtailing the State's
Medicaid costs, would not provide a sufficient basis for upholding the program
if it severely curtailed Medicaid recipients' access to prescription drugs. Cf.
42 U.S.C. § 1396a(a)(19). (State Medicaid plan must assure that care and
services are to be provided "in a manner consistent with . . . the best
interests of the recipients"). It was, however, incorrect for the District Court
to assume that any impediment, "[n]o matter how modest," to a patient's ability
to obtain the drug of her choice at state expense would invalidate the Maine Rx
Program.
We have made it clear that the Medicaid Act "gives the States substantial
discretion to choose the proper mix of amount, scope, and duration limitations
on coverage, as long as care and services are provided in 'the best interest of
the recipients.' "[citation to Alexander v. Choate].
. . . .
The fact that a State's decision to curtail Medicaid benefits may have
been motivated by a state policy unrelated to the Medicaid Act does not limit
the scope of its broad discretion to define the package of benefits it will
finance. [citation to the abortion funding decisions] Maine's interest in
protecting the health of its uninsured residents also provides a plainly
permissible justification for a prior authorization requirement that is assumed
to have only a minimal impact on Medicaid recipients' access to prescription
drugs. The Medicaid Act contains no categorical prohibition against reliance on
state interests unrelated to the Medicaid program itself when a State is
fashioning the particular contours of its own program. . . .
At this stage of the proceeding, the severity of any impediment that
Maine's program may impose on a Medicaid patient's access to the drug of her
choice is a matter of conjecture. To the extent that drug manufacturers agree to
participate in the program, there will be no impediment. To the extent that the
manufacturers refuse, the Drug Utilization Review Committee will determine
whether it is clinically appropriate to subject those drugs to prior
authorization. If the committee determines prior authorization is required, that
requirement may result in the delivery of a less expensive drug than a physician
first prescribed, but on the present record we cannot conclude that a
significant number of patients' medical needs -- indeed, any patient's medical
needs -- will be adversely affected.
The record does demonstrate that prior authorization may well have a
significant adverse impact on the manufacturers of brand name prescription drugs
and that it will impose some administrative costs on physicians. The impact on
manufacturers is not relevant because any transfer of business to less expensive
products will produce savings for the Medicaid program. The impact on doctors
may be significant if it produces an administrative burden that affects the
quality of their treatment of patients, but no such effect has been proved. . .
28
.
*
*
*
29
FREW V. HAWKINS, 540 U.S. 431 (2004)
Kennedy, Justice.
*
*
*
In this case we consider whether the Eleventh Amendment bars enforcement
of a federal consent decree entered into by state officials.
Medicaid is a cooperative federal-state program that provides federal
funding for state medical services to the poor. State participation is
voluntary; but once a State elects to join the program, it must administer a
state plan that meets federal requirements. One requirement is that every
participating State must have an Early and Periodic Screening, Diagnosis, and
Treatment (EPSDT) program. EPSDT programs provide health care services to
children to reduce lifelong vulnerability to illness or disease. The EPSDT
provisions of the Medicaid statute require participating States to provide
various medical services to eligible children, and to provide notice of the
services.
The petitioners here are mothers of children eligible for EPSDT services
in Texas. In 1993 they filed a civil action pursuant to 42 U.S.C. § 1983 seeking
injunctive relief against the Texas Department of Health and the Texas Health
and Human Services Commission, as well as various officials at these agencies
charged with implementing the Texas EPSDT program. The named officials included
the Commissioners of the two agencies, the Texas State Medicaid Director, and
certain employees at the Texas Department of Health. The individuals were sued
in their official capacities and were represented throughout the litigation by
the office of the Texas attorney general.
The petitioners alleged that the Texas program did not satisfy the
requirements of federal law. They asserted that the Texas program did not ensure
eligible children would receive health, dental, vision, and hearing screens;
failed to meet annual participation goals; and gave eligible recipients
inadequate notice of available services. The petitioners also claimed the
program lacked proper case management and corrective procedures and did not
provide uniform services throughout Texas.
After the suit was filed, the two Texas state agencies named in the suit
moved to dismiss the claims against them on Eleventh Amendment grounds. The
petitioners did not object, and in 1994 the District Court dismissed the state
agencies as parties. The state officials remained in the suit, and the District
Court certified a class consisting of children in Texas entitled to EPSDT
services, a class of more than 1 million persons. Following extensive settlement
negotiations, the petitioners and the state officials agreed to resolve the suit
by entering into a consent decree. The District Court conducted a fairness
hearing, approved the consent decree, and entered it in 1996.
Judicial enforcement of the 1996 consent decree is the subject of the
present dispute. The decree is a detailed document about 80 pages long that
orders a comprehensive plan for implementing the federal statute. In contrast
with the brief and general mandate in the statute itself, the consent decree
requires the state officials to implement many specific procedures. An example
illustrates the nature of the difference. The EPSDT statute requires States to
"provid[e] or arrang[e] for the provision of . . . screening services in all
cases where they are requested," and also to arrange for "corrective treatment"
30
in such cases. The consent decree implements the provision in part by directing
the Texas Department of Health to staff and maintain toll-free telephone numbers
for eligible recipients who seek assistance in scheduling and arranging
appointments. According to the decree, the advisors at the toll-free numbers
must furnish the name, address, and telephone numbers of one or more health care
providers in the appropriate specialty in a convenient location, and they also
must assist with transportation arrangements to and from appointments. The
advisers must inform recipients enrolled in managed care health plans that they
are free to choose a primary care physician upon enrollment.
Two years after the consent decree was entered, the petitioners filed a
motion to enforce it in the District Court. The state officials, it was alleged,
had not complied with the decree in various respects. The officials denied the
allegations and maintained that the Eleventh Amendment rendered the decree
unenforceable even if they were in noncompliance. After an evidentiary hearing,
the District Court issued a detailed opinion concluding that certain provisions
of the consent decree had been violated. . . .
. . . The Court of Appeals assessed the violations identified by the
District Court and concluded that none provided a valid basis for enforcement.
Regardless of whether the EPSDT program complied with the detailed consent
decree, the Court of Appeals reasoned, the program was good enough to comply
with the general mandates of federal law. The Court of Appeals concluded that
because the petitioners had not established a violation of federal law, the
District Court lacked jurisdiction to remedy the consent decree violations.
Other Circuits have reached a contrary result, holding that the Eleventh
Amendment does not bar enforcement of consent decrees in like circumstances. . .
.
The petitioners advance two reasons why the consent decree can be enforced
without violating the Eleventh Amendment. First, they argue the State waived its
Eleventh Amendment immunity in the course of litigation. Second, they contend
that enforcement is permitted under the principles of Ex Parte Young, 209 U.S.
123 (1908). . . .
This case involves the intersection of two areas of federal law: The reach
of the Eleventh Amendment and the rules governing consent decrees. The Eleventh
Amendment confirms the sovereign status of the States by shielding them from
suits by individuals absent their consent. To ensure the enforcement of federal
law, however, the Eleventh Amendment permits suits for prospective injunctive
relief against state officials acting in violation of federal law. This standard
allows courts to order prospective relief . . . as well as measures ancillary to
appropriate prospective relief . . . Federal courts may not award retrospective
relief, for instance money damages or its equivalent, if the State invokes its
immunity.
Consent decrees have elements of both contracts and judicial decrees. A
consent decree "embodies an agreement of the parties" and is also "an agreement
that the parties desire and expect will be reflected in, and be enforceable as,
a judicial decree that is subject to the rules generally applicable to other
judgments and decrees." Consent decrees entered in federal court must be
directed to protecting federal interests. . . . [A] federal consent decree must
spring from, and serve to resolve, a dispute within the court's subject-matter
jurisdiction; must come within the general scope of the case made by the
pleadings; and must further the objectives of the law upon which the complaint
was based.
31
This brings us to the intersection of the principles governing consent
decrees and the Eleventh Amendment. As we understand their argument, the state
officials do not contend that the terms of the decree were impermissible under
Ex parte Young. . . . The officials challenge only the enforcement of the
decree, not its entry. They argue that the Eleventh Amendment narrows the
circumstances in which courts can enforce federal consent decrees involving
state officials.
. . . The officials reason that Ex parte Young creates a narrow exception
to the general rule of Eleventh Amendment immunity from suit. Consent decrees
involving state representatives threaten to broaden this exception, they
contend, because decrees allow state officials to bind state governments to
significantly more commitments than what federal law requires. Permitting the
enforcement of a broad consent decree would give courts jurisdiction over not
just federal law, but also everything else that officials agreed to when they
entered into the consent decree. A State in full compliance with federal law
could remain subject to federal court oversight through a course of judicial
proceedings brought to enforce the consent decree. To avoid circumventing
Eleventh Amendment protections, the officials argue, a federal court should not
enforce a consent decree . . . unless the court first identifies, at the
enforcement stage, a violation of federal law such as the EPSDT statute itself.
We disagree with this view of the Eleventh Amendment. The decree is a
federal court order that springs from a federal dispute and furthers the
objectives of federal law. The decree states that it creates "a mandatory,
enforceable obligation." In light of the State's assertion of its Eleventh
Amendment immunity, the state officials lacked the authority to agree to
remedies beyond the scope of Ex parte Young absent a waiver, as the petitioners
concede. We can assume, moreover, that the state officials could not enter into
a consent decree failing to satisfy the general requirements of consent decrees
. . . . The petitioners' motion to enforce, however, sought enforcement of a
remedy consistent with . . . a remedy the state officials themselves had
accepted when they asked the District Court to approve the decree. Enforcing the
agreement does not violate the Eleventh Amendment.
. . . [T]he order to be enforced is a federal decree entered to implement
a federal statute. The decree does implement the Medicaid statute in a highly
detailed way, requiring the state officials to take some steps that the statute
does not specifically require. The same could be said, however, of any effort to
implement the general EPSDT statute in a particular way. The decree reflects a
choice among various ways that a State could implement the Medicaid Act. As a
result, enforcing the decree vindicates an agreement that the state officials
reached to comply with federal law.
. . . .
The state officials warn that enforcement of consent decrees can undermine
the sovereign interests and accountability of state governments. The attorneys
general of 19 States assert similar arguments as amici curiae. The concerns they
express are legitimate ones. If not limited to reasonable and necessary
implementations of federal law, remedies outlined in consent decrees involving
state officeholders may improperly deprive future officials of their designated
legislative and executive powers. They may also lead to federal court oversight
of state programs for long periods of time even absent an ongoing violation of
federal law.
32
When a federal court has entered a consent decree under Ex parte Young the
law's primary response to these concerns has its source not in the Eleventh
Amendment but in the court's equitable powers and the direction given by the
Federal Rules of Civil Procedure. . . . [T] district courts should apply a
"flexible standard" to the modification of consent decrees when a significant
change in facts or law warrants their amendment. . . .
*
*
*
33
GREENERY REHABILITATION GROUP, INC. v. HAMMON, 150 F.3d 226 (2d Cir. 1998)
Miner, Judge.
*
*
*
Medicaid is a federal program that provides health care funding for needy
persons through cost-sharing with states electing to participate in the process.
Undocumented aliens or aliens not otherwise permanently residing in the United
States under color of law generally are not entitled to full Medicaid coverage.
See 42 U.S.C. § 1396b(v)(1) ("no payment may be made to a State under this
section for medical assistance furnished to an alien who is not lawfully
admitted for permanent residence or otherwise permanently residing in the United
States under color of law"); 42 C.F.R. § 435.406. The only exception to this
exclusion is payment for medical assistance that is "necessary for the treatment
of an emergency medical condition." 42 U.S.C. § 1396b(v)(2)(A). An "emergency
medical condition" is a medical condition (including emergency labor and
delivery) manifesting itself by acute symptoms of sufficient severity (including
severe pain) such that the absence of immediate medical attention could
reasonably be expected to result in -(A) placing the patient's health in serious jeopardy,
(B) serious impairment to bodily functions, or
(C) serious dysfunction of any bodily organ or part.
42 U.S.C. § 1396b(v)(3).
The corresponding regulation is found at 42 C.F.R. § 440.255(b)(1), which
provides that aliens are entitled to Medicaid coverage for [e]mergency services
required after the sudden onset of a medical condition manifesting itself by
acute symptoms of sufficient severity (including severe pain) such that the
absence of immediate medical attention could reasonably be expected to result
in:
(i) Placing the patient's health in serious
jeopardy;
(ii) Serious impairment to bodily functions; or
(iii) Serious dysfunction of any bodily organ or part.
. . . New York has chosen to participate in the Medicaid program and has
enacted regulations that are substantially the same as those found in 42 U.S.C.
§ 1396b(v) and 42 C.F.R. § 440.255(b)(1).
Plaintiff-appellee The Greenery Rehabilitation Group, Inc., ("GRG")
operates nursing homes and rehabilitation facilities where specialized programs
are offered for the care of individuals who have suffered brain injuries. GRG
operates facilities in several states. Care was and is being provided to the
patients involved in this case, following their initial treatment, stabilization
and transfer, at facilities located in Brighton, Middleboro, and Hyannis,
Massachusetts.
GRG has entered into agreements with defendant-third-party-plaintiff New
York City Human Resources Administration ("NYCHRA") to admit into GRG's
specialized brain injury care programs New York City residents who are in need
of its services and are eligible for Medicaid. GRG admitted into its
Massachusetts facilities three New York City residents who were in need of such
34
services, but for whom NYCHRA has refused payment because of their alien status.
Two of the three patients, Izeta Ugljanin and Leon Casimir, are undocumented
aliens. The third, Yik Kan, was granted legal residency in the United States but
had not yet met the residency requirements necessary to qualify for Medicaid
benefits.
All three patients suffered sudden and serious head injuries that
necessitated immediate treatment and ultimately left the patients with long-term
debilitating conditions requiring ongoing care and daily attention. On June 16,
1991, nineteen-year-old Ugljanin was thrown from a vehicle during an automobile
accident and sustained head injuries that caused severe brain damage. Due to her
injuries, Ugljanin required immediate care for which she was admitted to Nassau
County Medical Center. After being stabilized, Ugljanin was transferred to GRG's
Brighton facility in 1991, and was subsequently transferred to GRG's Middleboro
facility. Bed-ridden and quadriplegic, she continues to require a feeding tube,
continual monitoring and extensive nursing care. At the time this litigation
arose, Ugljanin, an immigrant from what is now known as the Republic of
Macedonia, fulfilled the criteria for Medicaid coverage but for her alien
status.
On March 9, 1990, thirty-eight-year-old Casimir, an immigrant from
Trinidad, was shot in the head and suffered brain damage. He was initially
treated at Goldwater Memorial Hospital in New York City and, after being
stabilized, was transferred to GRG's Brighton facility in 1991 and is currently
receiving care at GRG's Hyannis facility. Casimir is unable to walk, requires
monitoring and medication for seizures and behavioral problems related to his
injury and needs assistance with daily tasks such as bathing, dressing, eating
and toileting. Casimir was also eligible for Medicaid coverage but for his alien
status.
In October of 1990, forty-six-year-old Yik Kan, an immigrant from Hong
Kong, was attacked and beaten, resulting in cerebral contusions and a hematoma
to his right eye. Yik Kan initially received treatment at Harlem Hospital in New
York City and was later transferred to GRG's Middleboro facility and has been
receiving care at GRG's Hyannis facility since May of 1993. Although he is
legally blind as a result of his injuries, he is ambulatory and can function if
instructed to accomplish a given task. For example, he can feed himself if
instructed to eat and is able to dress or use the toilet if directed to do so.
He also suffers from behavioral and psychiatric problems that require medication
and monitoring. Like the others, Yik Kan was eligible for Medicaid coverage but
for his alien status.
. . . .
GRG admitted Ugljanin, Casimir and Kan, believing them to be eligible
beneficiaries under the Medicaid program in New York State. After Medicaid
payment for the treatment of these individuals was denied, GRG commenced the
instant action . . .
. . . The district court noted, among other things, that although GRG
treating physicians believed that the patients satisfied the statutory
definition of an emergency medical condition because the patients would be put
at risk without the care provided by GRG, they also concluded that the patients
were stable and suffering from chronic conditions rather than what they commonly
understood to be emergency medical conditions. . . .
. . . .
35
With respect to the "emergency medical condition" issue, the district
court in its findings of fact summarized the testimony of attending physicians,
Drs. Michael Randon and John Berry, and the State Appellant's expert, Anne
Budin. The court noted that these witnesses generally explained that the
patient's initial injuries had been treated and the patients were stabilized
prior to being moved to GRG facilities. It also took note of the testimony
regarding the extent of the continuing care required by each patient as
explained by the witnesses, including the total dependence of Ugljanin and
Casimir on nursing care and Ugljanin's reliance on a feeding tube. The
injury-related behavioral problems of Kan and Casimir were also discussed, as
were the three patients' medication requirements and the necessity for
continuous care with respect to activities such as getting out of bed, moving or
walking, dressing, feeding, bathing and toileting.
The district court concluded that § 1396b(v)(3)'s definition of an
emergency medical condition is not the same as the common understanding of what
an emergency condition is, and that HHS' adoption of 42 C.F.R. § 440.255 did not
narrow the meaning of § 1396b(v)(3). The court relied on a statement released by
HHS officials in response to comments concerning § 440.255's adoption to support
its conclusion that "emergency medical condition" must be construed broadly.
That statement reads:
[W]e believe the broad definition [of emergency medical condition] allows
States to interpret and further define the services available to aliens
covered . . . which are any services necessary to treat an emergency
medical condition in a consistent and proper manner supported by
professional medical judgment. Further, the significant variety of
potential emergencies and the unique combination of physical conditions
and the patient’s response to treatment are so varied that it is neither
practical nor possible to define with more precision all those conditions
which will be considered emergency medical conditions.
Crediting the testimony of the treating physicians, the district court
analyzed each patient's situation under its expansive reading of § 1396b(v)(3).
The district court found that the circumstances surrounding the patients' head
injuries satisfied the "sudden onset" requirement of 42 C.F.R. § 440.225. The
court also found that GRG was treating Ugljanin for an emergency medical
condition because she required "continuous care" without which her health would
be placed in "serious jeopardy and seriously impair her bodily functions." The
court concluded that Casimir was receiving emergency medical care because he
required "immediate" nursing care, without which "he would be left without food,
in his own waste, unable to move." The district court found that Yik Kan did not
satisfy the statutory requirement because the court could not "reasonably find
that without immediate medical attention [Yik Kan] would be in peril."
The district court was also persuaded by an opinion of the Arizona Court
of Appeals holding . . . that a statutory "emergency medical condition" can
include a long-term condition resulting from the initial injury even though
there are no longer any acute symptoms evidencing that injury. Concluding that
Ugljanin's and Casimir's care was being given to treat emergency medical
conditions and thus was covered by Medicaid, the district court ruled on the
third-party complaint and found that HHS was required to pay a portion of the
costs of their care.
36
. . . The State Appellants and third-party-defendant-appellant timely
appealed the judgment with respect to Ugljanin and Casimir. GRG does not appeal
the judgment with respect to Yik Kan.
The issue on appeal is . . . simply whether chronic debilitating
conditions that result from sudden and serious injuries, such as those suffered
by the patients herein, are "emergency medical conditions" as provided under §
1396b(v)(3).
. . . .
As noted above, aliens who otherwise meet Medicaid requirements but who
are not lawfully admitted for permanent residence in the United States, or
otherwise permanently residing in the United States under color of law, are not
eligible for full federal Medicaid coverage. Congress did carve out one
exception by providing that aliens are entitled to Medicaid coverage only for
"such care and services [as] are necessary for the treatment of an emergency
medical condition of the alien."
An emergency medical condition is a medical condition (including emergency
labor and delivery) [defined by 42 U.S.C. § 1396b(v)(3)].
The appellants argue that the district court erred by failing to heed the
plain language of this provision and finding that an "emergency medical
condition" includes a condition requiring daily and regimented care for chronic
conditions, such as that offered by GRG. We agree.
In the medical context, an "emergency" is generally defined as "a sudden
bodily alteration such as is likely to require immediate medical attention."
Webster's Third New International Dictionary 741 (1981). The emphasis is on
severity, temporality and urgency. We believe that 42 U.S.C. § 1396b(v)(3)
clearly conveys this commonly understood definition.
An "acute" symptom is a symptom "characterized by sharpness or severity .
. . having a sudden onset, sharp rise, and short course . . . [as] opposed to
chronic." Moreover, as a verb, "manifest" means "to show plainly." In §
1396b(v)(3) this verb is used in the present progressive tense to explain that
the "emergency medical condition" must be revealing itself through acute
symptoms. Thus, contrary to the district court's finding, the statute plainly
requires that the acute indications of injury or illness must coincide in time
with the emergency medical condition. Finally, "immediate" medical care means
medical care "occurring . . . without loss of time" or that is "not secondary or
remote." In sum, the statutory language unambiguously conveys the meaning that
emergency medical conditions are sudden, severe and short-lived physical
injuries or illnesses that require immediate treatment to prevent further harm.
The statutory definition is also consistent with the general concept of a
medical emergency as commonly understood by those in the medical professions. .
. . Moreover, both of the treating physicians from GRG testified to their
general understanding of the concept of care for an emergency medical condition.
Dr. Randon defined such care as usually short-lived, care that is given to
prevent death or some significant consequence of injury or disease or accident.
. . . “The care you g[i]ve to stabilize the patient, I could consider that up to
the stabilization as emergency care. To stop [the] bleeding, to put an airway
in, that type of care.”
37
Dr. Randon testified that Ugljanin was receiving "chronic skill care" from
GRG as opposed to what is commonly understood to be emergency medical care.
Dr. Berry testified that "[e]mergency treatment is immediate treatment
needed to stabilize a patient." He also testified that Kan and Casimir had
suffered no “physical emergencies” while at GRG and that they were receiving
chronic rather than emergency care. In addition, Ms. Budin testified that her
understanding of the concept of an emergency was that it involved a life
threatening situation that necessitated urgent medical treatment.
The patients’ sudden and severe head injuries undoubtedly satisfied the
plain meaning of § 1396(b)(v)(3). However, after the patients were stabilized
and the risk of further harm from their injuries was essentially eliminated, the
medical emergencies ended. That is not to say that the patients could not suffer
from a true emergency medical condition while being cared for by GRG. For
example, it seems clear that if one of these patients suffered a sudden heart
attack, treatment to stabilize the patient would be covered by Medicaid . . . .
The district court believed that Ugljanin and Casimir were suffering from
emergency medical conditions because it found that the absence of continuous
medical attention could reasonably be expected to place their health in serious
jeopardy. Although Ugljanin and Casimir undoubtedly require ongoing maintenance
care, we have some doubt as to whether their health would be jeopardized by the
absence of “immediate medical attention. . . .” In any event, however, it is
clear that the stable, long-term problems suffered by Ugljanin and Casimir do
not meet the additional, independent requirement that the medical condition be
manifested “by acute symptoms.”
Although our review of the plain meaning of § 1396b(v)(3) ends our
inquiry, we note that we do not believe that 42 C.F.R. § 440.255 or its history
provide any support for the conclusion that the statutory definition of an
emergency medical condition must be given a distinct and more liberal meaning
than what is commonly understood to be a medical emergency. . . .
*
*
*
38
Notes and Questions on Medicaid Coverage and Eligibility
1. As illustrated by Memorial Hospital and its predecessor, Shapiro v. Thompson,
394 U.S. 618 (1969), there can be rather severe constitutional limits on the
government's discretion to condition or limit social welfare benefits, but only
where the limit or condition either "penalizes" or otherwise "affects" a
constitutionally protected interest or, alternatively, is based on a "suspect
classification" such as race. (See discussion infra.) Under such circumstances,
the courts must "closely scrutinize" the governmental classification, and find
that a "compelling government interest" is served by a means that does not
unduly burden the constitutionally protected interest or the protected class. In
the rhetoric of modern constitutional analysis, this is the "first tier" of
equal protection analysis. A government classification rarely survives "close
scrutiny;" saving money, easing the administration of the program, or, in the
case of Memorial Hospital, deterring people from migrating from state to state
for the purpose of receiving better benefits are insufficient justifications
under this analysis.
In the mid-1990s, California tested the continuing viability of this
analysis by enacting a durational residency requirement for its welfare cashgrant program that offered benefits to new residents, but limited those benefits
for one year to the level that they would have received in the state of their
prior residence. Despite the state’s argument that this was not an outright
denial of benefits, the Supreme Court again found that the state program
penalized aspects of the “right to travel, applied “close scrutiny,” and
invaldated the durational residency requirement. Saenz v. Roe, 526 U.S. 489
(1999).
