Contributions to Healthcare Cost and Utilization of Wisconsin Medicare Part A Enrollees through 2018
Ryan Goodrich and Dr. Yan Li
University of Wisconsin-Eau Claire Economics Department
Introduction
Medicare Financing
With the aging of the baby boom generation, the percentage of the
population that is 65 and older is projected to be 20% by the year 2030. It is
well-known that, on average, older individuals utilize healthcare more than
younger individuals. Mix these two trends with the rapid rise in healthcare
costs in recent years and it is not difficult to see that budget issues are
looming in the not-so-distant future.
Medicare Part A is financed primarily through the hospital insurance (HI)
tax, which is a part of FICA. The current FICA rates have been in place
since 1990 and are 2.9% for the HI tax and 15.3% total. For an employed
individual, the tax rate is split between employee and employer such that the
HI tax rate is 1.45% for each. Self-employed individuals, however, pay the
full 2.9%. This is important because the FICA tax collected in Wisconsin is
not reported separately for employed and self-employed individuals, nor is
it reported separately by the HI tax and OASDI tax revenues. Due to the
inadequacy of available data, we estimate the HI tax collected in Wisconsin
by multiplying the national HI tax collections, as reported by the Board of
Trustees of the Federal Hospital Insurance and Federal Supplementary
Medical Insurance Trust Funds, by the ratio of individual income taxes
collected in Wisconsin to those collected nationally. Since HI tax revenues
are most but not all of the HI Trust Fund revenues, we divide Wisconsin’s
share of HI tax collections by the proportion of national tax collections to
total HI Trust Fund revenues. To forecast these numbers beyond 2008, the
ARIMA forecasting method is used to forecast HI tax revenue, Wisconsin’s
share of individual income taxes, and the percentage of HI revenues that are
payroll taxes. The results are as follows:
The purpose of our research was to project the healthcare costs of Medicare
enrollees in Wisconsin and to seek to understand how much of these costs
are linked to lifestyle choices. We also study the utilization of specific
inpatient hospital procedures to determine what procedures are the most
costly now and in the future. Our hope is that by understanding what we’ve
been spending our Medicare dollars on, we will be better able to control
future spending. To achieve our purposes we collected and forecasted data
for the demographics of Wisconsin, inpatient procedural utilization,
procedural costs, Wisconsin’s share of HI Trust Fund revenues and
expenditures, and Medicare enrollment.
Demographics and Medicare
Enrollment
Since we sought the specific year in which Wisconsin will use more
Medicare dollars than it puts in, our demographic data needed to be annual
numbers. Thus our numbers are drawn from the most recent available
breakdown of the Wisconsin population by one year age groups-the 2000
census. Using this data and the 2004 life table, we project each one year
age group forward and then regroup the one year age groups into the five
year age groups that are maintained annually by the Wisconsin
Department of Human Services. Our projected numbers are compared to
the WDHS numbers and the differences are then divided amongst the one
year age groups according to their percentage composition of the five year
age group in the previous year. The sum of the projected one year age
group and its share of the difference are then projected using the life table
for the following years estimate. This process is repeated until 2007, the
most recently available WDHS population estimates. The life table
estimates are divided by the WDHS population estimates for each year
from 2001 through 2007 and the average is taken as an approximation of
the “retainment” percentage for each particular age group. This
“retainment” percentage is used in conjunction with the life table to
project the demographics through 2018. This method allows us to keep
track of the size of the working class (16-64), the young aged (65-84) and
the elderly (85+) groups on an annual basis.
The aged portion of our demographic forecasts are further refined since
our concern is with the aged enrolled in Medicare. Since the percentage of
aged persons (65+) enrolled in Medicare has been fairly steady in past
years, the percentage for 2007 is held steady for our forecast period. We
also use demographics to breakdown the total number of enrollees into the
young aged (65-84) and the elderly (85+) for each gender. The limited
data that was available indicated this was a reasonable approximation.
