The Affordable Care Act (ACA), also referred to as “Obamacare,” includes important provisions to reduce wasteful Medicare spending. This will strengthen the solvency of the Medicare program and reduce the rate of increase in Part B premiums for all Medicare beneficiaries. The ACA also improves the care provided to Medicare Advantage enrollees and limits their out-of-pocket costs.
Phasing Down Medicare Advantage Overpayments
Prior to the passage of the ACA, the federal government paid Medicare Advantage plans up to 14 percent more than traditional Medicare for providing the same services, costing taxpayers about $1,000 extra per beneficiary. The additional funds allowed Medicare Advantage plans to attract customers by offering benefits not included under traditional Medicare, such as gym memberships.
Under the ACA, overpayments to Medicare Advantage phase down over time so that plans receive payments comparable to what it would cost traditional Medicare to cover the same seniors. This was estimated to save $156 billion over 10 years. Thanks in large part to Obamacare, overpayments to plans relative to what Medicare paid for a similarly situated person in the traditional program were negligible as of 2017. It will remain to be seen whether the Trump Administration’s policies will reverse the progress made under the ACA toward eliminating plan overpayment.
Limiting Out-of-Pocket Costs for Medicare Advantage Enrollees
The ACA does not eliminate Medicare Advantage plans or reduce the extra benefits they provide. It is up to each private insurer to decide what extra benefits to offer (they are required to offer all benefits covered by traditional Medicare). In addition, the ACA prohibits MA plans from charging seniors more than traditional Medicare for chemotherapy, skilled nursing facility care and renal dialysis.
Requiring Private Medicare Plans to Spend on Care over Profits
Because of the ACA, Medicare Advantage plans must spend at least 85 percent of their revenue on senior care rather than on profits or overhead. Plans that do not spend at least 85 percent of their revenue on patient care may be suspended or terminated from the program, if their spending on patient care remains below 85 percent for two or more years. However, the Trump Administration has since acted to undermine this consumer protection administratively. On April 2, 2018, the Centers for Medicare & Medicaid Services (CMS) issued a final rule that allows plans to count more administrative costs as medical costs undermining the ACA’s provisions requiring insurers to use premiums for care instead of overhead.
Providing Bonus Payments to Medicare Advantage Plans
The ACA creates an incentive system to increase payments by at least five percent to MA plans that provide high-quality care.