School Yourself: An Advocate's Guide to Medicare

Everything You Wanted to Know About Medicare But Were Too Busy to Ask

Medicare has successfully provided affordable health insurance for seniors older than 65 and those with disabilities since signed into law by President Lyndon B. Johnson in 1965. Today, Medicare covers more than 44.1 million seniors and 7.2 million disabled people. While Medicare manages costs more efficiently than traditional private insurance, rising health care costs nationwide have prompted calls from fiscal hawks that the Medicare program is unsustainable and should be reduced. The passage of the Affordable Care Act will add years to Medicare’s solvency yet the debate rages on about its future.

This toolkit will help you better understand the Medicare program, recent changes resulting from health care reform and proposed cuts that could harm the future of the program.

Medicare and Health Care Reform FAQ's

Will Medicare be cut to pay for the uninsured in the Affordable Care Act?

Despite the fear mongers' claims, Medicare benefits will not be cut to pay for covering the uninsured. Before the Affordable Care Act, the federal government was projected to spend about $6 trillion on the Medicare program over the next decade. After enactment of health reform, Medicare is still projected to spend about $5.6 trillion. That means over the next 10 years about $450 billion less of American's money will be spent on wasteful tests, haphazard treatment options, wasteful subsidies to private insurance companies and reimbursement policies that drive up costs without improving the quality of care seniors receive. The rate of growth will be trimmed by about 1.0 percent over the next 10 years, from about 6.8 percent growth rate to 5.8 percent - hardly the destruction of Medicare that opponents have claimed.

As a result, the lifespan of the Medicare Trust Fund will more than double: its solvency will be extended from 2017 to about 2026. Medicare will continue to grow to meet the needs of an expanding older population, but it will grow at a slower rate that will more closely match the growth of the rest of the economy. And because health reform is designed to slow the growth of costs in the entire health care system at the same time, seniors' out-of-pocket costs will be trimmed without driving providers out of the Medicare program or creating other barriers to care.

What new benefits in Medicare will I see in the new law?

In addition to slowing costs, health care reform will provide a wide range of benefit improvements for seniors.

In a key improvement designed to help keep seniors healthy, preventive care will no longer require co-payments, the number of covered preventive services will be expanded, and for the first time, Medicare will cover an annual wellness visit and personalized prevention plan for every beneficiary. In addition, health reform will protect seniors' access to doctors by making bonus payments to primary care providers and making new investments in training programs, scholarships and tax incentives for doctors, nurses and public health professionals who provide primary health services.

How does Health Care Reform close the Part D “Doughnut Hole”?

In a dramatic reform to the Part D prescription drug program, seniors will no longer experience the coverage gap known as the donut hole. As a down payment on this important reform, any senior who enters the donut hole in 2010 will receive a payment of $250 to help cover the cost of his or her prescription drugs. Seniors will receive this rebate even if they have only entered the donut hole by a single dollar. Beginning in 2011, all seniors in the donut hole will receive a 50 percent discount on their brand-name drugs - a discount which will expand to 75 percent and will cover both brand-name drugs and generics by the end of the decade. This discount expansion effectively closes the donut hole for all beneficiaries. For a typical senior in the donut hole, this represents a savings of $250 in 2010, $700 in 2011, and over $3,000 by 2020.

As a further improvement to the drug program, both the discount amounts and seniors' out-of-pocket drug costs will count toward reaching the threshold for catastrophic coverage. The dollar amount of the threshold will also grow more slowly in the future. These two changes will allow seniors with high prescription drug expenses to more quickly reach the point at which the federal government picks up 95 percent of their drug costs.

What benefits exist for Low-Income Seniors?

Health reform also makes it easier for low-income seniors to enroll in plans without any premiums, and reduces the number of low-income seniors who are required to change plans each year to maintain their zero premiums. In addition, it will become easier for widows and widowers to keep their low-income eligibility after the death of a spouse.

To protect seniors who become hospitalized, health reform rewards hospitals that reduce preventable readmissions. This change will help ensure that seniors are not released from the hospital before they are healthy enough to leave, and will create incentives for hospitals to provide outpatient support once seniors have been released.

The current fee-for-service payment system rewards providers who order the most tests and procedures, not necessarily those who provide the best quality health care. We all know of seniors who have been subjected to unnecessary and potentially dangerous tests, not because they were needed but because they were profitable for the providers. This system not only puts seniors' health at risk from unneeded tests and procedures, it makes it hard to clamp down on rising costs. As Medicare reduces the amount it pays for each test, many providers simply increase the number of tests they order to maintain their profit margins, thus undermining previous efforts at cost containment.

