Identify the top 5 points that every U.S. citizen should know about:A-Medicaid,B- Medicare andC- the Affordable Care Act.

2010 Medicare a PriMer April 2010 MedicAre A PriMer INTRODUCTION Established in 1965, Medicare is a social insurance program that provides health and financial secur ity for individuals ages 65 and older and for younger peop le with permanent disabilities. Prior to 1965, roughly half of all seniors lacked medical insurance; today, virtually all seniors have health insurance under Medicare. Medicare provides health insurance coverage to 47 million people in 2010: 39 million people ages 65 and older and 8 million people with permanent disabilities who are under age 65. The program helps to pay for many important health care services, including hospitalizations, physician services, and prescription drugs. Individuals contribute payroll taxes to Medicare throughout their working lives and generally become eligible for Medicare when they reach age 65, regardless of income or health status.

The health care reform law enac ted in March 2010 (P.L. 111-148) 1 expands prescription drug and prevention benefits covered under Medicare and introduces new programs designed to improve the quality an d delivery of care to people covered by Medicare. In ad dition, the law reduces the growth in Medicare payments to health care providers and Medicare Advantage plans, and i ncludes other provisions designed to slow the growth in Medicare spending and strengthen the solvency of the Medicare Hospita l Insurance Trust Fund, including the creation of a new Independent Paymen t Advisory Board.

Comprising an estimated 12 percent of the federal budget and more than one-fift h of total national health expenditures in 2010, Medicare is often a significant part of discussions about how to moderate the growth of both federal spending and health care spending in the U.S. 2 With the dual challenges of providing increas ingly expensive medi cal ca re to an agin g population and keep ing the program financially secure for the future, discussions about Medicare are likely to rema in prominen t on the nation’s agenda in the years ahead. 1 Pati ent Protecti on and A ffordable Care Act (PP ACA; P.L. 111- 148), as ame nded by the Hea lth Care and Education Reconciliati on Act of 2010 (HCERA; P.L. 111- 152).

2 The Medic are share of the fed eral budget is from Office of Manag ement and Budget (OMB), Budget of the U.S. Government, Fi scal Year 2011, February 2010. The Medicare share of nati onal health expe nditu res is from Centers for Medica re & Medicaid Services (CMS), Off ice of the Actuary (OACT), Nati onal Health Expenditu re Projecti ons 2009- 2019, Febr uary 2010. MEDICARE: A PRIMER What is Medicare? .............................................................................................................................. 1 Medicare is a federal entitlement program that provides health insurance coverage to 47 million people, including people age 65 and older, and younger people with permanent disabilities, end-stage renal disease, and Lou Gehrig’s disease.

Who is eligible for Medicare? .............................................................................................................. 2 Individuals become eligible for Medicare when they reach age 65, if they or their spouse made payroll tax contributions for 10 or more years. People under age 65 qualify for Medicare after 24 months of receiving Social Security Disability payments, or if they have end-stage rena l disease or Lou Gehrig’ s di sease.

What are the characteristics of people with Medicare? ..................................................................... 3 Medicare covers a diverse population. Most people with Medicare live on modest incomes and many have mult iple chronic condi tions.

What does Medicare cover and how much do beneficiaries pay for benefits? ...................................5 Medicare covers basic health services, including hospit al stays, physic ian visits, and presc ription drugs. Many benefits are subject to deductibles and cost-sharing requirement s. Medicare does not cover most long-term care services, vision or dental care, or hearing aids.

What is the Medicare presc ription drug benefit? ............................................................................... 7 Medicare helps cover the cost of prescription drugs offered through private drug plans. More than ha lf of all beneficiaries are enrolled in a Part D drug plan, with 90 percent having some sourc e of drug coverage.

What is Medicare Advantage? ............................................................................................................ 9 Medicare Adva ntage plans are private h ealth plans t hat recei ve payments from Medicare to provide Medicar e-covered benefits to enrollees. Nearly one-fourth of all beneficiaries are enrolled in a Medicare Advantage plan. Wh at ty pes of supplemental insu rance do beneficiaries have? ....................................................... 11 Most beneficiaries have some type of supplementa l insuranc e to help pay Medicare’s cost-sharing requirements and fill gaps in Medicare’s benefit package. Primary sources of supplemental coverage include employer-sponsored plans, Medicaid (for thos e with limited incomes and assets), Medigap policies, and Medicare Advantage plans.

How do Medicare beneficiaries fare with respec t to access to care? ............................................... 13 The enactment of Medicare dramatically improved a ccess to care for millions of elderly Americans. Beneficiaries generally enjoy broad access to phys icians, hospitals, and other providers, and report relatively low rates of problems across a number of access measures. How is Medicare financed? ............................................................................................................... 14 Funding for Medicare comes primarily from general revenues (40 percent) and payroll taxes (38 percent), followed by premiums paid by beneficiaries (12 percent). How much does Medicare cost and how is the money spent? ......................................................... 15 Medicare is estimated to account for 12 percent of federal spending in 2010. Inpatient hospital services comprise the largest share of Medicare benefit payments (27 percent), followed by payments to Medicare Advantage plans (24 percent) and physi cians and other suppliers (18 percent). The drug ben efit accou nts for 11 percent of total paymen ts. How is the health care reform law expected to affec t future Medicare spen ding? ......................... 17 The 2010 health care reform law includ es a number of provisions that are expected to reduce the growth in M edicare spending over the next decade and beyond, thereby maintaining the solvency of the Medicare Part A (Hospital Insurance) Tr ust Fund through 2029.

What are Medicare’s future financing challenges?

........................................................................... 19 With rising health ca re costs, an aging population, and a declining ratio of workers to retirees, financing care for future beneficiaries remains a challenge. Medicare Benefits and Cost-Sharing Requirements, 2010 ............................................................... 21 Implement ation Timeline for Key Medicare Provisions of the 2010 Health Care Reform Law, 2010-2015 .............................................................................................................................. ..... 22 Age and Income of Medicare Beneficiaries, by State, 2008 ............................................................. 23 Medicare Beneficiaries by Type of Coverage, by S tate ..................................................................... 24 1 MEDICARE: A PRIMER WHAT IS MEDICARE? Medicare is the nation’s health insu rance program for Americans age 65 and older, and for younger adults with permanent disab ilities.

Established in 1965 under Title XVIII of the Social Securi ty Act, Medicare was initially established to provide health insurance to individuals age 65 and older, regardless of income or medical history. The program was expanded in 1972 to include individuals under age 65 with permanent disabilities receiving So cial Security Disability Insurance payments and people suffering from end-stage renal disease (ESRD). In 2001, Medicare eligibility expanded further to cover people wi th amyotrophic lateral sclerosis (ALS, or Lou Gehrig’s disease). As of 2010, 47 million people rely on Medicare for their health insurance coverage: 39 million people age 65 and over and 8 million people under age 65 with disabilities.

Medicare consists of four parts, each covering different benefits. PART A, also known as the Hospital Insurance (HI) program, covers inpatien t hospital services, skilled nursing facility, home health, and hospice care. Part A is funded by a tax of 2.9 percent of earnings paid by employers and workers (1.45 percent ea ch). The health care reform law 3 increases the Medicare HI payroll tax for higher-income taxpayers (more than $200,000/individual and $250,000/couple) by 0.9 percentage points, beginning in 2013. In 2009, Part A accoun ted for approximately 36 percent of total Medicare benef it spending. 4 An esti mated 4 5.6 million people were enro lled in Part A in 2009. PART B, theSupplementary Medical Insurance (SMI) program, helps pay for ph ysician, outpatient, home health, and preventive services. Pa rt B is funded by general revenues and beneficiary premiums ($110.50 per mont h in 2010; $96.40 per month for beneficiaries held harmless from the premium increase – see page 5 for additional information ). Beneficiaries who have higher annual incomes (over $85,000/individual, $170,000/couple) pay a higher, income-related mo n thly Part B premium; beginning in 2011, the health care reform law freezes the income thresholds at 2010 levels through 2019. In 2009, Part B acc oun ted for 27 percent o f total benefit spending. 5 An estima ted 4 2.4 million p eople were enrolle d in Part B in 2009.

PART C, also known as th e Medicare Advantage program, allows beneficiaries to enroll in a pr ivate plan, such as a health maintenance organization, preferred provider organization, or private fee-for-service plan, as an alternative to the traditional fee-for-service program. These plans receive payments from Medicare to provide Medicare-covered benefits, including hospital and physician services, and in most cases, prescription drug benefits. Part C is not separa tely financed, and accounted for 24 percent of benefit spending in 2009. As of April 2010, 11.5 million beneficiaries are enrolled in Medicare Advantage plans. 6 PART D , the outpati ent prescription drug benefit, was established by the Medicare Modernization Act of 2003 (MMA) and launched in 2006. The benefit is delivered through private plans that contra ct with Medicare: either stand-alone prescription drug plans (PDPs) or Medicare Advantage prescription drug (MA- PD) plans. Individuals who sign up for a Part D plan generally pay a monthly p remium; those with modest income and assets are eligible for assistance with premiums and co st-sharing amounts. The health ca re reform law establishes a ne w income-related Part D premium simila r to the Part B premium, beginning in 2011, and gradually phases in coverage in the Part D coverage gap. Part D is funded by general revenues, beneficiary premiums, and state paymen ts, and accou nted for 10 percent of benefit spending in 2009. As of Ap ril 2010, 27.6 million benefic iaries are enrolled in a Part D plan. 7 3 PPACA (P .L. 111- 148), as amended by HCERA (P.L. 111-152). 4 Con gressional Bu dget Office (CBO), Medicare Baseline, March 2009. 5 CBO, Medicare Baseline, March 2009. 6 Centers for Medicare & Medicaid Services (CMS), Me dicare Advantage, Cost, PACE, Demo, and Prescription Drug Plan Orga nizations Monthly S ummary Rep ort, April 2 010.

7 CM S, Monthly Summary Report, Apr il 2010. 2 THE HENRY J. KAISER FAMILY FOUNDATION WHO IS ELIGIBLE FOR MEDICARE? Most people age 65 and older are automatically entitled to Part A if they or their spouse are eligible for Social Security payments and have made payroll tax contri butions for 10 or more years (40 quarters).

Individuals age 65 and over qualify for Medicare if they are U.S. citizens or permanent legal residents. Individuals qualify without regard to their medic al hist ory or preexisting conditions, and do not need to meet an income or asset test. Adults under age 65 with permanent disabilities are eligible for Medicare after receiving Social Secu rity Disability Income (SSDI) payments for 24 months, even if they have not made payroll tax contributions for 40 quarters. People with end-stage renal disease (ESRD) or Lou Gehrig’s disease are el igible for Medicare benefits as soon as the y begin receiving SSDI payments, without having to wait 24 months. Individuals who are en titled to Part A do not pay premiums for covered services. Individuals age 65 and over who are not entitled to Part A, such as those who did not pay enough Medicare taxes during their working years, can pay a monthly premium to receive Part A benefits. Individuals en titled to Part A and others age 65 and older may elect to enroll in P art B.