As illustrated by Harris, however, most limits or conditions imposed on
spending programs such as Medicaid do not "penalize" or "affect" a
constitutionally protected interest -- even if the net result is to deny funding
for such an interest. Consequently, the courts apply the "second tier" of equal
protection analysis and ask only whether the limit or condition is "rational" to
satisfy the requirements of equal protection. And under this "second tier,"
saving government funds or promoting a policy such as that claimed by the
federal government in Harris is sufficiently "rational." The underlying notion
is that a government decision to fund some benefits but not those that may
involve a constitutionally protected interest leaves the individual "no worse
off" than if the government chose to fund no benefits at all. Thus, virtually
all state and federal cash grants, health benefits, or social service programs
that merely exclude an individual or limit or deny benefits need only survive
the "rationality" standard of equal protection analysis and will almost always
be upheld. See Rust v. Sullivan, 500 U.S. 173 (1991)(federal family planning
"gag rule" regulations do not affect either the privacy of women seeking
abortions or the First Amendment rights of providers who counsel them); Webster
v. Reproductive Health Services, 492 U.S. 490 (1989)(state law prohibiting use
of public facilities for abortion does not affect privacy of women seeking
abortion); cf. Department of Agriculture v. Moreno, 413 U.S. 528 (1973) (limit
on food stamp program to exclude households with unrelated people irrational).
Note, however, that while the implications of the abortion funding cases
for the governmental discretion to limit or deny health and welfare benefits are
rather clear, the abortion funding issue continues to be controversial. Several
states have attempted to place even greater restrictions on abortions funded by
both Medicaid and other publicly funded programs. See, e.g., Dalton v. Little
Rock Family Planning Services, 516 U.S. 474 (1996).
39
The important element that distinguishes Memorial Hospital from other
cases involving social welfare classifications -- and makes it the very rare
exception to the general rule -- is that the government program did more than
refuse to fund the exercise of Evaro's constitutional interest; it "penalized"
him by denying him eligibility for government-funded benefits because he had
exercised, at his own expense, his constitutional right to travel -- or, to use
a better term, his right to take up residence in any state. Thus, "close
scrutiny," not "rationality" was the standard of review. Note, however, that the
Memorial Hospital decision left open the possibility that some durational
residency requirements might survive constitutional scrutiny. Presumably the
state can deny some benefits of lesser importance to new residents and some
burdens on the right to travel may have a sufficiently compelling justification.
2. In addition to circumstances where a social welfare program "penalizes" or
otherwise impinges on a constitutionally-protected interest, one other exception
to the general rule of "rationality" is where a benefit denial or limit -- even
one that merely denies funding and does not "penalize" a constitutional interest
-- involves a "suspect classification." Such classifications trigger the highest
level of judicial scrutiny and, as a practical matter, are virtually per se
unconstitutional. Race and national origin have been consistently recognized as
"suspect classifications." The Court has occasionally considered whether other
classifications should be "suspect," and even attempted to treat certain
classifications as "quasi-suspect;" but the Court has refused to recognize that
classifications based on age, disability, sexual orientation, or virtually any
other characteristic should be treated as "suspect" for purposes of equal
protection analysis. The major exception involves government programs that
discriminate on the basis of gender. In a rather inconsistent line of cases the
Court has attempted to review such programs under a standard that is much more
rigorous than "rationality," but somewhat less demanding than "close scrutiny,"
conceding that the government's discretion to recognize differences between
males and females is somewhat broader than its discretion to make distinctions
based on race or national origin. For its most recent effort, see United States
v. Virginia, 518 U.S. 515 (1996). See also Califano v. Goldberg, 430 U.S. 199
(1977) (preferential treatment of widows for purposes of determining level of
Social Security benefits does not violate equal protection).
Note that the Court has generally insisted that "close scrutiny" is
applicable only where a "suspect" classification (or "quasi-suspect"
classification) is overtly expressed or intentional, or, at least where such
intent can be inferred. Government distinctions that result in de facto
discrimination against "suspect classifications" or that have only a
disproportionate impact on such classes are not subject to higher scrutiny.
3. Given the dictates of these decisions, consider the constitutionality of the
following:
-- A severely ill child moves with his mother from Alabama to the State of
Washington. They declare their intent to become residents of the state and apply
for Medicaid. They are rejected solely because the state imposes a one-year
residency requirement as a condition on Medicaid eligibility.
-- The same family is visiting relatives in the State of Washington, the mother
goes into premature labor, and she is rushed to the emergency room at a public
hospital. She is told that the hospital only offers services to residents.
40
-- The same family is recognized as a resident of the State of Washington but
has income and resources slightly above the state Medicaid standards. Even
though they "spend down" to below those standards, they are denied Medicaid
eligibility because the state does not have a "medically needy" program.
-- After the family takes up residence in the state and is declared eligible for
Medicaid, the state repeals the program.
-- The state adopts a "rationing scheme" for Medicaid (similar to the one
enacted by Oregon in 1993, discussed infra). The new plan offers Medicaid
coverage only for (a) recipients under 55 years of age, (b) recipients who are
likely to become "productive citizens," or (c) recipients who have no
outstanding child support payments.
-- The state adopts a rationing scheme and the covered list of services includes
only 12 days of hospital care per year.
-- Congress denies Medicaid coverage for all abortions, including those to save
the life of the mother.
-- Congress denies all Medicaid benefits to women who have abortions (with
private funds).
Which of these cases should be closely scrutinized? Which, if any, would
survive that analysis? Which need only be rational? Are any of these state or
federal laws irrational, constitutionally or otherwise?
4. The basic premise of all the cases in this subsection is implied in the "no
worse off" language of Harris. Government can refuse to fund health benefits in
most situations because it can choose to provide no benefits at all. The Court
has long insisted that the federal Constitution does not require any level of
government to provide for or maintain the health of the population as a whole or
any portion of it. See, e.g., Suffolk Parents of Handicapped Adults v. Wingate,
101 F.3d 818 (1996), cert. denied, 520 U.S. 1239 (1997). Under this view, the
Constitution is essentially a document of discretionary power; neither the
federal nor the state governments are constitutionally required to provide any
social welfare or other domestic programs or, for that matter, to do anything at
all. Thus, only where the federal or state government chooses to provide health
benefits to some but deny them to others can a constitutionally based claim for
benefits be made. Moreover, even when that claim can be made, it is likely to be
unsuccessful. If Harris is correct in holding that the government may
"rationally" choose to deny funding for services that involve constitutionally
protected interests -- and to do so when the health of the denied beneficiary is
jeopardized -- then the government must be free to deny or limit benefits in any
way that it chooses, even, presumably, where life is at stake. In short, there
is no constitutional right to health or health care or, at least, the term has a
very narrow meaning.
Suppose you wanted to change what appears to be the constitutional status
quo and create a judicially enforceable, constitutional right to health care or,
at least, constitutional mandate that the federal or state government finance
life-saving care. What would you have to add to the Constitution -- and how
would you draft that language?
41
5. While the Constitution has imposed few limits on federal and state discretion
to limit benefits or deny eligibility for Medicaid and other social welfare
programs, there are substantial statutory limits on the discretion of each state
in determining eligibility, level of benefits, reimbursement, and other matters.
See, e.g., Salgado v. Kirschner, 179 Ariz. 301, 878 P.2d 659 (1994), cert.
denied, 513 U.S. 1151 (1995). Indeed, most judicially-contested Medicaid
controversies involve matters of statutory and administrative law, not
constitutional law. In this regard, the PHARMA decision is only a more
complicated variation of the same themes: The state Medicaid law must comply
with the federal Medicaid requirements (as well as other federal constitutional
requirements, such as those of the dormant commerce clause). But PHARMA goes one
step further than most other cases comparing the state’s Medicaid program to the
requirements of the federal Medicaid statute: It allows that the state can
achieve non-Medicaid-related objectives in fashioning its state Medicaid program
and not violate the federal law (or, presumably, the federal Constitution).
The state also must establish a state plan that meets federal requirements
and is approved by the Department of Health and Human Services (DHHS). Medicaid
beneficiaries (and Medicaid providers) may challenge the state's administration
of its Medicaid program if the program is inconsistent with the plan or if the
plan is not approved by DHHS. Also, states must comply with their own state
administrative and statutory requirements in administering their programs. See,
e.g., Meusberger v. Palmer, 900 F.2d 1280 (8th Cir. 1990) (state cannot refuse
to cover pancreas transplant if state law generally requires funding of nonexperimental transplants).
There are, however, some very important jurisdictional limits on the
enforceability of the federal Medicaid statute in actions against state Medicaid
programs. If a private litigant brings a lawsuit in federal court under the
federal civil rights laws, the federal court’s jurisdiction is limited to the
enforcement of “federal rights.” 42 U.S.C. § 1983. The Supreme Court has held
that while this allows for the enforcement of both constitutional and statutory
rights, any claim based on a federal statute must be examined to determine
whether Congress intended that the specific provision of the federal law be
enforceable, that the standards for its enforcement be sufficiently specific to
allow for judicial determinations, and must not reflect a “mere congressional
preference.” See discussion in Suter v. Artist M., 503 U.S. 347 (1992); Blessing
v. Freestone, 520 U.S. 329 (1997). In Wilder v. Virginia Hospital Association,
496 U.S. 498 (1990), while the Court recognized that some provisions of the
federal Medicaid statute satisfy the requirements of § 1983, the Court also
indicated that these requirement must be satisfied on a case-by-case basis.
The lower federal courts have had some difficulty following the Court’s
guidance. For example, the Eleventh Circuit has held that the provisions of the
federal Medicaid statute that require the state Medicaid plan to offer
transportation for Medicaid beneficiaries were not intended to create a private
right of action under § 1983. Harris v. James, 127 F.3d 993 (11th Cir. 1997).
The Sixth Circuit examined the same provision, applied the same test, and came
to exactly the opposite conclusion. Boatman v. Hammons, 164 F.3d 286 (6th Cir.
1998). For more recent cases, see San Lazaro Association, Inc. v. Connell, 286
F.3d 1088 (9th Cir. 2002); Kai v. Ross, 336 F.3d 650 (8th Cir. 2003)(enforcing
provisions of the federal law requiring certain categories of people to be
eligible); Bryson v. Shumway, 308 F.3d 79 (1st Cir. 2002) (enforcing provisions
of the federal statute that require covered services be provided to eligible
recipients with reasonable promptness and that notice of eligibility for
services be given); Rolland v. Romney, 318 F.3d 42 (1st Cir. 2003) (enforcing
requirements for services to "dual need" nursing home residents).
42
Note that these potential limits are only on privately initiated lawsuits
and those brought in federal court. None of these cases should be read to limit
the federal government’s discretion to take administrative action to enforce any
of the provisions of the federal Medicaid statute. Nor do these limitations
apply to lawsuits brought in state court to enforce state statutory obligations.
They are, nonetheless, serious obstacles to the enforcement of the states’
obligations under the federal Medicaid laws by private parties, particularly
individual Medicaid beneficiaries (and especially since § 1983 lawsuits provide
for the recovery of attorney’s fees if successful).
6. Another important limit on the enforcement of the federal Medicaid
requirements by individual recipients and other private parties (such as
providers seeking reimbursement) involves the limitations embodied in the 11th
amendment. As discussed in Frew, the 11th amendment has always been considered a
bar to actions brought against the states in federal courts for monetary
damages. As such, private litigants denied Medicaid or other federal welfare
benefits administered by the states were generally limited to injunctive or
prospective relief, and suits that were nominally pursued against state
officials and not the states themselves. See, e.g., Edelman v. Jordan, 415 U.S.
651 (1974). But until the 1990s the 11th amendment principles were generally
viewed as applicable only to suits brought against states or state officials in
federal courts. In Alden v. Maine, 527 U.S. 706 (1999), however, the Supreme
Court, in only one of a series of ground-breaking 11th amendment cases, held
that the limits on privately initiated lawsuits against the state were
applicable in both state and federal law, and even implied that the exceptions
allowed by Ex parte Young may no longer be recognized. As such, the decision in
Frew may be an important qualification of the expanding reach of the 11th
amendment principles: At least under the facts in this case, individual Medicaid
recipients can still pursue judicial enforcement of the federal Medicaid statute
against the states -- despite the limits of the 11th amendment. Moreover, that
includes enforcement of consent decrees that purport to settle lawsuits claiming
that the state has violated the federal Medicaid statute. Whether this is
limited to the facts -- the state had voluntarily negotiated a settlement decree
-- is not clear. On the other hand, it appears that the Court held that the 11th
amendment did not bar the enforcement of this type of lawsuit.
The broader reach of the 11th amendment should not be overlooked: While
the decree is Frew apparently fit under the narrow exception created by Ex parte
Young, Medicaid recipients are still barred from suing the state itself or from
seeking retrospective relief or virtually and kind of monetary damages. (A
beneficiary or a provider can, however, file a claim and pursue whatever
administrative or judicial remedies are provided under the state’s Medicaid
laws.) Consider, for example, what that means for the beneficiary who is trying
to seek reimbursement from Medicaid for services that have already been
received. Consider, as well, the practical implications of limiting Medicaid
beneficiaries -- who are, by definition, poor -- to lawsuits that cannot recover
damages or, in many cases, cannot be brought under § 1983 or some other lawsuit
that allows for the recovery of attorney fees. Most broadly: Consider the
difference between a federal “entitlement” program that is not, in many or most
circumstances, enforceable in either federal or state courts by the people who
are the direct recipients of the program’s benefits.
7. Greenery Rehabilitation is a typical Medicaid case, determined largely by an
interpretation of the state and federal Medicaid statutes (A constitutional
43
argument might have been raised, but in light of the prior case law, it was
unlikely to be successful.) Note that the type of “medical necessity” issue
analyzed in Greenery is distinguishable from the private “medical necessity”
cases discussed in the previous section. As the case demonstrates, the “medical
necessity” line in Medicaid cases is drawn by the statute and its interpretive
regulations -- unless either exceeds the broad constitutional limits discussed
in the notes supra; in the private financing cases, “medical necessity” disputes
are determined largely by an interpretation of the contractual agreement between
the parties, although those contracts are subject in some cases to state or
federal regulatory statutes and some common law principles. In more basic terms,
and in terms that would be absolutely critical if a viable constitutional
argument were involved, the former involve “state action;” the latter involve
only “private action.” Later subsections of these materials will examine similar
disputes under the Medicaid and Medicare programs and disputes that arise in
managed care programs. These too will turn on matters of statutory and
administrative law as did Greenery, but the line between “state action” and
“private action” will be somewhat harder to discern, especially where the
decision that is being disputed is made by some private actor. For present
purposes, it is important first to understand that disputes can be settled by
different sources of law -- and can therefore have different outcomes -depending upon their characterization as either “state action” or private
action. Disputes such as the one involved in Greenery are easy to characterize;
they are clearly state action and are, therefore, governed exclusively by
statutory and administrative law principles.
Greenery is also typical in that it does what most state and federal
courts do: It reads the federal Medicaid law to give the states rather broad
discretion to limit, deny, or condition benefits or eligibility (or to limit or
deny provider reimbursement; see discussion in Chapter 4). For other good
illustrations, see Atkins v. Rivera, 477 U.S. 154 (1986) (state use of six-month
computation period for determining eligibility for "medically needy" while using
a one-month computation period for determining eligibility for "categorically
needy" did not violate "comparability," "same methodology," or other
requirements of federal statute); Alexander v Choate, 469 U.S. 287 (1985) (14day maximum for inpatient hospital services is not a violation of federal
Medicaid statute or federal law prohibiting discrimination against the
handicapped).
8. In theory, a "medically needy" program that uses a broadly defined "spend
down" mechanism to determine eligibility works like a catastrophic health
insurance program -- at least for those people who meet the categorical and
other requirements of the program. Anyone whose medical bills are high enough
can "spend down" their income, meet the "medically needy" standard, and receive
Medicaid coverage for all subsequent medical expenses. In practice, however, the
result has been much more limited. The 1967 amendments to the federal Medicaid
statute capped the discretion of the states to expand their "medically needy"
programs and ensured that "medically needy" eligibility would only be extended
to some, but not all, of those who might legitimately claim that they are needy
because of their medical bills.
Schweiker v. Hogan, 457 U.S. 569 (1982), provides a good illustration of
how the "medically needy" program works, as well as some of the inherent
problems in such a scheme. At the time of the lawsuit, SSI recipients in
Massachusetts were receiving a total of $513 a month. Since Massachusetts was
not a "209(b)" state, these recipients were also automatically eligible for
Medicaid. Massachusetts also chose to offer Medicaid to the "medically needy."
44
As described in Hogan, the "medically needy" income limits are capped at 133
percent of the AFDC cash grant level which at that time was $300 in
Massachusetts. Even if an applicant for "medically needy" Medicaid met all of
the categorical and other requirements, the applicant would have to "spend down"
by incurring expenses for medical benefits to a net income level of $400. (The
applicant would be subject to similar "spend down" requirements for property,
savings, and other assets as well.) Hogan, a retired worker, received $534 a
month from Social Security. For purposes of SSI eligibility, $20 a month was
disregarded, but his net income was still just over the SSI level. As such, he
was not "categorically needy." Hogan had to "spend down" $114 per month -- on
medical bills -- to qualify for Medicaid, which would then pay for all
subsequent bills for Medicaid covered services. If his Social Security payment
had been one dollar less, he would have been eligible for SSI and automatically
eligible for Medicaid. The Supreme Court held that it was constitutionally
"rational" to require Hogan to "spend down" to the $300 level -- even if the
reason he had to do so was a $1 increase in his Social Security benefits. The
Court reasoned that, even if this was unfair to Hogan, the "spend down"
requirement did benefit most people affected by the federal law.
Ironically, such situations frequently occur when retirees receive costof-living increases to their Social Security payments, adjusting their income up
but resulting in a loss of Medicaid eligibility. The "Pickle Amendment," adopted
in 1976, protects some people who were eligible for Medicaid as SSI recipients
but who lost their eligibility as a result of a Social Security cost-of-living
increase. 42 U.S.C. § 1396a. However, "Pickle" protection does not extend to
"medically needy" eligibles.
Consider the various policy choices made by Massachusetts and,
alternatively, those made by Congress that created Hogan's circumstances. Apart
from people like Hogan, what other groups are treated inequitably? Are there any
policy justifications for the disparate treatment of the "categorically needy"
and the "medically needy"? Of the AFDC and SSI populations? Who else is denied
benefits but arguably in greater need for government assistance under these
factual circumstances? Conversely, if you wanted to reduce or eliminate the
inequities suffered by Hogan or others denied benefits, how could you do so -given fiscal and political constraints?
9. The federal poverty guidelines are used to establish a ceiling beneath which
states can establish their standards for determining Medicaid eligibility. The
2000 poverty guidelines for the 48 contiguous states and the District of
Columbia are as follows:
Size of Family Unit
1
2
3
4
5
6
7
8
Poverty Guideline
$ 9,570
12,830
16,090
19,350
22,610
25,870
29,230
32,390
For family units with more than 8 members, add $3,260 for each additional
member. See 70 Fed. Reg. 8373 (2005). (Note that there are separate guidelines
for Alaska and Hawaii.)
45
10. In order to be eligible as either "categorically needy" or "medically
needy," a Medicaid applicant must meet stringent and complicated income and
resource standards: either the state determined AFDC standards, the federal SSI
standards, the federally determined standards for the various categories of
"optional categorically needy," or the state determined standards for the
"medically needy" (or, in "209(b) states, the state standards for SSI
recipients.) Virtually all cash income, including all Social Security and
private pension benefits, and many forms of "in kind" income (e.g., food or
shelter provided while living in someone else's residence) can be considered
"available" income for purposes of determining Medicaid eligibility. All cash
and virtually anything else that has a cash value -- an automobile, bank
account, parcel of land, or personal effects -- may be considered an "available"
resource. The federal law mandates that some resources be "disregarded," such as
a personal residence; the federal requirements are narrowly defined and the
states are still allowed considerable discretion in defining "disregards,"
available resources, and other matters. See, e.g., Hazard v. Shalala, 44 F.3d
399 (6th Cir. 1995) (state imposed $1500 limit on exemption for automobile does
not violate federal law). Determining eligibility under these standards is
further complicated by "deeming" requirements that define the extent to which
the income or resources of a parent, sibling, or a spouse are considered
"available" to the applicant. Again the states are given considerable discretion
in "deeming." See, e.g., Ford v. Iowa Department of Human Services, 500 N.W.2d
26 (Iowa 1993) (federal law does not prohibit state from using annuity-based
calculations in determining resources available to a "community spouse"); L.M.
v. New Jersey, 140 N.J. 480, 659 A.2d 450 (1995) (state law does not permit the
state to consider the pension benefits granted to beneficiary's former wife in
divorce settlement as available income).
Medicaid eligibility requirements pose particularly difficult problems for
applicants seeking eligibility primarily for the purpose of financing nursing
home services. See Problem infra.
11. As discussed in Frew, a participating state is required to provide early,
periodic, screening, diagnosis and treatment (EPSDT) for all Medicaid-eligible
children under age 21. States have an affirmative obligation to seek out and
inform Medicaid eligible children that EPSDT is available. See 42 U.S.C. §
1396a(a)(43). A participating state also must engage in a variety of efforts to
encourage beneficiaries to utilize EPSDT and is specifically required to
"provide or arrange for" separate medical, vision, hearing, and dental screens,
42 U.S.C. § 1396d(r)(1)(B), and arrange for corrective treatments. 42 U.S.C. §
1396a(a)43(c).
The EPSDT requirements create a program within a program. Because of the
EPSDT requirements, children eligible for Medicaid are eligible for a much
broader range of services than other Medicaid beneficiaries. See, e.g., Pittman
v. Secretary, Florida Department of Health & Rehabilitative Services, 998 F.2d
887 (11th Cir.), cert. denied, 510 U.S. 1030 (1993) (state must cover medically
necessary liver-bowel transplant for EPSDT even if the state does not opt to
cover such services for other Medicaid recipients). The federal EPSDT
requirements also impose unique, affirmative obligations on a participating
state, in contrast to the state's role in ensuring that covered services are
available to other Medicaid eligibles. In practice, however, few states have
ambitiously pursued their EPSDT obligations and many states have virtually
ignored them altogether. The courts have consistently recognized the EPSDT
obligations, but have had difficulty finding effective ways to enforce them.
46
See, e.g., Clark v. Kizer, 758 F. Supp. 572 (E.D. Cal. 1990), aff'd sub nom.
Clark v. Coye, 967 F.2d 585 (9th Cir. 1992), aff'd in part & rev’d in part, 8
F.3d 26 (9th Cir. 1993). The limitations on federal jurisdiction under § 1983
and on all judicial remedies sought by private litigants imposed by the 11th
amendment principles discussed supra only make the gap between EPSDT in theory
and EPSDT in fact all the greater.
12. For a more detailed description of Medicaid program expenditures and
beneficiaries and other Medicaid-related research, see generally Kaiser
Commission on Medicaid and the Uninsured, http://www.kff.org/medicaid/kcmu (last
visited September 2005); National Health Law Program, http://www.
healthlaw.org/pub/ (last visited September 2005).
47
Note: The State Children's Health Insurance Program (SCHIP)
In 1997, one year after the Personal Responsibility and Work Opportunity
Reconciliation Act was adopted, Congress created SCHIP, providing over $20
billion in federal matching funds over five years for state-administered
programs of health insurance for uninsured children. The basic purpose of the
program is to expand insurance coverage for children under age 19 who are within
200 percent of the federal poverty level and are not otherwise eligible for
Medicaid or other publicly funded health programs. Annual allocations for each
state is determined by the state's proportionate share of low income and
uninsured children, but the states do not receive their allocation
automatically. The Secretary of HHS must approve each state's plan under the
SCHIP statute, much in the manner of the Medicaid program. Nonetheless, the
states that choose to participate are given wide discretion in determining the
scope of benefits, the use of beneficiary premiums, and the program's design.
States must also finance their share of SCHIP under a complicated formula, again
not unlike Medicaid, although the federal match for SCHIP programs is somewhat
more generous than it is under Medicaid.
