oversight

Potential Effects of National Health Insurance Proposals on Medicare Beneficiaries

Published by the Government Accountability Office on 1977-02-24.

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

                             DOCUMENT RESUME
00505 - [A0751400

Potential Effects of National Health Insurance Proposals on
Medicare BeneficiaLies. HRD-76-129; B-164031(4). February 24,   _

1977.   59 pp.                                                  _




Report to the Congress; by Elmer b. Staats, Comptroller Generalim

Issue Area: Health Programs: Reimbursement Policies and          s
     Utilization Controls (1208); Health Programs: Impact of     __

     National Health Insurance (1209).
Contact: Human Resources Div.
budget Function: National Defense: Dapartment of Defense -
     Military (except procureaant & contracts) (051).
organization Concerned: Department of Health, Education, and         _:_

     welfare,
Congressinnal Relevance: House Committee on Ways and Hears;
     Senate Comwittee on Finance; Congress.
Authority':  Comprehensive Health Insurance Act of 1974; S. 2970
      (93rd cong,.; fl.P. 12684 (94th Coug.). Comprehensive
     faticnal Health Insurance Act of 1974; S. 3266 (93rd Cong.);v
     H.R. 13870 (93rd Cong.). Catastrophic Health Insurance and
     Medical Assistance Reform Act; S. 2513 (93rd Cong.). Social           t=
     security Amendments of 1965. Social Security &mendments of
    1~72. h.     Rept. 94-12082.

          gedicare was established to protect tta elderly against
the cost3 of inpatient hospital care. The proposed Cmaprchensive
Health Insurance ict of 1974 (CHIP) would combine parts A and 8
of Hedicare and would modify dedicare's cost-sharing formulas
and limit beneficiaries 0 liability based on income. The propose¶
National Health Insurance Act of 1974 (Kennedy-Hills proposal)
would leave the Medicare cost-sharing formula essentially the
same but would limit the beneficiaries' liability based on
i.ncome. The proposed Catastrophic Health Insurance and Medical
Assistance Reform Act (Long-Ribicoff proposal) would,
essentially, supplement Medicare's existing benefits by covering
catastrophic illnesses. Both the CHIP and the Kennedy-Mills
proposal would use credit cards (program payments would be made
in full to participating providers, such as hospitals, on behalf
of beneficiaries).   Findings/conclusions: Of the varicus
proposals, eliminating the limits on inpatient hospital days and
substituting a flat, daily coinsurance charge for the existing
inpatient deductible and coinsurance seen most attractive, since
they would siaplify administration. Introducing a modifiei
benefit structure based on individual or family income would
greatly increase costs, particularly if strictly enforced and
monitored to maintain the integrity of the system, and could
have onlv a limited impact on total program benefits.
Introducing a credit card system would simplify administration
and reduce costs for provi.4..rs, but would increase
administrative costs to the Government.    Recommendations: The
Social Security Administration should test the feasibility and
utility of a credit card system
                                in a national health insurance
scheme. Congress should explore
                                whetaer
income test would justify the resultant the benefits of an
problems and costs. If cost sharing        added administrative
desirable, Congress should provide   for   inpatient services is
 (DJi)                              for  a  fixed, daily copayment.
OI             -,.REPORT TO THE CONGRESS

           -   BY THE COMPTROLLER GENERAL
     --, ~ -   OF THE UNITED STATES




               Potential Effects Of
               National Healkh Insurance
               Proposals On
               Medicare Beneficiaries
               Medicare has protected the elderly against the
               costs of hospitalization, but its complicated
               benefit structure has created au,, inistrative
               problems. Some national health insurance
               pronocals would change the benefit structure.
               GAO recc-nmends that
                    --the Congress in its deliberations of
                      national health insurance proposals
                      carefully explore whether the benefits
                      of introducing an income test would
                      justify the resultant added adminis-
                      trative problems and costs, and
                   --a credit card system be tested under
                     Medicare to determine its feasiblity for
                     use under national health insurance.




               HRD-76-129                                       FEB. 24, 1 9 77
                COMPTROLLER GENERAL OF THE UNIT'    STATer
     I9~~~~IL.~~~WASHINGTON,          O.f.   *OM$



B-164031(4)



To the President of the Senate and tne
Speaker of the House of Representatives

     This report describes Medicare's coverage of the costs
of hospitalized beneficiaries and compares Medicare coverage
with the coverage under selected national health insurance
proposals. It also discusses administrative problems con-
nected with Medicare's benefit structure and points out po-
tential administrative problems in selected national health
insurance proposals.

     The review was made to determine (1) whether Medicare
was meeting its basic legislative intent of protecting the
elderly against the costs of inpatient hospital care and
(2) the potential effect of selected national health insur-
ance proposals in this regard.

     Our review was made pursuant to the Budget and Account-
ing Act, 1921 (31 U.S.C. 53), and the Accounting and Audit-
ing Act of 1950 (31 U.S.C. 67).

     We are sending copies of this report to the Director of
the Office of Management aid Budget; and to the Secretary of
Health, Education, and Welfare.




                                  Comptroller General
                                  of the United States
                      IGo n t e n t s


DIGEST

CHAPTER

          INTRODUCTION                                 1
              Medicare inpatient hospital benefits     3
              National health insurance proposals      6
   2      INPATIENT HOSPITAL CARE FOR THE ELDERLY
            UNDER MEDICARE                             7
              Social Security Administration stud-
                ies based on hospital lengths of
                stay                                   7
              Analysis of SSA's actuarial sample       9
              Limited effect of coinsurance on pro-
                gram beneficiaries and costs          13
              Conclusions                             14
   3      HOW WILL PROPOSED CHANGES AFFECT MEDI-
            CARE'S BENEFIT STRUCTURE?                 16
              CHIP                                    17
              Medicare Improvements of 1976           23
              The KcnneJy-Mills proposal              25
              The Long-Ribicoff proposal              27
              Conclusions                             29
   4      HOW PROPOSED CHANGES WOULD AFFECT MEDI-
            CARE'S PROGRAM ADMINISTRATION             31
              Administrative problems with part A
                benefit structure                     31
              Effect of proposed changes on pro-
                gram administration                   32
              Conclusions                             36
              Agency comments                         37
              Recommendation to the Secretary
                of HEW                                38
              Recommendation to the Congress          39
   5      SCOPE OF REVIEW                             40
APPENDIX                                                  Page
       I   Medicare inpatient hospitalization
             in 1971                                       42
      II   Inpatient hospital care used by disabled
             persons                                      43
 III       Major national health insurance proposals
             introduced in the 93d Congress an of
             April 11, 1974, and reintroduced in the
             94th Congress as of April 22, 1975           46
  IV       Administrative problems with existing
             hospital insurance benefit structure
             and related query system                     48
      V    Letter dated October 1, 1976, from the
             Assistant Secretary, Comptroller, HEW        56
  VI       Principal Department of Health, Education,
             and Welfare officials responsible for
             activities discussed in this report          59
                       ABBREVIATIONS
BCA        Blue Cross Association
CHIP       the proposed Comprehensive Health Insurance Act
             of 1974
GAO        General. Accounting Otfice
HEW        Department of Health, Education, and Welfare
SSA        Social Security Administration
SSI        Supplemental Security Income for the Aged,
             Blind, and Disabled
 COMPTROLLIER GENERAL'S               POTENTIAL EFFECTS OF NATIONAL
 REPORT TO THE CONGRESS               HEALTH INSURANCE PROPOSALS
                                      ON MEDICARE BENEFICIARIES
                                      Department of Health, Education,
                                        and Welfare

              D   ':G E S     r

             Medicare is intended to protect the elderly
             against the costs of inpatient hospital
             care.  About 1 in 5 of the over 20 million
             aged Medicare beneficiaries use inpatient
             hospital benefits annually.  Medicare pays
             over 90 percent of their hospital bills.

             Many national health insurance proposals
             introduced in the Congress would affect
             Medicare's methods of reimbursing bene-
             ficiaries for their costs of medical care.
             This report looks at several prominent
             health insurance proposals and axnalyzes
             features of each and how they would affect
             Medicare's methods of reimbursement.   GAO
             also anal'zes the effect of etch proposal
             on a number of beneficiaries.  (See p. 16.)

             For example, the proposed Comprehensive Health
             Insurance Act of 1974, would

             -- introduce cost-sharing limitations based
                on beneficiaries' incomes,

             -- remove the limit on the number of days
                of hospital care covered by Medicare,
                and
             -- impose as much as 20 percent cost sharing
                (coinsurance) with the first day of hos-
                pitalization. Under this proposal, benefi-
                ciaries with annual incomes less than
                $3,500 would usually pay less than they
                would under Medicare, and beneficiaries
                exceeding $3,500 would usually pay more.
                (See p. 17.)
             The proposed Medicare Improvements of 1976
             introduced in the 94th Congress would


cov~'      Upon rrmoval, the report
covr vat should b notd heron.
                                      i                    HRD-76-129
-- change Medicare's cost-sharing system,

-- supplement Medicare's existing benefits
   to co',er catastrophic illnesses, anJ

-- limit increases in Medicare reimbursements
   for costs and charges in fiscal years 1977
   and 1978.

The coverage for catastrophic illnesses would
affect only about 4 percent of the Medicare
beneficiaries who use hospital benefits in a
year.  The remaining hospitalized beneficiar-
ies would pay an average of about $180 more
than they would under the existing program.
(See p. 23.)

The proposed Comprehensive National Health In-
surance Act of 1974 would remove Medicare's
limitations on the number of days of hospital
care covered and limit beneficiaries' cost
sharing based on income.  No beneficiary
would pay more than would have been paid
under Medicare: some lower income beneficiaries
would pay less. (See p. 25.)

The proposed Catastrophic Health Insurance and
Medical Assistance Reform Act would supplement
Medicare.   The coverage for catastrophic
illnesses would begin after 60 hospital
days, which would affect about 3 percent of
the Medicare beneficiaries who use hospital
benefits in a year.   This would provide full
inpatient hospital coverage with no cost
sharing.   (See p. 27,)

Medicare's benefit structure is complicated.
Beneficiaries do not understand it.   Medi-
care's inpatient hospital benefits  are based
upon a benefit period or "spell of  illness"
which begins when a beneficiary is admitted
to a hospital, and ends when the beneficiary
has been out of a hospital or skillei nurs-
ing facility for 60 consecutive days.

Medicare's hospital cost-sharing charges,
which begin with the 61st day of hospitaiiza-
tion, and limitations on covered days, have


                       ii
had a negligible effect on discouraging hos-
pital use. Only about 2 percent of the hos-
pitalized beneficiaries used more than 60
days in a benefit period. Less than 1 per-
cent used more than 90 days.  (See p. 10.)

The system has created administratie prob-
lems--for the Government, for intermediaries
(such as the Blue Cross Association), and
for hospitals because of the need to deter-
mine the days used in a benefit period and
when hospitals should charge for deductible
amounts and cost sharing.   (See p. 31.)

Provisions of various national health in-
surance proposals which would simplify the
program include:
-- Eliminating the inpatient hospital day
   limitations.
-- Using credit cards. Providers would be
   paid by Medicare on behalf of beneficiar-
   ies. Medicare would collect the bene-
   ficiaries' share of costs.

-- Replacing the present inpatient deductible
   and cost sharing amounts with a fixed, daily
   charge to the hospitalized beneficiary.
   (See p. 33.)

Proposals which would increase administrative
problems and related costs include:
-- Introducing various levels of cost sharing
   based on income.

-- Using credit cards to pay physicians and
   other professionals.
If Medicare cost sharing were based on in-
dividual or family income, then that i.ncome
would have to be determined individually.
The cost to make these determinations could
be substantial. (See p. 33.)



    Sba
Tearne               iii
Using credit cards for Medicare inpatient
hospital services would involve about 6,900
hospitals and 8 million transactions.  The
accounting and collecting of the cost
sharing for other services would involve over
400,000 physicians and other professionals,
and 100 million transactions.  Bad debts,
under such an arrangement, could be substan-
tial.  (See p. 35.)

The Social Security Administration should
expand its current efforts in testirl the
use of credit cards under Medicare to determine
the feasibility of their use under national
health insurance proposals. (See p. 38,)

In its deliberations on national health in-
surance proposals for changing Medicare's
benefit structure, we recommend that the
Congress carefully explore whether the bene-
fits of introducing an income test would
justify the resultant added administrative
problems and related costs.  If cost sharing
for inpatient hospital services is believed
desirable, we recommend that the Congress
provide for a fixed, daily copayment for
inpatient hospital services.




                      iv
                          CHAPTER 1

                        INTROEUI   _!ON




     The Social Security Amendments of 1965 added two titles
to the Social Security Act, administered by the Dcpartment of
Health, Education, and Welfare (HEW).   These titles dramati-
cally increased the Governmnent's involvement in paying for
health care.
     Title XVIII, Health Insurance for the Aged, established
a program popularly known as Medicare, in which the Government
pays for most of the health care foi eligible persons aged 65
and older. Medicare became effective on July 1, 1966. The
Social Security Amendments of 1972 extended Medicare protec-
tion to (1) persons under age 65 who were entitled to social
security or railroad retirement benefits because of a dis-
ability for at least 24 months and (2) insured individuals
and members of their families under age 65 with chronic
kidney disease. Medicare is administered by the Social Se-
curity Administration (SSA) of HEW.
     Title XIX, Grants to States for Medical Assistance
Programs, established a Federal-State program popularly known
as Medicaid, in which the Government pays 50 percent or more
of a State's costs for medical care given to certain people
unable to pay for such care. Medicaid became effective in
January 1966. It is administered by the Social and Rehabili-
tation Service of HEW.

     Medicare has two parts.  Part A--Hospital Insurance
Benefits for the Aged and Disabled--covers inpatient hospital
services and post-hospital care in a skilled nursing facil-
ity 1/ or in a patient's home. Part A is principally financeu
by taxes on earnings paid by emplcyers, employees, and self-
employed persons.  In 1976 about 22 mill ,n aged and about
2.3 million disabled people (including those with chronic
kidney disease) were eligible for part A benefits. For fis-
cal year 1967, the first full year of Medicare, part A bene-
fit payments were about $2.5 billion. For fiscal year 1976
they were about $12.2 billion; about 96 percent was for in-
patient hospital services.


1/A skilled nursing facility is a specially qualified facil-
  ity which has the staff and equipment to provide skilled
  nursing care or rehabilitation services as well as other
  related health services.


