V I E W P O I N T

Seniors and Health Care Reform: Separating Truth from Fiction
How Reform Will Strengthen Medicare and Expand Benefits for Seniors

After a long year of debate and questions, health reform legislation has been signed into law. For the first time in history, the promise of universal health insurance that began with the creation of Medicare in 1965 will expand beyond seniors and the disabled to include all Americans. At the same time, Medicare will become stronger and more affordable for both seniors and the federal government. Seniors will enjoy expanded benefits and better medical care. And a health care system driven by insurance companies and their need for greater profits will truly become one where patients and their doctors can make the best informed decisions about their health care needs.

Despite the fear mongers' claims, Medicare benefits will not be cut to pay for covering the uninsured. Before health reform, 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.

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.

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 downpayment 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.

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.

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.

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.

The new health reform legislation also includes important new protections for our most vulnerable seniors. It enacts the Elder Justice Act to help prevent elder abuse, neglect and exploitation. It expands protections and improves the quality of care for those in nursing homes through increased transparency and accountability. It creates a national program of criminal background checks on workers who provide long-term care services in both facilities and private homes. And the legislation increases funds for Community Health Centers to allow for nearly a doubling of the number of patients seen over the next five years.

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).

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.

Government Relations and Policy, March 2010