Health reform makes a number of changes to the way we pay providers that are designed to realign the financial incentives built into our current system - and to begin paying for quality rather than quantity. These include bundling payments to some providers; providing incentives to encourage the development of more coordinated models of health care delivery, especially for seniors with multiple chronic conditions; and putting hospitals and other providers on the road toward value-based purchasing. The legislation also establishes a new Center for Medicare & Medicaid Innovation to test new payment and service delivery models, restoring Medicare to the cutting edge of innovation in medical delivery.

How does Health Care Reform Crack Down on Fraud?

While these improvements are being made, health reform also provides new tools to help crack down on the fraud in the current Medicare program. For example, by allowing the Department of Health and Human Services and the Internal Revenue Service to share information, it will be easier to stop Medicare payments to scam artists masquerading as legitimate providers. The health reform legislation also gives the agencies more time to verify that providers are legitimate and that they have provided seniors with the wheelchairs, hospital beds, oxygen tanks and other lifesaving pieces of equipment that they are billing to the Medicare program. Fraud in the Medicare program hurts us all by increasing costs.

What changes to Medicare Advantage are in Health Care Reform?

Making changes in the Medicare Advantage program is another way of restoring the integrity of Medicare by reducing wasteful spending. Medicare Advantage is the privatized part of Medicare whose growth has been fueled by the massive subsidies enacted in the Medicare Modernization Act of 2003. Medicare Advantage plans are paid on average 13 percent more per enrollee than it costs to provide comparable care in traditional Medicare. These subsidies, which cost over $11 billion in 2009 alone, are paid for by taxpayers and by all beneficiaries, whether or not they are enrolled in a private plan. It is estimated that every couple receiving Medicare, including the 75 percent in traditional Medicare, will pay about $90 in additional Part B premiums this year to subsidize those in the private Medicare Advantage plans. And although these plans provide some additional benefits, many require much higher cost-sharing from seniors for expensive services such as chemotherapy, extended hospital stays and skilled nursing home care - a shortcoming few seniors realize until they find themselves needing the service.
Despite what some are claiming, the health reform legislation does not eliminate Medicare Advantage plans or reduce the extra benefits they provide. The legislation simply phases down the exorbitant subsidies they are currently getting so their payments end up more in line with what it would cost traditional Medicare to cover the same seniors. It is up to each private insurer to decide how to absorb the reduced payments, and whether to continue providing extra benefits.
The insurers who run Medicare Advantage plans cannot cut guaranteed benefits - they are required to offer all benefits covered by traditional Medicare. And under the new health reform law, they are now prohibited from charging seniors more than traditional Medicare for expensive services. They are also, for the first time, required to spend at least 85 percent of their revenue on patient care rather than profits or overhead. Finally, the legislation rewards Medicare Advantage plans that are providing high-quality care by giving them bonus payments.

What benefits will near-retirees see in Health Care Reform?

Finally, in addition to the benefits for seniors, the health reform legislation provides numerous benefits to near-retirees - those in their mid-50s and older. Although these benefits do not affect those over age 65 directly, they do provide indirect benefits to the Medicare program because older workers who have insurance coverage tend to be healthier than those without insurance. Healthier older workers can stay on the job longer, and they have fewer health care expenses after they turn 65 and become eligible for Medicare because they have not postponed needed care. This saves Medicare money, which reduces costs for both seniors and taxpayers.
Benefits for near-retirees include the creation of a temporary reinsurance pool, which is designed to help offset the costs of expensive health claims for employers that provide benefits to their retirees while the health insurance exchanges are being established; limits on how much insurance companies can charge older workers for coverage; more flexibility in applying the excise tax for employers with an older workforce; and the creation of a new, voluntary self-funded long-term care insurance program that will help people with severe disabilities stay in their homes and communities (CLASS Act).

What is the National Committee's Position on Health Care Reform?

Although there are numerous other parts of health reform that could affect some seniors, these are the key provisions that are most likely to benefit large numbers of seniors. We at the National Committee to Preserve Social Security and Medicare are committed to spreading the word about these benefits to seniors across America, so they can become informed about the improvements to the Medicare program and defend them from those who would roll back the clock.
As with any legislation, the health reform bill is not perfect. But it is an important beginning toward making health insurance more affordable while improving the quality of care Americans receive. The most important point for seniors to know is that the status quo is not an option for Medicare. Although Medicare's costs are not growing as fast as health care costs in the private sector, it is not immune from the cost inflation that is making health care unaffordable for so many Americans. That's because Medicare is a health insurance program. Seniors use the same doctors, hospitals, MRI machines etc. as those under age 65 so when costs go up for workers in private insurance plans, they also go up for seniors on Medicare. In fact, the average senior already spends over one-quarter of his or her Social Security benefit on health care - an amount that will continue growing in the future.
Without system-wide health reform, the cost of health care will continue to grow until Medicare becomes unaffordable for both seniors and the federal government. Enactment of health reform is a good first step toward preserving Medicare for today's seniors and for their children and grandchildren.
For a quick overview of the improvements to Medicare in health care reform, see our YouTube Video.