                              1
     Part B of Medicare--Supplementary Medical Insurance
Benefits for the Aged and Disabled--generally covers 80 per-
cent of the reasonable costs of physician services, outpatient
hospital services, home health services, and various other
medical and health services, subject to an annual $60 deduc-
tible. Enrollment in part B is voluntary. Part B is financed
                                                       the gen-
by monthly premium payments and appropriations from 21.9
eral revenues of the  U.S. Treasury.  In  1976  about      mil-
lion aged and about  2 million disabled  people  were enrolled
for part B benefits. For fiscal year 1967, part B benefit
payments were about $644 million. Fiscal year 1976 payments
were about $4.7 billion. About 77 percent was for physicians'
services; about 19 percent for outpatient hospital services.
     Under Medicaid, the Government pays from 50 to 78 per-
cent of the costs States incur in providing medical services
to certain low-income people. Title XIX requires that States
participating in Medicaid provide benefits for inpatient and
outpatient hospital services; laboratory and X-ray services;
skilled nursing facility services for individ als age 21 and
older; early and periodic screening, diagnosis, and treatment
of people under age 21; home health services; family-p anning
services; and physicians' services. Additional services such
as dental care and prescribed drugs may be included under a
Medicaid program if a State chooses. As of November 1976,
49 States and 4 jurisdictions 1/ were participating in Medi-
caid.

     Generally, persons receiving public assistance under the
Aid to Families with Dependent Children Program 2/ and Supple-
mental Security Incomle for the Aged, Blind, and Disabled
(SSI) 3/ are eligible for Medicaid. These persons are gen-
erally referred to as categorically needy.
     Aged, blind, or disabled people or persons with depen-
dent children who have too much money or resources to qualify
for public assistance, but not enough to meet the costs of
necessary medical care, may also be entitled to Medicaid
benefits if the State chooses. These people are referred to
as medically needy. As of November 1976, 32 States and juris-
dictions had elected to cover the medically needy.


 1/Tte District of Columbia, Puerto Rico, the Virgin Islands,
   and Guam.

 2/Title IV part A, Social Security Act.
 3/Title XVI, Social Security Act.

                              2
     Some people can receive both Medicare and Medicaid bene-
fits. For the estimated 2.2 million categorically needy aged
people, Medicaid pays the Medicare cost-sharing, as well as
Medicare's part B premiums.

     For fiscal year 1967 the Government paid about $1.2 bil-
lion. For fiscal year 1976 the Government paid about $7.8
billion for about 23.2 million people.

MEDICARE INPATIENT HOSPITAL BENEFITS

     Of the health care benefits discussed, the most costly
has been the part A inpatient hospital benefits for the aged.
Administering pa_rt A benefits

     SSA administers part A benefits with the assistance of
intermediaries. The principal intermediary is the Blue Cross
Association (BCA), which subcontracts most of its work to 72
Blue Cross plans throughout the United States. On July 1,
1975, BCA was the intermediary for about 90 percent of the
6,904 hospitals participating in Medicare. The other partici-
pating hospitals deal directly with SSA or with nine commer-
cial intermediaries.

     Intermediaries pay hospitals and other providers for
their services to Medicare beneficiaries and transmit informa-
tion and instructions between SSA and the hospitals. Inter-
mediaries (including SSA) spent about $114 million in fiscal
year 1976 for part A administrative costs under Medicare.

Part A benefit structure

     Under Medicare, hospital insurance benefits are struc-
tured around a benefit period or "spell of illness." A bene-
fit period begins when a beneficiary is admitted to a hospital
and ends when the beneficiary has been out of a hospital or
skilled nursing facility for 60 consecutive days. A benefici-
ary can have as many benefit periods as needed.
     Medicare provides coverage for inpatient hospital care
up to 90 days in each benefit period. 1/ For the first 60
days during a benefit period, Medicare pays for virtually


1/A beneficiary can use no more than 190 days for inpatient
  care in a psychiatric hospital.



                                 3
all covered services, 1/ except for a deductible which is gen-
erally related to the cost of a day of inpatient care and is
charged to the beneficiary. Medicare pays for all covered
services from the 61st-90th days of inpatient hospital care
in a benefit period, except a daily coinsurance amount paid
by the beneficiary. The coinsurance equals one-fourth of
the deductible amount. Since January 1968, Medicare has also
covered an additional 60 reserve days of inpatient hospital
care. These can be used as elected by the beneficiary, but
they can be used only once.  Daily coinsurance for the reserve
days is one-half the deductible amount.

     For post-hospital care, Medicare provides coverage for
care in a skilled nursing facility up to 100 days in each
benefit period. Medicare pays for all covered services for
the first 20 days.  For the next 80 days the patient must
pay a daily coinsurance charge based on one-eighth of the in-
patient deductible.  For home health care, Medicare part A
pays up to 100 home visits in each benefit period, provided
that such visits are used within a year from the beneficiary's
most recent discharge from a hospital or skilled nursing
facility.   The beneficiary does not pay a coinsurance charge
for home health visits.

      Since the inception of Medicare, part A inpatient deduc-
tible amounts pertaining to hospital care have steadily in-
creased, which reflects a general rise in hospital costs since
1966.

              Part A Deductible and Coinsurance Amounts

                                  Inpatient hospitals
Effective         First 60 days       61st-90th           60
  date            (deductible)           day          reserve day

                                          (coinsurance per day)
July   1966        $ 40                 $10          not covered
Jan.   1968          40                  10             $20
Jan.   1969          44                  11              22
Jan.   1970          52                  13              26
Jan.   1971          60                  15              30
Jan.   1972          68                  17              34
Jan.   1973          72                  18              36
Jan.   1974          84                  21              42
Jan.   1975          92                  23              46
Jan.   1976         104                  26              52

1/The beneficiary pays for the first three pints of blood
  furnished in a benefit period.


                                  4
The_"9uery system" and how it works

     The status of benefits must be determined each time a
patient is admitted for inpatient care. SSA has a system to
provide information on eligibility and benefits and to main-
tain current individual records.
     Hospitals and skilled nursing facilities submit queries
through the intermediary to SSA each time a beneficiary is
admitted. Notices of admission usually accompany the queries.
These notices provide information on the beneficiary including
the date of admission, the admitting hospital, and other re-
lated medical information.

     When SSA receives the notice of admission, the beginning
of hospitalization is recorded in the beneficiary's master
record by creating atn "open item" on the SSA automatic data
processing record. This open item is closed when the corres-
ponding final hospital bill is paid by the intermediary and
is processed by SSA. 1/
     Within the Blue Cross system, an intermediary transmits
data on the notice of admission to BCA over the telecommuni-
cations system, a computer-controlled communications network
between BCA and the Blue Cross plans. The BCA in Chicago
regulates the data transmission to and from the individual
plans. BCA transmits the notices of admission to SSA.
     SSA responds to each query through BCA to the inter-
mediary, usually within 2 working days. The SSA reply shows
the remaining benefit days and the deductible status after
adjustments based on the last bill. However, SSA instructs
the intermediaries to develop the replies to determine the
days actually available as of the date of admission and
whether a new benefit period has begun, before sending the
information to the hospital. This development may include
contacting other intermediaries, hospitals, and skilled nurs-
ing facilities concerning information reported earlier on the
nctice of admission and/or on any open items which the SSA
reply shows.

     During 1974, SSA received about 8.2 million part A
queries through BCA. An admission or start-of-care notice
was transmitted for 7.4 million queries. SSA sent out



1/The query system is also used for deleting open items, ob-
  taining benefit status information without creating an open
  item, or resubmitting queries or notices of admission be-
  cause no reply had been received from SSA within 7 days.


                            5
8 million replies through BCA concerning eligibility for
hospital and skilled nursing facilities benefits.
NATIONAL REALTH INSURANCF PROPOSALS

     During the 93d and 64th Congresses, various proposals
for national health insurance were introduced which, wholly
or in part, would extend to nearly everyone the protection
provided to the aged, poor, and disabled.

     A July 1974 SSA analysis grouped the national health
insurance proposals into the following four categories:

     -- Combined public and private plans which would
        feature (1) privately financed and administered
        plans requiring employers to provide specific
        benefits for employees and their families and
        (2) publicly financed protection plans for the
        aged and low-income groups.

     -- Mainly public plars which would be financed princi-
        pally by payroll .axes and Federal general revenues
        and would be administered by Federal and/or State
        and local governments.
     -- Plans which would provide tax credits to be subtracted
        from personal income taxes (1) to offset the premium
        cost of qualified private health insurance or (2) when
        medical expenses exceeded a specific percent of family
        income. Some plans would also require employers to
        offer qualified policies to retain favorable tax treat-
        ment.

     -- Plans which generally would protect the public against
        the cost of catastrophic illness.
Under these proposals, Medicare would either continue or be
modified, supplemented, or replaced by a new program.




                              6
                          CHAPTER 2
                   INPATIENT HOSPITAL CARE
               FOR THE ELDERLY UNDER MEDICARE
     Medicare paid about $32 billion for about 530 million
days of inpatient hospital care for the elderly from July
1966 through July 1, 1973, when the disabled were added to
the program. Beneficiaries incurrnd about $2.2 billion in
deductible and coinsurance amounts in that period.

     According to the analyses and studies discussed on the
following pages, the program provided full coverage (exclud-
ing the statutory deductible and coinsurance amounts) for
covered services to about 99 percent of the beneficiaries
requiring inpatient hospital care, and about 97 percent of
all inpatient hospital days (excluding psychiatric) used
by these beneficiaries. In terms of protecting the elde ly
against the costs of inpatient hospital care, the progrc
has been successful.

     Medicare's coinsurance charges imposed after the 60th
and 90th days of hospitalization were intended to prevent
abuses of hospital use. About 95 percent of hospital use
during a benefit period ended at least 14 days before the
coinsurance provisions were to become effective. Further,
inpatient hospital coinsurance charges applied to only about
3 percent of the beneficiaries, and about 4 percent of the
covered days and represented only about 1 percent of program
costs for inpatient hospital care. Because beneficiaries
paid only about 20 percent of such charges, the hospital
coinsurance feature of Medicare seemingly had a negligible
effect on hospital use and program financing.
SOCIAL SECURITY ADMINISTRATION STUDIES
BASED ON HOWPTiAL LENGTO      T

     The Social Security Administration does not accumulate
statistical data on inpatient hospital use on the basis of
the benefit period. SSA develops data on the basis of

    -- the number of beneficiaries using hospital insurance
       benefits during a year,

    -- the number of admissions,
    -- the length of stay for each admission, and
    -- the number of days hospitalized in a year.


                             7
Nevertheless, SSA studies strongly suggest that Medicare
provided virtually complete coverage for the inpatient hos-
pital days used by beneficiaries in short-stay hospitals.

     For example, SSA's Office of Research and Statistics
tabulated a sample of length of stays in short-stay hospi-
tals during 1971 on record as of January 3, 1973.  Over half
of the hospital stays were less than 10 days, about 93 per-
cent were 30 days or less, and 99 percent were 60 days or
less. The average length of stay was 12.4 days. 1/

     During 1971, about 4.5 million beneficiaries--about 1
of 5 eligible people--were admitted to hospitals about 6.2
million times, or about 1.4 admissions each.  The length of
stays for beneficiaries discharged from short-stay hospitals
in 1971 is summarized in the following table.

  Number of   Number of stays
  inpatient    i short-stay     Percent of       Cumulative
hospital days    hospitals      total stays   percent of stays

 less than 4        952,695          15.8            15.8
     4-6          1,198,775          19.9            35.7
     7-9          1,047,840          17.4            53.1
   10-12            744,220          12.4            65.5
   13-15            542,425           9.0            74.5
   16-20            577,270           9.6            84.1
   21-25            351,830           5.8            89.9
   26-30            208,000           3.4            93.3
   31-45            260,965           4.3            97.6
   46-60             82,605           1.4            99.0
   61-90             44,720            .7            99.7
   91-120             9,320            .2            99.9
 Over 120         _   5,615            .1           100.0

    Total         6,026,280         100.0           100.0

     Because neither the Office of Research and Statistics
nor the actuarial sample discussed on the following page
provided information on the total inpatient hospital days
that Medicare beneficiaries were not covered by their 90-day
benefit period or reserve benefit, we asked the American
Hospital Association to make a nationwide study of member
hospitals to estimate the amount of care provided to


17A December 1975 Office of Research and Statistics study on
  hospital use and length of stays by Medicare beneficiaries
  in short-stay hospitals during 1973 showed similar inform-
  ation, except that the average length of stay was about
  11.8 days.


                                8
 Medicare beneficiaries after their
                                     benefits were exhausted.
 Based on responses from 590 short-stay
                                         hospitals, 1/ only
 about 1.4 percent of al' the days
                                    of
 patients in short-stay hospitals were care provided to Medicare
                                        not covered by the
 program. 2/

      Through fiscal year 1973, Medicare
 admitted to short-stay hospitals averagedbeneficiaries
                                            about 98.5 per-
 cent of total hospital admissions
                                   by Medicare benefici-
 aries. These admissions also represent
                                          about 96 percent
 of total covered days.
 ANALYSIS OF SSA'S ACTUARIAL SAMPLE

     SSA's Office of the Actuary maintains
                                           information (in-
cluding bills) on hospital use and
                                   on charges
ous sample of approximately 0.1 percent       for a continu-
                                        of persons eligible
for part A benefits.

     During 1971, 4,025 of the sampled
                                        beneficiaries (about
I in 5) were admitted for inpatient
                                     hospital care in short-
and long-stay hospitals. For 100
                                  beneficiaries, their 1971
admissions continued benefit periods
                                      which began in 1970.
The remaining 3,925 beneficiaries
                                  began new benefit periods
with their first admissions in 1971.
ies were admitted 5,423 times, about   The 3,925 beneficiar-
                                      1.4 admissions each. 3/
     The 3,925 beneficiaries had 4,517
                                       benefit periods dur-
ing 1971.  About 86 percent (3,391 beneficiaries)
benefit period, 12 percent (480 beneficiaries)     had 1
periods. The remaining 54 beneficiaries        had   2 benefit
periods during the year. Overall,        had 3 or  4  benefit
                                   each beneficiary was ad-

I/The periods covered by these responses
                                         generally coverae
  annual reporting periods ending at
                                     various dates during
  1972 and, thus, included a mixture
                                     of 1971 and 1972 data.
2/This estimate of about 1.0 million
                                     days in 1971 excludes
  any days when Medicare denied payments
                                         because the care
  was not medically necessary (i.e.,
                                     custodial care).  Such
  care was never intended to be paid
                                     by the program.
3/As shown in app. I, the length of
                                     stays for the sample
  beneficiaries in 1971 closely coincides
  Research and Statistics tabulations      with Office of
                                       of the length of stays
  for all beneficiaries hospitalized
                                      in 1971. Therefore,
  we believe the actuarial sample represents
                                              the entire
  population from which it was drawn.




