Health Care Financing Administration

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The Health Care Financing Administration (HCFA) manages the federal government's largest health care financing programs and exercises regulatory and evaluative authority designed to assure the quality of health care services delivered to broad populations within the United States. Created in 1977, HCFA administers the federal Medicare program that purchases medical care for 39 million elderly and disabled individuals, as well as the Medicaid program that operates jointly under federal and state authority to provide care for 33 million low-income persons. Both of these entitlement programs were created in 1965 through amendments to the federal Social Security Act, and operated under separate federal agencies until HCFA was created in 1977 to manage them jointly. More recently, HCFA was given responsibility for administering a new federal health care financing program, the State Children's Health Insurance Program (SCHIP), created in 1997 to provide health insurance coverage for many of the nation's 11 million uninsured children. In managing these three programs, HCFA is the largest single purchaser of health care services in the United States. This substantial purchasing power allows the agency to influence the quality and efficiency of care delivered not just to individuals eligible for Medicare and Medicaid, but also to the U.S. population at large. In addition to its financing responsibilities, HCFA carries out an array of activities designed to encourage improvements in quality and efficiency among health care providers that participate in public programs.

HCFA is one of the eleven federal agencies that comprise the U.S. Department of Health and Human Services. HCFA's programs are carried out through a central office in Baltimore, Maryland, and a network of ten regional offices across the country (see Figure 1).

HCFA's budget was an estimated $342 billion in fiscal year 2000. Most of these resources were dedicated to the agency's three health care financing programsMedicare, Medicaid, and SCHIP. Federal expenditures for Medicare and Medicaid benefits grew from $41 billion in 1977 to an estimated $311 billion in 1999. HCFA's human resources remained relatively constant at approximately four thousand full-time equivalent personnel over the same years.

Medicare is the nation's largest health care financing program covering individuals at least sixty-five years old or who have permanent disabilities or kidney failure. Operating under explicit congressional authority, HFCA establishes the coverage policies, payment mechanisms and rates for services provided by hospitals, physicians, and other providers authorized to serve Medicare beneficiaries. HCFA relies on a network of private contractors for processing claims for payment. HCFA also contracts with managed care plans to serve beneficiaries who choose to receive health care through these plans.

Unlike the Medicare program, HFCA operates both the Medicaid program and the SCHIP program in partnership with state governments. Individual states hold the authority to establish program eligibility criteria and program benefit levels that are consistent with broad federal requirements. States also participate in the financing of these programs, with the federal government covering a proportion of Medicaid program expenditures that varies between a minimum of 50 percent and a maximum of 83 percent depending

Figure 1

on a state's per capita income level. Similar federal matching rates are used for the SCHIP program, although these rates are tied to estimates of low-income uninsured children in each state. Many states now contract with managed care plans to serve Medicaid and SCHIP recipients.

In addition to administrating health care financing programs, HCFA works to improve the quality and efficiency of health care delivery.

The health care programs and services administered by HCFA expand access to medical care for millions of Americans who would otherwise face barriers to care because of age, income, health status, or disability. These programs also provide important support for the nation's health-profession training facilities, through payments made to teaching hospitals for training physicians and nurses. HCFA faces myriad challenges in protecting the integrity and effectiveness of these vital public health insurance programs, including those posed by demographic changes, shifts in income and employment, rising health care costs, diversifying health care technologies, and changing political priorities and social values. But the agency also has opportunities to use its administrative authority over public programs in order to encourage improvements in the quality and efficiency of care provided throughout the U.S. health care system. In these ways, HCFA helps to shape the American public health system through its purchasing power, its regulatory authority, and its policy leadership.

William L. Roper

Glen P. Mays

(see also: Economics of Health; Personal Health Services )


Federal Hospital Insurance Trust Fund (1999). Annual Report of the Board of Trustees of the Federal Hospital Insurance Trust Fund. Washington, DC: U.S. Government Printing Office.

Medicare Payment Assessment Commission (MedPAC) (1999). Report to the Congress: Medicare Payment Policy. Washington, DC: U.S. Government Printing Office.

U.S. Health Care Financing Administration (HCFA)(1998). Medicare Fact Book. Washington, DC: U.S. Government Printing Office.

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Health Care Financing Administration

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