The Great Recession (2007–2009) contracted the economy to such an extent that the older boomers may not have sufficient time to recoup their lost income nor the value of their key assets, including their homes. Just prior to the Great Recession, those ages 65–69 saw their unemployment rate jump from 3.3% in 2007 to 7.6% in 2010. Due to the contracted economy, 42% of boomers and the Silent Generation (born between 1940 and 1960) stated in a Pew Research survey that they have already had to delay their retirement and 66% of those boomers who are closer to retirement age (50–61) believe they too will need to delay their retirement date [26]. Currently 34% of boomers remain in the workforce with 29% expecting to retire at age 70 or later [27]. The level of seniors in the workforce is the highest in over half a century [28]. The Great Recession has also impacted financial support among generations with 44% of those 65 and older giving financial support to their adult children and 39% of adult children giving support to parents age 65 and older [26]. Over time there have been shifts in employer retirement plans, shifting from defined benefit plans to defined contributions plans. This shift is one more factor contributing to boomers having fewer retirement dollars, a greater reliance on social security income, and consequently less disposable income to fund healthcare expenses. It is estimated that 48% of the elderly population is economically vulnerable, defined as having income levels two times the supplemental poverty threshold, a rate that jumps to 58.1% for those 80 and older [29]. Due to Social Security coverage, the elderly are less likely to fall below the federal poverty level [29]. The Great Recession’s impact on disposable income may have far-reaching repercussions on healthcare decisions which require out-of-pocket expenses.

The baby boomer generation will bring millions of people into the Medicare program and these new beneficiaries will also bring with them a new set of expectations and a tremendous voting faction. They are the most educated generation with close to 90% having obtained a high school degree or GED and 24% in 2012 having earned a bachelor’s degree or higher [15, 30, 31]. With their higher levels of education, the boomer population is expected to be more involved in their healthcare, exhibit more control on how they spend their health dollars, and have higher expectations of returning to an active lifestyle after a health event [30]. Baby boomers constitute the first generation born to the Medicare program and the first with significant experience with managed medical insurance plans. Over 70% of the older boomers (those ages 24–42 in 1988) started their work careers with traditional employer-sponsored plans that had few limitations on choice of providers, insurance paying large percentages of provider costs, and consequently almost no out-of-pocket costs. In contrast, the younger boomers have experience with managed care plans with defined narrow provider networks and high deductibles. For those boomers without employer insurance plans, they may have experience purchasing their health insurance through the federal and state exchanges under the Affordable Care Act [10]. A small statistic but interesting new trend is that close to half a million grandparents ages 65+ have primary responsibility for their grandchildren who live with them [15]. Baby boomers also include a significant number of women with work experience and, in general, are more affluent than their forebears. They expect to enter retirement with more assets yet remain concerned about their ability to fund their retirement experience. According to the Federal Reserve Bank of New York, 65-year-old borrowers have incurred more mortgage and auto debt (an increase of 47% and 29% respectively) in 2016 than in 2003 [32].

A survey conducted by Woelfel Research for the American Association of Retired Persons (AARP) and entitled, “As First Baby Boomer Turn 65, They’re Feeling Good and not Ready to Quit” [27] and the more extensive paper “Approaching 65: A Survey of Baby Boomers Turning 65 Years Old” [33] examined the expectations, attitudes, and concerns of the baby boomers as they approach retirement. There were several key attitudinal findings from the survey which have important implications for the Medicare program.

In the survey 84% of boomers expressed a desire to take better care of their health, 31% are concerned about their health, and 28% believe their health will prevent them from achieving their retirement goals over the next 5 years. Unlike previous AARP surveys, where one in five expected to move to a new geographical area, in the current survey, only 2% stated their desire to relocate. Finances remain a large concern with 32% believing their financial situation is worse than they previously expected and 28% considering their finances to be an obstacle to achieving their dreams. Overall the boomers feel good about their accomplishments and where they are in life at this point in time. They are optimistic about the next 5 years and look forward to spending time with family, traveling, volunteering, and making time for interests and hobbies.

