Healthcare Facts

• "Spending" refers to what is spent on healthcare in general. Thus, if people use more healthcare services, this causes spending to increase even if prices remain the same.

• "Prices" refer to what healthcare providers charge for particular services and products.

• "Costs" refer to what healthcare providers spend in order to provide particular healthcare services and products to patients. This is equivalent to prices minus profits or losses.

• from a yearly average of $1,082 per person in inflation-adjusted 2010 dollars to $8,218 (by 7.6 times).

• from 5.2% of the nation's gross domestic product (GDP) to 17.8% (by 3.4 times).[1]

* In 1942, the price for a maternity room at Christ Hospital in Jersey City, NJ was $7.00 per day.[3] Adjusting for inflation, this amounts to $97.29 in 2011 dollars.[4] In 2011, the price for a maternity room at the same hospital was $1,360 per day.[5]

* In 1980, the average price for a typical hospital room in the U.S. was $127 per day.[6] Adjusting for inflation, this amounts to $349 in 2011 dollars.[7]

* In 1988, Mutual of Omaha insurance company paid an average of $270 per day for all types of hospital rooms (such as medical/surgical, intensive care, maternity, etc.). Adjusting for inflation, this amounts to $518 in 2011 dollars.[8] [9] [10]

* In 2002, Mutual of Omaha paid an average of $748 per day for all types of hospital rooms. Adjusting for inflation, this amounts to $943 in 2011 dollars.[11] [12]

* A 2011 survey of eleven hospitals in Ohio (where state law requires hospitals to publish their prices) found that the daily price of a typical hospital room ranged from $688 to $2,425, with the average being $1,393 and the median $1,322.[13]

NOTE: Third-party payments refer to healthcare expenses that are not paid directly by consumers but by other entities such as governments and insurance companies. Such entities are called "third-parties" because they typically do not deliver or receive healthcare (for example, they are not patients or doctors).

* A Rand Corporation study tracked the healthcare spending of 2,756 families over periods of either three or five years during 1974-1982. The families were given insurance plans that covered all healthcare expenses above $1,000 per year or a reduced amount for lower-income families so that health care expenses could never exceed certain percentages of their income. (Accounting for inflation, $1,000 during the timeframe of this study equates to about $3,500 in 2011 dollars.[16])

The families were then randomly assigned to plans that covered their healthcare expenses below $1,000 per year, covering either 5%, 50%, 75%, or 100% of this spending. For example, families with 75% coverage paid 25% of their healthcare spending up to $1,000 per year (a maximum of $250 out-of-pocket), and insurance paid for everything else. The results were as follows:

• Families with 100% coverage spent an average of 16% more on healthcare than families with 75% coverage, 22% more than families with 50% coverage, and 58% more than families with 5% coverage.

• Using mathematical "techniques better suited to such data," families with 100% coverage were predicted to spend 24% more than families with 75% coverage, 49% more than families with 50% coverage, and 45% more than families with 5% coverage.[17]

• The increased spending that occurred under the plans with higher coverage had "little or no" effect on health outcomes except for the poorest 6% of the population.[18]

• In hospital settings (where costs typically exceeded the maximum out-of-pocket costs that the patients had to pay), the plans had no effect on spending. Per the study:

* A study published in the American Journal of Public Health (2001) analyzed insurance coverage levels and health outcomes of "an older, chronically ill population" with conditions such as "diabetes, hypertension, coronary artery disease, congestive heart failure, or depression." The study grouped "individuals into 3 cost-sharing categories: no copay (insurance pays all), low copay (insurance pays more than half but not all), and high copay (insurance pays half or less)." Per the study:

• making employer-provided health insurance generally exempt from federal taxes but not medical expenses paid directly by consumers unless they exceed 7.5% of adjusted gross income.[21]

• providing health insurance for almost all Americans aged 65 and older (roughly 39 million people in 2010) and about 7 million permanently disabled individuals under the age of 65 through the Medicare program.[22]

• paying for healthcare services for more than 68 million people who typically have low incomes (for example, a pregnant woman and children in a family of four with income below $29,725 in 2011) through the Medicaid program.[23] [24]

• subsidizing health insurance for 7.7 million children in families with incomes as high as 400% of the federal poverty level and unlimited financial assets (for example, $89,400 for a family of four in New York that has over $1,000,000 in assets (income and asset eligibility thresholds vary depending upon state of residence) through the Children's Health Insurance Program (CHIP).[25] [26] [27] [28]

* Starting in 2014, the 2010 Affordable Care Act (a.k.a Obamacare[29]) incentivizes and subsidizes third-party payments by

• requiring most Americans to carry some form of health insurance or pay a monthly fine.[30] [31]

• expanding Medicaid eligibility to all individuals under the age of 65 in families with incomes below 138% of federal poverty guidelines (for example, a family of four with income below $30,843 in 2011) without regard for any assets they have. This expansion, along with other measures in this act, are projected by the U.S. Department of Health and Human Services to increase Medicaid enrollment above previous estimates by about 11.6 million people in 2014 and 20 million people by 2019.[32] [33] [34]

• providing taxpayer subsidies to purchase health insurance for individuals with incomes up to 400% of federal poverty guidelines (for example, $55,590 for a family of three in 2011, $89,400 for a family of four, or $104,680 for a family of five). The U.S. Department of Health and Human Services projects that 25 million people will be receiving these subsidies in 2019.[35] [36] [37]

• increasing the threshold at which medical expenses paid directly by consumers become tax deductible from 7.5% of adjusted gross income to 10%.[38]

* Among developed nations, greater wealth is associated with higher healthcare spending. The graph below shows healthcare spending and income (GDP per capita) in nations that are members of the Organization for Economic Cooperation and Development (OECD), which is an international organization of 34 developed countries such as Australia, Canada, Germany, and Japan.[39] [40] This graph is cropped to improve data visibility, and thus, does not show the U.S. and Luxembourg, both of which are outliers. Click on the footnote to see an uncropped graph including these countries.

* Per the Handbook of Health Economics, "results obtained with international comparisons should be treated with considerable caution," but a "common and extremely robust result of international comparisons is that the effect of per capita GDP (income) on [healthcare] expenditures is clearly positive and significant….."[42] [43]

* Personal health care expenditures consist of monies directly spent to "treat individuals with specific medical conditions."[44]

* In the U.S. during 2004, average annual per capita personal healthcare spending for 65-74 year-olds was more than three times higher than that of 19-44 year-olds:

* In 2010, for every 4.7 Americans aged 20 to 64, there was one American aged 65 or older. As the baby-boom generation ages and projected life expectancy increases,[46] the Congressional Budget office estimates that this ratio will drop from 4.7/1 in 2010 to 3.7/1 by 2020 and to 2.9/1 by 2030.[47]

* Cancer, cardiovascular disease, and diabetes are responsible for the majority of deaths and health care costs in the United States.[48]

* In 2008, the journal of the American Heart Association published a study entitled "The Impact of Prevention on Reducing the Burden of Cardiovascular Disease." The authors found that

• about 78% of U.S. adults aged 20-80 years are "candidates for at least one prevention activity" that would reduce the risk of cardiovascular disease, such as taking aspirin, drugs that reduce LDL cholesterol, and drugs that decrease blood pressure.

• "aggressive" but "feasible" implementation of such prevention strategies would reduce the number of heart attacks by 36% and the number of strokes by 20%, thereby increasing the average life expectancy of all adults by 1.3 years.

• "if all the recommended prevention activities were applied with 100% success," the costs of implementing these measures would be ten times greater than the savings of not treating the illnesses prevented.[49]

Although different types of preventive care have different effects on spending, the evidence suggests that for most preventive services, expanded utilization leads to higher, not lower, medical spending overall.

That result may seem counterintuitive. For example, many observers point to cases in which a simple medical test, if given early enough, can reveal a condition that is treatable at a fraction of the cost of treating that same illness after it has progressed. In such cases, an ounce of prevention improves health and reduces spending—for that individual. But when analyzing the effects of preventive care on total spending for health care, it is important to recognize that doctors do not know beforehand which patients are going to develop costly illnesses.

To avert one case of acute illness, it is usually necessary to provide preventive care to many patients, most of whom would not have suffered that illness anyway. … Judging the overall effect on medical spending requires analysts to calculate not just the savings from the relatively few individuals who would avoid more expensive treatment later, but also the costs for the many who would make greater use of preventive care.[50]

* In 2008, the journal PLoS Medicine published a study on the healthcare costs of obesity and smoking in the Netherlands. The authors found that

• "overweight and obese individuals have an increased risk of developing many diseases, such as diabetes, coronary heart disease and stroke…."

• "life expectancy at age 20 was five years less for the obese group, and eight years less for the smoking group, compared to the healthy-living group…."

• "because of differences in life expectancy … lifetime health expenditure was highest among healthy-living people and lowest for smokers."

• healthcare costs from the age of 20 until death were 12% higher for healthy-living people than obese people and 28% higher than smokers.

* In 1998, the British Medical Journal published a study examining the cost effectiveness of preventing fatal diseases in the Netherlands. The study found that

* From March 2010 through June 2011, the average quarterly operating margin (i.e., profit margin before interest expenses and taxes[53]) for all companies in the S&P 500 was 9.0%, while for healthcare companies in the S&P 500, it was 9.3%.[54] [55]

* As of November 17, 2011, the net profit margin (after taxes[56]) for various industries within the healthcare sector are as follows:

* In May 2010, the mean hourly wage for nonfarm workers in the United States was $21.35 (not including benefits), and the mean hourly wage for various healthcare occupations was as follows:

* Per the U.S. Government Accountability Office (GAO), "once fraudulent or improper payments are made, the government is likely to only recover pennies on the dollar."[62]

* In fiscal year 2008, the Children's Health Insurance Program made $834 million in improper payments (as estimated by the federal government). This amounts to 14.7% of the program's total outlays.[63] (Data for later years not yet available.[64])

* In fiscal year 2010, the Medicaid program made $22.5 billion in improper payments. This amounts to 9.4% of the program's total outlays.[65]

* In fiscal year 2010, the Medicare program made about $48 billion in improper payments. This is the highest estimated amount of improper payments in a single federal program. These payments amount to

• 38% of all improper payments reported by 20 federal agencies covering 70 programs.

The GAO reports that this $48 billion figure is "incomplete" because the U.S. Department of Health and Human Services "has yet to report a comprehensive improper payment estimate for the Medicare prescription drug benefit program, which had reported outlays of about $59 billion in fiscal year 2010."[66]

• "About 12 million Americans (age 12 or older) reported nonmedical use of prescription painkillers" in 2010.

• "Prescription painkiller overdoses killed nearly 15,000 people in the US" during 2008.[67] (For comparison, roughly 16,272 murders were committed in the U.S. that year.[68])

* In 2011, the GAO reported the results of an investigation meant to "determine the extent to which Medicare beneficiaries obtained frequently abused drugs from multiple prescribers." This is sometimes called "doctor shopping," and it is one of the primary ways in which people "obtain highly addictive" prescription drugs "for illegitimate use." The investigation found that

* In 2008, the GAO reported that their investigators were able to "easily set up two fictitious" medical supply companies that were "approved for Medicare billing privileges despite having no clients and no inventory."[70]

• a medical supply company billed Medicare for half a million dollars during a month when CBS couldn't find anyone present at the company's address.

• a pharmacy billed Medicare for $300,000 using an address for a public warehouse storage area.

• a 76-year-old woman had been notifying Medicare for six years that her Medicare statements were showing purchases for medical supplies that she never needed or received.[71]

• a family doctor in Florida received about $1.2 million from Medicare in 2008, which is "more than 24 times the Medicare income of the average family doctor."

• a Brooklyn physical therapist received about $1.8 million from Medicare in 2008.

• another Florida doctor received about $8.1 million from Medicare during 2007-2009.

• a Houston doctor received about $7.1 million from Medicare in less than a year.[72]

* In New Jersey, Medicaid and the Children's Health Insurance Program are administered by a program called NJ FamilyCare.[73] In 2007, at least 873 families with gross annual income above $85,000 received benefits from NJ FamilyCare. Three of these families had gross incomes above $700,000.[74]

All health care programs are subject to fraud; however, Medicare and Medicaid programs are the most visible. Estimates of fraudulent billings to health care programs, both public and private, are estimated between three and ten percent of total health care expenditures. The fraud schemes are not specific to any area, but they are found throughout the entire country. The schemes target large health care programs, public and private, as well as beneficiaries. Certain schemes tend to be worked more often in certain geographical areas, and certain ethnic or national groups tend to also employ the same fraud schemes. The fraud schemes have, over time, become more sophisticated and complex and are now being perpetrated by more organized crime groups.[75]

* In 2009, Medicare and Medicaid paid hospitals a combined total of $38 billion dollars less than hospitals' costs of caring for Medicare and Medicaid patients. Medicare paid hospitals an average of 10% below their costs of caring for Medicare patients, and Medicaid paid hospitals an average of 11% below their costs of caring for Medicaid patients.[76]

* As of October 2011, four states limit the number of days that Medicaid will pay for hospital stays: 45 days in Florida, 30 days in Mississippi, 24 days in Arkansas, and 16 days in Alabama. Arizona and Hawaii are planning to limit the number of days to 25 and 10 respectively. Spokesmen for hospital associations in Alabama and Arizona have stated that hospitals generally will care for Medicaid patients beyond these time limits regardless of Medicaid's willingness to pay.[77]

* Federal law requires most hospitals with emergency departments to provide an "examination" and "stabilizing treatment" for anyone who comes to such a facility and requests care for an emergency medical condition or childbirth, regardless of their ability to pay and immigration status. This is mandated under a federal law called the Emergency Medical Treatment and Active Labor Act (EMTALA).[78] [79] [80]

* In 2001, emergency room physicians spent about half of their patient-care time providing treatment mandated under EMTALA.[81]

* In 2000, emergency room physicians incurred an average of $138,300 in bad debt by providing treatment mandated under EMTALA. Bad debt does not include charity care or care for which charges were reduced through negotiations. It only includes care for which payment was owed and not received.[82]

* In 2003, the Federal Reserve reported that approximately 52% of all collection actions by collection agencies and creditors were associated with medical bills.[84]

* In 2009, hospitals provided $39.1 billion of uncompensated care, amounting to 6.0% of hospitals' total costs.[85]

* In 2009, the costs to the U.S. healthcare system of malpractice awards, lawyers' fees, and lawsuit-related administrative costs were about $30 billion or 1.2% of total healthcare spending.[86] [87] (This does not include the costs of defensive medicine.)

* States and localities have varying legal systems and demographics that drive disparities in medical malpractice costs.[88] As examples:

- Los Angeles County, California (the nation's most populous county[89]) charged an average of $49,804 per policy.[90]

- Cook County, Illinois (the nation's second-most populous county[91]) charged an average of $127,083 per policy.[92]

- San Francisco County, California charged an average of $29,635 per policy.[93]

• In 2010, the average payout per medical malpractice claim for MDs [medical doctors] and DOs [doctors of osteopathic medicine] ranged from a low of $109,000 in West Virginia to a high of $1,258,000 in Wisconsin.[96]

* "Defensive medicine" is defined by the American Academy of Orthopaedic Surgeons as "the practice of ordering excessive or unnecessary tests, procedures, visits, or consultations solely for reducing liability risk to the physician, and/or avoidance behavior, the practice of avoiding high-risk patients or procedures."[97]

* A nationwide survey of 462 physicians conducted in 2009/2010 by Gallup and Jackson Healthcare found that 73% of doctors engaged in some form of defensive medicine over the past 12 months. On average, the physicians who practiced defensive medicine estimated that 21% percent of their practice was defensive in nature.[98]

* A 2010 paper in the journal Health Affairs estimated that the costs of defensive medicine in the U.S. during 2008 were $38.8 billion for hospitals and $6.8 billion for physician and clinical services.[99] The authors of this paper arrived at the $38.8 billion estimate for hospitals by

• extrapolating the results of a study that estimated the cost savings of lawsuit reforms (such as caps on noneconomic damages) for Medicare patients who had heart attacks or heart disease. The authors noted that "two other studies could not replicate these findings for other health conditions."[100]

• assuming that the following unquantified factors "probably serve as counterweights to one another": (1) all costs of defensive medicine that were not eliminated by the legal reforms in the study they extrapolated (2) physicians' perceptions that Medicare patients may be less likely to sue or to receive large payouts because they are older than the general population (3) physicians' perceptions that the threat of liability with cardiac patients may be greater than with other patients. (4) physicians' perceptions that the threat of liability with Medicare patients may be greater "because higher levels of managed care outside of Medicare reduce physicians' discretion."[101]

The authors arrived at the $6.8 billion estimate for physician/clinical services by assuming that the cost of malpractice payments are equivalent to the costs of defensive medicine.[102] (Defensive medicine does not involve the costs of malpractice payments but the costs of medically unnecessary actions that health care providers take to prevent from having to make such payments.[103])

The authors did not account for defensive medicine costs outside of hospitals and physician/clinical services,[104] which accounted for 50% of U.S. healthcare spending in 2008.[105] The costs of defensive medicine for all other categories of healthcare spending such as prescription drugs were not quantified.[106]

Using the above-described methodologies and others, the authors estimated that total "medical liability system costs" in the U.S. during 2008 were $55.6 billion or about 2.4% of total health care spending.[107] These figures have been uncritically cited by Reuters,[108] Bloomberg,[109] CBS,[110] the Chicago Tribune,[111] and U.S. News & World Report.[112]

* As of December 2011, Just Facts has been unable to find a defensible estimate for the system-wide costs of defensive medicine in the U.S.[113]

* Examples of administrative and regulatory dynamics that impact healthcare costs include

• paperwork and billing procedures required by private insurers and government programs.[114] [115]

• mandates that require insurers to cover the cost of specific treatments and practitioners.[118]

• mandates that prohibit insurers from charging copayments for certain classes of services and drugs.[119]

• a Medicare/Medicaid requirement that requires hospitals to provide translators for patients who don't speak English under certain circumstances.[122] [123]

• mandates that require insurers to pay for health conditions that existed before customers purchased insurance.[124]

• state regulations that prohibit residents from buying health insurance in other states.[125]

• mandates that restrict insurers from setting premiums based upon certain risk factors that drive healthcare spending.[126] [127]

• accreditation, licensure, certification, review, and audit requirements for healthcare facilities and professionals.[128] [129] [130] [131]

* A 2001 study conducted by PricewaterhouseCoopers for the American Hospital Association chronicled more than 40 layers of paperwork associated with caring for a typical Medicare patient who arrives at an emergency room with a broken hip and receives treatment until recuperation.[132] Some of the findings are:

• Roughly 60 minutes of paperwork were performed for every hour of emergency department care, 36 minutes of paperwork for every hour of surgery and acute inpatient care, 30 minutes of paperwork for every hour of skilled nursing care, and 48 minutes of paperwork for every hour of home health care.[133]

• "Each time a physician orders a test or a procedure, the physician documents the order in the patient's record. But the government requires additional documentation to prove the necessity for the test or procedure."[134]

• "Many forms … must be completed daily by clinical staff to submit to the government to justify the care provided to skilled nursing facility patients."[135]

• Medicare and Medicaid "rules and instructions" are more than 130,000 pages (three times larger than the IRS code and its associated regulations), and "medical records must be reviewed by at least four people to ensure compliance" with Medicare program requirements.[136]

• "A Medicare patient arriving at the emergency department is required to review and sign eight different forms—just for Medicare alone."[137]

• "Each time a patient is discharged, even if only from the acute unit of the hospital to the on-site skilled nursing unit, multiple care providers must write a discharge plan for the patient. This documentation, as long as 30 pages, applies to all patients, regardless of the complexity of care received within the hospital or required post-hospital setting."[138]

• In addition to regulation by state and local agencies and private accrediting organizations, hospitals are regulated by nearly 30 federal agencies.[139]

* In 2010, 24% of all federal government outlays (except interest on the national debt) and 37% of all federal revenues were spent on "mandatory" healthcare programs.[140] Mandatory programs are those that can spend taxpayer money without Congress passing annual spending bills. The major mandatory healthcare programs are Medicare, Medicaid, the Children's Health Insurance Program, and beginning in 2014, a new entitlement established under the 2010 Affordable Care Act (details below).[141] [142]

* In 2011, the Congressional Budget Office (CBO) projected how much money the federal government will spend on mandatory healthcare programs over coming years under "current policy" with a sustained economic recovery.[143] This scenario assumes that

• unemployment gradually declines to its approximate historical average and stays there.[144] [145]

• federal revenues (as a percent of GDP) gradually rise to their approximate historical average and stay there.[146]

• Medicare payments for healthcare services don't undergo reductions scheduled under current law that would cause "severe problems with beneficiary access to care."[147] [148]

Under this scenario, the CBO projects that the share of federal revenues spent on mandatory healthcare programs will increase from 5% in 1970, 14% in 1990, and 37% in 2010—to 50% in 2030, 71% in 2050, and 100% in 2080.

* The Medicare program was founded in 1965 to provide health insurance for people aged 65 and older. It was later expanded to cover younger people who are permanently disabled.[150] [151]

* In 2010, Medicare provided health insurance for almost all Americans aged 65 and over (roughly 39 million people) and about 7 million permanently disabled individuals under the age of 65.[152] In total, these Medicare enrollees represent about 15% of the U.S. population.[153]

• hospital inpatient services, skilled nursing facility care (not custodial care[154]), and hospice care through its "Part A" component.

• physician, hospital outpatient, and other healthcare services through its "Part B" component.

• private health insurance through its "Part C" component (commonly called "Medicare Advantage").

* In 2007 (latest available data), Medicare covered 64% of healthcare expenses for traditional Medicare beneficiaries not living in institutions such as nursing homes. The remainder of beneficiaries' healthcare expenses were paid by private supplemental insurance (17%), direct out-of-pocket spending (14%), and other government programs such as Medicaid and the Department of Veterans Affairs (6%).[158] [159]

Portion[160]	Category	Source
39%	General revenues[161]	Federal income, corporate, excise, and other taxes.[162] In total, these taxes are progressive so that higher-income households pay higher effective tax rates.[163]
35%	Payroll taxes	Medicare taxes that amount to 2.9% of workers' wages (1.45% paid by employees and 1.45% paid by employers).[164] [165]
12%	Insurance premiums	Premiums paid by Medicare beneficiaries who receive Part B or Part D benefits. These premiums are indexed so that wealthier beneficiaries pay greater amounts.[166] [167] [168]
10%	Trust fund redemptions[169]	Primarily Medicare payroll taxes that were previously loaned to the general fund of the U.S. Treasury.[170] [171]
3%	Taxes on Social Security benefits	Taxes paid by Social Security beneficiaries whose incomes exceed certain thresholds.[172]
<1%	Transfers	State governments.[173]
<1%	Miscellaneous	Fines, penalties, and gifts.[174]

* Starting in 2013, the Affordable Care Act (a.k.a. Obamacare[175]) imposes an added 0.9% Medicare payroll tax on earnings above $200,00 for singles and $250,000 for couples.[176] [177]

* In 2010, Medicare spent about $523 billion.[178] This amounts to 14% of all federal expenditures and 21% of all federal revenues.[179]

* In 2009, Medicare payment rates for inpatient hospital services were 67% of private health insurance payment rates,[180] and Medicare paid hospitals an average of 10% below their costs of caring for Medicare patients.[181]

* In 1966, for every American aged 65 or older, there were 5.5 Americans aged 20 to 64 (the primary working-age population[182]). By 2010, this ratio declined to 4.6/1. As the baby-boom generation matures and projected life expectancy increases,[183] the Social Security Administration projects that this ratio will decline to 3.6/1 by 2020 and 2.8/1 by 2030.

