Ten Costliest DRGs to Medicare and Beneficiaries

The Centers for Medicare and Medicaid Services (CMS) recently released payment data for the 100 most commonly billed discharges by Diagnosis Related Group (DRG) at more than 3,000 hospitals using the Inpatient Prospective Payment System (IPPS) in 2013. These payments represent over 7 million discharges, or 60 percent of the total IPPS discharges billed to Medicare that year. The following chart shows the top 10 costliest DRGs to the Medicare system as a whole, counting payments by both the government (and/or supplemental private insurance) and beneficiaries (including copayments and deductibles). These 10 DRGs were responsible for nearly 1.7 million discharges with total payments per discharge averaging nearly $23,000 for a total cost of more than $26 billion. As illustrated, much of the cost is driven by the number of discharges—particularly for major joint replacement (DRG 470) and septicemia (DRG 871)—rather than the cost of the services. Percutaneous cardiovascular procedure (DRG 247) was the only DRG in this top 10 that was not also in the top 10 for number of discharges or average total payments per discharge.

All But One ACA Co-ops Lost Money in 2014

The Affordable Care Act (ACA) allowed the creation of non-profit consumer operated and oriented plans (co-ops) which would be allowed to sell health insurance to a state’s residents either on or off the newly-created Exchanges. These co-ops were eligible for both start-up and solvency loans, and the Centers for Medicare and Medicaid Services (CMS) awarded $2.4 billion in loans to 23 new co-ops. One criteria for receiving such loans was a high probability of becoming financially viable. While most of the co-ops were expected to lose money in the first year (as most new businesses do), the Health and Human Services Office of the Inspector General found 19 of the 23 co-ops exceeded their projected losses; 10 co-ops lost more than $2,000 per enrollee. Projections show 11 co-ops are expected to still be losing money by the end of 2015. Maine’s co-op, the only one not to lose money in 2014, had the lowest priced plans (despite only drawing down 32 percent of the loans they were awarded and enrolling more than 2.5 times as many individuals as anticipated) and attracted 80 percent of the state’s marketplace consumers. The chart below shows the net loss per enrollee for each co-op by state, which averaged $2,712. The total loss was $539 million.

Medicaid Accounts for 16 Percent of All Health Care Spending in U.S.

In 2014, national spending on health care products and services totaled $3.1 trillion, or $9,695 per person, and accounted for 17.4 percent of our gross domestic product (GDP).  Medicaid enrollment grew by 12.9 percent in 2014, while spending on the program grew by 12 percent (federal and state spending grew 17.7 percent and 3.4 percent, respectively) totaling $503.3 billion and accounting for 16.3 percent of national health expenditures (NHE).   Average spending per beneficiary in Medicaid was 1.4 times greater than spending on individuals with private health insurance.  The chart below provides insight into where that money is going: a large share of the nation’s spending on nursing and retirement care, home health care, and other residential and community-based services are paid for by Medicaid.

The Medicare and Medicaid Programs will Cost $2 Trillion in Just 8 Years

As the nation marks the 50th Anniversary of the creation of Medicare and Medicaid, it is important to both look back at how the programs have evolved, as well as forward at what’s to come. But be careful—the trajectory may alarm you. Between 2010 and 2023, total expenditures on Medicare and Medicaid will more than double to nearly $2 trillion annually, while enrollment during that same period is only expected to increase by 45 percent. Spending on Medicare did not surpass $500 billion until 2009, 44 years after the program began; but it will only take 13 years beyond that to increase by the same amount. In the 10 years between 2014 and 2023, average annual enrollment growth in both Medicare and Medicaid will be approximately 3 percent, while average annual growth in expenditures will be more than double the rate of enrollment for both programs—6.2 percent for Medicaid  and 7 percent for Medicare.

Medicare Spending Per Beneficiary Has Tripled Since 1970

The Medicare program was established 50 years ago and, as of 2013, provided health care coverage to 52.3 million beneficiaries at a cost of $583 billion. Serving 19.4 million beneficiaries in 1967, total Medicare expenditures were $4.7 billion. The growth in program expenditures is largely due to growth in the number of beneficiaries. However, growth in health care prices and the availability of more health care services has been a significant factor in the growth of real per-beneficiary spending, which has tripled since 1970. Between 1965 and 2010, average annual growth in health care prices outpaced general price inflation by approximately 2 percent. Average total spending per beneficiary was $12,210 in 2013, and will continue to rise. As the number of beneficiaries will also soon skyrocket—enrollment is expected to grow at an average annual rate of 3 percent over the next decade, this combination will dramatically increase Medicare expenditures, expected to surpass $1 trillion by 2022.

Medicare Beneficiaries Growing as Percent of US Population since Program’s Inception

In the 50 years since the Medicare program was signed into law, it has become the second-largest expenditure in the federal budget, costing $600 billion in 2014.  Policymakers have become increasingly concerned recently with the expected growth of the Medicare-eligible population as the Baby Boomers begin to retire, at a rate of 10,000 per day, and the impact such growth will have on the program’s finances, and the federal budget. That concern is valid: in 20 years, the percent of the total U.S. population age 65 or older is expected to increase to 21 percent—a percentage-point increase more than double the growth among the elderly population in the first 50 years of the program.  However, while the retirement of the Baby Boomers will bring a rate of growth unseen thus far, the beneficiary population has been steadily growing as a percent of the population since the program’s inception. In 1966, Medicare beneficiaries equaled 9.7 percent of the U.S. population; by 2013, 16.6 percent of the population was receiving Medicare benefits.

How Businesses Are Impacted by King v. Burwell

The American Action Forum (AAF) recently assessed the plausible effects of a ruling for the plaintiffs in the Supreme Court case, King v Burwell, concerning the legality of subsidies in the federally-run health insurance exchanges implemented under the Affordable Care Act (ACA). One outcome of such a ruling would be that medium and large employers in the 37 states with federal exchanges would no longer be burdened with the ACA’s employer mandate. The employer mandate requires all employers with 100 or more “full-time” workers (50 or more effective 2016) to provide their employees with health insurance. AAF previously assessed the labor market effects of the mandate and other regulations, finding that they have already reduced employment and weekly pay. To make matters worse, the ACA defines “full-time” as working 30 or more hours per week, which is nowhere close to reality in today’s labor market. As a result, all employers with 100 or more workers this year and 50 or more next year must be conscious of all their workers’ hours if they wish to avoid the employer mandate.

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