Wisconsin Demographic Estimates/Forecasts, 2001 to 2018
Year
Males 16-64
Males 65-84
Males 85+ Females 16-64
Females 65-84 Females 85+
2001
1,776,162
265,302
29,260
1,749,618
341,985
71,177
2002
1,801,451
265,179
30,684
1,774,770
340,333
72,862
2003
1,818,821
267,137
32,065
1,788,186
341,409
74,791
2004
1,849,117
268,536
33,294
1,816,928
339,316
78,340
2005
1,871,987
271,452
34,787
1,837,816
339,922
81,434
2006
1,884,345
275,217
34,521
1,834,881
343,529
77,710
2007
1,892,961
279,514
35,739
1,841,424
346,181
80,113
2008
1,901,662
285,342
36,617
1,849,222
351,320
81,092
2009
1,917,240
290,969
37,411
1,861,380
355,670
81,906
2010
1,931,520
295,980
38,510
1,872,709
359,476
83,129
2011
1,944,939
301,038
39,454
1,883,371
363,310
84,046
2012
1,950,600
312,593
40,281
1,886,700
374,308
84,444
2013
1,955,258
324,474
40,912
1,888,997
385,791
84,793
2014
1,960,029
336,195
41,270
1,892,685
396,829
84,580
2015
1,963,179
348,931
41,524
1,894,145
409,362
84,485
2016
1,966,914
361,863
41,473
1,896,123
421,476
2017
1,969,017
376,244
41,472
1,896,078
2018
1,969,556
391,235
41,324
1,894,835
Healthcare Utilization and Costs
The number of inpatient procedures utilized by members of each of the four aged groups were collected and used to calculate the number of procedures per group
member for each of the 579 diagnosis-related groups (DRGs). DRGs are a method of coding used for Medicare billing which has been changed often since its
inception in the 1980s. The number of procedures per group member are forecasted forward in one of three ways, depending on whether they are increasing,
decreasing, or are relatively unchanged from 2001 to 2007. The forecasting methods and reasoning are described here:
Group 1: DRGs have a decreasing number of procedures. For this group it is our assumption that improvements in technology, movement towards pharmaceutical
treatments, and other factors are decreasing the frequency of these procedures and that this trend will continue at a decreasing rate. In other words, we assume that
there are decreasing returns to the factors responsible for the decreasing trend. For admittance into this group we require a decrease in each year from 2001 to 2007
and correlation with time of less than -0.5. Forecasts for this group are done using logarithmic regression functions fitted for each DRG.
Group 2: DRGs have changed very little from 2001 to 2007. For this group we assume that the factors in play for Group 1 have a negligible effect and that changes
from year to year are due simply to randomness. DRGs not admitted to either of the other groups are admitted into this one. Forecasts for this group are simply the
average DRG procedures per enrollee from 2001 to 2007 for each DRG and elderly group.
Group 3: DRGs have an increasing number of procedures. For this group our assumption is that the increasing trend is primarily the result of social trends. Since
social trends at the state level are relatively slow-changing, we have no reason to believe that the increases are exponential. For admission to this group, the correlation
with time needs to exceed 0.75 or exceed 0.5 and have an increase every year. Forecasts for this group are done using a linear regression fitted for each DRG.
DRG Procedures Per 1000 Enrollees
Year
Per Capita Gross
Income ($)
Per Capita HI Tax
Collected ($)
Aggregate HI Tax
Revenue ($)
Total Medicare
Financing ($)
Group
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2001
64,664.96
1,875.28
4,863,141,980.61
5,654,816,256.53
Males 65-84
299.20
292.75
296.96
294.47
300.74
285.15
280.45
278.99
277.33
275.99
274.93
274.13
273.58
273.26
273.15
273.22
273.47
273.88
2002
62,379.24
1,809.00
4,685,738,991.55
5,448,533,711.10
2003
63,589.03
1,844.08
4,762,533,177.69
5,537,829,276.38
Females 65-84
262.67
263.17
268.12
266.53
272.54
258.54
252.23
251.40
250.19
249.21
248.47
247.96
247.68
247.60
247.71
247.99
248.42
249.00
2004
65,119.83
1,888.48
4,889,109,090.20
5,685,010,570.00
Males 85+
542.22
534.38
541.98
545.11
517.41
511.68
501.20
505.53
502.86
