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Growth of the Medicare population.

The growth rate of Medicare enrollees significantly exceeds the growth rate of the general population. Moreover, the group of enrollees aged 85 years or Over is growing Proportionately faster than all other groups of the aged. These phenomena and other interesting trends of the Medicare population are explored in this article.

The rapidly escalating cost of delivering health care services through the Medicare program has generated much interest in exploring ways to control the growth of benefits paid. It should be noted that, in addition to rising medical costs and increasing per capita utilization, another factor contributing to these increases is the growing number of persons enrolled for coverage. In no small way, implementation of the Medicare program has made available to the Nation affordable medical services and enhanced medical delivery systems. Medicare was first implemented in 1966, under title V of the Social Security Act, as health insurance for the aged (65 years of age or over). Later, it was amended in 1972 by legislation to include the disabled, persons with end stage renal disease, and certain aged persons not previously entitled.

Medicare is organized in two parts: * Part A (hospital insurance) pays for inpatient hospital services, regular nursing services, meals, semiprivate rooms, operating rooms, laboratory tests, some drugs, and medical supplies. Part A also pays for special care units, rehabilitation services, post-hospital skilled nursing facility care, home health care, and hospice care for the terminally ill. * Part B (supplementary medical insurance), which is elective coverage, pays for private physicians' services, diagnostic tests, outpatient hospital services, outpatient physical therapy, speech pathology services, home health services, medical equipment, and supplies.

Since the inception of Medicare (July 1, 1966), its rolls have increased by more than two-thirds, and as of July 1, 1987, affordable medical care was available to 32.4 million Medicare beneficiaries with Part A and/or Part B coverage. In this article, the increases in the number of Medicare enrollees by census region from 1966 through 1987 and some demographic trends of these enrollees are highlighted. * In 1966, the estimated total resident population of the United States was 195.9 million people. Medicare provided some type of coverage to 18.8 million U.S. residents, essentially most of the population 65 years of age or over. Medicare enrollees represented 9.5 percent of the total resident population (Table 1). * The number of aged enrollees has grown from 19.1 million in 1966 to 29.4 million in 1987, an increase of 53.8 percent. This represents an average annual increase of 2.1 percent (Table 2). * In 1987, the estimated resident population of the United States was 243.4 million. Of this total, 29.8 million were 65 years of age or over. Medicare, with all age groups represented, provided some type of coverage for 31.7 million persons, or 13 percent of the total resident population of the United States (Table 1). Medicare provided some type of coverage for 28.8 million aged residents of the United States, representing more than 96.6 percent of the total U.S. aged population (Table 2). * Statistical examination of the aged population (65 years of age or over) within the Medicare program indicates longer life expectancy for beneficiaries. The median age for this population has increased from 72.8 years in 1966 to 73.5 years of age in 1987. Although the overall aged population of the program has been increasing at an average annual rate of 2.1 percent, the category of persons 85 years of age or over has been increasing at an average annual rate of 4.6 percent. * In 1966, each census region had more than 5 million enrollees except the West, which had 2.8 million enrollees (Table 1). By 1987, the South region had significantly outgrown the Northeast and Midwest, with more than 10.7 million enrollees, or 33.19 percent of all Medicare enrollees (Figure 1). The next highest census region, the Midwest, had 8.1 million enrollees (24.95 percent of the total). * From 1966 to 1987, the South and West regions had comparable increases in the growth rates of number of Medicare enrollees of 89.7 percent and 100 percent, respectively. These rates were significantly higher than those of the Northeast and Midwest, which were 43.8 percent and 45.6 percent, respectively (Table 1).

With this issue, a new regular feature of the Health Care Financing Review is being introduced. In each issue, Health Care Indicators" will contain a section on each of the following four topics: community hospital statistics; employment, hours, and earnings in the private health sector; health care prices; and national economic indicators.

This new feature has been developed for two reasons. The first was to provide a service to readers in pulling together current data on health care from a variety of sources that are probably more readily available to our Agency than to the public at large. The brief digests of the data sections should provide useful information and point out trends. The second was to provide a place for the regularly scheduled release of provider input price index data from our Agency. Previously, this information was released infrequently and on a somewhat ad hoc basis in Federal Register notices. Community hospital statistics

Community hospital operating experience during the third quarter of 1988 reflected a continued shift of demand and resources toward outpatient care.

While measures of inpatient use dropped, those of outpatient use increased. The number of admissions dropped 0.9 percent between the third quarter of 1987 and that of 1988, and the number of inpatient days fell 0.9 percent. On the other hand, although hospital capacity (measured by the number of beds available) decreased 1.3 percent, the adult occupancy rate was 63.1 percent in the quarter ending September, up slightly from the rate 1 year ago. In another upward trend, the number of surgical operations (both inpatient and outpatient) increased 0.8 percent during the period. Despite inpatient retrenchment, or perhaps because of it, outpatient visits continued to exhibit strong growth, increasing 5.6 percent from the third quarter of 1987.