If states choose to have a separate insurance SCHIP program, rather than
use their SCHIP funds to expand their Medicaid program, then the federal law
allows the state to fund part of the program by charging beneficiary premiums,
subject to certain caps and other restrictions in the federal law. This has both
fiscal and political advantages -- allowing the state to present the program as
an "insurance" program rather than one fully funded by state taxpayers. But it
also risks limiting eligibility for those children in the lowest income groups,
arguably the most in need of SCHIP type benefits.
At least initially, many states appeared eager to participate -- and share
in the $20 billion allocation. Other states were either slow to respond or
concerned that if they initiated a new program with SCHIP funds that they would
be left holding the monetary bad when the SCHIP program expired. The original
legislation authorized $20.3 billion through the year 2002; and then a slightly
lower amount for a second five-year cycle. Congress, of course, has to make
annual appropriations of the scheduled amounts and there is no legal barrier to
their refusal to do so or to a decision to lower the funding for any year or for
either five-year period. In any event, it is not permanently authorized (such as
Medicaid and Medicare) and, at some point, unless it is re-authorized and then
re-funded in each budget cycle, the money will run out. Congress must make a
series of affirmative decision to continue federal support for SCHIP programs or
the states must refinance their programs out of state funds.
A lot is at stake. As of December 2004, nearly 4 million low income
children were receiving SCHIP funded benefits. About one-third were in Medicaidexpansion programs, the remainder in separate SCHIP-funded programs.
For a description of the program, see Genevieve M. Kenney & Deborah Chang,
The State Children’s Health Insurance Program: Successes, Shortcomings, and
Challenges, 23 Health Affairs 51 (2004); see also reports at
http://www.kff.org/medicaid/index/ (last visited September 2005).
48
PROBLEM FOR DISCUSSION: NURSING HOME CARE, MEDICAID, AND ESTATE
PLANNING FOR LOW TO MODERATE INCOME FAMILIES
States that participate in Medicaid are required to cover nursing home
services for the "categorically needy." Virtually all states opt to provide
nursing home services for the "medically needy" as well. Since many nursing home
patients are either poor or quickly "spend down" to the Medicaid income and
resource levels, Medicaid has become the primary source of nursing home
financing in the United States, funding nearly 50 percent of all nursing home
services in the United States. Medicare pays for an additional 10-15 percent.
the remainder is paid privately and, since most private insurance does not cover
long term care, out-of-pocket. Viewed somewhat differently, payments for nursing
home services and for the other health care needs of Medicaid beneficiaries
while they are in nursing homes can represent as much as 30-40 percent of a
state's total Medicaid costs. Thus, for many states, containing the costs of
their Medicaid program means, in large measure, containing the costs of
Medicaid-funded nursing home care. For a good overview of Medicaid’s role in
long term care (of which nursing home care is the largest part), see Kaiser
Commission on Medicaid and the Uninsured, Medicaid and Long Term Care (2005)
found at http://www.kff.org/medicaid (last visited September 2005). See also
discussion of long term care in Chapter 4.
Yet Medicaid can be both a blessing and a curse for program beneficiaries.
For many people, their first encounter with their state's complicated income,
resource, and other limits on Medicaid eligibility comes when they first seek
financing for nursing home services for themselves, a spouse, or a family
member. The experience can be daunting if not overwhelming. One particularly
troubling problem occurs when one spouse enters a nursing home and the other
stays in the community. Faced with nursing home bills that could exceed $80,000
a year, qualifying for Medicaid may be their only available financing option.
Yet the interplay of the "deeming" requirements (defining what resources are
“deemed” available to the institutionalized spouse) with Medicaid's income and
resource standards can leave the community spouse with a Hobson's choice: become
impoverished in order to secure the institutionalized spouse's Medicaid
eligibility, or officially separate from that spouse to avoid the loss of income
or resources necessary to continue to live in the community.
Some of the issues involved can be illustrated by examples from the case
law. In Mistrick v. Division of Medical Assistance and Health Services, 154 N.J.
158, 712 A.2d 188 (1998), the New Jersey Supreme Court upheld the validity of a
state law that defined the total value of a community spouse’s IRA as a
resource, rather than treating the payments from the IRA as income to that
spouse. As a result, the community spouse had to “cash in” the IRA and deplete
the entire amount before the institutionalized spouse could qualify for
Medicaid, eliminating the retirement income available to the community spouse.
On the other hand, in Wisconsin Department of Health & Family Services v.
Blumer, 534 U.S. 473 (2002) invalidated a state’s interpretation of the federal
Medicaid law which used an “income-first rule” in transferring assets from an
institutionalized spouse. (A “resource-first” approach makes it more likely that
the institutionalized spouse will qualify for Medicaid -- or at least makes it
more likely that the institutionalized spouse can spend down excess income). For
other examples, see Omar N. Ahmad, Medicaid Eligibility Rules for the Elderly
Long-Term Care Applicant: History and Developments, 1965-1998, 20 Journal of
Legal Medicine 251 (1999).
49
Confused? You should be. This is as complex as any area of the law. To
fully appreciate both the issues and their complexity, however, requires a more
specific illustration. Suppose you are the legal adviser to an extended family
unit that includes at least one member who is elderly or disabled and may expect
to enter a nursing home in the next five to ten years. Since levels of income,
property values, and other matters differ by jurisdiction, you should base your
analysis on the circumstances of a family with which you are familiar. And since
Medicaid varies from state to state, you will also have to assemble the relevant
state laws concerning Medicaid eligibility in your jurisdiction. Note also that
many of the state eligibility requirements will be in the state regulations and
other administrative documents (and, in some jurisdictions, very difficult to
obtain).
The obvious first task is to determine the income, resource, and other
standards that must be met in your jurisdiction, including the spousal and other
"deeming" requirements and compare them to those of your potential applicant.
Can an applicant "spend down" to eligibility in your state? If the applicant has
a spouse, which assets and what income will still be available to the noninstitutionalized spouse if Medicaid eligibility is granted? Are there steps
that can be taken to avoiding treating the income or assets as "available" for
purposes of Medicaid eligibility? If other members of the family would like to
help the potential Medicaid applicant, for either current or future financial
needs, what can be done that will not jeopardize future Medicaid eligibility or
at least not duplicate Medicaid coverage? Are there any assets of special value
to the family? Some personal items may have a modest market value but "keeping
them in the family" may have tremendous emotional value to the potential
Medicaid applicant.
Planning this “estate” may involve more than writing a will, creating a
trust, or advising the client-family about the need to save for future needs.
Medicaid eligibility requirements place some additional "wrinkles" in
traditional estate planning strategies, at least for those people who anticipate
a need for Medicaid funded nursing home services or, for that matter, other
Medicaid covered services. Investing or saving funds for future needs can merely
accumulate "available resources" that have to be "spent down." Efforts by family
or other third parties to assist a potential applicant can have a similar
effect. For example, if a trust fund is created for the benefit of an elderly
person, the income or corpus of the fund, if available to a Medicaid applicant,
is considered "available" for determining eligibility. There are specific
federal rules defining "Medicaid qualifying trusts," essentially requiring that
various types of trusts be considered "available" even if they were structured
in an effort to avoid that result. Your state may place additional “wrinkles” in
any or all of these.
Note as well that a state is allowed under federal law to disqualify
applicants for Medicaid coverage for nursing home services (but not all Medicaid
eligibility) for a specified period of time if the state finds that the
applicant's assets have been transferred for less than full market value up to
36 months prior to the application (and even longer in some circumstances.)
States may even disqualify applicants if the "transfer" is merely a refusal to
accept an asset. If your research of your jurisdiction’s law did not uncover
these complicated but important restrictions on this type of estate planning,
this should bother you. You should be equally concerned if your preliminary
research did not reveal another complicated but important legal restriction: The
federal law imposes criminal sanctions on the applicant’s legal counsel for
giving certain types of improper advice concerning these matters, although the
50
constitutionality of the federal law that created this criminal has been
questioned.
51
3. Medicaid and Managed Care
Kaiser Commission on Medicaid and the Uninsured, Medicaid and Managed Care
(Kaiser Family Foundation June 2001)
*
*
*
. . . As a purchaser of health services for low-income families, Medicaid
increasingly relies on managed care to deliver services. Over half of Medicaid
beneficiaries, predominantly poor children and their parents, now receive health
care services through a broad array of managed care arrangements. . . .
MEDICAID MANAGED CARE ENROLLMENT
In 2001, over 18 million Medicaid beneficiaries were enrolled in managed
care, up from 2.7 million in 1991, more than a six-fold increase. All states
(except AK and WY) were pursuing some managed care initiatives. As of June 2001,
43 states and D.C. had more than one-quarter of their Medicaid population
enrolled in managed care. Of these, 12 states had more than 75 percent of their
Medicaid beneficiaries enrolled in managed care.
MODELS OF MEDICAID MANAGED CARE
Managed care is designed to reduce costs by eliminating inappropriate and
unnecessary services and relying more heavily on primary care and coordination
of care. Managed care arrangements are characterized by formal enrollment of
individuals in a managed care organization (MCO); contractual agreements between
the provider and a payer; and some gate-keeping and utilization control.
The major Medicaid managed care models include:
-- Risk-Based Plans: Under a fully capitated plan, a health plan is paid a fixed
monthly fee per enrollee and assumes full-risk for the delivery of a
comprehensive range of services. Some plans contract on a more limited basis
(i.e., ambulatory care only).
-- Fee-For--Service Primary Care Case Management (PCCM): In a PCCM plan, a
provider, usually the patient’s primary care physician, is responsible for
acting as a “gatekeeper” to approve and monitor the provision of services to
beneficiaries. These gatekeepers do not assume financial risk for the provision
of services, and are paid a per-patient monthly case management fee.
As of 2001, 556 Medicaid managed care plans, primarily full-risk HMOs,
were in operation -- more than double the number of plans in 1993. There has
been significant growth in the number of full-risk Medicaid plans, increasing
from 196 in 1994 to 339 in 1997. In recent years, these numbers have stabilized.
The most growth has occurred in commercial plan participation, as well as in
Medicaid plans targeted predominantly or exclusively to the Medicaid population.
In 1999, 43 percent of Medicaid enrollees in fully capitated arrangements
were enrolled in “Medicaid-dominated” plans, comprised of safety net providers,
commercial plan subsidiaries, provider-sponsored plans, and others.
52
STATE MANAGED CARE OPTIONS
States have long had the option to voluntarily enroll Medicaid
beneficiaries in managed care plans, but now have broader authority to mandate
enrollment.
. . . .
The Balanced Budget Act (BBA) of 1997 gave states new authority to mandate
enrollment in MCOs for Medicaid beneficiaries without obtaining a federal waiver
(except for special needs children, Medicare beneficiaries and Native
Americans). Furthermore the new law permitted the establishment of Medicaiddominated plans by eliminating the 75/25 rule, which required that 25 percent of
a plan’s enrollment be privately insured. The BBA also established certain new
managed care consumer protections for Medicaid beneficiaries. Finally the law
required states to develop and implement a quality assessment and improvement
strategy and called for external independent review of MCO performance.
TRENDS IN MEDICAID MANAGED CARE
Although Medicaid managed care enrollment has continued to grow, recent
analysis has shown that the number of commercial plans entering the Medicaid
market has begun to slow, while the number leaving has increased.
. . . This will become increasingly important as more vulnerable
beneficiaries such as the disabled enroll in Medicaid managed care. Currently,
about one in four non-elderly persons with disabilities in Medicaid are enrolled
in managed care primarily under mandatory, capitated arrangements. Managed care
is attractive because of its potential to reduce spending and better coordinate
care, but may actually under-serve this population if not carefully monitored.
ISSUES IN MANAGED CARE
Medicaid beneficiaries are economically disadvantaged, frequently reside
in medically underserved areas, and often have more complex health and social
needs than do higher-income Americans. Early evidence on the implementation of
Medicaid managed care shows some improvement in access to a regular provider but
more difficulties obtaining care and dissatisfaction with care for managed care
enrollees compared to those in Medicaid fee-for-service.
Medicaid provider payment rates are often substantially below market
rates, contributing to access problems. Capitation rates need to be sufficient
to assure that plans are able to adequately care for Medicaid enrollees.
Medicaid-only MCOs, wholly dependent on Medicaid, do not have other payers to
compensate for shortfalls, which can lead to instability in access to care for
enrollees. . . .
Broadened use of managed care for low-income children and families is
unlikely to accomplish large overall savings for Medicaid. Low-income children
and adults account for only 25 percent of program spending; 65 percent of
spending is for the elderly and the disabled. Enrollment of elderly and disabled
populations into managed care is increasing, but is complicated by difficulties
in setting appropriate capitation rates, limited plan experience in providing
53
specialized services, and lack of systems to coordinate Medicare and Medicaid
benefits for “dual eligibles.”
The future success of Medicaid managed care depends on the adequacy of the
capitation rates and the ability of state and federal government to monitor
access and quality. The BBA provides new standards to assure plan capacity and
enforce consumer protections. However, the development of access and quality
performance standards for Medicaid MCOs and the measurement of compliance with
those standards are evolving. Assuring access and quality of care in a managed
care environment will require fiscally solvent plans, established provider
networks, education of providers and beneficiaries about managed care, and
awareness of the unique needs of the Medicaid population.
*
*
*
54
Notes and Questions on Medicaid and Managed Care
1. As the Kaiser Commission article indicates, the number of beneficiaries
enrolled in managed care plans has been growing fairly rapidly since the early
1990s. While most experts applaud this as a “success,” some critics have argued
that the expansion of Medicaid managed care plans has largely involved the
enrollment of relatively healthy adults and children. Fewer elderly and, in
particular, disabled Medicaid beneficiaries are enrolled in managed care.
Whether the enrollment in managed care plans will continue to increase as
states are faced with the prospect of including these other subcategories of the
Medicaid population is difficult to predict. Nonetheless, managed care, rather
than programs structured around fee-for-service reimbursement, appears to be one
of the predominant models for the future configuration of the Medicaid program.
2. Even if they do not expand, many states argue that their Medicaid managed
care programs are already a success, both in terms of their total enrollment and
in terms of the relative costs of these programs. Some states publicized their
efforts as a “win-win” scenario: Because of their use of managed care plans,
more people are covered by Medicaid at a lower cost than they would have been
under traditional fee-for-service programs. Some states have even claimed that
they have both expanded their programs and reduced the costs of their programs.
Tennessee received a great deal of national attention in the mid-1990s when it
created a program with the intention of enrolling both its Medicaid
beneficiaries and a large portion of the state’s non-Medicaid uninsured in a
statewide system of managed care organizations: TennCare. They argued that
TennCare could do so at a cost that would be lower than the projected Medicaid
budget had it continued as a traditional fee-for-service program and only
covered the Medicaid population.
In fact, TennCare lived up to these claims, at least in the early years of
the program. By the year 2001, the number of uninsured people in the state had
dropped markedly and by such measures as immunization rates, infant mortality,
and trips to the emergency room, Tennesseans could claim to be healthier and
happier. For a description of the program in its early years, see Sidney D.
Watson, Medicaid Physician Participation: Patients, Poverty, and Physician SelfInterest, 21 American Journal of Law & Medicine 191 (1995); for a more recent
assessment of TennCare, see Lorenzo Moreno & Sheila D. Hoag, Covering the
Uninsured Through TennCare: Does it make a Difference?, 20 Health Affairs 231
(2001). For a critical analysis of TennCare, see James F. Blumstein & Frank A
Sloan, Health Care Reform Through Medicaid Managed Care: Tennessee (TennCare) As
a Case Study And a Paradigm, 53 Vanderbilt Law Review 125 (2000).
In later years and despite its success, TennCare became increasingly
controversial as state budget shortfalls made the program an easy target for
budget-cutting politicians. In 2002, the governor of the state announced plans
to reduce the scope of TennCare’s eligibility and coverage and to try to divert
some of the non-Medicaid enrollees into a privately financed program. These
initial plans were delayed by a series of plaintiff-initiated lawsuits and
political maneuvers. As of 2005, efforts were still being made to reduce the
cost -- and the scope -- of the program. For updates, see
http://tennessee.governor/tenncare (last visited September 2005).
55
3. How should a Medicaid managed care program be evaluated? In most political
debates, the "success" of a managed care program is defined in terms of the
overall cost of the program or the total number of enrollees. But presumably the
objective of a managed care program, once undertaken, is to provide enrollees
with an adequate level of quality services. How, in concrete terms, should those
objectives be defined and how should the performance of managed care programs be
measured? If the financial incentives in managed care programs "encourage"
underutilization, monitoring the performance of managed care providers and
defining and enforcing standards for quality and accessibility of care become
critically important.
Since the early 1980s, a number of private purchasers of health care and
various managed care organizations have attempted to develop standardized
performance measures that could be used to evaluate the services provided by
managed care plans. One product of those efforts was HEDIS -- the Health Plan
Employer Data and Information Set -- originally designed as a set of standards
to help employers evaluate the performance of the benefits they were purchasing
for their employees. As Medicaid, Medicare, and other public payers became more
involved in purchasing and evaluating services provided in a managed care
setting, they have relied heavily on the HEDIS standards to do so. In 1997, the
Member Satisfaction Survey (MSS) was added to the information collected by plans
participating in HEDIS. MSS was replaced by CAHPS, Consumer Assessment of Health
Plans, essentially a revised and more sophisticated version the predecessor MSS.
The HEDIS standards have been developed by a private nonprofit group, the
National Committee on Quality Assurance (NCQA) which collects and analyzes HEDIS
data through a program called Quality Compass. The HEDIS standards have been
updated several times and presumably will continue to evolve.
NCQA? HEDIS? CAHPS? So what’s all this really mean? One thing is clear and
undeniable: This sort of data can be extremely useful. Indeed, it has the
potential -- not fully realized -- of becoming a powerful tool for consumers,
buyers, state and federal legislators, and anyone else who wants to get beyond
the “who is covered?” and “how much does it cost?” questions. Stripped of the
acryonyms, what HEDIS means for Medicaid beneficiaries and Medicaid program
administrators is that there are some measurable standards by which managed care
plans can be compared and their performance evaluated. For that matter, HEDIS
and other performance measures can be used by employers, their employees, or
virtually anyone who wants to evaluate a plan -- if the data is accessible,
understandable, and accurate.
That’s a big “if” in that last sentence. There are some real problems with
this type of data and its collection, not the least of which is that many plans
either don’t report the data or report data that isn’t accurate. Some of the
HEDIS measures are rather straightforward and involve rather familiar measures,
e.g., the number of beneficiaries of a plan who get scheduled vaccinations for
children. Other measures can be rather sophisticated. Few consumers -- public or
private -- have any idea what percentage of a plan’s enrollees should be
receiving retinal eye exams or whether three to seven days in the hospital per
beneficiary are indicators of good or bad medicine. On the other hand, this is
exactly the sort of information many critics of American health care think
consumers should learn to understand, assuming that it is accurately reported
and made publicly available.
The kicker in all this, however, is the availability of
is a private organization offering its services and standards
Private plans are not required by law to collect the data and
required to publish it, nor are plans required to publish how
the data. The NCQA
to private plans.
NCQA is not
they rate in
56
comparison to the HEDIS measures. Some employers require HEDIS data as part of
their negotiations with various plans. But many employers don’t have the
bargaining power to do so. By requiring plans to collect and submit HEDIS data,
Medicaid and Medicare have become a kind of testing ground for the managing of
this data collection and the utility of this information. Much of what has been
made available thus far is largely a first effort, to be followed in future
years by more refined and, hopefully, more useful, efforts.
For more information about the HEDIS data, see
http://www.ncqa.org/Programs/HEDIS (last visited October 2005).
4. As described in the Kaiser Commission article, prior to 1997, states had to
receive individual authorization or “waivers” from HHS to implement managed care
programs. Under provisions included in the Balanced Budget Act of 1997, the
requirements of the federal Medicaid statute were loosened to encourage the
states to expand their programs. But even under the liberalized standards
introduced by the Balanced Budget Act of 1997, the federal law still imposes
some limits on the states’ discretion in structuring their Medicaid managed care
plans, including a variety of what could be regarded as beneficiary protections.
These include assurances for monitoring the accessibility and quality of care
available, collecting data (such as HEDIS data), and establishing an internal,
state monitored grievance procedure. See 42 U.S.C. § 1396u-2(a)-(b). These
beneficiary protections should be compared to those that are available to
Medicare beneficiaries enrolled in managed care, as discussed infra.
Whether the federal government will enforce these requirements or,
alternatively, the states will rigorously pursue efforts to monitor compliance
by the plans they contract with are open questions; federal and state program
administrators have little incentive to look beyond the “who is enrolled?” and
“how much does this cost?” questions. Indeed, one key to understanding the
attractiveness of Medicaid managed care lies in the fundamental way in which
most state Medicaid managed care programs alter the relationship between the
state and the beneficiaries. Under traditional fee-for-service programs, the
state is essentially an insurer: It offers coverage to beneficiaries and
reimbursement to providers who treat them. The state has both fiscal and
administrative on-going responsibilities for the program. Under managed care,
the state is purchasing an insurance arrangement. At least in comprehensive
programs, the state’s primary responsibility is to negotiate with the plans over
the level of payments for enrolling beneficiaries and the other terms of the
contract between the plan and the state. But once those negotiations are
settled, the deal is made, and the state is no longer directly involved in the
delivery of services by the plans. Not only is this administratively simpler,
once the capitation rate has been negotiated, the state can more easily predict
what its Medicaid budget will be through the term of the contracts. Under
traditional fee-for-service, the cost of the state’s Medicaid budget depends
upon the utilization of services by beneficiaries and the behavior of providers
-- neither of which is predictable or easy to control.
Some state Medicaid policymakers even take the position that all of their
responsibilities end once they have purchased enrollment for a Medicaid
beneficiary in a managed care plan. “Once you are enrolled in a plan, if there
is a problem with what you do or do not receive, talk to (or sue) your plan.”
But even for those who do not endorse this view, it is clear that there is
little incentive for state program administrators to protect the contracted-for
rights of Medicaid beneficiaries or even to monitor whether they receive the
services for which the plan has contracted. After all, why rock the boat -- or
57
upset a contractor with whom the state must annually negotiate? For this and
other reasons, legitimate questions can be raised as to the rigors with which a
state will pursue the enforcement of the terms of managed care contracts or even
the types of consumer protections that the state is obligated by federal law to
enforce.
As such, one important line of legal issues which will evolve over the
next several years will be the ability of Medicaid managed care beneficiaries to
enforce the requirements of the federal Medicaid statute and even the terms of
the contracts that have been negotiated on their behalf by the state Medicaid
programs. Will the courts treat the requirements of the Balanced Budget Act of
1997 and other federal statutory protections as enforceable through private
lawsuits, or only as matters that can be enforced by administrative action by
the federal government?
Alternatively, can individual beneficiaries sue their plans as third party
beneficiaries to the contracts negotiated between the state and the
beneficiary’s managed care plan or, alternatively, will the courts allow only
the state to initiate legal action against an individual plan?
Perhaps most importantly, if there is a dispute between the plan and the
beneficiary over a beneficiary’s eligibility or treatment -- e.g., a plan’s
denial of coverage for a particular treatment -- is the beneficiary entitled to
the same statutory and constitutional protections that would have been available
to the beneficiary under traditional fee-for-service Medicaid? If the same
eligibility or treatment dispute arises for a beneficiary who is not enrolled in
managed care, the denial would be by an agency of the state and, under federal
law, the beneficiary would be entitled to the extended procedural protections
outlined in the federal law (and in the state law and the state’s plan as well.)
The beneficiary also would be allowed to claim the protections of the Due
Process Clause and any state constitutional protections as well. The decision
maker, the state agency denying that the beneficiary is eligible or that the
treatment is covered, is a state actor and clearly operating within the limits
of the federal statute, the state statute, and the state and federal
constitutions.
The decision maker for the beneficiary enrolled in managed care is a
private managed care plan under contract to a public program -- making the kind
of decisions traditionally made by a state actor. There are statutory questions
concerning whether the private managed care plan has to comply with the
procedural requirements that are imposed on the state when the state makes the
same type of decision. There is a second set of issues concerning the
application of any constitutional requirements, over and above the statutory
requirements, to the private plan. In essence, are certain decisions of the
managed care plan to be treated as “state action” for purposes of applying
constitutional principles? Obviously the states can address these issues
administratively or make compliance with any or all statutory or constitutional
principles part of the plan’s contractual obligations. For that matter, states
could write their contracts to explicitly recognize the plan’s enrollees as
third party beneficiaries to the plans. But as noted above, the states are not
always eager to “rock the boat” in their dealings with managed care plans.