500.60
498.76
497.34
496.30
495.60
495.23
495.14
495.32
495.75
2005
66,835.94
1,938.24
5,076,576,045.75
5,902,995,402.04
2006
70,480.56
2,043.94
5,398,542,195.76
6,277,374,646.23
Females 85+
445.16
452.82
469.24
467.99
424.61
446.89
439.20
440.30
439.05
438.20
437.70
437.53
437.64
438.03
438.65
439.50
440.54
441.78
2007
70,817.96
2,053.72
5,616,142,084.97
6,530,397,773.22
2008
69,304.91
2,009.84
5,934,059,807.65
6,900,069,543.77
2009
70,189.91
2,035.51
5,998,114,664.22
6,989,086,888.02
2010
71,074.92
2,061.17
6,051,049,699.79
7,050,767,529.97
2011
71,959.92
2,086.84
6,084,302,733.34
7,089,514,428.59
2012
72,844.92
2,112.50
6,081,156,281.59
7,085,848,139.11
2013
73,729.92
2,138.17
6,056,329,441.08
7,056,919,558.18
2014
74,614.92
2,163.83
6,022,558,978.30
7,017,569,743.82
2015
75,499.93
2,189.50
5,966,312,187.67
6,952,030,198.66
2016
76,384.93
2,215.16
6,010,824,954.66
7,003,897,095.76
2017
77,269.93
2,240.83
6,048,148,763.66
7,047,387,318.72
2018
78,154.93
2,266.49
6,094,269,631.85
7,101,127,997.79
Controllable Costs
Also of interest to our research is the idea of “controllable” costs. By this
we mean the percentage of the total healthcare spending that have been
linked to lifestyle choices. Specifically, we look at the percentage of total
costs that have been linked to the following twelve factors: high blood
glucose, high LDL cholesterol, high blood pressure, overweight-obesity
(high BMI), high dietary trans-fatty acids, low dietary poly-unsaturated
fatty acids, low dietary omega-3 fatty acids, high dietary salt, low intake
of fruits and vegetables, alcohol use, physical inactivity, and tobacco
smoking. These twelve factors together have been linked to various
causes of death including heart disease, stroke, renal failure, diabetes
mellitus, hypertensive disease, select other cardiovascular conditions, and
certain cancers among others. We have matched these causes of death
with the appropriate DRGs. For example, renal failure was matched with
the following three DRGs: Adrenal and Pituitary Procedures (DRG 286),
Renal Failure (DRG 316) and Admit for Renal Dialysis (DRG 317).
Through this matching process we are able to estimate the percentage of
healthcare costs that have been linked to the twelve factors above. This is
not to imply that these twelve factors are the only reasons for the
procedures they have been linked to, our intention is only to indicate the
percentage of healthcare costs that we have some control over.
Costs for each DRG are available from 1997 to 2007 but are forecasted separately from procedural utilization and again use different methods. We use the national
data for costs as opposed to state data because aggregate charges were only available at the national level. Since Medicare prices are set by the CMS and are adjusted
by both year and region, we use a comparison of elderly Medicare costs in the Midwest to elderly Medicare costs on the national level to perform a regional adjustment
to the average charge per DRG and estimate the average charge per Midwest DRG procedure. These estimations are forecasted using different methods that are based
on two things: the correlation of costs with time and the availability of data. For the costs which have a correlation of time exceeding 0.8 and for which data is
available in at least 10 of the 11 years, a linear extrapolation was used. This was done for 83.35% of the forecasts. For costs in which data is available for at least 10 of
the 11 years but which has a correlation less than 0.8, an ARIMA model was used. This was done for 6.52% of the forecasts. For the costs which data is available for
only a few non-consecutive years and for which there is no obvious upward trend, we used the average (10.13%).
Using the cost forecasts, the utilization forecasts, and our demographic forecasts we are able to calculate the expected cost per enrollee per DRG. To better understand
where Medicare funding is being spent, the DRGs are grouped into their Major Diagnostic Categories (MDCs) as well for the year 2008.
