Anyone who voted in the 2012 presidential election likely heard, over and over again, that cuts to Medicare of about $700 billion were a part of both Republican and Democrat plans to reform health care.
While the Democrat plan – also known as the Affordable Care Act (ACA) or “Obamacare” – ultimately won out as a result of President Obama winning reelection, many people don’t really understand how or what Obamacare actually does to reduce Medicare spending.
If you’re curious, here is our very simple Q&A:
1. Does Obamacare actually cut Medicare?
No. Neither plan would have cut Medicare spending. With Obamacare, the government will still spend money on Medicare, and the amount of money it spends will still increase each year. What will change is the rate or speed at which that money is spent.
According to the Medicare Board of Trustees, Medicare Part B spending has increased an average of 5.9 percent over the last 5 years. The ACA reduces that growth rate to one percent over Gross Domestic Product (GDP).
2. How does Obamacare reduce the rate of spending increases on Medicare?
a. It raises Medicare taxes for the wealthy – The law raises certain taxes on individuals earning over $200,000 and couples earning over $250,000, and also raises taxes on unearned income for higher-income taxpayers starting in 2013.
b. It is supposed to change plan payments – Payments to Medicare Advantage plans were restructured so more is paid for managed care and less for fee-for-service. New payment structures are phased-in over a 3 to 6 year period. Plans that get higher quality scores receive bonuses. And, Medicare Advantage plans must send rebates to the government if they spend less than 85% of premiums on enrollee medical care beginning in 2014. *This change was delayed early in 2013.
c. It creates Accountable Care Organizations (ACOs) – Health care providers can organize into ACOs, which must be accountable for the overall care of their Medicare beneficiaries and have adequate participation of primary care physicians, define processes to promote evidence-based medicine, report on quality and costs, and coordinate care. ACOs that voluntarily meet quality thresholds share in the cost savings they achieve for the Medicare program. These go into effect in 2013.
d. It reduces payments to providers who deliver insufficient care – The ACA reduces Medicare payments to hospitals by specified percentages when patients are excessively readmitted for things that could or should have been prevented (effective October 1, 2012). Medicare payments are also reduced to hospitals when a patient acquires a condition while in the hospital. Fees are reduced by 1% (effective fiscal year 2015).
e. It establishes an Independent Payment Advisory Board (IPAB) – This 15-member group will make recommendations on how to limit Medicare’s growth rate when costs exceed GDP per capita plus one percent. If reductions are necessary, the IPAB recommendations would be made on January 15, 2014.
3. How much money would these changes actually save?
The Congressional Budget Office and the Joint Committee on Taxation found that over a ten year period (source):
a. Hospital Reimbursements would be reduced by $260 billion.
b. Reimbursements to Medicare Advantage plans would be reduced by $156 billion.
c. Skilled nursing services would be reduced by $39 billion.
d. Home health services would be reduced by $66 billion.
e. Hospice care would be reduced by $17 billion.
4. How does this impact the “Doc Fix?”
The term “Doc Fix” refers to the fact that every year in the United States, health care costs outpace inflation. Each year, the government is only supposed to increase reimbursements for doctors who accept Medicare by an amount less than or equal to the rate of inflation. But each year, Congress passes “Doc Fix” legislation that ensures care providers will get reimbursed and Medicare patients won’t be denied access to their doctors.
Obamacare was supposed to end the Doc Fix, but that has not happened thus far. According to the Medicare Board of Trustees, “a physician fee reduction of almost 31 percent was called for in 2013 under current law.”
Lawmakers did ultimately override this reduction as they had each year since 2003. The Medicare Board of Trustees said this would increase the projected growth rate of Medicare Part B costs to 7.6 percent, from the 4.9 percent rate originally projected by the Affordable Care Act (source).
5. The $700 billion question is, how will these changes really impact Medicare?
Republicans will argue that Obamacare will push more costs onto seniors and/or force doctors and hospitals to stop seeing patients on Medicare. Democrats will argue that the law will make Medicare better, more stable, and fiscally sound. The truth probably lies somewhere in the middle, but it’s difficult to know as many of the law’s key provisions have yet to be implemented or have been delayed.
6. What can seniors actually do to be ready for these changes?
We strongly encourage consumers to develop a basic understanding of how Medicare works, and what products are available to help you reduce your personal out-of-pocket costs. This way you can make more informed decisions when you review your Medicare coverage, or when you vote.
At eHealth we know from our 2012 Baby Boomer Survey of over 450 baby boomers that as many as 77 percent do not understand the very basic features of Medicare. In fact, each year, according to eHealth’s Choice & Impact Study, people on Medicare leave hundreds of dollars on the table because they haven’t taken the time to understand how Medicare works, and to make sure they’re getting the most out of the program.
Many of the pending changes to Medicare wouldn’t really begin to impact seniors for several years. In the intervening years, millions of baby boomers will retire. And, if they’re not aware of how the program functions, they won’t be able to make informed decisions about which political party’s plan is better for the country.
Medicare has not reviewed or endorsed this information.