                                9
mitted about 1.2 times for each benefit period. On the
average, then, about 1 out of every 5 beneficiaries using
the hospital benefit is readmitted to a hospital within 60
days of the prior discharge.
     The following table shows hospital use during the 4,517
benefit periods. The 90-day limitation on Medicare coverage
was met or exceeded in less than 1/2 of 1 percent of the
4,517 benefit periods beginning in 1971. 1,

Number of covered                                    Cumulative
inpatient hospital   Number of       Percent of      percent of
  days i.l benefit    benef 4 t         total          benefit
      j'eriud         perios       benefit periods     periods
   less than 4          576              12.7            12.7
       4-6              814              18.0            30.7
       7-9              721              16.0            46.7
      10-12             517              11.4            58.1
      13-15             415               9.2            67.3
      16-20             476              10.5            77.8
      21-25             303               6.7            84.5
      26-30             202               4.5            89.0
      31-45             278               6.2            95.2
      46-60             117               2.6            97.8
      61-90              80               1.8            99.6
      9]-120             12                .3            99.9
     121-150              6                .1           100.0
       Total          4,517             100.0           100.0
     A similar study completed in 1976 by the Office of the
Actuary showed 5,066 benefit periods commencing in 1973 for
the 0.1 percent sampled beneficiaries. The results of this
study did not vary significantly from those shown above. The
90-day limitation also was only exceeded in lcss than 1/2 of
1 percent of the benefit periods beginning in 1973.



1/About 1.8 million disabled persons became eligible for
  Medicare in July 1973. A limited Office of Research and
  Statistics study of hospital and nursing home use by the
  disabled during fiscal year 1972 showed that although the
  disabled tend to be admitted to hospitals more often than
  the elderly during a year, the overall pattern of hospit-
  a.ization during a benefit period did not vary greatly
  from hospitalization of the elderly. (See app. II.)


                                  10
Beneficiaries exhausting 90 days of
inpatient hospital care in a benefit period
     Of the sample beneficiaries who received inpatient hos-
pital care in 1971, 38 (about 1 percent) used 90 days or
more of inpatient care in 1 benefit period. Twenty-five of
the 38 patients began the benefit period in ]971, and 13
continued a benefit period which began in 1970. Thirty-
three patients exhausted their benefits in short-stay hospi-
tals, and 5 exhausted their benefits in long-stay hospitals.
     About 13,000 of the sampled beneficiaries (about 63
percent) received some inpatient hospital care during the
5-1/2 year period from July 1966, when Medicare became
effective, through December 1971. Only 321 beneficiaries
(2.5 percent) received 90 days or more of inpatient hospital
care in 1 or more benefit periods during that period. Since
January 1968, when the 60-day reserve benefit became effect-
ive, 220 sample beneficiaries exhausted their 90 inpatient
hospital days in 1 or more benefit periods. As indicated
by the following table, most of these elected to use some
of the 60 reserve days, but few used all of the days.
                                Year in whif.t benefits
                               were initially exhausted

                      1968   1969   1970   1971   Total   Percent

Beneficiaries us-
  ing some reserve
  days                  35     51     26     27    139      53.2

Beneficiaries us-
  ing all reserve
  days                  10      5      4      4     23      10.4

Beneficiaries not
  using reserve
  days                  22     16     13      7     58      26.4

Number of benefi-
  ciaries exhaust-
  ing 90--day inpa-
  tient hospital
  benefit               67     72     43     38    220     100

     According to inpatient bills, the beneficiaries who ex-
hausted their benefits through 1971 often had complications
involving a basic chronic illness which required either a
series of hospital admissions or long-term hospitalization.
Examples follow.
                              11
Beneficiary A

     Beneficiary A exhausted his inpatient hospital benefits
in 1968 and then used his reserve days.  In that benefit pe-
riod he was admitted to a short-stay hospital 8 times for
stavs from 2 to 54 days.  He was admitted for emphysema,
malnutrition, heart trouble, acute urinary retention, shoul-
der and hip contusions, head lacerations, dehydration, and
a fractured hip.  The intervals between hospital stays
ranged from 3 to 49 days--none long enough to establish a
new benefit period.

     Beneficiary A again exhausted hib rnpaLient hospital
benefits in 1969.  He was admitted to a iona --
                                              stay hospital
once for chronic bronchitis and pulmonary      y3ema during
this benefit period.

BeneficiaryB

      Beneficiary B exhausted her part A inp.tient hospital
benefits in 1971.   Under that benefit period, she was first
admitted to the hospital for diabetes, gangrene of the right
foot, and a blocked right leg artery.   She stayed 30 days.
Two weeks later, under the same benefit period, she was re-
admitted for diabetes and for an amputation of the right
foot, which was complicated by an ulcer on the amputation
spot.   She was discharged after 75 days--15 days were re-
serve days.   Two days later, she was hospitalized again for
abnormally low blood sugar, using 3 more reserve days.
About 6 weeks later, she was hospitalized for a stroke.    She
stayed 9 days, again using reserve days because she had not
been out of the hospital long enough to establish a new
benefit period.

Beneficiary C

     Beneficiary C exhausted both her inpatient hospital
benefits and lifetime reserve benefits in 1970, being con-
tinuously hospitalized for a total of 356 days. This hos-
pitalization consisted of five stays--three in a long-stay
hospital and two in a short-stay hospital.  She was first
admitted to a long-stay hospital for chronic arthritis,
blood insufficiency, high blood pressure, and hardening of
the arteries.  This was follc -d by gangrene of the left
foot and ankle, which resulted in her left leg being amput-
ated at the short-stay hospital, She returned to the long-
stay hospital; but shortly thereafter, she contracted gang-
trne of the right heel, which resulted in a below-the-right-
knee amputation again at the short-stay hospital.  She was
readmitted to the long-stay hospital for a urinary tract
infection. After exhausting her 90-day inpatient benefit

                            12
and her 60-day reserve, beneficiary C spent an additional
200 noncovered days in the long-stay hospital before being
discharged. Since she was a continuous hospital inpatient
for 350 days she was unable to qualify for a new benefit
period.

Beneficiary D
     Beneficiary D exhausted both 90 days of inpatient hos-
pital benefits and 60 days of reserve benefits during a
single hospital stay in 1968. The patient was admitted to
the hospital with breast cancer and died at the end of the
161-day stay. The last 11 days were not covered by Medicare.

,LIMITED EFFECT OF COINSURANCE ON

     Alt:hough all beneficiaries beginning a benefit period
had to pay for the inpatient deductible, relatively few
(about 2 percent) were subject to the daily coinsurance
charges for the 61st-90th days of care in a benefit period
or for the 60-day reserve. As shown by the table on page
10 for about 95 percent of the sample benefit periods,
hospitalization ended at least 14 days before the coinsur-
ance provisions were to become effective.

     SSA's Office of the Actuary estimated that about 4 per-
cent of the 79 million covered days of care in 1971 were
subject to coinsurance--3 percent for the 61st to 90th days
hospitalized and 1 percent for reserve days used. On the
basis of these estimates, coinsurance charges totaled about
$58 million in 1971 or about 1 percent of benefit payments.

     The American Hospital Association's study estimated
total annual coinsurance charges at $57.2 million; the bene-
ficiaries or their insurers other than Medicare paid about
$40.5 million. State Medicaid program paid about $10.6 mil-
lion, and the Medicare program paid about $6.1 million as
Medicare bad debts. 1/

     The Health Insurance Institute reported that, of the
estimated 21 million persons age 65 and older at the end
of 1971, 11 million (52 percent) had private health insur-
ance covering hospital confinements which primarily supple-


l/Under Medicare's cost reimbursement principles, Medicare
  will reimburse hospitals for the uncollectable deductible
  and coinsurance amounts applicable to Medicare patients but
  not for the bad debts of non-Medicare patients.

                              13
mented Medicare.  If it is assumed that half of the $57.2
million in Medicare coinsurance was paid by private insur-
ance, the distribution of the payment of coinsurance charges
would be as follows.

  Sources of_pament                   Amount         .Percent

                                     (millions)

Complementary insurance                 $28.6          50.0
Beneficiaries                            11.9          20.8
Medicaid programs                        10.6          18.5
Medicare (ho3pital bad debts)             6.1          10.7

    Total                               $57.2         100.0

    Thus, Medicare beneficiaries paid only about 20 percent
of coinsurance charges.
CONCLUSIONS

     The Medicare program has been successful in protecting
the elderly against the costs of inpatient hospital care.
It has provided fill coverage (excluding the statutory de-
ductible and coinsurance amounts) to about 99 percent of the
beneficiaries requiring inpatient hospital care. Most Med-
care beneficiaries requiring hospitalization would be
required to pay in any year only the inpatient deductible
either once or twice.

      Although the incidence of the charge of an initial in-
patient deductible would have varied (see page 9), it
would have made little difference in overall coverage
whether the inpatient hospital benefit was limited to 90
days on the basis of (1) admissions, (2) a calendar year, or
(3) the benefit period. Depending on which method is used,
in 1971 the following number of deductibles would have been
made.
     Deducible based on:                  Number

       Admissions                         5,423
       Calendar year                      3,925
       Benefit period                     4,517

     ,Legislation intended hospital coinsurance charges to
prevent abuses of hospital use. However, the coinsurance
features of the inpatient hospit& benefit have had a
negligible effect on hospital use and program financinc.
                                14
     The following table summarizes the costs of covered
inpatient hospital services used by Medicare patients in
1971.

                                     Amount         Percent

                                   (000 omitted)
Program coverage:
    Medicare paid                    $5,512           93.7
Beneficiaries' liabilities:
    Inpatient deductible                 312           5.3
    Coinsurance                           58           1.0
Cost of covered days                 $5,882          100.0




                              15
                            CHAPTER 3

                     HOW WILL PROPOSED CHANGES

              AFFECT MEDICARE'S BENEFIT STRUCTURE?

     From January 1973 to July 1974, 22 proposals for national
health insurance were introduced in the 93d Congress.  From
April through July 1974, the House Committee on Ways and Means
held extensivc public hearings on national health insurance.
In May 1974 the Senate Committee on Finance held hearings.   In
August 1974 the Committee on Ways and Means met to devise a
compromise national health insurance bill, but on August 22,
1974, the chairman announced that the committee was setting
aside further consideration of it.

     The 93d Congress adjourned with no further committee ac-
tion on the proposals.  Most of the 22 proposals were rein-
troduced in the 94th Congress and contained many of the same
features as the previous years's bills.

     Several proposals would change Medicare's existing bene-
fit structure and would, therefore, affect the extent of cover-
age.  (See app. III.)

     The proposals introduced in the 93d Congress included
the following three features which would affect Medicare's
benefit structure.

     -- Combining parts A and B of Medicare.

     --Modifying the cost sharing and/or premium payments
       based in part on an individual's or family's income.

    -- Introducing coverage to supplement Medicare during
       a catastrophic illness, which would eliminate the
       existing innrtient hospital day limitations.

     The following three proposals, introduced in the   93d
Congress, received prominent mention in the media.

    --Senate bill 2970 and House bill 12684 were introduced
      February 6, 1974.  The proposed Comprehensive Health
      Insurance Act of 1974 (CHIP) would (1) combine parts
      A and B and (2) modify Medicare's cost-sharing formu-
      las and limit beneficiaries' liability based on income.

    -- Senate bill 3286 and House bill 13870 were introduced
       April 2, 1974.  The proposed Comprehensive National



                              16
        Health Insuarnce Act of 1974 (Kennedy-Mills proposal)
        would leave the Medicare cost-sharing formula essen-
        tially the same but would limit the beneficiaries'
        liability based on income.

       -- Senate bill 2513 was introduced October 2, 1973. The
          proposed Catastrophic Health Insurance and Medical
          Assistance Reform Act (Long-Ribicoff proposal) would,
          essentially, supplement Medicare's existing benefits
          by covering catastrophic illnesses.
     The effect these bills and the proposed Medicare Improve-
ments of 1976 (H.R. 120821, introduced February 25, 1976, might
have on Medicare's existing inpatient benefit structure is
discussed in this chapter.
CHIP

     This proposal would establish a three-part national
program.
       --An employee health care benefit program, under
         which employers would have to offer private heatlh
         insurance plans to their employees.

       -- A federally assisted plan operated by the States for
          low-income families, which, to some extent, would
          replace Medicaid. Medicaid would be terminated ex-
          cept for certain services not covered under CHIP:
          (1) services in intermediate care facilities, (2)
          services in skilled nursing facilities for persons
          age 21 and older, (3) care in mental institutions
          for persons under age 21 or over 65, and (4) home
          health services.

       -- A Federal plan for the aged which would replace
          Medicare with an expanded program.

     Each plan provides the same protection against costs
related to catastrophic illness and provides the same scope
of health services.

     In January 1975, the President called for a 1-year
moratorium on new spending programs, including national health
insurance. CHIP was not reintroduced in the 94th Congress.
     Under CHIP, as proposed in 1974, the Federal plan for
the aged would cover persons insured under social security
or railroad retirement. Under temporary transitional pro-
visions, all resident citizens (or permanent alien residents)

                               17
who reached age 65 in the first year of the program would also
be covered. Persons age 65 and older not covered under the
Federal plan would be eligible for the assisted health care
plan. The assisted plan would provide the same health serv-
ices, but have different premium payments and cost sharing
based on annual incorm.  Disabled persons included under
Medicare by the Social Security Amendments of 1972 would not
be eligible for the Federal plan, but most of them would be
covered by the assisted plan.
     The Federal plan basically continues the Medicare pro-
gran. The plan would remove the limitations on days of in-
pat.ent hospital services and add some new benefits, such
as paying for outpatient prescription drugs.

     Unlike Medicare, the Federal plan for the aged would
not have separate part A and part B programs. The separate
part A and part B deductibles, and the part B premium would
be replaced by (1) a single deductible for all covered serv-
:res, except outpatient drugs which would have a separate
deductible and (2) a single premium, estimated at $90 for
1975. All expenses above the deductibles would be coinsured,
and a maximum annual liability for both deductibles and co-
insurance would be set, based on the beneficiaries' incomes.
Everyone, regardless of marital status, would have the same
cost-sharing limits.

