If you are on Medicare, you and others like you are probably going to be more affected by the new
health reform law than any other population group.
Benefits of Reform
There are a number of new benefits, including the following:
- Medicare will pay for an annual checkup.
- Deductibles and co-payments for many preventive services and screenings (colonoscopies, mammograms and bone mass density tests, etc.) will be eliminated.
- If you are in the prescription drug “donut hole” and you are not getting other drug subsidies, you may qualify for a $250 rebate.
- Eventually (in 2019), the donut hole will be eliminated.
Costs of Reform: Cuts in Medicare Spending
If you are in conventional Medicare, you can expect that reduced spending will average $290 in 2014. If you are in a Medicare Advantage plan, you can expect more severe cuts: $1,267 in 2014. If you are able to retain your coverage, these cuts will lead to increases in premiums or reductions in benefits. Note that these cuts are on top of a planned 30 percent cut in doctor fees that are already part of current law, but that Congress has been postponing for the past nine years. Comparing the path we have been on to the path required under the new law is expected to have the following effects.
- The annual reduction in spending will reach $2,300 per beneficiary by 2020, $3,844 by 2030, and $9,413 by midcentury (all numbers at current prices).
- By the time today’s teenagers reach the retirement age, one-third of Medicare will effectively be gone.
Moreover, in some cities, the combined effect of cuts in Medicare and cuts in Medicare Advantage will be especially large. By 2017, thousands of people in Dallas, Houston, and San Antonio will face more than $5,000 a year in lost healthcare benefits, according to one study. For some New York City dwellers, the figure will exceed $6,000 a year. Residents of Ascension, LA, will lose more than $9,000 in benefits.
The Obama administration claims that it will target these cuts to eliminate waste—to encourage low-cost, high-quality care and discourage high-cost, low-quality practices. Critics are not hopeful. In fact, Medicare’s own actuaries believe that the most likely way spending cuts will be made is through a reduction in fees paid to doctors, hospitals, and other providers. Two concerns are especially worrisome.
- Medicare fees will fall below Medicaid rates by 2019 and continue to fall further behind other payers in the years that follow.
- By 2050, Medicare will pay only half as much as private plans pay; by 2080, it will pay only one-third.
Costs of Reform: Reduced Coverage for Prescription Drugs
Under current law, employers who provide their employees with postretirement healthcare benefits can set up and administer retiree drug plans as an alternative to Medicare Part D. In return, employers get subsidies worth about $665 per retiree, and tax breaks make the value of the subsidy even higher. The Patient Protection and Affordable Care Act removes the tax subsidy, however, and the loss to major employers is substantial:
- AT&T estimates the change will cost it $1 billion.
- John Deere estimates it stands to lose $150 million.
- Caterpillar puts the loss at $100 million.
- A Credit Suisse report estimates that S&P 500 companies face losses of $4.5 billion.
In response, many large firms will completely do away with their retiree drug plans.
In addition, 27 million seniors will pay higher premiums for the Medicare Part D Plan to allow the donut hole to be closed. Only 4 million seniors are thought to reach the donut hole annually, but fewer than 1 million will surpass the threshold and receive the full benefit of closing the donut hole. Expect your premiums to rise to pay for this benefit.
How Cuts in Medicare Spending Will Be Made
The new law assumes that the federal government can make Medicare grow at about half the rate of growth of healthcare spending overall and eventually no faster than the rate of growth of national income. To achieve this goal, the law gives an Independent Payment Advisory Board (IPAB) the power to recommend spending cuts. Congress must either accept these cuts or propose its own plan to cut costs as much or more than the IPAB’s proposal. If Congress fails to substitute its own plan, the IPAB’s cuts will become effective. In this way, the growth rate of Medicare spending will be officially capped.
This approach gives an independent agency much more power than any similar agency has had before. However, there are two problems. First, the IPAB is barred from considering just about any cost control idea other than cutting fees to doctors, hospitals, and other suppliers. Second, this implies that Medicare fees will fall further and further behind private payments, making Medicare patients less desirable customers to the medical community. In some parts of the country, doctors are increasingly reluctant to take Medicare patients—including the Mayo Clinic in Arizona.
For more details, please see my Independent Institute book, Priceless: Curing the Healthcare Crisis.
1. Thomas R. Saving, “How Will the Affordable Care Act Affect the Elderly and Disabled on Medicare?” National Center for Policy Analysis, http://www.ncpa.org/pdfs/NCPA-Social-Security-Trustees-Briefing-2010.pdf.
2. Robert A. Book and James C. Capretta, “Reductions in Medicare Advantage Payments: The Impact on Seniors by Region,” Heritage Foundation, September 14, 2010, http://www.heritage.org/research/reports/2010/09/reductions-in-medicare-advantage-payments-the-impact-on-seniors-by-region.
3. John D. Shatto and M. Kent Clemens, “Projected Medicare Expenditures under an Illustrative Scenario with Alternative Payment Updates to Medicare Providers,” Office of the Actuary, Centers for Medicare & Medicaid Services, U.S. Department of Health & Human Services, August 5, 2010, http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/downloads//2010TRAlternativeScenario.pdf.
4. Kris Maher, Ellen E. Schultz, and Bob Tita, “Companies Take Health-Care Charges,” Wall Street Journal, March 26, 2010; David Reilly, Ellen E. Schultz and Ron Winslow, “AT&T Joins in Health Charges,” Wall­ Street Journal, March 27, 2010.
5. Congressional Budget Office, “Comparison of Projected Medicare Part D Premiums under Current Law and under Reconciliation Legislation Combined with H.R. 3590 as Passed by the Senate,” March 19, 2010, http://www.cbo.gov/ftpdocs/113xx/doc11355/Comparison.pdf.
6. Todd Ackerman, “Texas Doctors Fleeing Medicare in Droves,” Houston Chronicle, May 18, 2010, http://www.chron.com/news/houston-texas/article/Texas-doctors-fleeing-Medicare-in-droves-1718866.php. “Medicare and the Mayo Clinic,” Wall Street Journal, January 8, 2010, http://online.wsj.com/article/SB10001424052748703436504574640711655886136.html.