* When Medicare was established in 1965, the period life expectancy for 65-year-old Americans was 12.9 years for males and 16.3 years for females. By 2010, these figures had risen to 17.5 years for males and 19.9 years for females. This amounts to an increase of 4.6 years for males and 3.6 years for females.[185]

* According to Social Security Administration projections, by 2030 the period life expectancy for 65-year-old Americans will rise to 19.2 years for males and 21.1 years for females. This amounts to an increase since 1965 of 6.3 years for males and 4.8 years for females.[186]

* The 2011 Medicare Trustees Report projects the future finances of the Medicare program based upon high, low, and intermediate-cost assumptions.[187] Per the intermediate assumptions, the Medicare program faces a $24.2 trillion ($24,200,000,000,000) actuarial deficit over the next 75 years (in 2011 dollars). The report states that the resources needed to cover this deficit "would be in addition to the payroll taxes, benefit taxes, and premium payments scheduled under current law."[188]

* This actuarial deficit approximates how much money must be immediately added to the Medicare program to cover the projected shortfall between the program's dedicated funding sources and its costs for the next 75 years.[189] It is equivalent to 46 times the total spending for Medicare in 2010.[190]

* The 2011 Medicare Trustees Report states that measures such as the actuarial deficit can

• "obscure the underlying year-by-year patterns of the long-range financial deficits."

• lead to "legislative solutions" that leave in doubt "the long-range sustainability of the program."

• understate "the magnitude of the long-range unfunded obligations" because they "reflect the full amount of taxes paid by the next two or three generations of workers, but not the full amount of their benefits."[191]

* One way to account for the last of these concerns is to calculate how much money must be immediately added to the Medicare program in order to cover the projected shortfall for all current participants in the program (both taxpayers and beneficiaries).[192] This amounts to $24.4 trillion or an additional $101,000 from every U.S. resident aged 14 or older.[193] [194] [195] This measure approximates the method by which publicly traded companies are required by law to report the finances of their pension and retirement plans.[196] [197] [198] [199]

* The annual Medicare Trustees Report makes financial projections based upon current law.[200] Per the 2011 report:

• "there is a significant likelihood that the projected" Medicare "expenditures are substantially understated as a result of potentially impracticable elements of current law."

• "an almost 30 percent reduction in Medicare payment rates for physician services is assumed to be implemented in 2012 as required under current law, despite the virtual certainty that Congress will override this reduction."

• the Affordable Care Act eventually reduces "Medicare prices for hospital, skilled nursing facility, home health, hospice, ambulatory surgical center, diagnostic laboratory, and many other services" to "less than half of their level under the prior law. …. Well before that point, Congress would have to intervene to prevent the withdrawal of providers from the Medicare market and the severe problems with beneficiary access to care that would result. … [This] would lead to far higher costs for Medicare in the long range than those projected under current law."[201]

* In May 2011, U.S. Centers for Medicare and Medicaid Services published an alternative projection to assess the "potential magnitude" of how much "the actual future costs for Medicare are likely to exceed those shown by the current-law projections."[202] Per this estimate, actual Medicare costs will exceed the costs shown in the Trustees Report by 7% per year by 2020, 19% per year by 2040, 31% per year by 2060, and 40% per year by 2080.[203]

* In December 2011, the U.S. Treasury published a financial analysis of the alternative projection described above. These calculations show that Medicare's 75-year open group unfunded obligation is 50% higher under the alternative projection than it is under current law.[204]

* The Medicaid program was founded in 1965 to pay for healthcare services for "certain low-income persons in the United States and its Territories."[205] [206]

* In fiscal year 2010 (October 1, 2009 – September 30, 2010[207]), about 68.2 million people received Medicaid benefits during some point in the year. This figure, which excludes U.S. territories, represents about 22% of the U.S. population and is comprised of

* In fiscal year 2009, about one million people received Medicaid benefits in five U.S. territories (Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands).[211]

* States are not required to participate in the Medicaid program, but all choose to do so. Within certain federal guidelines, states have latitude in setting eligibility criteria, deciding which healthcare services to cover, and regulating payments to doctors and other healthcare providers.[212] [213]

* An example of a federal guideline is that all participating states must provide Medicaid coverage for pregnant women and children in families with income below 133% of the federal poverty level.[214] In 2011, 133% of the federal poverty level for a family of four was $29,725.[215]

* In most states, non-disabled, non-pregnant adults who don't have dependent children are not eligible for Medicaid. For such adults who do have dependent children, the Medicaid eligibility income threshold varies widely across states, but the median was 64% of the federal poverty level in January 2011.[216] For a family of four, this amounts to $14,304.[217]

* Starting in 2014, the 2010 Affordable Care Act (a.k.a. Obamacare[218]) requires all states to expand Medicaid coverage to all individuals under the age of 65 in families with incomes below 138% of federal poverty guidelines without regard for any assets they have.[219] [220] In 2011, 138% of the federal poverty level was $30,843 for a family of four.[221]

* The U.S. Department of Health and Human Services projects that the Affordable Care Act will increase Medicaid enrollment above previous estimates by about 20 million people by 2019.[222] [223]

* The portion of the U.S. population receiving Medicaid benefits has increased from 6.5% in 1970 to 16.8% in 2010, and based upon projections from federal actuaries, this figure will rise to 22.9% by 2019:

* Per the Congressional Research Service, "compared to both Medicare and employer-sponsored health care plans," Medicaid "offers the broadest array of medical care and related services available in the United States today."[225]

* Medicaid-covered services vary by state and include items such as ambulance transportation, chiropractic care, dental care, eyeglasses, physician services, hospital services, substance abuse rehabilitation, nonemergency medical transportation, personal care, prescription drugs, and private duty nursing.[226] [227]

* From January 2006 through May 2009, a Medicaid enrollee in Buffalo, NY used an ambulance service 603 times at no cost to him, costing taxpayers at least $118,158.[229]

* Medicaid expenditures are funded by federal and state general revenues.[230] Federal general revenues are comprised of income, corporate, excise, and other taxes.[231] [232] In total, these taxes are progressive so that higher-income households pay higher effective tax rates.[233]

* The portion of Medicaid expenditures paid by the federal versus state governments varies by state. The federal government pays a greater share of Medicaid costs for states with lower average income levels.[234]

* There is no dollar limit on the federal funds states may receive for their Medicaid programs. Thus, as states provide more generous Medicaid benefits, they receive more funding from the federal government.[235] [236] [237]

* On the whole, the portion of Medicaid spending paid by the federal versus state governments has varied as of late due to recent legislation. In fiscal years 2005-2008, the federal government paid about 57% of all Medicaid expenditures. Various "stimulus" bills have raised this to about 65% in 2009, 67% in 2010, and 63% in 2011.[238]

* In 2010, Medicaid spent about $405 billion. This amounts to 10% of all federal and state government spending combined and 14% of all federal and state revenues combined.[239]

* Illegal immigrants are not eligible for standard Medicaid coverage but can receive Medicaid coverage for emergency conditions. An emergency condition is defined as "one manifested by acute symptoms of such severity that the absence of immediate medical attention could reasonably be expected to result in (1) placing the patient's health in serious jeopardy, (2) serious impairment to bodily functions, or (3) serious dysfunction of any body part or organ." This does not include organ transplants but does include pregnancy-related care such as prenatal care, childbirths, and postpartum care.[240] [241]

* In 2009, 74% of all babies delivered at Parkland Memorial Hospital in Dallas, Texas were born to women who were noncitizens.[242]

* In 2008, Medicaid paid for 14.7% of all healthcare spending in the U.S., 5.9% of dental spending, 7.3% of spending on physicians, 8.3% of spending on drugs, 17.1% of hospital spending, 34.7% home health spending, and 40.6% of nursing home spending.[243] [244]

* In 2007, 52% of all childbirths in New York City were paid for by Medicaid.[245]

• $758,000 in home equity (or unlimited equity if a spouse or dependent relative lives in the home),

* In 2009, Medicaid payment rates for inpatient hospital services were 66% of private health insurance payment rates,[247] and Medicaid paid hospitals an average of 11% below their costs of caring for Medicaid patients.[248]

* In 2009, Medicaid payment rates for physician services were 58% of private health insurance payment rates. (For comparison, Medicare payment rates for physician services were 80% of private health insurance payment rates.")[249]

* Per the 2011 Medicare Trustees Report, low Medicaid payment rates for health care services "have already led to access problems for Medicaid enrollees."[250]

* For a study published in the New England Journal of Medicine (2011), researchers posing as mothers made calls to 273 specialty clinics in Cook County, Illinois (an urban area containing Chicago) to schedule appointments for "common health conditions requiring outpatient specialty care." The researchers called each clinic twice, once while stating that their children were covered by Medicaid or the Children's Health Insurance Program (CHIP), and the other while stating that their children were covered by private insurance.

The study found that "66% of Medicaid–CHIP callers … were denied an appointment as compared with 11% of privately insured callers…." The study also found that among the clinics "that accepted both insurance types, the average wait time for Medicaid–CHIP enrollees was 22 days longer than that for privately insured children…."[251]

* A survey conducted by the Center for Studying Health System Change found that "about half of physicians reported accepting all new Medicaid patients in 2004-05, compared with more than 70 percent for Medicare and privately insured patients."[252]

* The Children's Health Insurance Program (CHIP) was established via federal law in 1997 to help states provide health insurance to uninsured, low-income children living in families with income above Medicaid eligibility limits.[253]

* Like Medicaid, the federal and state governments share in the cost for CHIP, and states have latitude in setting eligibility criteria and deciding which healthcare services to cover. Depending upon the state, the federal government paid between 65% to 83% of CHIP costs in fiscal year 2010 (October 1, 2009 – September 30, 2010[254]).[255] [256]

* In fiscal years 2016-2019, the 2010 Affordable Care Act raises the share of CHIP paid by the federal government by 23 percentage points per state, up to a maximum of 100%.[257]

* The legislation that created CHIP states that the "purpose" of the program is to provide "child health assistance to uninsured, low-income children … under 19 years of age … whose family income is at or below 200 percent" of the federal poverty line.[258] In 2011, 200% of the federal poverty level for a family of four was $44,700.[259]

* By 2007, 13 states had exercised waivers to expand CHIP coverage to various adults,[260] and 15 states used a provision of the law that allows states to disregard certain types of income to raise the effective income limit above 200% of the poverty level. The state of New Jersey effectively raised this limit to 350% by disregarding all income between 200% and 350% of the poverty level.[261] In 2011, 350% of the federal poverty level for a family of four was $78,225.[262]

* In January 2011, states had income eligibility limits for CHIP ranging from 160% of the federal poverty level ($35,760 for a family of four) in North Dakota to 400% of the federal poverty level ($89,400) in New York. The median income limit was 250% of the federal poverty level or $55,875.[263]

* As of January 2011, 47 states have no limit on the assets a family may have and still be eligible for CHIP.[264] [265]

* All sources of household income are not counted when determining eligibility for CHIP. For example, the South Dakota Department of Social Services states the following on its webpage of frequently asked questions about CHIP:

My children are currently on the CHIP program. My boyfriend is moving in with me. Will this affect my children's eligibility for CHIP?

If your boyfriend is not the father of any of your children, his presence in the household will not affect your children's eligibility for CHIP. …

I have recently moved back into my parents' home with my young son due to an impending divorce. Do you count the income of my spouse or parents?

No, if you are an adult child (over 18) your parent's income is not considered. If your spouse is not living in the household, his income is not counted either.[266] [267] [268]

* In fiscal year 2010, 7.7 million children were enrolled in CHIP during some point in the year.[269] [270]

* Laws passed in 2009 and 2010 reauthorize and increase CHIP funding for upcoming years through fiscal year 2015.[271] The 2009 law also made legal immigrants immediately eligible for CHIP, overriding a previous requirement of a five-year waiting period.[272]

* The original CHIP legislation appropriated between $3.1 billion and $5.0 billion of federal funding per fiscal year during 1998-2007.[273] [274]

* The Children's Health Insurance Program Reauthorization Act of 2009 appropriated $10.6 billion of federal funding for CHIP in fiscal year 2009, $12.5 billion in 2010, $13.5 billion in 2011, and $15.0 billion in 2012.[275] [276] [277] [278]

* Medicare payroll taxes (which amount to 2.9% of workers' wages[280] [281]) were previously limited by a wage threshold that generally increased as the national average wage increased. Earnings above this threshold were not subject to the Medicare payroll tax. In 1993, this threshold was $135,000 per year.[282] [283] That year, Congress and Democratic President Bill Clinton passed a law that removed the threshold, thus making all earnings subject to Medicare payroll taxes.[284] The bill passed with 85% of Democrats voting for it and 100% of Republicans voting against it.[285]

* The same 1993 bill imposed a new Medicare tax on Social Security beneficiaries with incomes above certain limits. This tax is levied on the Social Security benefits of individuals if the total of one-half of their benefits and all other income is more than $34,000 per year ($44,000 if married and filing jointly).[286] [287] This threshold is not indexed for inflation or wage growth.[288]

* In 1997, Congress and President Clinton passed a law that created the Children's Health Insurance Program (CHIP). The legislation appropriated between $3.1 billion and $5.0 billion per year for the program during 1998-2007.[289] [290] The bill passed with 84% of Republicans and 78% of Democrats voting for it.[291]

* In 2003, Congress and Republican President George W. Bush passed a law adding a prescription drug benefit to the Medicare program.[292] [293] The bill passed with 88% of Republicans voting for it and 89% of Democrats voting against it.[294] The Congressional Budget Office (CBO) estimated it would add $395 billion to the deficit over the following ten years.[295]

* The Democratic Congressional Campaign Committee later described the Republican-passed Medicare prescription drug benefit as "costly."[296] When this bill was being debated, 86% of House Democrats voted for a competing plan that the CBO estimated would add $969 billion to the deficit over the following ten years, or 2.4 times more than the Republican plan.[297] [298]

• appropriated $10.6 billion of federal funding for CHIP in fiscal year 2009, $12.5 billion in 2010, $13.5 billion in 2011, and $15.0 billion in 2012.[299] [300] [301]

• made legal immigrants immediately eligible for CHIP, overriding a previous requirement of a five-year waiting period.[302]

• financially incentivized states to eliminate or streamline asset tests for CHIP eligibility.[303] [304]

* The bill passed Congress with 99% of Democrats voting for it and 77% of Republicans voting against it.[306]

* In 2010, Congress and President Obama passed two laws that are collectively known as the Affordable Care Act (ACA). Formally, these bills are called the Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act. Informally, these bills are called Obamacare. The bills were passed separately for the political/procedural reasons detailed in this footnote.[307]

* These bills passed Congress with 79-89% of Democrats voting for them and 100% of Republicans voting against them.[308] [309] Together, the bills contain 1,935 pages.[310] [311]

• expands Medicaid eligibility to all individuals under the age of 65 in families with incomes below 138% of federal poverty guidelines (for example, a family of four with income below $30,843 in 2011) without regard for any assets they have. This expansion, along with other measures in the act, are projected by the U.S. Department of Health and Human Services to increase Medicaid enrollment above previous estimates by about 11.6 million people in 2014 and 20 million people by 2019. This provision becomes effective in 2014.[312] [313] [314]

• raises Medicaid payment rates for physician services from about 58% of private health insurance payment rates in 2008—to 73% in 2013—and 77% in 2014. Thereafter, Medicaid payment rates drop to 57% of private health insurance payment rates.[315]

• cuts Medicaid payment rates for inpatient hospital services in accord with the Medicare cuts detailed in the next bullet point.

• incrementally cuts Medicare prices "for hospital, skilled nursing facility, home health, hospice, ambulatory surgical center, diagnostic laboratory, and many other services" over the next 75 years to "less than half of their level under the prior law." The U.S. Centers for Medicare and Medicaid Services projects that by 2085, Medicare payment rates for inpatient hospital services will be roughly 33% of private health insurance payment rates. The 2011 Medicare Trustees Report states that these cuts will cause "withdrawal of providers from the Medicare market" and "severe problems with beneficiary access to care…."[316] [317]

• establishes a board of 15 Senate-confirmed Presidential appointees that is required to limit Medicare spending for years in which the Medicare chief actuary projects that the program will not meet its cost-savings targets.[318] [319] This board is called the "Independent Medicare Advisory Board" (IPAB),[320] and the law states that

- the board's proposals automatically acquire the force of law unless Congress passes bills to override these proposals, and the president signs the bills.[321] [322] In the case of a presidential veto, Congress can still override these proposals, but this requires a two-thirds majority vote in both houses of Congress.[323]

- the board can function with only one of its 15 seats filled,[324] and if the board does not submit a proposal by the required deadline, the Secretary of Health and Human Services (a presidential appointee[325]) has the power to submit a proposal in its place.[326]

- the board cannot be abolished unless Congress introduces a bill in the month between January 1st and February 1st, 2017, and passes this bill by August 15, 2017 with three-fifths majorities in both houses followed by the signature of the President.[327]

- the President has the power to remove board members for "neglect of duty or malfeasance in office, but for no other cause."[328]

- the board cannot "ration health care,"[329] [330] [331] but the determination of what constitutes rationing is left to the board's discretion because the board's decisions are not subject to administrative or judicial review.[332] [333]

• expands funding for the Children's Health Insurance Program by $29 billion dollars over 2012-2015.[334]

• provides subsidies to purchase health insurance for individuals with incomes up to 400% of federal poverty guidelines (for example, $55,590 for a family of three in 2011, $89,400 for a family of four, or $104,680 for a family of five). The U.S. Department of Health and Human Services projects that 25 million people will be receiving these subsidies in 2019. The subsidy levels will be based upon income, and the Congressional Budget Office projects that the average subsidy will be $4,610 per enrollee when the program begins in 2014.[335] [336] [337] [338]

• provides subsidies for certain small businesses that pay their employees average annual wages of less than $50,000 and provide them with health insurance.[339]

• imposes fines on large employers that don't provide full time-employees with health insurance that meets certain requirements. This begins in 2014.[340] [341] Per the chief actuary of the Centers for Medicare and Medicaid Services, the fines would generally be "substantially less than the cost of providing health insurance coverage."[342]

• requires most Americans to carry some form of health insurance starting in 2014 or to pay a monthly fine. This begins in 2014.[343] [344] Per the chief actuary of the Centers for Medicare and Medicaid Services, "for many individuals the applicable penalty would be considerably smaller than the cost of coverage."[345] [346]

• requires health insurers to enroll all applicants regardless of their health status/preexisting conditions and to charge them the same rates as healthy individuals who have been paying insurance premiums for years. The law also requires health insurers to enroll all applicants with no more than a 90-day waiting period. This begins in 2014, except for enrollees under the age of 19, for which it began in 2010.[347] [348]

- premiums based upon any risk factors except for age, tobacco use, the area in which consumers live, and whether the plan covers an individual or family.

- coverage for dependents that doesn't include unmarried children through the age 26.

• gives presidential appointees, such as the Secretary of Health and Human Services,[352] at least 40 regulatory powers that have the force of law.[353] [354] Examples of such include the authority to

- establish criteria that health insurers must meet in order to sell insurance to consumers who receive the federal subsidies described above (for people with income up to 400% of federal poverty guidelines). Plans that meet these criteria are referred to as "qualified health plans."[355] [356] [357]

- mandate "mechanisms to improve health care quality" that health care providers must implement in order to receive payments through qualified health plans.[360]

- define what constitutes "unreasonable increases in premiums for health insurance coverage" and "establish a process for the annual review" of such increases.[361] [362]

- "develop and impose appropriate penalties" on health insurers companies for non-compliance with certain provisions of the act.[363]

• creates roughly 45 new governmental boards, councils, committees, and commissions in addition to an unknown number of other entities such as trust funds, programs, systems, and risk pools.[365]

• imposes or increases 10 types of taxes, fees, and penalties (not including the fines described above for not having or providing health insurance). Congress's Joint Committee on Taxation projects that these provisions will increase tax collections by $361 billion during fiscal years 2010-2019.[366] The largest of these are:

- a 3.8% tax on investments (such as interest, dividends, and rent) imposed on singles with income above $200,00 and couples with income above $250,000. This begins in 2013.[367] [368]

- an added 0.9% Medicare payroll tax on earnings above $200,00 for singles and $250,00 for couples. This begins in 2013.[369] [370]

- a 40% tax imposed on high-cost health insurance plans. This begins in 2018.[371]

- an annual fee imposed on health insurance providers. This begins in 2014.[372]

- an annual fee imposed on manufacturers and importers of pharmaceuticals. This began in 2010.[373]

- a 2.3% tax imposed on manufacturers and importers of certain medical devices. This begins in 2013.[374]

• eliminates or reduces 6 types of targeted tax deductions and credits starting in 2010-2013. The Joint Committee on Taxation projects that these provisions will increase tax collections by $62 billion during fiscal years 2010-2019.[375]

• adds 3 types of targeted tax deductions and credits starting in 2009-2010. The Joint Committee on Taxation projects that these provisions will decrease tax collections by $2 billion during fiscal years 2010-2019.[376]

* During the debate over the Affordable Care Act, Republicans proposed more than a hundred amendments to the legislation, most of which were rejected by the Democrats, who were in the majority at the time.[377] Examples of rejected amendments include:

• making health insurance tax-deductible for individuals (like it is for businesses) and making other healthcare expenses tax deductible.[378]

• requiring recipients of federally funded healthcare benefits to demonstrate their identity and citizenship.[380]

• repealing the mandate that forces people to purchase health insurance or to pay a fine.[381]

• a provision that states, "Nothing in this Act shall be construed to prevent or limit individuals from keeping their current health coverage."[383]

* Per data from Congress's Joint Committee on Taxation and the U.S. Centers for Medicare and Medicaid Services, the following changes in federal spending and revenues are projected to occur during fiscal years 2010-2019 as a result of the Affordable Care Act. Most of this will occur in the last six years of this period because many provisions of the act do not take effect until 2014.[384]

Projected federal spending changes as a result of the Affordable Care Act during fiscal years 2010-2019
Provision	Increase or Decrease (billions)
Medicare cuts	-$575
Subsidies for individuals with incomes up to 400% of federal poverty guidelines	$507
Medicaid expansion	$410
Subsidies for certain small businesses that provide health insurance for employees	$31
CHIP additional funding	$29
Other provisions impacting Medicaid and CHIP	$28
Miscellaneous	$8
Total	$438

* The totals above net to a $141 billion improvement in the federal government's finances over 2010-2019.[388] This assumes Congress and the President don't override the Medicare cuts, as they are currently doing with the Medicare cuts required under a 1997 law.[389] [390] This improvement in federal finances also assumes the CLASS Act is operational.

* The CLASS Act is a long-term care insurance program that was championed by Democratic Senator Ted Kennedy and included in the Affordable Care Act.[391] The program is voluntary and financed by participant premiums, not federal subsidies.[392]

* Premiums for students and individuals with incomes below the poverty line are initially fixed at $5 per month, and the premiums of other participants are set at levels adequate to cover the cost of the program.[393]

* During the debate over the CLASS Act, Republican Senator Judd Gregg was successful in adding an amendment that required the program to be "actuarially sound."[394] [395]

* In April 2010, the chief actuary of the Centers for Medicare and Medicaid Services issued a report stating that the CLASS Act and programs like it

face a significant risk of failure as a result of adverse selection by participants. Individuals with health problems or who anticipate a greater risk of functional limitation would be more likely to participate than those in better-than-average health. Setting the premium at a rate sufficient to cover the costs for such a group further discourages persons in better health from participating, thereby leading to additional premium increases. This effect has been termed the "classic assessment spiral" or "insurance death spiral." The problem of adverse selection is intensified by requiring participants to subsidize the $5 premiums for students and low-income enrollees. … [T]here is a very serious risk that the problem of adverse selection will make the CLASS program unsustainable.[396] [397]

* Because the CLASS Act was projected to collect more money in insurance premiums than it paid in benefits during its early years, the federal government projected it would reduce the budget deficit during fiscal years 2010-109 by $38 billion. However, over the long term, the program was projected to result in more costs than revenues.[398]

* In October 2011, the Obama administration announced it will not be implementing the CLASS Act because there is no viable way to make the program financially sound, as required by Senator Gregg's amendment.[399] [400] [401]

NOTE (1/23/2012): Since the passage of the Affordable Care Act, numerous reports have emerged about changes in healthcare costs, insurance rates, insurance coverage, and other matters relating to Barack Obama's recurring promise that "you will be able to keep your doctor" and "your health care plan."[402] Given that the act passed in 2010, and most healthcare data for 2011 is not yet available, there is not enough data for Just Facts to cover these issues within our mission statement's directive to provide facts "that accurately convey big-picture realities." We plan to provide facts on these issues as such data becomes available, first through our Just Facts Daily initiative and later through a major update of this research.