How has health care reform improved Medicare's Solvency?

1. The Medicare Part A (HI) Trust Fund will be solvent until 2029.This is twelve years longer than the 2017 date projected in the 2009 Trustees' Report. In 2029, payroll taxes alone are estimated to be sufficient to cover 85 percent of HI costs. Improvements in Medicare's financing are due to enactment of the Affordable Care Act, which reduces the rate of increase in provider payments, phases out overpayments to Medicare Advantage plans, and increases Medicare payroll taxes for high-income individuals and couples.
In the short term, the Medicare (HI) program faces deficits due mainly to the recession's negative effect on payroll tax revenues. Fund surpluses are anticipated during 2014-2022. Afterward, the program will rely upon interest earnings and other assets to help pay benefits each year.
2. Medicare's actuarial balance improved greatly from last year. The HI Trust Fund now has a projected 75-year actuarial deficit equal to 0.66 percent of payroll compared with last year's estimate of 3.88 percent. In other words, the HI Trust Fund's fiscal imbalance could be solved by increasing payroll taxes by 0.66 percent, by reducing the program's spending by a corresponding amount or by some combination of the two.
3. Medicare spending will decrease as a share of the economy (GDP). In 2010, the Trustees project that Medicare's costs (for both the HI and SMI Trust Funds) will represent 3.6 percent of GDP. These costs will increase steeply between 2015 and 2030 because the number of people receiving benefits will grow as the large baby boom generation retires. However, the projected increase in Medicare spending as a share of GDP is greatly reduced from last year. Medicare's costs are projected to grow to 6.4 percent of GDP in 2084; last year the Trustees projected that Medicare's costs would grow from 3.5 percent of GDP in 2009 to 11.3 percent of GDP in 2083.
4. The 2010 Medicare Trustees' report shows slower cost growth for Medicare Part B as a result of the Affordable Care Act's provisions which reduce payment rates to most providers and to Medicare Advantage plans. Part B spending, currently 1.5 percent of GDP, is projected to increase to 2.5 percent in 75 years. The 2009 projection was that it would increase to 4.5 percent. Beneficiary premiums will continue to rise but at a slower rate. According to the Trustees' Report, the standard Part B premium will increase from $110.50 a month in 2010 to $160.10 a month in 2019. The Part B annual deductible will increase from $155 in 2010 to $223 in 2019. The Trustees have said that their cost estimates for Medicare Part B are likely too low because they assume substantial reductions in physician payments based on current law.
By statute, increases in the Part B premium generally cannot be larger, in dollars, than the Social Security cost-of-living adjustment (COLA). There was no COLA in 2010, and the Social Security Trustees predict there will be no COLA in 2011. This means that once again Part B premium increases will be held to zero for about 75 percent of Medicare beneficiaries. The other twenty-five percent - new enrollees, seniors subject to means-tested premiums, enrollees whose premiums are not deducted from their Social Security checks, and some Medicaid beneficiaries - are not subject to the limitation; they bear the full burden of premium increases that are necessary to fund twenty-five percent of Part B spending.
5. Medicare Part D spending estimates are lower than previously projected. The lower projections are due to lower-than-anticipated drug spending in 2008 and 2009 and a reduction in the projected rate of increase in prescription drug spending over the next 10 years. However, these lower costs are offset by the added costs of closing the coverage gap (the "donut hole") during 2011-2020 as provided for by the Affordable Care Act. Therefore, Part D costs are projected to grow at an average rate of 9.4 percent annually over the next decade and enrollees will likely see large increases in their premiums. The Trustees project that the average Part D premium will rise from $31.94 a month in 2010 to $54.47 a month in 2019. The Part D annual deductible is projected to increase from $310 in 2010 to $490 in 2019. Part D expenditures as a percent of GDP are expected to increase from 0.41 percent in 2009 to 1.75 percent in 2080.
Over the past several years health care costs have increased faster than average income or per capita gross domestic product. Additionally, annual percentage increases in the Medical Consumer Price Index have been greater than the Consumer Price Index. As a result, the Medicare Trustees project that by 2080, Parts B and D out-of-pocket costs will consume 50 percent of the average Social Security check compared with 27 percent today.