A Pew Research study in 2011 found that boomers overwhelmingly (85%) viewed Medicare and social security as good for the country and nearly two-thirds supported using Medicare benefits for purchasing private health insurance [34]. Only 37% of boomers (who, at the time of the study, were just entering the Medicare program) rated service as excellent. This contrasts with the 66% of those already fully in the program who rated Medicare as excellent [34].

The Pew Research study also found that additional solutions to extending the solvency of Medicare, such as gradually rising the eligibility age, was supported by 38% of boomers and 57% supported reducing Medicare benefits of those with higher incomes [34]. The generations ranging from the Millennials (Generation Y, those born in the early 1980s to early 2000s) to the Silent Generation were in agreement (52–64%) that the government does not do enough for our senior citizens with 43% of boomers believing it is the job of the government to ensure that the elderly have at least a minimum standard of living [34]. These expectations impact how the elderly interact with all aspects of their healthcare experiences.

Medicare has not traditionally covered some services, requiring beneficiaries to fund those through out-of-pocket payments. Uncovered services included long-term nursing care, outpatient prescription drugs, routine vision, dental, hearing, and foot care. The Balanced Budget Act of 1997 extended coverage to include annual mammograms, Pap smears, prostate and colorectal screenings, diabetes management, and osteoporosis diagnosis. The Medicare Modernization Act of 2003 added pharmaceutical benefits. Further reductions in beneficiary out-of-pocket expenses are expected to be achieved through newly mandated coverage for wellness or preventative care services added under the Patient Protection and Affordable Accountable Care Act (ACA) of 2010. Even with all of these extensions of covered benefits, Medicare beneficiaries face significant out-of-pocket costs from age 65 until their death. Increases in life expectancy, prevalence of chronic conditions, the growth of premium costs, and the rising cost of medical care contribute to a rise in the Medicare lifetime out-of-pocket costs for the elderly. It is estimated that the lifetime out-of-pocket costs for a 65-year-old in 2010 will increase 72% by 2030 to an estimated $223,000 of lifetime Medicare costs [35]. The composition of these projected costs is $119,000 for out-of-pocket Part A costs, $85,000 for Medicare Part B premiums and coinsurance, and $19,000 for Medicare Part D [35]. Unaccounted costs from this list include extended home care, assisted living services, and uncovered nursing home costs. Relative to total personal expenditures, the elderly spend approximately 12% of their income on healthcare expenditures which is double that spent by all other consumers [15]. Figure 9.5 depicts the trajectory for increases in out-of-pocket and premium costs compared to average social security benefits [9].

Medicare beneficiaries rely on privately purchased or government-sponsored supplemental insurance plans to “tie in” and complement the array of services covered by the Medicare program. Supplemental insurance coverage for these services has been historically provided by Medicaid plans (for the poor) and by so-called “Medigap ” policies for those able to afford additional coverage. Approximately 90% of Medicare beneficiaries have supplemental insurance plans. Of those with supplemental insurance, in 2013 15% purchased Medigap insurance, 31% received supplemental insurance through employer retirement programs, and 28% purchased Medicare Advantage plans [10]. An additional 21% qualified for coverage through Medicaid. Medigap coverage is paired with traditional Medicare Part A, whereas Medicare Advantage plans combine Part A with Part B and may provide additional services typically not covered under the traditional Medicare plan. Enrollment in Medicare Advantage plan is growing at a pace of 10% per year [10].

Within the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) is a provision that Medigap insurance coverage will be prohibited from funding Medicare Part B deductibles for those who enter the Medicare program starting January 2020. Within the family of available Medigap policies, the Medigap Plan F currently provides coverage of a subscriber’s Part B deductibles and Part B costs in excess of Medicare approved amounts. While Plan F may continue to exist for those currently in the plan, it will not be allowed to be offered to new entrants starting 2020 [36]. This MACRA policy goal is to shift the burden of additional healthcare expenditures to beneficiaries with hopes they will be better consumers and lower their utilization of services.