For some judicial efforts to sort out these important statutory and
constitutional issues, see Daniels v. Menke, 145 F.3d 1330 (6th Cir. 1998)
(vacating a district court decision that MCOs participating in TennCare are
state actors when making treatment or service denial decisions); Catanzano v.
Wing, 103 F.3d 223 (2d Cir. 1996)(applying due process requirements to home
58
health agencies under contract to the Medicaid program). See also Grijalva v.
Shalala, 152 F.3d 1115 (9th Cir. 1998), vacated and remanded, 526 U.S. 1096
(1999).
5. As reviewed in the Kaiser Commission article, almost all observers agree that
managed care strategies can potentially contain the costs of providing Medicaid
without necessarily cutting the program and, in some cases, even with
significant expansion of enrollment. On the other hand, there is no assurance
that this potential will be realized. There are obviously good and bad ways to
structure Medicaid managed care programs. And what works in some states in some
years may not work in others. But even if it reaches its full cost-saving
potential, the result will not be the kind of short term, "big dollar" savings
that would resolve the budgetary problems that plague many states. As all state
officials repeatedly insist, the "bottom line" for measuring the need for
Medicaid cost containment is not simply the costs of the Medicaid program,
whatever its rate of growth, but the growing costs of Medicaid as compared to
the growth in available state revenue to pay the state's share of those costs.
For that matter, some managed care programs may actually increase Medicaid costs
in the long run if the overall strategy includes a major expansion of the number
of people enrolled in the state-sponsored program. For some states, disavowing
that responsibility might be very difficult, even if program costs exceed
expectations. Conversely, in some states, if managed care fails to contain
Medicaid costs, then there may be little choice but to reduce spending by the
only methods certain to have immediate "big dollar" impact: heavy-handed
restrictions on provider reimbursement or, more simply, drastic reductions in
the number of program beneficiaries or in the scope of services for which they
are covered.
59
C. MEDICARE
When Medicare was enacted in 1965, it was presented to the nation as a
program of historic significance and ambitious proportions. By expanding the
benefits available to the nation's elderly under the Social Security program to
include financing for hospital and medical care, the federal government would
provide them with the kind of health insurance that was available to many
Americans during their working years but that was unavailable or unaffordable
once they retired. In the words of President Johnson as he signed the Medicare
legislation:
No longer will older Americans be denied the healing miracle of
modern medicine. No longer will illness crush and destroy the savings they
have so carefully put away over a lifetime so that they might enjoy
dignity in their later years. No longer will young families see their own
incomes, and their hopes, eaten away simply because they are carrying out
their deep moral obligations to their parents. . . . And no longer will
this nation refuse the hand of justice to those who have a given a
lifetime of service and wisdom and labor to the progress of this
progressive country.
Remarks by Lyndon B. Johnson July 30, 1965, 2 Pub. Papers 394 at 811, 812-14
(1965).
Unlike many other programs of that era, Medicare has lived up to the
rhetoric with which it was unveiled. For over 35 years, Medicare has provided
its beneficiaries with exactly what they were promised: financing for hospital,
physician, and related services -- publicly sponsored health insurance with
coverage at least as broad as all but the most comprehensive private health
insurance policies. And eligibility for those benefits has been generously
defined to include virtually everyone 65 years of age or older and many disabled
Social Security recipients, as well as people with end-stage renal disease. In
2006, over 40 million Americans will rely on Medicare as the primary source of
financing for their health care needs, with the expectation that their Medicare
benefits will continue to be available throughout their lifetime.
But extending the "hand of justice" to so many people has proven to be an
expensive social commitment. The total costs of the Medicare program have risen
rapidly over the last four decades -- and, with some notable exceptions (see
discussion infra) more rapidly than the costs of health care for the general
population. Prospects for both the short term and the long term future are
sobering. Estimates indicate that the costs of the Medicare program will
continue to rise relatively rapidly through the next decade and could -- unless
"something is done" -- skyrocket as the "baby boom" generation matures in the
second decade of the 21st century. Equally if not more important, the costs of
the Medicare program also are predicted to grow at rates much higher than those
of available government revenues. Unless the growing gap between Medicare
expenditures and Medicare revenues can be closed, the financial bases for
Medicare, as currently structured, will collapse.
Thus, the Medicare program, like the Medicaid program, is at a critical
juncture. Whether the federal government can or will continue to provide what
many Americans have come to regard as their entitlement is now open to question
on both financial and political grounds. And much is at stake: Medicare is the
largest single source of American health care financing and the primary source
of health care financing for the nation's elderly and many of its disabled.
60
Moreover, as documented in Chapter 1, changes in Medicare have often
foreshadowed changes in other private and public financing schemes, and, in
fact, federal policymakers have often used Medicare as a vehicle for directing
reforms that affect virtually every aspect of American health care financing and
delivery. In the next decade, the debates over the future scope of Medicare
eligibility, the nature of the commitment to those who are eligible, and, in
particular, the manner in which revenues will be raised to support the program,
will tell us much about the present and future status of American health care,
its relationship to government, and the attitudes and values of Americans
concerning both of them.
61
1. An Introduction to Medicare in the 21st Century
The original Medicare legislation created two new programs: a compulsory
program of basic hospital insurance, Medicare Part A; and a voluntary medical
benefits program, Medicare Part B. (A new Part D, a voluntary program financing
program financing prescription drugs, was scheduled to be implemented in January
of 2006; see discussion infra.)
Medicare Part A, for which all Social Security beneficiaries are
automatically eligible, provides reimbursement for inpatient hospital services,
skilled nursing home services (following at least three days of
hospitalization), home health services, and hospice care, subject to various
cost-sharing requirements, exclusions, and durational limits, as described
infra. People who have received Social Security disability payments for more
than 24 months are also eligible for Medicare Part A (as are people with endstage renal disease).
The importance of Part A benefits could hardly be overstated, especially
for those in need of hospital services. In 2004, Medicare Part A purchased
nearly $170 billion in services, primarily inpatient hospital services. Indeed,
once the initial first-day deductible is satisfied, Part A pays virtually 100
percent of the beneficiary's bill for inpatient hospital care. For that matter,
Medicare's significance goes far beyond the beneficiary population. Medicare
Part A is the nation's largest single payer for hospital services, public or
private, financing nearly half of all inpatient hospital care in the United
States.
To receive Medicare Part B, an eligible beneficiary must pay a monthly
premium ($89.20 starting in 2006). Virtually all Part A recipients do so. Part B
provides reimbursement for physician services, diagnostic and laboratory
services, and various hospital outpatient services, again subject to exclusions
and limits and substantial cost-sharing requirements. As with Part A, it would
be hard to understate the value of Part B benefits to enrolled beneficiaries or
the significance of Part B in the health care system generally. In 2004, Part B
purchased over $135 billion in physician and related services for Part B
recipients, roughly two-thirds of all physician services provided to the elderly
and about one-fourth of all physician services.
Taken together, Parts A and B provide Medicare beneficiaries with
protection that is fairly comprehensive, although clearly not complete, and not
unlike that of the private health financing arrangements available to many nonelderly Americans through employment-based plans or other group policies. It is
very unlikely that anything comparable would be available through private
financing mechanisms, or at least affordable for most Medicare beneficiaries, if
Medicare or some other publicly financed program did not exist and these
benefits had to be supported entirely out of beneficiary premiums.
To fully appreciate Medicare, it is important to delineate what Medicare
does not cover, the limits on and exclusions from covered services, and
Medicare's substantial cost-sharing requirements. Neither Part A nor Part B
provide coverage for most nursing home or other long term care expenses, most
routine check-ups or preventive care, or such items as dental work, eyeglasses,
or hearing aids (or, prior to 2006, prescription drugs). The cost-sharing and
durational limits of Medicare coverage are complicated but equally significant
in understanding Medicare's limitations. Part A payments for inpatient hospital
coverage expire after 90 days, although a beneficiary can use an additional,
62
once-in-a-lifetime "60 day reserve." Similarly, Part A coverage of skilled
nursing services under Part A expires after 100 days. The Part A beneficiary is
also responsible for a deductible, roughly equivalent to the cost of the first
day of hospital care for each spell of hospitalization ($912 in 2006), a copayment equivalent to 1/4 the per diem cost for each day from the sixty-first to
the ninetieth day of hospitalization ($228 in 2006), and a co-payment equivalent
to 50 percent of the per diem cost for each day of the life time reserve used.
Likewise, skilled nursing home coverage under Part A is limited to 100 days a
year and the beneficiary must pay a co-payment equivalent to one-eighth of the
cost of a day in the hospital for each day from the twenty-first to the
hundredth day ($114 in 2006).
Medicare Part B also imposes significant cost-sharing obligations on the
Medicare beneficiary. As of 2006, the beneficiary must pay the first $110 of the
costs of covered Part B services each year and 20 percent of the Medicare
approved charge for most covered services. In addition, unless a Part B
physician "accepts assignment," the beneficiary may be liable for the amount of
the physician charge above the Medicare level of payment.
Obviously the service limits and durational exclusions from Medicare's
coverage, combined with the cost-sharing requirements, can result in substantial
out-of-pocket liability for some Medicare beneficiaries. It has been estimated
that in the aggregate, Medicare pays less than half of the total costs of the
medical bills of the nation's elderly. In some individual cases the results are
particularly harsh: The cost-sharing liability of the very sickest patients,
those institutionalized for long periods of time, balloons as their care is
extended and there is no upper limit on total out-of-pocket liability under
either Part A or Part B. Even granting Medicare's relatively broad coverage, and
taking into account the other sources of health financing available to some but
not all in the Medicare population -- Medicaid for the very poor and private
health insurance provided as part of retirement benefits for some workers -Medicare beneficiaries must still pay out-of-pocket for a considerable portion
of their health care needs and some truly face "catastrophic" medical bills
despite their Medicare eligibility. The 1989 "catastrophic" legislation
attempted to provide some additional coverage for Medicare beneficiaries with
the highest bills, but it was repealed in 1990. Medicare beneficiaries who can
afford to do so purchase supplemental or "Medi-Gap" policies, some of which are
legitimately tailored to mesh with the potential out-of-pocket liability of
Medicare beneficiaries; other policies offer only duplicative or worthless
coverage. All are relatively expensive.
Notwithstanding its exclusions and limitations, Medicare has always been
an extraordinarily expensive government undertaking. As indicated in Table VI,
the total Medicare budget increased from $5 billion in 1967 to over $100 billion
by the 1980s, to over $200 billion annually by the end of the 1990s, and was
approaching $400 billion by 2006. As with other cost estimates, the rate at
which Medicare costs have been growing is as important as the aggregated total
of those costs. Through the early 1980s, the rate of growth of Medicare
expenditures generally equaled or exceeded the rate of growth of health care
costs. In the mid-1980s, however, Medicare's rate of growth somewhat moderated.
In particular, the rate of growth of Medicare Part A spending slowed
dramatically in the mid-1980s, apparently as a result of the implementation of
prospective, diagnosis-related group reimbursement (DRGs) for inpatient hospital
services. (See discussion in Chapter 3.) Economists have estimated that in
"constant dollars," Part A expenditures per recipient actually declined for a
few years in the 1980s. Starting in 1988 and through the first half of the
63
1990s, however, the rate of increase in Part A expenditures began growing again,
as indicated on Table VII.
In the late 1990s, the growth of Medicare Part A expenditures again began
to slow. Most of these program savings have been attributed to the changes
mandated by the 1997 budget legislation which introduced a new prospective
reimbursement scheme for skilled nursing home services, tight limits on the
annual increases in payments to all Part A providers, and a shift in the cost of
home health services from Part A to Part B (scheduled over a six-year period.)
Nonetheless, in the first several years of the 21st century, however, Part A
expenditures began to rise again, although at relatively moderate levels.
Medicare Part B expenditure increases also have followed several waves of
rapid, then slowing, increases in response to various economic and programmatic
changes. Significantly, the most recent long term projections suggest that Part
B costs will continue to rise rapidly well into the 21st century and virtually
equal expenditures for Part A by the second decade, assuming, somewhat
hypothetically, that Medicare will continue as currently structured through
those years.
There are several trends that should be given special attention in
understanding Medicare costs and the problems they pose for the future of the
program. First, in some regards, Medicare Part A costs have been successfully
contained already. The use of inpatient hospital services by Medicare
beneficiaries declined markedly during the mid-1980s and remained at these lower
levels in the 1990s (when use of inpatient services by non-Medicare patients
also began to decline.) There has not been an expansion of Part A coverage since
1972; the scope of services has remained essentially unchanged for several
decades. Over 90 percent of Part A expenditures are for inpatient hospital
services, services that have been covered since the inception of the program.
Moreover, at least since the implementation of Medicare DRGs, the rate of
increase in reimbursement per hospital admission has been determined by a
"hospital input price index," or, more simply, mandated by Congress. See Chapter
3. The net result has been that the annual increases in Medicare reimbursement
for inpatient hospital services have been significantly lower than the increases
in rates of hospital reimbursement by other payers. Said differently, the rate
of increases in Medicare Part A expenditures, at least in the last two decades,
are not driven by increases in Part A coverage, increases in utilization of
covered services, or, relatively speaking, rapid increases in Part A "prices."
Current government projections assume that these trends will not change
significantly in the coming years.
Some, but not all, of these trends characterize Part B expenditures as
well. Until the creation of the new prescription drug benefit in 2006, there had
been no expansion of part B coverage in the prior two decades of the program,
with the exception of the short-lived "catastrophic" legislation in 1989.
Various reimbursement reforms during the 1980s and, in particular, the adoption
of "resource-based relative value scales" (RB-RVS) in the 1990s slowed the
growth in levels of reimbursement for most Part B services. In contrast to Part
A services, however, rates of utilization for Part B services have been
increasing during the last decade, particularly utilization of outpatient
hospital services, perhaps for the very reason that use of inpatient hospital
services has declined. This is one main reason why Part B expenditures are
expected to continue to rise more rapidly than Part A expenditures.
The other primary reason for the continuing increase in Part B
expenditures in the 1990s, and the primary reason why Part A expenditures are
64
also continuing to increase, is the growth in the size of the Medicare
population. Obviously the number of beneficiaries has been growing in absolute
terms since the inception of the program and growing even more rapidly in recent
years. In 1980, there were 28.5 million Medicare beneficiaries; by 1991, there
were over 35 million. By 2005, there were over 40 million Medicare
beneficiaries. The impact of this "graying factor" on current levels of NHEs is
relatively small, as discussed in Chapter 8, but the impact on Medicare spending
is significant and will continue to be so. Even with the declines in rates of
utilization of some Medicare services and the relative slow rate of increases in
the "prices" paid for those services, this growing population will continue to
fuel Medicare expenditure increases.
This growth in the Medicare population is also creating another related
problem for the Medicare program. As the national birth rate has slowed and life
expectancy has gradually increased, not only has the number of Medicare
beneficiaries increased, but also Medicare beneficiaries have become a larger
proportion of the American population. In 1967, Medicare beneficiaries
represented 9.7 percent of the population; by 1991, they were 13.5 percent of
the population. By the year 2006, they will be over 15 percent of the
population. This trend is expected to continue into the next century, especially
as the post-World War II "baby boom" generation matures. At the same time that
the increase in the absolute number of Medicare beneficiaries is driving
increases in Medicare expenditures, this increase in the proportion of the
population that are Medicare beneficiaries is undermining the revenue structure
of the program, as explained infra.
Thus Medicare in the 21st century poses much the same sort of dilemma as
Medicaid. On the one hand, Medicare plays an essential role in financing
American health care for millions of Americans. Indeed, as often as the nation's
policymakers lament the growing costs of maintaining Medicare as currently
structured, voices are heard claiming that Medicare inadequately provides for
the needs of the elderly and other beneficiaries and therefore should be
expanded. On the other hand, as outlined above, Medicare is already an
extraordinarily costly governmental undertaking, and it soon will become even
more costly, in both absolute and relative terms, if it is to be continued in
its present form. As both its supporters and its critics agree, in the course of
three decades, Medicare has become the quintessential political entitlement, a
program that must be regarded as a political given in any outline of the future
of federal domestic policy. But whether these financial and political pressures
will erode Medicare's political status and, therefore, force a restructuring of
Medicare is one of the most critical public policy issues of the coming decade.
65
TABLE IV.
TOTAL MEDICARE EXPENDITURES (PARTS A AND B) 1967 - 2010
Year
Medicare $
(billions)
Increase
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996*
1997
1998
1999
2000
2001
2002
2003
2004
$ 5.0
6.2
7.1
7.7
8.5
9.4
10.8
13.5
16.4
19.8
23.0
26.8
31.0
37.5
44.9
52.5
59.8
66.5
72.2
76.9
82.6
90.4
102.5
111.1
121.5
135.8
154.2
164.8
180.1
194.3
210.4
213.4
212.0
219.3
241.2
256.9
277.8
301.5
-24%
15%
9%
10%
11%
15%
25%
22%
21%
16%
17%
16%
21%
20%
17%
14%
11%
10%
7%
7%
9%
13%
8.4%
9.4%
11.8%
13.5%
6.8%
11.8%
7.9%
8.3%
1.4%
(0.7)%
3.4%
10%
6.5%
8.5%
8.5%
Number of Medicare
Recipients (millions)
19.5
19.8
20.1
20.5
20.9
21.3
23.5
24.2
25.0
25.7
26.5
27.2
27.9
28.5
29.0
29.5
30.0
30.5
31.1
31.7
32.4
33.0
33.6
34.2
34.9
35.6
36.3
36.9
37.5
38.1
38.8
39.0
N/A
39.7
40.1
40.7
41.1
41.7
66
2005**
2006**
2007**
2008**
2009**
2010**
333.0
406.4
459.1
486.9
518.3
552.1
10.4%
22.0%
13.0%
6.0%
6.4%
6.5%
Source: cost data from 2005 Annual Report of the Boards of Trustees of the Federal Hospital
Insureance and Federal Supplemental Medical Insurance Trust Funds at 177 (found at
http://www.cms.hhs.gov/publications/trusteesreport/ (last visited October 2005); beneficiary data
from http://www.cms.hhs.gov/researchers/datacompendium/ (last visited October 2005).
* Data prior to 1996 are based on earlier data set that used calendar year instead of fiscal year.
** These data are projections based on “intermediate” economic assumptions and on the
implementation of Part D as originally designed.
67
SIDEBAR: THE ELDERLY, OUT-OF-POCKET LIABILITY, AND "MEDI-GAP"
INSURANCE
Notwithstanding the financing provided by Medicare, Medicaid, and, in some
cases, their former employers, many people age 65 or older face substantial outof-pocket health care costs. For this reason, many elderly Americans purchase
one or more private insurance policies to supplement their Medicare coverage.
Indeed, the market for so-called "Medi-Gap" policies is highly competitive, as
evidenced by the full-page newspaper endorsements, glossy mass mailings, and
telemarketing efforts that attempt to attract the attention -- and play on the
fears -- of the nation's elderly. Correctly tailored, of course, a "Medi-Gap"
policy can be exactly what a Medicare beneficiary needs and wants: an insurance
policy that pays for the costs of services not covered by Medicare and for the
beneficiary's cost-sharing liability. The problem is that many such policies are
not so tailored, and in fact, many are just short of fraudulent.
In 1990 Congress enacted legislation in an attempt to make "Medi-Gap"
policies more uniform and easier to understand. See generally 42 U.S.C. §
1395ss. The 1990 legislation delegated to the National Association of Insurance
Commissioners the responsibility for drafting ten model "Medi-Gap" policies with
standardized benefits, cost-sharing, and other features, starting with a basic
core plan at a low cost and including additional plans with broader coverage and
higher cost. The 1990 legislation set out a timetable for each state to adopt
legislation allowing only the sale of policies certified as one of the ten (or,
at the option of the state, fewer) "Medi-Gap" standard policies. In states that
failed to do so (by January 1, 1992 with some exceptions), all "Medi-Gap"
policies must be certified in compliance with the federal standards issued by
the DHHS. Furthermore, any insurer that offers any certified "Medi-Gap" plan
must also offer the core plan. For implementing regulations, see 42 C.F.R. §§
403.300-403.258.
The federal "Medi-Gap" legislation also includes: (a) a requirement that
policies be renewable; (b) a requirement that a "Medi-Gap" policy be suspended
during a period of Medicaid eligibility; (c) a requirement that insurers meet
certain profit/loss ratios or refund a portion of the premium to the
policyholder; (d) a prohibition on pre-existing exclusions and a requirement of
open enrollment periods; (e) a prohibition on the sale of duplicative insurance
to Medicare beneficiaries; (f) an authorization of the sale of "Medicare SELECT"
policies, supplemental policies that meet the standards for "Medi-Gap" policies
except that they limit the freedom-of-choice of the beneficiary.
Whether all of this helps Medicare beneficiaries purchase the kind of
supplemental coverage they want is not clear. And, as should be clear, even with
the standardization and uniformity required by the federal law, supplemental
insurance policies, as all insurance policies, are difficult to evaluate,
particularly when they must be measured against the coverage available through
Medicare, and in some cases, other financing arrangements. The enrollment of
Medicare beneficiaries in various types of managed care only adds to the
complexity of evaluating Medi-Gap options.
For updates on Medi-Gap, see Choosing a Medigap Policy: A Guide to Health
Insurance for People With Medicare (2005) http://www.medicare.gov/publications
(last visited October 2005).
68
2. Problems in Medicare Coverage and Eligibility
1. Unlike Medicaid eligibility, Medicare eligibility can be easily outlined.
Virtually everyone who is 65 years or older is eligible. A very few elderly
people who have not paid into Social Security have to pay a monthly premium for
Medicare Part A (as well as for Part B). Social Security recipients who have
been disabled for more than 24 months are also eligible for Medicare. People
with end-stage renal disease are eligible for Medicare (but not Social Security
cash grants). See generally 42 U.S.C. § 1395c. Medicare eligibility is also
fairly simple to outline because there is only one Medicare program -- unlike
the fifty-plus Medicaid programs, each with slightly different eligibility
standards. Medicare is also significantly different from Medicaid in that there
is no "means testing," i.e., Medicare eligibility is not limited by income,
resources, or any other measure of ability to pay or "medical need." As a
consequence, many issues that make Medicaid eligibility determinations so
convoluted and controversial do not arise in the Medicare program.
Whether Medicare eligibility will continue to be so broadly defined in the
future is not clear. See discussion infra.
2. One exception to the rule involves the complications of determining
eligibility of the elderly and the disabled for both Medicaid and Medicare
benefits. Roughly 45 percent of Medicare beneficiaries have incomes within 200
percent of the federal poverty guidelines; another 15 percent fall below the
poverty guidelines. As Medicare pays for only some of their health care needs,
many enroll in Medicaid as well as Medicare to receive the full range of
Medicaid benefits for non-Medicare services (particularly long term care and
prescription drugs) and for coverage of their cost-sharing liability. Some
qualify automatically and some spend down. Others are potentially eligible under
several Medicaid programs that offer limited coverage but more generous
eligibility standards. Qualified Medicare Beneficiaries (QMBs), beneficiaries
within 100 percent of the poverty line, receive Medicaid payments for their Part
B premiums and Medicare cost-sharing; Specified Low-Income Beneficiaries (SLMBs)
receive support for their Part B premiums. States may also choose to offer
support for all or part of the Part B premium to Medicare beneficiaries below
175 percent of the poverty line.
Because these programs blur the distinctions between Medicare and Medicaid
and make the complicated rules of Medicaid eligibility even harder to decipher,
many elderly and disabled Medicare beneficiaries may potentially qualify as
“dual-eligibles” but are not enrolled in the state’s “dual-eligible" options. On
the other hand, they represent people who have both high needs for extended
coverage and represent an expensive commitment on the part of the state. Experts
have estimated that “dual-eligibles” cost roughly twice as much per beneficiary
for both the Medicare and Medicaid programs -- largely because of the high
number of "dual eligibles" that use expensive long term care. For that reason,
some states are reluctant to fully implement their “dual eligible” options. See
Kaiser Commission on Medicaid and the Uninsured, Dual Eligibles: Medicaid’s Role
for Low Income Medicare Beneficiaries (July 2005) found at
http://www.kff.org/Medicare/duals (last visited October 2005). States with
managed care programs generally enroll proportionately fewer “dual eligibles” in
managed care plans -- again because of their relatively higher needs.
69
3. At least when compared to Medicaid, Medicare coverage is also relatively
straightforward, primarily, again, because there is only one Medicare program.
