HCM 4050 Module 4 Medicare and Medicaid Policy Paper Example

Two Payers, One Patient: Medicare, Medicaid and the Economics of Care for Dual-Eligible Older Adults

Student Name

B.S. in Healthcare Management, Thomas Edison State University

HCM-4050: The Financing and Economics of Healthcare Delivery

Mentor Name

Month Day, Year

Two Payers, One Patient: Medicare, Medicaid and the Economics of Care for Dual-Eligible Older Adults

Consider a composite patient: a 79-year-old retired school cafeteria worker in Paterson, New Jersey, who lives alone with heart failure and early dementia. Her income is low enough that she qualifies for both Medicare and Medicaid. Medicare pays for her hospital stays, physician visits, short rehabilitation stays and, through a drug plan, most of her prescriptions. Medicaid pays her Medicare premiums and cost sharing, the home aide who helps her bathe and cook, and, if she can no longer live at home, most of the cost of a nursing home. Two programs with separate budgets, rules and incentives are paying for one person's care. This paper assesses the roles Medicare and Medicaid play for people eligible for both, explains the economic incentives created by splitting their care, reviews the evidence on plans that integrate the two programs, and compares the American approach with Japan's public long-term care insurance.

Who Pays for What

Medicare is the federal social insurance program that covers most Americans from age 65, plus certain younger adults living with disabilities. It was designed for acute and medical care and pays only for limited skilled nursing and home health after a qualifying need, not for long-term help with daily activities. Medicaid, financed by Washington and each state together, covers people whose income and savings fall below set limits. For dual-eligible people, it fills the gaps Medicare leaves: premiums, deductibles and copayments, and the long-term services and supports that many older adults with chronic illness and disability eventually need. Because long-term care is expensive and Medicare does not cover it, many middle-income people become dual eligible only after spending their savings on care.

The division has a logic, but it means no single payer is responsible for the whole person. The patient's hospital admissions are Medicare's cost, while her home aide hours are Medicaid's, even though the aide may be the reason she stays out of the hospital.

Conflicting Incentives

Grabowski (2007) described how this structure leaves both programs with an interest in limiting their own costs and neither with an incentive to manage the quality of care as a whole. He identified several forms of cost shifting. When a nursing home resident covered by Medicaid is admitted to a hospital and then returns for a skilled stay, Medicare pays the hospital and the skilled nursing days at a higher rate than the Medicaid daily rate, so the facility and the state both gain from a transfer that may not help the resident. A state that cuts Medicaid home care hours may push costs onto Medicare through more emergency visits and admissions. Medicare cost-sharing rules can also leave Medicaid paying for services it does not manage.

From an economic perspective, these are externalities between two payers. A program that does not bear the full cost of its decisions will make choices that are efficient for its own budget but inefficient overall. For the patient, the result can be repeated hospital trips, fragmented records and care planned around payment rules rather than her needs.

Evidence on Integrated Plans

Policymakers have responded by creating programs that place both funding streams under one organization. The main models are the Program of All-Inclusive Care for the Elderly, fully integrated special needs plans in which one company holds both the Medicare and Medicaid contracts, and the Medicare-Medicaid demonstration plans tested in several states. New Jersey offers fully integrated plans for dual-eligible residents who need long-term services.

Roberts et al. (2024) systematically reviewed 26 evaluations of these programs. They found that the all-inclusive programs and fully integrated plans were generally associated with fewer long-term nursing home stays, and several studies found more outpatient care, which may reflect better access. Results on hospitalizations and care coordination were mixed or inconclusive, and eight of ten studies of the demonstration plans found higher Medicare spending. The authors noted that evidence on patient experience and health outcomes was thin and that differences between people who chose integrated plans and those who did not were hard to control.

The economic case for integration is therefore clearer in theory than in evidence. Integration removes the externality between the two payers, and the strongest results, fewer long-term nursing home stays, match what the theory predicts. Savings to Medicare, however, have not been reliably shown.

A Different Approach: Japan's Long-Term Care Insurance

Japan faced an aging population and eroding family caregiving earlier than the United States and chose a different path. Tamiya et al. (2011) described the mandatory public long-term care insurance program Japan introduced in 2000. It operates on social insurance principles: benefits depend on assessed need, not on income or family situation, and recipients choose their services and providers. Only services are provided, not cash. After the program began, national survey data showed greater use of formal care at lower cost to households, though effects on family caregivers' wellbeing were mixed, and the system faces pressure on its finances and on the quality of home-based care.

The comparison highlights a choice the United States has not made. Japan treats long-term care as an insured risk for everyone, financed separately from medical care. The United States treats it mainly as a welfare benefit available after impoverishment, financed by Medicaid alongside medical care paid by Medicare. That design produces both the spend-down path into dual eligibility and the two-payer problem described above.

Assessment and Recommendation

For dual-eligible people, Medicare and Medicaid together provide coverage that is broad but poorly coordinated, and the split creates incentives that raise costs and fragment care. Integrated plans address the incentive problem directly and show promise on the outcome they were most expected to change, keeping people out of long-term nursing home care, but their effects on spending and health remain uncertain. A New Jersey health system with many dual-eligible patients should therefore partner with the state's integrated plans while asking for data on hospital use, nursing home admissions and patient experience among its own patients, and should support state efforts to require that plans report those results publicly. The broader lesson from Japan is that the two-payer problem stems from how the United States finances long-term care in the first place.

Conclusion

One older woman in Paterson has two public insurers, each covering part of her needs and each with reasons to shift costs to the other. Integration under one plan corrects that incentive and appears to reduce long-term nursing home use, but has not yet proven that it saves money or improves health. Japan's universal long-term care insurance shows that the split is a policy choice, not a necessity.

References

Grabowski, D. C. (2007). Medicare and Medicaid: Conflicting incentives for long-term care. The Milbank Quarterly, 85(4), 579-610. https://doi.org/10.1111/j.1468-0009.2007.00502.x

Roberts, E. T., Duggan, C., Stein, R., Jonnadula, S., Johnston, K. J., & Figueroa, J. F. (2024). Quality, spending, utilization, and outcomes among dual-eligible Medicare-Medicaid beneficiaries in integrated care programs. JAMA Health Forum, 5(7), Article e242187. https://doi.org/10.1001/jamahealthforum.2024.2187

Tamiya, N., Noguchi, H., Nishi, A., Reich, M. R., Ikegami, N., Hashimoto, H., Shibuya, K., Kawachi, I., & Campbell, J. C. (2011). Population ageing and wellbeing: Lessons from Japan's long-term care insurance policy. The Lancet, 378(9797), 1183-1192. https://doi.org/10.1016/S0140-6736(11)61176-8