From the Center for Medicare Advocacy

Misinformation about Medicare and the Affordable Care Act is widespread and increasing as the election nears.  Below, we try to dispel misinformation and base discussions on a factual foundation.  Spread the word. Help set the record straight!

Fact 1: The Affordable Care Act does NOT cut Medicare for beneficiaries.

The Affordable Care Act achieves savings in the Medicare program through a series of payment reforms, service delivery innovations, and increased efforts to reduce fraud, waste, and abuse.* The actual projected reduction in Medicare spending (the infamous $716 billion) is largely a result of reducing overpayments to private Medicare plans that have been paid more than traditional Medicare.

* The health care reform law: Pub.L.111-148, the Patient Protection and Affordability Care Act of 2010 (PPACA), on March 23, 2010, and Pub. L. 111-152, the Health Care and Education Reconciliation Act of 2010 (HCERA), on March 30, 2010.

Fact 2: The Affordable Care Act actually extends the life of the Medicare trust fund by about a decade.

Saving on wasteful overpayments now means there will more future funds for legitimate coverage. ACA extends Medicare’s solvency.

See: CBO March 20, 2010; Joint Committee on Taxation Revenue Estimates, JCX-17-10 (March 20, 2010).

 

Fact 3: The Affordable Care Act is not a government takeover.  In fact, ACA will provide coverage through private insurance.

ACA allows individual states to set up “exchanges,” or marketplaces, where private insurance companies will compete to offer affordable health coverage for those who do not have and cannot afford it currently. People who have insurance can keep their plans, but will have more consumer protections as a result of ACA – including a ban on coverage denials due to pre-existing conditions.

http://www.politifact.com/truth-o-meter/article/2010/dec/16/lie-year-government-takeover-health-care/

 

Fact 4: The Affordable Care Act lowers the deficit.

The Congressional Budget Office (CBO) has estimated that ACA will actually reduce the deficit by over $130 billion in the next decade through a series of payment and quality reforms. CBO also reported that repealing ACA would increase the deficit.

http://www.whitehouse.gov/blog/2012/04/09/official-sources-agree-affordable-care-act-reduces-deficit

 

Fact 5: The Affordable Care Act improves benefits in Medicare.

ACA outlines new benefits and improvements to the Medicare program, including eliminating the Donut Hole coverage gap for prescription drugs, adding an annual Wellness visit, and increasing free preventive services for beneficiaries.

http://www.healthcare.gov/news/factsheets/2011/08/seniors.html

 

Fact 6: There are no “death panels” in the Affordable Care Act.  The payment board set up by ACA cannot cut benefits or make health care decisions for beneficiaries.

The Independent Payment Advisory Board (IPAB) is prohibited under the law from restricting Medicare benefits, modifying eligibility, or increasing Medicare beneficiary premiums and cost-sharing, including deductibles, coinsurance, and co-payments.

http://housedocs.house.gov/energycommerce/ppacacon.pdf

 

Fact 7: Americans will not be required to drop their current insurance.

The law protects the ability of families and employers to keep their current health plans. In fact, most of the 133 million Americans with health coverage through large employers will maintain their coverage.  However, they, and all people with health insurance, will be included in ACA’s consumer protections.

http://www.healthreform.gov/newsroom/keeping_the_health_plan_you_have.html

 

Fact 8: The Affordable Care Act did NOT change the calculation of the Part B premium at all.

The Balanced Budget Act of 1997 permanently set standard Part B premiums to cover 25% of projected per capita Part B program costs for beneficiaries aged 65 and older.  If projected Part B costs increase or decrease, the premium rises or falls.  ACA didn’t change this.

There is no way to predict the premium for future years, as they are based around total costs and are tied to the cost-of-living. The Centers for Medicare & Medicaid Services (CMS) announces the Part B premiums for the next year at the end of the prior year.

Monthly Medicare Part B premiums may increase, may stay the same, or may even decrease, depending on formulas IN PLACE BEFORE ACA.

http://www.factcheck.org/2011/04/premium-nonsense-on-medicare/

 

Fact 9: The Affordable Care Act expressly bars undocumented immigrants from accessing health coverage or assistance.