Part B is voluntary, but about 95 percent of beneficiar ies with Part A are also enrolled in Part B. For most individuals who becom e entitled to Part A, enrollmen t in Part B is automatic unless the individual declines enrollment. Individuals age 65 and older who are no t entitled to Part A may enro ll in Part B. With the exception of the working aged (or their spouses) who may delay enr ollment if they receiv e employment- based coverage, those who do not sign up for Part B when they ar e first eligible typically pay a penalty for late en rollment, in addition to the regular monthly premium, for the duration of their enrollment in Part B. Individuals are eligible for Part C, or Medicare Advan tage, if they are entitled to Part A and enrolled in Part B. Beneficiaries may generall y elect to enroll in a Medi care Advantage (MA) plan on an annual basis between November 15 and December 31 of each year during the annual election period. Beneficiaries enrolled in a Medicare Adva ntage plan as of January 1 can swi tch Medicare Adva ntage plans or return to tr aditional Medicare for 90 days af ter the beginning of the calendar year. Beginning in 2011, the annual election period will run from October 15 to December 7 (a change included in the health care reform law 8). Also beginning in 2011, beneficiaries enro lled in a Medicare Advantage plan as of January 1 will be allowed only 45 days to disenroll from the plan and return to traditional Medicare; they will not be allowed to switch from one Medicare Advantage pl an to another during this period. Individuals are eligible for prescription drug cove rage under a P art D plan if they are entitled to benef its under Part A and/or enrolled in Part B. To get Part D benefits, beneficiaries mu st enroll in a stand-alone prescription drug plan (PDP) or Medicare Advantage prescription drug (MA-PD) plan. The annual election period for Part D and Medicare Advantage benefits runs from November 15 to December 31 of each yea r, until 2011, when the election period will be changed to October 15 to December 7. Individuals who delay enrollment in Part D and are without “creditable” drug coverage (at least comparable to the Part D standard benefit) pay a permanent premium penalty for late enrollmen t. 8 PPACA (P .L. 111- 148), as amended by HCERA (P.L. 111-152). 3 MEDICARE: A PRIMER WHAT ARE THE CHARACTERISTICS OFPEOPLE WITH MEDICARE? Medicare covers a population with diverse needs and circumstances. While many beneficiaries enjoy good health , nearly half live with three or more chronic conditions and more than a quarter have cognitive impairments. Nearly half of all b eneficiaries have incomes below twice the poverty level.

More than four in ten Medicare benefic iaries (44 percent) l ive with three or more chro nic conditions. Among the most comm on conditions are hypertension and arthritis. More than a quarter (29 percent) of all beneficiaries have a cognitive or mental impairment that limits their ability to f unction ind ependently.

Approximately one in seven (15 percent) beneficiaries has multiple f unctional limitatio ns, as defined as two or more limitatio ns in activities of daily living (ADLs), such as eating or bathing. Alt hough the majority of the Medicare population is age 65 o r over, 16 percent are under age 65 and permanently disabled .

Nonelderly beneficiaries with disabilities tend to have lower incomes than other beneficiaries. About 40 percent are dually eligible for both Medicare and Medicai d. Beca use of their disabilities, they tend to ha ve relatively high rates of health problems, including funct ional limitations and cognitive impairments.

Most beneficiaries live at home, but five percent live in a l ong-term care setting. Five percent of Medicare beneficiaries (2.2 million) live in a long-term care setting, such as a nursing home or assi sted living facility, but a larger share of beneficiaries wh o are age 85 or older do so (19 percent). 9 Two-thirds of beneficiaries living in long-term care sett ings are women, and nearly 60 percent are dually eligible for Medicare and Medicaid.

Poverty rates are especially high among those in racial/ethnic minority groups, women, people under age 65 with disabilities, and t hose ages 85 and older. Almost ha lf of all Medica re beneficiaries (47 percen t) have an income below 200 percent of poverty ($21,660/individual and $29,140/couple in 2010), and 16 percent have an income below 100 percent of the poverty level. Race/ethnicity: Two-thirds of all African American beneficiaries and seven in ten Hispanic beneficiaries live on inco mes below twice the poverty level, compared to 41 per cent o f Whi te b enefic iaries. 7 Kais er Family Foundation analysis of the Centers for Medi care & Medi caid Servic es (CMS) Medi care Current Beneficiary Survey Cost and Use fil e, 2006. Percent of total Medicare population: NOTE: ADL is activity of da ily living. SOURCE: Income data for 2 008 from U.S. Census Bureau, Current Popu lation Survey, 2009 An nual Social and Economic Supplement. All other d ata from Ka iser Family Fo undation analysis of the Centers for Medicare & Medicaid Services Medicare Current Beneficiary Survey 2006 Cost and Use file and 2007 Access to Care file. In come <200% FPL ( $21,6 60 in 2010) Cogn itive/M ental Impa irment Long-term Care Facili ty Resident 3+ Chronic Condit ions Un der- 65 Disab led Medicare Co vers a Population with Diverse Needs and Significant Vulne rabilities Fair/Poor Health Age 85+ 2+ AD L Limitations 5% 12%15%16% 29% 29% 44% 47% 4 THE HENRY J. KAISER FAMILY FOUNDATION Approximately one-third of African-American and Hispanic beneficiaries have incomes below the poverty level, more than three times the share of White be neficiaries (11 percent). Age: Two-thirds of all Medicare beneficiaries with disabilities under age 65 live on in comes below twice the poverty level, and more than one-third liv e in povert y. Among people on Medicare age 65 and older, poverty rates increase with age. Nearly si x in ten beneficiaries age 85 and older have annual incomes below twice the poverty leve l. Sex: Poverty rates are subs tantially higher among women on Medicare than men. More than half of all female Medicare ben eficiaries live on an annual income below twice the poverty level, substantially higher than the rate for men. Share of Medicare Be neficiaries Be low 200% of Pover ty, 2008 NOTE: In 2008, th e federal poverty level was $10 ,400 for an individual and $14,000 for a couple.

SOUR CE: Kaiser Fam ily Foundation and Urban Ins titute analysis of the U.S. Census Bureau, Current Popul ation Su rvey , 2009 An nual Social and Economic Su pplement. SexAge in Years Race/Ethnicity Total = 43.0 Million Covered by Medicare, 2008 16% 13%19%35% 11%13% 16% 11%34% 35% 27% 17% 13%19%21% 12%18% 24% 15%21% 23% 19% 14% 13%15%11% 12%16% 18% 15%12% 12% 11% 150%-1 99% of Pove rty10 0%-1 49% of Pove rty<100% of Poverty Male Female <65 65-74 75-84 85+ White, No n-Hispanic Black,Non-Hispanic Hispanic Asian Total 47% 40%52%67% 36%48% 58% 41%67% 70% 57% 5 MEDICARE: A PRIMER WHAT DOES MEDICARE COVER AND HOW MUCH DO BENEFICIARIES PAY FOR BENEFITS?

Medicare provides coverage of basic medical services including care in hospitals and other settings, physician services, diagnostic tests, preventive services, and an outpatien t presc ripti on d ru g benefit. Beneficiaries generally pay varying deductibles and coinsurance amounts that are indexed to rise annually to keep pace with increases in program costs. (See page 21 for more detail about Medicare benefits and cost-sharing requirements for 2010.) PART A helps pay for inpa tient care provided to beneficiaries in ho spitals and short-term stay s in skilled nursing facilities, and also covers hospice care, post-acute home health care, and pints of blood received at a hospital or skilled nursing facility.  Most beneficiaries do not pay a mon thly premium for Part A services, but are subject to a deductible before Medica re coverage begins. In 2010, the Pa rt A deductible for each “spell of illness” is $1,100 for an inpatien t hospit al stay.

 Beneficiaries are genera lly subject to a coinsurance for benefits covered under Part A, including extended inpatient stays in a hospital ($275 per day for days 61-90 in 2010) or skilled nursing facility ($137.50 per day for days 21-100 in 2010). There is no copayment for home health visits.

PART B helps pay for outpatient services, such as outpatient hospi tal care, physician vi sits, and other medical services, including preventive services such as mammography and colo rectal screening. Part B also covers ambula nce services, clinical la boratory services, durable medical equipment (such as wheelchairs and oxygen), kidney supplies and services, outpatient me ntal health c are, and diagno stic te sts, su ch as x-rays and magnetic resonance imaging. The health care reform law 10 a dded a free annual comprehensive wellness visit and personalized prevention plan to the list of Medicare-covered benefits, beginning in 2011. The law also gives the Secretary of HHS the authority to modify coverage of Medicare-covered preventive services to conform to the recommendations of the U.S. Preven tive Services Task Force (USPSTF).

 Benefic iaries enr olled in Part B are generally required to pay a monthly premium ($110.50 in 2010).

However, in 2010 a majority of beneficiaries (73 percent) are not required to pay the higher Part B monthly premium because there was no cost-of-livin g increase in Social Security benefits; the 2010 Part B monthly premium for these ben eficiaries is $96.40, the same as in 2009. 11 New enr ollees, higher- income beneficiaries, and low-income beneficiaries (who are not required to pay the monthly Part B premium themselves) are not held harmless from the Part B premium increase. (See page 12 for additional information on additional assistance for low-income beneficiaries through the Medicare Savings Programs [MSPs]).  Beneficiaries with annual incomes greater than $85,000 for an individual or $170,000 for a couple in 2010 pay a higher, income-related monthly Part B premium, ranging from $154.70 to $353.60. The health care reform law freezes these thresholds at 2 010 levels through 2019, beginning in 2011. Previously th e income thresholds were indexed annually to rise w ith the rate o f inflatio n, which limited the number of beneficiaries who would otherwise have been subjec t to the higher premium over time. Approximately 5 percent of all Medica re beneficiaries pay the income-rela ted Pa rt B premium in 2010. 10 PPACA (P .L. 111- 148), as amended by HCERA (P.L. 111-152). 11 Henry J. Kaiser Family Foundation, “The Social Se curity CO LA an d Medicare Part B Premium: Questions, Answers, an d Issues”, October 2009, h ttp://www.kff.org/me dica re/7912.cf m . 6 THE HENRY J. KAISER FAMILY FOUNDATION 11.9%11.8% 12.0%12.8%14.0% 14.9% 15.5% 15.6% 15 .6%16.2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 1997 1998 1999 20002001 200220032004 2005 2006 Median Out-of-Pocket Health Spending as % of Inc ome Financial Burden of Health Spending Among Medicare Beneficiaries, 1997-2006 NOTE: Difference betw een 1997 and 2006 is statistically signif icant at .05 level.