* From 2007 through 2010, the annual portion of total private health insurance company revenues paid out in healthcare benefits for customers ranged from 86.8% to 88.6%.[403] [404] The remainder went to profits, taxes on premiums, and administrative expenses such as employee salaries and benefits, office space and furniture, computers, utilities, property taxes and insurance, sales commissions, advertising, legal fees, and audit fees.[405] [406] [407]

* From 2007 through 2010, the annual median net profit margin for the ten largest health insurance/managed care companies ranged from 2.1% to 4.4%. Throughout this period, the highest profit margin made by any of these companies in any year was 7.3%.

* In 2009, CNN uncritically reported the following statement about the healthcare debate by Senate Majority Leader Harry Reid:

* In 2008 (later data not available), the health insurance/managed care industry had a 2.2% net profit margin, which ranked 35th out of 53 top industries. The industry with the highest profit margin was network/communications equipment, which had a 20.4% profit margin.[411] [412]

* As of January 2012 (earlier data not available), health insurance companies had a 4.5% quarterly net profit margin, as compared to 6.9% for electric utilities, 8.2% for gas utilities, and 12.0% for water utilities.[414]

* As of January 2012 (earlier data not available) health insurance companies had a 4.5% quarterly net profit margin, as compared to 2.9% for major auto manufacturers, 5.9% for auto parts, 9.9% for restaurants, 20.3% for beverage brewers, and 23.2% for application software.[416]

* As of January 2012 (earlier data not available), health insurance companies had a 4.5% quarterly net profit margin, as compared to 2.9% for the New York Times Company,[418] 5.2% for music & video stores, 9.7% for toys & games, 14.0% for wireless communications, and 53.1% for periodical publishers.[419]

• American Medical News (a publication of the American Medical Association), published an article by Doug Trapp stating:

• the American Public Health Association [APHA] issued the following statement from its interim executive director, Alan Baker:

* None of the above-cited articles or editorials mentioned the following facts, which are contained in the Census Bureau survey they cited:

• "underreporting of health insurance coverage appears to be a larger problem" in this survey "than in other national surveys that ask about insurance."[425]

* A study that cross-checked respondents from the above-referenced survey with data from the Centers for Medicare and Medicaid Services found that in 2005, about 18% of the "uninsured" in this survey actually had insurance through Medicaid.[426] [427]

a) Dataset: "National Health Expenditures by Type of Service and Source of Funds, Calendar Years 1960-2009." U.S. Department of Health & Human Services, Centers for Medicare and Medicaid Services, January 5, 2011. https://www.cms.gov/...

b) Dataset: "Consumer Price Index, All Urban Consumers (CPI-U), U.S. City Average, All items." U.S. Department of Labor, Bureau of Labor Statistics, September 15, 2011. ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

c) Table 1.1.5: "Gross Domestic Product." United States Department of Commerce, Bureau of Economic Analysis. Last revised August 26, 2011. http://www.bea.gov/...

NOTE: An Excel file containing the data and calculations is available upon request.

c) Table 1.1.5: "Gross Domestic Product." United States Department of Commerce, Bureau of Economic Analysis. Last revised August 26, 2011. http://www.bea.gov/...

NOTE: An Excel file containing the data and calculations is available upon request.

NOTE: Just Facts has examined the original receipt and scanned a copy of it. We are not publishing this image because it contains personal information.

[5] Email: Christ Hospital, 176 Palisade Avenue, Jersey City, NJ, September 23, 2011.

For a normal vaginal delivery (limit of 2 days) the fee for the hospital service will be $4000.00. Any additional days over the normal 2 day stay will incur a charge of $1360.00 per day.

For a cesarean section delivery (limit of 4 days) the fee for the hospital service will be $5565.00. Any additional days over the normal 4 day stay will incur a charge of $1360.00 per day.

This quoted price is for a standard Vaginal Delivery/Cesarean Section and normal newborn birth barring any unforeseen complications which could add to this billable amount.

* Patient Access staff will flag your account when they obtain your demographic information in order to insure a smooth admission process.

* The above amounts do not include physician fees, anesthesia, or any other professional component.

[6] Article: "70% Rise in Hospital Room Costs Since 1980." Associated Press, November 5, 1986. http://www.nytimes.com/...

"The average daily cost of hospital rooms jumped nearly 70 percent over the last five years, from $127 in 1980, according to statistics published by the Census Bureau. The figures were drawn from data compiled by the Health Insurance Association of America and the American Hospital Association."

NOTE: Just Facts searched the websites of the Census Bureau, Health Insurance Association of America [now America's Health Insurance Plans], and the American Hospital Association for up-to-date data on the average price of hospital rooms, but we were unable to find such information. Just Facts also contacted the American Hospital Association, which was unable to provide any data beyond 2002. This data is cited in footnotes below.

[8] Book: Current Trends in Health Care and Dental Costs Utilization. Mutual of Omaha, 2003.

Page 2: "The data in Current Trends represents Mutual of Omaha's group business, and is not necessarily representative of other population subgroups. The data is based upon the actual experience of our policyholders. The data does not necessarily represent a cross section of all providers. No efforts have been made to adjust for differences in case mix."

Page 3: "The average room and board charges are for all types of rooms (medical/surgical, intensive care, obstetrical, etc.), and they include charges for nursing care for those facilities with separate room and board charges from nursing charges."

[9] Book: Current Trends in Health Care Costs and Utilization. Mutual of Omaha, 1990.

Page 5: "Average Daily Charges for Room and Board … 1988 … National Average [=] $270."

[11] Book: Current Trends in Health Care and Dental Costs Utilization. Mutual of Omaha, 2003.

Page 5: "Average Daily Charges for Room and Board … 2002 … National Average [=] $748."

"In compliance with state law, each Ohio hospital provides a price list containing its charges for room and board, emergency department, operating room, delivery, physical therapy and other procedures. The hospital's charges are the same for all patients, but a patient's responsibility may vary, depending on payment plans negotiated with individual health insurers."

NOTE: Just Facts used a random number generator (http://www.randomizer.org/form.htm) to select 15 of the 168 hospitals listed on this web page. We found price lists for 11 of these 15 hospitals. Many of the links on this webpage were broken, some of these links did not directly point to pricing information, and several hospitals had their price lists located in obscure locations on their websites.

[14] Calculated with the dataset: "National Health Expenditures by Type of Service and Source of Funds, Calendar Years 1960-2009." U.S. Department of Health & Human Services, Centers for Medicare and Medicaid Services, January 5, 2011. https://www.cms.gov/...

NOTE: An Excel file containing the data and calculations is available upon request.

[15] Article: "Nonprice Competition in Hospitals." By John L. Mariotti. Encyclopedia of Health Care Management. Edited by Michael J. Stahl. Sage Publications, 2004.

Page 391: "In conclusion, because most medical care is delivered with third-party payments, and the purchaser is in dire need of the services, the typical patient has little interest in price. The result is that most medical care is bought on decision criteria other than price. Thus, nonprice competition seems to be the norm, not only in hospitals but also in a wide range of health and medical services."

CALCULATION (to obtain an average of the figures above): ($4,602 + $2,351)/2 = $3,476

Page iii: "[T]he first regular sample [of study participants] was enrolled in late 1974. Most participants have now completed their period of participation, and all will complete it by January 1982."

A total of 7706 participants in six cities have taken part in a controlled experiment related to cost sharing in health insurance polices. …

The families were assigned in an unbiased manner to insurance plans that covered a broad range of medical services but varied the coinsurance rate, i.e., the fraction of its medical bills that the family must pay. This out-of-pocket expenditure was subject to an upper limit of $1000 per year or 5, 10, or 15% of income, whichever was less. …

Expenditure per person responds to variation in cost sharing. It is about 50 percent greater in the plan with no cost sharing [100% coverage] than in the one with 95-percent coinsurance [5% coverage] up to a maximum of $1000 in any one year. ..

As cost sharing declines, the percentage of individuals seeking care rises, as does the number of ambulatory [outpatient] visits per user. The number of adults hospitalized increases, but the number of children hospitalized shows no systematic relationship to plan. Cost per person hospitalized does not appear to be related to plan.

Pages v-vi: "The implications of these findings are that: 1) Cost sharing unambiguously reduces expenditure; it is not "penny-wise and pound-foolish" (with respect to expenditure) as some have argued."

Page 4: "A total of 2756 families, consisting of 7706 persons, have been enrolled in one of several different health insurance plans, 70 percent of them for 3 years and the rest for 5 years. … Families were excluded in which heads were eligible for Medicare at the beginning of the study (or who would become so by virtue of age before the end of the study). Hence, our results do not necessarily apply to the aged population.

Per capita total expenditure (inpatient plus ambulatory [outpatient], excluding dental and outpatient mental health services) rises steadily as coinsurance falls (Table 3). Expenditure per person in the plan with no coinsurance (the most generous plan) is about 60-percent greater than in the plan with 95-percent coinsurance [5% coverage]….

Although the simple arithmetic mean provides acceptable precision for analyzing ambulatory expenditure, it does not do so for plan-related differences in total expenditure…. This lack of precision occurs because a few large medical expenditures account for a substantial portion of all expenditures on a given plan and can therefore affect the average quite dramatically….

Application of techniques better suited to such data yields a somewhat different, but probably more reliable, estimate of what per person expenditure would be if a larger number of families had been enrolled. … Averaged across all sites, predicted expenditure per person in the 95-percent coinsurance plan is 69 percent of that in the free care plan; in other words, free care causes expenditures to increase by nearly 50 percent (Table 5). … In some site-years, the predicted expenditure for the 50-percent coinsurance plan was smaller than that of the 95-percent coinsurance plan, but the difference is statistically insignificant. This misordering appears to be attributable to the sampling error, given the relatively few participants enrolled in the 50-percent coinsurance plan.

Page 13: "Table 3 - Actual Annual Total and Ambulatory Expenditure Per Person, By Plan: Nine Site-Years"

Page 16: "Table 5 – Predicted Total Expenditure Per Person, By Plan, Site, and Year"

Our results clearly show that the use of medical services responds to cost sharing; demand in an insurance plan with full coverage appears to be about 50 percent above that in an income-related catastrophe insurance plan [i.e., 5% coverage]. The fragmentary evidence now in the literature is roughly consistent with this value; e.g., the 25-percent decline in visits observed in a natural experiment among Stanford University employees when their coinsurance rate was changed from zero to 25 percent … is similar to the 20-percent decline in ambulatory expenditures between the zero and 25-eprcent coinsurance plans (Table 3).

[18] Book: Free for All? Lessons from the Rand Health Insurance Experiment. By Joseph P. Newhouse and the Insurance Experiment Group. Rand, 1993. Pages 339-340:

The reduced service use under the cost-sharing plans had little or no net adverse effect on health for the average person (Chapters 6 and 7.) Indeed, restricted activity days fell with more cost sharing.

Health among the sick poor—approximately the most disadvantaged 6 percent of population—was adversely affected, however. In particular, the poor who began the Experiment with elevated blood pressure had their blood pressure lowered more on the free plan than on the cost-sharing plans. The effect on predicted mortality rates—a fall of about 10 percent—was substantial for this group. In addition, free care marginally improved both near and far corrected vision, primarily among the poor, and increased the likelihood that a decayed tooth would be filled—an effect found disproportionately among the less well educated. Health of gums was marginally better for those with free care. And serious symptoms were less prevalent on the free plan, especially for those who began the experiment poor and with serious symptoms. Finally, there appeared to be a beneficial effect on anemia for poor children. Although sample sizes made it impossible to detect any beneficial effects that free care might have had on relatively rare conditions, it is highly improbable that there were beneficial effects (one standard error of the mean changes) that we failed to detect in the physiologic measures of health taken as a group. Moreover, the confidence intervals are tight enough to rule out any beneficial effect of free care on the General Health Index, our best summary measure of health.

Whatever merits or demerits cost sharing may have as an abstract principle, the plans we studied did not greatly affect patients once hospitalized. This absence of effect on cost per hospitalized patient could have occurred because any additional hospital services a physician might have ordered were usually not subject to cost sharing; 70 percent of the hospitalized patients exceeded the Maximum Dollar Expenditure.

Complete or nearly complete coverage for additional inpatient services is common in this country. Moreover, the additional expense that comes from being admitted to a relatively costly hospital is also fully insured, or nearly so. Thus, neither patients nor physicians have much incentive to choose an economically efficient rather than an inefficient hospital, or to economize on services once a patient is admitted—a situation that may partially explain the persistent above-average inflation in the hospital sector (Newhouse, 1978b).

[W]e analyzed data from the Medical Outcomes Study, which prospectively followed chronically ill adults, to determine whether cost sharing deters use of care and leads to subsequent worse health outcomes among a population whose health may be more vulnerable to use disincentives. …

We analyzed data from the 1700 (67%) subjects who completed the 12- and 18-month surveys, which assessed individuals' level of cost sharing and use of medical care.

Page 1890: "[W]e collapsed individuals into 3 cost-sharing categories: no copay (insurance pays all), low copay (insurance pays more than half but not all), and high copay (insurance pays half or less). Using insurance and employment data, we conducted logistic regression analyses to impute missing data on level of cost sharing for 92 (5.4%) subjects."

Previous studies have demonstrated little or no impact of cost sharing on health outcomes, but these studies have not primarily involved individuals who are chronically ill and, thus, particularly vulnerable. In contrast, the Medical Outcomes Study was designed to examine an older, chronically ill population and involved subjects who had diabetes, hypertension, coronary artery disease, congestive heart failure, or depression. In addition, 46% of these subjects were older than 62 years (the upper age cutoff for inclusion in the RAND Health Insurance Experiment). We hypothesized that cost sharing would have a significant negative impact on health status in this sample owing to the subjects' advanced age and greater disease burden.

We found no association between cost sharing and health status at baseline or follow-up. Other studies of cost sharing examining acutely ill individuals have also failed to observe any negative health effect from cost sharing.^9,27 This lack of finding is particularly surprising given that the RAND Health Insurance Experiment involved a comparatively younger and healthier population and revealed a small yet statistically significant effect on health. One explanation may be related to the influence of income on the effect of cost sharing. Health Insurance Experiment subjects who were in the lowest income category suffered the worst health outcomes due to cost sharing. Others have also shown that the health of the poor is particularly sensitive to limitations in access to care.^11,28,29 Therefore, we may have failed to observe an association between cost sharing and worse health because subjects in the Medical Outcomes Study had relatively high incomes.

The time frame of our analysis may not have been optimal to detect a negative impact on health outcomes. The RAND Health Insurance Experiment demonstrated that cost sharing had its greatest impact through lowering use of general health examinations and preventive care.¹ The effect on an individual's health of receiving less preventive care would probably be delayed. Thus, the 1-year follow-up in our analysis may have been too brief. In addition, we observed subjects after they had already been exposed to cost sharing for some time, and thus cost sharing may have already affected their health by the time of our study. Consequently, the study may have been biased owing to a survival effect.

Medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners. They include the costs of equipment, supplies, and diagnostic devices needed for these purposes.

Medical care expenses must be primarily to alleviate or prevent a physical or mental defect or illness. They do not include expenses that are merely beneficial to general health, such as vitamins or a vacation.

Medical expenses include the premiums you pay for insurance that covers the expenses of medical care, and the amounts you pay for transportation to get medical care. Medical expenses also include amounts paid for qualified long-term care services and limited amounts paid for any qualified long-term care insurance contract.

You can deduct on Schedule A (Form 1040) only the amount of your medical and dental expenses that is more than 7.5% of your AGI (Form 1040, line 38).

In this publication, the term "7.5% limit" is used to refer to 7.5% of your AGI. The phrase "subject to the 7.5% limit" is also used. This phrase means that you must subtract 7.5% (.075) of your AGI from your medical expenses to figure your medical expense deduction.

Your AGI is $40,000, 7.5% of which is $3,000. You paid medical expenses of $2,500. You cannot deduct any of your medical expenses because they are not more than 7.5% of your AGI.

Page 1: "Part A (Hospital Insurance, or HI) covers inpatient hospital services, skilled nursing care, and home health and hospice care. The HI trust fund is mainly funded by a dedicated payroll tax of 2.9% of earnings, shared equally between employers and workers."

Page 1: "Medicare serves approximately one in seven Americans and virtually all of the population aged 65 and over. In 2010, the program will cover an estimated 47 million persons (39 million aged and 8 million disabled)."

Page 4: "Most persons aged 65 or older are automatically entitled to premium-free Part A because they or their spouse paid Medicare payroll taxes for at least 40 quarters (10 years) on earnings covered by either the Social Security or the Railroad Retirement systems. Persons under age 65 who receive cash disability benefits from Social Security or the Railroad Retirement systems for at least 24 months are also entitled to Part A."

In existence for 45 years, Medicaid is a means-tested entitlement program that finances the delivery of primary and acute medical services as well as long-term care to more than 68 million people in FY2010. …

Each state designs and administers its own version of Medicaid under broad federal rules. State variability is the rule rather than the exception in terms of eligibility levels, covered services, and how those services are reimbursed and delivered.

Page 1: "Even though Medicaid is an entitlement program in federal budget terms, states choose whether to participate, and all 50 states do so."

The federal Medicaid statute … defines more than 50 distinct population groups as being potentially eligible. Historically, Medicaid eligibility was subject to categorical restrictions that generally limited coverage to the elderly, persons with disabilities … members of families with dependent children, certain other pregnant women and children, certain women with breast or cervical cancer, and uninsured individuals with tuberculosis. Recent changes in law (described below) provide eligibility for nonelderly, childless adults who do not fit into these traditional categories.

In addition, to qualify for Medicaid coverage, applicants' income (e.g., wages, Social Security benefits) and sometimes their resources, or assets (e.g., value of a car, savings accounts), must meet program financial requirements. … In recent years, Medicaid has shifted largely to eligibility based on income, and most enrollees do not receive cash assistance. …

Some eligibility groups are mandatory, meaning that all states with a Medicaid program must cover them; others are optional. Examples of groups that states must provide Medicaid to include: …

• pregnant women and children through age 18 with family income below 133% of the federal poverty level (FPL),⁶ …

⁶ For example, in 2010, the FPL for a family of four is $22,050—133% of FPL for such a family would equal $29,326.50.

"Persons in Family [=] 4 … 48 Contiguous States and D.C. [=] $22,350 … Alaska [=] $27,940… Hawaii [=] $25,710"

Page 49: "CHIP provides health care coverage to low-income, uninsured children in families with income above Medicaid income standards. States may also extend CHIP coverage to pregnant women when certain conditions are met. In designing their CHIP programs, states may choose to expand Medicaid, create a stand-alone program, or use a combined approach."

"2010 [=] 7,705,723 … CHIP Data represents children enrolled in Separate Child Health Programs and Medicaid Expansion Programs (Title XXI)"

"Persons in Family [=] 4 … 48 Contiguous States and D.C. [=] $22,350 … Alaska [=] $27,940… Hawaii [=] $25,710"

[28] Report: "Holding Steady, Looking Ahead: Annual Findings Of A 50-State Survey Of Eligibility Rules, Enrollment and Renewal Procedures, And Cost Sharing Practices in Medicaid and CHIP, 2010-2011." By Martha Heberlein and others. Kaiser Commission on Medicaid and the Uninsured, January 2011. http://www.kff.org/medicaid/upload/8130.pdf

Pages 29-30: "Table 1 - Upper Income Eligibility Limit for Children's Coverage and Program Type - January 2011 … New York … Upper Income Limit² (Percent of the FPL) [=] 400 … ²The income eligibility levels noted may refer to gross or net income depending on the state and reflect the highest income eligibility level in the state using Medicaid/CHIP funds."

Pages 31-32: "Table 7 - Streamlined Application Requirements for Children's Health Coverage - January 2011 … Asset Test NOT Required … CHIP …. New York"

[29] NOTE: The Affordable Care Act is actually comprised of two acts,† which were passed separately for political/procedural reasons.‡

Page ii: "In this report, 'recently enacted health care legislation' refers to the Patient Protection and Affordable Care Act (Public Law 111-148) and the Health Care and Education Reconciliation Act of 2010 (P.L. 111-152)."

[N]egotiations on a ﬁnal bill were stalled when, on January 19 [2010], Republican Scott Brown was elected to the Massachusetts Senate seat vacated by the death of Senator Edward Kennedy. Brown's election effectively took away the Senate Democratic leadership's 60th vote in support of healthcare reform legislation. Without the ﬁlibuster-proof 60 votes in the Senate, Democrats would not have been able to overcome the procedural hurdles to passing a ﬁnal House-Senate compromise bill without Republican votes. …

The White House and House and Senate Democratic leadership agreed on a two-step process in which the House would pass the Senate-approved healthcare reform bill and then vote on a package of changes to the bill negotiated by Democrats in both chambers. Under budget reconciliation, the Senate would be able pass the package of changes with a simple majority vote [i.e., 50 votes instead of 60].

Page 6: "Beginning in 2014, PPACA [the Patient Protection and Affordable Care Act] includes a mandate for most individuals to have health insurance,⁹ or potentially pay a penalty for noncompliance.¹⁰ Individuals will be required to maintain minimum essential coverage for themselves and their dependents. Those who do not meet the mandate will be required to pay a penalty for each month of noncompliance."

[31] Report: "Estimated Financial Effects of the 'Patient Protection and Affordable Care Act,' as Amended." By Richard S. Foster. U.S. Department of Health & Human Services, Centers for Medicare and Medicaid Services, Office of the Actuary, April 22, 2010. https://www.cms.gov/ActuarialStudies/downloads/PPACA_2010-04-22.pdf

Page 6: "The penalty amounts for noncovered individuals will be indexed over time by the CPI (or, in certain instances, by growth in income) and would normally increase more slowly than health care costs."

[32] "2010 Actuarial Report on the Financial Outlook for Medicaid." By Christopher J. Truffer and others. U.S. Department of Health & Human Services, Centers for Medicare and Medicaid Services, Office of the Actuary, December 21, 2010. http://www.cms.gov/ActuarialStudies/downloads/MedicaidReport2010.pdf

Page 2: "Beginning in 2014, the Affordable Care Act expands Medicaid eligibility to all individuals under age 65 in families with income below 138 percent of the Federal Poverty Level (FPL).² … ² … The Affordable Care Act technically specifies an upper income threshold of 133 percent of the FPL but also allows a 5-percent income disregard, making the effective threshold 138 percent."

The effective participation rate of persons who would have been uninsured for a full year, but are newly eligible for Medicaid as a result of the Affordable Care Act, is assumed to be 97 percent. This assumed participation rate is significantly higher than actual Medicaid participation rates to date and is based on the anticipated impacts of sections of the Affordable Care Act intended to make the process of enrolling easier. In particular, the legislation establishes State or federally operated health insurance exchanges that, among other responsibilities, will facilitate the determination of individuals' and families' eligibility for Federal financial assistance for health insurance, either through Medicaid or through the Federal premium and cost-sharing subsidies for private health insurance plans. The exchanges are assumed to perform this role effectively and, for those found to qualify for Medicaid, to assist the application and enrollment process. In this role, the exchanges would also serve as a valuable new resource for health providers who seek assistance in enrolling eligible persons in Medicaid. In addition, we anticipate that the more widespread availability of financial assistance under the Affordable Care Act (for individuals and families with incomes up to 400 percent of FPL) will reduce any stigma associated with receipt of such assistance through Medicaid.

The most significant change to Medicaid is the expansion of Medicaid eligibility beginning in 2014. This expansion, together with greater participation by individuals eligible under current rules, is projected to add 11.6 million people to enrollment in FY [fiscal year] 2014 and almost 20 million people by FY 2019, 21 percent and 34 percent, respectively, compared to pre-Affordable Care Act estimates. These increases reflect both the greater proportion of the population that will be eligible for Medicaid and an assumption that the new State health insurance exchanges will be very effective in assisting enrollment in Medicaid. Of the new enrollees … about 78 percent are projected to be eligible only under the new rules beginning in 2014.

"Persons in Family [=] 4 … 48 Contiguous States and D.C. [=] $22,350 … Alaska [=] $27,940… Hawaii [=] $25,710"

[34] House Resolution 3590: "Patient Protection and Affordable Care Act." Signed into law by Barack Obama on March 23, 2010 (became Public Law No: 111-148). http://www.gpo.gov/...

