Medicare Home Health Care Benefit

Published by the Government Accountability Office on 1997-02-11.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

      United States
GAO   General Accounting Office
      Washington, D.C. 20848

      Health, Education   and Human Services Division


        February 11, 1997

       The Honorable William M. Thomas
       Chairman, Subcommittee on Health
       Committee on Ways and Means
       House of Representatives

        Dear Mr. Chairman:

       The admmistration has publicly discussed its intention to propose, as part of its
       Medicare reforms, shifting from the part A (Hospital Insurance) trust fund to
       the part B (Supplementary Medical Insurance) trust fund the costs of most
       home health care services, such as skilled nursing and therapy. You noted in
       your February 4,1997, letter that we had evaluated the potential effects of a
       similar proposal made in 1988l and asked us to update that report on the basis
       of the particulars of the administration’s current proposal.

       The specifics of the administration’s proposal were not available as of February
       10, 1997, but we were told that this proposal would be similar to the one in the
       President’s 1996 Medicare legislative package. Therefore, we based our
       analysis on the specifics in the 1996 package. We also reviewed Medicare and
       Congressional Budget Office (CBO) projections of home health costs and
       utilization and made rough estimates of the dollar effects of the proposal.

       In summary, we found three potential effects from shifting most home health
       costs from part A to part B. First, as expected, the depletion date for the part
       A trust fund would be extended because the majority of home health payments
       would no longer come from that fund. CBO estimated last year that the shift
       would add about 3 years to the 2001 depletion date it then estimated. Second,
       the shift would result in the need for more general revenues to fund part B in
       direct proportion to the costs shifted from part A. Available information
       indicates about $95 billion would be needed over the fiscal year 1998 through

       ‘Medicare: Potential Effects of Shifting the Home He&h Benefit From Part A
       to Part B (GAO/HRD-88-79, Mar. 25, 1988).
                          GAO/HEHS-97-70R          Medicare   Home   Health   Care   Benefit
2002 period, assuming no other changes to the home health benefit are made.
The administration and others also propose additional changes to the home
health benefit designed to hold down its cost growth, and to the extent that
such proposals are implemented, the amount shifted from part A to part B
would be reduced. The shift, however, would not affect the reported budget
deficit amount because both funds are included in the unified budget, and the
increase in general fund expenditures would be offset by an equal decrease in
part A trust fund expenditures. Third, Medicare beneficiaries would not be
affected except that they would have less opportunity to appeal home health
denials to administrative law judges because the dolIar threshold for such
appeals is $100 under part A but $500 under part B.


Medicare, authorized by title XVIII of the Social Security Act, is a health
insurance program that helps almost aII Americans aged 65 and over and some
disabled persons pay for needed health services. Medicare consists of two

- Part A, Hospital Insurance Benefits for the Aged and Disabled, covers
  inpatient hospital services, skilled nursing facility services after a
  hospitalization, hospice services, and home health services. Part A is
  financed primarily by Social Security taxes on wages. To be eligible for part
  A, a person must (1) be 65 years or older and eligible for payments under
  Social Security’s old age retirement and survivors program, (2) have
  received Social Security disability benefits for 24 months, or (3) suffer from
  end-stage renal disease and be fully or currently insured under title II of the
  act. In fiscal year 1996, part A expenditures totaled about $125 billion.

- Part B, Supplementary Medical Insurance Benefits for the Aged and Disabled,
  is a voluntary program that covers physician services and a number of other
  health services, such as laboratory, outpatient hospital, and home health.
  Part B is financed by enrollee premiums (currently set by law at an amount
  necessary to cover 25 percent of total costs) and federal general revenues.
  For most hinds of services, beneficiaries are responsible for a $100 annual
  deductible and 20 percent coinsurance. Any citizen, or legal alien who has
  resided in the United States for at least 5 years, aged 65 or older is eligible
  for part B. In addition, disabled persons and end-stage renal disease patients
  eligible for part A are also eligible for part B. In fiscal year 1996, part B
   expenditures totaled about $69 billion.

2              GAOIHEIHS-97-70R        Medicare    Home   Health   Care Benefit
Home health services consist of skilled nursing services; physical, speech, and
occupational therapy; and medical social services provided in a patient’s home.
If the patient requires skilled nursing or therapy services, home health aid
services, which have more of a personal care nature, such as assistance with
bathing, are also covered.

Medicare’s deductibles and coinsurance do not apply to home health services,
and no limit is placed on the number of visits. Home health services are
covered under both part A and part B. However, payment for such services is
always made under part A unless the beneficiary is only covered by part B.

The Health Care Financing Administration (HCFA), within the Department of
Health and Human Services @IHS), administers Medicare. HCFA is assisted by
insurance companies that contract with it to process and pay claims. Part A
contractors are called intermediaries, and they process ah home heahh claims.


The admmistration’s 1996 proposal, which we were told is expected to be
similar to what will be proposed this year, would result in part A paying for
only the first 100 visits after a hospitalization of at least 3 days. All other
covered visits would be paid by part B unless the beneficiary was only covered
by part A, in which case part A would continue to pay for all covered visits.
The proposal would exclude from the determination of beneficiary premium
amounts all costs transferred to part B as a result of the change.

The administration’s proposal would move coverage back toward what was
authorized before the Omnibus Reconciliation Act of 1980 liberalized the home
health benefit. Before that act, part A covered up to 100 visits after a
hospitahzation and part B covered up to 100 visits per year.