The Medicare Advantage plans (Part C) combine the coverage of Part A with Part B and may provide additional benefits found in the various Medigap plans. For example, some Part C plans include the Part D pharmaceutical coverage. Currently, the federal government pays Part C private insurers a percentage above the combined cost for traditional Medicare Part A and Part B plans largely due to their higher administrative costs. Federal policy efforts are underway to reduce this additional government funding to bring it closer to the actual premium costs of the traditional (original) Medicare. In 2016, the Medicare Advantage private insurers succeeded in obtaining a delay in proposed rate reduction. Unknown is how the benefits offered under Part C plans will be adjusted upon the occurrence of anticipated government funding reductions.

Some employers, mostly large companies, also sponsor health insurance plans that cover retired workers and their spouses. In 1988, before implementation of the Part D drug benefit, 66% of large firms offered retiree coverage [37, 38]. In 2010, 31% of Medicare beneficiaries had this type of employer-based coverage. In 2013, 28% of firms with more than 200 employees offered retiree health benefits [38]. This downward pattern of fewer employers covering retiree health benefits is well established.

As a result of these various coverage options and variability of out-of-pocket beneficiary costs, there is a level of financial unpredictability. This variability challenges practicing geriatric medicine providers to become knowledgeable about the specific financial situation in which each of their Medicare-eligible patients can find themselves, especially as it may relate to the patient’s ability to comply with treatment plans.

Medicare was late in providing prescription drug coverage relative to most private insurance plans and the universal public health plans in other developed nations that have traditionally provided this benefit as an important part of comprehensive health coverage. Drug therapies can reduce the need for hospitalization by effectively managing chronic health problems of the elderly such as heart disease, diabetes, and depression. Chronically ill patients have been found to underuse essential medications because of cost considerations and to suffer serious health consequences, including an increased number of emergency room visits and inpatient admissions, as a result [39].

All 55 million people on Medicare, including those ages 65 and older and those under age 65 with permanent disabilities, have access to purchase the Medicare drug benefit through private plans approved by the federal government. These Medicare plans are known as Part D or Prescription Drug Plan (PDP) . In 2015, 68% or 37.8 million of the Medicare beneficiaries purchased Part D directly or had coverage through a Medicare Advantage plan [40].

In a nationwide survey of chronically ill older adults, it was reported that 33% underuse prescription drugs because of concerns about out-of-pocket drug costs. Furthermore, 66% of these patients failed to discuss their intention to underuse medications with a clinician citing that no one asked about their ability to pay and that they did not believe that providers could offer any assistance [41].

The Part D plan requires beneficiaries to fund the first dollars known as the deductible. Once the deductible is funded ($360 dollars in 2016), the Part D plan will pay 75% with the beneficiary paying 25% of the remaining pharmaceutical costs. In 2016, when the out-of-pocket costs reach $3,310.00, the beneficiary enters the coverage gap known as the “donut hole” period where they encounter the greatest personal funding exposure. Not until their out-of-pocket drug expenditure reaches $7,063.00 will the beneficiary exit the donut hole and then enter the catastrophic coverage phase where their Medicare Part D cost sharing is reduced to a more manageable 5% level. While in the coverage gap, Medicare beneficiaries pay between 45% and 58% of drug costs depending upon whether they purchase generic or brand name pharmaceuticals. Recognizing the financial burden of the donut hole, the 2010 Affordable Care Act gradually lowers the level of cost sharing to 25% for generic drugs by 2020. See Fig. 9.6 for the 2016 schema on prescription drug coverage cost share [42].

Part D financing comes from general revenues, beneficiary premiums, and state contributions. In 2016 enrollees’ monthly premium is expected to cover 25.5% of the standard drug coverage. Medicare subsidizes the remaining 74.5%, from plans for their expected benefit payments. Enrollees who have incomes over $85,000/individual and $170,000/couple pay a higher portion of Part D costs, ranging from 35% to 80%, depending on their income levels. In 2016, almost half (49%) of the drug plans will offer basic Part D benefits (although no plans will offer the defined standard benefit), while 51% will offer enhanced benefits. Deductibles will be charged to most beneficiaries with 53% of PDPs charging the full amount ($360). Copayments will be tiered, for covered drugs [42]. Additional gap coverage in 2016 will not be provided beyond what is required under the standard benefit. Additional gap coverage is often limited to generic drugs only [42].