SEC. 2002. INCOME ELIGIBILITY FOR NONELDERLY DETERMINED USING MODIFIED GROSS INCOME. …

(C) NO ASSETS TEST.—A State shall not apply any assets or resources test for purposes of determining eligibility for medical assistance under the State plan or under a waiver of the plan.

Summary: "[The Affordable Care Act] will enable and support states' creation by 2014 of "American Health Benefit Exchanges." … Based on income, certain individuals may qualify for a tax credit toward their [health insurance] premium costs and a subsidy for their cost-sharing; the credits and subsidies will be available only through an exchange."

[36] Report: "Estimated Financial Effects of the 'Patient Protection and Affordable Care Act,' as Amended." By Richard S. Foster. U.S. Department of Health & Human Services, Centers for Medicare and Medicaid Services, Office of the Actuary, April 22, 2010. https://www.cms.gov/ActuarialStudies/downloads/PPACA_2010-04-22.pdf

Page 5: "The refundable premium tax credits in … [the Affordable Care Act] would limit the [health insurance] premiums paid by individuals with incomes up to 400 percent of the FPL [Federal Poverty Level] to a range of 2.0 to 9.5 percent of their income and would cost an estimated $451 billion through 2019. An estimated 25 million Exchange enrollees (79 percent) would receive these Federal premium subsidies."

NOTE: Although the statement above does not explicitly designate the year in which 25 million Exchange enrollees receive subsidies, the year can be deduced by data in Table 2 (on page 24 of the pdf file). For the year 2019, this table specifies 31.6 million Exchange enrollees. As explained above, "79 percent" of these would receive subsidies. Since 79% of 31.6 million equals 25.0 million, the year 2019 is implied above.

"Persons in Family [=] 3 … 48 Contiguous States and D.C. [=] $18,530 … Alaska [=] $23,160 … Hawaii [=] $21,320"

"Persons in Family [=] 4 … 48 Contiguous States and D.C. [=] $22,350 … Alaska [=] $27,940… Hawaii [=] $25,710"

"Persons in Family [=] 5 … 48 Contiguous States and D.C. [=] $26,170 … Alaska [=] $32,720 … Hawaii [=] $30,100"

[38] Report: "Prescription for change 'filled': Tax provisions in the Patient Protection and Affordable Care Act, Updated to reflect changes approved in the Reconciliation Act of 2010." Deloitte, March 30, 2010. http://www.deloitte.com/...

Page 21: "The Act increases the threshold for claiming an itemized deduction for unreimbursed medical expenses for regular tax purposes from 7.5 percent of the taxpayer's AGI to 10 percent. The Act does not change the current-law 10 percent of AGI threshold that applies under the alternative minimum tax. Effective date – The change generally applies for taxable years beginning after December 31, 2012. For any taxpayer who is age 65 and older or whose spouse is 65 or older, the threshold for regular tax purposes remains at 7.5 percent until 2017."

"Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea [South], Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States"

Developed countries (industrial countries, industrially advanced countries). High-income countries, in which most people have a high standard of living. Sometimes also defined as countries with a large stock of physical capital, in which most people undertake highly specialized activities. According to the World Bank classification, these include all high-income economies except Hong Kong (China), Israel, Kuwait, Singapore, and the United Arab Emirates. Depending on who defines them, developed countries may also include middle-income countries with transition economies, because these countries are highly industrialized. Developed countries contain about 15 percent of the world's population. They are also sometimes referred to as "the North."

Organisation for Economic Cooperation and Development (OECD). An organization that coordinates policy among developed countries. OECD member countries exchange economic data and create unified policies to maximize their countries' economic growth and help nonmember countries develop more rapidly. The OECD arose from the Organisation for European Economic Cooperation (OEEC), which was created in 1948 to administer the Marshall Plan in Europe. In 1960, when the Marshall Plan was completed, Canada, Spain, and the United States joined OEEC members to form the OECD.

[42] Book: Handbook of Health Economics, Volume 1A. Edited by Anthony J. Cuyler & Joseph P. Newhouse. Elsevier, 2000. Chapter 1: "International Comparisons of Health Expenditure." By Ulf-G. Gerdtham, Bengt Jönsson. Pages 11-53.

[R]igorous assessment of the quality (accuracy and reliability) of the cross-national data is difficult. … There is ample scope for imperfect reliability with respect to international comparisons due to differential classification, especially on the borderline of health services such as care for the aged. For example, the care of the mentally retarded in not included in the expenditure for Denmark nor for Sweden after 1985, but it is included in the expenditure for Finland, Iceland and Norway. Another difference is that local nursing homes are not included in the Danish statistics, whereas they were included in Finland, Iceland, Norway and Sweden before 1992…. Thus heterogeneous definitions are present even if one selects apparently similar countries such as the Nordic countries…. Taken together, these problems indicate that results obtained with international comparisons should be treated with considerable caution.[42]

Page 45: "A common and extremely robust result of international comparisons is that the effect of per capita GDP (income) on expenditures is clearly positive and significant and, further, that the estimated income elasticity† is clearly higher than zero and close to unity or even higher than unity. This result appears to be robust to the choice of variables included in the estimated models, data, the choice of conversion factors and methods of estimation."

[43] Book: Health Economics: Theories, Insights, and Industry Studies, Fifth edition. By Rexford E. Santerre and Stephen P. Neun. South-Western, Cenage Learning, 2010.

The empirical estimates for the income elasticity of demand vary widely and merit discussion. Studies using household, or individual, data generally find healthcare to be a normal good with income elasticity below 1.0. These results are in direct contrast to studies that utilize country-level data to look at the relation between income and health care expenditures either over time or across countries. The goal of these studies is to ascertain how economic growth impacts national health care expenditures. Generally, these studies find the aggregate income elasticity to be slightly above 1. …

This difference between the micro and macro estimates is interesting and deserves explanation. According to Newhouse, the difference exists, because, for example, within the United States at any point in time the average consumer pays only a small portion of the price of medical care (approximately 14 percent in 2003), while over time the country as a whole must pay the full price of health care. As the out-of-pocket price of health care are falls to zero, then the average individual is going to consume health care regardless of income. The income elasticity in the extreme equals zero. The country, as a whole, however, must face the entire burden of the cost of health care and, as a result, is going to be much more sensitive to price and income.

National Health Expenditures represents health care spending in the aggregate. The NHEA recognize several types of health care spending within this broad aggregate. "Personal Health Care Expenditures" (PHC) measures the total amount spent to treat individuals with specific medical conditions. "Health Consumption Expenditures" (HCE) represents spending for all medical care rendered during the year, and is the sum of personal health care expenditures, government public health activity, and government administration and the net cost of private health insurance. National Health Expenditures (NHE) equals Health Consumption Expenditures plus Investment, or the sum of medical sector purchases of structures and equipment and expenditures for noncommercial medical research.

Page 6: "Personal health care goods and services comprise all of the medical goods and services that are rendered to treat or prevent a specific disease or condition in a specific person. These include hospital, professional services, other health, residential, and personal care, home health, nursing care facilities and continuing care retirement communities, and the retail outlet sales of medical products (Exhibit 3)."

[45] Dataset: "Personal Health Care Spending by Age Group and Type of Service, Calendar Year 2004." From the paper: "U.S. Health Spending By Age, Selected Years Through 2004." By Micah Hartman and others. Health Affairs, November 2007. https://www.cms.gov/...

[46] Report: "CBO's 2011 Long-Term Budget Outlook." Congressional Budget Office, June 2011. http://www.cbo.gov/...

The retirement of the large baby-boom generation born between 1946 and 1964 portends a long-lasting shift in the age profile of the U.S. population. That shift will substantially alter the balance between the working-age and retirement-age segments of the population. During the next decade alone, the number of people over the age of 65 is expected to rise by more than a third. Over the longer term, the share of people age 65 or older is projected to grow from about 13 percent now to 20 percent in 2035, whereas the share of people ages 20 to 64 is expected to fall from 60 percent to 55 percent. In later decades, the aging of the population is expected to continue, though at a slower rate, because of further increases in life expectancy.

[47] Calculated with "Supplemental Data for the CBO's 2011 Long-Term Budget Outlook." Congressional Budget Office, June 2011. http://www.cbo.gov/...

Figure 4-2: "The Population Age 65 or Older as a Percentage of the Population Ages 20 to 64."

NOTE: An Excel file containing the data and calculations is available upon request.

Page 577: "Three chronic diseases—cancer, cardiovascular disease (CVD), and diabetes—are responsible for a majority of the morbidity, mortality, and health care costs in the United States."

[49] Paper: "The Impact of Prevention on Reducing the Burden of Cardiovascular Disease." By Richard Kahn and others. Circulation (Journal of the American Heart Association), July 7, 2008. Pages 576-585. http://circ.ahajournals.org/content/118/5/576.full.pdf+html

Approximately 78% of adults aged 20-80 years alive today in the United States are candidates for at least one prevention activity. If everyone received the activities for which they are eligible, myocardial infarctions [heart attacks] and strokes would be reduced by 63% and 31%, respectively. If more feasible levels of performance are assumed, myocardial infarctions and strokes would be reduced 36% and 20%, respectively. Implementation of all prevention activities would add ≈221 million life-years and 244 million quality-adjusted life-years to the US adult population over the coming 30 years, or an average of 1.3 years of life expectancy for all adults.

Lower LDL cholesterol to < 130 mg/dL in high-risk individuals … Total Cost/Year [=] $1816 …

For each of these simulated trials, we calculated the outcomes under two sets of assumptions about performance and compliance. In the first case, we analyzed the outcomes that would occur if 100% performance and compliance levels were achieved. This trial was done to estimate the maximum potential of prevention achievable by the recommended activities. In the second case, we applied more realistic, albeit aggressive, assumptions about what might constitute levels of performance that were feasible.

Table 3 also shows the effects on health care costs. The cost of caring for CVD [Cardiovascular Disease], diabetes, and CHD [Coronary Heart Disease] over the coming 30 years will be in the order of $9.5 trillion. If all the recommended prevention activities were applied with 100% success, those costs would be reduced by ≈$904 billion, or almost 10%. However, assuming the costs shown in Table 2, the prevention activities themselves would cost ≈$8.5 trillion, offsetting the savings by a factor of almost 10 and increasing total medical costs by ≈$7.6 trillion (162%).

[50] Letter: Douglas W. Elmendorf (Director, Congressional Budget Office) to Nathan Deal (Ranking Member, Subcommittee on Health, Committee on Energy and Commerce, U.S. House of Representatives). Congressional Budget Office, August 7, 2009. http://www.cbo.gov/ftpdocs/104xx/doc10492/08-07-Prevention.pdf

Compared to people with a healthy weight (a BMI between 18.5 and 25), overweight and obese individuals have an increased risk of developing many diseases, such as diabetes, coronary heart disease and stroke, and tend to die younger. …

… life expectancy at age 20 was 5 years less for the obese group, and 8 years less for the smoking group, compared to the healthy-living group….

Page 0242: "Until age 56 y, annual health expenditure was highest for obese people. At older ages, smokers incurred higher costs. Because of differences in life expectancy, however, lifetime health expenditure was highest among healthy-living people and lowest for smokers."

Page 0245: "Table 1. Life Expectancy (Years) and Expected Lifetime Health-Care Costs per Capita … at 20 Years of Age for the Three Cohorts … Expected remaining lifetime health-care costs (× €1,000) [in thousands of Euros] at age 20 … Obese Cohort [=] 250 [thousand Euros] … 'Healthy-Living' Cohort [=] 281 [thousand Euros] … Smoking Cohort [=] 220 [thousand Euros]"

[52] Paper: "Preventing fatal diseases increases healthcare costs: cause elimination life table approach." By Luc Bonneux and others. British Medical Journal, January 3, 1998.

In a previous study all healthcare costs in the Netherlands in 1988 (… for 14.8 million inhabitants) were allocated to age, sex, health- care sector, and primary diagnosis on the basis of comprehensive data on morbidity, mortality, and direct costs. … To calculate the effect of eradication, a specific disease was eliminated both as cause of death and as cause of costs: the cause elimination life table recalculates life expectancy and life time expected costs as if the eliminated disease had never existed.

Our analysis shows that lengthening life generally will increase healthcare needs, particularly needs for long term nursing care as most life years are added to old age. This is not a bad thing; prevention can hardly be blamed if it reaches its target and lowers mortality. …

Eliminating causes in a life table demonstrates an unquestionable truth: we all have to die. If we eliminate a specific cause of death, we simply die later from another. In the meantime we grow older, become generally more disabled, and need more care.9 In the Netherlands, cardiovascular diseases and cancer were jointly responsible for nearly 70% of all deaths, yet accounted for a mere 17% of all healthcare costs, whereas the largely non-fatal diseases of the brain, joints, and bones, causing under 2% of all deaths, generated 35% of all costs (see 1).

Page 26: " Conclusion: The aim of prevention is to spare people from avoidable misery and death not to save money on the healthcare system. In countries with low mortality, elimination of fatal diseases by successful prevention increases healthcare spending because of the medical expenses during added life years."

[53] Book: The Essentials of Finance and Budgeting. Harvard Business School Publishing, 2005. Page 47:

OPERATING MARGIN Also known as the earnings-before-interest-and-taxes (EBIT) margin, the operating margin is used by many analysts to gauge the profitability of a company's operating activities. The ratio removes from the equation the interest expenses and taxes over which current management may have no control. Thus, operating margin gives a clearer indication of management performance. To calculate the operating margin, use this formula: Operating Margin = EBIT / Net Sales

"The S&P 500® has been widely regarded as the best single gauge of the large cap U.S. equities market since the index was first published in 1957. The index has over US$ 4.83 trillion benchmarked, with index assets comprising approximately US$ 1.1 trillion of this total. The index includes 500 leading companies in leading industries of the U.S. economy, capturing 75% coverage of U.S. equities."

[56] Book: The Essentials of Finance and Budgeting. Harvard Business School Publishing, 2005. Page 33:

An income statement starts by showing the company's revenues: the amount of money that resulted from selling products or services to customers. A company may have other revenues as well. In many cases, these additional revenues derive from investments or interest income from the firm's cash holdings.

Various costs and expenses—from the costs of making and storing a company's goods, to depreciation of plant and equipment, to interest expense and taxes—are then deducted from revenues. The bottom line—what's left over—is the net income, or net profit or net earnings, for the period covered by the income statement.

Pages 47-48: "PROFIT MARGIN The profit margin—sometimes called return on sales, or ROS—indicates a rate of return on sales. It tells us what percentage of every dollar of sales makes it to the bottom line. Calculate the profit margin as follows: Profit Margin = Net Income / Net Sales"

[58] Dataset: "May 2010 National Occupational Employment and Wage Estimates." U.S. Department of Labor, Bureau of Labor Statistics. Last Modified April 6, 2011. http://www.bls.gov/oes/current/oes_nat.htm

[59] Web page: "Technical Notes for May 2010 OES Estimates." U.S. Department of Labor, Bureau of Labor Statistics. Last modified May 17, 2011. http://www.bls.gov/oes/current/oes_tec.htm

The Occupational Employment Statistics (OES) survey is a semiannual mail survey measuring occupational employment and wage rates for wage and salary workers in nonfarm establishments in the United States. …

Wages for the OES survey are straight-time, gross pay, exclusive of premium pay. Base rate; cost-of-living allowances; guaranteed pay; hazardous-duty pay; incentive pay, including commissions and production bonuses; and tips are included. Excluded are overtime pay, severance pay, shift differentials, non-production bonuses, employer cost for supplementary benefits, and tuition reimbursements.

The federal government continues to make progress under the requirements of the Improper Payments Information Act of 2002 (IPIA)³⁹ in reporting on the nature and extent of improper payments.⁴⁰…

³⁹Pub. L. No. 107-300, 116 Stat. 2350 (Nov. 26, 2002), as amended by the Improper Payments Elimination And Recovery Act of 2010, Pub. L. No. 111-204, 124 Stat. 2224 (July 22, 2010). The IPIA requires federal executive branch entities to review all programs and activities, identify those that may be susceptible to significant improper payments, estimate and report the annual amount of improper payments for those programs, and implement actions to reduce improper payments.

⁴⁰IPIA defines an improper payment as any payment that should not have been made or that was made in an incorrect amount (including overpayments and underpayments) under statutory, contractual, administrative, or other legally applicable requirements. It includes any payment to an ineligible recipient, any payment for an ineligible service, any duplicate payment, payments for services not received, and any payment that does not account for credit for applicable discounts.

[62] Report: "Social Security Administration: Cases of Federal Employees and Transportation Drivers and Owners Who Fraudulently and/or Improperly Received SSA Disability Payments." United States Government Accountability Office, June 25, 2010. http://www.gao.gov/new.items/d10444.pdf

Page 44 (General Accounting Office comments on the Social Security Administration's letter dated May 28, 2010):

In the report, we identify those cases where SSA has sent an overpayment notification letter to the individual. However, we do not believe that identifying fraudulent or improper payments after dollars have been disbursed is an effective internal control. Our work across the government has shown that once fraudulent or improper payments are made, the government is likely to only recover pennies on the dollar. Preventive controls are the most efficient and effective.

This dataset contains information on improper payment measurements for programs found to be susceptible to significant improper payments under the Improper Payments Information Act of 2002 from FY 2004 – FY 2009. … Amounts included in the dataset are in the millions of dollars (e.g., 500 in the dataset means $500 million).

Information contained in this dataset is also reported individually by agencies in their annual Performance and Accountability Reports and Agency Financial Reports.

NOTE: An Excel file containing the data and calculations is available upon request.

[64] Report: "Status of Fiscal Year 2010 Federal Improper Payments Reporting." United States Government Accountability Office, March 25, 2011. http://www.gao.gov/new.items/d11443r.pdf

In another one of its programs, HHS cited the Children's Health Insurance Program Reauthorization Act of 2009¹¹ as prohibiting HHS from calculating or publishing any national or state-specific payment error rates for the Children's Health Insurance Program (CHIP) until 6 months after the new payment error rate measurement final rule became effective on September 10, 2010. According to its fiscal year 2010 agency financial report, HHS plans to begin estimating improper payment amounts for CHIP in fiscal year 2011 and will report this information in fiscal year 2012.

[65] Report: "Status of Fiscal Year 2010 Federal Improper Payments Reporting." United States Government Accountability Office, March 25, 2011. http://www.gao.gov/new.items/d11443r.pdf

b) Report: "Improper Payments: Reported Medicare Estimates and Key Remediation Strategies." By Kay L. Daly and Kathleen M. King. United States Government Accountability Office, July 28, 2011. http://www.gao.gov/new.items/d11842t.pdf

In 2010, Medicare covered 47 million elderly and disabled beneficiaries and had estimated outlays of $516 billion, making it one of the largest federal programs. …

For fiscal year 2010, federal agencies reported an estimated $125.4 billion in improper payments, of which Medicare accounts for nearly $48 billion—the highest estimated amount of improper payments in a single program. The Medicare improper payment estimates do not reflect all of the program's risk because HHS [the U.S. Department of Health and Human Services] did not report a total improper payment estimated amount for its Medicare prescription drug benefit program (Part D)."

Page 3: "As shown in figure 1, the Medicare program represents about 38 percent of the $125.4 billion improper payment estimated amount reported by 20 federal agencies covering 70 programs. Further, Medicare's estimated improper payment amount is the highest among all federal programs that reported an estimated amount."

Page 4: "HHS's estimated amount of improper payments for Medicare is incomplete because it has yet to report a comprehensive improper payment estimate for the Medicare prescription drug benefit program, which had reported outlays of about $59 billion in fiscal year 2010."

It is important to recognize that the $48 billion in estimated improper payments reported by HHS in fiscal year 2010 is not an estimate of fraud in Medicare.¹¹ Reported improper payment estimates include many types of overpayments, underpayments, and payments that were not adequately documented. In addition, because the improper payment estimation process is not designed to detect or measure the amount of fraud in Medicare, there may be fraud that exists in the Medicare program that is not included in the reported improper payment estimate.

In addition to inadequate documentation, HHS cited a number of other causes for the estimated $48 billion in reported improper payments, including the provision of services that were found not to be medically necessary, coding errors, incorrect interpretation of data, and payment calculation errors. HHS reported that its analysis showed most Medicare fee-for-service improper payments were for medically unnecessary durable medical equipment and inpatient hospital services. For Medicare Advantage, HHS reported that the majority of the improper payment estimate resulted from insufficient documentation to support the diagnoses submitted by private health plans for payment.

¹¹Fraud consists of intentional acts of deception with knowledge that the action or representation could result in an inappropriate gain.

$48 billion in improper payments / $516 billion in Medicare outlays = 9.3% improper payment rate

$48,000,000,000 in improper payments / 117,538,000 households = $408 in improper payments/household

• Prescription painkiller overdoses killed nearly 15,000 people in the US in 2008. This is more than 3 times the 4,000 people killed by these drugs in 1999.

• In 2010, about 12 million Americans (age 12 or older) reported nonmedical use of prescription painkillers in the past year. …

• The quantity of prescription painkillers sold to pharmacies, hospitals, and doctors' offices was 4 times larger in 2010 than in 1999.

[68] Report: "2008 Crime in the United States, Murder." Federal Bureau of Investigation, U.S. Department of Justice, September 2009. http://www2.fbi.gov/...

"The FBI's Uniform Crime Reporting (UCR) Program defines murder and nonnegligent manslaughter as the willful (nonnegligent) killing of one human being by another. … An estimated 16,272 persons were murdered nationwide in 2008."

NOTE: Although the verbiage above could imply that "nonnegligent manslaughter" and "murder" are categorized as separate offenses, this is not the case. As explained in from the U.S. Department of Justice to Just Facts correspondence (January 15, 2010), "These two are counted as one offense, and numbers defining them are not separated." Hence, the 16,272 murders cited above also includes nonnegligent manslaughters.

[69] Report: "Medicare Part D: Instances of Questionable Access to Prescription Drugs." By Gregory D. Kutz. United States Government Accountability Office, October 4, 2011. http://www.gao.gov/new.items/d12104t.pdf

[70] Report: "Covert Testing Exposes Weaknesses in the Durable Medical Equipment Supplier Screening Process." United States Government Accountability Office, July 2008. http://www.gao.gov/new.items/d08955.pdf

Investigators easily set up two fictitious DMEPOS companies using undercover names and bank accounts. GAO's fictitious companies were approved for Medicare billing privileges despite having no clients and no inventory. CMS initially denied GAO's applications in part because of this lack of inventory, but undercover GAO investigators fabricated contracts with nonexistent wholesale suppliers to convince CMS and its contractor, the National Supplier Clearinghouse (NSC), that the companies had access to DMEPOS items. The contact number GAO gave for these phony contracts rang on an unmanned undercover telephone in the GAO building. When NSC left a message looking for further information related to the contracts, a GAO investigator left a vague message in return pretending to be the wholesale supplier. As a result of such simple methods of deception, both fictitious DMEPOS companies obtained Medicare billing numbers. The following figure contains a redacted acceptance letter GAO received from CMS.

- This article is dated to 9/5/10, but it was first published on 10/23/2009, as evidenced by the date in the url and by the dates of reader comments on the article: http://www.cbsnews.com/...

Since 1995, most New Jersey Medicaid, including NJ FamilyCare beneficiaries, have been enrolled in managed care. With managed care, beneficiaries are enrolled in an HMO that manages their health care and provides services in addition to the wide array of Medicaid health benefits to which they are entitled. …

Health insurance for income-eligible families and children is provided through the NJ FamilyCare program, with assistance from the federally funded State Children's Health Insurance Program or SCHIP. NJ FamilyCare helps financially eligible families (usually low-income workers in jobs without health benefits) obtain health insurance to cover the cost of routine physician visits, prescriptions, hospitalizations, lab tests, x-rays, eyeglasses for themselves and for their children and dental care for most children and for some adults.