ACA requires the Secretary of Health and Human Services (HHS) to establish a program that will determine whether individuals are lawfully present in the United States if they apply for coverage in the exchanges, or for subsidies to help pay for insurance.

http://www.ciab.com/WorkArea/DownloadAsset.aspx?id=2189

 

Fact 10: Affordable Care Act Provides Big Savings for Medicare Beneficiaries

Last week, the Department of Health and Human Services (HHS) released new data showing that 5.6 million Medicare beneficiaries have saved $4.8 billion on prescription drugs since the Affordable Care Act (ACA) was signed into law.

So far this year, over 2 million beneficiaries have saved an average of $657 per person when they reach the “Donut Hole”, which ACA will fully close by 2020. In 2013, beneficiaries who hit the Donut Hole will enjoy discounts of 53% on covered brand name drugs, and 21% savings on generic drugs- real relief for people who rely on Medicare.

People with Medicare are also benefiting from key preventive services with no cost-sharing added by ACA. In 2012 alone, nearly 21 million beneficiaries have received at least one free preventive service, including mammograms and colorectal screenings. Before ACA, cost-sharing on critical preventive services meant fewer people took advantage of them. Now, those services are helping people stay healthy and informed without imposing barriers of cost on beneficiaries.

Fact 11: Future Drug Savings Would be Eliminated if ACA is Repealed

Families who rely on Medicare have seen real improvements in the Medicare program – including the savings on prescription drugs – since ACA was signed.  However, all those improvements and savings would be eliminated if, as some policymakers and candidates have promised, the ACA is repealed. Repeal would mean that the Donut Hole once again widens and that the cost of prescription drugs increases for beneficiaries. In addition, cost-sharing on important preventive services would be imposed, creating barriers to access for many families.

The affordable Care Act is making real progress for millions of families who struggle with health care costs. Repeal would increase the burden on people with Medicare, while ignoring the real issue of rising overall health care costs. The Affordable Care Act is a critical step forward to lower costs and improve care and outcomes for Medicare beneficiaries, and all Americans.

Kelly Greene in the Wall Street Journal reminds seniors that Medicare’s open-enrollment period is an opportunity for them to lower their bills by re-evaluating their Medicare coverage. Just as you rebalance an investment portfolio, as seniors’ needs change, they need to make adjustments to see whether they are getting the best price for the same services. Elementary, you say? Here’s the shocking truth. A a recent Allsup survey of 1,000 Medicare beneficiaries 65 or older found:

  • Only 15% said they had changed their Medicare plans in the past year or plan to do so in the next 12 months.

The A B Cs of Medicare Coverage

A and B – The Basics: Each year, Medicare recipients have to choose their coverage. Traditional Medicare is comprised of parts A (hospitalization) and Part B (outpatient care, including doctor visits.) With Part D (prescription drugs) seniors have to choose a private drug plan.
Supplemental Policies: Recipients can also choose to buy a separate Medigap policy to help insure costs that otherwise aren’t covered.
C – Medicare Advantage: Instead of using parts B and D, recipients can choose a Medicare Advantage plan (Part C) from a private provider. This can also cover additional benefits not available through traditional Medicare such as drugs, dental work and eye appointments.

Step 1: Take a Fresh Look Each Year

With all these options, consumers need to take a fresh look at their choices each year. The recipient needs to read the details about their plan costs and benefits in your Annual Notice of Change, which should arrive in September. The reason is that coverage and costs can change. For instance, drug plans can make changes to the specific medications they cover. And the costs that private insurers charge for premiums, copays and deductibles are constantly changing:
  • Seven of the top 10 drug plans will have double-digit premium increases next year, according to Avalere Health, a health-care consulting firm.
  • Some Medicare Advantage Plans are raising their out-of-pocket costs for 2013, such as the costs that must be paid for the first six days of hospitalization, or for premiums and deductibles.