                 Income Classes and Cost Sharing Under CHIP's
                          FredralPlan [dor the A e-- ---
 Income                                                       Maximum individual
  crass                                                           liability _
(individ-        Income                      Coinsur-    Percent
  uals)          limits         Deductible    ance         of
(note a)        (note b)      Reqular Druq    rate       income        Amount
                                             (percent)

   1          under $1,750    S -     $ -      10         6     $   0 - under $105
   2        $1,750 - under
              3,500             50     25      15         9      158 - under   315
   3         3,500 - under
               5,250           100     50      20        12      420 - under   630
   4         5,250 and over    100     50      20         -            750

a/According to information from the Social Security Administration's Office of
  the Acturay, about 4 percent of the Medicare beneficiaries would be in in-
  come class 1; about 51 percent in class 2; about 20 percent in class 3; and
  about 25 percent in class 4.

b/Income to be determined on the basis of the criteria under the Supplementary
  Security Tncome program authorized by Title XVI of the Social Security Act.




                                      18
     Considering the deductible and coinsurance revisions, the
additional elderly people to be coverd under the combined pro-
gram and the added benefits, the Department of Health, Educa-
tion, and Welfare estimated that CHIP would cost the Govern-
ment about $1.8 billion more than the existing program.
     We sampled 80 beneficiaries who were hospitalized in 1971
to assess the effect of CHIP on Medicare's benefit structure.

     On the basis of 1971 data, adjusted for higher 1976 costs
and charges, they would have incurred about $249,000 for hos-
pital and medical expenses covered by Medicare. We considered
only the "reasonable charges" 1/ for medical services. Where
the actual charge exceeds the reasonable charge, the benefici-
ary may have to pay the difference, depending on whether or
not the physician or supplier agrees to accept the reasonable
charge as the full charge. Under Medicare's existing benefit
structure, about 90 percent of the $249,000 would have been
paid by the program and about 10 percent by the beneficiaries,
as shown in the following table. 2/


l/Reasonable charges are generally the lowest of

     -- the physician's or supplier's actual charge for the
        sezvice,
     -- the physician's or supplier's customary charge for
        that service, or

     -- the prevailing charge made for similar services in the
        locality.

2/Because our sample was selected from a group of only those
  beneficiaries that used inpatient hospital benefits (about
  1 in 5 Medicare beneficiaries in 1971), the expenses and
  distribution thereof are not typical of the overall Medicare
  population.  In 1971, about 78 percent of the eligible bene-
  fi-iaries used some covered part B services and about 43
  percent met the $50 deductible and were therefore reimbursed
  for some portion of the part B services. For those meeting
  the deductible in 1971 the average covered part B charges,
  as adjusted for the higher 1976 charges, were about $369,
  whereas, the average covered part B charges for benefici-
  aries in our subsample were $657.




                             19
                          Distribution of Covered Expenses Unde:
                           Existing Medicare Benefit Structure

                                       Inpatient
                                   hospital (part A)          Medical (part B)          Total
                                    Amount Percent            Amount Percent       Amount  Percent

Program pays                       $186,270      94.7         $38,590    73.5     $224,860     90.2
Beneficiary liability:
    Deductible                       9,152                      4,302                13,454
    Coinsurance                    a/1,248                      9,647                10,895


                                     10,400       5.3         $13,949    26.5       $24,349      9.8
    Total                          $196,670     100.0         $52,539    100.0    $249,209    100.0
a/Applicable to 2 of the 80 beneficiaries who had been hospitalized more than
  60 days in a benefit period.

 Coverage under CHIP
      Under the proposed benefit structure provided by the Fed-
 eral plan, the    q¾,209 in inpatient hospital and part B medi-
 cal expenses appi. able to the 80 sampled beneficiaries would
 have been distributed between the program and the beneficiar-
 ies depending on income class as follows. 1/



                                                                   CHIP
                                       Income class 2          Income class 3
                                        ($236 maximum           ($525 maximum      Income class 4
                                         liability)              liability)         ($750 maximum
                   Medicare _          __note a)                 (note a)            liability
                                                                                             _
               Amount Percent         Amount Percent          Amount  Percent     Amount Percent

Program pays   $224,860    90.2      $231,664        93.0     $214,701     86.2   $207,534    83.3
Beneficiary
  liability      24,349      9.8      _171545         7__.0     34L508     13.8     41L675    16.7
    Total      $2495209   100.0      $249,209     100.0       $249,209    100.0   $249,209    100.0

a/Calculated at the midpoint of the income class.




 1/Because only 4 percent of the Medicare beneficiaries would
   be in income class 1 and their cost-sharing liability would
   be negligible, the comparisons are not shown.




                                                20
     For income class 2, although 61 of the 80 beneficiaries
would have been liable for the assumed maximum of $236, only
33 beneficiaries would have been liable for more under CHIP
than Medicare. For income class 3, 67 of the 80 beneficiaries
would have been liable for more under CHIP than under Medi-
care; 41 were liable for the maximum of $525. For income
class 4, 74 beneficiaries would have been liable for more
under CHIP, but only 24 were liable for the maximum of $750.

     This increase in the beneficiaries' share is primarily
due to coinsurance being imposed from the first dav of hos-
pitalization. Once the $100 regular deductible has been met,
the beneficiary would be responsible for 20 percent of hos-
pital expenses--which made up 78.9 percent ($196,670) of
total expenses in our sample. Under Medicare, however, a
beneficiary would have been responsible only for the $104 de-
ductible in a benefit period, until the 61st day of hospita-
lization when coinsurance would be applicable.

     Examples uf how some of the 80 beneficiaries would have
fared under Medicare as compared with CHIP follow.

Beneficiary A
     This beneficiary was selected from those hospitalized
from 4 to 6 days during 1971. Beneficiary A was hospital-
ized for 6 days at a cost of $852 and also incurred $451 in
allowed reasonable charges during 1971 for covered part B
medical services.

     Under Medicare, the beneficiary would   have been liable
for $104 of the hospital expenses and $138   of the medical
expenses. Under CHIP, beneficiary A would    have been liable
for the maximum of $236 if in income class   2 or $341 if in
class 3 or 4.
Beneficiary B

     This beneficiary was selected from those hospitalized
from 7 to 9 days during 1971. Beneficiary B was hospitalized
for 9 days at a cost of $1,278 and also incurred $215 in al-
lowed reasonable charges during 1971 for covered part B med-
ical services.

     Under Medicare, the beneficiary would have been liable
for $104 of the hospital expenses and $91 of the medical ex-
penses. Under CHIP, beneficiary B would have been liable for
the maximum of $236 if in income class 2 or $379 if in class
3 or 4.


                             21
Beneficiary C
     This beneficiary was selected from those hospitalized
from 10 to 12 days during 1971.  Beneficiary C was hospital-
ized for 11 days at a cost of $1,562 and also incurred $350
in allowed reasonable charges during 1971 for covered part B
medical services.

     Under Medicare, the beneficiary would have been liable
for $104 of the hospital expenses and $118 of the medical ex-
penses.  Under CHIP, beneficiary C would have been liable for
the maximum of $236 if in income class 2 or $462 if in class
3 or 4.

Beneficiary D
     This beneficiary was selected from those hospitalized
from 16 to 20 days during 1971. Beneficiary D was hospital-
ized for 18 days at a cost of $2,556 and also incurred $698
in allowed reasonable charges during 1971 for covered part
B medical services.
     Under Medicare, the beneficiary would have been liable
for $104 of the hospital expenses and $188 of the medical
expenses. Under CHIP, beneficiary D would have been liable
for the maximums of $236 or $525 under income cl ss 2 or 3
and $731 if in income class 4.
Beneficiary E
     This beneficiary was selected from those hospitalized
from 31 to 45 days during 1971. Beneficiary E was hospital-
ized for 44 days during the year, which involved three ad-
missions for stays of 22, 12, and 10 days and two benefit
periods at a cost of $6,248. The beneficiary also incurred
$2,156 in allowed reasonable charges during 1971 for covered
part B medical services.
     Because the hospital care involved two benefit periods,
under Medicare the beneficiary would have been liable for
two inpatient hospital deductibles or $208 and $479 of the
medical expenses. Under CHIP, beneficiary E would have been
liable for the maximums of $236 or $525 under income class
2 or 3--both less than the $687 under Medicare. If in income
class 4, beneficiary E would have been liable for the $750
maximum.




                              22
MEDICARE IMPROVEMENTS OF 1976

     This proposal would modify the existing Medicare pro-
gram by

     -- eliminating the inpatient hospital day limitations,
     -- including coverage of catastrophic illnesses under
        parts A and B,
     -- limiting increases in Medicare reasonable costs and
        charges, and
     -- introducing a revised cost-sharing structure to dis-
        courage unnecessary hospital use.

     Part A beneficiaries would continue to pay the initial
deductible when hospitalized. However, the revised cost-
sharing provisions would require beneficiaries to pay 10
percent of the charges for hospitalization, skilled nursing
care, and home health services, but only up to a maximum
annual amount. The maximum would be $500 for the period
March through December 1976 and $500 in 1977. The maximum
would rise in future years to reflect the cost-of-living in-
creases to social security benefits. Amounts spent by an
individual in December would be credited to the limit in
the following year.
     The part B annual deductible would be increased to $77
for 1977 and would reflect changes in social security bene-
fits for future years. The existing 20-percent cost-sharing
provision under part B would remain generally in effect. 1/
However, beginning in 1977, cost sharing would be limited-to
an annual maximum amount. This maximum would be $250 for 1977
and would also reflect changes in social security benefits.
Amounts spent by an individual in December of any year would
be credited to the limit in the following year.

     This proposal would also limit increases in Medicare
reasonable costs and charges for fiscal years 1977 and 1978.
Under part A, increases in allowed reasonable costs would
be limited to 7 percent more than the reasonable costs in the


l/For home health and in-hospital pathology and radiology
  services, Medicare presently pays 100 percent of the rea-
  sonable costs or charges. The proposed bill would add a
  10-percent cost-sharing requirement for these services.


                                23
 previous fiscal year. Under part B, increases in reasonable
 charges would be limited to 4 percent.
      On the basis of actual 1971 data, adjusted for higher
 costs and charges in 1976, the 80 beneficiaires in our
 sample would have incurred about $249,000 in covered hos-
 pital and medical expenses. Under Medicare's existing bene-
 fit structure, the beneficiaries would have to pay about 10
 percent of the expenses. Under the proposed structure, bene-
 ficiaries would have to pay about 15 percent, as shown in the
 following table. 1/


                  Covered Expenses Under Medicare Benefit Structure
                        and Under medicareImprv-Fent    of 976
                             Medicare                     Medicare Improvements of 1976
                Part A    Part B    Amount    PercnKE    Part A    Part B   Amount    Perceint
Program
  pays         $186,270 $38,590 $224,860        90.2    $171,474 $40.323 $211,797
Beneficiary                                                                             85.0
  liability;
    Deduc-
       tible      9,152    4,302     13,454                9,152    5.~43    14,695
    Coinsur-
       ance       1,248    9,647     10,895               16,044   6,673     22,717

                 10,400   13,949     24,349     9.8       25,196   1Z,216    37,412     15.0
   Total       $196,670 $52,539    $249,209   100.0     $196,670 $52,539 $249,209      100.0



     Only three beneficiaries would benefit by the coverage
for catastrophic illnesses--only one of these incurred more
than $500 in part A expenses. The other 77 beneficiaries
would have to pay an average of $182 more than they would
under the existing program.

     Our analysis considered only the reasonable charges
medical services covered by Medicare. The beneficiaries' for
total liability may be higher if actual charges are greater
than the amounts allowed.



l/Assumes maximum limits on cost sharing under parts A and
                                                            B
  to b. in effect for all of 1976.  Under the proposal only
  the last 10 months of 1976 have a maximum limit on cost
  sharing for part A, and part B has no maximum limit until
  1977.
                                         24
THE KENNEDY-MILL. ?ROPOSAL

     This proposed national health insurance program would
provide comprehensive health care benefits to all Americans,
except those covered under Medicare. All social security
cash beneficiaries not eligible for Medicare, such as those
between 62 and 65, would be covered under this plan. However,
Medicare would continue to cover its existing beneficiaries,
and the benefits would be expanded.

     This proposal would modify Medicare to include
     --a voluntary long-term care program,

     -- coverage of prescription drugs,

     -- elimination of the inpatient hospital day limitations,
     -- coverage of catastrophic illnesses, and
     -- certain other benefits.

     The long-term care program would be voluntary and would
cover long-term services, when deemed medically necessary,
including care in skilled nursing and intermediate care facil-
ities provided under agreements with community long-term
care centers. It would also cover noninstitutional medical
and social services. For this program, each person would
pay $6 a month. Under the long-term care program, the cost
of outpatient prescription drugs would be covered, except
for $1 for each prescription.

     The limitation on the number of inpatient hospital days
under Medicare would be eliminated, but the cost-sharing
provisions would remain generally in effect. Due to elimin-
ating the hospital day limiations, the coinsurance rate (one-
half the Medicare deductible) would apply after 90 days.    Un-
der the national health insurance and the proposed modified
Medicare p.:ogram, cost sharing (deductible and coinsurance
amounts) would be limited to $1,000 per calendar year for an
individual and other family members. The $1 drug payment
would not be included in this amount.

     Although not specifically provided for in the bill, ac-
cording to a statement.by Senator Kennedy in May 1974, the
sponsors intended to reduce the limit of cost sharing for
low-income Medicare beneficiaries--similar to the limitations
under the proposed national health insurance plan. For in-
dividuals, the limit would be based on 25 percent of income


                              25
over $2,400.  For a Medicare beneficiary with an annual inc¢ce
of $3,600, the limit on cost sharing would be $300 (25 percent
of $1,200).
     Assuming the same income classes and the same income mid-
points used in the CHIF analyses, the $249,209 for inpatient
hospital and part B medical expenses applicable to the 80
sampled beneficiaries would have been distributed between the
program and the beneficiaries as follows:


                                           Mcedicare as modified byKennedy-Mlls_--
                                      Income                             Income
                                      class 2             Income         class 4
                                   $1,750 under           class 3         $5,250
                                   $3,500 ($138         $3,500 under     and over
                                      maximum           $5,250 ($494     ($1,000
                   Medicare         liability)            maximum         maximum
                         _2seeE_2_0)__(note a)           liability)      liability__
                Amount  Percent
                        Percen    Amountt                      Percent Amount   Percent

Prcgram pays   $224,860    90.2    $241,059     96.7   $227,112   9].1    $225,384    90.1
Beneficiary
  liability     -24,349     9.08      8,150      3.3     22,097    8.9      23,825     9.6

    Total      $249,209   100.0    $249,209    100.0   $249,209   100.0   $249,209   100.0

a/Calculated at the midpoint of the income class after the $2,400 exclusion,
  ,,rhich SSA estimated would apply to about 3 million (about 25 percent) of
  the 11.4 million beneficiaries in this class.    No cost sharing was assumed
  Icr 25 percent of the 80 beneficiaries.