[74] "Annual Report of the New Jersey Office of Legislative Services, Office of the State Auditor, For the Calendar Year Ended December 31, 2009." By Richard L. Fair. NJ Office of the State Auditor, February 13, 2009. http://www.njleg.state.nj.us/legislativepub/09ann.pdf

NJ FamilyCare (NJFC) is a federal and state funded health insurance program created to help New Jersey's uninsured children and certain low-income parents and guardians have affordable health coverage. NJFC provides no cost or low-cost health insurance through managed care enrollment to uninsured parents and children with incomes up to 350 percent of the federal poverty level. …

Some beneficiaries are underreporting income on their NJ FamilyCare (NJFC) application such as income from self-employment and rentals, interest, and dividends. NJFC applicants are required to list all jobs and employers for each working person in their household as well as other non-work income on their application and are asked to send in proof of all income. The vendor reviews the documentation submitted and screens applicants against the state's wage, disability, and unemployment databases to verify the income reported. These databases do not include income from self-employment and rentals, interest, or dividends. Although beneficiaries authorize the Division of Taxation to release their tax returns to the NJFC program when signing their application, the division does not currently perform a computer match of all beneficiaries with state tax files.

A computer match of all 86,600 cases with eligible participants as of April 2007 with state tax files resulted in 60,800 cases with at least one household member that filed a 2006 state tax return. We identified 6,781 unique cases with $10,000 or more in self-employment income on their 2006 state tax return. A test of 70 of these cases disclosed that 21 failed to indicate that they were self-employed on their NJFC application. Based on the income reported on their tax returns, 18 of these 21 cases appeared ineligible and two appeared to be enrolled in the wrong plan. In three of these cases, participants were determined eligible in 2006 because they failed to report self-employment incomes of $295,000, $186,000, and $177,700 per their 2006 state tax returns.

The same computer match identified 873 cases with $85,000 or more in gross income reported on their 2006 state tax return. A test of 24 of these cases disclosed that five had either self-employment income, rental income, interest income, or dividend income that they failed to report on their application. Based on their tax returns, four of the five cases appeared ineligible and one appeared to be enrolled in the wrong plan. One case had eligible participants throughout 2006 despite unreported dividends of $137,000 and interest of $42,000 per their 2006 state tax return. Eligibility for the case continued despite the beneficiary failing to respond to the vendor's request for tax returns.

The above test of 24 cases also disclosed that 15 had net gains of more than $100,000 on their 2006 state tax return with three having more than $700,000. Additional analysis identified 441 cases with eligible participants as of April 2007 with net gains of $10,000 or more on their 2006 state tax return. Sixty-five of those cases had a net gain of more than $100,000 while the median net gain was $34,000. Without access to a computer match against state tax returns, an unreported net gain would most likely go undetected. In addition, program regulations are unclear and do not provide sufficient guidance on how a net gain should be considered when determining eligibility. Program regulations should be changed to provide the vendor with better guidance on how to consider net gains when determining eligibility.

Although the vendor followed program regulations when verifying income, it appears that regulations that were intended to simplify the application process have made it easier for a beneficiary to underreport income. The addition of a post-enrollment and a periodic computer match of beneficiaries with state tax returns would assist the division in identifying unreported income.

Each year, the American Hospital Association (AHA) collects aggregate information on the payments and costs associated with care delivered to beneficiaries of Medicare and Medicaid by U.S. hospitals. The data used to generate these numbers come from the AHA's Annual Survey of Hospitals, which is the nation's most comprehensive source of hospital financial data. …

Payment rates for Medicare and Medicaid, with the exception of managed care plans, are set by law rather than through a negotiation process as with private insurers. These payment rates are currently set below the costs of providing care resulting in underpayment.

Underpayment is the difference between the costs incurred and the reimbursement received for delivering care to patients. Underpayment occurs when the payment received is less than the costs of providing care, i.e., the amount paid by hospitals for the personnel, technology and other goods and services required to provide hospital care is less than the amount paid to them by Medicare or Medicaid for providing that care. …

In the aggregate, both Medicare and Medicaid payments fall below costs and the shortfall has been growing.

• Combined underpayments rose from $3.8 billion in 2000 to $36 billion in 2009.

• For Medicare, hospitals received payment of only 90 cents for every dollar spent by hospitals caring for Medicare patients in 2009.

• For Medicaid, hospitals received payment of only 89 cents for every dollar spent by hospitals caring for Medicaid patients in 2009.

[77] Article: "More states limiting Medicaid hospital stays." By Phil Galewitz. USA Today. Updated October 31, 2011. http://www.usatoday.com/...

Rosemary Blackmon, executive vice president of the Alabama Hospital Association, said "for the most part hospitals do what they can" to provide care to Medicaid patients despite the limits.

In Arizona, hospitals won't discharge or refuse to admit patients who medically need to be there, said Peter Wertheim, spokesman for the Arizona Hospital and Healthcare Association. "Hospitals will get stuck with the bill," he said.

[78] United States Code Title 42, Chapter 7, Subchapter XVIII, Part E, Section 1395dd: "Examination and treatment for emergency medical conditions and women in labor." Accessed November 26, 2011 at http://www.law.cornell.edu/uscode/42/1395dd.html

In the case of a hospital that has a hospital emergency department, if any individual (whether or not eligible for benefits under this subchapter) comes to the emergency department and a request is made on the individual's behalf for examination or treatment for a medical condition, the hospital must provide for an appropriate medical screening examination within the capability of the hospital's emergency department, including ancillary services routinely available to the emergency department, to determine whether or not an emergency medical condition (within the meaning of subsection (e)(1) of this section) exists.

(b) Necessary stabilizing treatment for emergency medical conditions and labor

If any individual (whether or not eligible for benefits under this subchapter) comes to a hospital and the hospital determines that the individual has an emergency medical condition, the hospital must provide either—

(A) within the staff and facilities available at the hospital, for such further medical examination and such treatment as may be required to stabilize the medical condition, or

(B) for transfer of the individual to another medical facility in accordance with subsection (c) of this section. …

(A) a medical condition manifesting itself by acute symptoms of sufficient severity (including severe pain) such that the absence of immediate medical attention could reasonably be expected to result in—

(i) placing the health of the individual (or, with respect to a pregnant woman, the health of the woman or her unborn child) in serious jeopardy,

(i) that there is inadequate time to effect a safe transfer to another hospital before delivery, or

(ii) that transfer may pose a threat to the health or safety of the woman or the unborn child.

(2) The term "participating hospital" means a hospital that has entered into a provider agreement under section 1395cc of this title.

(A) The term "to stabilize" means, with respect to an emergency medical condition described in paragraph (1)(A), to provide such medical treatment of the condition as may be necessary to assure, within reasonable medical probability, that no material deterioration of the condition is likely to result from or occur during the transfer of the individual from a facility, or, with respect to an emergency medical condition described in paragraph (1)(B), to deliver (including the placenta).

The Emergency Medical Treatment and Active Labor Act (EMTALA) ensures universal access to emergency medical care at all Medicare participating hospitals with emergency departments. Under EMTALA, any person who seeks emergency medical care at a covered facility, regardless of ability to pay, immigration status, or any other characteristic, is guaranteed an appropriate screening exam and stabilization treatment before transfer or discharge. Failure to abide by these requirements can subject hospitals or physicians to civil monetary sanctions or exclusion from Medicare. Hospitals may also be subject to civil liability under the statute for personal injuries resulting from the violation.

Only hospitals that (1) participate in Medicare and (2) maintain an emergency department are required to screen patients under EMTALA.⁷ …

⁷ … Although the screening and stabilization requirements are phrased such that they apply to "hospitals" generally, enforcement of EMTALA is only authorized against hospitals that have entered into a Medicare provider agreement.

Page 1: "[A]s a condition for receiving federal tax exemption for providing health care to the community, not for profit hospitals are required to care for Medicare and Medicaid beneficiaries. Also, Medicare and Medicaid account for 56 percent of all care provided by hospitals. Consequently, very few hospitals can elect not to participate in Medicare and Medicaid."

[81] Report: "The Impact of EMTALA on Physician Practices." By Carol K. Kane. American Medical Association, February 2003. http://www.ama-assn.org/...

Page 3: "Emergency medicine physicians averaged 22.9 hours of EMTALA mandated care per week, about half of their total patient care hours, and 16.4% of those who provided such care averaged more than 40 hours per week."

[82] Report: "The Impact of EMTALA on Physician Practices." By Carol K. Kane. American Medical Association, February 2003. http://www.ama-assn.org/...

We measure the financial impact of EMTALA on physicians' practices by the amount of bad debt incurred from the provision of EMTALA mandated care. Bad debt is associated with the provision of services for which payment was expected but not received. It is not associated with the provision of charity care for which either no payment is expected, or only payment at a reduced rate. Moreover, bad debt is not associated with the provision of services for which a reduced fee has been negotiated with an insurer. For example, the difference between a physician's usual charge for a certain service and the fee that a Medicaid HMO pays does not amount to bad debt. If, however, a Medicaid HMO patient was obligated to make a copayment and did not, that portion of the bill would be considered bad debt; that payment was expected but not received. …

… Not surprisingly, these figures were largest among emergency medicine physicians, all of whom reported at least some bad debt associated with EMTALA in 2000, with an average of 61.0% of bad debt attributed to that source, or $138,300.

Emergency medicine physicians attributed 61.0% of the bad debt they incurred in 2000 to EMTALA, or $138,300 per year. Across all specialties EMTALA related bad debt amounted to $12,300 per self-employed physician in 2000, or nearly $4.2 billion dollars in the aggregate.

The $4.2 billion estimate likely overstates of the impact of EMTALA on physician net income. First, looking only at the level of bad debt ignores that EMTALA may have had, in part, a positive revenue impact on physicians. If patient volume is greater under EMTALA than it would have been in its absence, to the extent that physicians are able to collect payment for services covered under the scope of EMTALA, revenue from screening and stabilization will be greater than it otherwise would have been. Second, some of the bad debt attributable to EMTALA would have been incurred even in the absence of this legislation—providing screening and stabilization is, after all, the business of hospital EDs [emergency departments].

Uncompensated care is an overall measure of hospital care provided for which no payment was received from the patient or insurer. It is the sum of a hospital's "bad debt" and the charity care it provides. Charity care is care for which hospitals never expected to be reimbursed. A hospital incurs bad debt when it cannot obtain reimbursement for care provided; this happens when patients are unable to pay their bills, but do not apply for charity care, or are unwilling to pay their bills.

Page 2: "Uncompensated care data are sometimes expressed in terms of hospital charges, but charge data can be misleading, particularly when comparisons are being made among types of hospitals, or hospitals with very different payer mixes. For this reason, AHA data on hospitals' uncompensated care are expressed in terms of costs."

The information gathered by credit reporting companies is vast and seeks to cover virtually all U.S. consumer borrowing.¹ To the extent that this information is complete, comprehensive, and accurate, it represents a potential new source of statistical data for the Federal Reserve on consumer credit markets and behavior. …

… The distribution patterns of items such as account balances, credit utilization, and measures of payment performance by type of account and creditor are broadly described. Key aspects of the data that may be incomplete, duplicative, or ambiguous as they apply to credit evaluation are highlighted in the analysis. The article concludes with a discussion of steps that might be taken to address some of the issues identified.

Collection agency reporting does not represent a full accounting of credit accounts that have gone to collection. Many creditors do their own collections rather than using collection agencies. If these creditors report to the credit reporting companies, such collections will appear as updates to credit account files. However, if the creditor does not report to the credit reporting companies, then these collection actions will not appear in the credit files.

The majority of collection actions (about 52 percent) are associated with medical bills. The high incidence of collections related to medical bills is not surprising given both the large number of individual consumers and families that have partial or no health insurance coverage and the high cost of many medical services.²⁹ The second largest category involved collection actions for unpaid bills for utility services, which by the authors' analysis, account for about 23 percent of all collections.

Page 1: "Each year, the American Hospital Association (AHA) publishes aggregate information on the level of uncompensated care – care provided for which no payment is received – delivered in U.S. hospitals. The data used to generate these numbers come from the AHA's Annual Survey of Hospitals, which is the nation's most comprehensive source of hospital financial data."

Page 4: "National Uncompensated Care Based on Cost*: 1980-2009 (in Billions), Registered Community Hospitals"

The methodology used to develop estimates of tort costs in this study is similar to the methodology used in prior Towers Watson studies of U.S. tort costs. This study incorporates three cost components:

• Benefits paid or expected to be paid to third parties (hereafter referred to as "losses")

Page 17: "Appendix 5 - Medical malpractice tort costs … Total cost … 2009 [=] $ 29,953,137"

[87] Calculated with data from the footnote above and: "National Health Expenditures by Type of Service and Source of Funds, Calendar Years 1960-2009." U.S. Department of Health & Human Services, Centers for Medicare and Medicaid Services, January 5, 2011. https://www.cms.gov/...

[88] Report: "Medical Malpractice Law in the United States." By Peter P. Budetti and Teresa M. Waters. Henry J. Kaiser Family Foundation, May 2005. http://www.kff.org/...

Page 1: "Medical malpractice law in this country traditionally has been under the authority of the states, not the federal government. And, unlike many other areas of the law, the framework and legal rules governing malpractice actions were, prior to the last thirty years, largely established through decisions in lawsuits in state courts rather than through statutes enacted by state legislatures."

Page 4: State legislatures have responded to a number of issues concerning the malpractice tort claims system and passed statutes that changed a number of different aspects of malpractice law, some of which had dramatic effects. Those statutes are often referred to as "tort reforms." More recently, the United States Congress has also considered legislation that would make federal laws more prominent in medical malpractice cases and would override at least some aspects of state laws."

Page 15: "Even when an insurance company sells malpractice insurance in multiple states, premiums are still based on the expected experience of physicians within a single state or an even smaller geographic area. As a result, the differences in medical malpractice law among the states can lead to substantial differences in the cost of malpractice insurance from one state to another, even for the same specialty, and to wide fluctuations from year to year."

"2009 … The Doctors Company … OB/GYN … Los Angeles, Orange counties [=] $49,804"

"2009 … Medical Protective … OB/GYN … Cook, Madison, St. Clair, Will counties [=] $127,083

"2009 … The Doctors Company … OB/GYN … 2009 … Contra Costa, Madera, Mariposa, Merced, Monterey, San Benito, San Francisco counties [=] $29,635"

"2009 … American Physicians Assurance Corp … OB/GYN … Adams, Knox, Peoria, Rock Island counties … $60,342"

[95] NOTE: On December 8, 2011, Just Facts contacted MyMedicalMalpracticeInsurance.com to determine the most reliable way to make "apples-to-apples" comparisons between states and localities. Based on this information, Just Facts decided to compare California and Illinois, a high-cost and low-cost state with equal malpractice insurance coverage limits ($1 million per incident and $3 million aggregate per year).†

† Article: "Medical Liability Insurance – Factors That Can Affect What You Pay." By Carol Power. CoverMD. Accessed December 8, 2011 at http://www.covermd.com/...

The most common limit of liability option chosen by doctors is $1 million / $3 million. This is the limit of liability required by most hospitals in order to grant a physician hospital privileges.

The $1 million refers to the amount that the insurance company will pay per Occurrence (per claim) for indemnity purposes and the $3 million is the aggregate (total) amount the insurance company will pay out for a year.

Some states have different limits of liability e.g. in New York it is $1.3 million / $3.9 million, Florida allows $250,000 / $ $750,000 while Texas has a $200,000 / $600,000 limit of liability. Also hospitals in some states require $2 million / $6 million limits of liability in order to grant hospital privileges.

[96] Dataset: "Payments on Medical Malpractice Claims, 2010." Statehealthfacts.org, a project of the Henry J. Kaiser Family Foundation. Accessed December 8, 2011 at http://www.statehealthfacts.org/...

Average Claims Payments … West Virginia [=] $108,509 … Wisconsin [=] $1,257,938 …

Data limited to those payments made during 2010 for medical malpractice claims for allopathic physicians (MDs), allopathic interns and residents (MDs), osteopathic physicians (DOs), and osteopathic interns and residents (DOs). Payments are based on physician's work state and home state when work state is unavailable.

Defensive medicine includes assurance behavior, the practice of ordering excessive or unnecessary tests, procedures, visits, or consultations solely for reducing liability risk to the physician, and/or avoidance behavior, the practice of avoiding high-risk patients or procedures.²⁴ With over 120,000 pending liability actions against physicians on any day in the US,²⁵ the threat of frivolous lawsuits places significant pressure on physicians to request or perform unnecessary tests including invasive ones.^27,29

Page 1: "Based upon these findings, and in an effort to validate the scope and impact of defensive medicine, Jackson Healthcare retained Gallup to conduct an independent national physician poll using their world-renowned methodology."

• Physicians attribute 26 percent of overall healthcare costs to the practice of defensive medicine

• Of the physicians surveyed, 73 percent agreed that they had practiced some form of defensive medicine in the past 12 months

• Physicians indicating they had practiced a form of defensive medicine in the last twelve months attribute 21 percent of their practice to be defensive in nature

Page 4: "Gallup Survey Methodology Between December 2009 and January 2010, Gallup conducted telephone interviews with 462 randomly selected practicing physicians from across the U.S."

Page 1573: "In our analysis, we used a value of 5.4 percent for the effects of defensive medicine on hospital spending…. Our 5.4 percent estimate suggests that $38.8 billion of this spending could be reduced through direct tort reforms."

Page 1574: "Thus, our estimate range for the cost of defensive medicine in 2008 for physician and clinical services is $5.4–$8.2 billion. This midpoint of this range is $6.8 billion."

Kessler and McClellan examined the effect of tort reforms that directly reduce expected malpractice awards—such as caps on noneconomic damages—on Medicare hospital spending for acute myocardial infarction and ischemic heart disease from 1984 to 1990.⁷ …

… In a further analysis incorporating information about levels of managed care through 1994, they [Kessler and McClellan] estimated that direct reforms reduced hospital spending by 3.8 percent for myocardial infarction and 7.1 percent for heart disease.³⁰

Two other studies could not replicate these findings for other health conditions.^6,31 Consequently, national extrapolations from Kessler and McClellan's estimates should be interpreted with considerable caution.

This estimate understates the magnitude of defensive medicine under two conditions: first, if the passage of direct tort reforms reduces only a portion of defensive medicine, as we believe it does; and second, if physicians perceive that elderly Americans—recall that Kessler and McClellan's estimates come from a Medicare population—are less likely than other patients to sue or, if they sue, to recover large awards.

However, the estimate overstates the magnitude of defensive medicine if physician responses to liability in the realm of cardiac care are more dramatic than in other clinical areas, or if responses are larger for Medicare patients than for privately insured patients. The latter might be the case because higher levels of managed care outside of Medicare reduce physicians' discretion.

Balancing these competing sources of bias is difficult, but the two sets of concerns probably serve as counterweights to one another.

The above cost estimate relates solely to hospital spending, but defensive medicine also occurs in other settings. Our prior work found that between 1993 and 2001, malpractice payments per physician grew by 11 percent { and were associated with a 1.1 percent increase in Medicare reimbursement for all physician and professional services in Medicare Part B. Similar results were obtained when malpractice premiums were used as a measure of liability.^33,34

We could use these figures to estimate the level of current annual spending that can be attributed to malpractice premium growth. A first step was to estimate the increase in Part B spending that may be attributed to malpractice liability between 1993 and 2001. The total is $2.9 billion, or 1.1 percent of Part B spending in 1993.

However, this calculation ignored the role of malpractice payments made on behalf of physicians before and after that period in contributing to the current level of spending. We estimated the increase in defensive medicine since 2001 by making two assumptions.

First, we assumed that the association between malpractice payments and health spending is the same in the period after 2001 as it was in the 1993–2001 period. That is, we assumed that an 11 percent average annual growth in malpractice payments was associated with 1.1 percent average annual growth in reimbursements. Second, we assumed that malpractice payments grew at the same average annual rate after 2001 that they did in 1993–2001.

With these assumptions, we estimated that a total of $2.5 billion in physician and clinical spending since 2001 was attributable to defensive medicine. Adding this amount to the $2.9 billion spent in the 1993–2001 period resulted in a total of $5.4 billion for the cost of defensive medicine in the area of physician and clinical services since 1993.

As noted earlier, this calculation still ignored the contribution of defensive medicine to the absolute level of health care spending in 1993. This is an extremely difficult parameter to estimate (see the Online Appendix).¹⁶We can provide only a rough estimate.

In 1960, spending on physician and clinical services was $39.3 billion in 2008 dollars. Assuming that malpractice payments per physician grew at an average annual rate of 1.3 percent, we would expect spending on this class of services to be $2.8 billion more in 2008. Thus, our estimate range for the cost of defensive medicine in 2008 for physician and clinical services is $5.4–$8.2 billion. This midpoint of this range is $6.8 billion.

Page 1574: "Combining the amounts for hospital and physician spending, we arrived at an overall estimate of $45.6 billion in defensive medicine costs for 2008."

[105] Calculated with data from: "National Health Expenditures by Type of Service and Source of Funds, Calendar Years 1960-2009." U.S. Department of Health & Human Services, Centers for Medicare and Medicaid Services, January 5, 2011. https://www.cms.gov/...

Page 7: "Exhibit 4: Assembly and Data Sources in the NHEA, For Types of Services and Goods … Hospital Care … Physician and Clinical Services … Other Professional Services … Dental Services … Other Health, Residential, and Personal Care … Home Health … Nursing Care Facilities and Continuing Care Retirement Communities … Prescription Drugs … Durable Medical Equipment … Other Non-durable Medical Products"

NOTE: See the two footnotes above for the fact that total national health expenditures in 2008 were about $2.4 trillion, and the study only accounted for hospital care and physician/clinical services, which comprised about half of this spending. As shown in the calculation in the footnote below, this study used a figure of $2.3 trillion in the denominator when calculating that medical liability costs were 2.4% of total health care spending in 2008.

CALCULATION: $55.6 billion medical liability costs / .024 portion of total health care spending = $2.3 trillion total health care spending

Page 1569: "Overall annual medical liability system costs, including defensive medicine, are estimated to be $55.6 billion in 2008 dollars, or 2.4 percent of total health care spending."

[108] Article: "Malpractice liability costs U.S. $55.6 billion: study." By Maggie Fox. Reuters, September 7, 2010. http://www.reuters.com/...

Medical malpractice liability costs the U.S. healthcare system more than $55 billion a year, most of it in "defensive" medical practices such as extra tests and scans, according to a report released on Tuesday.

These costs, which also include administrative costs, payments to plaintiffs and lawyer fees, account for 2.4 percent of annual U.S. healthcare spending, Michelle Mello of the Harvard School of Public Health and colleagues reported.

[109] Article: "Medical Liability Costs Make Up 2.4% of U.S. Health Spending." By Pat Wechsler. Bloomberg, September 7, 2010. http://www.bloomberg.com/...

"Medical malpractice and guarding against suits cost the U.S. about $55.6 billion annually, or 2.4 percent of the total health-care bill, according to Harvard University's Atul Gawande and co-authors."

"Even if all of these [legal] reforms were enacted the total savings would be a fraction of a percent of the national debt. The United States spend about $2.4 trillion dollars a year on health care.

[111] Article: "Malpractice costs top $55 billion a year in U.S., Harvard study says." By Bruce Japsen. Chicago Tribune, September 8, 2010. http://articles.chicagotribune.com/...

"A comprehensive analysis by researchers at Harvard University found the annual overall cost of medical liability to be $55.6 billion, or 2.4 percent of total health care spending, according to an article published in the September issue of the journal Health Affairs."

[112] Article: "Cost of Medical Malpractice Tops $55 Billion a Year in U.S." U.S. News & World Report, September 7, 2010. http://health.usnews.com/...

"The cost of medical malpractice in the United States is $55.6 billion a year, which is 2.4 percent of annual health-care spending, a new study shows."

[113] NOTE: Just Facts spent about 70 hours investigating studies that attempt to quantify the costs of defensive medicine in the U.S. All of these studies suffer from one or more of the following methodological shortcomings:

• Arbitrary extrapolations of data from different healthcare sectors to others that have widely different characteristics.

The purpose of this study was to characterize response rates for mail surveys published in medical journals…. The mean response rate among mail surveys published in medical journals is approximately 60%. However, response rates vary according to subject studied and techniques used. Published surveys of physicians have a mean response rate of only 54%, and those of non-physicians have a mean response rate of 68%. … Although several mail survey techniques are associated with higher response rates, response rates to published mail surveys tend to be moderate. However, a survey's response rate is at best an indirect indication of the extent of non-respondent bias. Investigators, journal editors, and readers should devote more attention to assessments of bias, and less to specific response rate thresholds.