Operating expenses of community hospitals reached $45 billion for the third calendar quarter of 1988 (Table 1). This figure was 9.8 percent higher than during the same quarter of 1987 (Table 2). Inpatient expenses, which exclude the costs of operating outpatient facilities, were 7.9 percent higher in the third quarter 1988 than they had been I year earlier. Both expenses per patient day and expenses per admission rose 8.9 percent.

Despite the decline in inpatient volume, average full-time equivalent (FTE) employment in community hospitals increased 1.2 percent between the third quarter of 1987 and the third quarter of 1988. FTE employees per bed grew 2.5 percent over the same period, perhaps reflecting increased employment in outpatient departments.

The change in inpatient days and outpatient visits for 1978-88 is shown in Figure 1. The change in beds and occupancy rate for the same period is shown in Figure 2. Private health sector: Employment, hours, and earnings

Bolstered by hospitals and offices of physicians, employment, payroll, and work hours in the health sector outpaced those in the economy at large.

Total employment in the health sector (defined by 1972 Standard Industrial Classification 80) was 5.2 percent higher in the third calendar quarter of 1988 than it had been I year earlier (Table 4). Most of this growth was concentrated in hospitals and physician offices; dentist offices and nursing homes reported growth rates less than 3 percent, well below the economy-wide average of 4.4 percent.

Although employment growth in the health industry exceeded the national average, the average workweek declined (Table 3). Again, experience within the industry was not uniform: the decline was posted only in institutional settings-hospitals and nursing homes. The workweek in offices of physicians was longer during the third quarter of 1988 than it had been last year, but the workweek in offices of dentists, as in the rest of the private economy, was unchanged over the period.

Average hourly earnings of the 6.4 million full- and part-time nonsupervisory workers in the private health industry increased 6.3 percent in the third calendar quarter, compared with an increase of 3.7 percent in all industries. Every major type of health establishment posted higher growth in wages than was reported for the economy as a whole, reflecting the differential nature of demand for health workers.

Reflecting the patterns of employment, total work hours in the private health industry increased 4.9 percent in the third quarter, one-half percentage point faster than in the total private economy, and payrolls increased 11.6 percent, 3.6 percentage points faster than in the total private economy (Table 5). As had been the case for employment, growth both of payroll and of work hours was stronger for hospitals and offices of physicians than for the economy as a whole and weaker for nursing homes and offices of dentists.

The change in total employment for 1978-88 is shown in Figure 3. The change in nonsupervisory average hourly earnings for the same period is shown in Figure 4. Health care prices Medical care consumers

Prices paid by consumers of medical care in the third calendar quarter of 1988, as measured by the Consumer Price Index for all urban consumers (CPI), were 6.6 percent higher than in the previous year's third quarter (Tables 6 and 7). The medical care component of the CPI grew half again as fast as did the Index for all items.

Within the medical care component of the CPI, inflation was higher for hospital and drug prices than it was for professional services. Hospital-related prices rose 9.8 percent between the third quarter of 1987 and the third quarter of 1988, while prescription drug prices climbed 7.9 percent. Physician fees were 7.3 percent above the level for the third quarter of 1987, and nonprescription drug prices rose 5.4 percent. The change in measures of price inflation is shown in Figure 5. Health care providers Background on input price indexes

In 1979, the Health Care Financing Administration (HCFA) developed the hospital input price index in order to assess the role of input price increases in the rapid rise of expenditures for hospital services. The nursing home and home health agency input price indexes were developed in the early 1980's. These indexes are often referred to as "market baskets" because they price a consistent set of goods and services over time. Since their creation, they have played an important role in setting payment levels and understanding the contribution of provider input price increases to growing health expenditures.

The input price indexes or "market baskets," are Laspeyres or fixed-weight indexes constructed in two steps. First, a base period is selected. For example, for the prospective payment system (PPS) hospital market basket, the base period is 1982. Next, a set of cost categories such as food, fuel, and labor are identified and their 1982 expenditure level determined. The proportion or share of total expenditures accounted for by specific spending categories is calculated. These proportions are called cost or expenditure weights. There are 28 expenditure categories in the 1982-based hospital regulation market basket. In the next step, a price proxy is selected to match each expenditure category. The price proxy index for each spending category is multiplied by the expenditure weight for that category. The sum of these products (weights multiplied by the price index) over all cost categories yields the input price index for any given time period, usually a quarter or a year. The percentage change in the market basket is an estimate of price change over time for a fixed quantity of goods and services purchased by a provider.

The market baskets are estimated on a historical basis and forecasted out several years. The forecasted price proxies are based on work done under contract with Data Resources, Inc. (DRI). Each quarter, I month after the end of a calendar quarter, DRI updates their macroeconomic forecasts of wages and prices. DRI bases the new forecasts on updated historical information and revised forecast assumptions; the data is forecasted in February, May, August, and November. Most of the data in Tables 8 through 13 are forecasted and all are expected to change as more recent historical data become available and subsequent quarterly forecasts are received.