     The proposal to limit cost sharing would affect mostly
the individ':;s in income class 2, about 51 percent of the
aged Medicare beneficiaries. Of the individuals in income
class 3 (about 20 percent of the aged Medicare beneficiaries)
11 beneficiaries would have deductible and coinsurance charges
above the assumed limit of $494.  For individuals in income
class 4 (about 25 percent of the aged Medicare benefitcaries)
only one beneficiary would incur deductible and coinsurance
charges under Medicare above $1,000.
Proposed separate cost-sharing
limitations for aged couples
      The foregoing analysis applied proposed cost sharing to
individuals. Under the Kennedy-Mills formula, the limit on
cost sharing for aged couples would be based on 25 percent of
income over $3,600.   About 50 percent of the people age 65 or
older in the United States are married couples. What would
happen if proposed limits on cost sharing were applied to
them?
                                          26
      In the preceding table
sumed to be divided equally the  income for a couple
                             between the man and wife.was Under
                                                             as-
this assumption, about 3.8 million aged beneficiaries
million in income class 1 and 3 million in income          (0.8
about 17 percent of the aged population, would have  class   2),
of $2,400 or less. They would not have to pay Medicare  incomes
ductible and coinsurance amounts. However, because           de-
                                                        about
50 percent of the people age 65 or older
ples, apparently only about 1.6 million ofarethemarried  cou-
                                                  aged bene-
ficiaries, about 7 percent, would not have to pay.
sently, for the estimated 2 million elderly people      Pre-
                                                      eli-
gible for cash welfare assistance and covered by both
care and Medicaid, Medicaid pays the Medicare deductible  Medi-
and coinsurance amounts.

      SSA lacks data on how married couples
services. SSA estimates indicate that aboutuse75 Medicare
                                                  percent of
the aged married couples have incomes over $4,800
                                                    and
would have a liability limitation over $300. Of the thus
                                                        80
sampled beneficiaries, 53 (about 66 percent) had deductible
and coinsurance charges less than $300. Unless both
                                                        spouses
used inpatient hospital services, most married Medicare
beneficiaries probably would not greatly benefit from
proposed limitation.                                     the

THE LONG-RIBICOFF PROPOSAL

      This proposal provided for a catastrophic
rance plan covering all persons either fully or illness insu-
                                                 currently
insured 1/ under the Social Security program or entitled
social security benefits, as well as their spouses         to
pendent children.                                   and de-
                    Persons (and their dependents)
tain specified credits under Social security, but with cer-
                                                   not enough
to meet the regular insured requirements, would also
gible. The act provided for a medical assistance      be eli-
                                                   plan to
cover catastrophic and other illnesses of low-income
ficiaries through a uniform national program replacingbene-
caid.                                                   Medi-



1/A person who has social security credit for at least
  years (6 quarters) of work within a 3-year period     1-1/2
  rently insured.                                    is cur-
                   To be fully insured, a person needs
  quarter of coverage for each calendar year after 1950 1
  after the year in which he or Fhe became 21) up to      (or
  year he or she became entitled to benefits. A personthe
  40 quarters of coverage is fully insured for life.      with




                               27
     A revised proposal was introduced on October 3, 1975, in-
corporating (1) a plan covering the catastrophic illnesses of
all citizens or permanent residents of the United States and
(2) a basic health benefits program for low-income people,
which would also replace Medicaid.

     Both plans supplement Medicare, since they do not pay
(1) hospital benefits until a beneficiary has spent 60 days
in a hospital during the year or (2) part B medical benefits
until a beneficiary or his or her family has incurred $2,000
for covered medical expenses during the year. Hospital days
and medical expenses incurred during the last 3 months of a
year, if they are not covered expenses for that year, may be
counted toward the 60 days and the $2,000, respectively, for
the next year.

     Once a person has been hospitalized a total of 60 days in
a year, the plans provide benefits for generally an unlimited
number of inpatient hospital days. The 1973 proposal calls
for a daily coinsurance for these days equal to one-fourth
of the Medicare deductible   The 1975 proposal does not pro-
vide for any coinsurance alter the deductible has been met.
Also, because Medicare's benefits would continue, providing
90 days of inpatient hospital care in a benefit period in
addition to the 60 day reserve, some stays could be covered un-
der both Medicare and the Long-Ribicoff plans. In these in-
stances, the stays would be reimbursed under the plans.

     After the $2,000 of expenses have been incurred, the
plans cover physicians' and other miscellaneous health serv-
ices. Generally, except for a limit per year per person for
outpatient psychiatric physicians' services, benefits would
not be limited. However, the 1973 proposal did impose 20-
percent coinsurance after the $2,000 had been incurred, but
combined hospital and medical coinsurance payments under that
plan would be limited to $1,000 a year for an individual.
Coinsurance was not included in the 1975 proposal.

     On the basis of .edical expenses and hospital use in
1971, 9 of the 80 sampled beneficiaries would have qualified
for benefits in 1976 under the Long-Ribicoff plans--2 of these
by meeting the 60-day requirements.

     One beneficiary spent 64 days in hospitals during the
year. Under Medicare he would have been liable for $104 in
coinsurance (4 days at $26).  Under the 1975 proposal, the
beneficiary would pay nothing since there is no coinsurance.
Under the 1975 proposal the second beneficiary, who had 97
inpatient hospital days, would be liable for $1,144 less



                              28
 than under Medicare.  The other seven beneficiaries would
 have qualified because they had $2,000 of expenses.   Under
 the 1975 proposal, since they would pay no coinsurance in
 case, the beneficiaries would pay $559 less under the plan this
 than they would under Medicare.  Therefore, the 1975 Long-
 Ribicoff catastrophic illness proposal would decrease the
                                                             80
 sampled beneficiaries' liabilities for expenses from $24,349
 (9.8 percent) under Medicare to $22,542 (9.0 percent).

     The medical assistance plan would be available to persons
eligible for Medicaid during January through June 1977
low-income individuals and families.                    and to
                                       Individuals with incomes
at or below $2,400 and two-person families with incomes
$3,600 Dr less would be eligible.                        of
                                    For aged persons covereJ,
this plan would pay the Medicare part B premiums and deduc-
tibles and coinsurance.  This is basically what Medicaid has
been paying as of November 1976 for about 2.2 million aged
persons who are categorically needy.   Except for a copayment
of $3 for each of the first 10 outpatient physicians' visits
for an individual or family, the medical assistance plan
                                                          gen-
erally has no deductibles or coinsurance.

CONCLUSIONS

     Under Medicare's existing benefit structure, the hospital
coinsurance features seem to have had a negligible effect
                                                           on
program use and costs, because most beneficiaries were dis-
charged before coinsurance became effective.
believe that copayments can and do help reduce For those who
                                                excessive or
unnecessary use of hospital servi-es, the proposed copayment
features for CHIP and the Medicare Improvements of 1976
                                                         would
be an improvement over the existing Medicare program.   Fur-
ther, by eliminating the existing limit on inpatient hospital
days, CHIP or t, Medicare Improvements of 1976 would provide
additional protection to those beneficiaries--less than
                                                         1 per-
cent of those using hospital services in a year--who exhausted
their 90-day benefit period.

     On the other hand, for those who do not believe that cost
sharing reduces hospital use, imposing cost sharing from
                                                          the
first day of hospitalization would merely increase the
of pocket" costs for many Medicare beneficiaries.       "out
                                                   Thus, the
effectivenc-  of cost sharing as a means of curbing unneces-
sary use of hospital services must be clearly established.
We believe this is particularly important for CHIP, since
                                                           SSA
estimates indicate that CHIP's proposed changes in cost
sharing would redistribute the beneficiaries' liability
                                                         under
Medicare from persons with incomes less than $3,500 to persons
with incomes over that amount.  Administering cost sharing
based on income is a costly process.


                               29
     The elimination of the limit on inpatient hospital care
under the Kennedy-Mills bill would provide additional protec-
tion to those relatively few beneficiaries who exhaust their
90-day benefit period. Because the Kennedy-Mills proposal
would not change the basic cost-sharing formula for Medicare,
no beneficiary would pay more under the proposal than under
Medicare. By limiting payments based on income, some bene-
ficiaries would pay less, with the major effect of the re-
duced cost sharing being applicable to the lower income in-
dividuals. Realistically assessing the effect of such limi-
tations is difficult, because of the uncertain effect of the
proposed separate cost-sharing limitations for aged couples.

     The Long-Ribicoff plans would only slightly affect Hfedi-
care's existing benefit structure. The coverage for catas-
trophic illnesses would not become effective until after 60
days, which would affect about 3 percent of the Medicare
beneficiaries using their inpatient hospital benefits in a
year. The proposals would virtually negate the benefit period
approach by providing full inpatient hospital coverage with no
coinsurance.




                             30
                          CHAPTER 4

               HOW PROPOSED CHANGES WOULD AFFECT
               MEDICARE'S PROGRAM ADMINISTRATION

     Although Medicare's existing part A benefit structure
has caused administrative problems for the Social Security
Administration, the intermediaries, and the hospitals, such
problems aDpear relatively minor when compared with the ad-
ministrative problems possible under certain proposed changes
to Medicare's benefit structure:

     --Various levels of cost sharing based on beneficiaries'
       incomes.
     -- Assuming responsibility for collecting deductible and
        coinsurance amounts from the beneficiaries for serv-
        ices provided by numerous noninstitutional providers.
ADMINISTRATIVE PROBLEMS WITH
PARTA-BENEFITrTRUCTURE

     There have been several problems in administering Medi-
care's hospital insurance benefits. These problems can be
reasonably attributed to the benefit period and the related
query system for confirming eligibility and benefit status.
(See app. IV.)

    --Medicare beneficiaries do not understand their hospital
      benefits. We interviewed 187 program beneficiaries in
      4 SSA district offices to determine their understanding
      of the part A benefit structure. About 80 percent of
      the beneficiaries interviewed could not relate any
      knowledge or understanding of the benefit period.
      (See p. 48.)
     -- SSA has historically had problems in keeping its part A
        master records reasonably current, because notices of
        admission must be closed by a corresponding bill in the
        same chronological sequence that the services in a bene-
        fit period are provided.
     -- As a result of the above situation, about 30 percent
        of SSA's responses to hospital and skilled nursing
        facility queries regarding the eligibility and benefit
        status of beneficiares required additional development
        by the intermediaries.



                               31
     -- The American Hospital Association estimated that, for
        over half the admissions to short-stay hospitals, Me-
        dicare patients were discharged before the hospital
        received notification of their eligibility and bene-
        fit status. Hospital billings for Medicare patients
        take twice as long to be submitted after discharge
        as the bills for non-Medicare patients.
     -- SSA does not systematically obtain information on ad-
        missions to approximately 13,000 nonparticipating
        hospitals and nursing homes where such admissions
        would break the 60-consecutive-day period required to
        begin a new benefit period. Thus, complete knowledge
        and control of when a new benefit period should begin
        is lacking and would be impractical.
EFFECT OF PROPOSED CHANGES ON
PROGRAM ADMINISTRATION

      Various features of the proposals for national health
insurance would reduce some of the administrative problems
discussed above, but also create worse administrative prob-
lems.
Simplification of benefit structure

     Both the proposed Comprehensive Health Insurance Act of
1974 and the Kennedy-Mills proposal would provide for (1)
eliminating the inpatient hospital day limitations (although
tne latter proposal would retain the benefit period) and (2)
using credit cards (program payments would be made in full
to participating providers, such as hospitals, on behalf
of those beneficiaries not in default on their payments).
The beneficiaries' cost-sharing amounts would be charged to
their accounts to be collected by the program. Those bene-
ficiaries not paying their cost-sharing amount would be
in default. The health card would essentially limit the
hospitals' involvement in the query process to identifying
beneficiaries in default.

     Eliminating the inpatient day limitations and the bene-
fit period should help beneficiaries to understand their
benefits. With such changes,

    -- admissions and related discharges would not need to
       be recorded chronologically on SSA's master records,
    --the query process would be reduced to one of esta-
      blishing eligibility, and


                                32
      --a beneficiary would not have to be identified as ad-
        mitted or not admitted to a nonparticipating institu-
        tion within 60 days of discharge from a hospital or
        skilled nursing facility.
     Certain other proposals such as the Ullman bill and the
Staggers bill (see app. III) while retaining the benefit
period with a limit on the number of inpatient hospital days
would ultimately introduce a flat $5-a-day copayment for in-
patient hospital services. This should help beneficiaries
to understand the program and simplify the query process
by eliminating the inpatient deductible and coinsurance
amounts beginning with the 61st day. Admission notices
would not have to be processed in chronological order. Hos-
pitals would know what to charge beneficiaries, except for
the few who exhausted their benefits.

     A $5-a-day copayment for inpatient hospital services in
1971 would have produced about the same deductible and coin-
surance amounts ($385 million) which were actually incurred
($370 million) under Medicare's existing benefit structure.
A coinsurance charge of about $7.30 a day would have been
required in 1974 to produce the $640 million incurred in
that year.
Potential administrative Eroblems

     Proposals incorporating income tests for cost sharing
and having the program assume responsibility for collecting
copayment amounts could create major administrative pro-
blems.

     Income test for cost sharing

     Basing cost sharing on income would require that
the income of individuals and families in the Medicare
program be determined.

     SSA estimated that, for the assisted and Federal plans
under the CHIP proposal, over 39 million income determina-
tions would have to be made.   Using experience on making
income determinations under the Supplemental Security Income
(SSI) program which features face-to-face interviews, SSA
estimated that income determinations for 39 million filing
units could require over 65,000 staff-years and salaries of
at least $00 million. After adding personnel fringe benefit
costs and other costs such as travel, equipment, rent, and
training, SSA estimated that total costs could be at least
$1.5 billion, of which at least $700 million would apply to
the elderly Medicare population. This approximates the


                           33
estimate of $750 million in total Medicare administrative
costs in fiscal year 1975.

     Although we believe the SSA estimates are too high, 1/
they do indicate how administrative costs would be affected
by determining the incomes of Medicare's beneficaries.
     In commenting on our draft report, the Department of
Health, Education, and Welfare stated that SSA does not as-
sume that the income definition and income determination
process used for the SSI program would be used in implement-
ing proposed income-related health care provisions. According
to SSA, estimates of the cost of such an approach were devel-
oped to illustrate the need to find simpler, less costl,
alternatives.

     Introducing various cost-sharing arrangements based on
income would also involve the problems of maintaining the
integrity of the system and, particularly under CHIP, of
individuals changing from one cost-sharing class to another.
For example, under CHIP, a variance of $1 in income (from
$3,499 to $3,500) would increase an individual's coinsurance
rate from 15 to 20 percent and the maximum cost-sharing li-
ability by $105 (from $315 to $420).