The level of art and interpretation in calculating response rates reflects the indirect and therefore limited use of the response rate in evaluating survey results. So long as one has sufficient cases for statistical analyses, non-response to surveys is a problem only because of the possibility that respondents differ in a meaningful way from non-respondents, thus biasing the results [22,23]. Although there are more opportunities for non-response bias when response rates are low than high, there is no necessary relationship between response rates and bias. Surveys with very low response rates may provide a representative sample of the population of interest, and surveys with high response rates may not.

Nevertheless, because it is so easy to measure response rates, and so difficult to identify bias, response rates are a conventional proxy for assessments of bias. In general, investigators do not seem to help editors and readers in this regard. As we report, most published surveys make no mention of attempts to ascertain non-respondent bias. Similarly, some editors and readers may discredit the results of a survey with a low response rate even if specific tests limit the extent or possibility of this bias.

[114] Book: Health Insurance: Current Issues and Background. Edited by William S. Stevens and others. Nova Science Publishers, 2003.

Chapter 2: "The Health Insurance Portability and Accountability Act (HIPPA): Summary of the Administrative Simplification Provisions." By Celinda Franco.

Each year the health care industry generates billions of financial and administrative transactions in both paper and electronic form that result from the delivery of health care services. …

Currently, there are no standardized formats for the electronic or paper transmission of health care information, or standards for identifying providers, health plans, employers, or individuals participating in the health care system. There are approximately 400 formats for electronic health claims used in the United States today. The absence of standardized formats for health care claims means that payers and providers must frequently invest in multiple computer systems or programs, as well as additional human resources in order to process claims with different format requirements. This increases the administrative costs of health care delivery. The lack of standardization limits the efficient flow of information between payers and providers, increases the complexity and costs of processing of health care claims and other financial and administrative transactions, and hinders efforts to direct fraud and abuse.

Page 29: "HIPPA does not, however, provide for the collection of clinical data or the electronic maintenance of patient medical records. As such, HIPPA's overarching goal in this area is to serve as a catalyst for the health care industry to increasingly use electronic transactions and standard formats so that significant administrative savings can be achieved."

NOTE: See the next footnote for information on how the "administrative simplification provisions" in the Health Insurance Portability and Accountability Act are faring in practice.

[115] Letter: Michael D. Maves (Executive Vice President and CEO of the American Medical Association) to Donald Berwick (Administrator, U.S. Centers for Medicare and Medicaid Services), April 13, 2011. http://www.ama-assn.org/...

Page 2: "Drug Plan Authorizations: Despite their ongoing support for Medicare drug coverage, physicians have many complaints about associated burdens, including formulary changes and time-consuming pre-authorization requirements of drug and Medicare Advantage plans. A separate AMA survey found that drug pre-authorizations also delay care with 69 percent of physicians waiting several days for approval and 10 percent waiting more than a week."

In addition, we cannot overemphasize the importance of considering the aggregate impact of the unprecedented scope of changes physicians are being ordered to absorb over a very short period of time. Provisions of one law have not even been implemented before additional requirements are mandated in the next one. Along with the ACA [Affordable Care Act] provisions, physicians are coping with earlier mandates, including most notably the upcoming Health Insurance Portability and Accountability (HIPAA) deadlines for 5010 on January 1, 2012 and ICD-10 on October 1, 2013. To date, there has never been a return on investment for physicians for the implementation of any HIPAA administrative simplification requirement. The human and technological investments needed to participate in quality incentives are competing for physician time and resources needed to move to an enormous new set of diagnosis codes in ICD-10. The struggle to keep up leaves little time to get engaged in the practice redesign and payment and delivery reforms envisioned in the ACA and detracts from patient care just as the ACA is promising access to millions of uninsured Americans. We strongly urge the Administration and CMS to carefully consider the impact the collision of these compliance deadlines will have on physicians, patients and the ACA's promise of better care for more people.

[116] Letter: Michael D. Maves (Executive Vice President and CEO of the American Medical Association) to Donald Berwick (Administrator, U.S. Centers for Medicare and Medicaid Services), April 13, 2011. http://www.ama-assn.org/...

Over the past few years, physicians have experienced tremendous problems with CMS' [Centers for Medicare and Medicaid Services'] enrollment program. These difficulties have led to serious cash flow disruptions for many practices. Some 12 percent of our administrative burden survey respondents found this to have been a problem and one physician told us it "took me eight months to get a Medicare number. I still haven't been paid and will have to take bankruptcy soon." In fact, according to CMS' own Provider Contractor Satisfaction Survey, physicians' experience with the Medicare enrollment process has ranked at the bottom and essentially amounts to a score of "C-." Enrollment has perennially been an area where CMS contractors have struggled to implement agency changes with limited resources and within artificially short deadlines.

In our significant experience with educating physicians about federal policies, the AMA has found that it usually takes at least six months to adequately reach out and inform physicians about new requirements. Lawmakers' growing propensity for cramming hundreds of program changes into massive legislative vehicles with retroactive effective dates and inadequate lead time has greatly complicated things for both CMS and physicians and we sympathize with the agency's struggle to provide adequate notice and education in the current environment. Nonetheless, the critical mass of regulatory change in any given year has become so great that something has to give. Keeping up with the swelling number of Medicare rules has become a full time job that is an enormous challenge even for large practices and can be almost impossible for smaller practitioners. The problem is compounded when, as has happened with increasing frequency, they are confronted with a host of new rules contained in a voluminous physician fee schedule rule published in November and effective on January 1 of the next year. A large number of physicians thus are completely unaware of the requirements because there has been so little opportunity to educate them before the requirement begins. Moreover, in many instances, details needed to implement the policy are lacking until well into the new year and in some cases new information comes out in a corrective regulation that never becomes widely available.

[117] Report: "Prescription for change 'filled': Tax provisions in the Patient Protection and Affordable Care Act, Updated to reflect changes approved in the Reconciliation Act of 2010." By Clint Stretch and others. Deloitte, March 30, 2010. http://www.deloitte.com/...

Generally the information to be reported with respect to insured individuals includes identifying information, dates of coverage, and any premium tax credit or cost sharing subsidy received by the individual with respect to such coverage, and any other information required by the Treasury Secretary. For insurance provided through an employer's group health plan, the insurer must report the name, address, and EIN of the employer maintaining the plan, the portion of the premium required to be paid by the employer, and any information the Secretary may require to administer the new tax credit for qualified small employers. Failure to comply with the requirement would trigger existing penalties associated with the filing of information returns.

Reporting by large employers – Any large employer subject to rules for maintaining minimum essential coverage, must file a return that identifies the employer; certifies whether it offers to its full-time employees the option to enroll in a minimum essential coverage plan; and provides the number of full-time employees during each month of the calendar year and information identifying each full-time employee covered under the employer-provided health plan.

Effective date – These new reporting requirements apply for calendar years beginning after 2013.

The Act also authorizes the Treasury to disclose to the Secretary of Health and Human Services relevant individual income tax return information used for determining eligibility for premium tax credits; cost-sharing reduction; and participation in a State Medicaid program, a State children's health insurance program, or a basic health program under the Act. The Health and Human Services agency could in turn provide the information to an exchange created by the Act.

These new reporting requirements will significantly increase the amount of information that must be reported to the IRS as well as the number of information returns that businesses must file. Employers will need to implement the appropriate record keeping and data collection processes to meet the reporting requirements, including, where necessary, processes to effectively communicate the required information to third parties providing payroll administration or managing other reporting obligations.

Information reporting requirements bring with them the necessity of obtaining appropriate taxpayer identification numbers from payees to avoid backup withholding obligations. Businesses will need to implement additional procedures to collect the data necessary to meet these new obligations.

[118] Memo: "State Health Insurance Mandates and the ACA [Affordable Care Act] Essential Benefits Provisions." Compiled by Richard Cauchi. National Conference of State Legislatures. Updated December 16, 2011.

Mandated benefits (also known as "mandated health insurance benefits" and "mandates") are benefits that are required to cover the treatment of specific health conditions, certain types of healthcare providers, and some categories of dependents, such as children placed for adoption. A number of health care benefits are mandated by either state law, federal law — or in some cases — both. Between the federal government and the states there are upwards of 2000 health insurance mandates.

Although mandates continue to be added as health insurance requirements, they are controversial. Patient advocates claim that mandates help to ensure adequate health insurance protection while others (especially health insurance companies) complain that mandates increase the cost of healthcare and health insurance.

Mandated health insurance laws passed at either the federal or state level usually fall into one of three categories:

• Health care services or treatments that must be covered, such as substance abuse treatment, contraception, in vitro fertilization, maternity services, prescription drugs, and smoking cessation.

• Healthcare providers other than physicians, such as acupuncturists, chiropractors, nurse midwives, occupational therapists, and social workers.

• Dependents and other related individuals, such as adopted children, dependent students, grandchildren, and domestic partners.

The mandated benefit laws most often apply to health insurance coverage offered by employers and private health insurance purchased directly by an individual.

Most people – whether for or against mandates – agree that mandated health benefits increase health insurance premiums. Depending on the mandated benefit and how that benefit is defined, the increase cost of a monthly premium can increase from less than 1% to more than 5%.

Trying to figure out how a mandated benefit will impact an insurance premium is very complicated. The mandate laws differ from state to state and even for the same mandate, the rules and regulations may vary.

For example: Most states mandate coverage for chiropractors, but the number of allowed visits may vary from state to state. One state may limit the number of chiropractor visits to four each year, while another state may allow up to 12 chiropractor visits each year. Since chiropractor services can be expensive, the impact on health insurance premiums may be greater in the state with the more generous benefit.

Additionally, the lack of mandates could also increase the cost of healthcare and health insurance premiums. If someone who has a medical problem goes without necessary health care because it is not covered by his or her insurance, he or she may become sicker and need more expensive services in the future.

[119] Article: "Obama Reaffirms Insurers Must Cover Contraception." By Robert Pear. New York Times, January 20, 2012. http://www.nytimes.com/...

The Obama administration said Friday that most health insurance plans must cover contraceptives for women free of charge, and it rejected a broad exemption sought by the Roman Catholic Church for insurance provided to employees of Catholic hospitals, colleges and charities.

Federal officials said they would give such church-affiliated organizations one additional year — until Aug. 1, 2013 — to comply with the requirement. Most other employers and insurers must comply by this Aug. 1. …

The 2010 health care law says insurers must cover “preventive health services” and cannot charge for them.

The new rule interprets this mandate. It requires coverage of the full range of contraceptive methods approved by the Food and Drug Administration. Among the drugs and devices that must be covered are emergency contraceptives including pills known as ella and Plan B. The rule also requires coverage of sterilization procedures for women without co-payments or deductibles.

The research and development costs of 68 randomly selected new drugs were obtained from a survey of 10 pharmaceutical firms. These data were used to estimate the average pre-tax cost of new drug development. The costs of compounds abandoned during testing were linked to the costs of compounds that obtained marketing approval. The estimated average out-of-pocket cost per new drug is US$ 403 million (2000 dollars). Capitalizing out-of-pocket costs to the point of marketing approval at a real discount rate of 11% yields a total pre-approval cost estimate of US$ 802 million (2000 dollars).

Page 156: "In the United States, manufacturers submit a new drug application (NDA) or a biological license application (BLA) to the FDA for review and approval."

The time between the start of clinical testing and submission of an NDA or BLA with the FDA was estimated to be 72.1 months, which is 3.5 months longer than the same period estimated in the previous study. However, the time from the start of clinical testing to marketing approval in our timeline for a representative drug averaged 90.3 months for the current study, compared to 98.9 months for the earlier study. The difference is accounted for by the much shorter FDA approval times in the mid to late 1990s that were associated with the implementation of the Prescription Drug Use Fee Act of 1992. While the approval phase averaged 30.3 months for the earlier paper's study period, that phase averaged only 18.2 months for drugs covered by the current study.

Late last year, Biosensors International, a medical device company, shut down its operation in Southern California, which had once housed 90 people, including the company's top executives and researchers.

The reason, executives say, was that it would take too long to get its new cardiac stent approved by the Food and Drug Administration.

"It's available all over the world, including Mexico and Canada, but not in the United States," said the chief executive, Jeffrey B. Jump, an American who runs the company from Switzerland. "We decided, let's spend our money in China, Brazil, India, Europe."

[122] Report: " A Physician's Guide to Language Interpreter Services." Minnesota Medical Association, 2004. https://www.mnmed.org/...

The legal requirements for physicians and clinics to provide interpreter services are not newly enacted but instead stem from Title VI of the Civil Rights Act of 1964.

Title VI of the Civil Rights Act of 1964 states, "No person in the United States shall, on grounds of race, color, or national origin, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program or activity receiving Federal financial assistance." Title VI applies to all recipients of federal funds, without regard to the amount of federal funds that they have received. It covers physicians who treat Medicaid or Medicare patients.

Under federal law, providers are prohibited from singling out patients based on race or national origin, and cannot employ practices that have a discriminatory impact on individuals based upon their race or national origin. Federal regulations that implement Title VI provide that:

A recipient . . . may not . . . utilize criteria or methods of administration which have the effect of subjecting individuals to discrimination because of their race, color or national origin, or have the effect of defeating or substantially impairing accomplishment of the objectives of the program [with] respect [to] individuals of a particular race, color or national origin. [42 C.F.R. 80.3(b)(2)]

The federal law covers all entities that receive federal financial assistance, including funds from the Department of Health and Human Services, either directly or indirectly. These entities include physicians, clinics, and hospitals that operate, provide, or engage in health programs and activities that receive federal financial assistance.

This means that physicians who receive financial reimbursement or payments under the Medicaid and/or Medicare programs are required to comply with Title VI. If a clinic is participating in either or both programs, it is obligated under federal law to ensure that all of its patients, including all LEP patients, are able to receive effective communication in the course of the office visit. The federal law requires clinics to provide access to health care services, including language interpreting services, when needed, for all patients who have limited English proficiency, not only those patients who are actually enrolled in a public financial health program.

Under the law, physicians and other health care providers need to notify LEP patients regarding their right to language assistance services when needed. Physicians and clinics have a responsibility to ensure that their policies and procedures do not deny their patients access to health care services because of a language barrier. The key to providing access to health care services for LEP persons is to ensure that the language assistance provided results in accurate and effective communication between the provider and the LEP patient. The U.S. Department of Health and Human Services' Office for Civil Rights recommends doing the following to ensure compliance with the law:

2. Developing a written policy regarding language access that will ensure meaningful communication;

3. Training staff members so they understand the policy and are capable of carrying it out; and

Failure to implement one or more of these procedures does not necessarily mean noncompliance with Title VI. In case of a complaint or an investigation, the Office for Civil Rights will review the circumstances involved and determine compliance on a case-by-case basis. The assessment will take into account a number of factors, including the size of the clinic, the size of the LEP population, the nature of the services provided, the resources available, the frequency of different languages encountered, and the frequency with which LEP persons come into contact with the services.

[123] "Guidance to Federal Financial Assistance Recipients Regarding Title VI Prohibition Against National Origin Discrimination Affecting Limited English Proficient Persons." U.S. Department of Health and Human Services, August 4, 2003. http://www.hhs.gov/ocr/civilrights/resources/laws/revisedlep.html

Department of Health and Human Services [HHS] regulations, 45 CFR 80.3(b)(2), require all recipients of federal financial assistance from HHS to provide meaningful access to LEP [limited English proficient] persons.(3) Federal financial assistance includes grants, training, use of equipment, donations of surplus property, and other assistance.

(3) Pursuant to Executive Order 13166, the meaningful access requirement of the Title VI regulations and the four-factor analysis set forth in the DOJ LEP Guidance are to apply additionally to the programs and activities of federal agencies, including HHS.

• Hospitals, nursing homes, home health agencies, and managed care organizations.

• Universities and other entities with health or social service research programs.

• Physicians and other providers who receive Federal financial assistance from HHS.

Recipients of HHS assistance do not include, for example, providers who only receive Medicare Part B payments.(4)

In 1993, motivated by stories of suffering AIDS patients, the state became one of the first to require insurers to extend individual or small group coverage to anyone with pre-existing illnesses. …

Healthy people, in effect, began to subsidize people who needed more health care. The healthier customers soon discovered that the high premiums were not worth it and dropped out of the plans. The pool of insured people shrank to the point where many of them had high health care needs. Without healthier people to spread the risk, their premiums skyrocketed, a phenomenon known in the trade as the "adverse selection death spiral." …

At the same time, New York has the highest average annual premiums for individual policies: $6,630 for single people and $13,296 for families in mid-2009, more than double the nationwide average, according to America's Health Insurance Plans, an industry group.

[125] FAQ: "Selling Health Insurance Across State Lines." By Phil Galewitz and Lexie Verdon. Kaiser Health News, January 25, 2011. http://www.kaiserhealthnews.org/...

What currently restricts insurers from selling policies outside of their home states?

Insurers are allowed to sell policies only in states where they are licensed to do business. Most insurers obtain licenses in multiple states. States have different laws regulating benefits, consumer protections and financial and solvency requirements.

[126] Issue brief: "Rate Regulation." National Association of Insurance Commissioners. Accessed January 12, 2012 at http://www.naic.org/...

Concerns over the fairness and equity of insurer rating practices that attempt to charge higher premiums to those with higher actual and expected claims costs have increased as insurers have identified case characteristics that allow them to pinpoint with increasing accuracy those individuals who will incur high costs. While these practices may have the effect of accurately assigning actuarially appropriate premiums to higher risks, they also tend to reduce the pooling of risk between low-cost and high-cost individuals, the core function of insurance.

In response to these concerns, states have developed a number of ways to regulate the characteristics that insurers use to vary premiums charged to different individuals and businesses in the marketplace. In developing rate regulations, policymakers must be aware that any decisions regarding the variation of premiums will create winners and losers in the marketplace. Loose restrictions will be generally favorable to low-cost individuals and businesses, resulting in higher premiums for older, sicker individuals. Tighter restrictions, on the other hand, result in higher premiums for young, healthy individuals and businesses to offset lower premiums for older, sicker individuals and businesses. The desire for equity must also be balanced with the need to avoid the adverse selection that can arise when low-cost individuals decide that the higher premiums they pay are not worthwhile given their expected needs and drop out of the market, resulting in a sicker risk pool and higher premiums.

[127] House Resolution 3590: "Patient Protection and Affordable Care Act." Signed into law by Barack Obama on March 23, 2010 (became Public Law No: 111-148). http://www.gpo.gov/...

TITLE I—QUALITY, AFFORDABLE HEALTH CARE FOR ALL AMERICANS … Subtitle C—Quality Health Insurance Coverage for All Americans … PART I—HEALTH INSURANCE MARKET REFORMS … SUBPART I—GENERAL REFORM …

(1) IN GENERAL.—With respect to the premium rate charged by a health insurance issuer for health insurance coverage offered in the individual or small group market—

(A) such rate shall vary with respect to the particular plan or coverage involved only by—

(iii) age, except that such rate shall not vary by more than 3 to 1 for adults (consistent with section 2707(c)); and

(iv) tobacco use, except that such rate shall not vary by more than 1.5 to 1; and

(B) such rate shall not vary with respect to the particular plan or coverage involved by any other factor not described in subparagraph (A).

(A) IN GENERAL.—Each State shall establish 1 or more rating areas within that State for purposes of applying the requirements of this title.

(B) SECRETarial REVIEW.—The Secretary shall review the rating areas established by each State under subparagraph (A) to ensure the adequacy of such areas for purposes of carrying out the requirements of this title. If the Secretary determines a State's rating areas are not adequate, or that a State does not establish such areas, the Secretary may establish rating areas for that State.

[128] Book: Basics of the U.S. Health Care System. By Nancy J. Niles. Jones and Bartlett, 2011.

State governments oversee the licensure of healthcare facilities including hospitals. States set their own standards. It is important to note that all facilities must be licensed but do not have to be accredited. State licensure focuses on building codes, sanitation, equipment, and personnel. Hospitals must be licensed to operate with a certain number of beds.

Certification of hospitals enables them to obtain Medicare and Medicaid enrollment. This type of certification is mandated by the Department of Health and Human Services (HHS). All hospitals that receive Medicare and Medicaid reimbursement must adhere to conditions of participation that emphasize patient health and safety. Accreditation is a private standard developed by accepted organizations as a way to meet certain standards. For example, accreditation of a hospital by The Joint Commission (TJC) means that hospitals have met Medicare and Medicaid standards and do not have to be certified.

Page 12: "But this is only federal-level regulation. Hospitals also are regulated by local and state agencies, as well as other private accrediting organizations. Figure 3 shows how many agencies are involved in regulating hospitals—almost 30 at the federal level alone. Almost no coordination exists among various federal agencies or between similar agencies at local and state levels, and private-sector accreditation."

[130] Letter: Michael D. Maves (Executive Vice President and CEO of the American Medical Association) to Donald Berwick (Administrator, U.S. Centers for Medicare and Medicaid Services), April 13, 2011. http://www.ama-assn.org/...

We ask CMS to consider that physicians are already subject to claims review by multiple contractors including Medicare Parts A and B (FFS) RAC Medicare Administrative Contractors (MAC), Medicaid Integrity Contractors (MIC), Comprehensive Error Rate Testing Contractors (CERT), and Zone Program Integrity Contractors (ZPIC). In addition, physicians will soon be subject to Medicaid RAC audits. These audits, identified as a problem by 19 percent of our survey respondents, present a paramount example of the redundant, inconsistent or overlapping administrative burdens that President Obama's recent executive order asked CMS to identify, streamline, and, if appropriate, repeal. At the very least, the regulations that control these programs should be coordinated to maximize net benefits. CMS recently issued a proposed rule on Medicaid RAC audits. During the RAC Medicare pilots, the AMA worked extensively with CMS to reduce the burden and to ensure that the RAC program was equitable. CMS' proposed rule on Medicaid RAC did not reflect these improvements.

Also, in the event that CMS requires Medicare Parts C and D RAC to conduct claims review similar to the model already employed by the Medicare FFS RAC program, we urge the agency to establish clear criteria and require Medicare Parts C and D plans to compensate physicians for the office staff time required to pull, review, copy, and re-file medical records, as well as photocopying and postage charges. Further, we ask CMS to utilize notices that ensure that physicians can identify the entity that is requesting information, the reason for the request, and the reason for any deadline that is given for responding to the request. Lastly, we urge CMS to implement policies in the Medicaid RAC program which are consistent with the Medicare RAC audits.

[131] Web page: "Physician Licensure: An Update of Trends." American Medical Association. Accessed January 18, 2012 at http://www.ama-assn.org/...

Each of the 50 states, the District of Columbia, and the United States territories and their respective boards of medical licensure have rules that govern the ability of health care practitioners, including allopathic and osteopathic physicians, to practice medicine. These laws were enacted under the police power reserved to the states by the U.S. Constitution to adopt laws to protect the health, safety and general welfare of their citizens. This gives the states the ability to effectively monitor the quality of persons wishing to practice medicine in that area. In addition, most state statutes delegate authority for enforcing licensure laws to the state Boards of Medical Examiners. Osteopathic physicians are licensed for the full practice of medicine and surgery in all 50 states. Each state determines the tests and procedures for licensing its physicians. In some states, the same tests are given to DO's and MD's; other states administer separate licensing exams. …

Until recently, a physician could provide an opinion or interpretation to a physician in another state who had primary patient care responsibility, and this practice was not regarded as practicing out of his/her state. Today, however, the out-of-state practice of medicine without a license is prohibited, whether the physician is treating the patient in person or from a distant location. In this day and age, a physician is considered to be practicing medicine in the state where the patient is located and is subject to that state's laws regarding medical practice, which typically means a license in that particular state is necessary. Thus, state boards have denied requests from out-of-state psychiatrists, for example, to conduct therapy with their patients located in another state via telephone or videoconferencing. Imprecise definitions regarding just what is "out-of-state" medicine (e.g, phone calls from patients who live in one state, but who seek care from an adjacent state, across a state line for care) also abound. Some states consider all out-of-state practice to be telemedicine, whether it utilizes phone calls, e-mail or online discussions. Even definitions from organizations such as the American Medical Informatics Association, the United States Department of Commerce, and various state and specialty medical societies vary considerably. …

A physician who seeks multiple state licenses for whatever reason may find the current system burdensome in terms of the time, expenses and varying licensure requirements. A patchwork of medical record, patient confidentiality, continuing medical education requirements, and mandatory reporting laws, along with differing medical practice acts, complicate the process. Difficulties are further exacerbated for physicians who practice telemedicine.

