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The $1 TRILLION Mystery: How Government Funding to Health and Aging Flows

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By Jacquelyn Kung

This question comes up a lot, and the purpose of this article is to answer it at a high level. (If you work in any of these areas of government, or health/aging, you will know that this article is extremely general. Within each area is a huge maze of intricacies.)

The Federal Level

At a federal level, there is approximately $1 trillion that flows to healthcare and aging. 

The vast majority of this $1 trillion is deployed by an agency within Health and Human Services (HHS) called the Centers for Medicare and Medicaid Services (CMS).

Of this $1 trillion, a bit over half goes to Medicare, and the other just-shy-of half gets distributed to states for their Medicaid programs.

A small sliver of Federal monies is dedicated to what is called Title IIIE of the Older Americans Act (OOA -- to support county-level Area Agencies on Aging (AAAs). These programs within the Administration for Community Living (ACL), the Meals on Wheels program, for instance, was originally funded here.

Medicare

The vast majority of Federal Medicare money is spent paying for medical care for beneficiaries. Of this nearly $600 billion, approximately 40% goes to privatized health plans run by commercial insurance companies and are called Medicare Advantage or Medicare Part C.

Of the remaining, 60% of Medicare money goes largely on a fee-for-service basis to traditional Medicare Part A (hospitals), Part B (doctors and outpatient) and Part D (drugs/medications).

In traditional Medicare, the name of the game has been codes . . . billing codes. There are 10+ types of billing codes in the Medicare world, depending on the silo you're looking at, and each area often has its own patient data assessment that is required. These requirements are changing a bit given recent legislation.

The Biggest Trend

The biggest trend in federal Medicare money is that it is being spent on "value-based" care, driven by the Centers for Medicare and Medicaid Innovation (CMMI). This means different models of healthcare delivery that make sure the patient gets and stays better, as opposed to paying for each break in the widget that comes through the factory (i.e., how traditional fee-for-service/FFS Medicare works ).

This mandate toward spending on value-based care manifests in accountable care organizations (ACOs), as well as an the emphasis on primary care, care coordination, and integrated records and care. What it means on a practical basis is that the majority of care that will historically go to hospitals and skilled nursing facilities (SNFs), but also inpatient rehabilitation facilities (IRFs) and long-term acute care (LTACs), increasingly will be moved to lower cost settings. Usually this means into the home through a combination of home health, home care, and other services delivered into the home. Of course, today the majority of this "value-based care" or VBC is still technically paid on a fee-for-service basis with some incentive for upside.

Over time, Medicare has started to offer prevention and coordination/planning services, rather than paying for care after an incident has occurred, but it is slow going. The rules are written very strictly, therefore, the administrative portion of Medicare cannot be spent on reducing costs in the beneficiary spend part of Medicare. It also takes an act of Congress to change what Medicare covers.

Other federal money on aging is spent funding research (NIH/NIA), quality assurance standards (ARHQ), or rules enforcement (DOJ). These areas are marginally much smaller than the CMS budget item.

The State Level

While Federal monies are largely spent on addressing medical conditions, states are often left with the bonus of caring for real aging. This is through Medicaid dollars.

By way of backdrop, aging often leads to disabilities, which require long term care (LTC). LTC includes personal care activities such as assistance with walking, showering, eating, toileting, and other tasks.

Medicaid

Since Medicaid is an income and asset eligibility program, poor seniors and disabled adults have traditionally been placed in nursing homes, in the long term care wings. Here, they get help with LTC tasks.

While administered by state Medicaid offices, Medicaid programs receive nearly half $1 trillion dollars of federal funding. States also contribute a total of half $1 trillion of funding, depending on the federal medical assistance percentage (FMAP). Some states contribute as low as 25% of their Medicaid spend, while other states contribute over 50% of their Medicaid spend. In total, approximately $500 billion is spent across the 50 states towards Medicaid spending.

Nearly half of Medicaid spending, varying by state, goes towards paying for nursing home care. Of course, this is unsustainable given the aging, and increasingly disabled, population.

More frequently, state Medicaid offices are focusing on long-term services and support (LTSS) programs as a means to avoid expensive nursing home care for seniors and disabled adults.

To be able to run these programs using federal money, though, states must apply for waivers or approvals to use federal money in certain ways.

No state Medicaid program is the same, so the way money is spent varies significantly across states. In general, Medicaid programs are trending towards managed-care, often managed by commercial insurance companies.

Moreover, there is a special segment or industry around the dual-eligible population, sometimes it is called Medi-Medi. Those eligible for Medicare and Medicaid (so you are old AND poor) command a lion's share of health care and aging spending. So there are many programs and companies who specialize in serving the 'duals.'

At the County/Local Level

County and local governments are increasingly needing to address the aging and disabled population. Historically they have done so through the AAA programs, funded by the federal title 3E funds, and largely providing resources and referrals as well as respite care for families caring for their loved ones.

As you can see, the government funding to health and aging is not straightforward! If you have any questions, let me know.

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