Who Are "Dual Eligibles?"
Dual eligibles include approximately nine million people who are among the most vulnerable in our society. To be eligible for both programs, they must be low-income, to qualify for Medicaid, and either over age 65 or disabled, to qualify for Medicare (they are often both). More than half of dual eligibles live below the poverty line. They are more likely to suffer from chronic conditions--particularly diabetes, cardiovascular disease, and Alzheimer's--than are the Medicare or Medicaid beneficiaries who qualify for only one program.
Unsurprisingly, dual eligibles are an extremely expensive population to insure, and represent a disproportionate percentage of both Medicaid and Medicare expenditures: approximately 40 percent of total Medicaid expenditures, despite their making up only 15 percent of Medicaid enrollment. One study calculated that a dual eligible costs Medicare almost twice as much as the average Medicare beneficiary.
The current payment system for dual eligibles is set up in a way that denies both programs the ability to control overall costs. Rather than being covered by two programs, dual eligibles are more accurately a part of neither, as neither program has clear responsibility, and both programs have incentives to shift costs onto the other.
Under the current system, a dual eligible is caught in a complicated division of financing between the two programs. For many dual eligibles, Medicaid pays for nursing home services or supports and services at home. In fact, more than two-thirds of Medicaid funding for dual eligibles goes to long-term care. Meanwhile, Medicare pays for hospital care, outpatient physician care, and prescription drugs--but Medicaid must pick up a dual eligible's premiums, deductibles, and copays. Medicaid also pays for many support services that are not covered by Medicare, such as transportation, dental, and vision.
In reality, this fragmented payment structure creates a system whereby neither Medicare nor Medicaid has an incentive to control costs, because the cost-controlling program is unlikely to reap the rewards. For example, because Medicare will cover the entirety of a beneficiary's hospital stay, Medicaid has no incentive to invest in services, technologies, or staff that will prevent hospital stays for long-term care recipients. Indeed, the Centers for Medicare and Medicaid Services estimated that approximately 40 percent of hospitalizations for dual eligibles in 2005 were potentially avoidable, costing the government more than $3 billion.
Meanwhile, providers must bear the additional costs of having to deal with complex reimbursement provisions for not just one insurer but two. Often, providers are required to first bill Medicare, then to bill Medicaid to cover the beneficiary's Medicare deductible or co-insurance. Then, if Medicaid reimbursement rates are less than Medicare, as they often are, providers are instructed to claim a portion of the unreimbursed amounts as "bad debt," a portion of which can be reimbursed by Medicare. Confused yet?