Licensure "by endorsement" is the process by which a physician licensed in one state seeks a license from a second state. A physician who physically practices in his/her home state but provides consultative or telemedicine services to patients in five other states, even adjacent states, must complete one in-state and five out-of-state applications for licensure, with six sets of accompanying documentation, and pay six registration fees. Each state has an independent application process with separate requirements. Fees for licenses by endorsement, including processing, application, and administrative fees, range from $1,108 in California to $20 in Pennsylvania; the average is $339. Moreover, most states require a physical appearance for some applicants before the local licensing board, which contributes to the time and expense.

Also, many states require the current licensing exam to be taken and passed if it has been more than 7 to 10 years since the applicant passed the then-current exam. There can be considerable expenses in terms of time and cost associated with preparing and taking the exam, particularly for specialists, who have limited the scope of their practice and who may have had no recent exposure to some areas covered in the general exam. For physicians who have only one or two years of postgraduate training, or who are international medical graduates, the application requirements in some states are more prohibitive.

Page 2: "Because hospitals, health systems and their caregivers are increasingly frustrated with regulatory red tape, the American Hospital Association (AHA) asked PricewaterhouseCoopers (PwC) to survey hospitals and assess the significance of the paperwork burden. The study illustrates a typical episode of care—an elderly woman who falls and fractures her hip—and the resulting patient care—and paperwork—which ensues (see appendix for details)."

The summary of the number of patient care and paperwork minutes reported by the hospitals for each setting within "Ida Smith's" episode of care were converted to ratios and averaged for all respondents. The resulting ratios, shown below, present the proportion of paperwork time for each unit (e.g. hour) of patient care time. …

Page 4: "Each time a physician orders a test or a procedure, the physician documents the order in the patient's record. But the government requires additional documentation to prove the necessity for the test or procedure. Although the physician made a clinical judgment, the decision-making process— which resulted in the medical order—must be documented using an established diagnosis assignment process mandated by the government."

Page 11: "Many forms, such as the 'Activities of Daily Living,' must be completed daily by clinical staff to submit to the government to justify the care provided to skilled nursing facility patients."

Page 5: "Because of the complexity and continuous changes in Medicare program requirements, medical records must be reviewed by at least four people to ensure compliance."

Page 12: "Even within the Department of Health and Human Services (HHS)—the major federal regulator of hospitals—there is little coordination among its different divisions. HCFA [predecessor agency to the Centers for Medicare and Medicaid Services], for example, has trouble coordinating its Medicare and Medicaid rules and instructions—more than 130,000 pages. (That's three times the size of the Internal Revenue Service Code and its federal tax regulations.)"

Page 4: "A Medicare patient arriving at the emergency department is required to review and sign eight different forms—just for Medicare alone."

Page 5: "Each time a patient is discharged, even if only from the acute unit of the hospital to the on-site skilled nursing unit, multiple care providers must write a discharge plan for the patient. This documentation, as long as 30 pages, applies to all patients, regardless of the complexity of care received within the hospital or required post-hospital setting."

[140] Calculated with: "Supplemental Data for the CBO's 2011 Long-Term Budget Outlook." Congressional Budget Office, June 2011. http://www.cbo.gov/...

Figure B-1: "Primary Spending and Revenues, by Category, Under CBO's Long-Term Budget Scenarios Through 2085."

NOTE: An Excel file containing the data and calculations is available upon request.

[141] Report: "CBO's 2011 Long-Term Budget Outlook." Congressional Budget Office, June 2011. http://www.cbo.gov/...

Page 4: "Mandatory programs are programs that do not require annual appropriations by the Congress; the funding available for them is generally not limited. Most mandatory spending is for entitlement programs, in which the federal government is required to make payments to any person or entity that meets the eligibility criteria set in law. Discretionary spending, by contrast, is controlled by annual appropriation acts."

Page ix: "[T]he major mandatory health care programs consist of Medicare, Medicaid, the Children's Health Insurance Program,† and health insurance subsidies that will be provided through the exchanges established by the March 2010 health care legislation [i.e., the Affordable Care Act, a.k.a. Obamacare]."

NOTE: † CHIP could also considered a discretionary program (as opposed to mandatory) because it requires ongoing appropriations, although Congress has thus far appropriated funding for the program in 10-year, 3-year, and 2-year increments. More details about CHIP follow below.

[143] Report: "CBO's 2011 Long-Term Budget Outlook." Congressional Budget Office, June 2011. http://www.cbo.gov/...

This report presents CBO's estimates of the long-term budget outlook under both sets of assumptions—an extended-baseline scenario, reflecting the assumption that current laws do not change, and an alternative fiscal scenario, which incorporates several changes to current law that are widely expected to occur or that would modify some provisions of law that might be difficult to sustain for a long period, thus maintaining what some analysts might consider "current policy" as opposed to current law.

[144] Calculated with data from: "Unemployment Rate, Civilian Labor Force, LNS14000000." U.S. Department of Labor, Bureau of Labor Statistics. Accessed December 14, 2011. http://data.bls.gov/cgi-bin/surveymost?ln

[145] "Supplemental Data for the CBO's 2011 Long-Term Budget Outlook." Congressional Budget Office, June 2011. http://www.cbo.gov/...

NOTE: Average unemployment from 1970-2010 was 6.3%.† The current policy scenario projects a return to this level by 2015, a drop to 5.2% by 2020, and stabilization at 5.0% from 2030 onward.

† Calculated with data from: "Unemployment Rate, Civilian Labor Force, LNS14000000." U.S. Department of Labor, Bureau of Labor Statistics. Accessed December 14, 2011. http://data.bls.gov/cgi-bin/surveymost?ln

[146] Calculated with "Supplemental Data for the CBO's 2011 Long-Term Budget Outlook." Congressional Budget Office, June 2011. http://www.cbo.gov/...

Figure B-1: "Primary Spending and Revenues, by Category, Under CBO's Long-Term Budget Scenarios Through 2085."

[147] Report: "CBO's 2011 Long-Term Budget Outlook." Congressional Budget Office, June 2011. http://www.cbo.gov/...

Under CBO's alternative fiscal scenario, primary spending would be 1.1 percentage points higher as a share of GDP in 2021 than under the extended-baseline scenario…. That difference would grow in later years. The higher primary spending stems from several assumptions of the alternative scenario: that through 2021 lawmakers will act to prevent Medicare's payment rates for physicians from declining; that lawmakers will not allow various restraints on the growth of Medicare costs and health insurance subsidies to have their full effect after the first decade of the projections; and that, as a percentage of GDP, federal spending for things other than Social Security, major mandatory health programs, and interest payments will be close to the level experienced during much of the past decade (rather than falling below that level over the next decade, as under the extended-baseline scenario).8

On the revenue side, the alternative fiscal scenario incorporates the assumption that almost all expiring tax provisions will be extended through 2021 (the end of CBO's 10-year baseline projection period). Most important, CBO assumes for that scenario that the cuts in individual income taxes enacted since 2001 and most recently extended in 2010, which are now scheduled to expire in 2012 or 2013, will be extended through 2021; that relief from the AMT, which is scheduled to expire at the end of 2011, will continue through 2021; and that the 2012 parameters of the estate tax (adjusted for inflation) will apply through 2021. Thereafter, revenues are assumed to remain at their 2021 level of 18.4 percent of GDP, just above the average of the past 40 years.

[148] "2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, May 13, 2011. https://www.cms.gov/reportstrustfunds/downloads/tr2011.pdf

While the Part B projections in this report are reasonable in their portrayal of future costs under current law, they are not reasonable as an indication of actual future costs. Current law would require a physician fee reduction of an estimated 29.4 percent on January 1, 2012—an implausible expectation.

Further, while the Affordable Care Act makes important changes to the Medicare program and substantially improves its financial outlook, there is a strong likelihood that certain of these changes will not be viable in the long range. Specifically, the annual price updates for most categories of non-physician health services will be adjusted downward each year by the growth in economy-wide productivity. The best available evidence indicates that most health care providers cannot improve their productivity to this degree—or even approach such a level—as a result of the labor-intensive nature of these services.

Without major changes in health care delivery systems, the prices paid by Medicare for health services are very likely to fall increasingly short of the costs of providing these services. By the end of the long-range projection period, Medicare prices for hospital, skilled nursing facility, home health, hospice, ambulatory surgical center, diagnostic laboratory, and many other services would be less than half of their level under the prior law. Medicare prices would be considerably below the current relative level of Medicaid prices, which have already led to access problems for Medicaid enrollees, and far below the levels paid by private health insurance. Well before that point, Congress would have to intervene to prevent the withdrawal of providers from the Medicare market and the severe problems with beneficiary access to care that would result. Overriding the productivity adjustments, as Congress has done repeatedly in the case of physician payment rates, would lead to far higher costs for Medicare in the long range than those projected under current law.

[149] Calculated with: "Supplemental Data for the CBO's 2011 Long-Term Budget Outlook." Congressional Budget Office, June 2011. http://www.cbo.gov/...

Figure B-1: "Primary Spending and Revenues, by Category, Under CBO's Long-Term Budget Scenarios Through 2085."

NOTE: An Excel file containing the data and calculations is available upon request.

Medicare was enacted in 1965 (P.L. 89-97) in response to the concern that only about half of the nation's seniors had health insurance, and most of those had coverage only for inpatient hospital costs. The new program, which became effective July 1, 1966, included Part A coverage for hospital and post-hospital services and Part B coverage for doctors and other medical services. As is the case for the Social Security program, Part A is financed by payroll taxes levied on current workers and their employers; persons must pay into the system for 40 calendar quarters to become entitled to premium-free benefits. Medicare Part B is voluntary, with a monthly premium required of beneficiaries who choose to enroll.

Page 1: "Medicare is a federal insurance program that pays for covered health care services of qualified beneficiaries. It was established in 1965 under Title XVIII of the Social Security Act as a federal entitlement program to provide health insurance to individuals 65 and older, and has been expanded over the years to include permanently disabled individuals under 65."

[153] Calculated with data from the footnote above and "Intercensal Estimates of the Resident Population by Sex and Age for the United States: April 1, 2000 to July 1, 2010." U.S. Census Bureau. Accessed December 21, 2011 at http://www.census.gov/popest/data/intercensal/national/nat2010.html

Skilled care is health care given when you need skilled nursing or rehabilitation staff to manage, observe, and evaluate your care. Examples of skilled care include intravenous injections and physical therapy. Medicare will only cover skilled care when you meet certain conditions (see page 13).

A Skilled Nursing Facility could be part of a nursing home or hospital. Medicare certifies these facilities if they have the staff and equipment to give skilled nursing care and/or skilled rehabilitation services, and other related health services.

Medicare doesn't cover custodial care if it is the only kind of care you need. Custodial care is care that helps you with usual daily activities like getting in and out of bed, eating, bathing, dressing, and using the bathroom. It may also include care that most people do themselves, like using eye drops, oxygen, and taking care of colostomy or bladder catheters. Custodial care is often given in a nursing facility. See page 20 for ways to get help paying for custodial care.

[155] "2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, May 13, 2011. https://www.cms.gov/reportstrustfunds/downloads/tr2011.pdf

The Medicare program has two components. Hospital Insurance (HI), or Medicare Part A, helps pay for hospital, home health, skilled nursing facility, and hospice care for the aged and disabled. Supplementary Medical Insurance (SMI) consists of Medicare Part B and Part D. Part B helps pay for physician, outpatient hospital, home health, and other services for the aged and disabled who have voluntarily enrolled. Part D provides subsidized access to drug insurance coverage on a voluntary basis for all beneficiaries and premium and cost-sharing subsidies for low-income enrollees. Medicare also has a Part C, which serves as an alternative to traditional Part A and Part B coverage. Under this option, beneficiaries can choose to enroll in and receive care from private "Medicare Advantage" and certain other health insurance plans that contract with Medicare. The costs for such beneficiaries are generally paid on a prospective, capitated basis from the HI and SMI Part B trust fund accounts.

[Under Medicare Part C] Most beneficiaries have the option to enroll in private health insurance plans that contract with Medicare to provide Part A and Part B medical services. The share of Medicare beneficiaries in such plans has risen rapidly in recent years, reaching 25.0 percent in 2010 from 12.4 percent in 2004. Plan costs for the standard benefit package can be significantly lower or higher than the corresponding cost for beneficiaries in the "traditional" or "fee-for-service" Medicare program, but prior to the Affordable Care Act [ACA, a.k.a. Obamacare], private plans were generally paid a higher average amount, and the additional payments were used to reduce enrollee cost-sharing requirements, provide extra benefits, and/or reduce Part B and Part D premiums. These benefit enhancements were valuable to enrollees but also resulted in higher Medicare costs overall and higher premiums for all Part B beneficiaries, not just those who were enrolled in MA plans. Under the ACA, payments to plans will be based on "benchmarks" in a range of 95 to 115 percent of fee-for-service Medicare costs, with bonus amounts payable for plans meeting high quality-of-care standards. (Prior to the ACA, the benchmark range was generally 100 to 140 percent of fee-for-service costs.) As these changes phase in during 2012-2017, the overall participation rate for private health plans is expected to decline from 25 percent in 2010 to about 15 percent in 2020.

• Part A (Hospital Insurance, or HI) covers inpatient hospital services, skilled nursing care, and home health and hospice care. The HI trust fund is mainly funded by a dedicated payroll tax of 2.9% of earnings, shared equally between employers and workers.

• Part B (Supplementary Medical Insurance, or SMI) covers physician services, outpatient services, and some home health and preventive services. The SMI trust fund is funded through beneficiary premiums (set at 25% of estimated program costs for the aged) and general revenues (the remaining amount, approximately 75%).

• Part C (Medicare Advantage, or MA) is a private plan option for beneficiaries that covers all Part A and B services, except hospice. Individuals choosing to enroll in Part C must also enroll in Part B. Part C is funded through the HI and SMI trust funds.

• Part D covers prescription drug benefits. Funding is included in the SMI trust fund and is financed through beneficiary premiums (about 25.5%) and general revenues (about 74.5%).

Page 3: "In 2003, Congress enacted the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA, P.L. 108-173),³which included a major benefit expansion and placed increasing emphasis on the private sector to deliver and manage benefits. The MMA included provisions that (1) created a new voluntary outpatient prescription drug benefit to be administered by private entities…."

Most persons aged 65 or older are automatically entitled to premium-free Part A because they or their spouse paid Medicare payroll taxes for at least 40 quarters (10 years) on earnings covered by either the Social Security or the Railroad Retirement systems. Persons under age 65 who receive cash disability benefits from Social Security or the Railroad Retirement systems for at least 24 months are also entitled to Part A. …

Persons over age 65 who are not automatically entitled to Part A may obtain coverage by paying a monthly premium ($461 in 2010) or, for persons with at least 30 quarters of covered employment, a reduced monthly premium ($254 in 2010). In addition, disabled persons who lose their cash benefits solely because of higher earnings, and subsequently lose their extended Medicare coverage, may continue their Medicare enrollment by paying a premium, subject to limitations. Generally, enrollment in Medicare Part B is voluntary. All persons entitled to Part A (and persons over 65 not entitled to premium-free Part A) may enroll in Part B by paying a monthly premium. For established Part B enrollees, the 2010 monthly premium remains at $96.40.⁹ Beginning in 2007, some higher-income individuals started to pay higher premiums. (See the "Part B" section, below.) …

Finally, each individual enrolled in either Part A or Part B is also entitled to obtain qualified prescription drug coverage through enrollment in a Part D prescription drug plan. Similar to Part B, enrollment in Part D is voluntary and the beneficiary pays a monthly premium. Beginning in 2011, some higher-income enrollees will pay higher premiums, similar to enrollees in Part B. Generally, beneficiaries enrolled in an MA plan providing qualified prescription drug coverage (MA-PD plan) must obtain their prescription drug coverage through that plan.¹¹

[157] Brief: "Spending Patterns for Prescription Drugs Under Medicare Part D." By Tamara Hayford. Congressional Budget Office, December 1st, 2011. http://cboblog.cbo.gov/?p=3033

The centerpiece of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Medicare Modernization Act) was the creation of Medicare Part D, a subsidized pharmaceutical benefit that went into effect in 2006. That additional coverage constituted the most substantial expansion of the Medicare program since its inception in 1965. In 2010, the federal government spent $62 billion on Part D, representing 12 percent of total federal spending for Medicare that year.

Chart 5-3. Total Spending on health care services for noninstitutionalized FFS† Medicare beneficiaries, by source of payment, 2007

Per capita total spending = $13,001 … Medicare - 64% … Public supplements - 6% … Private supplements - 17% … Beneficiaries' direct spending - 14% …

Private supplements include employer-sponsored plans and individually purchased coverage. Public supplements include Medicaid, Department of Veterans Affairs, and other public coverage. Analysis includes only FFS beneficiaries not living in institutions such as nursing homes.

NOTE: † FFS (Fee-for-service) refers to the "traditional Medicare program, under which a fee generally is paid each time a service is used, with Medicare paying a share and the beneficiary paying the portion of the bill Medicare does not pay. … This contrasts with managed care and other health plan options offered through Medicare Advantage." [Webpage: "Medicare Part D Glossary." Omnicare. Accessed December 21, 2011 at http://www.omnicare.com/mma-gloss.asp]

[159] "2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, May 13, 2011. https://www.cms.gov/reportstrustfunds/downloads/tr2011.pdf

Page 57: "About 9 million Medicare beneficiaries receive supplemental coverage through the Medicaid program; Medicaid costs for these "dual beneficiaries" are not reflected in the growth rates for either Medicare or private health insurance."

[160] Calculated with data from the "2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, May 13, 2011. https://www.cms.gov/reportstrustfunds/downloads/tr2011.pdf

Page 53: "Dedicated Medicare financing sources include HI [Hospital Insurance, a.k.a. Part A] payroll taxes; income from taxation of Social Security benefits; State transfers for the prescription drug benefit; premiums paid under Parts A, B, and D; fees on brand-name prescription drugs paid to Part B; fines and penalties collected as a result of program integrity efforts; and any gifts received by the Medicare trust funds."

NOTE: An Excel file containing the data and calculations is available upon request.

Part 1, Chapter 34, Section 1 (http://www.irs.gov/irm/part1/irm_01-034-001.html): "The main financing component of the Federal funds group is referred to as the General Fund, which is used to carry out the general purposes of Government rather than being restricted by law to a specific program and consists of all collections not earmarked by law to finance other funds."

Page 469: "Spending from the general fund is financed by general revenues, which include the individual and corporation income taxes, some excise taxes, estate and gift taxes, tariffs, and miscellaneous receipts."

[163] The values in the table below approximate general revenue taxes. They are calculated with data from the report: "Average Federal Tax Rates in 2007." Congressional Budget Office, June 2010. http://www.cbo.gov/...

^b "In its analysis, CBO estimates effective tax rates for the four largest sources of federal revenues—individual income taxes, social insurance (payroll) taxes, corporate income taxes, and excise taxes—as well as the total effective rate for the four taxes combined. Those taxes account for over 95 percent of total federal revenues. The analysis does not include federal estate and gift taxes, customs duties, and other miscellaneous receipts. Nor does it include state and local taxes." [Article: "Effective Tax Rates." Congressional Budget Office Director's Blog, December 11, 2007. http://cboblog.cbo.gov/?p=40]

^c Social insurance taxes are principally comprised of payroll taxes for Social Security and Medicare. ["Testimony of the Staff of the Joint Committee on Taxation Before the Joint Select Committee on Deficit Reduction." United States Congress, Joint Committee on Taxation, September 22, 2011. http://www.jct.gov/publications.html?func=download&id=4363&chk=4363&no_html=1. Page 2: "The principal social insurance (employment) taxes are the Federal Insurance Contributions Act (FICA) and Self-Employment Contributions Act (SECA) taxes that fund the Social Security and Medicare systems."]

^d "Comprehensive household income equals pretax cash income plus income from other sources. Pretax cash income is the sum of wages, salaries, self-employment income, rents, taxable and nontaxable interest, dividends, realized capital gains, cash transfer payments, and retirement benefits plus taxes paid by businesses (corporate income taxes and the employer's share of Social Security, Medicare, and federal unemployment insurance payroll taxes) and employees' contributions to 401(k) retirement plans. Other sources of income include all in-kind benefits (Medicare, Medicaid, employer-paid health insurance premiums, food stamps, school lunches and breakfasts, housing assistance, and energy assistance)." [Report: "Average Federal Tax Rates in 2007." Congressional Budget Office, June 2010. http://www.cbo.gov/.... Page 6.]

^e Values calculated by Just Facts. An Excel file containing the data and calculations is available upon request.

^f "In 2007, the bottom quintile's average rate for the individual income tax was -6.8 percent, which means that refundable earned income and child tax credits exceeded the income tax owed by that group." [Report: "Average Federal Tax Rates in 2007." Congressional Budget Office, June 2010. http://www.cbo.gov/.... Page 2.]

[164] "2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, May 13, 2011. https://www.cms.gov/reportstrustfunds/downloads/tr2011.pdf

Page 9: "For HI [Hospital Insurance, a.k.a Medicare Part A], the primary source of financing is the payroll tax on covered earnings. Employers and employees each pay 1.45 percent of wages, while self-employed workers pay 2.9 percent of their net income."

Page 133: "Households generally bear the economic cost, or burden, of the taxes that they pay themselves, such as individual income taxes and employees' share of payroll taxes. But households also bear the burden of the taxes paid by businesses. In the judgment of CBO and most economists, the employers' share of payroll taxes is passed on to employees in the form of lower wages."

[166] "2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, May 13, 2011. https://www.cms.gov/reportstrustfunds/downloads/tr2011.pdf

The value of SMI [Supplementary Medical Insurance, i.e., Medicare Parts B and D], benefits to individual enrollees, and their cost-sharing payments, varies … depending on their income, assets, and use of covered health services in a given year. In particular, Part B premiums and cost-sharing amounts for beneficiaries with very low incomes are paid by Medicaid, and (except for nominal copayments) the corresponding Part D amounts are paid through the Medicare low-income drug subsidy. Moreover, Part B beneficiaries with high incomes pay a higher income-related premium beginning in 2007, and, similarly, Part D enrollees pay an income-related premium beginning in 2011.

Page 3: "In 2003, Congress enacted the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA, P.L. 108-173),³which … introduced the concept of income testing into Medicare, with higher-income persons paying larger Part B premiums beginning in 2007…."

[168] Brief: "Spending Patterns for Prescription Drugs Under Medicare Part D." By Tamara Hayford. Congressional Budget Office, December 1st, 2011. http://cboblog.cbo.gov/?p=3033

Under Medicare Part D, all enrollees receive a subsidy for prescription drug insurance. For enrollees with sufficiently low income and assets, an additional low-income subsidy (LIS) is available (enrollees who receive the LIS benefit are referred to here as LIS enrollees). …

• The federal government paid for approximately 95 percent of spending for LIS beneficiaries, by covering nearly all of LIS beneficiaries' premiums for the basic benefit and by subsidizing most of LIS beneficiaries' out-of-pocket spending. (In fact, 75 percent of federal spending on Part D is for LIS beneficiaries.)

• The federal government covered roughly 40 percent of spending for non-LIS beneficiaries through premium subsidies. Beneficiaries covered most of the remainder through premiums and out-of-pocket spending.

[169] Report: "Effects of the Patient Protection and Affordable Care Act on the Federal Budget and the Balance in the Hospital Insurance Trust Fund." Congressional Budget Office, December 23, 2009. http://www.cbo.gov/...

The HI [Hospital Insurance or Medicare Part A] trust fund, like other federal trust funds, is essentially an accounting mechanism. In a given year, the sum of specified HI receipts and the interest that is credited on the previous trust fund balance, less spending for Medicare Part A benefits, represents the surplus (or deficit, if the latter is greater) in the trust fund for that year. Any cash generated when there is an excess of receipts over spending is not retained by the trust fund; rather, it is turned over to the Treasury, which provides government bonds to the trust fund in exchange and uses the cash to finance the government's ongoing activities. This same description applies to the Social Security trust funds; those funds have run cash surpluses for many years, and those surpluses have reduced the government's need to borrow to fund other federal activities. The HI trust fund is not currently running an annual surplus.