In 2013, the Federal Poverty Level (FPL) was defined as between $11,490 for an individual and $23,550 for a family of four. At that time, 9.5% of the 65 and older population were considered in poverty and 14.6% or 6.5 million elderly were at the supplemental poverty rate [43]. Low-income seniors enrolled in Medicare are eligible for Medicaid coverage and are known as “dual eligible ” beneficiaries. While Medicare funds Part A portion for dual eligible beneficiary, the Medicaid portion of funding is applied to assist with Medicare Part B and Part D premium costs, out-of-pocket costs, and services not covered by Medicare such as long-term care. The poorest of the dual eligible will have Medicaid fully fund both Part A and Part B premiums, and per the beneficiary’s state-specific Medicaid regulations, a prescribed level of their Medicare deductibles and coinsurance. Medicaid coverage includes benefits such as prescription drugs, hearing aids, and payment for nursing home services. In 2010, approximately 10 million elderly persons were dually eligible [44]. The rate of dual eligible beneficiaries increases with age, is more prevalent for females and is higher for non-whites. This population also tends to have more chronic conditions which is evident as the 14.6% of dual eligible consumed 34% of Medicaid expenditures in 2010 [43].

The Affordable Care Act (ACA) expanded the definition of the poverty from 100% to 138% of the Federal Poverty Level, thereby expanding Medicaid eligibility. States had the option of accepting the new definition along with additional federal funding or electing to maintain their current Medicaid program. In 2014, 29 states elected to expand their Medicaid programs resulting in a 9% expansion of newly coverage Medicaid eligible adults [45]. Further growth of Medicaid eligible adults is stymied by a number of factors: lack of awareness of eligibility, perception on whether or not they qualify, the difficulty of the application process, and the required reassessments to retain coverage. These factors result in an estimated 8 million eligible individuals not enrolling in Medicaid [46]. The ACA regulations are addressing enrollment issues through mandated improvements in outreach, enrollment assistance programs to reduce the number of eligible not enrolled in Medicaid and better coordination through the newly established Federal Coordinated Health Care office also known as the Medicare-Medicaid Coordination office.

It is the near-poor , those with annual incomes between the poverty level and 200% of Federal Poverty, who are most often caught in the prescription drug cost quandary. In 1999, only 55% of the near-poor had coverage for the entire year and more than 20% of those with prescription drug coverage received it via a Medicare Advantage plan. Access to prescription drugs and levels of reimbursement for prescription drugs has decreased significantly under these managed-Medicare plans since the Balanced Budget Act of 1997. As a result, the near-poor had higher out-of-pocket costs for prescription drugs in 1999 than other Medicare beneficiaries who were poorer (and therefore, Medicaid-eligible), and those with higher incomes [47]. While the ACA program expands assistance for Part D, the near-poor who fall into the coverage gap of this voluntary program will continue to be plagued by out-of-pocket prescription drug costs

The Medicare Trustees 2016 report stated that over twelve million beneficiaries are currently receiving the Low-Income Subsidy. For dual eligible beneficiaries, who do not enroll, Medicare will automatically enroll them into a prescription drug plan.

The Medicare program has many shortcomings and, over the next two decades, significant reform will be required to maintain even the current level of protection that it offers to America’s elderly. This looming crisis in healthcare insurance, for the elderly, is of great concern to lawmakers and the public but should also be of similar concern to healthcare providers, hospitals, and physicians, who rely on Medicare as a significant source of their revenues. The healthcare share of the GDP for the entire population (not just the Medicare population) including out-of-pocket costs is expected to rise from 17.5% in 2014 to 20.1% by 2025 [48]. The combined efforts of all levels of government (federal, state, and local) are projected to finance 47% of national health spending by 2025 representing an increase from 45% in 2014 [48].