General Medicare FAQ's

Why do Medicare's costs keep rising?

Total health care spending in the United States has been growing faster than the economy for many years, regardless of whether it is funded through government or private sources, and it is projected to continue doing so in the future. While demographics play a role in Medicare's cost increases over the next two decades, it represents only part of the equation. The long-term costs of Medicare, on the other hand, are primarily driven by the same factors that have caused skyrocketing health care costs for workers and their employers, and which the nation has, to date, been unable to solve. This interrelationship means that attempting to limit future cost increases in Medicare without addressing the problems of our nation's healthcare system as a whole simply will not work. Policies that rely primarily on shifting more costs onto seniors, who are mostly lower-income, are unfair and not sustainable over the long term. The health care cost containment problem holds true whether a policy is achieved that utilizes "consumer driven" healthcare initiatives or additional increases in direct cost sharing.

What are some measures Washington is proposing that would make Medicare more expensive for seniors?

1. Shifting Medicare's costs to individuals

Whether through Medicare Medical Savings Accounts (health savings accounts for Medicare beneficiaries), or through increased premiums, deductibles or other forms of co-payment, some lawmakers have attempted to reduce Medicare's expenditures by shifting additional costs onto seniors. The Medicare Modernization Act of 2003, which implemented the new Part D prescription drug benefit, also included a number of provisions that would accomplish this goal. Key examples are: an increase in the Part B deductible, which will now rise in future years with health care inflation; means-testing of the Part B premium for the first time in the program's history; an artificial 45% trigger on federal expenditures for Medicare, reached in 2008, that created a fast-track process for future cost shifting; and an experiment in "premium support" that could transform Medicare into a form of voucher program in future years.
While these and other changes are often based on the argument that high-income retirees can afford to pay more for their medical care, in fact, there are few seniors in these income categories. Nearly 62 percent of Medicare's beneficiaries have annual incomes below $30,000.
Gaps in Medicare benefits mean beneficiaries must bear a large financial burden for medical and long-term care services. In 2004, the average beneficiary paid nearly 20 percent ($2,477) of their health care costs out of pocket. During that same year, 10 percent of beneficiaries paid $5,000 or more out-of-pocket. As seniors age or their health status declines, they find their out-of-pocket spending increases. Low-income seniors already devote a significant portion of their income to health care services and are least able keep pace with rising costs. While this is a vast improvement over the days before Medicare, when most seniors were unable to purchase health insurance at any price and more than one-half lived in poverty, it is simply not true that large numbers of seniors can absorb ever-increasing cost shifting from the Medicare program.

2. Creating a Voucher System
Chairman of the House Ways and Means Committee, Paul Ryan (R-Wis.), recently proposed a deficit reduction plan called the Roadmap for America’s Future, which includes turning Medicare into a voucher system where seniors would have to purchase their private insurance with government vouchers. However, this would increase seniors’ out of pocket expenses since the voucher’s growth would be much slower than the cost of health care.

3. Repealing Health Care Reform
Health care reform had many positive benefits for seniors on Medicare. Some of these benefits include gradually closed the Part D Doughnut Hole by 2020, reducing wasteful subsidies to private insurers and increasing the solvency of the Medicare Trust Funds. Republicans in Congress have vowed to repeal healthcare reform, which would actually increase the deficit and take back the improvements to Medicare in the Affordable Care Act.

How did the Medicare Modernization Act affect the program?

The Medicare Part D prescription drug benefit, established by the Medicare Modernization Act of 2003 (MMA), differs dramatically from traditional Medicare. The MMA allows only private companies to participate in Medicare Part D, thus privatizing prescription drug coverage for America's seniors and eroding the social insurance nature of the Medicare program. Because of this privatized structure, beneficiaries pay different premiums and must choose between a very large number of plans with varying drug coverage and cost sharing amounts.
Despite the success and popularity of the traditional fee-for-service Medicare program, and the failure of past privatization efforts such as Medicare+Choice, the MMA greatly expanded the role of the private sector in Medicare. In addition to the prescription drug benefit that is delivered only by private stand-alone prescription drug plans or private Medicare Advantage (MA) plans, the law threatens traditional Medicare by overpaying private health insurance companies, means-testing the Part B premium, imposing a completely arbitrary 45 percent cap on general revenue financing of the Medicare program, and establishing a "premium support" demonstration to compare costs between fee-for-service Medicare and subsidized private plans.