Moreover, for the most part, Medicare coverage has generated relatively few
legal controversies. There have been occasional challenges to the adequacy of
the program's coverage on constitutional grounds, but, as with the
constitutional challenges to state and federal discretion to limit the scope of
Medicaid coverage, the courts generally have held that there are few judicially
enforceable, constitutionally based limits on the scope of federal discretion to
limit or condition Medicare. And, of course, there is no comparable line of
Medicare coverage decisions that parallel the Medicaid decisions that question
whether the state Medicaid programs comply with various federal Medicaid
standards. In essence, Congress decides what Medicare will cover, and Congress's
discretion in doing so is virtually unlimited. Providers have frequently
challenged congressionally imposed limits or conditions on provider
reimbursement on constitutional grounds, as will be discussed more thoroughly in
Chapter 3. But the sheer volume of these cases should not overshadow the fact
that the judicial response to these claims has only reaffirmed the same message:
There are very few judicially enforceable limits on the government's discretion
to limit or condition the Medicare program.
More frequently, disputes over Medicare coverage and eligibility have
involved the interpretation of the Medicare statute itself. Again, the courts
tend to allow the federal agency broad discretion, particularly where the
controversy involves the interpretation of the terms of the federal statute.
See, e.g., Chipman v. Shalala, 90 F.3d 421 (10th Cir. 1996) (exclusion of
coverage for dental crown not arbitrary and capricious even where it is
medically necessary for successful jaw surgery); Lewin v. Shalala, 887 F. Supp.
74 (S.D.N.Y. 1995) (plaintiff denied reimbursement for "post-hospital extended
care services" following hospitalization because of the statutory requirement
that the requisite hospitalization be for no less than three days).
Another and more frequently litigated statutory problem involves the
discretion delegated to DHHS by the Medicare statute to decide whether services
received by Medicare beneficiaries are reasonable and necessary. That discretion
is broadly defined, but, nonetheless, the courts have not infrequently
overturned agency decisions. For examples see Friedman v. Secretary, Department
of Health & Human Services, 819 F.2d 42 (2d Cir. 1987) (Secretary's finding that
"extended care services" received by beneficiary were not reasonable and
necessary upheld where it is based on medical testimony concerning the
beneficiary's overall conditions and needs); cf. New York, ex rel. Bodnar v.
Secretary of Health & Human Services, 903 F.2d 122 (2d Cir. 1990) (beneficiary
entitled to coverage where record shows that agency did not consider relevant
facts and, therefore, its decision to deny was not supported by substantial
evidence); Hurley v. Bowen, 857 F.2d 907 (2d Cir. 1988) (beneficiary entitled to
coverage for inpatient hospital services where uncontroverted evidence indicates
that "extended care services" were reasonable and necessary and hospital was
unable to transfer patient to a more appropriate facility).
Note the parallels here to the "medical necessity" decisions made by
private insurers as discussed in section B supra. Again there is some question
as to the exact nature of the substantive decision, i.e., what exactly is
"reasonable and necessary" and what should be considered in making such a
determination? But, as with those earlier cases, the ultimate outcome is more a
matter of designating who -- the payer, the provider, or the court -- gets to
decide those issues. There are, however, some clear differences between the
judicial role in these cases and that taken in most of the private "medical
necessity" cases, primarily because the delineation of the authority to make
70
Medicare coverage decisions is defined by the federal statute, whereas the
authority to make private "medical necessity" decisions depends in large part on
the interpretation of contractual terms that vary somewhat from contract to
contract.
The Medicare statute allows relief for some beneficiaries who receive
services that are later found to be not reasonable or necessary, not properly
certified, or otherwise not covered under Medicare. See 42 U.S.C. § 1395pp. If
both the beneficiary and the provider do not know or have no reason to know that
the service is not covered, then Medicare may pay for the service or indemnify
the beneficiary for any payment made to the provider. If only the beneficiary
has no actual or imputed knowledge, the provider can only bill the beneficiary
for any cost-sharing liability, but not the remainder of the bill that would
have been paid by Medicare. See 42 C.F.R. § 411.40.
4. One set of issues that has sparked some important judicial controversies
involves the complicated processes through which various administrative appeals
must be pursued. A Medicare beneficiary often must sort through several
administrative decisions by a provider, generally as a prerequisite to receiving
services, and then must sort through one of several administrative processes
within HHS if the agency denies Medicare coverage -- usually after the services
are rendered. All this can be time consuming, expensive, and, simply, confusing.
The following outline may be useful in understanding both some of the technical
legal issues as well as the "big picture" issues:
Part A Appeals
As of 2005, most decisions regarding individual coverage and reimbursement
for hospital services, extended care services, or home health services under
Medicare Part A are first made by fiscal intermediaries (FIs): private
organizations (frequently Blue Cross plans) that have contracted with DHHS to
carry out the agency's administrative functions at the local level. Some
decisions relating to hospital reimbursement are also delegated to Professional
Review Organizations (PROs) as discussed further in Chapter 3. A Medicare
beneficiary can request that the FI reconsider a coverage or reimbursement
decision; expedited reconsiderations of decisions regarding initial admission to
a facility are available. Providers can also request a reconsideration of a
coverage or reimbursement decision, but a provider cannot seek further review of
a coverage decision -- only of a reimbursement decision.
Following a reconsideration by the FI, a beneficiary can request a
judicial-type, de novo hearing before an administrative law judge (ALJ) (if the
matter in controversy exceeds $100). An ALJ decision can be further appealed to
the Appeals Board, essentially a special quasi-judicial commission within DHHS.
Again, there are provisions for expedited appeals for certain types of cases. An
Appeals Board decision is final unless overturned on discretionary appeal to the
Secretary of DHHS.
A beneficiary can seek judicial review of a final agency decision if the
amount in controversy is more than $1000. The federal law requires judicial
review of evidentiary decisions under a substantial evidence rule.
Part B Appeals
Part B appeals are somewhat different than those for Part A, reflecting
the original design -- now largely abandoned -- to structure Part B as much like
71
a private insuring arrangement as possible. Initial Part B decisions concerning
coverage or reimbursement are made by Part B carriers, private contractors who
perform administrative functions for HHS at the local level (frequently private
insurers or Blue Shield organizations). A beneficiary can request a "fair
hearing" before the carrier if the amount in controversy exceeds $100. Since
1987, a beneficiary can appeal a Part B "fair hearing" to an ALJ within DHHS if
the matter concerns more than $500. A beneficiary can seek judicial review of an
ALJ decision if the matter in controversy exceeds $1000, again under a
substantial evidence rule.
For references and further description, see CCH, Medicare/Medicaid Guide,
§§ 13460-13540.
5. Efforts to seek direct judicial review (without go through the administrative
appeals required under the Medicare statute) of Medicare eligibility and
coverage decisions and other related matters have been largely unsuccessful. The
Supreme Court has read the language of 42 U.S.C. § 405(h), which applies to all
Social Security Act programs including Medicare and Medicaid, to require that an
appeal of any "findings of fact or decision" be pursued exclusively through the
administrative procedures outlined in the federal Medicare statute, even if that
appeal is based on a constitutional challenge. As a consequence, judicial review
is only available after those procedures have been exhausted. For a full
discussion, see Weinberger v. Salfi, 422 U.S. 749, 760-62 (1975); see also
Heckler v. Ringer, 466 U.S. 602 (1984).
The primary significance of this requirement of administrative exhaustion
lies in the resulting delay. The denied beneficiary may have to wait months or
even years for a final administrative decision and before judicial remedies can
be pursued. Some claims for reimbursement will be "exhausted" in the more
general sense of the term long before their claims are exhausted
administratively. Claims such as those made by the named plaintiff in Ringer -the provider would not provide the services until Medicare coverage could be
confirmed -- may be effectively precluded by this ruling. Under Ringer, an
administrative appeal cannot be pursued until a claim for reimbursement is made
(which only happens after the service is provided). For a recent decision
reaffirming Ringer and Salfi, see Shalala v. Illinois Council on Long Term Care,
Inc., 529 U.S. 1095 (2000) (providers must pursue administrative remedies to
raise constitutional and statutory challenge to Medicare regulation specifying
health and safety requirements) Cf. Bowen v. Michigan Academy of Family
Physicians, 476 U.S. 667 (1986) (§ 405(h) limitations on judicial review do not
apply to issuance of regulations defining methodology for determining levels of
physician reimbursement).
There are exceptions to this rule. The Court has held that where the
agency waives the exhaustion requirement or where the claim is based on a
constitutional argument wholly collateral to the agency's decision, § 405(h)
does not apply and the courts may take independent jurisdiction over these
coverage and reimbursement issues (at least after the "nonwaivable" requirement
of a claim has been satisfied). See, e.g., Mathews v. Eldridge, 424 U.S. 319
(1976); O'Bannon v. Town Court Nursing Center, 447 U.S. 773 (1980).
Note, however, as discussed supra, there are virtually no constitutional
bases for challenging most Medicare coverage or reimbursement decisions. For
that matter, Mathews and O'Bannon considered and settled most of the possible
procedural due process challenges that might be made to the existing Part A and
72
Part B administrative procedures. Hence, exhaustion, of both the claim and the
claimant is the norm.
6. Another coverage-related issue that is both important and complicated
involves the issuance of national standards for determining whether new or
controversial types of treatment are considered “reasonable and necessary.” For
the most part, each Medicare carrier or FI makes determinations on a case by
case basis, but they occasionally issue local coverage determination rulings
(LCDs) -- which may differ from region to region, or even conflict with the
rulings of other carriers or FIs. The DHHS also issues national coverage
determinations (NCDs) which are binding on all carriers and FIs. Individual
beneficiaries or providers can request that NCDs be issued or amended. Both the
Medicare Amendments of 2000 and those of 2003 included provisions intended to
clarify the factors that are considered by the agency when it issues NCDs and
the process by which NCDs can be sought. Interim regulations were issued in
2003. See 70 Fed. Reg. 11420-1; amendments were issued later in that same year.
See 70 Fed. Reg. 37,700-1. As of October 2005, final regulations had not been
issued.
7. Another dimension of Medicare coverage that is potentially controversial is
the requirement that, in some circumstances, Medicare be a "second payer". The
Medicare statute excludes coverage for services if payment has been made or
"reasonably can be expected to be made" under a workers compensation program, or
an automobile or other liability insurance plan. 42 U.S.C. § 1395y(b)(2)(A). For
a discussion, see Estate of Washington v. United States, 53 F.3d 1173 (10th Cir.
1995). The Medicare statute also requires employers with more than twenty
employees to provide coverage to their Medicare-eligible employees, as well as
their Medicare eligible spouses, that is the same as the coverage provided to
their other employees. 42 U.S.C. § 1395y(b)(1). Medicare is a "second payer" to
these employer group health plans, i.e., Medicare will only pay for services not
covered by such plans or, in some cases, for the difference between
reimbursement under such plans and Medicare-determined reimbursement. These
requirements do not, however, apply to retired employees who receive health
benefits from their former employers.
Most other private insurance schemes that do not fall under
typically include "coordination of benefits" clauses that exclude
Medicare covered services. The obvious intent of § 1395y(b)(1) is
large employer-purchased group plans from writing such provisions
insuring agreements.
this provision
payments for
to prevent
into their
73
3. Medicare Part D: The New Prescription Drug Benefit
Beginning in January of 2006, Medicare beneficiaries will be eligible for
the first major expansion of Medicare benefits in nearly four decades: a new,
oddly configured prescription drug benefit. Elderly and disabled beneficiaries
will be given in the option of enrolling in private plans offering federally
subsidized benefits that meet minimum requirements sent out in the federal law.
The projected cost of the program reflects its significance. The total cost to
the government will be over $37 billion in 2006 and may represent nearly $800
billion in expenditures over the following ten years.
There will be no basic types arrangements: Beneficiaries can join a
prescription drug plan (PDP) for drug coverage only and get their Part A and
Part B benefits separately. Alternatively, they can join an Medicare Advantage
Plan (MA)(see discussion in the next subsection) such as an HOM and receive
their new drug benefits along with their other benefits from that plan.
To receive these benefits, the enrollees will pay the plan a monthly
premium (in addition to their Part B premium payment) that is adjusted to
represent roughly 25 percent of the costs of the benefits. The average monthly
payment for 2006 will be $32.20 although that amount will vary depending upon
the particular plan. Enrollees also will be subject to annual deductible and
coinsurance or co-payments, again, much like the fee-for-service Part B scheme.
Plans can either offer the standard benefit or an alternative benefit structure
that is actuarially equivalent to the standard benefit and does not increase the
standard deductible or change the catastrophic threshold.
Unlike the Part B structure, however, the new plans will offer partial
coverage for a limited amount of coverage ($2,250 in 2006); virtually no
coverage for a “gap” of coverage (from $2,250 to $2,290 in 2006) and then almost
complete coverage beyond that amount (forming the so-called “doughnut” hole of
coverage).
The deductibles, benefit limits, and catastrophic thresholds are indexed
to rise with the growth in per capita Medicare drug benefit costs.
Under the federal law, the new plans must cover at least two drugs in each
therapeutic class or category of covered Part D drugs; the CMS in its pre-2006
marketing of the Part D program predicted that most plans will provide coverage
for a broader range of drugs including, antidepressants, antipsychotics,
anticonvulsants, antiretrovirals, immunosupressants, and antineoplastics.
Regardless of the breadth of their coverage, plans can use tiered cost sharing
arrangements, prior authorization, and other cost managing tolls, so long as
they do not violate the requirement in the federal law that they do not
“substantially discouragement enrollment.”
The plans are expected to negotiate directly with drug companies for
discounts and other cost savings, but the federal law forbids the CMS or any
other federal agency from negotiating discounts or attempting to affect drug
prices.
Medicare will provide additional premium and cost-sharing assistance to
beneficiaries will limited incomes and resources. Medicare beneficiaries who are
also eligible for Medicaid drug coverage, QMBs and SLMBs (see explanation in the
discussion of Medicaid eligibility supra) automatically qualify for the new
74
benefits. Others are subject to both an asset and income test and must
separately apply for the new benefits through either the Social Security
administration or their state’s Medicaid program for assistance in purchasing a
Part D plan.
Medicaid drug coverage for eligible Medicaid beneficiaries expires on
January 1, 2006, and all Medicaid beneficiaries will be automatically enrolled
in PDPs with premiums at or below the regional average (if they do not sign up
on their own for an alternative plan).Note, however, that the federal law
requires the states to reimburse the federal government for the costs of
providing prescription drugs to Medicaid beneficiaries -- an incentive for some
states to reduce the eligibility of their “dual-eligibles.”
The federal law does attempt to encourage employers who prior to 2006 were
providing prescription drug benefits to their retired employees to continue to
do so. Medicare will provide tax-free subsidies equal to 28 percent of the costs
between $250 and $5,00 in drug expense per retiree to employers providing drug
coverage that is on average at least as good as the standard Part D benefit.
Medicare beneficiaries who have other sources of drug coverage, may
continue with that coverage, but those who join a Part D plan after the initial
enrollment period will have to pay a one percent penalty on their monthly
premium for each month of delayed enrollment -- a penalty that will continue as
long they are enrolled in Part D.
Whether this all will work or not, remains to be seen. The structure and
potential benefits of this new scheme are complicated enough in the abstract;
clearly the new law anticipates a great deal of private marketing as various
plans compete to enroll (or, in some cases, avoid) Medicare beneficiaries.
Beneficiaries in turn will have to learn how to evaluate the plans and make
judgments as to the relative worth of participating in the scheme and in various
options. It is clearly an effort to add a dose of privatization to a public
benefits program, one that may or may not sit well with Medicare beneficiaries
and/or American taxpayers.
For updates and additional information, see generally http://www/kff.org
(last visited November 2005). To view the Medicare agency’s attempt to assist
beneficiaries in locating and evaluating plans, see http://www.medicare.gov/
(last visited November 2005). For estimates on the costs of the new benefits,
see http://www.coms.hhs.gov/publications/trusteesreport/ (last visited November
2005).
To view the federal requirements, see 42 C.F.R. Parts 400, 403, 411, 417,
& 423; see also 70 Fed. Reg. 4194 (2005).
75
4. Medicare and Managed Care
MINNESOTA SENIOR FEDERATION, METROPOLITAN REGION V. U.S., 273 F.3d 805 (8th Cir
2001), cert. denied, 536 U.S. 939 (2002)
Loken, Judge.
*
*
*
The "Medicare+Choice" program was enacted as part of the Balanced Budget
Act of 1997 . . . The program includes reimbursement provisions that encourage
managed health care organizations to be cost-effective and to pass cost savings
on to their members in the form of additional benefits or reduced charges. As
under prior law, cost effectiveness is measured by a formula based primarily on
"fee-for-service" health care costs in each local community, an approach that
results in substantial geographic variations. Though Congress intended to reduce
these disparities, the Medicare+Choice formula still produces wide variations in
the payments Medicare provides to managed health care providers. Because
"excess" payments may be passed on to Medicare beneficiaries, the end result is
that Medicare benefits are more generous in some communities than in others.
In this case, the Minnesota Senior Federation and Mary Sarno, a Florida
resident who would like to live with her daughter in Minnesota, seek a
declaratory judgment that the Medicare+Choice formula violates their
constitutional rights to travel and to equal protection of the law. . . .
Medicare was established in 1965 and presently serves some thirty-nine
million elderly and disabled Americans. Uniform benefits were initially provided
under Medicare Part A and Medicare Part B, and these programs continue today.
For beneficiaries who enroll in Parts A and B and elect to obtain benefits on a
"fee-for-service" basis, Medicare payments are made for each service rendered.
Amounts Medicare pays to providers vary in part because of geographic
differences in the fees charged for providing those services.
In 1972, Congress enacted Medicare Part C, a program that permits managed
health care organizations to enter into "risk contracts" under which the
organization provides a full range of Medicare services and receives a single
monthly capitation payment for each enrollee. Capitation payments are determined
by a formula that is based upon the projected cost of treating beneficiaries
under the traditional fee-for-service system. Thus, the formula incorporates
wide geographic variations in health care costs. But under Medicare Part C, the
variations can result in different benefits to Medicare beneficiaries because,
when a managed care organization receives more in capitation payments from
Medicare than it costs to provide Medicare services to its enrollees (an
"excess" that is determined by a complex formula), it may pass this cost saving
on to enrollees in the form of reduced premiums, reduced co-payments, or
additional health care benefits. 42 U.S.C. § 1395mm(g)(2); 42 C.F.R. § 417.592.
Medicare+Choice, which is the new Medicare Part C, was enacted in 1997 to
"allow beneficiaries to have access to a wide array of private health plan
choices in addition to traditional fee-for-service Medicare . . . [and] enable
the Medicare program to utilize innovations that have helped the private market
contain costs and expand health care delivery options." Medicare+Choice includes
a modified capitation payment formula intended to reduce the prior geographic
payment variations. But the government concedes that substantial discrepancies
76
remain. For example, Mary Sarno is a Medicare Part C enrollee who lives in
Broward County, Florida. In 1999, the managed care reimbursement rate for
Broward County, Florida, was $676.64. Sarno's daughter lives in Minnesota. In
1999, the managed care reimbursement rate for Dakota County, Minnesota, was
$394.92. The generous reimbursement rate in Broward County enabled Sarno's plan
to offer unlimited prescription drugs, no co-payments for physician visits and
various services, and no annual premium. By contrast, Medicare Part C enrollees
in Dakota County paid an annual premium of $1,137, were charged higher copayments, and received virtually no prescription drug coverage. Such disparities
are the basis for appellants' claims that the Medicare+Choice formula violates
their travel and equal protection rights.
. . . Appellants mount two constitutional challenges to this federal
statutory regime. First, they argue that because the formula implicates the
constitutional right to travel, it is subject to strict scrutiny and fails that
standard of review because it is not narrowly tailored to meet a compelling
government interest. Second, they argue in the alternative that the formula does
not withstand even deferential rational basis review and therefore violates
their right to equal protection guaranteed by the Due Process Clause of the
Fifth Amendment.
. . . When a federal economic or social welfare program is challenged on
equal protection grounds, and no suspect class or fundamental constitutional
right is implicated, the proper standard of judicial review is rational basis,
the "paradigm of judicial restraint." Congress does not violate the right to
equal protection "merely because the classifications made by its laws are
imperfect," (citing Dandridge v. Williams) or because in practice a
classification results in some inequality. In areas of social and economic
policy, a statutory classification . . . must be upheld against equal protection
challenge if there is any reasonably conceivable state of facts that could
provide a rational basis for the classification.
Distributing Social Security and Medicare benefits is a massive
undertaking which requires Congress to make many distinctions among classes of
beneficiaries while making allocations from a finite fund. . . . [T]he Supreme
Court has rejected numerous equal protection challenges to the ways in which
these benefits are distributed. Congress adopted the Medicare+Choice program as
a means of containing costs and expanding health care delivery options. These
are legitimate objectives. Appellants argue that the Medicare+Choice formula is
irrational because it discriminates against Medicare beneficiaries enrolled with
efficient providers, like those in Minnesota. We reject this argument for the
reasons stated by the district court:
[T]his decision -- to allow managed care organizations to share "savings"
with Medicare beneficiaries instead of requiring them to return the
difference to the Medicare program itself -- hardly renders the
Medicare+Choice program unconstitutional on equal protection grounds. . .
. The Medicare+Choice program increases the health care options of a
number of elderly Americans while reducing the strain on the public fisc.
The fact that not all elderly Americans . . . enjoy the same windfall as
others is unfortunate, but not unconstitutional. Perhaps there are better
solutions or solutions that are more fair, but the Medicare+Choice payment
method is certainly "rational" in a constitutional sense. It was not
irrational or arbitrary for Congress to devise a payment formula based on
local health care costs and then to encourage cost-efficient managed care
providers to increase benefits for their Medicare enrollees. Though the
resulting geographic benefit discrepancies may seem unfair, equal
77
protection is not a license for courts to judge the wisdom, fairness, or
logic of legislative choices.
No doubt fearing that the Medicare+Choice formula would survive rational
basis review, appellants primarily contend that it must be subjected to, and
cannot survive, strict scrutiny because it impinges upon the constitutional
right to travel. . . .
Although the word travel is not found in the Constitution, the Supreme
Court has frequently recognized "the constitutional right to travel from one
State to another." Because travel is a fundamental right, any classification
which serves to penalize the exercise of that right, unless shown to be
necessary to promote a compelling governmental interest, is unconstitutional. .
. . [T]he Court recently reviewed its many right-to-travel cases and concluded
that this right embraces at least three different components. It protects the
right of a citizen of one State to enter and to leave another State, the right
to be treated as a welcome visitor rather than an unfriendly alien when
temporarily present in the second State, and, for those travelers who elect to
become permanent residents, the right to be treated like other citizens of that
State. [citing Saenz v. California, 531 U.S. 98 (1999).]
Appellants' right-to-travel claims do not fall within the three
components identified in Saenz. Rather, in arguing that the Medicare+Choice
formula must be subjected to the strict scrutiny applied in right-to-travel
cases, appellants rely primarily on dicta from the plurality opinion in an
earlier case stating that "[a] state law implicates the right to travel when it
actually deters such travel . . . ." The constitutional right to travel is
implicated in this case, appellants argue, because Mary Sarno and others are
deterred from moving to a community they would prefer by the reduced Medicare
benefits they would receive from a managed care provider in that other
community. We reject this right-to-travel theory for several reasons.
First, and most importantly . . . the Court's other modern cases have
applied the federal constitutional right to travel to state legislation that had
a negative impact on travel between the various States. Here, on the other hand,
appellants attack a federal statutory regime because it allegedly deters
interstate travel. In effect, appellants argue that a federal program that fails
to achieve nationwide uniformity in the distribution of government benefits is
subject to strict scrutiny because it will deter travel to unfavored locales.
Such a contention is clearly too broad. Not surprisingly, it finds no support in
the Supreme Court's right-to-travel cases. Instead, the Court has emphasized
time and again that rational basis review is appropriate in considering the
constitutionality of federal social welfare programs such as Medicare.
Second . . . cases such as Shapiro and Memorial Hospital spoke of state
restrictions that "served to penalize the exercise of the right to travel." In
Saenz, the Court summarized its right-to-travel jurisprudence . . . rejected an
"actual deterrence" analysis, focusing instead on "the citizen's right to be
treated equally in her new state of residence. Here, Sarno would be treated
equally with other Minnesotans if she moved there; she is deterred from moving
because she would be voluntarily giving up more generous benefits available in
Florida. In these circumstances, the Medicare+Choice formula is not
affirmatively penalizing her right to travel. We conclude the Supreme Court
would not extend the constitutional right to travel to governmental
disincentives of this type, provided of course that they withstand rational
basis review.