     Assuming responsibility for collecting
     eauctiEl e and coinsurance amounts
     Introducing various classes of or cost-sharing limita-
tions based on income would virtually require the proposed
credit card system because of the difficulties in promptly
communicating to providers the beneficiary's income class
and/or cost-sharing liability. With credit cards, the pro-
gram would pay the participating providers--including hos-
pitals--in full.  The program would be responsible for col-
lecting the appropriate cost-sharing amounts from the benefi-
ciaries. This would involve


I/The estimate did not consider married persons (approximately
  10.6 million) whose incomes could be determined at the same
  time as their spouses' incomes. The estimate did not con-
  sider the income determinations already required under the
  Supplemental Security Income and State Aid to Families with
  Dependent Children program, which could account for about
  7 million of the estimated 39 million determinations. Also,
  an assumed 100 percent addition to personnel salary costs
  exceeds SSA experienced rates for personnel fringe benefits
  and support costs which, according to SSA officials, are
  about 40 percent, excluding administrative costs of the
  States and Medicare contractors.

                               34
    -- notifying providers of beneficiaries in default,

    -- accounting for and collecting the beneficiaries'
       liabilities, and

     -- assuming the risk of bad debts.
     SSA estimated that cost sharing for fiscal year 1975
for the aged under either Medicare or CHIP for the same
                                            $2.4 billion, re-
covered services would be $2.3 billion andbenefit
spectively. Under the existing Medicare            structure,
about $0.7 billion applied to part A services  and  about
$1.6 billion applied to part B services.
     Of the $0.7 billion, about 95 percent represented cost
sharing for inpatient hospital services provided by about
6,900 participating hospitals. The $1.6 billion would in-
volve services provided by over 400,000 physicians and other
professionals and by independent laboratories, hospitals, and
suppliers. The inpatient hospital cost sharing would apply
to about 8 million hospital admissions. The part B cost
sharing would apply to over 100 million transactions, if
the program also assumed the responsibility for collecting
the cost of services applied against the part B deductible.
     In terms of communicating with providers and accounting
                                                        serv-
for the beneficiaries' liabilities, inpatient hospitalproviders
ices would represent a relatively low volume of both
and transactions.
     Under the CHIP and Kennnedy-Mills proposals, credit cards
would be provided to all elderly persons enrolling in the pro-
grams. Credit, subject to interest, would be available  to
                          cost sharing, unless the acccunt was
each beneficiary to cover
in default.

     Since all beneficiaries would be issued a cardto initi-
                                                       be re-
ally, bad debt or default rates could be expected
latively high until defaulters are identified.   According   to
an SSA analysis, physicians average 88  percent collection   on
billings. As noted on page 13, although about half the bene-
ficiaries had complementary insurance, the coinsurance bad
debts under Medicare for inpatient hospital services were
about 10 percent. Of the coinsurance beneficiaries had to
pay, which excludes the amounts paid by complementary insur-
ance and Medicaid, the coinsurance bad debts  were about
34 percent under Medicare for inpatient  hospital services.



                              35
     Another indicator of possible bad-debt costs under a
credit card system is the State experience with the "spend
down" liability, or obligation to pay some medical expenses,
of the medically needy under Medicaid.  The income of the
medically needy in excess of the amount needed for basic
living expenses must first be used to pay the costs incur-
red for health insurance premiums, certain related cost-
sharing expenses, and the cos of health care not included
in the State medical plan and then to pay covered care.

     In a'- least two States, certain providers are paid in
full and the beneficiaries' spend down liabilities are
handled by the State as money to be collected from the re-
cipient.   These States appeared to have a high proportion
of bad debts.

     A January 1975 SSA planning paper for national health
insurance discussed initially limiting the credit card to
inpatient hospital services.  Some advantages of this are
that

     --a relatively small number of high cost transactions,
       where the cost of collection would be relatively
       small compared to the amount of the benefit, would be
       involved,

     -- a limited number of providers would be involved and
        defaulters and money owed could be identified for
        providers through existing systems, and

     --the collection experience could be used in identify-
       ing problems and developing policy and procedures for
       wider application.

     Since hospitals are reimbursed on the brsis of reason-
able costs, which include the bad debts of M.: 4 care benefic-
iaries for deductible and coinsurance amounts, the savings
to the providers by eliminating bad debts (except for bene-
ficiaries in default) wjuld probably be passed on to the
program.  The program, would benefit if its collection exper-
ience is better than the hospital's.

CONCLUSIONS

      Medicare's existing benefit structure for inpatient
hospital services is complicated and has created administra-
tive problems for SSA, the intermediaries, and the hospi-
tals.




                               36
     Various national health insurance proposals would change
the existing benefit structure. Of these proposals, eliminat-
ing the limits on inpatient hospital days and substituting
a flat, daily coinsurance charge for the existinq inpatient
deductible and coinsurance seem most attractive since they
would simplify administration.
     Introducing a modified benefit structure based on in-
dividual or family income would greatly increase administra-
tive costs, particularly if strictly enforced and monitored
to maintain the integrity of the system, and could have only
a limited impact on total program benefits. Under CHIP, for
example, the Federal plan for the aged could be paying as
much as $700 million in administrative costs merely to re-
distribute about $2.4 billion in cost sharing among the pro-
gram beneficiaries and their complementary insurers.
     Introducing a credit card system would simplify program
administration and reduce related costs for providers but
could be expected to increase the administrative cost to the
Government.
     Section 222(b) (1) of the Social Security Amendments of
1972 (Public Law 92-603) amended section 402 (a) of the Social
Security Amendments of 1967 (42 U.S.C. 1395b-1) to authorize
HEW, either directly or through grants and contracts, to de-
velop projects to determine whether changes in methods of
payment or reimbursement would have the effec. of increasing
the efficiency and economy of health programs established
by the Social Security Act.
      This rather broad authority could be used to implement a
project to test the use of a credit card system under Medi-
care.

AGENCY COMMENTS
     In our draft report we proposed that the Secretary direct
the Commissioner of Social Security to initiate a project to
determine whether paying for inpatient hospital services with
credit cards would increase the efficiency and economy of the
program. HEW, in commenting on our draft report on October 1,
1976 (see app. V), said it questions the usefulness of a demon-
stration project limited to inpatient hospital services. Ac-
cording to HEW, a health card approach for part B services has
greater potential benefits--the principal one being its effect
on having physicians accept Medicare's allowable charge as the
full charge, thus, having the potential to reduce costs to
beneficiaries.


                             37
     According to HEW, SSA has considered several possible
projects. One project being considered would use a health
card system to pay physicians, in accordance with a nego-
tiated fee schedule, for services to Medicare beneficiaries.
An ongoing project, which deals with payment for prescription
drugs in California, is expected to provide information on
various aspects of the health card concept including adminis-
trative costs and bad debts.

     HEW also said it was considering a health card system
experiment to be used primarily for ambulatory care. Such
an e-periment would include direct cash savings to patients.
HEW nopes the experiment would involve agreements by physicians
to accept the health card for a large proportion of their
patients, thereby demonstrating that a health card can result
in real savings to patients and providers.
     According to HEW, SSA plans to continue its efforts in
examining the feasibility of health card approaches. How-
ever, HEW's comments do not demonstrate a strong commitment
to the experiments which we believe are very important be-
fore any wider adoption of the health card approach is con-
sidered under national health insurance. The only definite
commitment is an experiment with prescription drugs.

     Although we agree that the health card approach for
part B services would provide more potential for benefiting
the beneficiary by limiting the charges to amounts consi-
dered reasonable by Medicare, we still believe that a health
card experiment involving inpatient hospital services offers
more potential advantages from an administrative standpoint
for the various reasons discussed on page 36. If the Govern-
ment's success as a bill collector is demonstrated on a test
basis, it could lead to a wider application, thus elimi-
nating the need for timely determination of Medicare bene-
ficiaries' deductible and coinsurance status.  This could
result in substituting a relatively simple system for check-
ing credit status, instead of the present query system with
its related administrative problems for SSA, its intermedi-
aries, and providers.

     In any event, we agree with HEW that various alterna-
tive experimental approaches could be used to determine the
feasibility of the credit card concept.

RECOMMENDATION TO THE
SECRETARY OF HEW

     We recommend that the Secretary of HEW direct the Com-
missioner of Social Security to expand SSA's current efforts
in testing the use of credit cards under Medicare and   -'   -
mining the feasibility of their use under national heaitn

                              38
insurance proposals. The interested legislative committees
should be informed before such a test is undertaken.
RECOMMENDATION TO THE CONGRESS
     In its deliberations of national health insurance pro-
posals that would change Medicare's benefit structure, we
recommend that the Congress carefully explore whether the
benefits of introducing an income test would justify the
resultant added administrative problems and costs. If cost
sharing for inpatient hospital services is desirable, we
recommend that the Congress provide for a fixed, daily co-
payment for inpatient hospital services.




                             39
                             CHAPTER 5

                          SCOPE OF REVIEW
      This review was made to determine
 hospital care under Medicare covered   how well inpatient
                                      the
 proposed changes would have on Medicare's elderly, the effect
                                            existing inpatient
 benefit structure, and possible administrative
 sociated with these changes.                    problems as-

      Work was done at the Social Security
 central office in Baltimore                Administration
                             and the SSA district offices
 in Atlanta, Boston, Chicago, and Los
 done at the Blue Cross Association    Angeles. Work was also
                                     in Chicago and four Blue
 Cross plans--United Hospital Service
                                       Association, Atlanta;
 Massachusetts Blue Cross, Inc., Boston;
                                          Hospital Service
 Corporation, Chicago; and Blue Cross
                                       of Southern Cali-
 fornia, Los 'ngeles.

       Medicare beneficiaries' hospital use
                                              data discussed in
 this report was obtained by reviewing
 records for an SSA actuarial sample     the  hospital claims
                                       of 0.1 percent of all
 beneficiaries eligible for part A
 fits.   This is a continuing sample hospital  insurance bene-
                                      of beneficiaries whose
 social security numbers end with digits
 data from SSA's Office of Research        595. We also used
                                      and Statistics on length
 of stays in short-stay hospitals by
                                       medical beneficiaries in
 1971.

      We selected calendar year 1971 because
 test year for which relatively complete      it was the la-
when our review began. As of January     data  was available
plete data was available for calendar 1977,  relatively  com-
Office of Research and Statistics      year  1973 from  SSA's
                                   and the Office of the Actuary.
We compared this data with the 1971
                                     data. Hospital use by
sample beneficiaries and projections
                                      of sample results to
the universe of Medicare beneficiaries
                                        were discussed and
developed with the cooperation of
                                   the Office of the Actuary,
SSA.

      Information on the amount of inpatient
received by beneficiaries but not              hospital care
                                   covered by Medicare and
other information on program administration
from a survey conducted at our request        was obtained
                                         by the  American
pital Association.   The association sent questionnaires Hos-
about 800 non-Federal, short-term                          to
                                   general hospitals of all
sizes and locations registered by
                                   the association and certi-
fied by SSA for use by Medicare patients.
                                             About 590 hos-
pitals (74 percent) replied and provided
basis for projecting, with a 9 5-percent   the association the
about 1 percent of the inpatient hospital assurance,  that only
                                            days of Medicare


                               40
beneficiaries in short-stay hospitals are not covered by
Medicare.

     We reviewed regulations, directives, and records per-
taining to the administration of the query system at the
SSA central office, BCA, and four selected Blue Cross plans.
We also nr'ained, with the cooperation of BCA, information
on program dJministration and costs from 69 other Blue Cross
plans. We interviewed 187 program beneficiaries in 4 SSA
district offices to determine their understanding of the
part A benefit structure.

     We analyzed how various features of national health
insurance proposals introduced in the 93d Congress would
affect the Medicare benefit structure and program adminis-
tration. Our analysis included the use of a stratified sub-
sample of the 0.1 percent sample maintained by the Office of
the Actuary, adjusted to allow for higher part B physicians'
charges and part A reimbursements in 1976, in order to de-
termine the distribution of covered expenses under the
existing Medicare benefit structure and under four major
national health insurance proposals.




                              41
APrENDIX I                                                                                                                                                         APPENDIX I
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                                                                                                    42
APPENDIX II                                           APPENDIX II



                    INPATIENT HOSPITAL CARE

                    USED BY DISABLED PERSONS

     About 1.8 million disabled persons became eligible for
Medicare benefits effective July 1, 1973. According to the
Social Security Administration's Office of the Actuary, ap-
proximately 2.2 million will be covered by the program in
fiscal year 1976. About 700,000 (32 percent) will receive
reimbursed hospital services as compared to about 23 percent
of the aged that will receive inpatient hospital care in
fiscal year 1976.
     The estimated average number of days of hospitalization
for each aged and disabled enrollee is shown below.
                Average Number of Days Hospitalized
                           FY 1974       FY 1975    FY 1976

     Aged                  3.9 days      4.0 days   4.1 days
     Disabled              4.0 days      4.3 days   4.4 days

     On the average, the disabled had more days in the hos-
pital each year. Because the lengths of stay for the dis-
abled for fiscal year 1974 were approximately the same as for
the aged (about 11.5 days), the difference in the average
days hospitalized is due to (1) a higher percent of the dis-
abJed using hospital services an:/osr (2) a higher number of
admissions during the year for tre disabled.

     An earlier study by SSA's Office of Research and Statis-
tics tends to support the above differences. The office
sampled 2,000 disabled persons from those
     -- between the ages of 20 and 64,

     -- qualified for SSA disablility benefits for at least
        24 months, and
     -- who would have been eligible for disability benefits
        for at least 1 month during fiscal year 1972.

     Analyses of hospital use for the sample showed that
571 persons (29 percent) received inpatient hospital care
during fiscal year 1972. Of these, 372 received inpatient
care in one or more short-stay, long-stay, or tuberculosis
hospitals, or one of these in combination with psychiatric
hospital care. The other 199 generally received inpatient
                               43
APPENDIX II                                                                             APPENDIX II


hospital care in only psychiatric hospitals where Medicare
coverage is limited or in military or Veterans Administra-
tion hospitals which are not covered by Medicare.

     The 372 disabled persons discussed above were admitted
for inpatient care an average of 1.8 times during the year, 1/
a rate higher than the 1.4 admissions for the elderly, as dis-
cussed in chapter 2.  Even with the higher admission rate, a
slightly higher percentage of the benefit periods used by
these disabled persons were terminated within the first 15
days of inpatient care.  However, the use of inpatient hos-
pital care in the benefit period by the 372 disabled in
fiscal year 1972 and the elderly in fiscal year 1971 was
similar as shown in the following graph.