SOURCE: Kaiser Fam ily Foundation analysis of Medicare Current Benefici ary Survey Cost and Use files, 1997-2006. Part B benefits are subject to an annual deductible ($155 in 2010), and most Part B services are subject to a coinsurance of 20 percent. Beginning in 2011, no coinsurance and deductib les will be charged for preventive services th at are rated A or B by the USPSTF. PART C (Medicare Advantage) private health plans pay for all benefits covered under Medicare Par t A, Part B, and Part D. Medicare Advantage enrollees generally pay the monthly Part B premium and often pay an addit ional premium di rectly to their plan. (See pages 9-10 for additional information abou t Medicare Advantage.) PART D helps pay for outpatient prescription drug coverage through private he alth plans. Plans are required to provide a “s tandard” benefit or one th at is actuar ially equivalent, and may offer more generous benefits. In general, individuals who sign up for a Part D plan pay a monthly premium, alon g with cost- sharing amounts for each prescription. The health care reform law gradually phases in coverage in the Part D coverage gap, and establishes a new income-r elated Part D premium with in come thresholds similar to the Part B premium ($85,000/individual, $170,000/couple), beginning in 2011. As with the Part B income- related premiums, these income thresh olds will not be indexed but instead fixed at these levels through 2019. (See pages 7-8 for additional information about Part D.) Despite the importa nt pro tections provided by Medicare, there are significan t gaps in Medicare’s benefit package. Medicare does not p ay for many relatively expensive services and supplies that are often needed by the elderly and younger benefi ciaries with disabilities. Mo st notably, Medicare does not pay fo r custodial long- term care services either at home or in an insti tution, such as a nursing home or assisted living facility. Medicare also does no t pay for routine dental care and dentures, ro utine vision care or eyeglasses, or hearing exams and hearing aids. Medicare has fairly high deductibles and cost-sharing requirements for covered benefits. Unlike typic al large employer plans, Medicare does not have a stop-loss ben efit that limits annual out-o f-pocket spending. While many beneficiaries have supplemental insuranc e to help cover their Medicare-related expenses, they often pay premiums for supplemental coverage (including Medigap, Medicare Advantage plans, and employer- sponsored retiree health benefits). As a result, many beneficiaries fa ce significant ou t-of-pocket costs for bo th premiums and non-premium expenses to meet their medical and long-term care needs. (See pages 11-12 for additional in formation about supplemental insurance.) With h ealth costs rising faster than income for Medicare beneficiaries, median out-of-pocket health spending as a s hare of income increased from 11.9 percent in 1997 to 16.2 percent in 2006. 12 12 Kais er Fami ly Foundat ion analy sis of the CMS Medicare Current Beneficiary Su rvey Cost and Use file, 1997- 2006. 7 MEDICARE: A PRIMER WHAT IS THE MEDICARE PRESCRIPTION DRUG BENEFIT? Medicare beneficiaries have access to an outpatient pres cri pti on drug benefit (Part D) offered through private health plans: either stand-alone presc ription drug plans (PDPs) or Medicare Advantage prescription drug (MA-PD) plans, such as HMOs or PPOs. In 2010, 1,576 stand-alone prescription drug plans (PDPs) ar e available nati onwide, up from 1,429 in 2006 (excluding the territories). Beneficiaries in most states could choose from at le ast 45 stand-alone PDPs and multiple MA- PD plans. Medicare P art D drug plans are required to offer either the standard benefit that is defined in law, or an alternative equal in value (“actuarially equivalent”); plans can also offer enhanced benefits.

Most Part D plans have a coverage gap (the so-called “doughnut hole”).

The standard benefit in 2010 has a $310 deductible and 25 percent coinsurance up to an initial coverage limit of $2,830 in total drug costs, followed by a coverage gap, in which enrollees wit h at least $2,830 i n total costs pay 100 percent of their drug costs until they have spent $4,550 out of pocket (excluding premiums). At that point, the individual pays 5 percent of the drug cost or a copayment ($2.50/generic or $6.30/brand for each prescription) for the rest of the year. The standard benefit amou nts are set to increase annually by the rate of per capita Part D spendi ng growth.

The health care reform law 13 provides a $250 rebate to Part D enro llees with any spending in the coverage gap in 2010, and gradually phases in coverage in the gap between 2011 and 2020.

In 2010, only 11 percent of PDPs offer the standard benefit, mo st charge copayments instead of 25 percent coinsurance, and 60 percent charge a deductible, with 36 percent charging the full $310 deductible amount. 14 The majority (80 percent) of PDPs offer no gap coverage, while for the 20 percent of PDPs offering gap coverage; this coverage is limited primarily to generic drugs only. Plans vary widely in terms of formularies (the list of covered drugs), the placement of drugs on formulary tiers, cost-sharing requirements, and utilization manageme nt tools (such as prior authorization requirements).

Monthly Part D premiums and cost-sharing amounts are not uniform nationwide, but vary across plans and regions, and have increased significantly on average since 2006. In 2010, the national average monthly Part D premium for all plans (including PDPs and MA-PD plans) is $31.94 ( unweigh ted by enrollment). Actual PDP premiums vary across plans and regions, ranging from a low of $8.80 in Oregon and Washington to a high of $120.20 in Delaware, Maryland, and Washington, D. C. 13 PPACA (P .L. 111- 148), as amended by HCERA (P.L. 111-152). 14 Hoadley J, Cubanski J, Hargrave E, Summer L, and Neuman T, “Medicare Part D Spotlight: Part D Pl an Ava ila bility in 2010 and Key Changes Sin ce 2006,” Kaiser Fam ily Fo undati on, November 2009, http://www.kff.org/medicare/7986.cf m . Standard Medicare Prescription Drug Benefit, 2010 $310 Deduc tible $2, 830 in Total Drug Costs ($940 out of pocket) $3,6 10 Cov erage Gap (“Doughnut Ho le”) SOURCE: Kaiser Fam ily Foundation illustration of stan dard Medicare drug benefit for 2010 (standard benefit p arameter update from Centers for Medicare & Medic aid Services, Ap ril 2009). Plan pays 75% P lan pays 15%; Medicare pays 80% Enrollee p ays 100% minus $ 250 rebate Enrollee pays 5% Enrollee p ays 25% $6,440 in Total Drug Costs ($4,550 o ut of pocket) 8 THE HENRY J. KAISER FAMILY FOUNDATION Individuals with modest incomes and assets are eligible for additional assistance with Part D premiums and cost-sharing requiremen ts. Beneficiaries with income below 150 percent of poverty ($16,245 for an individual; $21,855 for a couple in 2010) and limited assets ($12,510/individual; $25,010/couple in 2010) are eligible for the low-income subsidy (LIS), or “extra help”, which helps pay for all or some of the Part D monthly premium, the annual Part D deduct ible, and prescrip tion drug co-payments. The Centers for Medicare & Medica id Services (CMS) estima tes that of the 1 2.5 million beneficiaries po tentially eligible for low-income subsidies as of February 2009, 2.3 million beneficiaries (18 percent) were not yet receiving them. 15 Approxi mately 90 percent of all Medicare b eneficiaries have “credita ble” presc ription dru g coverage, while approximately 4.7 million beneficiaries (10 percent) lack a known source of c re ditable d rug coverage.

More than 27 million Medicare beneficiaries are enrolled in a Part D plan, as of Ap ril 2010. Of this tota l, nearly two-thirds (64 percent) are enrolled in stand-alone prescription drug plans. This includes nearly 8 million low-income subsidy recipients, many of whom were au tomatically enrolled in stand-alone drug plans. Nearly 20 percent of all Medicare beneficiaries (8.3 million) receive prescription drug coverage from an employer or union plan. This includes 6.4 million beneficiaries whose employers receive subsidies equal to 28 percent of drug expenses between $310 and $6,300 per retiree in 2010 through the Medicare Retiree Drug Subsidy (RDS) program. 16 The health reform law reduces the amount that Medicare P art D enrollees are required t o pay for their prescrip tions when they reach the covera ge gap, gradually phasing in different levels of subsidies for bra nd-name and generic drugs in the gap beginning in 2011.

In 2010, Part D enrollees with any out-of-pocket spending in the coverage gap will receive a $250 rebate. Beginning in 2011, Part D enrollees will receive a 50 percent disc ount on the total cost of brand-name drugs in the cove rage gap, as agreed to by pharmaceu tical manufacturers . Over time, Medicare will gradually phase in additional subsidies in the coverage gap for brand-name drugs (beginning in 2013) and generic drugs (beginning in 2011), reducing the beneficiary coinsurance rate from 100 percent in 2010 to 25 percent by 2020. In addition, between 2014 and 2019, the law reduces the out-of-pock et amount t hat qualifies an enrollee for catastro phic coverage, fur ther reducing out-of-pocket costs for those with relatively high prescription drug expenses. In 2020, the catastro phic coverage level will revert to that which it would have been ab sent these reductions. 17 15 U.S. Depart ment of Health and Human Services (DHHS), February 1, 2009. 16 Begi nning in 2013, the h ealth care reform law e liminates the t ax deductibility of the 28 percent federal subsidy payment that employers who ac cept the retiree dr ug subs idy have b een able to clai m.

17 For more on the cha nges to the coverage gap, see Kaiser Family Foundation, “Explaining Health Care Reform: Key Changes to the Medicare Part D Drug Benefit Coverage Gap,” http://www.kff.org/healthreform/8059.cf m . NOTE: Percentages do not sum to 10 0% due t o rounding. 1Includ es Veterans A ffairs, retir ee coverage without RDS, Indi an Health Service, state ph armacy assistance prog rams, employ er plans fo r active work ers, Medigap, multiple sources, and other sources. 2Includes Retiree Drug Subsidy (R DS) and FEHBP and TRICARE retiree coverage. SOURCE: Centers for Medic are & Medicaid Se rvices, 2010 Enro llment Information (as of Febru ary 16, 2010). Total Number of Medicar e Be neficiaries = 46.5 Million Total in Part D Plan s:

27.7 M illion (60%) Stand-Alone Prescription Drug P lan (PDP) Medicare Advantage Dru g Plan Reti ree Drug Coverage 2 No Dru g Coverage Ot her Drug Coverage 1 4. 7 m illion 10% 9.9 m illion 21% 8.

3 m illion 18% 5.

9 m illion 13% Prescrip tion Drug Coverage Am ong Medicare Beneficiaries, 2010 17.7 m illion 38% 9 MEDICARE: A PRIMER WHAT IS MEDICARE ADVANTAGE? Medicare Advantage (MA), also known as Medicare Pa rt C, is a program that allows beneficiaries to enroll in private health plans to receive Medicare-covered benef its. Private plans such as health maintenance organizations (HMOs) have been an option under Medicare since the 1970s. Medicare now contrac ts with other types of private plans, including preferred provider organiza tions (PPOs), provider-sponsored organizations (PSOs), private fee-for-service (PFFS) plans, high deduct ible plans linked to medical savings accounts (MSAs), and special needs plans (SNPs) for individuals dually eligible for Medicare and Medicaid, the institut ionalized, or those with certain chronic conditions. In 2010, Medicare beneficiaries were able to choose from 33 Medicare Advantage plans offered in their area, on average. As of April 2010, 75 percen t of Medicare Advantage enrollees are in local HMOs or PPOs, 14 percent in PFFS plans, 7 percent in Regional PPOs, and the remainder in other plan types. 18 Since 2004, the number of Medicare Advantage plans and enrollees has steadily increased .

Private plans are playing a larger role in Medicare through a revitaliz ation of the Medicare Adva ntage program, largely due to increased payments. After a decline in the number of plans and enrollees between 1999 and 2003, the program has seen a rapid increase in more recent years. The number of Medicare enrollees in private plans has more than doubled from 5.3 million in 2003 to 11.4 million in early 2010. Medicare Advan tage plans provide all b enefits co vered under tra ditional Medicare , and many plans offer additional benefits. The majority of plans also provide P art D prescription drug cove rage .

Medicare Adva ntage plans receive payments fr om the federal government to provide all Medicare-covered benefits to enrollees. Plan sponsors are generally required to offer at least one plan with basic drug coverage. Nearly 8 in 10 of Medicare Advantag e plans (79 percent) offer drug coverage in 2010, and abou t half of these plans offer some coverage in the coverage gap, mainly for generic drugs only. Plans are required to use any extra payments (rebates ) to provide additional benefits to enrollees in the form of lower premiums, lower cost sharing, or extra benefits and services. Examples of extra benefits include vision, hearing, preventive dental care, podiatry , chiroprac tic services, and gym memberships. Medicare Advantage plan premiums and cost-sha ring requirements vary widely, and have increased in recent years.

Medicare Adva ntage enrollees generally pay the monthly Part B premium and often pay an additional premium directly to their plan. In 2010, the unweigh ted average premium for MA-PD plan s is $56 per month, but varies by plan type and is lower for HMOs ($40 ) than for private fee-for-service plans ($74). 19 The weighted average monthly premium for MA-PD plans in 2010 is $48, a 32 percent increase 18 Kais er Fami ly Foundat ion analy sis of enrollment data from CM S, Monthly Summary Report, April 2010. 6 .8 6.2 5.6 5.3 5.3 5 .36 .1 8.3 9 .6 10 .8 11.

