As the election heats up, Medicare is quickly becoming as important an issue as the Patient Protection and Affordable Care Act itself.
Though Medicare reform was not the primary intent of the PPACA, the legislation does depend on massive funding changes to Medicare in order to pay for itself. As we head into November, we can expect the administration to defend those changes while the GOP ticket will be presenting its own solutions.
First let’s take a look at some of the major changes that have affected Medicare already under health reform:
- Increases in Medicare Part B and D premiums for higher-income Medicare beneficiaries
- Improvement in Part D coverage that began in 2011. Beneficiaries now receive a 50 percent discount on their brand name medications during the Part D coverage gap, and discounts on generic medications as well. These savings under the PPACA will grow gradually over the next decade so that by 2020, the administration hopes to see the Part D coverage gap entirely closed.
- Annual routine preventive care also was strengthened by the PPACA, whereas Medicare previously only provided a one-time physical upon initial entry into Medicare. Preventive services also now require no cost-sharing by the beneficiary.
These changes—while welcomed by Medicare beneficiaries—come at a high price tag. According to the Congressional Budget Office, Obamacare will reduce the growth of Medicare spending by more than $500 billion over 10 years even as baby boomers age into Medicare at record rates. The specific items that make up the major part of this reduced spending growth are:
- Reductions in the scheduled annual increases in payments to Medicare health care providers, including physicians, hospitals and skilled nursing facilities.
- Reductions in payments to Medicare Advantage plans overall, but including reform that will allow for the plans to achieve bonuses if they receive high ratings for the quality of care provided.
- A new Independent Payment Advisory Panel is created whose responsibility will be to recommend reductions in Medicare spending to keep spending below specified targets.
- Increases to the Medicare Part A tax from 1.45 percent to 2.35 percent on earnings over $200,000 for individuals and $250,000 for couples, beginning in 2013.
Cuts and concerns
The cuts in doctor payments actually have been called for in prior legislation for many years, but Congress repeatedly steps in at the last minute and kicks the can down the road to stop a mass exodus of providers from the Medicare program. Since the PPACA doesn’t address these scheduled cuts, providers fear they’ll finally see their fees cuts under the law. The concern here, of course, is that fewer providers will accept Medicare, but that remains to be seen.
It should be noted that the PPACA does allow for about $8 billion to increase fees paid to primary care physicians in order to attract more of them into participating in the Medicare program.
Regarding the cuts to Medicare Advantage, the Congressional Budget Office projects the cuts will result in fewer Medicare Advantage enrollees and fewer benefits offered in the plans themselves. It’s possible we’ll see fewer plans available overall in the marketplace.
The administration feels the government overpays private Medicare health plan carriers, and that, therefore, those carriers have room to operate at lower reimbursement levels. A major fear among consumers is that Medicare Advantage companies simply will discontinue their plans, leaving beneficiaries with fewer available options in the overall marketplace.
There also are a number of other more minor reforms introduced by the PPACA that address quality and the delivery of health care as well as payment reforms, such as those aimed at reducing payments for preventable hospitalizations.
In contrast, the Romney plan takes an entirely different approach to Medicare reform that incorporates some of Congressman Paul Ryan’s original GOP proposals.
In essence, the Romney plan could be called a delayed “defined contribution” plan. By delayed, they mean people on Medicare right now, or approaching the age of Medicare eligibility in the next decade, would see no change.
However, younger Americans (under age 55) would see their future Medicare reformed into a program in which each beneficiary would be given a certain amount of money annually from the federal government he or she could then use toward the cost of buying their own private Medicare health plan or traditional Medicare.
Some of the key components of the Romney plan are:
- Future Medicare insurance plans will be required to provide benefits comparable to what Medicare already offers.
- Seniors with lower incomes still will have access to savings programs that help them to get adequate coverage.
- The fixed-benefit amount given to each beneficiary would be meant as “premium support.” Essentially this means beneficiaries should understand this program is designed to pay for some of the costs of their health coverage during retirement, but the defined benefit might not cover all their expenses.
- Beneficiaries would be able to choose from richer plans and pay the difference between their premium support allowance and the actual cost of the plan. Likewise, if they choose a more affordable plan, they might have leftover money from their premium support allowance they could use toward copays or deductibles that their plan might require.
While traditional Medicare still would be available from the federal government, there is no guarantee the federal plan would be cheaper than other alternatives in the marketplace. In fact, federal Medicare would be competing as an insurance plan against private carriers also offering their own Medicare plan options to the public.
The Romney plan doesn’t call for any changes to Medicare’s system where people who earn higher incomes pay more for their Medicare benefits, so it would seem claims by the administration that a Romney/Ryan ticket would benefit the rich are unfounded.
In a Romney-reformed Medicare system, those wealthier beneficiaries would see less premium support than lower income beneficiaries. Instead of externally attempting to slow the growth of Medicare spending, the Romney plan relies on the laws of free market supply and demand, whereby natural competition between private insurance companies would hopefully not only hold costs down but hopefully drive the quality of care up.
The Obama campaign team is attacking the Romney plan as a “voucher” system that would cost Medicare beneficiaries more than $6,400 a year beyond what they pay now. But Obamacare cuts to Medicare Advantage would also likely make for considerably higher spending by beneficiaries, so there is a lot left up to the individual consumer here to decide which program he feels is in his best interest.
According to Romney’s website, his plan intends to address the inherent funding problems in the current Medicare system which has resulted in the program’s unsustainability.
Whether American voters, including millions of seniors, accept the need for such fundamental reform and are willing to make the sacrifices necessary to save the program is something that we won’t know until Nov. 6.
Danielle Kunkle is the immediate past president of the Fort Worth Association of Health Underwriters, and the co-owner of Boomer Benefits, an insurance agency specializing in Medicare. You can learn more about Medicare legislation by visiting the blog on her agency’s website, www.boomerbenefits.com.