Step 2: Know How Medicare Premium Rates Are Set

Medicare premiums are based on the recipient’s modified adjusted gross income from two years earlier. The income brackets have been frozen through 2019. For a chart listing the brackets and premiums, see the Social Security Administration publication “Medicare Premiums: Rules for Higher-Income Beneficiaries” at ssa.gov. Here are some facts about how the premium is determined
  • While the standard Part B premium is $99.90, Those with 2010 incomes above $85,000 (or $170,000 for married couples filing a joint tax return) pay more than the standard Part B premium, and higher Part D (drug program) premiums.
  • Higher-income people can take advantage of a special adjustment that can reduce premiums if their incomes have fallen due to “life changing” events, such as the death of a spouse, divorce or work stoppage (this is called  an “Income Related Monthly Adjustment Amount redetermination.”)
  • Social Security won’t recognize some other events that temporarily boost a person’s income, including capital gains and converting a traditional individual retirement account to a Roth IRA.

Step 3: Consult a Planner

Some Medicare beneficiaries and their children consult professionals for help. Advisory firms like Allsup can charge a small monthly fee to help people choose their Medicare coverage and manage it on an ongoing basis, or an affordable lump sum to assess all a person’s Medicare options. It can make a difference. For example, life changes can knock a new recipient into a higher premium category, but with proper planning, recipients may avoid this by timing income-producing investment moves to piggyback on other life events, such as retirement. And, recipients may get a reprieve under certain circumstances, that can reduce their premium. Here’s an example:

  • If a recipient works past 65 in a job that provides health coverage, and signs up for Medicare a few months before retiring, his income from two years before can puts him over the threshold for larger premiums – even though his retirement income is significantly less. This can be avoided.

There are also free resources for independent counseling, including: the Medicare Rights Center, and your State Health Insurance Assistance Program.

Bruce Japsen writes in Forbes about a beneficial provision of the health care reform law: the quality ratings system for Medicare Advantage plans (and Part D prescription drug plans.) Health insurance companies that contract with Medicare to offer comprehensive Medicare Advantage plans, which seniors can opt into instead of traditional Medicare, are rated by a quality rating system designed to guide seniors to better medical care choices and service.

To score well, the health plans are rated on a variety of things such as how quickly they process claim or whether they hear an appeals process quickly, and various outcomes measures outlined at the end of this post.

Good News About Medicare Advantage Plan Quality Improvement

Some good news has been announced by U.S. Secretary for Health and Human Services Kathleen Sebelius and officials from the Centers for Medicare and Medicaid Services (CMS): Medicare Advantage Plans are scoring better on quality ratings, with more of them hitting four- and five-star ratings on the five-star scale.
This is good news for the insurers because the system will allow them to both market their ratings publicly and get bonus payments next year from the federal government ranging from 3 to 5 percentage points. The ratings are a critical way that health plans such as UnitedHealth GroupHumana, Aetna and others attract and retain consumers.

It’s good news for seniors because they will now have access to 127 four- or five-star Medicare Advantage plans that provide benefits to 37% of the Advantage programs enrollees in 2013. This is up from 106 four or five star plans this year, which serve 28% of seniors in Advantage plans. Jonathan Blum, deputy administrator and director, Center for Medicare, says:

We are seeing tremendous quality jumps. We want to reward and incent overall quality improvement.

ACA Incentives Drive Excellence

The Affordable Care Act lowers payments to Medicare Advantage plans by more than $140 billion over the next decade to gradually bring their costs in line with traditional Medicare. In the meantime, bonus payments are paid to outstanding plans to can help the plans make up for the loss of support, and this is seen as a key reason that the health plans are improving.