4 2000 2001 2002 20032004 2005 20062007 2008 20092010 NOTE: Includes local HMOs, PSOs, PPOs; regional PPOs; PFFS plans; 1876 cost plans; demos; HC PP; and PACE plans.

SOURCE: Mathematica Po licy Research, “Tracking Medicare He alth and Prescrip tion Drug P lans Monthly Re port,” February 2000- 2010.

% of Medicare beneficiaries 17% 15% 14%13%13% 12%14%19%22%24% 24% Total Medicare Private Health Plan Enrollment, 2000-2010 Enrollment in millions: 10 THE HENRY J. KAISER FAMILY FOUNDATION from 2009. 20 Most Medi care Advantage plans limit beneficiaries’ total out-of-pocket expenses , but cost- sharing requirements vary widely across plans in 2010. Moreover, average cost sharing for some Medicare- covered services increased significantly between 2008 and 2010 among Medicare Advantage plans. 21 Enrollment in Medicare Advantage plans varies widely across states. In 2010, less than 5 percen t of beneficiaries in 3 states (Alaska, Delaware, and Vermont) are enrolled in Medicare Adva ntage plans while more than 30 percent of beneficiaries in 10 states (Arizona , California, Colorado, Hawaii, Minnesota, Ohio, Oregon, Pennsylvania, Rhode Is land, and Utah) are in such plans. Nationwide, nearly half of all Medicare Advantage enrollees live in 6 states (California, Florida, New York, Ohio, Pennsylvania, and Texas). 22 Medicare pays private plans more per enrollee, on average, than it pays for beneficiaries in the traditional Medicare fee-for-service program.

Since 2006, Medicare has paid private plans under a bidding process: plans subm it bids that estimate their costs per enrollee for services covered under Medicare Parts A and B. If plans bid higher than the county- level benchmark, enrollees pay the difference in the form of monthly premiums. If plans bid lower than the benchmark, plans receives 75 percent of the difference; Medicare keeps the other 25 percent.

According to the Medicare Payment Advisory Commission (MedPAC), Medicare payments to private plans in 2010 are higher, on average, than Medicare fee-for-service costs. Medicare paym ents to plans in 2010 would have averaged 113 percent of M edicare fee-for-services costs if Congress had not acted to prevent the scheduled 21 percent reduction in physician fees under Medicare, as of January 2010. If Congress enacts legislation to prevent the physician fee redu ction for all of 2010, MedPAC estimates payments to plans would average 109 percent of Medicare fee-for-service costs in 2010. 23 The 2010 health care reform law 24 reduces Medicare payments to private plans and rewards high- quality plans.

Over time, Medicare payments to Medicare Advantage plans will be reduced to levels closer to county-level Medicare fee-for-service (F FS) costs. Plans in counties with relatively high Med icare FFS costs will be paid 95 percent of FFS costs per enrollee, wh ile plans in counties with relatively low Medicare FFS co sts will be paid 115 percent of FFS costs per enrollee. Medicare payments will also be reduced to adjust for the health status of plan enrollees, and high-quality plans will receive bonus payments, with high-quality p lans in certain counties receiving double bonuses. 19 Gol d M, Phelps D, Neuman T, Jacobson G, Medi care A dvantage 2010 Data Spotlight: Plan Ava ilability and Premiums, Kaiser Family Fo undati on, No vember 2009, http://www.kff.org/medicare/8007.cfm . 20 Weight ed by 2009 en rollment; Gol d M, et al, Medic are Advant age 2010 Data Spotlight: Plan Availability and Premiums, November 2009.21 Gold M, Hudson M, Jaco bson G, Neuman T, Medicare Advant age 2010 Data Spotli ght: Ben efits and Cost S haring, Kaiser Family Fo undati on, Febr uary 2010, h ttp:/ /www.kf f.org/medic are/8047.cfm . 22 Kais er Fami ly Foundat ion analy sis of CMS Medicare Advant age State/County Penetration file, February 2010.23 Medicare Payment Advisory Commissi on (MedPAC), “R eport to the Co ngress: Medi care Payment Policy,” March 2010.24 PPACA (P .L. 111- 148), as amended by HCERA (P.L. 111-152). Medicare Advantage Enrollees as a Percent of Medicare Beneficiaries, by State, 2010 National Ave rage, 2010 = 24% 38% 30% 9% DC 35% 13% NOTE: Share of Medicare Advanta ge enrollees includes beneficiaries in <10% (10 states and DC) g Medicare HMOs, PPOs, PSOs, MSAs, PFFS, demonstrations, PACE, employer direct PFFS, and cost plans.

SOURCE: Kaiser Family Foundation analy sis of data from the Centers for Medicare & Medicaid Services, Medicare Advantage State/County Penetration Data, February 2010. 10-19% (18 states)20-30% (12 states)>30% (10 states) 1% 7% 7% 11 % 33 % 10% 14 % 24 % 18% 17 % 6% 23 % 40 % 28% 35 % 30 % 31% 35 % 40% 6% 3% 11% 3% 38 % 36% 34 % 18 % 12 % 17 % 28 % 29% 12 % 14 % 31 % 14 % 9% 7% 21 % 20 % 14% 23 % 16 % 13 % 9% 15% 13 % 23 % 8% 20 % 19 % 29% 11 MEDICARE: A PRIMER WHAT TYPES OF SUPPLEMENTAL INSURANCE DO BENEFICIARIES HAVE? Many Medicare beneficiaries have some type of supplemental insu rance coverage to help fill the gaps in Medicare’s benefit pac kage and help with Medicare’s cost-sharing requiremen ts.

Employer and union-sponsored plans are a leading source of supplemental coverage, providing health benefits to ab out one in three Medicare beneficiarie s.

In 2007, 34 percent of Medicare beneficiaries had coverage from an employer-sponsored health plan. 25 The vast majority of these beneficiaries received supplemental coverage as part of a retiree health benefits plan. Employer plans also often provide addit ional b enefits, including prescription drug coverage and limits on retirees’ out-of-pock et health expenses. For an estimated 1.3 million Medicare beneficiaries who are working (or have working s pouses), employer plan s are their primary source of health insurance coverage. 26 For these indiv iduals, Medicare is the secondary payer.

Access to retiree health benefits is on the decline, however. The share of large firms offering retiree health benefits has dropped by more than ha lf over the past two decades, from 66 percent in 1988 to 29 percent in 2009. 27 Medicare Advant age plans are a source of supplemental coverage for people on Medicare. Enrollment in private Medicare Advantage health plans has increased in recent years. Medicare beneficiaries who enroll in private Medicare Advantage health plans often receive supplemental benefits that are not covered under trad itional Medicare, such as vision and dental benefits. The Congressional Budget Office (CBO) estima tes that the average value of these extra benefits was $87 per month in 2009, but projects that the average value of extra benefits will decline as a result of payment reductions enacted as part of the he alth care reform law. 28 (See pages 9-10 for additional information about Medicare Advantage.) 25 Kais er Family Fo undation analy sis of the CMS 2007 Medicare Cu rrent Beneficiary Survey Access to Care File. The hierarchy for assigning sour ces of supplemental coverage is: 1) Medicare Advantage, 2) Medicaid, 3) Employ er, 4) Sel f-purchased onl y, 5) Oth er publi c/private c over age, and 6) No su pplemental cov erage (Medicare fee-for-s ervice only). Beneficiaries with multip le so urces of coverage were assigned to the source of coverage that is higher up in the hierar chy. 26 DHHS, February 2009. 27 Kaiser Family Foundation/HRET Employer Heal th Bene fits 2009 Annual Survey, ht tp://ehbs.kff.org/ . 28 Cong ressional Budget Office, Comp arison of Projected Enro llment in Medicare Advanta ge Plans and Subsidies for Extra Benefits Not Covered by Medic are Under Current L aw and Un der Reco nciliati on Legislation Co mbined with H.R. 35 90 as Passed by the Senate, March 19, 2010. Sources of Supplemental Coverage Am ong Medicare Benefic iaries, 2007 34% 22% 17% 15% 11% Medica re Ad vant age Employer- s ponsored Medicaid Self -purch ased only No ne – Medica re fee-for- service only Ot her p ublic/pr ivate (1%) NOTE: P ercents ro unded to the n earest whole number.

SOURCE: Kaiser Family Foundation analysis of the CMS 2007 Medicare Current Beneficiary Survey Access to Care File. Total Number o f Beneficiaries = 40.8 Million 12 THE HENRY J. KAISER FAMILY FOUNDATION Medigap policies – also called Medicare Supplement Insu rance – are sold by private insu rance companies and help cover Medicare’s cost-sharing requirements and fill gaps in the benefit package.

Medigap policies assi st beneficiaries with their coin surance, copayments, and deductibles for Medicare- covered services. In 2007, about one in five Medicare b enefic iaries had an individually-purchased Medicare supplement insurance poli cy. 29 Currently there are 12 different standard Medigap plans (labeled Plan A-L), each offering coverage of a different set of benefits. As of June 2010, two new plans (Plans M and N) will be offered, while Plans E, H, I, and J will no longer be available for sale. 30 Premiums vary by plan type and may vary by insurer, age of the enrollee, and stat e of residence. Medicaid , the federal-state program th at provides health and long-term care coverage to low- income American s, is a source of supplementa l coverage for 8 million Medicare beneficiaries with low incomes and modest assets in 2010. These beneficiaries are known as dual eligib les because they are dually eligible for Medicare and Medicaid.