78
. . . However unfairly the current Medicare Part C funding mechanism may
seem to impact some classes of Medicare beneficiaries, the fact the line might
have been drawn differently at some points is a matter for legislative, rather
than judicial, consideration.
*
*
*
79
HOFLER V. AETNA U.S. HEALTHCARE OF CALIFORNIA, INC., 296 F.3d 764 (9th Cir.
2002)
Per Curiam.
*
*
*
Louis Hofler died of esophageal cancer that metastasized to his brain. At
the time of his death, he was a 75 year-old retired bus driver, insured by
Aetna's Medicare health care maintenance organization ("HMO") plan. Appellee
Lucy Diane Hofler is his widow. She sued his health care provider, Aetna, and
his doctors in state court alleging that the defendants "withheld and denied Mr.
Hofler medically necessary diagnostic exams, treatments, and referrals because
these services undercut the defendants' profit margins." Aetna removed the case
to federal court, claiming that Ms. Hofler's state law claims "arose under" the
Medicare Act. The district court remanded the case to state court and awarded
$9,750 in attorneys' fees to Ms. Hofler. . . .
Medicare provides health benefits primarily to people 65 years old or
older. In 1997, Congress added the Medicare+Choice ("M+C") program to its
Medicare plan. Under M+C, Medicare beneficiaries receive their Medicare benefits
through private managed health care programs such as HMOs. . . . The regulations
implementing M+C contain two preemption provisions:(1) a general preemption
provision providing that inconsistent state laws are preempted, and specific
preemption provisions superseding state standards in three areas including:(a)
"Benefit requirements;" (b) "Requirements relating to inclusion or treatment of
providers and suppliers;" and (c) "Coverage determinations (including related
appeals and grievance processes for all benefits included under an M+C
contract)."
Aetna's HMO operates under the capitated system of payment, i.e.,
providers are paid a fixed amount per month for each enrolled patient regardless
of how much care the patient receives. In return the plan is to provide the
patients all necessary covered care. . . .
Mr. Hofler enrolled in Aetna's Medicare HMO which promised "more benefits
than Medicare and most Medicare Supplements combined." Ms. Hofler alleged,
however, that the care Mr. Hofler received "did not match Aetna's promises." As
stated by the district court, she claimed that under Aetna's plan Mr. Hofler's
doctors:
(1) left untreated for seven years an unstable aortic aneurysm which
grew to nearly twice the size at which surgical intervention was
appropriate; and (2) ignored his rising Prostate Specific Antigen level,
which is an indication of prostate cancer, and refused to perform
[various diagnostic tests] even when this index rose to six times the
normal level; and (3) failed to diagnose his esophageal cancer in its
treatable stages, despite symptoms such as weight loss and expectoration
of blood.
When Mr. Hofler asked for financial clearance for a second opinion about
his esophageal cancer three months before he died, his doctor told him that
although he was entitled to a second opinion, the clinic was unlikely to pay for
it.
This combination of events allegedly caused Mr. Hofler's death: the late
stage diagnosis of esophageal cancer meant that surgery was no longer
80
practicable; the growth of his aneurysm meant that he was not a good candidate
for aggressive chemotherapy; and his advanced prostate cancer foreclosed other
treatments for his esophageal cancer.
After Mr. Hofler died, Ms. Hofler filed a complaint against Aetna in
California state court alleging 12 state law causes of action. Aetna removed the
action to federal district court, claiming that Ms. Hofler's action arose under
and was completely preempted by Medicare. Ms. Hofler moved to remand to state
court. The district court granted the motion and awarded attorneys' fees to Ms.
Hofler. Aetna timely appealed the award of attorneys' fees.
. . . .
Aetna argues that the M+C program's specific preemption provision
completely preempts state law. Complete preemption is a narrow exception to the
“well-pleaded complaint rule.” It applies when Congress so completely preempt[s]
a particular area that any civil complaint raising this select group of claims
is necessarily federal in character. Most federal statutes do not fall in this
category. Even when federal statutes supersede certain state laws, they usually
do not preempt state laws to such an extent that removal is proper.
. . . Aetna has not shown that Congress intended to preempt all state law
claims. In the interim final rule for the M+C program, the agency stated that it
was adopting a "narrow interpretation" of the specific preemption provisions and
that state tort or contract claims relating to coverage determinations were not
preempted. Because Congress did not clearly manifest any intention to convert
all state tort claims arising from the administration of Medicare benefits into
federal questions, we hold that the Medicare program does not completely preempt
state tort law claims.
Aetna also argues that Ms. Hofler's claims pertain to the treatment of
health care providers and are therefore expressly preempted by the specific
preemption provisions relating to requirements for inclusion or treatment of
providers. Even if Ms. Hofler's claims could be interpreted as relating to the
requirements for inclusion or treatment of providers, a point upon which we
express no opinion, Aetna asserts this argument as a defense to Ms. Hofler's
state law claims. It is well-established that, when Congress has not completely
preempted the field, removal cannot be based on the assertion of a federal
preemption defense, "even if the defense is anticipated in the plaintiff's
complaint, and even if both parties admit that the defense is the only question
truly at issue in the case." Therefore, we reject Aetna's attempt to circumvent
the requirements of the well-pleaded complaint rule through the assertion of a
federal preemption defense.
Aetna also argues that Ms. Hofler's complaint arises under federal law
because it was in actuality a complaint asking for benefits under the Medicare
Act. The district court rejected this argument, relying on our decision in
Ardray v. Aetna Health Plans of California in which we held that a plaintiff's
state law claims did not "arise under" Medicare and therefore could not be
brought in federal court. Hofler now alleges that the district court misapplied
Ardary. We disagree.
Ardary looked to Heckler v. Ringer, focusing on two inquiries. First,
whether the state law claims relied on the Medicare Act for both standing and
substance. Second, whether the state law claims were "inextricably intertwined"
with the denial of benefits.
81
Because Ardary's claims were based on state common law theories, the court
found that Medicare did not provide standing and did not form the substance of
the claims. Similarly, because Ms. Hofler relies on state statutory and common
law causes of action, some of which are identical to Ardary's, Medicare does not
provide standing or substance for her state law claims.
The Ardary court also concluded that Ardary's state law claims were not
inextricably intertwined with a claim for benefits. The court found that the
harm the Ardarys suffered would not be remedied by payment of benefits and
therefore the harm was not inextricably intertwined with such a claim. Here
also, it is too late for the deceased Mr. Hofler to get a second opinion about
his esophageal cancer, have a biopsy to diagnose his prostate cancer, or receive
treatment for his aneurysm.
After applying the two-part test derived from Ringer, the Ardary court
went on to consider whether Congress intended Medicare to preempt state law
causes of action. It noted the strong presumption that Congress does not intend
to preempt state law causes of action with a federal statute. Considering the
legislative history of Medicare, the court concluded that Medicare was not
designed to abolish all state remedies which might exist against a private
Medicare provider for torts committed during its administration of Medicare
benefits.
Aetna argues that Ardary is distinguishable because of the addition of the
M+C program. Although M+C was added after Ardary was decided, Aetna pointed to
no evidence in the legislative history to demonstrate that Congress intended,
through the adoption of M+C, to completely preempt all state law causes of
action. We find the reasoning of Ardary applicable here, and agree with the
district court that Hofler's state law claims do not arise under the Medicare
Act.
The district court awarded fees because Aetna's removal argument was wrong
as a matter of law . . . . Numerous courts have applied Ardary to state law
claims and have concluded that there was no removal jurisdiction. Even if
Aetna's argument was colorable because of the addition of the M+C preemption
provisions, attorneys' fees may be awarded. Such fees are proper when removal is
wrong as a matter of law, even though the defendant's position may be "fairly
supportable." . . . .
*
*
*
82
Kaiser Family Foundation, Fact Sheet: Medicare Advantage (Sept. 2005)
*
*
*
Overview
. . . [Most Medicare beneficiaries] have their health care bills paid by
the traditional fee-for-service program, while 12 percent are covered by private
health plans, primarily health maintenance organizations (HMOs).
HMOs have been an option under Medicare beneficiaries since the 1970s.
The Balanced Budget Act of 1997 expanded the role of private health plans under
Medicare+Choice program to include preferred provider organizations (PPOs),
provider-sponsored organizations (PSOs), private fee-for-service plans (PFFS),
and medical savings accounts coupled with high deductible insurance plans.
Private plan options have been offered primarily at the county level. The
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA)
renamed the program “Medicare Advantage,” created new regional PPOs, “special
needs plans” for dual eligibles, the institutionalized, or those with severe and
disabling conditions, and new private drug plans that will go into effect in
January 2006.
Plan participation and enrollment have fluctuated over the past decade.
After a period of rapid growth from 1992-1996, the number of plans declined by
half. In July 2005, there were 247 plans (mostly HMOs) with 4.9 million
enrollees (12 percent of the Medicare population), down from a high of 6.3
million in 2000.
In 2004, over three-fourths of beneficiaries had access to a private
Medicare plan . . . . By 2013, the Administration estimates that 30 percent of
Medicare beneficiaries will enroll in Medicare Advantage plans, while the
Congressional Budget Office (CBO) projects an enrolment rate of 16 percent.
Enrollment varies widely across states. Less than one percent of Medicare
beneficiaries are enrolled in HMO plans in 16 states . . . while at least 20
percent are enrolled in [five states]. Nationwide, more than one in four
Medicare Advantage enrollees are in California . . . . Beneficiaries have
historically had an option to enroll in a plan (as long as the plan is accepting
new enrollees) and disenroll at any time during the year. Beginning in 2006,
beneficiaries will be able to disenroll or change plans only once during a sixmonth period, shortened to a three-month period in later years.
Medicare Advantage plans are generally required to provide all Medicarecovered benefits. Plans with costs below the Medicare payments must distribute
savings to beneficiaries as lower premiums and co-payments, additional benefits,
or a reduction in Part B premiums or plans can contribute to a reserve fund.
In 2005, over a quarter of Medicare Advantage enrollees are in plans that
do not provide drug coverage (up from 16 percent in 1999). While the majority of
enrolless have drug coverage, some face restrictions on these benefits: 54
percent with drug benefits have an annual cap of $1,000 or less for brand-name
drugs, and 39 percent are in plans that cover only generic drugs.
In 2006, MA plans (excluding PFFS and cost plans) must offer at least one
plan with basic drug coverage or a plan with enhanced alternative drug coverage
(for no additional payment). These plans will receive additional payments for
83
providing drug coverage. Medicare MSAs are prohibited from offering drug
coverage.
Beginning in 2006, regional PPO plans will be added to existing countybased private plans participating in Medicare Advantage. There will be 26
Medicare Advantage regions comprised of single states or groups of states. The
regions are designed to maximize beneficiary choice, particularly in rural areas
where beneficiaries have not historically had many plan options. Regional PPOs
are required to offer a single Part A/B deductible and a catastrophic cap on
out-of-pocket spending.
PPOs entering the market are required to serve at least one Medicare
Advantage region in its entirety and must offer the same benefits across the
region. To facilitate the start-up of regional PPOs, there will be a two-year
moratorium on new “local” PPO plans and expansion of existing local PPO service
areas. Also, Medicare will share risk for medical expenses with all regional
plans during the two-year period and many draw upon a $10 billion stabilization
fund to promote PPO participation on a regional basis.
Payments to Plans
Medicare pays plans a capitated rate to provide Part A and B benefits to
each enrollee, totaling a projected $48.1 billion in 2005. For many years,
Medicare payments to HMOs were generally set at 95 percent of FFS costs in each
county. In order to reduce deficits in the late 1990s, overall growth in
Medicare was constrained leading to limited increases in payments to plans. In
the years that followed, plan participation and enrollment declined.
To stabilize the program, the MMA increased aggregate payments to plans by
$1.3 billion for 2004 and 2005. In 2005, Medicare pays plans the highest of:
-- A minimum of “floor” for rural ($592/month) or urban ($854/month) counties
-- A minimum update over 2004 rates by the national growth rate percentage (6.6
percent in 2005)
-- A blended payment rate which combines a local rate and the national average
rate
-- 100 of average 2004 FFS costs in the county
-- 100 percent of average FFS costs for “rebased” counties, that is, counties in
which CMS recalculated the average per capita FFS costs for 2005.
A number of studies have shown that HMOs have been paid more than the
average FFS costs in their area. A recent study . . . found average payments to
MA plans in 2005 exceed average FFS costs by 7.8 percent for a national total of
$2.7 billion. CBO projects Medicare payments for beneficiaries who enroll in
regional PPOs in 2006 will be larger than they would be if the same individuals
remained in FFS Medicare.
Beginning on 2006, county-based plans will be paid under a new bidding
process based on a county benchmark set at the 2005 payment level increased by
the Medicare national growth rate percentage in FFS expenditures (4.8 percent).
Payments to regional PPOs will also be based on a bidding-process, although the
benchmark will be determined separately. If a plan’s bid is higher than the
applicable benchmark, the enrollee will pay the difference. If lower, 75 percent
of the difference will go to the enrollee as extra benefits or as a rebate and
the government will retain the 25 percent.
84
By 2006, 75 percent of plan payments are to be adjusted so that Medicare
pays plans appropriately based on their enrollees’ risk profiles. By 2007, 100
percent will be risk-adjusted. Current policy holds plans harmless in the
aggregate for the effect of implementing a risk adjustment system based on
hospital inpatient and ambulatory data rather than demographic information.
Future Issues
Private plans are expected to play a greater role in Medicare in the
future. Higher payments to plans and the addition of prescription drug benefits
may increase enrollment, but such changes will increase costs to Medicare,
according to CBO. Striking the right balance between controlling spending
growth, setting payments to plans fairly, and meeting beneficiaries’ health care
service needs will be an on-going challenge.
85
Notes and Questions on Medicare and Managed Care
1. For updated information on enrollment and the number of plans participating
in Medicare managed care arrangements, see Kaiser Family Foundation, Medicare
Health Plan Tracker (2005) at http://www.kff.org/medicare/HealthPlanTracker/
(last visited October 2005).
For a recent, critical analysis of Medicare Advantage including the
incentives in the 2003 amendments that encourage the expansion of regional PPOs,
see Marsha Gold, Private Plans in Medicare: Another Look, 24 Health Affairs 1302
(2005).
2. From the perspective of the individual HMO or other managed care plan, the
major advantage of a Medicare contract is fairly obvious: It's an opportunity to
make money and, in some cases, lots of money. Medicare beneficiaries, after all,
use health services at rates that are two to three times higher than younger
consumers. So long as the capitation rate is tied to the actual costs of the
services that are provided, a risk contract can be quite lucrative. If HMOs can
do what they claim they can do -- provide services more effectively and
efficiently within their plan arrangements -- they should be able to provide the
same services as their fee-for-service counterparts at a lower average cost and
make a profit in the bargain.
But beneath the surface of this rosy scenario lies a never-never land of
actuarial nightmares. Even if an HMO can calculate how much it will cost to
provide the services used by the average Medicare beneficiary, how can the plan
know that the particular beneficiaries it enrolls are average beneficiaries? A
particular plan may enroll a high proportion of people who become very ill or
who have chronic disabilities (just as another, more fortunate plan may enroll
people who are particularly healthy). Medicare, in fact, does allow for
adjustments in the capitation rate for a plan based on the characteristics of
the enrolled beneficiaries and the location of the HMO. Additional riskadjustment efforts are in the bureaucratic works. But aside from some fairly
obvious factors, e.g., age, sex, institutionalization, and other factors, it is
very difficult in advance to identify high cost enrollees. Consequently, under a
risk contract, even with generously defined capitation rates, the individual
plan is at risk of losing money in any given year, even if it is statistically
likely to make money. The risk of losing money is part of the incentive for the
plan to provide cost-effective services. In theory, however, plans should not
profit or lose based on who they enroll but rather how they manage the care
their enrollees receive. This is, of course, an issue for privately financed
capitated arrangements as well, but it is a particular problem in designing
Medicare (and Medicaid) managed care programs since the program wants to
encourage HMOs and other managed care arrangements to participate and to enroll
all the program's beneficiaries -- not just the healthiest.
Understandably, the calculation of the capitation rates to be paid and the
annual adjustments permitted under the federal law are controversial and closely
watched decisions. Prior to the 1997 amendments, the capitation rate was based
on an average of the costs of services to Medicare beneficiaries under fee-forservice financing. One of the cost containing measures of the 1997 law was to
sever this link and to base payment rates on a blend of national and local
rates, increased annually by a minimum amount. After the 2003 amendments, as
discussed in the article supra, the payment rates are now much more complicated,
based in part on a plan’s actual costs, in part on the average costs of
86
providing services to Medicare patients under the fee-for-service program, and
in part on various incentives to encourage the expansion of Medicare Advantage
enrollment.
3. From the perspective of the beneficiary, there are several incentives to
enroll in HMOs: as noted, qualifying plans often offer physicals, preventive
care, or other services not covered by Medicare. Alternatively, plans may reduce
or eliminate the cost-sharing required when a Medicare beneficiary receives
services on a fee-for-service basis, although many HMOs collect the Part A and
Part B cost-sharing (either at the time of service or as part of a premium or
membership fee) and also charge premiums for coverage of non-Medicare services
(subject to certain limits in the federal law). The major disadvantage for a
beneficiary is the loss of their freedom-of-choice. Enrollees in managed plans
are "locked-in" to the plan they choose and must receive all Medicare services
through the plan, except for certain emergency services and other "urgently
needed services." The HMO in which the beneficiary is enrolled must pay for
these services by other providers. The plan also must pay for services by other
providers if the HMO or CMP refuses to provide services and it is later
established through administrative appeal (described supra) that the services
were necessary and within the plan’s contractual obligation.
4. From the perspective of the Medicare program, the major advantage of the
enrollment of Medicare beneficiaries in a managed care contract is the potential
for slowing the growth of the cost of the program. Much as with the enrollment
of Medicaid beneficiaries in managed care plans, the potential savings from
enrolling beneficiaries of the Medicare program in managed care plans has been
hotly debated. Managed care proponents claim that that the potential is great,
although they rely heavily on the literature concerning HMO performance with
other populations, not Medicare beneficiaries in particular. Virtually all
observers agree that thus far, as the Kaiser Commission report indicates, to
date Medicare program costs have not been reduced by managed care contracting
and the future savings for the Medicare program are likely to be modest at best.
5. From all perspectives, the linchpin issue is whether HMOs and other managed
care plans provide Medicare beneficiaries with services that are of acceptable
quality. Obviously some sources -- particularly those within the managed care
industry -- are more than enthusiastic about the quality of care rendered by
HMOs. There are many anecdotal accounts of HMOs that provide free physicals,
vaccinations and other preventive care to their enrollees on the theory that
such services are both good medicine and good, money saving business practices.
As the Kaiser Commission report indicates, most research is more equivocable in
its assessments. In the long run, much will depend upon the ability and
willingness of the Medicare program to secure compliance with the statutory and
contractual obligations of qualifying plans. See discussion of HEDIS and other
performance measures supra. See also discussion of administrative enforcement of
Medicaid managed care obligations supra.
6. While the 1997 and 2003 legislation greatly expanded the managed care options
available to Medicare beneficiaries, the legislation also expanded the oversight
of the enrollment practices, marketing, and performance of each participating
plan. DHHS is required to prepare a detailed description of the plans available
to Medicare beneficiaries, including a comparision of the costs, benefits, and
past performance of each plan. To view the success of those efforts first hand,
87
go to http://www.medicare.gov/Choices/Overview (last visited October 2005). The
amended federal Medicare statute also places more detailed and more stringent
requirements on each plan. The plan must also demonstrate to the DHHS that its
reimbursement arrangements with providers are sufficient to assure the
availability of services, that the plan includes various quality assurance
mechanisms, and that the plan has a grievance procedure. There are additional
requirements relating to physician participation, the use of “gag rules,” and
prohibitions on certain kinds of financial incentives to discourage the use of
services. For a specification of these requirements, see 42 C.F.R. § 422.560.
As with the Medicaid program’s enforcement of the obligations of managed
care plans in that program, much depends upon the government’s willingness to
enforce the statutory and contractual requirements imposed on Medicare managed
care plans -- in a context in which the government also wants to encourage HMOs
and other managed care plans to expand their participation in the program.
Unfortunately, there have been very few reported decisions examining the various
statutory and contractual obligations of Medicare managed care plans, the
enforcement activities of the federal government, or the ability of individual
enrollees to seek private judicial remedies. For one example, see Grijalva v.
Shalala, 152 F.3d 1115 (9th Cir. 1998), vacated, 526 U.S. 1573 (1999).
One related line of cases involves the ability of Medicare managed care
enrollees to bring state statutory and common law claims against HMOs and other
managed care plans participating in Medicare+Choice, Medicare Advantage, or any
other programs for enrolling Medicare beneficiaries in private health plans. The
Ninth Circuit has held that the tort and other state law remedies available to
Medicare beneficiaries enrolled in managed care plans are not preempted by the
federal Medicare statute’s specification of grievance and other administrative
procedures. (And these claims, of course, are not preempted by ERISA since they
are not employment-based health benefits.) Ardary v. Aetna Health Plans v.
California, Inc., 98 F.3d 496 (9th Cir. 1996), cert. denied, 520 U.S. 1251
(1997) (spouse claimed wrongful death action against plan for failing to provide
timely services). As discussed in Hofler, that view has been followed by a
number of circuits, although, as discussed in Hofler, even if such state claims
are not generally preempted, there are some categories of state claims that may
be specifically preempted (even if the state claims can proceed in state
courts).
88
PROBLEM FOR DISCUSSION: MEDICARE'S REVENUE STRUCTURE AND THE
FUTURE OF MEDICARE
The revenue structure of Medicare is complicated, but it deserves to be
understood in detail in order to fully appreciate one set of difficult problems
that federal policymakers will soon have to address.
The Part A revenue structure
The revenues that pay for Medicare Part A benefits are primarily provided
by a payroll tax (FICA) imposed on both employees and their employers, and an
equivalent tax on the self-employed. Each year Congress appropriates an amount
equal to the projected revenues from this payroll tax into a designated trust
fund from which all Part A expenditures are paid. There is no provision under
current federal law for supplementing the Part A trust fund with additional
federal revenues (although Congress could, obviously, choose to do so.) The Part
A payroll tax was created as an add-on to the pre-existing Social Security
(OASDI) payroll tax scheme and applies to the same income, essentially wages or
self-employment earnings. Both the employer and the employee pay the same rate.
Until 1991, the payroll tax rates for both Medicare Part A and for OASDI were
applied to the same wages and earnings base, which was annually adjusted. As
part of the 1990 budget compromise, the earnings base to which the Part A
payroll tax rate is applied was increased to $125,000; in 1994, the maximum
ceiling was lifted altogether. As a result, as of 2006, the Medicare payroll tax
was 1.45 percent on the earnings received by the employee, matched by an equal
contribution from the employer, on all wages. The OASDI payroll tax rate is 6.20
percent on a maximum of $61,200. Thus, as of 2006, the combined payroll tax
burden -- Medicare Part A plus OASDI including both the employer and employee
share (or that of the self-employed) -- is 15.3 percent on the first $61,200 of
earned wages, and 2.9 percent on the remainder.
This designated revenue, payroll tax scheme proved to be more than
effective to support Medicare Part A for the first four decades of the program.
As demonstrated by Table VII, the Part A trust fund has had an annual surplus
each year since the beginning of the program and, consequently, Part A has built
up a sizable trust fund surplus. In the mid-1990s, however, it appeared that
that trend would be reversed. The actuarial experts who monitor the program
found that program expenditures were rising faster than the revenues to support
them and they predicted that there would be annual deficits by the end of the
century and eventually of the depletion of the trust fund surplus. (The official
evaluation of the actuarial status of the trust fund is published annually and
based on alternative economic forecasts.)
As it turned out, the experts’ predictions were wrong -- or, at least
premature. No one expected the extended economic boom of the late 1990s and the
consequent unexpected rise in payroll tax revenues. At the same time, various
provisions of the Balanced Budget Act of 1997 limited the growth of Medicare
program expenditures to levels significantly below those which had been
projected. The result was both a fiscal and a political victory. The predicted
collapse of the Part A revenue structure never materialized. By 1998, revenues
were once again exceeding annual Part A expenditures and the surplus began to
accumulate again and has continued to grow into the first decade of the 21st
century.