Wisconsin's Expected Annual Cost Per Medicare Part A Enrollee
Year Males 65-84 Females 65-84
Males 85+
Females 85+
2001
$5,439.35
$4,255.85
$7,536.27
$5,811.43
2002
$6,053.47
$4,811.10
$8,330.70
$6,625.34
2003
$6,663.24
$5,241.28
$8,950.52
$7,185.17
2004
$7,078.59
$5,696.56
$9,920.07
2005
$7,986.91
$6,405.03
2006
$8,068.87
2007
Circulatory System
$7,860.98
2.80%
4.15%
$10,575.20
$8,096.45
Respiratory System
6.34%
$6,521.37
$10,766.62
$8,781.09
$8,313.54
$6,675.75
$11,158.46
$9,252.02
2008
$8,916.98
$7,091.76
$11,956.48
$9,725.90
2009
$9,339.71
$7,427.26
$12,490.17
$10,200.19
2010
$9,770.09
$7,769.23
$13,034.43
$10,681.82
2011
$10,207.28
$8,116.77
$13,573.77
$11,168.66
2012
$10,653.59
$8,472.71
$14,127.26
$11,664.36
2013
$11,108.59
$8,835.81
$14,679.85
$12,166.17
Digestive System
Nervous System
Hepatobiliary System and
Pancreas
$11,572.68
$9,206.99
$15,243.26
$12,675.37
2015
$12,046.15
$9,585.92
$15,809.08
$13,191.78
2016
$12,528.96
$9,973.39
$16,385.27
$13,715.69
Infectious and Parasitic
Diseases
2017
$13,021.36
$10,368.45
$16,963.13
$14,246.30
Other MDCs
$10,772.22
$17,551.90
$14,784.95
Using our forecasted costs per enrollee, forecasted demographics, and
forecasted Medicare Part A financing, we are able to project Wisconsin’s
share of the HI Trust Fund budget.
Wisconsin's Share of HI Trust Fund Budget, 2001-2018
Females 65-84
Males 85+
Females 85+
Year
Financing
Costs
Difference
% Change
2001
60.85%
52.54%
59.22%
52.88%
2001
$2,933,567,197
$3,533,832,568
-$600,265,370
n/a
84,235
2002
61.59%
53.20%
60.65%
53.84%
2002
$3,110,335,714
$3,978,559,709
-$868,223,995
44.64%
436,277
83,744
2003
62.28%
52.65%
61.22%
54.07%
2003
$3,136,856,717
$4,380,291,530
-$1,243,434,813
43.22%
452,042
83,092
2004
60.73%
51.52%
62.03%
54.94%
2004
$3,218,651,352
$4,743,094,673
-$1,524,443,321
22.60%
2005
63.06%
53.69%
63.91%
57.92%
2005
$3,381,617,794
$5,286,510,061
-$1,904,892,267
24.96%
2006
62.33%
53.31%
61.04%
55.36%
2006
$3,602,585,014
$5,491,482,317
-$1,888,897,303
-0.84%
2007
60.78%
51.69%
60.28%
55.06%
2007
$3,720,513,342
$5,753,946,492
-$2,033,433,149
7.65%
2008
61.83%
53.11%
62.00%
56.60%
2008
$3,848,195,349
$6,451,988,804
-$2,603,793,455
28.05%
2009
61.97%
53.21%
62.11%
56.93%
2009
$4,119,604,486
$6,859,883,114
-$2,740,278,627
5.24%
2010
62.11%
53.30%
62.22%
57.24%
2010
$4,191,347,513
$7,278,288,637
-$3,086,941,124
12.65%
The Centers of Medicare and Medicaid Services Family of Sites. The U.S. Department of Health and Human Services, 2009.<http://www.cms.hss.gov/MedicareEnrpts>.
2011
62.20%
53.37%
62.29%
57.54%
2011
$4,301,273,715
$7,706,455,786
-$3,405,182,071
10.31%
Goodarz, Danaei, Eric Ding, Dariush Mozaffarian, Ben Taylor, Jurgen Rehm, Christopher Murray, Majird Ezzati. The Preventable Causes of Death in the United States:
Comparative Risk Assessment of Dietary, Lifestyle, and Metabolic Risk Factors. 28 April 2009.
2012
62.29%
53.43%
62.36%
57.81%
2012
$4,352,790,534
$8,276,555,957
-$3,923,765,422
15.23%
Internal Revenue Service Data Books. The Internal Revenue Service, 2009. <http://www.irs.gov/taxstats>.