Medicaid help s to make Medicare affordable for low-income beneficiaries, given gaps in the benefit package, premiums, deductibles, and other cost- sharing requirements. Most dual eligibles—6.3 million in 2009—qualify for full Medi caid benefits, in cluding long- term care and dental services. 31 Dual eligibles a lso get help with Medicare’s premiums and cost-sharing requirements, and receive subsidies th at help pay for drug coverage under Medicare Part D plans. Some dual eligibles—1.8 m illion in 2009—do not qualify for f ull Medicaid benefits, but get help with Medicare premiums and some cost-sharing requirements through the Medicare Savings Programs (MSP), administered under Medicaid. 32 Eligibility for this assistance is based on a beneficiary’s income and resources (generally less than $8,100 for an individual and $12,910 for a couple). Another 1.6 million beneficiaries receive supplemental assistance (including presc ription drug benefits) through the Veterans Administration and other government programs. 33 29 Kaiser Fami ly Foundat ion analysis of the CMS Medicare Current Beneficiary Survey Access to Care file, 2007. 30 Centers for Medica re & Medicai d Service s, Choosi ng a Medi gap Policy: A Guide to Health Insurance for Peop le with Medicare, March 2010. 31 DHHS, February 2009. 32 DHHS, February 2009. 33 DHHS, February 2009. Medicaid and Medic are Savings Pr ograms Eligibility Pat hways and Benefits for Medicare Beneficiaries Pathway Income E ligibility Lev els 1 (individual/couple) Asset Li mit 2 (individual/ couple) Covered Costs and Services Full Medicaid <74% of poverty ( SSI inco me eligibility; va rie s by state) $2, 000/ $3, 000 (varies by state) Medi caid benefits, Medicare Part A and Pa rt B prem iums and cost-sharing Qu alified Medicare Benefi ciary (QMB) <100% of poverty ( $10, 830/ $14,5 70) $8, 100/ $12, 910 Medicare Pa rt B premiums and cost-sharing Specif ied Low -Income Medicare Beneficiary (SLMB) 100% -120% of poverty ( $12 , 996/ $17,4 84) $8, 100/ $12, 910 Medicare Pa rt B premiums Qu alified Individual (QI) 120%- 135% of poverty ( $14, 621/ $19,6 70) $8, 100/ $12, 910 Medicare Pa rt B premiums Qu alified Disa bled and Working Individu al (QDWI) <200% o f poverty ( $21, 660/ $29,1 40) $5, 500/ $9, 000 Medicare Pa rt A premiums NOTE: 1Applicants are allowed a $20 disregard from any inco me before their inc ome is me asured against the poverty levels. 2Asset limits for QMB, SLMB, QI, a nd QDWI include $1,500 per person for bu r ial expenses. SSI is Su pplemental Security Inco me. 13 MEDICARE: A PRIMER HOW DO MEDICARE BENEFICIARIES FAREWITH RESPECT TO ACCESS TO CARE? The enactmen t of Medicare dramatically improved access to care for millions of elderly Americans. Prior to the enactmen t of Medicare in 1965, less th an half of all elderly people had insurance to help pay for hospital and other medical services. 34 Many were unab le to get health insuran ce either because they could not afford the premiums or because they were denied coverage based on their age or pre-existing health conditio ns. Medicare significantly improved acc ess to care for elderly Americans and is now a vital source of health and financial security for nearly all elderly Americans, as well as millions of people with permanent disabilities. Beneficiaries generally enjoy b road access to physicians, hospitals, and other providers, and report relatively low rates of problems across a number of access measures. Yet there is some evidence of access problems among certain demographic subgroups. Access to care: A relati vely small share of Medicare beneficiaries report experienc ing problems accessing needed medic al care, with modest decreases reported in some measures of access difficulties o ver the past several years. For example, only 5 percen t of all beneficiaries reported trouble getting health care in 2007 (the mo st recent year for which data are available), while 8 percent said they delayed seeking medical care due to cost, and 8 percent said they had a serious medical problem for about which they should have seen a doctor but did not. 35 Rates of access problems ar e higher among cer tain subgroups of the Medicare pop u lation, incl uding Black and Hispanic beneficiaries, the nonelderly disabled, those with low in comes, and those living in rural areas. 36 A larger share of beneficiaries without supplemental coverage than those with supplemen tal coverage report ac cess problems, which suggests that Medicare’s cost- sharing requirements pose financial barriers to care for some individuals. Finding a physician: Medicare benef iciaries are ab out as likely as priva tely i nsured in dividuals to report problems finding a primary care doctor or specia list who wo uld see them. Am ong the small share of Medicare beneficiaries (6 percent) who reported looking for a new primary care physician in 2008, 28 percent reported a problem finding one. 37 A 2006 survey found 97 percent of ph ysicians repor ted acceptin g new Medicare patien ts, but a smaller share (80 percent) reported accepting all or most new Medicare patients. 38 34 M. Gornick, et al, “T wenty Years of Medic are and Medicaid: Co vered Populations, Use of Ben efits, and Prog ram Expe nditu res,” He alth Care Financing Review, 1985 Annual Supplemen t.

35 Kaiser Fami ly Foundat ion analysis of the CMS Medicare Current Beneficiary Survey Access to Care file, 2007. 36 Kaiser Fami ly Foundat ion analysis of the CMS Medicare Current Beneficiary Survey Access to Care file, 2007. 37 MedPAC, “Report to the Congress: Medicare P ayment Policy,” March 2009. 38 MedPAC, “Report to the Congress: Medicare P ayment Polic y,” March 2009. Measures o f Access to Care Among Medicare Be neficiaries, 2002 and 2007 4.5% 8.

7% 9.1% 4.9% 7.

7%* 8.

0%* 2002 2007 NOTE: *indic ates statistically signific ant difference from reference gr oup (ref) at p<.05 level.

SOURCE: Kaiser Family Foundation analysis of the CMS 2007 Medicare Current Beneficiary Survey Access to Care File. Did you have a ny health problem or condition about which you think you should have se en a doct or or ot her me dical p erson, but did not?

In the last ye ar, have you delayed seeking medi cal care because you were wo rried about the co st?

In the last year , have you h ad any trouble getting health care that you wa nted or needed? 14 THE HENRY J. KAISER FAMILY FOUNDATION HOW IS MEDICARE FINANCED? Funding for Medicare comes primarily from genera l revenues, payroll ta x revenues, and premiums paid by beneficiaries. Other sources include t axation of Social Security benefits, payments from states, and interest.

Medicare is funded as fo llows:

 Part A, the Hospital Insurance (HI) Trust Fund, is financed largely through a dedicated tax of 2.9 percent of earnings paid by employers and their employees (1.45 percent each). In 2010, these taxes are estimated to account for 84 percent of the $234 billion in reven ue to the Part A Trust Fund. The health care reform law 39 in cre ases the Medicare Hospital Insurance payroll tax for higher-income tax payers (more than $200,000/individual and $250,000/couple) by 0.9 percentage points (from 1.45 percent to 2.35 percent), beginning in 2013, with additional revenues deposited into the HI Trust Fund.  Part B, the Supplementary Medical Insurance (SMI) Trus t Fund, is financed through a combin ation of general revenues and premiums paid by beneficiaries. Premiums are automa tica lly set to co ver 25 percent of spending in the aggregate, while general revenues subsidize the remaining 75 percent. Higher-income beneficiaries pay a larger share of spending, ranging from 35 percent to 80 percent. In 2010, Part B revenue is estimated to be $212 billion.

 Part C, the Medicare Adva ntage program, provides b enefits under Parts A, B, and D, and thus is not separa tely financed.  Part D is finan ced through general revenues, beneficiary premiums, and state payments for dual eligibles (who received drug coverage under state Medicaid programs prior to 2006). The mo nthly premium paid by enrollees is set to cover 25.5 per ce nt of the cost of standard drug coverage, and Medicare subsidizes the remaining 74.5 percent. Simi lar to Part B, higher-income beneficiaries will pay a larger share of the cost of standard drug coverage and receive a smaller premium subsidy, beginning in 2011. In 2010, Part D revenue is project ed to be $ 68 billion, 77 percent of which will be from general revenues, 11 percent from premiums, and 12 percent from state payments. 39 PPACA (P .L. 111- 148), as amended by HCERA (P.L. 111-152). 4% 7% 2% 3% 7% 2% 12% 12% 1% 25% 11% 38% 84% 40% 73% 77% General Revenue Payroll Taxes Beneficiary P rem iums Payments from States Taxation of Social Securi ty Benefits Intere st and Other Estimated Sources of Medicare Revenue, 2010 SOURCE: 20 09 Annual Repo rt of the Boards of Tr ustees of the Fed eral Hospital Insura nce and Federal Su pplementary Medical Insurance Trust F unds; fiscal ye ar estimates. PART A $234 B illion PART D $68 B illion PART B $2 12 Billion TOTAL $5 13 Bi llion 15 MEDICARE: A PRIMER HOW MUCH DOES MEDICARE COST AND HOW IS THE MONEY SPENT? Spending on Medicare is estimated to account for 12 percent of to tal federa l spending in 2010. Federal spending for fiscal year 2010 is expected to total $3 .6 trillion, wi th spending on Medicare comprising 12 percent of th at amount. 40 Of the three main entitle ment programs—Socia l Security, Medicare, and Medicaid— Medicare is second largest in terms of the s hare of federal spending on each program. So cial Security is largest, at 19 percent of federal spending in 2010. Spending on Medicaid and CHIP (the Children’s Health Insurance Program) represen ts 8 percent of federal spending.

Medicare benefit payments are est imat ed to total $504 billion in 2010.

Inpatient hospital services comprise the largest share of Medicare benefit payments (27 percent), followed by payments to Medicare Adva ntage plans (24 percent), and physician and other suppli ers (18 percent). Spending on the Part D prescription drug benefit accou nts for 11 percent of total benefit payments in 2010. Prior to enactment of the 2010 health reform law, CBO projected that Medicar e Advantage payments would acc ount for 22 percent of Medicare benefit payments and prescription drugs another 15 percent of Medicare benefit payments in 2019. 41 40 OMB, Budget of the U.S. Government, Fiscal Year 2011, February 2010. 41 CBO, Medicare Baseline, March 2009. Medicare Spending as a Share of To tal Fede ral Spend ing in 2010 Nondefense Discre tionary Defense Discretionary Social Securit y Medicare Federal Medicaid and CHIP Other* Net Interest NOTE: Amo unt for Medicare includ es offsetting premium receipts. *Other ca tegory i ncludes disaster costs and neg ative ou tlays for Troubled Asset Re lief Program.

SOURCE: O ffice of Management and Bu dget, FY2011 Budget, Summary Tables; Fe bruary 2010. 2010 To tal Federa l Outlays = $3.6 trillion 23% 15% 5% 17%8%12% 19% Hospital Inpa tient Sk illed Nu rsing Facilities Hospice 3% Medicare Adva ntage Home Health Physicians and Other Su ppliers Hospital Ou tpatient/ Other Part B Outpat ient Prescrip tion Drugs Total Benefit Payments = $504 billion NOTE: Does not include administ rative expenses such as spending t o administer the Medicare drug benefit and the Medicare Advantag e program.

SOURCE: CBO Medicare Baseline, M arch 2009. Medicare Benefit Payments By Type of Service, 2010 Part A Part BPart A and BPart D 18% 4% 24% 5% 27% 11% 9% 16 THE HENRY J. KAISER FAMILY FOUNDATION Medicare spending is concentrated among a small share of beneficiaries and varies geographically. A small share of Medicare beneficiaries accou nts for a majo rity of Medicare spending. Ten percent of beneficiaries in the fee-for-service program accou nted for nearly 60 percent of Medicare spending in 2006 (the most recent year for which data are available). 42 At the ot her end of the spectrum, 22 percent of all fee-for- service beneficiaries had total spending of less than $1,000, accounting for just 1 percent of total expenditures. Twelve percent of beneficiaries incurred no expenditures at all. Average per capita Medicare FFS payments for elderly beneficiaries (in cluding Part A and B reimbursement, direct and in direct medical education, and disproportionate share hospital payments) vary by geographic area. Most counties have average per capita Medicare FF S payments between $4,000 and $6,000. However, 6 coun ties have average per capita payments of less than $2,000, while 8 counties have FFS payments of $8,000 or more per capita. 43 Medicare spending accounted for more than one-fifth of the $1.9 trillion in personal health care exp enditures in the U.S in 2008.

Medicare’s share of na tional personal health care expenditures varies by type of service, reflecting benefi ts covered and services used by the Medicare population. For example, in 2008, Medicare accounted for 42 percent of home health care spending and 29 percent of all hospital spending. Medicare acco unted for 22 percent of to tal nat ional prescription drug spending in 2008 – a si gnificant increase from 2 percent in 2005, the year before the Part D d rug benefit wen t in to effect. 42 Kaiser Fami ly Foundat ion analysis of the CMS Medicare Current Beneficiary Survey Cost and Use file, 2006. 43 Kais er Fami ly Fo undat ion analysis of CMS Medicare F ee-for-Service Data, 2008. Ten Perce nt of FFS Medic are Benefic iaries A ccount for Nearly Six ty Percent of Medicare Spending, 2006 90% 42% 10% 58% Total Number of B eneficiaries:

35.9 m illion Total Medica re Spending:

$299 b illion Average per capi ta Me dicare spending (FFS only): $8,344 Ave rage per capita Medic are spending am ong top 10% (FFS only): $48,211 NOTE: FFS is f ee-for-service. Includes noninstitu tion alized and instituti onalized Medicare f ee-for-service beneficiaries, excludi ng Medicare managed care enroll ees.