Potential Effect on the
Solvencv of Part A Trust Fund

Current projections by the Medicare Board of Trustees and CBO show the part
A trust fund becoming insolvent in the year 2001. Because the administration’s

2The exception is durable medical equipment, such as hospital beds and oxygen
equipment, furnished by home health agencies for which beneficiaries are
required to pay 20-percent coinsurance.

3             GAOIHEHS-97-70R       Medicare    Home   Health   Care   Benefit
proposal would shift the majority of home health costs from part A to part B,
the date the part A trust fund is exhausted would be extended. CBO estimated
that the transfer of costs to part B that would have occurred under the 1996
proposal would move the part A trust fund’s depletiondate fo-rwtid by about 3
years, all other things being equal. Because 4 years of cost shifting are now
available rather than the ~5years available at the time of CBO’s estimate, the
effect on the trust fund’s depletion date would now be somewhat less.

Potential Effect on the Need
for General Revenues

Part B is funded by beneficiary premiums and general revenues. Because the
proposal would preclude the home health benefit costs transferred to part B
from affecting the amount of beneficiary premiums, all of the increase in costs
would have to be covered by general revenues.

HCFA data indicate that 30 percent of home health visits were preceded by a
hospital stay and were within the first 100 visits3 This means that under the
proposal, the costs for about 70 percent of visits would be transferred from
part A to part B. HCFA estimates that Medicare will spend about $21.9 billion
on home health care in fiscal year 1998. Thus, in 1998, about $15.3 billion in
payments would be transferred to part B and need to be covered by general
revenues. HCFA estimates that during fiscal years 1998 through 2002, about
$135 billion will be spent on home health services, which indicates that about
$95 billion would be shifted to part B and need to be funded by general
revenues if the 70 percent remains constant over that period.4 CBO projects
slightly lower home health care costs over this period, which would mean a
somewhat smaller estimate for the total amount shifted.

this estimate is based on a hospital stay of any length. To the extent that
beneficiaries had lengths of stay of fewer than 3 days, use of the 30-percent
estimate would understate the amount to be transferred from part A to part B.
‘?his estimate does not reflect the amount paid to risk contract health
maintenance organizations to cover their obligation to furnish home health
care. Payments to these organizations are apportioned to the two trust funds
by HCFA, and presumably a greater portion would be allocated to part B if the
proposaJ is enacted. Currently, about 10 percent of beneficiaries are enrolled
in these organizations, which means roughly 10 percent more, or about $9
billion, might be transferred from part A to part B.
              GAOEIEHS-97-70R        Medicare    Home    Health   Care Benefit
The administration’s 1996 proposal as well as other proposals introduced in the
Congress included provisions designed to hold down the increase in the growth
of home health expenditures. To the extent that any cost-saving proposals are
enacted and are effective, the amount of general revenues needed to cover
costs transferred from part A to part B would be less than the amount
discussed in the previous paragraph. A preliminary HCFA estimate, which
considered the effects of other possible legislative changes, showed that about
$82 billion would be transferred from part A to part B.

Regarding the need to control home health care cost growth, our report,
Medicare: Home Health Utilization Expands While Program Controls
Deteriorate (GAO/HEHS-9616, Mar. 27,1996), discussed the reasons home
health costs have been increasing rapidly. We concluded that changes in the
home health industry, revisions to Medicare law and regulations, and a
lessening of administrative controls over the benefit combined to produce
growth rates much higher than those for the overall Medicare program. We
also concluded that the home health benefit had moved from its original
purpose of treating patients for acute illnesses and injuries to more of a long-
term care benefit for chronic conditions. We suggested that the Congress
consider whether the home health benefit should continue to become more of a
long-term care benefit or if it should be limited primarily to a posthospital
acute care benefit. We also suggested that the Congress consider providing
additional administrative resources so that controls against abuse of the’benefit
could be better enforced.

Potential Effect on Beneficiaries
and Home Health Agencies

Because the 1996 prop04 to shift home he&h costs from part A to part B by
itself would not change the level of services, out-of-pocket costs for
beneficiaries, or administration of the benefit, the proposal should have no
direct effect on beneficiaries or home health agencies.5 The one exception is
that appeal rights for denied claims would change for some beneficiaries.
Under part A, the amount in dispute must total at least $100 for a beneficiary
to seek a hearing before an administrative law judge after exhausting appeals at

?The administration’s 1996 proposal would protect beneficiaries covered only by
part A or only by part B though covering all home health care for them under
whatever part they have. Without this provision, beneficiaries would have to
buy the part they are not currently eligible for to maintain full coverage for
home health care.

5             GAOLHEHS-97-70R        Medicare    Home   Health   Care Benefit
        the intermediary level. Under part B, the amount in dispute must be at least
        $500. Thus, beneficiaries whose home health claims would have been paid by
        part A before but now would be paid by part B and who have amounts in
        dispute between $100 and $500 might not be able to get a hearing before an
        administrative law judge.

        I trust that the information in this letter satisfies your needs. We will make
        this letter available to others on request. If you or your staff have any
        questions, please contact me on (202) 512-7114 or Tom Dowdal, Senior
        Assistant Director, on (202) 512-6588. Peter Oswald, Senior Evaluator, also
        contributed to this letter.

        Sincerely yours,

    &   William J. Scanlon
        Director, Health Financing
         and Systems Issues


        6              GAOIHEHS-97-70R         Medicare    Home   Health   Care Benefit

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