Academic medical centers (AMCs) represent about 5% of the total hospitals in the nation and treat approximately 37% of all charity care and 26% of Medicaid care [49]. AMCs account for 80% of the designated level 1 trauma centers and offer specialized services such as burn centers and transplant service not readily found in other hospitals within their geographic catchment areas. With higher rates of caring for the disadvantaged population, higher costs associated with the specialized care, and reduced opportunities to shift the costs to private insurers, the federal government provides additional financial assistance through what is known as disproportionate share payments . Most hospitals receive some level of these payments and are referred to as disproportionate share hospitals (DSH) . Hospitals with the highest DSH payment are also known as safety net hospitals. The ACA also addressed DSH payments by dividing it into two pools: (1) 25% of the pool allocated for the traditional/current formula of determining hospital payments and (2) 75% to be allocated for uncompensated care [50]. Because the ACA program provides for expansion of Medicaid coverage and coverage for the uninsured, the second pool under the ACA is set to decline over time. The reductions were set to occur in the periods of 2014–2020 and were then expected to return to pre-ACA funding levels in 2021. The MACRA legislation delayed the start of the reduction date to 2018 thereby extending the reduction period through 2025 [51]. With reductions in DSH payments, academic medical centers will bear additional financial pressures.

Physicians in academic practice have even greater reason to be interested in the plight of the Medicare program. In addition to the significant flow of funds received by academic medical centers (AMCs) in the form of clinical revenues, AMCs are dependent on the Medicare program for support of graduate medical education (GME) and care provided to indigent patients. All undergraduate medical students and almost 50% of all residents are trained in AMCs. AMCs differ from many community hospitals due to the patient population of higher levels of charity care and offering highly specialized services such as neonatal, burn, trauma intensive care, and organ transplant services [52].

Payments to physicians from the Medicare Part B program originally employed a payment formula based on regional “usual and customary” charges by physician specialty. In 1989 the Omnibus Budget Reconciliation Act was signed into law ushering in a new physician fee schedule construct that was predicated on a resource-based relative value scale (RBRVU) . The new fee schedule began in 1992. However, ASA successfully argued that anesthesiologists should not be part of the RBRVU system, but compensated for time and a relative value system long used. Thus, Medicare reimburses anesthesia services via a separate methodology under RBRVS that uses the sum of procedure-specific relative value units and the variable time units. The sum of these units is then multiplied by an anesthesia-specific conversion factor that is adjusted for geographic cost differences. It was the retention of the time unit factor in the anesthesia payment methodology that drove HCFA (CMS) to create a separate anesthesia conversion factor under RBRVS.

The AMA and specialty societies have input on establishing the resource unit values for each procedure code (CPT code), and CMS establishes the national conversion factor which is then adjusted geographically to reflect regional differences in practice costs. The regionally adjusted conversion factor is multiplied by the resource value units (RVUs) to determine the payment for professional services. Included in the Omnibus act was a safety valve known as the sustainable growth rate (SGR) which served to restrict fee schedule increases if total volume of services increased at a rate greater than the gross domestic product (GDP), thereby maintaining budget neutrality. The first SGR-related rate reduction occurred in 2002, setting in motion Congressional fixes every year from 2003 until 2014. The SGR’s annual and sometimes biannual “kicked the can” down the road fix was permanently replaced with the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) providing a new framework of adding rewards and risk to physician payments.

Since the inception of the Medicare program in 1965, hospitals have had utilization review programs and quality reporting requirements. Over time Medicare has imposed financial constraints tied to hospital outcomes such as length of stay or more recently penalties for hospital readmission rates. For physicians, quality reporting started as a voluntary program in 2007 known as the Physician Quality Reporting Initiative (PQRI) , now called the PQRS, which emulated from the 2006 Tax Relief and Health Care Act (TRHCA) . The voluntary program was made permanent in 2008 under the Medicare Improvement for Patient and Providers Act. This act also requires CMS to publicly post group names and eligible provider names who satisfactorily reported the PQRS measures, giving the public an opportunity to check on their physicians and compare physician results. The Affordable Care Act of 2010 further embraced quality reporting and created a budget neutral penalty and reward program. The first set of incentives and penalties were awarded to physicians in 2015 based on PQRS measures providers reported in 2013.