SOURCE: Kaiser Family Foundation an alysis of the CMS Medicare Current Benefic iary Survey 2006 Cost & Use f ile.

Medicare’s Share of Natio nal Personal Health Expenditures, by Type of Service, 2008 23% 42% 29%22%21% 19% Total Ser vic es* Home Health Car e Hospital Services Prescri pt ion Drugs Physi cian Services Nursi n g Home Car e Medica re Tota l$ 444 $1, 952 $27 $65 $ 211 $ 718 $52 $ 234 $ 103 $ 496 $26 $138 Expe ndi tur es i n B il lion s NO T E: *Tot al also includes dent al car e , dura ble medica l e quipment , othe r profe ssional ser vice s, a nd o t he r pe rsona l he a lt h ca r e/ pr oduct s.

SO U RCE : CM S, O ffice o f t he Act ua r y, Na tional He a lt h St at istics Gr o up, Janua ry 2010. 17 MEDICARE: A PRIMER HOW IS THE HEALTH CARE REFORM LAW EXPECTED TO AFFECT FUTURE MEDICARE SPENDING? The 2010 health care reform law 44 includes a number of changes that are expec ted to reduce the growth in Medicare spending over the nex t decade and beyond. The Medicare provisions of the health care reform law are estimated to result in a net reduction of $428 billion in Medicare spending between 2010 and 2019, taking into account $533 billion in Medicare savings and $105 billion in new Medicare spending over the 10- year period, according to analysis of CBO estimates. 45 The law is expected to reduce the average annual growth ra te in M edicare spending between 2010 and 2019 from 6.8 percent to 5.5 percent. Medicare spending reductions are achieved through a number of provisions, including: Payments to Medicare Advantage Plans. The law reduces federal payments to plans so that, on average, Medicare does not continue to pay subs tantially more for beneficiaries who enro ll in Medicare Advantage plans than it pays for beneficiaries in the traditio nal fee-for-service program.

 Payments to providers. The law reduces annual updates in Medicare pa yments to hospitals, skilled nursing facilities, home health agencies, and various other providers (other than physicians), and adjusts paym ents to acco unt for productivity improvements.

 Delivery system reforms. The law i nclud es s everal n ew policie s and programs designed to reduce costs and improve quality of patient care, including reducing payments assoc iate d with unnece ssary hospital readmissions and hospital-acquired infections, pilot progr ams rel ated to the delivery of post- acute care, value-based purchasing for providers, and the establishment of accountable care organizations. In addition, the law cre ates a n ew Ce nter for Medicare and Medicaid Innovation within CMS, with the authority to test payment and service delivery models and implement effective models nationwide. In addition, the law establishes a new Indepe ndent Payment Adviso ry Board to recommend policies to reduce Medicare spending, i f projected spending exc eeds target growth rates.

The Board’s initial proposal is due in 2014, and the savings recommendations will take effect automatically unless Congress adopts alternative propos als that achieve equivalent Medicare savings. The establishment of the Board represen ts the first time t hat the Medica re program will be subject to annu al spending limits with requirements fo r automatic enact ment of the Board’s recommendations. CBO projects the Board will achieve savings in each year after it begins making recommendations (2015-2019) and will continue to reduce Medicare spending beyond the te n-year budget window. 46 44 PPACA (P .L. 111- 148) as amended by HCERA (P .L. 111- 152). 45 CB0, C ost Estimate for the Amendment in the Nature of a Substitute for H.R. 4872, Inco rporating a Propos ed Manager's Amendment Made Publ ic on M arch 20, 2010; M arch 20, 2010. These estimates do not take into a ccount additi onal spe nding to of fset the physician payment redu ctions that are required under current law acc ording to the Sust ainable Growth Ra te form ula.

46 CBO, Cost Estimate for the Amendment in the Nature of a Substitute for H.R. 4872; M arch 20, 2010. $521 $570 $580$635$696 $725$787 $819$854$943 $523 $570 $571$617 $652 $675$732 $748$771$845 $400 $500 $600 $700 $800 $900 $1,0 00 2010 2011 20122013201420152016201720182019 Average A nnual Growth Rate:

Before Health Refor m = 6.8% After Healt h Reform = 5.5% Effect of 2010 Health Reform Law on Medic are Spending, 2010-2019 NO TE: Es timates do not take i nto account additional spen ding to offset the physician payme nt reductions that are r equi red under cu rrent law according to the Sustainable Growth Rate for mula.

SOURCE: Medicare spending before reform from CBO, March 2009 Medicare Baseline; after reform from Kaiser Family Fo undation an alysis of CBO co st estimates of health reform legisl ation, M arch 20, 2010. Medicare Baseline Spending(in $ billions) BEFO RE Health Reform AFTER Health Reform 18 THE HENRY J. KAISER FAMILY FOUNDATION MEDICARE SAVINGS AND SPENDING IN THE PATIENT PROTECTION AND AFFORDABLE CARE ACT (P.L. 111-148), AS AMENDED BY THE HEALTH CARE AND EDUCATION RECONCILIATION ACT OF 2010 (P.L. 111-152) MEDICARE S AVINGS PROV ISIONS COST ESTIMATE (in $ b illions) Annual prov ider payment update s $157 Medicare Advanta ge payment reforms $136 Home health payments $40 Part B premiums for higher-income enro llees $25 Disproportionate Share Hospit al (DSH) payments $22 Medicare Improvement Fund $21 Independent Payment Advisory Board $16 Part D premiums for higher-income enrollees $11 Fraud, waste, and abuse $7 Reducing hospit al readmissions $7 Part D enrollment and other consumer protections $6 Delivery system pilot p rograms $5 Other p rovisions $7 Interactions* $75 TOTAL 10-YEAR MEDICARE SAVINGS $533 MEDICARE SPENDING PROVISIONS Part D cove rage gap discount program and new federal subsidies $43 Premium interactions $38 Physician payment reforms $7 Preventive servi ces $5 Other p rovider payments $1 Medicare Savings Programs and Pa rt D low-income subs idies $1 Disproportionate Share Hospit al (DSH) payments $1 Part D enrollment and other consumer protections $1 Medicare Advanta ge reforms $1 Other p rovisions $4 Interactions* $3 TOTAL 10-YEAR MEDICARE SPENDING $105 NET 10-YEAR MEDICARE SAVIN GS $428 OTHER RELATED REVEN UE PROVISIONS Raise Medicare payr oll tax on high earnings (Deposited in HI Trus t Fund) $87 Fee on drug manufacturers (Deposited in SMI trust fund) $27 Eliminate Part D employer deduction $5 NOTE: *Savings interactio ns include interactio ns with Medic are Advant age and TRICAR E; spe nding interactions in clude imp lementation of Med icare c hanges, Part D in teractions with Medica re Advantage provisions , Part B in teracti ons with Part D provisions, and Medicaid interactions with Medicare Part D provisions.

S OU RCE: Kais er Fam ily Foundation analysis of Congressional Budget Office (CBO) co st estimates as provided on M arch 20, 2010; R evenue esti mates based on Joint Committee on Taxati on estima tes as provided on March 20, 2010. 19 MEDICARE: A PRIMER WHAT ARE MEDICARE’S FUTURE FINANCING CHALLENGES? Looking to the future, Medicare is expected to face significant financing challenges due to increasing health care costs, the aging of the U.S. popula tion, the declining ratio of wo rkers to beneficiaries, and v arious ec onomic fac tors. In light of the recent economic downturn and pressures to reduce the federal budget deficit, polic ymakers are likely to conti nue focusing on ways to reduce federal spending on entitlement programs, including Medicare, Medica id, and Social Se curity. In February 2010, Pres ident Obama established a bipartisan National Commission on Fisca l Responsibility and Reform to recommend policies to reduce the nation’s r ising debt and the federal budget de ficit – incl uding, but not limited to, curbing the growth in en titlement spending – w ith a report due by Decem ber 2010. Over the long term, several factors – i ncluding rising heal th car e costs, an aging popu lation, a decli ne in the number of workers per beneficiary, and increasing life expectancy – will present fiscal challenges for Medicare. From 201 0 to 2030, the number of peopl e on Medicare is projected to rise from 47 millio n to 79 million, while the ratio of workers per benef iciary is expecte d to decl ine from 3.7 to 2.4. 47 Total Medicare spending is projec ted to nearly do uble from $528 billion in 2010 to $1, 038 billion in 2020, accord ing to CBO. 48 These projections do not take into account Medicare spending reductions that are sched uled to occur ov er the next decade as part of the 2010 health care reform law.

Sustained increases in health care costs are placing upward fiscal pressure on Medicare, as for other payers. The annual growth in Medicare spending is inf luenced by factors that affect health spending generally, including increasing volume and utilization of services, higher prices for health care services, and new technologies. Although Medicare spend ing increases each year, the average per capi ta spending growth rate between 1970 and 2008 was slightly lo wer for Medicare (8.3 percent) than for pr ivate health insurance (9.3 percent) for common bene fits (ex cluding prescription drugs). 49 Moving forward, system-wide efforts to curtail overall heal th care costs, incl uding several provisions of the 201 0 he alth reform law, are expec ted to improve Me dicare’s financial outlook.

A number of measures are used to assess the long-term financial status of Medicare.  Medicare spending as a share of gro ss do mestic product (GDP) is one of several measures reported by the Medica re Trustees in their annual report to the Congress. This measure looks at expenditures over all parts of the Medica re program in the context of the U.S. economy as a whole. With the aging population and expected increases in overall he alth care costs, Medicar e spending is projected t o grow at a fas ter rate tha n the overall economy. Medicare expenditures as a share of GDP are projected to rise from 3.5 percent of GDP in 2010 to 6.4 percent of G DP in 2030. 47 2009 Annual Report of the Boards of Trustees of the Federal Hospita l Insurance and Federal Supplementary Medical Insurance Trust F unds, May 2009.

48 T hese es tima tes exclu de offsettin g receipts (p rimarily premiums paid by beneficiarie s). These es timates also do not ta ke into account additi onal sp ending to of fset the physician payment reductions that a re required under current law accor ding to the Sustainable Growth Rate fo rmula.

49 CMS, OAC T, National Health Statistics Group, 2010. 1.3% 1.5%1.7% 1.8%2.0%2.4% 2.7% 1.0% 1.2%1.4% 1.4%1.8%2.2% 2.6% 0.4% 0.5%0.7%0.9% 1.1% Pa rt D Part B Part A Medicare Spending as a Percent of Gross Domestic Product (GDP), 2000-2030 (Not ad justed for the effects of the 2 010 heal th care reform law) NOTE: Numbers may not sum t o total due to rounding.

SOURCE: 2009 A nnual Report of the Boards of Trus tees of the Federal Hospital Insurance and Fede ral Su pplem entary Medical Insu rance Trust F unds. 2.3%2.7% 3.5% 3.8%4.5% 5.5% 6.4% 2000 2005 2010 2 015 20202025 2030 20 THE HENRY J. KAISER FAMILY FOUNDATION However, these projections do not take into account Medicare spending reductions that are scheduled to occur over the next decade as part of the 2010 he alth care reform law.