What are better alternatives to the provisions in the Medicare Modernization Act?

1. Create a Medicare-operated prescription drug benefit with the government required to negotiate drug prices
Seniors should have the option of a Medicare prescription drug benefit rather than having to sort through countless private plans in order to receive prescription drug coverage. Seniors face too many plan choices with various premiums, deductibles and other cost-sharing amounts. A Medicare-operated drug benefit would offer the dual benefit of simplifying and standardizing the coverage provided by the program, and it could provide a more comprehensive formulary at uniform prices. Furthermore, unlike private companies, a government plan would not need to increase prices and change formularies throughout the year to maximize profits. Overall, traditional Medicare achieves administrative efficiencies not matched by private plans. Extending this efficiency to the Part D program will save taxpayer dollars.
2. Require the federal government to negotiate drug prices
The federal government should be required to use leverage through negotiating in bulk to negotiate lower drugs prices for the Part D program. States currently use this leverage to negotiate lower prices for their health care programs, as does the Department of Veterans Affairs. It would be easiest to achieve effective price negotiation under a Medicare-operated drug benefit, but there are a number of alternatives by which CMS could effectively achieve lower prices for private plans as well.
3. Repeal the means-testing of Part B premiums
Medicare beneficiaries with incomes above certain levels are paying higher Part B premiums due to passage of the Medicare Modernization Act of 2003 (MMA). Prior to 2007, all Medicare beneficiaries paid premiums equal to about 25 percent of the Part B program's average cost per beneficiary. Today, higher-income seniors are paying premiums ranging from 35 to 80 percent of the average per beneficiary cost which translates into premiums that are double or triple the standard premium amount.
Means-testing undermines the social insurance nature of the Medicare program and could lead to increased costs for middle- and lower-income seniors if higher-income seniors, who are often younger and healthier, are driven away by increased cost-sharing. It also raises premiums for those who have paid the most into the program through Medicare payroll taxes, harms seniors and their families regardless of their financial obligations, and puts the burden on seniors to demonstrate that their premiums should not be increased if their income is reduced.
4. Repeal the 45 percent cap on general revenue funding for Medicare
The Medicare Modernization Act imposed a completely arbitrary cap of 45 percent on general revenue financing of the Medicare program. When the Medicare Trustees project, for two consecutive years, that 45 percent of Medicare funding will come from general revenues at a set future date, the President is required to present a plan to Congress to reduce general revenue funding. This approach would prevent consideration of all potential solutions to the program's long-term shortfall. Further, it ignores Medicare's financing structure, which is designed to include substantial contributions from general revenues to fund Medicare Parts B and D, as well as the need to address Medicare's future in the context of U. S. health policy as a whole. The National Committee supports the House of Representatives' decision to suspend the 45 percent rule for the 111th Congress and urges its permanent repeal.
5. Prevent implementation of the 2010 comparative cost adjustment demonstration
The "comparative cost adjustment demonstration project" - also known as "premium support" - established in the Medicare Modernization Act requires traditional fee-for-service Medicare to compete with private Medicare Advantage plans in selected regions beginning in 2010. Seniors will receive the equivalent of a voucher in an amount reflecting the average per beneficiary cost of private plans and traditional Medicare for their region. If they enroll in a less expensive plan, either a private plan or traditional Medicare, they can keep a portion of the savings; if their plans' premiums or the traditional Medicare Part B costs are higher, they will pay the difference out-of-pocket.
Proponents of the comparative costs adjustment demonstration project claim that this competition will result in better benefits to seniors at lower cost. Healthier seniors who enroll in subsidized Medicare Advantage plans, which are overpaid compared to the traditional Medicare program, may do better in such a system for a time. Older, sicker seniors are more likely to remain in traditional Medicare where they are certain of the benefits it provides and they can continue seeing the doctors they know. However, because the risk of insuring these seniors would be spread among many fewer people, it is inevitable that they will end up paying higher Part B premiums than beneficiaries who are not in comparative cost adjustment areas. At the same time, they are subsidizing the private companies that drain healthier retirees from their risk pool and further increase their costs. This privatization experiment would likely move Medicare beneficiaries out of traditional Medicare and into private health plans thus further eroding the social insurance nature of Medicare.

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Medicare Part D: From A to Z: http://www.ncpssm.org/pdf/FAQ_D.pdf

Center for Medicare Advocacy http://www.medicareadvocacy.org/

Medicare Rights Center http://www.medicarerights.org/

Medicare Interactive http://www.medicareinteractive.org/index.php