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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 five Republican budget resolutions, introduced by House Budget Committee Chairmen Paul Ryan (R-WI) and Tom Price (R-GA), 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 five 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 10.7 million Medicare beneficiaries in the Medicare Part D donut hole have saved $20.8 billion on their prescription drugs, an average of $1,945 per person. Also, 39.2 million people with Medicare took advantage of at least one preventive service with no cost sharing, and more than 9 million who took advantage of the Annual Wellness Visit including more than 5.8 million with traditional Medicare.

Because of the Medicare savings in the ACA, the projected solvency of the Medicare Part A Hospital Trust Fund has been extended by 14 years, from 2016 to 2030, 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 or 2015.

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 Price/GOP Budget

House Budget Committee passed-Budget Resolution for Fiscal Year 2017, introduced by Budget Committee Chairman Tom Price (R-GA), would achieve savings for the federal government by privatizing Medicare. Beginning in 2024, when people became eligible for Medicare they would not enroll in the current program; rather, they would receive a capped payment to be used to purchase private health insurance or traditional Medicare. This could increase their out-of-pocket health care costs and limit their choice of doctors. 

Representative Price claims that nothing would change for people who are already age 55 and older, but this is not true. Chairman Price's budget resolution calls for private plans to provide benefits that are at least actuarially equivalent to the benefit package provided by fee-for-service Medicare, which gives private insurance companies incentives to manipulate their plans to attract the youngest and healthiest seniors. This would leave traditional Medicare with older and sicker beneficiaries whose higher health costs could lead to higher premiums that they and others would be unable or unwilling to pay, resulting in a death spiral for traditional Medicare. This could adversely impact people age 55 and older, including people currently enrolled in traditional Medicare, despite the assertion that nothing will change for them.

In addition to ending traditional Medicare, the Price Medicare plan would repeal parts of the Affordable Care Act (ACA). This includes the elimination of improvements already in place for current Medicare beneficiaries - closing the Medicare Part D prescription drug coverage gap, known as the "donut hole;" preventive benefits and annual wellness exams with no deductibles or copayments, and improvements in the quality of care they receive. The Medicare savings in the ACA – cutting waste, fraud and abuse, eliminating taxpayer handouts to insurance companies who offer private Medicare plans and slowing the rate of increase in payments to some providers – are maintained but the savings are used for deficit reduction and tax breaks for the wealthy, not to strengthen Medicare and expand benefits.

The Price Medicare plan would raise the age of eligibility for Medicare from 65 to 67. This provision, coupled with repealing the Affordable Care Act, would increase costs for millions of older Americans. Without the guarantees in the ACA, such as requiring insurance companies to cover people with pre-existing medical conditions and to limit age rating, it would be very difficult and expensive for people 65 and 66 to purchase private insurance. Raising the eligibility age would also increase costs for Medicare as younger, healthier people are eliminated from the risk pool and costs are spread across an older, less-healthy population. 

Government Relations and Policy, April 2016



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