The HI trust fund is part of the federal government, so transactions between the trust fund and the Treasury are intragovernmental and leave no imprint on the unified budget. From a unified budget perspective, any increase in revenues or decrease in outlays in the HI trust fund represents cash that can be used to finance other government activities without requiring new government borrowing from the public. Similarly, any increase in outlays or decrease in revenues in the HI trust fund in some future year represents a draw on the government's cash in that year. Thus, the resources to redeem government bonds in the HI trust fund and thereby pay for Medicare benefits in some future year will have to be generated from taxes, other government income, or government borrowing in that year.

Reports on HI trust fund balances from the Medicare trustees and others show the extent of prefunding of benefits that theoretically is occurring in the trust fund. However, because the government has used the cash from the trust fund surpluses to finance other current activities rather than saving the cash by running unified budget surpluses, the government as a whole has not been truly prefunding Medicare benefits. The nature of trust fund accounting within a unified budget framework implies that trust fund balances convey little information about the extent to which the federal government has prepared for future financial burdens, and therefore that trust funds have important legal meaning but little economic meaning.

[171] "2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, May 13, 2011. https://www.cms.gov/reportstrustfunds/downloads/tr2011.pdf

Page 259: "For the HI [Hospital Insurance, i.e., Part A] and SMI [Supplementary Medical Insurance, i.e., Parts B and D] trust funds, monies not withdrawn for current benefit payments and administrative expenses are invested in interest-bearing Federal securities, as required by law; the interest earned is also deposited in the trust funds."

Pages 4-5: "In 2010, $32.3 billion in [Hospital Insurance, i.e., Part A] trust fund assets were redeemed to cover the shortfall of income relative to expenditures. … The SMI trust fund is adequately financed over the next 10 years and beyond because premium and general revenue income for Parts B and D are reset each year to match expected costs."

[172] "2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, May 13, 2011. https://www.cms.gov/reportstrustfunds/downloads/tr2011.pdf

Page 61: "Up to 85 percent of an individual's or couple's … [Social Security] benefits may be subject to Federal income taxation if their income exceeds certain thresholds.† The income tax revenue attributable to the first 50 percent of … [Social Security] benefits is allocated to the … [Social Security] trust funds. The revenue associated with the amount between 50 and 85 percent of benefits is allocated to the HI [Hospital Insurance, a.k.a. Medicare Part A] trust fund."

NOTE: † These thresholds are exceeded if the "total of one-half of your benefits and all your other income is more than $34,000 ($44,000 if you are married filing jointly)." [Publication No. 915: "Social Security and Equivalent Railroad Retirement Benefits for Use in Preparing 2010 Returns." United States Department of the Treasury, Internal Revenue Service, Nov 16, 2010. http://www.irs.gov/pub/irs-pdf/p915.pdf]

[173] "2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, May 13, 2011. https://www.cms.gov/reportstrustfunds/downloads/tr2011.pdf

Page 53: "Dedicated Medicare financing sources include … State transfers for the prescription drug benefit…."

[174] "2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, May 13, 2011. https://www.cms.gov/reportstrustfunds/downloads/tr2011.pdf

Page 53: "Dedicated Medicare financing sources include … fines and penalties collected as a result of program integrity efforts; and any gifts received by the Medicare trust funds."

[175] NOTE: The Affordable Care Act is actually comprised of two acts,† which were passed separately for political/procedural reasons.‡

[176] Report: "Prescription for change 'filled': Tax provisions in the Patient Protection and Affordable Care Act, Updated to reflect changes approved in the Reconciliation Act of 2010." By Clint Stretch and others. Deloitte, March 30, 2010. http://www.deloitte.com/...

Beginning in 2013, the Act imposes an additional 0.9 percent Medicare Hospital Insurance tax (HI tax) on self-employed individuals and employees with respect to earnings and wages received during the year above specified thresholds. This additional tax applies to earnings of self-employed individuals or wages of an employee received in excess of $200,000. If an individual or employee files a joint return, then the tax applies to all earnings and wages in excess of $250,000 on that return. The Act does not change the employer HI tax.

Effective date – The additional HI tax applies to wages received and taxable years beginning after December 31, 2012.

[177] "2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, May 13, 2011. https://www.cms.gov/reportstrustfunds/downloads/tr2011.pdf

Page 9: "Starting in 2013, high-income workers will pay an additional 0.9 percent tax on their earnings above an unindexed threshold ($200,000 for single taxpayers and $250,000 for married couples)."

[178] "2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, May 13, 2011. https://www.cms.gov/reportstrustfunds/downloads/tr2011.pdf

Page 7: "Total Medicare expenditures were $523 billion in 2010 and are projected under current law to increase in future years at a somewhat faster pace than either workers' earnings or the economy overall."

a) Table 3.12: "Government Social Benefits." United States Department of Commerce, Bureau of Economic Analysis. Last Revised August 08, 2011. http://www.bea.gov/...

b) Table 3.2: "Federal Government Current Receipts and Expenditures." United States Department of Commerce, Bureau of Economic Analysis. Last Revised November 22, 2011. http://www.bea.gov/...

$518.4 billion Medicare expenditures / $2,429.6 billion current receipts = 21.3%

[180] Letter: "Projected Medicare Expenditures under an Illustrative Scenario with Alternative Payment Updates to Medicare Providers." By John D. Shatto and M. Kent Clemens. United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, Office of the Actuary, May 13, 2011. http://www.cms.gov/...

Page 6: "For inpatient hospital services, Medicare payment rates in 2009 were about 67 percent and Medicaid payment rates were about 66 percent of private health insurance payment rates (including Medicaid disproportionate share hospital, or DSH, payments)."

In the aggregate, both Medicare and Medicaid payments fall below costs and the shortfall has been growing.

• Combined underpayments rose from $3.8 billion in 2000 to $36 billion in 2009.

• For Medicare, hospitals received payment of only 90 cents for every dollar spent by hospitals caring for Medicare patients in 2009.

• For Medicaid, hospitals received payment of only 89 cents for every dollar spent by hospitals caring for Medicaid patients in 2009.

[182] Paper: "The New Workforce: Age and Ethnic Changes." By Judi L. McClellan and Richard Holden. U.S. Department of Labor, Employment and Training Administration, Biennial National Research Conference, 2003. http://wdr.doleta.gov/conference/pdf/holden.pdf

Abstract: "California's primary working age population (20 – 64 years of age) will shrink as a share of the state population after 2010."

[183] Report: "CBO's 2011 Long-Term Budget Outlook." Congressional Budget Office, June 2011. http://www.cbo.gov/...

[184] Calculated with data from Table V.A2: "Social Security Area Population as of July 1 and Dependency Ratios, Calendar Years 1950-2086." United States Social Security Administration, Office of the Chief Actuary. Last reviewed or modified May 13, 2011. http://www.ssa.gov/OACT/TR/2011/lr5a2.html

NOTE: An Excel file containing the data and calculations is available upon request.

[185] Table V.A3: "Period Life Expectancy." United States Social Security Administration, Office of the Chief Actuary. Last reviewed or modified May 13, 2011. http://www.ssa.gov/OACT/TR/2011/lr5a3.html

"The period life expectancy at a given age for a given year represents the average number of years of life remaining if a group of persons at that age were to experience the mortality rates for that year over the course of their remaining lives."

NOTE: Data from 2010 is estimated but is within 0.1 years (for both males and females) of the latest year for which the data is not estimated (2007).

[186] Table V.A3: "Period Life Expectancy." United States Social Security Administration, Office of the Chief Actuary. Last reviewed or modified May 13, 2011. http://www.ssa.gov/OACT/TR/2011/lr5a3.html

NOTE: Data from 2010 is estimated but is within 0.1 years (for both males and females) of the latest year for which the data is not estimated (2007).

[187] "2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, May 13, 2011. https://www.cms.gov/reportstrustfunds/downloads/tr2011.pdf

Page 11: "To illustrate the uncertainty and sensitivity inherent in estimates of future Medicare trust fund operations, projections have been prepared under a "low-cost" and a "high-cost" set of economic and demographic assumptions as well as under an intermediate set."

[188] Calculated with data from the "2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, May 13, 2011. https://www.cms.gov/reportstrustfunds/downloads/tr2011.pdf

From the 75-year budget perspective, the present value of the additional resources that would be needed to meet projected expenditures, at current-law levels for the three programs combined [Medicare Hospital Insurance (HI or Part A), Medicare Supplementary Medical Insurance (SMI or Parts B and D), and Social Security] is $33.8 trillion.⁹⁴ To put this very large figure in perspective, it would represent 3.8 percent of the present value of projected GDP over the same period ($884 trillion). The components of the $33.8-trillion total are as follows:

These resource needs would be in addition to the payroll taxes, benefit taxes, and premium payments scheduled under current law. As noted, the asset redemptions and SMI general revenue transfers represent formal budget commitments under current law, but no provision exists for covering the HI and OASDI trust fund deficits once assets are exhausted.

⁹⁴As noted previously, the long-range HI and OASDI financial imbalances could instead be partially addressed by expenditure reductions, thereby reducing the need for additional revenues. Similarly, SMI expenditure reductions would reduce the need for general fund transfers.

⁹⁵Additional revenues and/or expenditure reductions totaling $9.5 trillion, together with $3.0 trillion in asset redemptions, would cover the projected financial imbalance but would leave the HI and OASDI trust funds exhausted at the end of the 75-year period. The long-range actuarial deficit for HI and OASDI includes a cost factor to allow for a normal level of fund assets. See section III.B3 in this report, and section IV.B4 in the OASDI Trustees Report, for the numerical relationship between the actuarial deficit and the "unfunded obligations" of each program.

Pages 84-85: "As noted previously, over the full 75-year period, the [HI trust] fund has a projected present value unfunded obligation of $3.0 trillion. This unfunded obligation indicates that if $3.0 trillion were added to the trust fund at the beginning of 2011, the program would meet the projected cost of current-law expenditures over the next 75 years."

Page 1: "Medicare also has a Part C, which serves as an alternative to traditional Part A and Part B coverage. Under this option, beneficiaries can choose to enroll in and receive care from private “Medicare Advantage” and certain other health insurance plans that contract with Medicare. The costs for such beneficiaries are generally paid on a prospective, capitated basis from the HI and SMI Part B trust fund accounts."

CALCULATION: $3.0 trillion in unfunded obligations for the HI Trust Fund (Part A) + $21.2 trillion in general revenue financing needed to fund SMI (Parts B and D) = $24.2 trillion

CALCULATION: $523 billion in Medicare spending during 2010 / $24,200 billion in unfunded obligations and general revenue financing = 46.3

[191] "2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, May 13, 2011. https://www.cms.gov/reportstrustfunds/downloads/tr2011.pdf

Some experts, however, have expressed concern that overemphasis on summary measures (such as the actuarial balance and open-group unfunded obligations) can obscure the underlying year-by-year patterns of the long-range financial deficits. If legislative solutions were designed only to eliminate the overall actuarial deficit, without consideration of such year-by-year patterns, then under some scenarios a substantial financial imbalance could still remain at the end of the period, and the long-range sustainability of the program could still be in doubt. …

Concern has also been expressed that limiting the projections to 75 years understates the magnitude of the long-range unfunded obligations for HI because summary measures reflect the full amount of taxes paid by the next two or three generations of workers, but not the full amount of their benefits.

Page 171: "[W]hen calculating unfunded obligations, a 75-year horizon includes revenue from some future workers but only a fraction of their future benefits."

Page 172: "The shorter [75-year open group] horizon understates financial needs by capturing relatively more of the revenues from current and future workers and not capturing all of the benefits that are scheduled to be paid to them."

Page 127: "Current participants in the Social Security and Medicare programs form the 'closed group' of taxpayers and/or beneficiaries who are at least age 15 at the start of the projection period. … Since the projection period … consists of 75 years, the period covers virtually all of the current participants' working and retirement years, a period that could be greater than 75 years in a relatively small number of instances."

[193] Calculated with data from the "2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, May 13, 2011. https://www.cms.gov/reportstrustfunds/downloads/tr2011.pdf

NOTES (the following information is needed to understand the forthcoming calculation):
- Federal general revenues are "used to carry out the general purposes of Government rather than being restricted by law to a specific program…." ["Internal Revenue Manual." Internal Revenue Service. Accessed January 11, 2011 at http://www.irs.gov/irm/index.html. Part 1, Chapter 34, Section 1 (http://www.irs.gov/irm/part1/irm_01-034-001.html)]
- Medicare Part A is funded by dedicated revenues (not general revenues), and the law does allow for the transfer of general revenues to cover projected shortfalls. [Page 55: "There is no provision under current law to cover the shortfall [of Medicare Part A]. In particular, transfers from the general fund of the Treasury could not be made for the purpose of avoiding asset exhaustion without new legislation."]
- Medicare Parts B and D are automatically funded with general revenues to cover any shortfalls between dedicated revenues and expenses. [Page 38: "Both the Part B and Part D accounts of the SMI [Supplementary Medical Insurance] trust fund are projected to remain in financial balance for all future years, because beneficiary premiums and general revenue transfers will be set to meet expected costs each year."]
- "Medicare also has a Part C, which serves as an alternative to traditional Part A and Part B coverage. Under this option, beneficiaries can choose to enroll in and receive care from private “Medicare Advantage” and certain other health insurance plans that contract with Medicare. The costs for such beneficiaries are generally paid on a prospective, capitated basis from the HI [Part A] and SMI Part B trust fund accounts." [Page 1.]

Page 87: "The first line of table III.B11 shows the present value of future expenditures less future taxes for current participants, including both beneficiaries and covered workers [i.e., taxpayers]. Subtracting the current value of the HI [Hospital Insurance or Part A] trust fund (the accumulated value of past HI taxes less outlays) results in a "closed group" unfunded obligation of $7.7 trillion."

Page 131: "Table III.C16.—Unfunded Part B Obligations for Current and Future Program Participants through the Infinite Horizon [Present values as of January 1, 2011; dollar amounts in trillions] … obligations for past and current participants … General revenue contributions [=] 11.4"

Page 147: "Table III.C24.—Unfunded Part D Obligations for Current and Future Program Participants through the Infinite Horizon [Present values as of January 1, 2011; dollar amounts in trillions] … obligations for past and current participants … General revenue contributions [=] 5.3"

Page 299: "These resource needs would be in addition to the payroll taxes, benefit taxes, and premium payments scheduled under current law."

Page 243: "Closed-group population. Includes all persons currently participating in the program as either taxpayers or beneficiaries, or both."

CALCULATION: $7.7 trillion in unfunded obligations for Medicare Part A + $11.4 trillion in general revenue financing to fund Medicare Part B + $5.3 trillion in general revenue financing to fund Medicare Part D = $24.4 trillion in obligations for the Medicare program

[194] "2010 Annual Report of the Board of Trustees of The Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds." Board of Trustees of the Federal OASDI Trust Funds, August 9, 2010. http://www.ssa.gov/OACT/TR/2010/tr2010.pdf

Page 65: "[The] closed group unfunded obligation … represents the shortfall of lifetime contributions for all past and current participants relative to the cost of benefits for them."

NOTE: The past participants wash out of the shortfall calculation because their benefits have already been paid.

Page 209: "Closed group unfunded obligation. This measure is computed like the open group unfunded obligation except that individuals under the age of 15 (or not yet born) are excluded. In other words, only persons who attain age 15 or older during the first year of the projection period are included in the calculations."

[195] Calculated with data from the previous two footnotes and "Intercensal Estimates of the Resident Population by Sex and Age for the United States: April 1, 2000 to July 1, 2010." U.S. Census Bureau. Accessed December 21, 2011 at http://www.census.gov/popest/data/intercensal/national/nat2010.html

CALCULATION: $24,400,000,000,000 closed group deficit / 240,549,592 Americans aged 15 or older = $101,434

[196] Report: "Enron: Selected Securities, Accounting, and Pension Laws Possibly Implicated in its Collapse." By Michael V. Seitzinger, Marie B. Morris, and Mark Jickling. Congressional Research Service, Library of Congress, January 16, 2002. http://fpc.state.gov/documents/organization/7960.pdf

Among the disclosures of publicly traded companies are accounting statements. Since financial information is of little use to investors unless all firms use comparable accounting methods, the securities laws give the Securities and Exchange Commission broad authority to establish standards for financial reporting. The SEC has delegated the task of writing accounting standards to private sector bodies, and since 1973 the Financial Accounting Standards Board has been charged with formulating accounting and financial reporting standards.

[197] Summary of Statement No. 106: "Employers' Accounting for Postretirement Benefits Other Than Pensions." Financial Accounting Standards Board, December 1990. http://www.fasb.org/st/summary/stsum106.shtml

This Statement establishes accounting standards for employers' accounting for postretirement benefits other than pensions…. It will significantly change the prevalent current practice of accounting for postretirement benefits on a pay-as-you-go (cash) basis by requiring accrual, during the years that the employee renders the necessary service, of the expected cost of providing those benefits to an employee and the employee's beneficiaries and covered dependents. …

… The Board believes that measurement of the obligation and accrual of the cost based on best estimates are superior to implying, by a failure to accrue, that no obligation exists prior to the payment of benefits. The Board believes that failure to recognize an obligation prior to its payment impairs the usefulness and integrity of the employer's financial statements. …

The provisions of this Statement are similar, in many respects, to those in FASB Statements No. 87, Employers' Accounting for Pensions, and No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits. …

This Statement relies on a basic premise of generally accepted accounting principles that accrual accounting provides more relevant and useful information than does cash basis accounting. …

[L]ike accounting for other deferred compensation agreements, accounting for postretirement benefits should reflect the explicit or implicit contract between the employer and its employees.

[198] Book: Finance for Managers. By Richard Luecke and Samuel L. Hayes. Harvard Business School Press, 2002. Page 39:

In contrast to cash-basis accounting, accrual accounting records transactions as they are made, whether or not the cash has actually changed hands. Most companies of any size use accrual accounting. This system provides a better matching between revenues and their associated cost, which helps companies understand the true causes and effect of business activities. Accordingly, revenues are recognized during the period in which the sales activities occur, whereas expenses are recognized in the same period as their associated revenues.

Similar to a corporation's annual report, the Financial Report [i.e., the Treasury Department's annual "Financial Report of the United States Government"] is the federal government's annual general-purpose report of its finances. …

Accrual measures are useful for understanding the government's annual operating cost, including costs incurred today but not payable for years to come. Accrual measures add a longer-term focus to the federal government's financial picture by providing more information on longer-term consequences of today's policy decisions and operations.

[200] "2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, May 13, 2011. https://www.cms.gov/reportstrustfunds/downloads/tr2011.pdf

[T]he annual report to Congress on the financial status of Medicare must be based on current law. In this report, the various cost-reduction measures—most importantly the reductions in the payment rate updates for most categories of Medicare providers by the growth in economy-wide multifactor productivity—are assumed to occur in all future years, as required by the Affordable Care Act. In addition, an almost 30 percent reduction in Medicare payment rates for physician services is assumed to be implemented in 2012 as required under current law, despite the virtual certainty that Congress will override this reduction.

Page 98: "The annual report to Congress on the financial status of Medicare is necessarily based on current law, including the substantial reduction in physician payments that would be required and the permanently slower price updates for most other health services, absent any legislative change."

[201] "2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds." United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, May 13, 2011. https://www.cms.gov/reportstrustfunds/downloads/tr2011.pdf

As discussed elsewhere in this report, there is a significant likelihood that the projected HI and SMI expenditures are substantially understated as a result of potentially impracticable elements of current law. Although this issue does not affect the nature of the budget and trust fund perspectives described in this appendix, it is important to note that actual long-range present values for HI expenditures and SMI expenditures and revenues are likely to exceed the amounts shown in table V.D2 by a substantial margin.

[202] Letter: "Projected Medicare Expenditures under an Illustrative Scenario with Alternative Payment Updates to Medicare Providers." By John D. Shatto and M. Kent Clemens. United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, Office of the Actuary, May 13, 2011. http://www.cms.gov/...

As noted earlier, the actual future costs for Medicare are likely to exceed those shown by the current-law projections. For this reason, an illustrative alternative projection has been prepared to assess the potential magnitude of this understatement. This projection makes two significant changes to the assumptions used for the current-law projection. Specifically, Medicare payments to physicians under the alternative scenario are assumed to be updated annually by the increase in the Medicare Economic Index in all future years, in effect eliminating the SGR [Sustainable Growth Rate] system.21 Additionally, it assumes that the productivity adjustments would be applied fully through 2019 but then phased out over the 15 years beginning in 2020. In 2034 and later, Medicare Part A and Part B per capita cost growth rates are assumed to equal the pre-ACA [Affordable Care Act] "baseline" growth rates, as determined by the CGE [computable general equilibrium] growth model. …

This paper is also an attempt to promote awareness of these issues, to illustrate and quantify the amount by which the Medicare projections are potentially understated, and to help inform discussions of possible policy reactions to the situation. The results are shown for Parts A and B and for Medicare in total. (As noted previously, the Part D projections under current law are not affected by the payment-update issues.)

[203] Calculated with data from "Projected Medicare Expenditures under an Illustrative Scenario with Alternative Payment Updates to Medicare Providers." By John D. Shatto and M. Kent Clemens. United States Department of Health and Human Services, Centers for Medicare and Medicaid Services, Office of the Actuary, May 13, 2011. http://www.cms.gov/...

Page 19: "Table 5. Projected total Medicare expenditures as a percentage of Gross Domestic Product (GDP) under the Illustrative Alternative Scenario compared to the 2011 Trustees Report, selected years 2009-2080"

NOTE: An Excel file containing the data and calculations is available upon request.

Page 21: " 'Open Group' totals reflect all current and projected program participants during the 75-year projection period."

A common way to present future cashflows is in terms of their present value. This approach recognizes that a dollar paid or collected next year is worth less than a dollar today, because a dollar today could be saved and earn a year's worth of interest.

Table 5 shows the magnitudes of the primary expenditures and sources of financing for the three trust funds [Social Security and Medicare HI (Part A) and SMI (Parts B and D)] computed on an open-group basis for the next 75 years and expressed in present values. … For HI, revenues from the public are projected to fall short of total expenditures by $3,252 billion in present value terms which is the additional amount needed in order to pay scheduled benefits over the next 75 years.⁶ From the trust fund perspective, the amount needed is $2,980 billion in present value after subtracting the value of the existing trust fund balances (an asset to the trust fund account but an intragovernmental transfer to the overall budget). For SMI, revenues from the public for Parts B and D combined are estimated to be $21,320 billion less than total expenditures for the two accounts, an amount that, from a budget perspective, will be needed to keep the SMI program solvent for the next 75 years. …

⁶ Interest income is not a factor in this table as dollar amounts are in present value terms.

The SOSI [Statement of Social Insurance] projections are based on current law. Therefore, the productivity adjustments are assumed to occur in all future years, as required by the Affordable Care Act. In addition, an almost 30 percent reduction in Medicare payment rates for physician services in January 2012 is assumed to be implemented as required under current law, despite the virtual certainty that Congress will continue to override this reduction. Therefore, it is important to note that the actual future costs for Medicare are likely to exceed those shown by these current-law projections.

The extent to which actual future Part A and Part B costs exceed the projected current-law amounts due to changes to the productivity adjustments and physician payments depends on both the specific changes that might be legislated and on whether Congress would pass further provisions to help offset such costs. As noted, these examples only reflect hypothetical changes to provider payment rates.

It is likely that in the coming years Congress will consider, and pass, numerous other legislative proposals affecting Medicare. Many of these will likely be designed to reduce costs in an effort to make the program more affordable. In practice, it is not possible to anticipate what actions Congress might take, either in the near term or over longer periods.

The Medicare Board of Trustees, in their annual report to Congress, references an alternative scenario to illustrate the potential understatement of costs under current law. This alternative scenario assumes that the productivity adjustments are gradually phased out over the 16 years starting in 2020 and that the physician fee reductions are overridden. These examples were developed by management for illustrative purposes only; the calculations have not been audited; and the examples do not attempt to portray likely or recommended future outcomes. Thus, the illustrations are useful only as general indicators of the