89
But while Medicare Part A survived this fiscal crisis, another looms on
the not-too-distant horizon. As the “baby boom” generation begins to retire and
become eligible for Medicare some time in the early 2010s, program expenditures
are expected to rise more rapidly than at any time in the history of the
program, and, most important, more rapidly than the revenues that will be
generated by the next generation of working Americans. As set out in the most
recent report, the actuaries are now predicting that the Part A surplus will
rise through the next decade but begin to shrink sometime after the year 2010
and become depleted some time before the year 2020.
It is important to understand that it is both the increase in the number
of Medicare beneficiaries and the increase in their proportion of the population
that is pushing Medicare towards this financial crisis. To put it somewhat
mathematically, Part A expenditures are a function of the health care costs of
the growing Medicare beneficiary population; whereas Part A revenues are a
function of the earning capacity of the more slowly growing employed population.
Thus, unless the health care costs of the more rapidly growing Medicare
population can be significantly and unexpectedly reduced, or, conversely, the
earning capacity of the more slowly growing working population is enhanced far
beyond current projections, the bankruptcy of Part A is inevitable -- even if it
has been postponed for a number of years -- unless the current revenue structure
is revised or supplemented.
This can best be illustrated by comparing total Part A expenditures
expressed as a percentage of the wages and earnings subject to the payroll tax
(what actuaries call the "cost rate") to the payroll tax rate applied to those
same wages and earnings. The cost rate has grown since the beginning of the
program. Only periodic increases in the tax rate or in the wages and earnings
base have been successful in maintaining a balance between program costs and
program revenues and in building a sizable trust fund surplus. The cost rate
began to exceed the currently established tax rate in the mid-1990s. The reforms
of the 1997 budget legislation -- cutting expenditures -- and the economic boom
of the late 1990s -- raising revenues -- reversed that trend. Under current
economic forecasts and assuming no further cost-reducing (or cost-increasing)
reforms of Part A, the tax rate is projected to exceed the cost rate until the
second decade of the 21st century, when Part A is projected to once again
experience annual deficits and the trust fund surplus will begin to shrink.
The Part B revenue structure
The revenue structure of Part B is wholly independent of that for Part A.
While Part B is titularly funded by monthly premiums paid by or on behalf of
program beneficiaries, in fact these premiums currently represent only about 25
percent of total Part B revenues. Federal general revenues are appropriated
annually in an amount to approximate the remaining amount of Part B expenditures
in excess of the premium revenues. As with Part A, Part B revenues are also held
in a separate trust fund from which all Part B expenditures are made.
As Medicare was originally structured, beneficiary premiums were to be
adjusted annually to allow the total revenue generated by the premiums to
approximate one-half of the expected expenditures for Part B services. In 1972,
however, Congress amended the federal law to set Part B premium increases at
either (1) an amount to represent one-half the costs of the program or (2) the
previous year's premium increased by the same percentage as the Social Security
cost-of living adjustment, whichever was lower. In the late 1970s, as health
care costs rose more rapidly than the economy and, consequently, the cost-of-
90
living-adjustments, premiums became an increasingly smaller share of the Part B
budget. In the 1980s, Congress lifted the cost-of-living limits on premium
increases and required that the annual premium be adjusted to approximate 25
91
TABLE V.
Year
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995*
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005**
2006**
2007**
2008**
2009**
2010**
MEDICARE PART A TRUST FUND OPERATIONS
CALENDER YEARS 1966-2010
Income*
($ billion)
$
1.9
3.6
5.3
5.3
6.0
5.7
6.4
10.8
12.0
13.0
13.8
15.9
19.2
22.8
26.1
35.7
38.0
44.6
46.7
51.4
59.3
64.1
69.2
76.7
80.4
88.8
93.8
98.2
109.6
114.8
121.1
128.5
138.2
153.0
159.7
171.0
179.8
175.8
180.8
192.6
204.7
215.8
227.6
239.2
251.9
Expenditures
($ billion)
$
1.0
3.4
4.3
4.9
5.3
5.9
6.5
7.3
9.4
11.6
13.7
16.0
18.2
21.0
25.6
30.7
36.1
39.9
43.9
48.4
50.4
50.3
53.3
60.8
67.0
72.6
85.0
94.4
104.5
114.9
125.3
136.2
137.1
131.4
130.3
141.7
148.0
153.8
167.0
179.9
188.7
204.4
215.6
229.2
244.1
Expenditures
(% change)
-21%
14%
8%
11%
10%
12%
27%
23%
18%
-17%
14%
15%
21%
20%
18%
11%
10%
10%
4%
-6%
14%
10%
8%
17%
11.1%
10.7%
10.0%
9.1%
8.4%
.3%
(4.1)%
(.8)%
8.7%
4.5%
3.9%
8.6%
7.7%
4.9%
8.3%
5.5%
6.3%
6.5%
Surplus/Deficit
$
.9
1.0
2.1
2.5
3.2
3.0
2.9
6.7
9.1
10.5
10.6
10.4
11.5
13.2
13.7
18.7
8.2
12.9
15.7
20.5
40.0
53.7
69.6
85.6
98.9
115.2
124.0
127.8
132.8
130.3
124.9
115.6
120.4
141.4
165.8
193.0
221.8
251.6
282.8
312.2
92
Source: 2005 Annual Report of the Boards of Trustees of the federal Hospital
Insurance and Federal Supplementary Medical Insurance Trust Funds at 178 (found
at http://www.cms.hhs.gov/publications/trusteesreport (last visited October
2005).
93
percent of Part B costs. Since 1990 Congress has mandated that premiums be set
at rates which are predicted to generate 25 percent of the Part B costs.
Obviously the Part B revenue structure was not designed to support the
program entirely or even primarily out of beneficiary premiums. Annual
appropriations from general revenues have always provided a substantial share of
the program funds. The congressional efforts to cap the rise in premiums to
track the annual Social Security cost-of-living increases further reduced the
proportionate share of program funds that derive from premiums -- and increased
the demands made by Part B on the federal budget. The Part B demands on the
federal budget will track the demands of Part A on the Medicare Part A trust;
unless "something is done," Part B expenditures will continue to place
increasingly greater demands on the federal budget through the next several
decades, and even greater demands as the baby boomers join the Medicare
population. In one sense, since Part B does not rely exclusively on a single,
dedicated source of revenue, these Part B expenditures increases will not create
a crisis for the Part B trust fund; there is no point at which the Part B trust
fund is automatically depleted and Medicare Part B is officially bankrupt. But
in any real political sense, Part B cost increases are problematic both for the
program and for the remainder of the federal budget.
Assume that Congress decides -- for reasons of good policy or practical
politics or both -- that "something must be done" to reform the way in which
Medicare is funded and to assure that the program will remain solvent beyond the
first decade of the 21st century. What can be done? What should be done?
Congress has three broad categories of choices: reduce coverage (or
reimbursement for covered services), reduce eligibility, or, "enhance revenue,"
the term politicians use when they don't want to say "increase taxes."
Consider first the options for reducing coverage. What would you have to
eliminate in order to produce significant expenditure reductions? Are there any
obvious choices? Does it make more sense to eliminate categories of services or
place either durational or cost-sharing limits on those that are covered? Other
than fiscal necessity, what would be the justification for eliminating one or
the other type of service? How will people now covered by Medicare finance those
services that are excluded? (And remember, lately the last time Congress
reformed Medicare, it created a new Part D, expanding Medicare’s coverage.)
Next consider the options for reducing the number of people eligible for
the program -- again, in sufficient numbers to reduce expenditures in some
meaningful way. One option is to increase the age of eligibility. Another option
is to means-testing eligibility, i.e., set income or resource limits much like
those of the Medicaid program. A third option would be to maintain the current
definition of eligibility but make some beneficiaries pay higher premiums or,
alternatively, more cost-sharing at the point of service. Again, how would you
justify your choice? What will be the net result for the Medicare beneficiaries
affected? What are the politics of doing so: Who would be opposed and who would
favor each option?
Finally, but most importantly, assume that your choices above either are
unacceptable or do not produce the necessary expenditure reductions. What are
your options for "enhancing revenue?" Consider the merits (and the politics) of
the following:
a. abandon the payroll tax and simply fund both Parts of Medicare out of general
revenues (with or without the current contribution from Part B premiums);
94
b. raise the payroll tax rate to a sufficient level to finance Part A (or Part B
or both);
c. raise the premiums paid by all (or some) beneficiaries to a sufficient level
to fund either Part A or Part B or both;
d. dedicate other taxes to Medicare (e.g., "sin taxes" on alcohol or tobacco or
revenues from a national lottery);
e. use other sources of revenue.
For comparision figures on the sources and amounts of federal revenues
raised by various taxes, see http://www.access.gpo.gov/usbudget/ (last visited
November 2005).
95
TABLE VI. MEDICAL INSURANCE TRUST FUND OPERATIONS 1966-2008
Year
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995*
1996
1997
1998
1999
2000
2001
2002
2003
2004
Total
Income
($ billion)
$ 0.3
1.6
1.7
1.8
2.2
2.6
2.8
3.3
4.1
4.7
6.0
7.8
9.1
9.8
10.9
15.4
16.6
19.8
23.2
25.1
24.7
31.8
35.8
44.3
45.9
51.2
57.2
57.7
55.6
58.2
82.0
80.8
82.0
85.3
89.2
95.3
105.7
110.2
126.6
Total
Disbursements
(revenues)
$ 0.2
1.3
1.7
2.1
2.2
2.4
2.6
2.8
3.7
4.7
5.6
6.5
7.8
9.3
11.2
14.0
16.2
19.0
20.6
23.9
27.3
31.7
35.2
39.8
44.0
48.9
50.9
57.8
60.3
65.2
68.9
72.6
76.3
80.5
89.0
99.5
108.8
124.0
134.3
Part B
Disbursements
% increase
--31%
24%
5%
9%
8%
8%
32%
27%
19%
16%
20%
19%
20%
25%
16%
17%
8%
16%
15%
16%
11%
13%
13%
11%
4%
16%
4%
10.4%
5.7%
5.3%
4.7%
6.1%
11.8%
8.5%
8.7%
14.0%
8.3%
Balance in fund
at end of year
($ billion)
$ 0.1
0.4
0.4
0.2
0.2
0.5
0.6
1.1
1.5
1.4
1.8
3.1
4.4
4.9
4.5
5.9
6.2
7.1
9.7
10.9
8.3
8.4
9.0
13.6
15.5
17.8
24.2
24.1
19.4
13.1
28.3
36.1
46.2
44.8
41.9
40.3
39.4
96
2005**
2006**
2007**
2008**
152.9
234.8
263.6
273.2
153.1
217.7
254.9
271.4
14.0%
42.2%
12.5%
6.5%
Source: 2005 Annual Report of the Boards of Trustees of the federal Hospital
Insurance and Federal Supplementary Medical Insurance Trust Funds at 180.
97
With any of the choices outlined above there is a technical problem: Will
your chosen alternative actually work? Will it reduce expenditures or raise
revenues of sufficient magnitude? For example, how high would a tax on tobacco
have to be to produce a $10 or $20 billion annual gain in revenue per year? How
large would a premium increase have to be? (By the way, economic experts would
remind us that if sales or consumption taxes are raised too high that people
will change their behavior to avoid paying the tax -- and complicate your
calculations of total revenues.)
But more important for present purposes, how are you making your choices?
Is there a principle or a value that leads you to prefer one option rather than
the other? If, for example, you prefer to raise revenue rather than reduce
expenditures, and you prefer dedicated taxes that are automatically indexed to
cover the needs of the program, what does that tell you about the importance you
attach to maintaining a Medicare program as an “entitlement”? On the other hand,
if you want to pare the program to stay within the expenditures produced by the
existing revenue structure, that implies that you regard Medicare as less of an
entitlement and more of a discretionary benefit.
As you evaluate the revenue options, consider who is paying for whom -any why. Should Medicare be structured as a pay-now, receive-later insurance
scheme or as a redistributional scheme, taxing those-who-can-pay-now to benefit
those-who-are-in-need-now? Should old people as a group become a separate,
partially subsidized insurance pool, as would be the case if the Medicare
premium became the primary source of revenue? Should current taxpayers pay for
all old people or only some? Why not ask for a bigger contribution from those
beneficiaries who are wealthy or who continue to work? For that matter, not all
current taxpayers pay equal amounts. A Medicare-enhancing tax on payroll
distributes the tax burden much differently than one on income or sales. You
also should remember that any increase in taxes of this magnitude may have an
enormous impact on employment, individual investment and spending, and other
economic activities.
For a good, detailed discussion of many of these options, see Deborah J.
Chollet, Individualizing Medicare (National Academy of Social Insurance May
1999); Jill Bernstein, Should Higher Income Beneficiaries Pay More For Medicare?
(National Academy of Social Insurance May 1999).
There are, of course, no rights answers. For that matter, there are no
good answers. Americans, even those enrolled in law schools, are particularly
unpracticed in evaluating tax schemes. And even if you can find an alternative
that sounds like an acceptable way to finance Medicare, you should be mindful of
the first corollary to the basic economic theorem that a dollar spent on one
thing is not spent on another: Any enhancement of revenue for Medicare is public
funding not available for other needs. Why spend any additional public dollars
on Medicare if Medicaid is also in financial disarray? What about education or
housing programs?
However you make your choices, you also must be mindful of the
expectations of generations of taxpayers who have been told, not that they have
been paying taxes, but that they have been buying insurance for their future
health care needs. Medicare (see discussion supra) is an entitlement in that it
promises a wide range of services to everyone who qualifies, and neither
eligibility nor coverage is limited by annual budget allocations. But Medicare
is also an entitlement in the sense that several generations of people have gone
through their working years with the political assurance that they will receive,
in Lyndon Johnson's words, the "hand of justice" when they retire. These
98
generations are unlikely to concede their expectations easily, even in the face
of the fiscal crises that threaten the program that embodies those expectations.
As a final matter, note that many of these questions, particularly those
which reflect your values and preferred, underlying principles, will have to be
asked and answered as you evaluate options for reforming not just Medicare but
all of American health care, as discussed in Chapter 8.
99
5. Medicare Reform in the late 1990s and Into the Future
By the mid-1990s, two realities had set the Medicare program at the center
of a political storm. First, as described in the previous subsection, in the
1990s, as program expenditures increased faster than the dedicated revenues to
support the program, the Part A trust fund was approaching bankruptcy, as early
as the end of the decade according to some experts. Even if the Part A revenue
imbalance could be resolved, Medicare was demanding a larger and larger share of
the federal budget, a budget that was running annual shortfalls in excess of
$300 billion by the mid-1990s. Controlling the growth of Medicare and balancing
the federal budget were becoming virtually synonymous.
Even amid the highly partisan debates over health care reform, Congress
was able to adopt reconciliation legislation in 1993 that was projected to
reduce spending by $50 billion over the next five years, primarily by limits on
the rates of reimbursement for both Part A and Part B providers. This proved to
be only the opening round of Medicare cuts in the 1990s. The mid-term elections
of 1994 brought Republican majorities to both congressional houses committed to
their "Contract with America" that included a promise to balance the federal
budget within the decade without reducing spending for military defense and
Social Security. Cutting Medicare was the obvious if not necessary choice to
achieve that promise. The ensuing political battles to achieve these cuts,
however, were more complicated.
The first battle was a fight to a standstill. The Republican
reconciliation proposal in 1995 proposed cutting $270 billion from the program
by the year 2002 primarily through further reductions in physician and hospital
reimbursement, increases in Part B premiums for upper income beneficiaries, and
extended efforts to enroll beneficiaries in managed care programs and other
alternatives to fee-for-service arrangements. Most importantly, under the
Republican proposal, if these measures did not produce the projected savings, a
"fail-safe" provision would require automatic reductions in all fee-for-service
reimbursement until the targeted levels of savings were reached. The Clinton
Administration countered with its plan to save Medicare that projected "only"
$160 in program reductions through somewhat less drastic provider reimbursement
limits -- and no "fail-safe" option. The political sparring that followed was
dicey, even by American political standards. The Republicans called the
Democrats irresponsible. The Democrats claimed that the Republicans wanted to
balance the budget on the backs of the elderly. In fact, beyond the "fail-safe"
option, the real differences between the two approaches were more in the details
of the proposals than in their overall approach. Both parties wanted to
substantially reduce annual Medicare spending.
Ironically, neither side was successful. Clinton cited the Republicans'
efforts to reduce Medicare as one reason for vetoing the budget reconciliation
legislation enacted in late 1995. After the several-month government shutdown
that followed, the inability to enact Medicare reform or otherwise balance the
federal budget became campaign fodder for the elections of 1996, but no Medicare
changes were adopted by the 104th Congress. As a further irony, in June of 1996
as the Fall campaign rhetoric was beginning to warm, the Part A trustees issued
their annual report estimating that Part A revenues would fall below Part A
expenditures by 1999 and that the program would be bankrupt by 2001 -- a year
earlier than previously predicted (and a prediction that eventually proved to be
untrue).
100
The greater irony, however, followed the elections of 1996 and was driven
less by politics and more by the surprising economic upturn of that would
continue through the remainder of that decade. By the Spring of 1997, tax
revenues were rapidly rising. The budget reductions of the early 1990s began to
have visible effects on federal expenditures. Projections of the size of the
federal budget deficit began to plummet and prospects for a balanced federal
budget -- and possibly even a budget surplus -- were suddenly realistic. Both
the Republican-dominated Congress and the Democratic President were quick to
take advantage of these odd circumstances. Why not take credit for balancing a
budget that appeared to be balancing itself? In relatively short order a
reconciliation bill was forged that included both $135 billion in tax relief and
a series of budget cuts projected to balance the federal budget by the year
2002. Among these budget cuts were $115 billion in Medicare reductions,
representing substantial reductions in program spending, but far less draconian
measures than those had been proposed in the budget-balancing efforts a few
years earlier. Most of the savings were to be achieved by various limits on
provider reimbursement, as had prior years' proposals, and a major expansion of
the options for beneficiaries to enroll in managed care plans under a new Part C
of Medicare. See discussion supra. The 1997 legislation also included modest
increases in Part B premiums for upper income beneficiaries and added new
benefits to Medicare coverage: colorectal screening, mammograms, assistance with
diabetes self-management, and preventive vaccinations. A new pilot program was
also established to allow Medicare beneficiaries to use medical savings accounts
instead of traditional Medicare reimbursement schemes. Taken together with the
unexpected increases in payroll tax revenues, these 1997 spending reductions
were projected to postpone the predicted bankruptcy of the Part A trust for at
least a decade. (The year 2015 was most frequently cited.)
Nothwithstanding the 1997 legislation, Medicare continued to be a source
of controversy in the late 1990s. Even as the cost-containing reforms adopted in
1997 started to take effect, Congress was being pushed to soften the impact of
these reforms on various categories of providers. As the economy continued its
bouyant levels of growth and the prospects for the previously unthinkable -federal budget surpluses -- became more realistic, Congress was under
considerable pressure to rescind some of the 1997 cuts in Medicare. In late 1999
Congress adopted a series of reimbursement "givebacks" to hospitals, home health
agencies, and other providers, estimated to increase Medicare spending by over
$20 billion over the next five years. The Medicare lords apparently can taketh
away and give back.
Whatever the long term results of the congressional changes in Medicare in
the 1990s, one thing remains clear: Medicare and its reform will continue to be
subjects of contentious debate in the coming years, particularly as the "baby
boom" generation approaches retirement. One effort to shape that debate was
included in a provision of the 1997 legislation which called created a
"bipartisan" commission to study the future of Medicare. The final report of
that commission is excerpted below.
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National Bipartisan Commission on the Future of Medicare, Building a Better
Medicare For Today and Tomorrow (1999)
[In 1998, Congress, emboldened by the more optimistic projections for the future
of Medicare and the prospects of federal budget surpluses, empanelled what was
called a bipartisan commission of legislators -- a slight majority of
Republicans, and including key committee heads from both houses -- to fashion a
proposal that would address both Medicare’s shortcomings and its fiscal
instability. In 1999, the commission issued the following report, supported by
its Republican members and rejected by their Democratic colleagues. (At the same
time, the White House issued its own reform proposal, presumably a kind of
Democratic rebuttal to the commission’s proposal.) Nonetheless, the commission’s
report and its efforts to make specific policy recommendations represent a good
illustration of contemporary politics and of the types of proposals that are
likely to be aired in the coming decade.]
*
*
*
We believe a premium support system is necessary to enable Medicare
beneficiaries to obtain secure, dependable, comprehensive high quality health
care coverage comparable to what most workers have today. We believe modeling a
system on the one Members of Congress use to obtain health care coverage for
themselves and their families is appropriate. This proposal, while based on that
system, is different in several important ways in order to better meet the
unique health care needs of seniors and individuals with disabilities. Our
proposal would allow beneficiaries to choose from among competing comprehensive
health plans in a system based on a blend of existing government protections and
market-based competition. Unlike today’s Medicare program, our proposal ensures
that low income seniors would have comprehensive health care coverage.
Because the implementation of a premium support system will take a number
of years, we recommend immediate improvements to the current Medicare program.
In Section II we outline the incremental improvements to enhance the
beneficiaries’ security and quality of care now. We recommend immediate federal
funding of pharmaceutical coverage through Medicaid for seniors up to 135% of
poverty ($10,568 for an individual and $13,334 for a couple [in 1997]). This
would also expand beneficiary participation in currently available subsidies for
premiums and cost-sharing.
In reviewing the three parts of this proposal, it is important to keep in
mind the different government roles in the premium support system and in current
law. We believe the guarantee our society makes to every senior is to ensure
that they can obtain the highest quality health care, and that their health care
coverage not be allowed to fall behind that available to people in their working
years. We believe that our society’s commitment to seniors, the Medicare
entitlement, can be made more secure only by focusing the government’s powers on
ensuring comprehensive coverage at an affordable price rather than continuing
the inefficiency, inequity, and inadequacy of the current Medicare program.
I.
PREMIUM SUPPORT SYSTEM TO PROVIDE COMPREHENSIVE COVERAGE
The Medicare Board
A Medicare Board should be established to oversee and negotiate with
private plans and the government-run-fee-for-service plan. Some examples of the
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Board’s role are: direct and oversee periodic open enrollment periods; provide
comparative information to beneficiaries regarding the plans in their areas;
transmit information about beneficiaries’ plan selections and corresponding
premium obligations to the Social Security Administration to permit premium
collection as occurs today with Medicare Part B premiums; enforce financial and
quality standards; review and approve benefit packages and service areas to
ensure against the adverse selection that could be created through benefit
design, delineation of service areas or other techniques; negotiate premiums
with all health plans; and compute payments to plans (including risk and
geographic adjustment).
This Board would operate under a government charter that would describe
its responsibilities and operating standards including the ability to hire
without regard to civil service requirements and salary restrictions.
Ensuring plan performance and dependability
All plans (private plans and the government-run FFS plan) would compete in
the premium support system; all plans would have Board-approved benefit designs
and premiums. The Board would ensure that the benefits provided under all plans
are self-funded and self-sustaining, determining whether plan premium
submissions meet strict tests for actuarial soundness, assessing the adequacy of
reserves and monitoring their performance capacity.
Management of government-run fee-for-service in premium support
The government plan would have to be self-funded and self-sustaining and
meet the same requirements applied to all private plans, including whether its
premium submissions meet strict tests for actuarial soundness, the adequacy of
reserves, and performance capacity.
Cost containment measures would be necessary. The provisions of the
Balanced Budget Act of 1997 should be extended, or comparable savings achieved.
In any region where the price control structure of the government run plan is
not competitive, the government-run fee-for-service plan could operate on the
basis of contracts negotiated with local providers on price and performance,
just as is the case with private plans. The government plan would be run through
contractors as it is today; contractors in one region would be able to bid in
other regions; the Board should have powers to assure that the government-run
plan would not distort local markets.
Benefits package
A standard benefits package would be specified in law. This benefits
package would consist of all services covered under the existing Medicare
statute. Plans would be able to offer additional benefits beyond the core
package and plans would be able to vary cost sharing, including copay and
deductible levels, subject to Board approval. . . .
The Medicare Board would approve benefit offerings and could allow
variation within a limited range, for example not more than 10% of the actuarial
value of the standard package, provided the Board was satisfied that the overall
valuation of the package would be consistent with statutory objectives and would
not lead to adverse or unfavorable risk selection problems in the Medicare
market.
