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The $716 Billion Question: Strengthen Medicare, or Tax Breaks for the Wealthy?

Since passage of the Affordable Care Act (ACA), Republicans have accused Democrats who voted for health care reform of "cutting" Medicare. At the same time, Republicans in the House of Representatives have supported four Republican budget resolutions, introduced by House Budget Committee Chairman Paul Ryan (R-WI), that retain the same savings in Medicare spending while repealing the Affordable Care Act's Medicare improvements.

The Affordable Care Act

The Affordable Care Act (ACA), health care reform legislation that was signed into law by President Obama in March 2010, includes provisions that will reduce previously-projected Medicare spending by $716 billion over ten years, from 2013 to 2023. This slowdown in Medicare spending comes mainly from reducing the rate of increase in payments to hospitals and other providers. Their payments will continue to rise each year but at a slower rate than before passage of the ACA. Additional savings are achieved by freezing and then gradually reducing payments to private Medicare Advantage plans to bring them in line with traditional Medicare. Previously, private plans were being paid as much as 14 percent more per beneficiary than it would cost to provide care in traditional Medicare. Today the average overpayment is approximately six percent.

The Affordable Care Act does not cut any of Medicare's benefits. Rather the savings are being used to pay for benefits that are improving health care and saving money for millions of Medicare beneficiaries. These benefits include preventive screenings and services, and annual wellness visits and personalized prevention plans with no out-of-pocket costs, as well as discounts on prescription drugs in the Part D coverage gap known as the "donut hole" which will be closed by 2020. The Centers for Medicare and Medicaid Services recently reported that since the passage of the ACA, over 7.9 million Medicare beneficiaries in the Medicare Part D donut hole have saved $9.9 billion on their prescription drugs, an average of $1,265 per person. Also, 37.2 million people with Medicare took advantage of at least one preventive service with no cost sharing, including an estimated 26.5 million people with traditional Medicare, and more than 4 million who took advantage of the Annual Wellness Visit.

Because of the Medicare savings in the ACA, the projected solvency of the Medicare Part A Hospital Trust Fund has been extended by ten years, from 2016 to 2026, and beneficiaries' Part B costs are lower than projected. In 2012, for the first time ever, the Part B deductible decreased from $162 to $140 per year; and the Part B monthly premium of $99.90 was over $6.00 lower than was projected in the 2011 Medicare Trustees Report. The 2013 Part B monthly premium - $104.90 – was also lower than previously projected by the trustees, and it did not increase in 2014.

The Affordable Care Act is reforming Medicare without dismantling the program or increasing costs for beneficiaries. The ACA also offers new incentives for providers to transform Medicare into a system that pays for quality rather than the quantity of services provided. And it strengthens Medicare's financing by increasing efforts to reduce waste, fraud and abuse. By building on the reforms in the ACA, Medicare can be strengthened and preserved for beneficiaries today and in the future.

The Ryan/GOP Budget

The Republican Budget Resolution, H. Con. Res. 96, which passed the House of Representatives on April 10, 2014, assumes the same Medicare savings that are included in the Affordable Care Act (ACA). This means that the 219 Members of Congress, including all but 12 Republicans, who voted for it also voted for the $716 billion in Medicare savings. However, they also voted to repeal all other provisions of the Affordable Care Act including the Medicare improvements. Instead of using the savings to strengthen Medicare and expand benefits, they would use the $716 billion in Medicare savings to reduce federal spending and to increase tax breaks for wealthy Americans.

In addition to retaining the ACA's Medicare savings, supporters of the Republican Budget Resolution voted for Chairman Ryan's plan to privatize Medicare and achieve savings for the federal government by ending traditional Medicare and shifting rising health care costs to seniors. Beginning in 2024, when people become eligible for Medicare they would not enroll in the current traditional Medicare program which provides guaranteed benefits.  Rather they would receive a voucher, also referred to as a premium support payment, to be used to purchase private health insurance or traditional Medicare through a Medicare Exchange.  The amount of the voucher would be determined each year when private health insurance plans and traditional Medicare participate in a competitive bidding process. Seniors choosing a plan costing more than the average amount determined through competitive bidding would be required to pay the difference between the voucher and the plan's premium. In some geographic areas, traditional Medicare could be more expensive. This would make it harder for seniors, particularly lower-income beneficiaries, to choose their own doctors if their only affordable options are private plans that have limited provider networks.

The Ryan budget proposal calls for private plans to provide benefits that are at least actuarially equivalent to the benefit package provided by fee-for-service Medicare. This gives private companies the ability to tailor their plans to attract the youngest and healthiest seniors, even if payments are "risk adjusted" to take health status into account, which would leave traditional Medicare with older and sicker beneficiaries. Their higher health costs would lead to higher premiums that people would be unable or unwilling to pay, resulting in a death spiral for traditional Medicare. This would adversely impact people age 55 and older, including people currently enrolled in traditional Medicare, despite Chairman Ryan's assertion that nothing will change for them. 

In addition to privatizing Medicare, the Ryan budget would increase the age of eligibility for Medicare from 65 to 67 by increasing it two months per year from 2024 to 2035. Raising the Medicare eligibility age is a benefit cut. Although this proposal would save money for the federal government, it would increase system-wide health spending by increasing costs for everyone else – 65 and 66 years olds who would have to buy private insurance, which can be age rated; younger people buying health insurance coverage in an older risk pool; Medicare beneficiaries left in an older and less-healthy risk pool; employers providing health insurance to workers and retirees and State Medicaid programs.

Government Relations and Policy, April 2014

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