 Solvency of the Part A (HI) Trust Fund is another measure that has been used to present a picture of Medica re’s financial health. This in dicator looks exclusiv ely at Part A, and does not take into acco unt spending or financing for other parts of the Me dicare program. According to the Medicare Trustees, Part A spending has exceeded income s ince 20 08. In May 2009, the Medi care Trustees proj ected that the HI Trus t Fun d reserves would be depl eted in 2017. 50 However, the reductions in Medica re spending that were enacted as part of the 2010 health care reform law , coupled with additional revenue raised by the increase in the payroll tax on taxpayers with relatively high ear nings, are projecte d to extend the solvency of the Medica re Hosp ital Insuranc e Trust Fund from 2017 to 2029, according to CMS. 51  The Medicare per capi ta spending gro wth rate rel ative to t he growth rat e of inflation and the gr owth rate of GDP plus 1 perc entage po int will be used by the new Independent Payment Advisory Board to determ ine whether the Board is required to rec ommend Medicare savings proposals to Co ngress, beg inning in 2014, as well as the magnitude o f savings to be achieved. Prior to 2018, the Board is req uired to recommend savings propos als if the projected five-year average percentage increas e in per capita Medica re spen ding ex ceeds the projected five-year average percentage increase in the consumer pr ice index (CPI) and the CPI f or medical care (CPI-M). In 2018 and beyond, the Medicar e spending t arget growth rate is the proj ected five-year average percentage increase in nominal per capita GDP plus 1 percentage point. If Medica re spending ex ceeds the target grow th rate, the Board is required to recommend savings to achieve the lesser of e ither (1) the amount by whi ch projecte d Medica re cos ts exc eeds the spending target or (2) a specified percentage mult iplied by total projected Medicare spending for the year. The Secretary of HHS is required to implement the Board’s recommendations by August 15 of the year the proposal is submitted, un less Congress has already passed legislation that achieves the same level of savings. If the Board fa ils to act, the Secretary is required to submit a proposal to achieve an equivalent level of saving s. If Cong ress do es not ena ct a legi slative pa ckage that ach ieves the requ ired level of Medicare savings, the Board’s (or Secretary’s) or iginal proposal will take effect immediately.

 The amount of gen eral revenue s as a share of to tal Medicare spend i ng is another way to measure Medica re’s fiscal hea lth, established under the Me dica re Moderniz ation Act of 2003. Each year, the Me dicar e Trustees are required to exam ine general revenues as a share of total Medica re spending, and mak e a determi nation as to whether general revenues are projec ted to exceed 45 percent of total outlays within a seven-year timeframe. If the Trustees make this determination two years in row, a “Med icare funding warning” is is sued, in dicating tha t general revenues are becomin g a substantial share of total financing for Medica re. In response, the President is require d to submit proposed le gislation to Congress, which must consider this legislation on an expedited basis. In 2009, for the fourth year in a row, the Medicare Trustees projected tha t general revenues wo uld exceed 45 percent of total Medicare spending with in seven years (by 2014). However, in January 2009, the U.S. House of Represe ntatives passed a resolution to suspend congressional consideration of fund ing warning legislation for the 111 th Cong ress. 52 Ensuring Medicare’s financial stability over the long term is a pressing challenge for policymakers. Medicare provides essential coverage for 47 million beneficiaries, many of whom h ave multiple chronic conditions and significan t health needs. Securi ng access to affordab le health care for seniors and people with disab ilities while addressing Medicare’s fiscal pressures is a high priori ty for the future. 50 2009 Annual Report of the Boards of Trustees of the Federal Hospita l Insurance and Federal Supplem entary Medical Insurance Trust F unds, May 2009. 51 CMS, O ffice of the Act uary, Estima ted E ffects of the Pati ent Protecti on and Affordab le Care Ac t, as Am ended, on the Year of Exhaustion for the Part A Trust F und, Part B Premiums, and Part A and Part B Coinsurance Amounts, April 22, 2010.

52 H. Res. 5, Janua ry 6, 2009. 21 MEDICARE: A PRIMER MEDICARE BENEFITS* AND COST-SHARING REQUIREMENTS, 2010 PART A Deductible $1,100 per benefit period Inpatient hospital Days 1-60 No coinsurance Days 61-90 $275 per day Days 91-150 $550 per day (f or up to 60 lifetime reserve days) After 150 Days Not covered Skilled nursing facility Days 1-20 No coinsurance Days 21-100 $137.50 per day After 100 Days Not covered Home Health No coinsurance; no limit on number of visits Hospice No coinsurance for hospice care; copayment of up to $5 for outpatient drugs and 5% coinsurance for inpatient respite care Inpatient psychiatric hospital Up to 190 days in a lifetime PART B 551$ elbitcudeD Premium $110.50/month; higher for those with incomes above $85,000/single or $170,000/couple; $96.40/month for those held harmless from the premium increase Physician and other medical services MD accepts assignment 20% coinsurance MD does not acc ept assi gnment 20% coinsurance, plus up to 15% above the Medi care-approved fee Outpatient hospital care 20% coinsurance Ambulatory surgical services 20% coinsurance Diagnostic tests, X-rays, and lab services 20% coinsurance Durable medical equipment 20% coinsurance Physical, occupational, and speech therapy 20% coinsurance; certain limits may apply Clinical laboratory services No coinsurance Home health care No coinsurance; no limit on number of visits Outpatient mental health services 45% coinsurance (gradually decreasing to 20% in 2014) One-time "Welcome to Medicare" physical exam 20% coinsurance; covered within first 12 months of Part B enrollment; Part B deductible does not apply Preventive services* Flu shot, P neumococcal shot No co ins uranc e; limit of one flu sh ot per flu season Hepatitis B shot, colore ctal and prosta te cancer screening, pap smear, mammogram, cardiovasc ular screening, abdominal aortic aneurysm (AAA) screening, bone mass measu rement, diabetes screening and mo nitori ng, glauco ma sc reening, smoking cessati on 20% coinsurance after annual Part B deductible is met; however, Part B deduct ible and coinsurance are waived for some preventive serv ices PART D Information below applies to the standard Part D benefit; benefits and cost-sharing requirements typically vary across plans. Beneficiaries receiving low-income subsidies pay reduced cost-sharing amounts. 013$ elbitcudeD Premium $31.94 national average monthly premium (unweighted PDP and MA-PD plan av erage) Initial coverage (up to $2,830 in total drug costs) 25% coinsurance Coverage gap (between $2,830 a nd $6,440 in to tal drug co sts) 100% coinsurance (not covered) – minus $250 rebate Catastrophic coverage (above $4 ,550 in out-of-pocket sp ending) Minimum of $2.50/generic, $6.30/brand; or 5% coinsurance NOTE: *This table does not inc lude all Me dicar e-covered benefits or preventive services; for a comple te listing, see http://www.medi care.gov/Coverage/Home.asp and http://www.medicare.gov/Health/Overview.asp .