New benefits to be instituted in the premium support system:
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Outpatient prescription drug coverage and stop-loss protection
In Private Plans:
Private plans would be required to offer a high option that includes at
least Medicare covered service plus coverage for outpatient prescription drugs
and stop-loss protection. Plans would be able to vary copay and deductible
structures. Minimum drug benefits for high option plans would be based on an
actuarial valuation. High option and standard option plans each would be
required to be self-funded and self-sustaining.
In Government-run Fee-For-Service Plans:
The government-run fee-for-service plan would be required to offer high
option (including outpatient prescription drugs and stop-loss) in addition to
standard option plans. . . .
Comprehensive coverage for low-income beneficiaries:
Coverage would be provided through high option plans. The federal
government would pay 100% of the premiums of the high option plans at or below
85% of the national weighted average premium of all high option plans for all
eligible individuals up to 135% of poverty ($10,568 for an individual and
$13,334 for a couple) on a fully federally funded basis. . . .
Premium Formula Basics
On average, beneficiaries would be expected to pay 12 percent of the total
cost of standard option plans. For plans that cost at or less than 85 percent of
the national weighted average plan price, there would be no beneficiary premium.
For plans with prices above the national weighted average, beneficiaries’
premiums would include all costs above the national weighted average.
Only the cost of the standard package would count toward the computation
of the national weighted average premium. Plans with a high option, whether
private plans or government-run, would separately identify the incremental costs
of benefits beyond the standard package in their submissions to the Board, and
the government contribution would be calculated without regard to the costs of
these additional benefits.
Premium for government-run fee-for-service plans
The government-run fee-for-service plan would be treated the same as
private plans.
Government-run plan premium excludes costs of special subsidies in premium
calculation
All non-insurance functions and special payments now in Medicare would not
be included in calculation of premiums for the government-run FFS plan or
private plans.
Guaranteed premium levels where competition develops more slowly
In areas where no competition to the government-run fee-for-service plan
exists, beneficiaries’ obligations would be no greater than 12 percent of the
FFS premium or the national weighted average, whichever is lower. The Medicare
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Board should periodically review those areas with a fixed percentage premium to
ensure that the fixed percentage premium is not anti-competitive.
. . . .
II.
IMMEDIATE IMPROVEMENTS TO THE CURRENT MEDICARE PROGRAM AND OTHER ASPECTS
OF SENIORS HEALTH CARE SPENDING
Provide outpatient prescription drug coverage for 3 million more lowincome beneficiaries
Immediately provide federal funding for coverage of prescription drugs
under Medicaid for beneficiaries up to 135 % of poverty ($10,568 for an
individual and $13,334 for a couple). This would also expand beneficiary
participation in currently available subsidies for premiums and cost-sharing.
All funding obligations related to the coverage under this provision would be
federal.
Improve access to outpatient prescription drug coverage for seniors
Revise federal directives to National Association of Insurance
Commissioners (NAIC) to develop new Medi-Gap state model legislation
immediately. All private supplemental plans would include basic coverage for
prescription drugs. One plan would be a prescription drug-only plan.
Combine Parts A and B
Health care delivery changes have blurred the distinctions originally
contemplated when Parts A and B of Medicare were enacted. Parts A and B should
be combined in a single Medicare Trust Fund. (See Section III on Financing and
Solvency.)
Lower deductible for 8 million beneficiaries
The current Medicare program subjects beneficiaries entering the hospital
to extremely high costs just at a time when they face the many other expenses
associated with serious illness. Virtually no private health plan imposes such
costs. We propose to combine the current Part A ($768) deductible and B ($100)
deductible, and replace it with a single deductible of $400, which should be
indexed to growth in Medicare costs.
Improve utilization of health care services
A fee-for-service plan is best maintained by financial incentives, without
which costs spiral out of control or freedom of choice must be restricted. To
protect against unnecessary rises in beneficiary Part B premiums, 10%
coinsurance would be established for all services except inpatient hospital stay
and preventive care, and except where higher copays exist under current law.
Revise federal directives to NAIC to develop new state model legislation
to conform to the changes proposed for Medicare cost-sharing. These directives
should also be designed to achieve more affordable and more efficient
supplemental insurance and to minimize Medicare outlays. The new single Medicare
deductible and coinsurance schedule would be insurable in part or in whole.
. . . .
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III.
FINANCING AND SOLVENCY
The changes proposed in this document are intended to put Medicare on
surer financial footing by creating savings due to competition, efficiency and
other factors, and by slowing the growth in Medicare spending. In addition,
these reforms would result in Medicare offering a benefit package that is more
comparable to health care benefits offered in the private sector and would
enhance our ability to meet our commitment to today’s and future beneficiaries.
Without these changes, quality of care could suffer, and significantly greater
revenues and/or beneficiary sacrifices would be required. . . .
Medicare’s financing needs would be dictated by the Medicare growth rate
achieved under the premium support system. By moving to a premium support
system, Medicare’s growth rate would be reduced by 1 to 1.5 percentage points
per year from the current long-term annual growth rate of 7.6 percent (Trustees
Intermediate) or 8.6 (Commission’s No Slowdown Baseline). If this reduction in
growth rate can be achieved, the fiscal integrity and Medicare would be
significantly improved.
Even if the estimated reduction in growth rate is achieved, Medicare will
require additional resources as the percent of population that is eligible for
Medicare increases. As revenue is needed, how much should be funded through the
payroll tax, through general revenue, and through beneficiary premiums?
The answer to this question is difficult because it would require knowing
today the health care system of the future. We do not know what the future
holds in terms of the evolution of the health care delivery system, or the
impact that technology will have on health care costs.
At the Commission’s first meeting, Federal Reserve Chairman Alan Greenspan
said that “the trajectory of health spending in coming years will depend
importantly on the course of technology which has been a key driver of perperson health costs.” Yet he went on to underscore what could be the absurdity
of attempting now to determine funding levels necessary decades into the future:
“[T]echnology cuts both ways with respect to both saving medical expenditures
and potentially expanding the possibilities in such a manner that even though
unit costs may be falling, the absolute dollar amounts could be expanding at a
very rapid pace. One of the major problems that everyone has had with technology
-- and I could allude to all sorts of forecasts over the most recent generations
-- one of the largest difficulties is in forecasting the pattern of technology.
It is an extremely difficult activity.”
The solvency test that has been applied to Social Security is not an apt
model for Medicare. Social Security Trust Funds are funded exclusively through
payroll taxes; Medicare is paid for by a combination of payroll taxes, general
revenue and beneficiary premiums. These ratios have changed over time such that
a greater portion of program expenses is now paid by general revenues and a
relatively smaller portion is paid by payroll taxes and beneficiary premiums.
In addition, the payroll tax supporting the OASDI Trust Funds is limited
both by its rate and the wage base on which that rate is applied. No portion of
Medicare’s funding contains these limitations. In Medicare, there is no cap on
the wage base; the Part A Trust Fund is funded by a payroll tax of 2.9% on all
earnings, and pays only for the Part A benefits of Medicare. Medicare’s Part B
benefits are paid 75% by general revenues and 25% by beneficiaries.
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Consequently, the historic concept of Medicare’s solvency is one that has
been partially and inappropriately borrowed from Social Security and has never
fully reflected the fiscal integrity, or lack thereof, of the Medicare program.
In Medicare, “solvency” has meant only whether the Part A Trust Fund outlays
were poised to exceed Part A reserves and collections. That is all.
Recently even this partial proof of fiscal integrity has been shattered.
The notion of Part A “solvency” or rather “insolvency” has been used to shift
more program costs to the general fund. An act of Congress shifted major home
health expenditures from Part A to Part B in 1997, thus extending the fiction of
the Part A Trust Fund “solvency” from 2002 through 2008 by shifting obligations
to the general fund. The general fund, in great part, became the source of Part
A “solvency."
The ever increasing estimates of general fund exposure should be part of
any definition of solvency. Absent reform, general fund exposure jumps from 37%
of program funding in FY2000 to 43% in FY2005 and 49% in FY2010. General fund
demand will increase from $92 billion in FY2000 to $156 billion in FY2005 to
$261 billion in FY2010.
Consequently, the “solvency” of the Part A Trust Fund is not useful as a
guide to policy making or even as a tool to educate the public on the security
and financial condition of the Medicare program.
Therefore, Part A and Part B Trust Funds should be combined into a single
Medicare Trust Fund and a new concept of solvency for Medicare should be
developed. This concept should more accurately reflect the implications of the
program’s financing structure, i.e., the ratio of relative financing burdens on
the general fund, the Hospital Insurance payroll tax, and the premiums
beneficiaries pay. Because beneficiary premiums and the payroll tax rate can
only be amended by law, and have proved very difficult to modify over time, the
only meaningful solvency test of this entitlement program is one based on the
amount of general revenues needed to fund program outlays. This could be
referred to as a programmatic solvency test.
Congress should enact this revised definition of Medicare solvency so that
decisions can be made in the context of competing demands for general revenue.
Congress should require the Trustees to publish annual projections regarding the
ratio in program financing. In any year in which the general fund contributions
are projected to exceed 40% of annual total Medicare program outlays, the
Trustees would be required to notify the Congress that the Medicare program is
in danger of becoming programmatically insolvent. The Trustees Report should
provide for necessary and important public debate leading to potential
adjustments to the payroll tax and/or the beneficiary premium as well as any
adjustment of the general fund devoted to Medicare. Congressional approval would
be required to authorize any additional contributions to the Medicare Trust
Fund.
With the reforms contemplated under this proposal, that new test would
probably not be activated until after 2005. Even if we limit general revenue
contributions to 40% of program outlays, however, this proposal would extend the
solvency of Medicare to 2013. This calculation, based on the most recent CBO
baseline, would indicate that solvency under this test would extend to 2017 or
beyond.
Long-term care
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The Commission recognizes that its proposal is focused on acute care, and
does not address the issue of long-term care. In 1995, Americans spent an
estimated $91 billion on long-term care, with 60% coming from public sources.
Despite these large public expenditures, the elderly face significant uncovered
liabilities. The Commission recommends that the Institute of Medicine conduct a
study. . . .
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D. OUT-OF-POCKET PAYERS AND THE UNINSURED
In 2003, over $230 billion, slightly less than 20 percent of total
national health expenditures, were paid out-of-pocket through cost-sharing and
other direct payments to providers by consumers. In 1965, just prior to the
enactment of Medicaid and Medicare, Americans were paying almost one-half of the
costs of their health care out-of-pocket. By 1975, that share had dropped to
less than a third, and by the early 1980s it had dropped again to less than 25
percent. Since that time it has gradually reduced to its current level.
The burden of these out-of-pocket payments, however, is not evenly
distributed across the population. Many insured people pay a relatively modest
amount through cost-sharing incident to utilization of covered services or for
outpatient visits, eye or dental care, or other frequently noncovered services.
And, of course, in any given year, some people incur no direct medical expenses
at all. On the other hand, a few people incur extraordinary or catastrophic
expenses and, even if insured for some of these costs, have out-of-pocket
expenses in the tens or even hundreds of thousands of dollars.
The people who carry the greatest burden, however, are the uninsured,
those who have no public or private health insurance or other form of third
party payment or, to use a more descriptive term, the "underinsured," those who
have no coverage or coverage that is so limited that they are without third
party payment for basic services or for significant periods of time during the
year. Estimates vary -- indeed there are raging debates among various would-be
experts over the proper definition of the "underinsured" and their precise
number -- but virtually all authorities agree on two rather sobering facts: in
2006 there will be as 45-50 million Americans, nearly 20 percent of the
nonelderly population, who had no third party coverage for extended periods of
time, and that that number has been growing for at least two decades and will
likely continue to do so.
These figures represent people who self-report their insurance status as
part of the national census and other surveys. It is difficult from these data
to determine the length of time that those who report a lack of insurance remain
uninsured. One survey found that over a third of the uninsured were uninsured
for one to four months, 22 percent were uninsured for five to eight months, and
9 percent were uninsured for nine to eleven months. The remainder were uninsured
for the entire year or longer. Other studies tend to support this distribution.
See Kaiser Commission on Medicaid and the Uninsured, The Uninsured and Their
Access to Health Care (Nov. 2005) found at http://www.kff.org/uninsured/ (last
visited November 2005); see also Paul Fronstein, Sources of Health Insurance and
Characteristics of the Uninsured: Analysis of the March 2001 Current Population
Survey (EBRI Dec. 2001) (annually updated).
Whatever their exact numbers, the basic reality remains: While Americans
in the aggregate may be paying fewer health care dollars out-of-pocket than in
previous decades, there are many more individual Americans who must pay out-ofpocket or risk the consequences of foregoing services.
Who are these people? The best answer starts with a description of who
they are not: They are not people with stable employment in occupations with
middle to high income levels, in public employment, or in unionized occupations;
nor do they qualify for Medicare, Medicaid, or any other public programs.
Obviously, the "underinsured" include the unemployed, but in 2003 over 27
million uninsured people were in families headed by full-year, full-time
109
workers. Twenty-seven percent of people who worked for employers with fewer than
ten employees had no coverage in 2003, as did 27 percent of those who were selfemployed (including many attorneys). A good portion of the uninsured are
children; despite the various expansions of Medicaid throughout the 1990s and
the SCHIP program, over 11 million people under the age of 18 had no third party
coverage in 2003. Another 3 million people aged 21-24 had no coverage. There was
variability from state to state and within states; there were higher rates of
the "underinsured" in the South and Southwest United States where unemployment
is higher and Medicaid eligibility is generally more limited.
Beneath these demographics lies the question of why over 40 million
Americans can be "underinsured"? The answer is complicated but derives primarily
from the unique contours of American health care financing, particularly the
facts that (a) government-sponsored programs cover only some but not all those
who cannot afford private third party coverage and (b) private third party
coverage is primarily a function of employment, meaning not only whether one is
employed but also what kind of employment one has. Small employers represent a
large part of the problem, since they are both less likely to offer health
benefits and tend to offer more limited coverage or coverage to an employee but
not to the employee's dependents.
The tougher question to answer is what happens to these people when they
need health care? Some people obviously go without care; others struggle to find
providers who will accept them without the assurance of payment by a third
party; in the extreme situation, many turn to the hospital emergency room as the
provider of last resort. As many of the cases throughout these materials will
recount, people without third party coverage suffer both sides of the two-edged
sword: Some find the care they need but then face the burden of extraordinary
medical bills; others delay or forgo -- or are denied -- the health care
services that many other Americans can assume will always be available to them.
Somewhat ironically, we know very little about the frequency -- or even the
consequences -- of either alternative. Most research concerning health care
expenditures and health care utilization relies, ultimately, on the data
collected by third party payers incident to reimbursement for services that are
delivered, particularly the experience of public payers. There is no routinely
collected information on the health care needs of the uninsured or the services
that they do -- or do not -- receive. The article to follow attempts to
summarize what little we know and tends to confirm what intuition would suggest.
110
American College of Physicians-American Society of Internal Medicine, No Health
Insurance? It’s Enough to Make You Sick (ACP-ASIP postion paper Nov. 1999)
*
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*
This paper reviews and evaluates the available literature, published
within the last 10 years, linking health insurance coverage with the utilization
of health care services (access) and individual health outcomes to verify
whether scientific evidence supports the premise that the uninsured experience
reduced access to health care.
. . . .
Reduced Access to Health Services
. . . Numerous studies confirm that the lack of health insurance is linked
to reduced access to health care services. These studies also show that
uninsured Americans are less likely to receive preventive and primary care than
insured Americans. Uninsured citizens are also less likely to have a
relationship with a primary care physician (a regular source of care) or to
receive required preventive services, like cancer screening for adults and
checkups for children. These differences exist even for those who have chronic
conditions and special health care needs. Even when ill, uninsured Americans are
less likely to receive a physician's care for their health problems, such as
asthma or acute earache.
No Regular Source of Care
. . . .
Bloom et al evaluated data on over 61,000 persons from the 1993 Access to
Care and Health Insurance Surveys of the National Health Interview Survey
(NHIS). The authors found that the uninsured in 1993 were 4 times less likely to
have a regular source of care compared with the insured (40% versus 10%).
The U.S. Department of Health and Human Services has reported that
uninsured children are 8 times less likely to report a regular source of care
than the insured (16% versus 2%). . . .
No Recent Physician Visit
. . . .
. . . Hafner-Eaton found that non-elderly uninsured were consistently less
likely to have received any medical care in the previous 12 months. The acutely
ill uninsured were 66% as likely to have seen a physician, and the chronically
ill were only 50% as likely to have seen a physician in the last year. The
uninsured acutely ill are less likely to delay medical care than the uninsured
chronically ill or those who are well, but their use of physician services is
still well below that of insured individuals.
. . . Newacheck found that uninsured adolescents were 2.5 times less
likely than the insured to have had at least one physician visit in the previous
111
year (25.1% versus 11.2%). The U.S. Department of Health and Human Services
reports that poor uninsured children were 2.8 times more likely to go without a
physician visit than poor insured children. Uninsured children, generally, were
found to be 1.4 times less likely to have had a physician visit in the last year
than insured children (22.6% versus 16.2%).
. . . .
Delayed Care
Several studies found evidence that uninsured Americans were more likely
to be hospitalized for conditions that could have been managed with appropriate
outpatient care. The U.S. Department of Health and Human Services reports that
the uninsured are 3.6 times more likely to delay seeking care than the privately
insured (29% versus 8%). Weissman et al. found that the uninsured were 1.5 times
more likely to delay seeking care than the privately insured. Those who reported
a delay in seeking care had a significantly longer (on average, about 9% longer)
hospital stay than did other patients. Uninsured children are 4 times more
likely to delay seeking medical care. Additionally, individuals who lost or
changed insurance coverage were also more likely to delay seeking care.
Unmet Needs
. . . [A] 1994 survey included specific questions about dental care,
prescription drugs, eyeglasses, and mental health care or counseling. Berk and
Schur found that more than 34% of the uninsured were unable to obtain one or
more of the health services they needed during the previous year, compared with
22% of Medicaid enrollees and 13% of persons with private insurance. Similar
variation in inability to obtain medical/surgical care, dental care,
prescription drugs, and eyeglasses was found for each insurance status. For each
of the specific health services, the uninsured were almost 4 times as likely as
the privately insured to report an unmet need. The largest disparity was for
prescription drugs.
The uninsured were found to be 3.8 times less likely to obtain needed
medical/surgical care compared with the privately insured (15.1% versus 4.0%). .
. .
Use of Emergency Room as Regular Source of Care
Although the emergency room is meant to be used for treating lifethreatening illness or injury, the uninsured, compared with the insured, are
more likely to receive their care in an emergency room rather than in a
physician’s office. . . .
Self-Report of Poorer Health Status
The uninsured report poorer general health than the privately insured. The
CDC found that the uninsured are, on average, 1.5 times more likely to selfreport only poor-to-fair health status than are the insured. . . . Uninsured
112
children are also 1.5 times more likely to self-report only fair or poor health
than are privately insured children.
. . . .
Poorer Medical Outcomes
Establishing a relationship between insurance status and health outcomes
is more difficult but several studies present evidence supporting the premise
that the uninsured face specific consequences as a result of a lack of
insurance. Uninsured Americans are more likely to experience avoidable
hospitalizations, be diagnosed at later stages of life-threatening diseases, be
hospitalized on an emergency basis, be hospitalized for chronic conditions that
could be better controlled with reliable access to physician services, and
experience an increased risk of mortality.
. . . .
Stage at diagnosis is one of the most important prognostic factors for
most cancers. For many cancers, early stage disease can be effectively treated
with a good chance for a cure, whereas late stage disease is generally
incurable. The presence and type of health insurance have been consistently
predictive of access to care and the provision of screening services.
Roetzheim et al. studied data from 1994 for all Florida patients with
incident cases of four types of cancer for which screening is associated with
detection of early stage disease: colorectal, breast, prostate, and melanoma.
Persons who were uninsured were more likely to be diagnosed at a late stage than
were persons with private insurance.
. . . .
Ayanian et al. studied 4,675 women, 35 to 64 years of age, in whom
invasive breast cancer was diagnosed from 1985 through 1987. Uninsured women had
significantly more advanced disease than privately insured women when their
disease was initially diagnosed . . . . Survival during the 54 to 89 months
after diagnosis was significantly worse for uninsured patients than for
privately insured patients with local or regional disease.
. . . Overall, uninsured women had a 49% greater chance of dying after a
diagnosis of breast cancer than did privately insured women. . . .
Summary: Poorer Medical Outcomes
Substantial evidence suggests that individuals without insurance
experience poorer or adverse medical outcomes. Uninsured Americans are more
likely to be hospitalized for a medical condition that could have been better
managed with physician care and/or medications. The uninsured are more often
diagnosed at a later stage of disease and suffer a lower survival rate as a
result. Most importantly, the uninsured experience a higher mortality rate, both
generally over time and specifically while in the hospital.
. . . .
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The reduced access to care and poorer medical outcomes evidenced in these
studies do not affect only the chronically uninsured. Even those with gaps in
coverage -- as short as one month or as long as a year or more -- are less
likely to seek care, pursue preventive care, or even to have prescriptions
filled. Although people with no insurance face the greatest barriers to
receiving needed health care, those who are intermittently insured or have
inadequate coverage are also exposed to potentially burdensome medical bills in
the event of major or prolonged illness. Even the insured who change health
plans experience similar reductions in access.
Research has clearly demonstrated that having health insurance makes a
difference in health care for Americans. The uninsured -- even those who are
sick, chronically ill, or who have special health care needs -- get less health
care than those who have insurance. Many studies have shown that increasing
coverage improves access to care.
Evidence from the available medical and scientific literature also clearly
demonstrates that uninsured Americans experience poorer medical outcomes. A lack
of insurance is associated with a delay in seeking care, disease progression,
and reduction of the likelihood of a favorable outcome or survival. It is also
associated with the increased probability of avoidable hospitalizations for
manageable illnesses (some of which are risk factors for the leading causes of
death), a generally higher mortality level, and higher in-hospital mortality.
Uninsured children are particularly vulnerable to reduced levels of medical care
for normal childhood illnesses such as a sore throat, earache (which, left
untreated, can lead to hearing loss and speech and language deficits), and
asthma, in addition to reduced levels of medical care for serious injuries or
acute illnesses such as appendicitis.
Lack of insurance contributes to the endangerment of the health of each
uninsured American as well as the collective health of the nation. Because lack
of insurance is as much a risk to the public health as smoking, alcoholism, and
obesity, this national crisis merits the immediate attention of America’s
elected officials and policymakers.
*
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Some Final Thoughts on the Uninsured
One thing is clear and needs no documentation -- or further research. The
fact that tens of millions of Americans have no third party financing is one of
the most befuddling health care policy issues facing Americans in the 21st
century. As will be reviewed in considerable detail in Chapter 8, both the state
and the federal legislatures are currently considering a range of proposals for
reform of the financing of American health care, virtually all of which are
designed, at least in part, to reduce the number of uninsured Americans. In
fact, as described earlier in this chapter, many states are already attempting
to expand their Medicaid programs through SCHIP and other programs to include a
greater portion of their indigent populations. For that matter, as was outlined
in Chapter 1, restructuring health care financing to make some form of coverage
available to all Americans has been part of the American public policy agenda
since at least the 1930s.
On the other hand, providing some relief for the uninsured is only one of
several problems facing American health care. As already documented in this
chapter, both the states and the federal government are struggling to find some
fiscally acceptable way to maintain an adequate level of services under Medicaid
and Medicare and to finance other existing health-related programs. If federal
support for the Medicaid program is significantly curtailed in the next few
years, many states will have difficulty financing their existing programs for
the uninsured, let alone expanding them further. At the same time, most of the
recent trends in the private sector -- managing care, using more commercialized
marketing practices and so on -- can hardly be expected to produce any shortterm relief for those who for economic or other reasons are excluded from those
arrangements.
Further insight into these issues will be provided in the next two
chapters concerning individual and institutional providers, the manner in which
government has attempted to regulate the various categories of providers, and
the complicated network of reimbursement through which those providers are paid
for their services. Any effort to reform American health care financing, to
extend coverage to the uninsured or for any other reason, will be necessarily
designed to mesh with the existing arrangements through which American health
care is delivered. And, as already should be clear from these materials, any
effort to expand or even maintain the accessibility of health care will be
necessarily intertwined with the equally important problems of containing the
costs and maintaining the quality of American health care issues which also will
be discussed in detail in the next several chapters.
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