          Benefit Periods of Disabled and Elderly Medicare Beneficiaries Compared
Cumulative Percent Of Benefit Periods
100,




 75
                    DISABL, D




                         ·       NS ELDERLY

 25        //




      0         3    6       9       12     15     20        25   30   45        60   901/   120/   OVER
                                                                                                     120
                                          NUMBER   ,'- INPATIENT HOSPITAL DAYS
 Reprersent Noncovered Days Or Usge Of Reserve Days.




l/Some pre-fiscal year 1972 admissions were included in the
  sample.  If a person became eligible during a hospital stay
  in fiscal year 1972 which began before fiscal year 1972, that
  stay was counted.  Also if an already eligible individual
  was in the hospital at the start of fiscal year 1972, that
  particular stay was included.
                                                        44
APPENDIX II                                      APPENDIX II



     In summary, available data support the conclusion that,
similar to the aged, very few eligible disabled are likely to
exhaust their Medicare hospital benefits under Medicare's
existing benefit structure.




                            45
        APPENDIX III                                                                                                APPENDIX III




                                Major National Health Insurance          )Isel   Introduced in the 93dlCongreas
                             As of April   11, 1974, end Reintrod*.e-     n the 94th Congress as of April 22. 1975
                                  Title                    Principal
Congress    Bill nuiber     (date introduced)              sponso                                   Relationship to Nedicare
 93d        H.R.   1       National         Care
                                        lesith              Ullman            As the federally financed plan of health insurance for the aged,
                           Services Peorganiza-                               Medicare parts A end * would be coebined end the part B premius
                           tion and Financing                                 eliminated.   Coverage for catastrophic illnesses, eliminating
                           Act (1/3/73)                                       the cent sharing and hospital limitation of the Medicare bene-
                                                                              fits, would be available for low-income aged 6 months after en-
                                                                              actment.   After 3 years, it would cover all of those aged who
                                                                              meet a specified medical expense limit based on family income.
                                                                              After a 5-year phase in, Medicare would be replaced by compre-
                                                                              hensive health care benefits, including 90 days of inpatient
                                                                              hospital services in a benefit period with a $5 a day copayment,
                                                                              30 days in a skilled nursing facility at $2.50 a day, 90 days
                                                                              in a nusing home at $2.50 a day, $1 copayment on drug prescrip-
                                                                              tions, erd 10 visits e year for ovtpa':ent physican services
                                                                              with · $2 copayment par visit.
 94th      H.R.    1      National Health Care              Ullman            Benefit structure similar to above bill.
                          Services Reorganixa-
                          tion and Financing
                          Ac' (1/14/75)
 93d       H.R. 22        T'ie Health Security         Rennedy-Grif-         Mledcare is abolished.
           and S.3                                                                                    A national health insurance plan is es-
                          At   (1/3/73)                fiths                 tabliahed for the entire population with no limits or cost shar-
                                                                             ing for inpatient general hospital services or physicians' serv-
                                                                             ices.   The benefit period id kept for stilled nursing ficilities
                                                                             where 120 days are covered, and for inpItient psychiatric hospi-
                                                                             tal services where 45 days are covered.   Prescription drugs are
                                                                             covered for chronic diseases and other selected conditions      or if
                                                                             provided through participating institutions, Health maintenance
                                                                             Organizations, and professional foundations.
 94th      H.R. 21        The ea·lch Security          Kennedy-Corsmn        Benefit structure similar to above bill.
           and 6.3        Act (1/14/75)
 93d       H.R. 1054      National Catastrophic        Roe-Beall             Medicare continues.
           rand S.587                                                                             Provides for voluntary private health insur-
                          Illness Protection                                 ance for all U.S. residents.    Individual and family medlcal ex-
                          Act of 1973 (1/3/73)                               penses (as defined in Federal income tex law) would be paid once
                                                                             they reached a certain amount--& deductible based on income and
                                                                             family size. Low income people would have no deductible,     ra)-
                                                                             ments mde by a third party, including Medicare, car be counted
                                                                             towards the deductible.   Premiums, set by the Department of
                                                                             Health, Education, and Ielfaer according to family sise and com-
                                                                             position, aie paid by the policyholder, but could be subsidized
                                                                             by the goverment.
94th       H8.R. 1373     National Catastrophic            IOe               Benefit structure similar to    bhovebill.
                          Illness Protection
                          Act of 1975 (1/14/75)
93d         n.R. 2222      etalth Care Insurance      Fulton-NHrtHk          Medicare continues.   Persons lS and older would remain under Medi-
           and S.444      Act of 1973 (IIedi/-                               care and would not be covered under this pronos·l.
                          credit") (1/18/73)                                                                                        For others,
                                                                             the proposal provides for tax creits    gagltst individual income
                                                                             tales to offset all or part of the premium cost of qaeliifed
                                                                              Iealth insurance policies.  It would replace much of the Medicaid
                                                                             program.
94th       H.N. p222      Comprohensive Health            Fulton             Similar in the use of a tax credit mechanism to the above bill.
                          Care n75urance Act of                              However, this bill  provides that (1) employers
                          1975 (4/22/75)                                                                                       ak*e insurance
                                                                             available to each employee and (2) the Government participate
                                                                             through tax credits or certificates of entitlement in the premiem
                                                                             for qualified supplemental insurance purchased for those unem-
                                                                             ployed or self-*eployed persons who nave reached 5s or are other-
                                                                             wvie e igible for benefits ulder part A or part B of Medicsre.
                                                                             The amount shall be determined on income tax liability.     The in-
                                                                             surance shall exclude all items and services to the extent they
                                                                             are included as benefits in parts A and 8 of Medicare and shall
                                                                             not reimburee for deductible and coinsurance imposed under t;hst
                                                                             title.   It would allow for 365 days of inpatient hospital care in
                                                                             a poliy year less the days covered under Medicare.      Benefits
                                                                             provided under this insurance plan would not be ,lubject . any
                                                                             coinsurarce or deductible.




                                                                        46
          APPENDIX III                                                                                            APPENDIX III



                                  Title                     Principal
Consres     Sill nuxbor     (date introduced)                ponsora                                Relationship to Medicare
 93d        S. 915         National Health Ineur-            Javits              dicare will be lbsorbed into a national health insurance pro-
                           ance and Heealtb Services                           gram that will eventually cover the gencral population.   The
                           Improvement ACt 'f 1973                             benefit period remains for institutional services with a deduc-
                           (2/20/73)                                           tibla each benefit period and coinsurance after the 60th day.
                                                                               Host seivicee (except institutional) would be aubject to the
                                                                               present Ned~care part B cost aharing of rn annual deductible per
                                                                               person and 20 percent coinsurance.   Other benefits are added,
                                                                               such as Jnnual physical checkups and prescription drugs for
                                                                               chronic illnessas.  Coverage is automatic unless an individual
                                                                               elects coverage from a private carrier.
 93d        H.l 5200       National Health Care             burl*son-          Nedicare continues.   Aged enrolled in Medicare part B could be
            and S.1100     Act of 1973 (3/6/75)             lcIntyre           covered under a phaeed in State plan providing a broad range of
                                                                               medical servicas through private insurance.    eAdicare would ini-
                                                                               tially pay for its covered services.   The plan would cover 120
                                                                               days of hospitalization par illness with $5 copaysent each day
                                                                               increasing to 300 days per illness in 1979.   Costsharing limits
                                                                               would be based on faeily Size and income.   Any individual incurr-
                                                                               ing $5,000 in 12 consecutive months in medical expenses would be
                                                                               entitled to maximum benefits, d..ipte the phase in schedule.
                                                                               For certain income ranges, the part B premium would count toward
                                                                               the insurance premium under the State plan.
 94th       H.R. 5990     Nattonal Health Care              Burleson-         Contains many of the same provia;ons as the above bill.
            and 8.1438    Act of 1975 (4/15/75)                                                                                        This
                                                            Mcintyre          plan places no limit on inpatient hospital services, but a de-
                                                                              ductible and coinsurance feature coupled with a maximum family
                                                                              ability based on family size and income.
 93d        S.2513        Catastrophic Health           Long-Ribicoff         Supplements Medicare. It begins paying benerits once a patient
                          Insurance and lMedical                              has apent 60 days in hospitals in a year or has incurred $2,000
                          Assistance Reform Act                               of deductible medicaI expenses.   Unlimited inpatient hospital
                          (10/2/73)                                           days are provided and medical services above the deductible are
                                                                              covered but with 20 percent coinsurance.   Hospital and medical
                                                                              coinsurance payments are limited to $1,000 eacl year per indivi-
                                                                              dual.
 93d       H.R.   11345   The National Comprehen-         Staggers            Medicare continues.   Program provides for basic health services
                          sive Health Benal ts                                for aged within 2 years, with Medicare parts A and B continuing.
                          Act of 1973 (11/8/73)                               Medicare benefits would be payable to the extent that the bene-
                                                                              fits are not included in the basic health services under the new
                                                                              program.   within 4 years, cover.ge for catastrophic illnesses
                                                                              would go into effect, with Medicare continuing.   Finally, within
                                                                              7 years, comprehensive health care benefits would take effect.
                                                                              Comprehensive benefits allow for 60 days of inpatient hospital
                                                                              care each benefit period with a $5 a day copayment.   Benefits
                                                                              for catastrophic illnesses go into effect once an expeise limit
                                                                              based on income is reached.   Under these, there would be no cost
                                                                              sharing or limit on inpatient hospital days or phn:sician services.
                                                                              This program, when fully operating, provides broader benefits than
                                                                              under Medicare.
94tb       H.R.   2050    National Cosprehen-             Staggers            8enefit structure simildr to above bill.
                          aive Health Benefits
                          Act of 19/5 (1/23/75)
93,        H.R. 12684     Comprehensive Health         Packwood-Nills-         hedicare continues as the Federal Plan for Aged but with some
           and S.2970     Insurance Act of               Schneebeli           canges.    Separate A and s deductibles are replaced with a single
                          1974--the Administra-                               $100 deductible, and a separate deductible for drugs.   Coinsurance
                          tion Plan (2/6/74)                                  is set at the rate of 20 percent of expenses above the deductible
                                                                              and a $750 maximum individual yearly liability is established.
                                                                              Day limitaticns on inpatient hospital services are removed.    Re-
                                                                              duced cost sharing for low income beneficiaries is also provided.
93d        H.R. 13870     Comprehensive National       Kennedy-nills          Medicare amended to include a voluntary long-term care program,
           and S.3286     Health Insurance Act of                              :uverage
                                                                               ·        of o oatient prescription drugs, a provision limiting
                          1974 (4/2/74)                                       copayI Its to '000   per year, and other minor benefits.  Eli-
                                                                              sinater limit cn number of inpatient hospital days and the deduc-
                                                                              tible amount for blood.




                                                                         47
APPENDIX IV                                         APPENDIX   IV



                 ADMINISTRATIVE PROBLEMS WITH

              EXISTING HOSPITAL INSURANCE BENEFIT

              STRUCTURE AND RELATED QUERY SYSTEM

     As noted in chapter 4, several problems in administering
tle hospital insurance program can be attributed to the pres-
ent Medicare benefit structure and the related query system
for notifying hospitals of beneficiary eligibility and bene-
fit status.  These problems are discussed in the following
sections.

LACK OF BENEFICIARY UNDERSTANDING OF
HOSPITAL INSURANCE BENEFITS

     We talked to 187 Medicare beneficiaries visiting Social
Security Administration district offices in four major cities
(Atlanta, Boston, Chicago, and Los Angeles).   Of the 187 bene-
ficiaries interviewed, only 2 could identify all of the fol-
lowing principal features of a benefit period:

     -- That it begins when a beneficiary is first admitted to
        a hospital.

     -- That it ends when a beneficiary has been out of a
        hospital or a facility primarily providing skilled
        nursing care for 60 consecutive days.

     -- That 90 days of inpatient hospital care are covered
        in each benefit period.

     Thirty-one beneficiaries identified 1 or 2 of the above
features, but 154 beneficiaries (about 80 percent) did not
relate any knowledge or understanding of the benefit period.

     Only 23 beneficiaries knew that 60 days of inpatient
care during a benefit period were covered in full, except for
the deductible; 22 knew that coinsurance was chargeable be-
ginning with the 61st day of inpatient hospital care; and
only 3 knew of the 60-day reserve benefit.

     Officials at five hospitals visited said most Medicare
beneficiaries simply did not understand Medicare's benefit
structure and tended to rely on the hospitals for information
and guidance.

     Beneficiaries may not need to understand the nature and
scope cf their benefits, because Medicare covers all

                              48
APPENDIX IV                                       APPENDIX IV


inpatient hospital stays for virtually all patients and be-
cause physicians rather than the beneficiaries make most de-
cisions pertaining to hospitalization.

     However, one out of every five elderly beneficiaries
can be expected to be hospitalized at least once during a
year, and simplifying this important and costly benefit
could enhance their peace of mind and understanding of the
program.

SSA AND INTERMEDIARY PROBLEMS
IN ADMINISTERING THE QUERY SYSTEM

     We estimate that the administration of the part A inpa-
tient hospital query system costs over $6 million annually
for the SSA administrative costs and the reimbursable admini-
strative costs of the Blue Cross Association and its local
Blue Cross plan subcontractors, who handle about 90 percent
of all part A Medicare claims.  These costs include:

      --SSA costs of about $.7 million for personnel and data
        processing of part A queries.  Most; of these queries
        relate to inpatient hospital care.

     -- BCA costs of about $.3 million allocated to Medicare
        based on the Association's use of its nationwide tele-
        communications system.

     -- Subcontractor costs of about $5.2 million for personnel
        and other costs, such as data processing communications
        and postage related to receiving and transmitting hos-
        pital admission notices over the telecommunications
        system, processing SSA replies back to the hospitals,
        and investigating qualified responses.

