In 2009, the federal and state governments spent a total of more than $250 billion on health care benefits for the 9 million low-income elderly or disabled people who are jointly enrolled in Medicare and Medicaid. Medicare is a federal program that provides health insurance coverage to people who have disabilities, are diagnosed with certain medical conditions, or are age 65 or older (50 million people in 2009). Medicaid, which is funded jointly by the federal government and the states, provides health care coverage to low-income people who meet specific requirements for income and assets and other eligibility criteria (65 million in 2009). People who are eligible to receive benefits from both programs at the same time are known as “dual-eligible beneficiaries.” All of those beneficiaries qualify for full Medicare benefits, but they differ in the amount of Medicaid benefits for which they are eligible. Seven million are “full duals,” who qualify for full benefits from both programs. The other 2 million are “partial duals,” who do not meet the eligibility requirements for full Medicaid benefits but qualify to have Medicaid pay some of the costs they incur under Medicare.
This report examines the characteristics and costs of dual-eligible beneficiaries, focusing on 2009, the most recent year for which comprehensive data were available when CBO began this analysis. The report also examines the different payment systems that Medicare and Medicaid use to fund care for dual-eligible beneficiaries and recent efforts at the federal and state levels to integrate those payment systems and to coordinate the care that such beneficiaries receive from the two programs.
Federal and state policymakers have growing concerns about the high costs of dual-eligible beneficiaries—particularly full duals—as well as about the appropriateness of the care they receive and the ways in which the separate structures of Medicare and Medicaid may affect their costs and care. Medicare generally pays for acute care (hospitalization and other short-term care) and postacute care (services provided in skilled nursing facilities or elsewhere to help people recover from an acute illness or surgery). Medicaid pays for long-term services and supports (LTSS)—which includes long-term care as well as social support services designed to help people stay in their homes rather than move to institutions—and other benefits that Medicare does not cover, such as dental and vision services.
Those separate funding streams, and the different payment rates and coverage rules within them, create conflicting financial incentives for the federal and state governments and for health care providers, potentially increasing the costs of care. In addition, receiving care through separate programs with different payment and approval procedures increases the likelihood that full duals—especially those who have many chronic conditions and functional limitations—will be treated by a variety of health care providers who are not coordinating their care, potentially increasing costs and worsening outcomes.
Dual-eligible beneficiaries are a varied group, but many have extensive health care needs, stemming from multiple illnesses and disabilities. In the case of full duals, for example, half initially qualified for Medicare because of disability rather than age, and nearly one-fifth have three or more chronic conditions (see figure below). Consequently, a sizable share of full duals, more than 40 percent, use long-term services and supports—a far greater percentage than for other Medicare or Medicaid beneficiaries.
Although some full duals are fairly healthy and have relatively low health care costs, full duals as a group account for a disproportionate share of federal and state spending for Medicare and Medicaid. Full duals make up 13 percent of the combined population of Medicare enrollees and aged, blind, or disabled Medicaid enrollees (the categories of Medicaid participants who might also qualify for Medicare), but they account for 34 percent of the two programs’ total spending on those enrollees.
Many states are working to eliminate differences in the financial incentives that health care providers face under Medicare and Medicaid and to improve the coordination and quality of care for dual-eligible beneficiaries within the scope of current law. States’ efforts include establishing initiatives under which Medicare, Medicaid, and private insurers pay fees to the same primary care practice to manage care for patients; contracting with plans in Medicare’s managed care program (Medicare Advantage) to provide services covered by Medicaid; coordinating physical and behavioral health care for dual-eligible beneficiaries who have chronic mental illnesses; and developing managed LTSS programs. At the same time, the federal government, through the Medicare Advantage program, has encouraged the establishment of special health plans for full duals that target their particular needs.
The Affordable Care Act created new options for addressing financing and quality-of-care issues for dual-eligible beneficiaries. The largest initiative in that area under the new law is a three-year demonstration project to integrate Medicare’s and Medicaid’s financing for full duals, which 26 states applied to participate in (see figure below). The first state projects are due to begin this summer.
Various restrictions exist under current law that impede efforts to reduce costs and improve the quality of care for dual-eligible beneficiaries by more fully integrating that care. For example, participation in Medicare’s managed care program is optional for dual-eligible beneficiaries, as it is for other Medicare beneficiaries. In addition, states generally have little information about, and limited control over, the provision of services covered by Medicare. Moreover, Medicare and Medicaid contract separately with managed care organizations even if a beneficiary receives services from both programs through the same managed care organization. Federal lawmakers might choose to relax those and other restrictions—or enact broader program changes—in an effort to more fully integrate the care provided to full duals.
The impact of such policy changes on the federal budget would be likely to depend on multiple factors, such as how payment rates to providers would compare with the rates under current law, whether certain complex services (such as behavioral health care) would be included in overall payment rates or be paid for separately, and whether beneficiaries’ participation in new models for delivering care would be voluntary or mandatory.
Correction: On March 27, 2014, CBO reposted this document with various small corrections. Misclassifying some people as eligible beneficiaries of Medicaid and misclassifying the reason for some others' eligibility affected the results of various calculations, which are reported mostly in Tables 1 and 2 and Figure 3 and in the passages in the text that discuss those results. Corrections are noted on the pages where they occurred.