2013
62.37%
53.48%
62.41%
58.09%
2013
$4,433,428,823
$8,875,272,198
-$4,441,843,376
13.20%
2014
62.44%
53.52%
62.46%
58.35%
2014
$4,470,586,525
$9,484,479,908
-$5,013,893,383
12.88%
Quinn, George. Current and Future Challenges Facing Wisconsin Hospitals. University of Wisconsin Eau Claire, Eau Claire, WI. 19 November 2003. Classroom Presentation.
2015
62.50%
53.55%
62.51%
58.61%
2015
$4,529,611,395
$10,147,883,046
-$5,618,271,651
12.05%
Social Security and Medicare Board of Trustees. Status of the Social Security and Medicare Programs. Social Security Online Actuarial Publications.
<http://www.ssa.gov/OCAT/TRSUM/index.html>.
2016
62.57%
53.58%
62.56%
58.87%
2016
$4,556,500,669
$10,829,782,890
-$6,273,282,221
11.66%
Wisconsin Population Estimates. Wisconsin Department of Health Services, Bureau of Health Information and Policy, 2009. <http://dhs.wisconsin.gov/population/index.htm>.
2017
62.63%
53.61%
62.60%
59.11%
2017
$4,599,637,631
$11,587,329,463
-$6,987,691,831
11.39%
2018
62.67%
53.63%
62.65%
59.36%
2018
$4,619,143,344
$12,393,017,880
-$7,773,874,536
11.25%
Agency for Healthcare Research and Quality. Healthcare Cost and Utilization Project. United States Department of Health
<http://hcupnet.ahrq.gov>.
and Human Services, 2009.
Medicare Fact Sheets. Kaiser Family Foundation, 2009. <http://www.kff.org/medicare/factsheets.cfm>.
Mendelson, Danieal and William Schwartz. The Effects of Aging and Population Growth on Health Care Costs. Spring 1993.
26.98%
7.69%
13.46%
10.12%
11.05%
10.77%
Males 85+
Females 85+
3.43%
2.63%
13.22%
6.39%
30.11%
2.55%
2.53%
5.74%
13.37%
25.59%
7.59%
7.76%
18.72%
15.34%
11.02%
11.46%
12.44%
Conclusions
Males 65-84
Administration on Aging Family of Sites. The U.S. Department of Health and Human Services, 2009. <http://www.aoa.gov>.
15.44%
6.17%
10.10%
Medicare Budget
Percent of Wisconsin's Medicare Part A Costs Linked to Controllable Factors
38.17%
2.61%
2.69%
4.13%
Kidney & Urinary Tract
2014
$13,523.33
13.69%
21.09%
Year
References
2.64%
Musculoskeletal System &
Connective Tissue
2018
Females 65-84
Males 65-84
Utilization and costs are clearly dominated by circulatory system procedures,
especially so for the male population. Yet, the percentage of total costs dedicated to
these procedures is on a downward trend through 2018, just as total utilization per
enrollee is decreasing. Costs per enrollee are beginning to level off and for the older
age group (85 and older) total costs are flattening. At the same time, however, there
are less favorable trends that we expect to see between now and 2018. First, the
growth in the size of the 65 to 84 year old age group counteracts the decline in
utilization per enrollee and the total cost of this age group increases steadily at a rate
of 7.3% between 2008 and 2018. Also a disturbing trend is the high growth rate of the
HI Trust Fund deficit. At a time in which the baby boomers are reaching Medicare
eligibility, the recession (in addition to the shrinking of the working class) is leading
to a lower level of funding. Adding to the problem, changes in utilization contribute
to nearly 7% of the growth in healthcare costs between 2008 and 2018. The
percentage of total costs linked to lifestyle changes is already very high in 2008
(roughly 60%) and the trend is worsening. Circulatory procedures are utilized less but
are more expensive when they are utilized due to more complicated cases and longer
hospital stays. Also, there has been a rapid increase in the number of kidney and
urinary tract procedures in recent years and we project this trend to continue through
2018, further contributing to the increase in lifestyle related DRG procedures.
Holding costs and shifts in utilization constant, demographic changes account for
50.35% of the cost increase between 2008 and 2018 for males aged 65 to 84, 44.27%
for females aged 65 to 84, 29.17% for males aged 85 and older, and 6.68% for
females aged 85 and older. Clearly demographic increases pose a serious problem for
the financing of Medicare and this study indicates that providing incentives to
improve lifestyle choices may be a necessity in the continuation of the program.