     Although the over $6 million annual cost of the inpa-
tient hospital query system could not be termed large in
relation to part A's estimated administrative costs of
$322 million in fiscal year 1976, the system has encountered
several problems.  Administering the query system costs short-
term hospitals about $11.5 million annually.  (See p. 54.)
Many SSA resEonses   require additional
 eveIogme nt by Intermediaries
     SSA processed 8 million responses containing eligibility
data to hospital and skilled nursing facility queries through
BCA during 1974, o' which about 2.3 million (about 30 percent)
required additional development by the intermediary.  The
types of responses processed included:


                                 49
APPENDIX IV                                       APPENDIX IV


                                           Number of   Percent of
      TO--res2onse                         res2onses   responses

Unqualified approval for part A benefits   1,869,615      23.3
Qualified approval for part A benefits     5,332,374      66.3
Duplicate responses                          339,010       4.2
Tnformational only                           208,720       2.6
Rejections                                   232,127       2.9
Disallowed (entitled to part B benefits
  but not part A benefits)                    55,035        .7

    Total                                  8,036,881     100.0

      SSA gives unqualified approval for benefits only under
two circumstances; for a beneficiary who is eligible but has
never used part A benefits, and for a beneficiary who has
used some part A benefits for which the last recorded dis-
charge data is within 60 days of the current admission but
for which no query relat I open items are on SSA tape records.
Of the 1.9 million unqualified approvals in 1974, 1.7 million
were for beneficiaries using part A benefits for the first
time.

     Of the 5.3 million qualified approvals, 3.3 million did
not usually require additional development by the intermedi-
aries. The remaining approvals were qualified about 95 per-
cent of the time because SSA had open items on its records.
For these, the intermediary must obtain information on the
previous use of benefits and compute the remaining benefits
before forwarding the reply to the hospital or skilled nurs-
ing facility. Often this delays the fowarding of the re-
sponse to the hospital.
     For example, intermediary officials at Blue Cross of
Southern California said 12 percent of the SSA responses re-
quire manual processing involving correspondence with hos-
pitals and other providers, other intermediaries, and the
beneficiaries to determine the current status of benefits.
For nearly 40 percent of such cases, this takes over 30 days,
and as many as 90 days, to complete.
      About 5,000 responses were rejections for ineligibility
 for either part A or part B benefits, and 227,000 were re-
 jections because the beneficiaries' eligibility had not
 been established or SSA could not match the patients' names
 and identificiation on the query with the SSA tape records.
 The latter rejections usually require some followup and
 further development by the intermediary or SSA.

                              50
 APPENDIX IV                                      APPENDIX IV


SSA problems in keeping   records
current on part A use

     To administer the part A benefit period, open items on
SSA tape records must be closed in the order that the services
were provided. Open items are closed when SSA receives the
corresponding bill and records the amount of benefits used.
Whenever SSA does not receive a bill corresponding to an
admission or if SSA has to return a bill to an intermediary
for corrections or additional information, all subsequent
bills for that benefit period cannot be recorded until the
outstanding bill is received or, if incomplete, completed,
returned to SSA, and recorded on the tape records. These
bills are termed "bills in orbit." 1/

     SSA formerly retained all bills in orbit until the out-
standing bill was cleared. Under this procedure, bills in
orbit increased steadily from about 460,000 in July 1970 to
638,000 in March 1972.

      Effective January 1973, SSA implemented a revised pro-
cedure which allows SSA to finish processi'ng the bills for
each benefit period. Under this procedure, all bills fol-
lowing an outstanding bill need not be retained in orbit.
Once a beneficiary is eligible for a new benefit period, any
bills received for the new benefit pc'itod can be recorded on
the tape records, provided no outstanaing bills apply to the
new benefit period. An SSA official stated that although
this revised procedure could somewha& reduce the backlog
of bills in orbit, the reduction wcjld not be large because
most of the backlog is made up of bills from 1966 through
1968.
     The backlog of hospital and skilled nursing facility
bills in orbit for the period July 1970 through July 1975
is summarized on the graph on the following page.

     In May 1974, SSA sent out notices to the intermediaries
in an attempt to close 150,000 open items generally dating
before July 1971. Most of these represented bills that had
been returned to the intermediaries for correction or addi-
tional information. As of July 1975, about 50,000 of these
items remained to be cleared.


1/Bills in orbit can be screened for information for re-
  sponding to queries. They are not, however, recorded on
  SSA's master records.

                           51
APPENDIX IV                                                                              APPENDIX IV



  Thousands Of Bills
  750

   700


                                                        TOTAL




  550-



  400 _-t




              By' "" '   - -
                           -        BILLS FOR INPATIENT SERVICES




 300 _


                   BILLS FOR SNF SERVICES
 2390


                               "--'-............... ~*150               --

                                  I          I          I           I                  I      I
   7/70     1/71         8/71         1/72       7/72       12/72       8/73   1/74   7/74   1/75   7/75
                                                   BILLS IN ORBIT




                                                            52
APPENDIX IV                                      APPENDIX IV



     In May 1975, SSA informed the intermediaries that pre-
October 1973 open items would be purged from the system un-
less bills were submitted by October 1975, since the filing
time limit had expired.  For claims filed after December
1974, SSA has established a time limit for submitting all
Medicare claims for payment for services reimbursable on a
reasonable cost basis, which is generally December 31 of the
calendar year following the year in which the services were
furnished.

     The large number of open items, with its accompanying
large number of bills in orbit, has been a problem at SSA,
despite consistent efforts to reduce them.  In June 1970
there were 2.4 million hospital and skilled nursing facility
open items; in June 1972, 2.8 million.  In January 1974, the
number had risen to 4.2 million open items, and as of August
1975, 3.3 million open items remained.  Coupled with the fact
that SSA takes an average of 115 days after a Medicare patient
is discharged to receive and record the bills on the master
records, open items create a situation that does not respond
to the needs of the query system.

Lack of controls over     care 2rovided
 nnonar    1    iin   n     1stut ions
     Under the existing query system, information on admis-
sions and hospital use, which SSA needs to determine the
status of benefits, is not complete. Under the law, a bene-
fit period ends when the beneficiary has been out of a hos-
pital or a facility primarily providing skilled nursing care
for 60 consecutive days.

     As of July 1975 about 720 hospitals and 11,900 facili-
ties that provided skilled nursing care were not participat-
ing in Medicare. Although SSA determined that an admission
to one of these facilities would break the 60-consecutive-day
period required to start a new benefit period, these nonpar-
ticipating institutions are not obligated to report to SSA
the admission of Medicare beneficiaries. Therefore, some
Medicare beneficiaries, after discharge from a participating
hospital or skilled nursing facility, might be admitted to
a nonparticipating institution during the 60-day period fol-
lowing the discharge and yet be covered later by Medicare
under a new benefit period for which the beneficary is not
entitled.

     According to SSA officials, this can be controlled in
only one way. The participating hospitals usually ask the
beneficiaries upon admission whether they have been

                                 53
APPENDIX IV                                      APPENDIX IV

institutionalized in the last 60 days.  These officials
stated that SSA must depend on the participating hospitals
to identify and obtain details of any care in nonparticipa-
ting institutions. While no studies have been made, SSA
officials believe that the frequency with which patients
come from a nonparticipating institution to a participating
institution claiming a new, but unearned, benefit period
is very small.  They said SSA cannot require nonparticipa-
ting institutions to report such admissions and the effort
and costs to establish controls for the potentially few
instances of unreported admissions breaking the 60-day
waiting period is not warranted.

     Although we do not disagLee with SSA's assessment,
under Medicare's existing part A benefit structure, complete
control and enforcement of when a new benefit period should
start is simply not practicable.

HOSPITAL PROBLEMS IN
ADMINISTERING THE QUERY SYSTEM

     Administering the query system is costly to hospitals
and in about half the cases does not provide information on
the beneficiary's entitlement and benefit status until after
the beneficary has left the hospital.  The American Hospital
Association estimated that short-term hospitals spend about
$11.5 million annually to operate the query system for part
A inpatient claims.

      The minimum time a hospital can expect to receive noti-
fication of a Medicare beneficiary's entitlement and status
of benefits varies depending on the method used to transmit
the query and the amount of verification and development
necessary by the intermediary before forwarding the respon-
ses to the hospitals.   The American Hospital Association
estimated that 55 percent of all Medicare patients in short-
stay hospitals are discharged by the time the SSA query
response is received by the hospital.   Under these circum-
stances the process seems to be of limited use to the hospi-
tals.

     Hospitals reported to the Amercian Hospital Association
that they normally bill non-Medicare patients about 7 days
after discharge.  However, because of delays associated with
the query system, the bills for the average Medicare patient
are made 14 days after discharge.  Intermediary officials in
Atlanta said overpayments and underpayments to hospitals
occur because claims have been paid out of sequence and
because coinsurance rates were applied to the wrong claims.
In some cases hospitals required the beneficiaries to pay the

                            54
APPENDIX IV                                      APPENDIX   IV



deductible more than once in the same benefit period because
the patients had been discharged before the hospital received
the SSA response on their current benefit status.  In these
instances, the intermediary must follow up on the claims to
(1) insure that hospitals make appropriate refunds to the
beneficiaries and (2) adjust for any overpayments and under-
payments made to the hospitals.

SUMMARY

     A basic problem in administering Medicare's existing
benefit structure and related query system is that, generally,
admissions and the corresponding bills for a benefit period
must be recorded on SSA's master records in chronological
sequence to provide accurate information on the beneficiaries'
benefit status.  Another problem is that determining whether
a hospital admission represents the start of a new benefit or
the continuation of a previous benefit period is dependent on
the date of the latest discharge from a hospital or skilled
nursing facility--which for any beneficiaries involved in the
3.3 million open items must usually be determined through
further development by the intermediary.

     These problems seem to be inherent in the benefit
structure as prescribed by the present Medicare law and not
susceptible to solution through administrative action.
APPENDIX V
                                                                     APPENDIX V




              DEPARTMENT OF HEALTH, EDUCATION. AND WELFARE
                           OFFICE OF THE SECRETARY
                             WASHINGTON, D.C. 2001




                                 OCT 1 1976




      Mr. Gregory J. Ahart
      Director, Human Resources Division
      United States General
        Accounting Office
      Washington, D.C. 20548
      Dear Mr. Ahart:
      The Secretary asked that I respond to your request for our comments
      on your draft report entitled, "Impact of Selected National Health
      Insurance Proposals On Medicare Hospital Insurance." The enclosed
      comments represent the tentative position of the Department and are
      subject to reevaluation when the final version of this report is
      received.
     We appreciate the opportunity to comment on this draft report
     before its publication.
                                     Sincerely yours,


                                    Ahn    D. Yo g
                                   (Asi stant Secretary, Comptroller
      Enclosure




                                     56
APPENDIX V                                                            APPENDIX V

 COMMENTS OF THE DEPARTMENT OF HEALTH, EDUCATION AND WELFARE ON THE
 GENERAL ACCOUNTING OFFICE DRAFT REFORT ENTITLED "IMPACT OF SELECTED
 NATIONAL HEALTH INSURANCE PROPOSALS ON MEDICARE HOSPITAL INSURANCE"


 GAO Recomendation

 That the Secretary direct the Commissioner of Social Security to
 initiate a demonstration project aimed at (1) determining whether
 the health card approach for paying for inpatient hospital service
 would tend to increcse the efficiency and economy of the Medicare
 program, and (2) testing the feasibility of such an approach for
 possible use under the various national healh insurance proposals.

DEPARTMENT COMMENT

We question the usefulness of a demonstration project to test the
health card concept limited to inpatient hospital cervices. With
respect to inpatient services, the patient liability under Medicare
is quite small and the costs of administering the health card credit
and collection system could far outweigh the limited benefits that
would accrue to the hospital. In addition, the beneficiary would
not benefit from such a system. A health card approach for Part B
services, however, has greater potential benefits. Several possible
demonstrations have been under consideration by SSA. The principal
advantage of the system is its potential impact on the assignment
rate (by removing the burden and risk of the physician having to
bill the patient for the deductibles and coinsurance).

One project under consideration by SSA'P Office of Research and
Statistics would utilize a health card system under which physicians
would be paid, iu accordance with a negotiated fee schedule. for
services to Medicare beneficiaries. Thus, the beneficiarl would be
better informed about his total liability and the physician would
be assured of his full fee. Rowever, it is still too early to say
whether the project will be implemented.

Another demonstration project initiated by the Office of Research
and Statistics--dealing with payment for prescription drugs in the
State of California--should yield additional information on the
operation of a health card system. Under this project-which was
primarily designed to test the effects of cost-sharing on the
utilization of prescription drugs-a selected number of Medicare
beneficiaries were divided into four groups each with a different
drug insurance program. One of the programs, which called for the
application of deductibles and coinsurance, provided a payment
mechanism through a health card system. While a limited demonstration
of this type may not be indicative of experience under a system
covering a broad range of services and population groups, it should
provide important information on various aspects of the health card
including administrative costs and bad debts.




                                      57
APPENDIX V                                                         APPENDIX V




 In addition, SSA believes that much could be learned from economic
 analysis of other credit and collection syotems. simulation of
 alternative health card models might also reveal comparative costs
 and administrative feasibility. In this connection, the Department
 is exploring the possibility of an experiment with a health credit
 card mechanism to he used primarily in ambulatory care settings for
 a broadly defined pbpulation that woulQ include more than just the
 beneficiaries of public programs. Such an experiment would build
 in direct cash savings to patiens. The Department hopes it would
 involve agreements by physicianr to accept the health card for a
 large proportion of their patients thereby providing a valid test
 of the hypothesis that a health card can result in real savings
 to patients and providers.

  SSA in the future expects to continue its efforts in examining the
  feasibility of health card approaches.

  Other Matters in the Draft Repo-t

  The discussion beginning on page 51 of the draft report conveys the
  impression that SSA assumes that the income definition and income
  determination process used for the Supplemental Security Income
  program would be used In implementing proposed income-related health
  care provisions. This is not the case. Rather, the estimates of
  the cost of such an approach were developed to illustrate the need
  to find simpler, less costly alternatives.




                                       58
                                                        APPENDIX VI
APPENDIX VI



         PRINCIPAL DEPARTMENT OF HEALTH,    EDUCATION,

              AND WELFARE OFFICIALS RESPONSIBLE FOR

               ACTIVITIES DISCUSSED IN THIS REPORT

                                               Tenure of office
                                               From          To


SECRETARY OF HEALTH, EDUCATION,
  AND WELFARE:
    Joseph A. Califano, Jr.             Jan.     1977     Present
                                        Aug.     1975     Jan.  1977
    David Mathews
    Caspar W. Weinberger                Feb.     1973     Aug.  1975
    Frank C. Carlucci (acting)          Jan.     1973     Feb.  1973
                                        June     1970     Jan.  1973
    Elliot L. Richardson
                                        Jan.     1969     June  1970
    Robert H. Finch
                                        Mar.     1968     Jan.   1969
    Wilbur J. Cohen
                                        Aug.     1965     Mar.   1968
    John W. Gardner

COMMISSIONER OF SOCIAL SECURITY:
                                        Sept.    1973     Present
    James B. Cardwell
    Arthur E. Hess (acting)             Mar.     1973     Sept. 1973
    Robert M. Ball                      Apr.     1962     Mar.  1973




                              59