An Overview of the Scoring System

Here is a brief overview of the criteria used to determine the scores from All about Medicare Advantage’s (star) quality ratings:

  • Quality scores are based on 53 performance measures that are derived from plan and beneficiary information collected in three surveys and administrative data on plan quality and member satisfaction.
  • CMS assigns quality ratings at the contract level, rather than for each individual plan. Every Medicare Advantage plan covered under the same contract receives the same quality rating.
  • CMS groups the individual quality measures into five domains: (1) staying healthy: screenings, tests, and vaccines; (2) managing chronic conditions; (3) ratings of health plan responsiveness and care; (4) health plan member complaints, appeals, and choosing to leave the health plan; and (5) customer service.
  • 59% of 2010 Medicare Advantage plans received quality ratings; accounting for 85% of all beneficiaries in Medicare Advantage plans, based on 2009 enrollment.
  • Ratings are positively correlated with:
    • Not-for-profit status
    • Duration of plan experience in Medicare
    • Being an HMO (as opposed to a PFFS and PPO plan)
    • Operating in an urban area
    • County-level Medicare Advantage penetration
    • Median household income
    • Number of plans in an area

Determination of Incentives

ACA incentive provisions are as follows:

  • Plans with higher quality ratings will receive higher rebates:
    • 70% rebate for plans receiving 4.5 or 5 stars;
    • 60% percent rebate for plans receiving 3.5 or 4 stars;
    • 50% rebate for plans receiving 3 stars or fewer.
    • Plans with 4 or more stars will also receive bonus payments (i.e., additional amounts added to the plan’s benchmark), and in certain counties, will receive double bonuses.
  • Bonuses are doubled for plans offered in counties with all the following characteristics:
    • Lower than average Medicare fee-for-service costs
    • A Medicare Advantage penetration rate of 25% or more as of December 2009
    • A designated urban floor benchmark in 2004.
    • In 2012, Medicare Advantage plans in 210 counties will qualify for double bonus payments
  • In 2012, all small or low-enrollment plans will receive quality bonuses, and rebates of 70% of the difference between the bid and the benchmark. The Secretary of Health and Human Services is required to establish a method for computing quality ratings for small plans for 2013 and subsequent years.
  • All new plans (offered by organizations that did not have a Medicare Advantage contract in the previous 3 years) will receive quality bonuses (1.5% in 2012, 2.5% in 2013, and 3.5% in 2014) and rebates of 65% of the difference between the bid and benchmark in 2012 and subsequent years.

According to the HHS (U.S. Department of Health and Human Services), and HHS Secretary Kathleen Sebelius, as a result of the Affordable Care Act, 5.6 million seniors and people with disabilities have saved $4.8 billion on prescription drugs since the law was enacted. The two main reasons are:

  • The ACA closes the Medicare “doughnut hole” under which seniors must pay for drugs entirely out of pocket.
  • Drug makers have also agreed to offer deep discounts to Medicare recipients.

The results:

  • Seniors have saved $4.8 billion on their prescriptions.
  • 5.6 million seniors have received a drug discount or rebate, including 2.3 million this year.
  • Seniors who hit the doughnut hole have saved an average of $657 this year.
  • Over 20.7 million with Medicare also received free preventive services in the first nine months of 2012
  • The health care law will save the typical person with original Medicare $5,000 from 2010 to 2022.

Significant Savings

Among the provisions in the health care law  to make Medicare prescription drug coverage more affordable are these:

  • In 2010, anyone with Medicare who hit the prescription drug donut hole received a $250 rebate.
  • In 2011, people with Medicare who hit the donut hole began receiving discounts on covered brand-name drugs and savings for generic drugs.
  • For 2013, people with Medicare in the donut hole will receive about 53% on the cost of brand name drugs and a 21% savings for the cost of generic drugs. These savings and Medicare coverage will gradually increase until 2020, when the donut hole will be closed.

Preventative Health Services

The health care law also makes it easier for people with Medicare to stay healthy through preventative health services. Before 2011, Medicare recipients had to pay part of the cost for many preventive health services, making it difficult for many of them to get the health care they needed. For example, recipients had to pay as much as $160 in cost-sharing for a colorectal cancer screening.
Since the health care law means that many preventive services are now offered free with no deductible or co-pay, the cost is no longer a barrier for seniors who want to stay healthy and treat problems early.
  • In 2011, 32.5 million people with original Medicare or Medicare Advantage received one or more preventive benefits free of charge.
  • In 2012, over 20.7 million people with original Medicare have received at least one preventive service at no cost.
  • 2.13 million of them have taken advantage of the Annual wellness Visit, an increase of 650,000 over 2011.