The methodology and price proxy definitions used in the development of the market basket are referenced in the Federal Register notices that accompany the annual revisions of the PPS and the home health agency (HHA) and skilled nursing facility (SNF) cost limits. A description of the current PPS input price index was published September 3, 1986 Federal Register, 1986). For fiscal year 1989, in the September 30, 1988, issue of the Federal Register, the "Final Rule" prospective payment system hospital market basket increase was published as 5.4 percent, based on a DRI forecast as of August 1988, the third quarter (Table 8). The latest HHA regulatory market basket was published July 7, 1987 Federal Register, 1987a) and the latest SNF market basket was published October 2, 1987 Federal Register, 1987b). Current data

The data are shown in all tables by quarter for the years 1988 through 1991. Each market basket is presented in two tables: the first is a percent-change table, and the second provides the actual index numbers from which the percentages were computed. The hospital market basket for PPS is in Tables 8 and 9. The SNF market basket is in Tables 10 and I 1. The HHA market basket is in Tables 12 and 13. Highlights The August forecast of the PPS market basket for fiscal year 1989 increased .42 over May, from 4.98 to 5.40. This was caused by across-the-board increases in the price of inputs. The DRI fiscal year 1989 forecast of economy-wide inflation (gross national product deflator) was also raised .4 percent in August. There are a number of reasons for the forecast of increases in the general level of inflation. Relatively low unemployment levels have created labor-market shortages that are creating upward pressure on wages. Manufacturing plant capacity is approaching the level historically associated with increased inflation pressure. The drought is expected to cause increases in food prices. These general upward pressures on prices, particularly for labor, affect hospitals.

Hospitals are labor-intensive producers, and when wages are expected to increase, their costs of doing business are forecasted to go up correspondingly. The wage component of the market basket is a blend of average hourly earnings (AHE) of hospital workers and the Employment Cost Index (ECI). Based on second quarter data, fiscal year 1989 average hourly earnings for hospital workers are forecasted to increase 0.5 percent and the ECI 0.2 percent above previous levels. The apparent shortage of nurses, a critical hospital labor input, is an important element in the forecasted increase in fiscal year 1989 wages. Other nonlabor sources of increase in the fiscal year 1989 market basket forecast are for food, utilities, and malpractice costs. Hospital food costs are forecasted to be 2.4 percent higher, utilities 2.4 percent higher, and malpractice costs 3.0 percent higher than previous forecasts. The drought has given food processors and distributors a reason to increase prices beyond what actual commodities prices would dictate. However, these prices are forecasted to stay at higher levels because prices in imperfectly competitive markets do not easily move downward following a rise. Energy prices and other commodity prices are also accelerating. Because of the unusually hot summer, utility companies were forced to purchase more expensive power from outside sources, namely Canada. Energy prices are forecastect to remain up as utilities reevaluate the need for additional power-generation capacity.

Professional liability insurance premium rates increased substantially with the availability of more recent historical data to base them on. Actual numbers for the first quarter of 1988 came in much higher than expected.

A breakdown of the .4 increase in the regulation market basket is shown in Table 14. National economic indicators

In this section, we discuss national indicators of output, employment, and inflation to put health-related economic trends into perspective. The change in national economic indicators for 1978-88 is shown in Figure 6. Output and income

The gross national product (GNP), the most widely used measure of the Nation's output, was $4.9 trillion during the third calendar quarter of 1988 (seasonally adjusted at annual rates), up 7.5 percent from the same period of 1987 (Tables 15 and 16). That growth was almost evenly divided between price inflation and "real" growth (i.e., changes in the quantity and quality of production).

The portion of GNP received by individuals grew as fast or faster than the total. Personal income during the third calendar quarter of 1988 was 7.7 percent higher than in the same quarter of 1987, and disposable personal income (personal income net of taxes) rose 8.8 percent during the 12-month period. The proportion of disposable personal income that was saved rather than spent increased to 4.2 percent, 1.9 percentage points higher than in the third calendar quarter of 1987. Employment, unemployment, and earnings During the third calendar quarter of 1988, the unemployment rate for all workers was 5.4 percent, five-tenths of a percent lower than for the third calendar quarter of 1987. Total employment in the private nonfarm economy rose 4.4 percent, and average hourly earnings increased 3.7 percent. The average workweek dropped slightly, to 32.5 hours. Prices

The GNP fixed-weight price index, the most comprehensive measure of price inflation, was 4.3 percent higher in the third calendar quarter of 1988 than for the same period a year ago; the GNP implicit price deflator, which reflects changes in the composition of output as well as price inflation, rose 3.6 percent. During the third quarter of 1988 the Consumer Price Index for all items and all urban consumers showed an increase of 4.1 percent (Tables 15 and 16).

The Producer Price Index for finished consumer goods, considered to reflect some of the pressure underlying inflation of consumer commodity prices, grew 2.7 percent between the third quarter of 1987 and the third quarter of 1988.
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Author:Mariano, L. Antonio
Publication:Health Care Financing Review
Date:Mar 22, 1989
Previous Article:Use and cost of physician and supplier services under Medicare, 1986.
Next Article:Health spending and ability to pay: business, individuals, and government.

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