SOURCE: CMS, www.medicare .gov , Medicare & You 2010, Your Guide to Medica re’s Preventive Services. 22 THE HENRY J. KAISER FAMILY FOUNDATION IMPLEMENTATION TIMELINE FOR KEY MEDICARE PROVISIONSOF THE 2010 HEALTH CARE REFORM LAW, 2010-2015 2010 Cost containment •Reduce annual ma rket basket updates for inpa tient hospital, home health, skilled nur sing faci lity, hospice and other Medicare providers, and adjust payments for pr oductivity • Ban new physician- owned hospi tals in Medicare Improving qua lity and health system performance • Est ablish a new office within the Centers for Medicare & Medicaid Services (CMS), the Fe deral Coordi nated Health Ca re Office, to improve care c oordination for du al eligibles Prescripti on drug benefit •Provide a $250 rebate for beneficiaries who reach the Part D coverage gap 2011 Cost cont ainment •Est ablish a new Center for Medicare and Medicaid Innovation wi thin CMS • Freeze the income threshold for income-related Medicare Part B premiums for 2011 through 2019 at 2010 levels ($85,000/individual and $170,000/couple), and reduce the Medicare Part D premium subsidy for those wi th incomes above $85,000/individual and $170,000/coup le • Provide Medicare payments to qualifyi ng hospitals in counties with the l owest quartile Me dicare spen ding for 2011 and 2012 Medica re Advantage •Prohibit Medicare Advantage pl ans from imposi ng higher co st shar ing for some Medicare-covered benefits than is required und er the tradi tional fee-for-service program • Restru cture paymen ts to Medicare Advantage (MA) pl ans by pha sing paymen ts to differen t percentages of Medicare fee-for-service rates; freezes payments for 2011 and 2010 levels Physic ian payment •Provide a 10% Medicare bonus payment to primary care ph ysicians and general surgeons practicing in health professional shortage areas Prescription drug benefit •Begin phasing in federal subsidies for generic drugs in the Medicare Part D coverage gap (reducing co insuran ce from 100% in 2010 to 25% by 2020) • Require ph armaceutical ma nufactur ers to prov ide a 50% discount on brand-name pres criptions fi lled in the coverage gap (reducing coinsurance from 100% in 2010 to 50% in 2011) Preventive services •Eliminate Medi care cost s haring for some preventive servi ces • Provi de Medicare beneficiari es acce ss to a comprehensi ve heal th risk as sessment and creation of a persona lized prevention plan 2012 Cost cont ainment •Allow providers organized as accoun table care orga nizations (ACOs) that voluntar ily meet quality thresh olds to share in the savings they achieve for the Medicare program • Reduce Medicare payments that w ould other wise be made to hospita ls by specified percen tages to account for excess (preventab le) hospital readmissions Improving qua lity and health system performance • Create the Medicare Independen ce at Home demonstration program • Est ablish a hospital value- based purchasing program and develop plans to implement value-based purchasing for sk illed nursi ng faci lities, home health agencies, and am bulatory su rgical centers Medicare Advantage •Reduce reba tes for Medicare Advant age plans • High -quality Me dica re Advan tage pl ans begin r ece iving bonu s payments Prescription drug benefit •Make Pa rt D cost sharing for dual eligible beneficiaries receiving home and community-based care services equal to the co st sharing for those who re ceive institut ional care 2013 Improving qua lity and health system performance • Establish a national Medicare pil ot program to develop and evaluate paying a bund led payment for acute, i npati ent hospital services, physician services, ou tpatient hospi tal service s, and post-acute care servic es for an episode of care Prescripti on drug benefit •Begin phasing in federal subsidies for brand-name drugs in the Part D coverage gap (reducing coinsurance from 100% in 2010 to 25% in 2020, in addition to the 50% manufacturer brand discount) Tax changes •Incr ease the Medicare Part A (hospital insurance) tax rate on wages by 0.9% (from 1.45% to 2.35%) on earnings over $200,000 for individual taxpayers and $250,000 for married couples filing jointly • Elimina te the tax deduct ion for empl oyers who r ece ive Medicare Pa rt D retiree drug subsidy payments 2014 Cost containment •Independen t Paymen t Advisory Board comprised of 15 members begins submi tting legislative proposals containi ng recommendati ons to reduce Medicare spen ding if spending exceeds a targ et growth rate • Reduce Di sproportionate Share Hospi tal (DSH) paymen ts initially by 75% and subsequently i ncrease payments based on the percent of the po pulation uninsured and the amoun t of unc ompensated care Medica re Advantage •Require Medi care Advantage pl ans to have medical loss ratios no lower th an 85% Prescripti on drug benefit •Reduce the out-of-pocket amount that qualifies for Part D catastrophic coverage (through 2019) 2015 Cost cont ainment •Reduce Medicare payments to certain hospitals for hospital-acquired condi tions by 1% SOURCE: Kais er Family Fo undation analysis of the P atient Protection and A ffordable C are Act (PP ACA; P.L. 111- 148), as amended by the Heal th Care and Educati on Reconci liation Act of 2010 (HCERA; P. L. 111- 152). 23 MEDICARE: A PRIMER AGE AND INCOME OF MEDICARE BENEFICIARIES, BY STATE, 2008 Age Income as Percent of Federal Poverty Level (FPL) 2 STATE TotalNu mber of Beneficiar ies¹ 19-64 65-74 75-84 85 and older <100% FPL 100-150% FPL 150-200% FPL 200%+ FPL U.S. Total 45, 830,913 6,809,1 44 18,682,883 12,522,255 4,185,7 81 6,965,2 17 7,375,0 12 6,294,1 35 21,565,699 Alabama 832,913 183,103 335,585 229,492 55,1 06 148,015 143,876 109,956 401,437 Alaska 63,974 12,238 28,384 11,962 4,334 7,024 9,743 8,361 31,7 90 Arizona 909,557 140,316 369,558 210,086 81,633 115,150 140,237 94,737 451,468 Arkansas 524,907 104,851 193,557 107,969 40,2 93 82,085 101,589 59,207 203,789 California 4,669, 125 504,921 1,941, 947 1,221, 581 516,476 684,811 867,183 541,787 2,091, 144 Colora do 609,849 79,734 257,430 153,152 47,876 72,775 81,741 67,501 316,175 Connecticut 560,340 66,8 01 220,342 142,409 75,960 62,236 75,245 71,806 296,225 Delaware 145,842 20,788 59,626 39,129 12,334 20,335 23,999 18,607 68,937 District of Columbia 77,028 15,244 28,852 19,444 8,329 17,3 40 13,135 8,646 32,7 49 Florid a 3, 314, 477 458,063 1,462, 260 1,040, 904 328,549 531,236 507,064 504,141 1,747, 336 Georgia 1,211, 860 253,071 497,303 266,494 65,1 93 228,625 201,656 186,662 465,117 Hawa ii 202,750 22,2 97 75,362 70,009 26,651 40,908 30,468 24,102 98,839 Idaho 224,133 21,101 106,997 69,634 15,799 22,569 31,296 30,179 129,487 Illinois 1,818, 883 292,572 639,312 494,171 169,612 245,328 262,890 233,024 854,425 Indiana 991,222 135,113 377,747 287,356 101,474 116,306 155,511 140,304 489,571 Iowa 513,404 61,9 82 197,627 122,435 56,577 48,885 73,976 81,857 233,904 Kansas 428,471 50,1 60 163,887 112,448 40,370 48,630 65,583 51,947 200,705 Kentu cky 748,151 177,663 310,827 171,419 53,728 129,635 135,228 115,970 332,805 Louisiana 677,365 135,051 272,810 184,714 58,1 52 146,859 158,690 115,131 230,045 Maine 260,686 41,806 104,065 72,058 25,646 31,633 45,741 36,180 130,021 Maryland 771,790 90,162 313,190 201,716 95,407 118,269 93,911 91,017 397,278 Massac husett s 1,045, 371 147,743 380,056 301,590 115,192 155,377 172,864 155,245 461,094 Michigan 1,625, 605 258,493 628,471 497,753 124,209 192,170 225,065 243,964 847,728 Minnesota 774,433 88,3 73 311,606 209,772 89,172 78,427 82,260 102,192 436,044 Mississi ppi 489,980 105,032 194,779 118,785 28,283 109,450 84,963 56,765 195,701 Missouri 991,772 195,299 423,223 270,894 71,984 142,855 173,693 155,332 489,521 Montana 166,315 26,140 61,929 53,378 17,134 20,717 27,019 32,047 78,798 Nebraska 276,731 30,826 94,772 77,567 23,062 24,887 31,729 34,148 135,463 Nevada 347,112 44,403 162,155 80,723 26,590 41,005 38,891 49,480 184,494 New Hamp shire 213,449 24,194 83,718 54,106 10,936 20,892 22,144 26,496 103,422 New J ersey 1,310, 966 176,886 519,333 368,052 139,113 215,515 174,799 185,259 627,811 New Mexico 307,056 40,8 57 123,244 73,451 29,734 57,599 43,017 38,392 128,278 New Yo rk 2,954, 341 417,109 1,219, 092 871,182 287,758 565,849 484,981 365,187 1,379, 124 North Carolina 1,460, 593 256,894 610,982 366,278 140,792 234,975 274,864 203,308 661,799 North Dakota 107,765 6,793 41,4 27 27,500 9,016 10,9 16 17,032 12,187 44,601 Ohio 1,876, 347 246,778 746,755 528,404 120,526 257,952 297,261 256,569 830,681 Oklahoma 596,181 91,2 51 233,612 175,019 56,835 87,437 93,129 85,501 290,650 Oregon 608,330 61,4 30 255,269 154,838 60,577 68,721 78,536 85,675 299,180 Penn sylvania 2, 259, 681 289,075 854,735 719,230 212,648 289,590 371,958 383,094 1,031, 046 Rhode Is land 180,984 30,8 29 63,150 45,804 21,417 24,291 26,902 25,871 84,136 South Caro lina 755,843 146,961 361,571 187,679 49,021 138,177 138,204 121,999 346,851 South Dako ta 135,136 12,775 62,218 37,925 15,176 17,704 19,261 13,706 77,422 Tennessee 1,038, 035 175,617 447,739 287,989 80,1 17 180,502 196,933 172,785 441,243 Texas 2,938, 054 498,970 1,351, 779 759,316 240,692 624,498 546,920 390,992 1,288, 348 Utah 277,162 37,4 12 107,670 69,528 32,114 22,958 43,329 40,586 139,850 Vermont 109,156 13,6 33 43,803 28,924 11,444 14,793 18,415 13,890 50,706 Virginia 1,122, 504 186,776 461,395 302,621 90,7 39 174,313 124,682 149,346 593,189 Washin gton 950,097 118,021 370,932 255,760 76,7 39 104,754 108,283 106,721 501,693 West Virginia 378,108 80,5 51 141,800 94,140 31,008 51,938 67,769 61,661 166,130 Wisconsin 898,374 124,286 332,319 254,541 86,0 86 107,915 157,345 122,657 409,315 Wyoming 78,705 8,699 36,6 82 20,928 8,168 10,3 85 14,001 11,957 38,134 NOTE: NSD is not sufficient data. 1Excludes beneficiaries living in the territories and beneficiaries who we re pending assignment t o a p articular state of resi dence.2In 2008, the federal poverty level was $10,400 for an individual and $14,000 for a couple. SOUR CE: Total Number of Beneficiaries from CMS Management Information Integrated Repository (MIIR), as of February 16, 2010. Age and inco me esti mates from the U.S. Census Bureau, Current P opulation Survey, 2008 and 2009 Annual Social and Economic Supplements (pooled data from 2007 and 2008). 24 THE HENRY J. KAISER FAMILY FOUNDATION MEDICARE BENEFICIARIES BY TYPE OF COVERAGE, BY STATE STATE Total Number of Beneficiaries¹ (2010) MedicareAdvan tage Enrollees(2010) Part D Plan Enrollees(2010) Part D Low-Income Subsidy Recipients (Including Dual Eligib les) (20 10) DualEligibles (2008) U.S. Total 45, 830,913 11,265,447 27,134,318 9,940,7 17 7,519,6 67 Alabama 832,913 177,482 475,744 228,051 184,211 Alaska 63,9 74 405 24,635 14,587 12,504 Arizona 909,557 334,719 555,707 165,389 130,084 Arkansas 524,907 78,5 19 318,639 137,900 105,263 California 4,669, 125 1,673, 692 3,236, 180 1,224, 748 1,138, 715 Colora do 609,849 212,938 357,983 98,339 75,966 Connecticut 560,340 101,257 309,028 108,077 73,6 81 Delaware 145,842 5,290 73,2 68 25,698 21,047 District of Columbia 77,028 7,622 36,4 92 23,007 16,875 Florid a 3, 314, 477 1,059, 119 2,001, 495 648,925 503,397 Georgia 1,211, 860 253,260 736,142 304,514 229,307 Hawa ii 202,750 87,1 18 134,050 37,291 27,354 Idaho 224,133 65,836 131,275 37,487 27,866 Illinois 1,818, 883 178,010 1,005, 949 360,547 239,472 Indiana 991,222 158,098 558,686 180,547 131,071 Iowa 513,404 67,3 89 342,323 85,325 70,002 Kansas 428,471 46,7 01 264,745 71,986 52,479 Kentu cky 748,151 120,791 453,378 199,760 145,468 Louisiana 677,365 161,831 420,171 197,977 151,610 Maine 260,686 31,6 57 162,644 89,833 79,192 Maryland 771,790 61,800 338,396 129,647 93,400 Massac husett s 1,045, 371 201,088 603,824 256,575 199,472 Michigan 1,625, 605 256,035 766,928 285,176 199,926 Minnesota 774,433 321,979 529,153 134,119 88,9 56 Mississi ppi 489,980 46,024 318,349 165,257 139,511 Missouri 991,772 210,046 619,451 203,910 122,564 Montana 166,315 29,882 94,713 26,752 16,518 Nebraska 276,731 33,057 178,704 44,763 28,514 Nevada 347,112 111,709 193,420 50,565 35,561 New Hamp shire 213,449 14,739 101,154 34,174 18,144 New J ersey 1,310, 966 166,660 689,991 227,777 173,418 New Mexico 307,056 77,5 72 189,727 71,368 58,314 New Yo rk 2,954, 341 903,435 1,755, 806 763,653 506,234 North Carolina 1,460, 593 284,420 865,919 353,663 278,263 North Dakota 107,765 8,474 74,5 20 17,291 8,448 Ohi o 1,876, 347 624,359 1,023, 939 339,513 252,472 Oklahoma 596,181 90,7 25 355,166 127,353 87,322 Oregon 608,330 256,076 394,181 102,680 81,1 02 Penn sylvania 2, 259, 681 869,414 1,419, 049 424,190 283,766 Rhode Is land 180,984 63,2 12 122,450 42,279 28,914 South Caro lina 755,843 119,388 409,792 175,736 132,427 South Dako ta 135,136 10,705 87,776 22,116 16,058 Tennessee 1,038, 035 253,790 666,643 292,015 239,479 Texas 2,938, 054 577,085 1,671, 980 724,014 519,245 Utah 277,162 93,3 83 155,423 37,068 26,861 Vermont 109,156 4, 504 60,9 27 27,106 22,243 Virginia 1,122, 504 161,733 587,546 209,012 150,918 Washin gton 950,097 238,781 506,734 164,967 130,413 West Virginia 378,108 85,6 46 229,524 89,816 63,849 Wisconsin 898,374 262,697 482,063 146,938 93,2 29 Wyoming 78,705 5,295 42,5 36 11,236 8,562 NOTE: 1Exclu des beneficiaries livin g in the territories and benefici aries who were pendin g assi gnme nt to a particular state of residence. SOURCE: Number of Total Beneficiaries, Me dicare Advantage, Part D, and Low-Income Subs idy Enrollees from Centers for Medicare &Medicaid Services ( CMS) Man agement Info rmation Integrated Repository (MIIR), as of February 16, 2010; Number of Dual Elig ibles from CMS 2009 Medicare & Medi caid Statistica l Supplement, as of July 1, 2008. The Henry J. Kaiser Family Foundation Headquarters 2400 Sand Hill Road Menlo Park, CA 94025 Phone 650-854-9400 Fax 650-854-4800 Washington Offices and Barbara Jordan Conference Center 1330 G Street, NW Washington, DC 20005 Phone 202-347-5270 Fax 202-347-5274 www.kff.org This report (#7615-03) is available on the Kaiser Family Foundation’s website at www.kff.org. The Kaiser Family Foundation is a non-profit private operating foundation, based in Menlo Park, California, dedicated to producing and communicating the best possible analysis and information on health issues.