Resources

  • State-by-state information on savings in the donut hole is available here.
  • State-by-state info on utilization of free preventive services is available here.

Medicare Advantage is the privately insured alternative to traditional Medicare.

The Washington Post fact checked the following exchange from the Vice Presidential debate on Medicare Advantage:

Rep. Paul Ryan: “7.4 million seniors are projected to lose their current Medicare Advantage coverage they have. That’s a $3,200 benefit cut.”

Vice President Biden: “That didn’t happen…More people signed up for Medicare Advantage after the change.”

— exchange during the vice presidential debate, Oct. 11, 2012

Who’s Right? The strange thing, according to the Washington Post, is that both are right. But the larger questions remain unaddressed.

While Ryan provided a correct future projection of 7.4 million enrollees leaving Medicare Advantage, the actual projected reduction from today’s level is 5.7 million. Also, his claim of a $3,200 benefit cut, which came from a report by the right-leaning Heritage Foundation, is dubious.

The ACA does cut funding for Medicare Advantage, the privately insured alternative to traditional Medicare. The larger question that I will explore here is how the cuts actually impact Medicare beneficiaries and insurers who market Medicare Advantage policies.

Medicare Advantage Spending Facts

  •  Medicare Advantage,  has enrolled 27% of the Medicare population – 13.1 million beneficiaries.
  • The ACA (Obamacare) cuts $145 billion in projected spending for Medicare Advantage.
  • The cuts are intended to reduce costs, since the government pays more per senior for Medicare Advantage plans than into traditional fee-for-service Medicare.

The Spending Cuts

Extent of the Cuts: The Medicare actuary, Robert S. Foster, estimated that the projected enrollment in Medicare Advantage would be halved. Foster wrote:

We estimate that in 2017, when the MA provisions will be fully phased in, enrollment in MA plans will be lower by about 50 percent (from its projected level of 14.8 million under the prior law to 7.4 million under the new law.)

It is important to note that this isn’t a cut in today’s spending, but a reduction of future budget allocated to the program:

  • The reduction will be made to a future projected enrollment level  of 14.8 million (which is higher than the 13.1 million now enrolled.)
  • The actual projected reduction from today’s level is 5.7 million.

No Current Enrollment Decline: Vice President Biden’s response that enrollment has gone up “after the change”is technically correct. Enrollment in Medicare Advantage plans is actually up:

  • Up to from 13.1 million from 11.1 million when the health care law was approved.
  • Planned cuts were deferred, however, and a $6.7 billion infusion of funds were made into Medicare Advantage in the form of quality based bonus payments.
  • Still, the extra payments do not fully explain why enrollment has continued to climb according to a Kaiser Family Foundation report.

While the projections are just estimates, the Medicare actuary has estimated that millions of retirees would switch out of Medicare Advantage in response to the reductions contained in the health care law. However, the Washington Post notes that the trend towards growing Medicare enrollment has been persistent over time and is unlikely to be fully explained by the quality bonus payments alone, but rather a combination of:

  • Historical trends in payment.
  • The quality bonuses.
  • The continued erosion of retiree benefits
  • Other factors affecting beneficiary choice.

In other words, the Medicare Advantage marketplace is  strong, with robust plan participation and enrollment.

Why Cut When Republicans Say Private Plans Save Money

It should not be surprising that Republicans support private plans over government-run programs. What may surprise you is that they cost more than government-run Medicare.
In an interview on NBC’s “Meet the Press,” Republican presidential candidate Mitt Romney was asked by host David Gregory: “If competitive bidding in Medicare fails to bring down prices, you have a choice of either passing that cost on to seniors or blowing up the deficit. What would you do?” Candidate Romney pointed to Medicare Advantage and Medicare Part D as proof that competitive bidding works to bring down costs. But do these programs actually reduce federal spending?
 
Medicare Advantage Actually Costs More: The Washington Post notes here that despite candidate Romney’s insistence that private plans would lower costs, Medicare Advantage has not reduced Medicare spending, but, as noted above, costs the government more per senior than traditional fee-for-service Medicare. An article examining by reporter Sarah Kliff explains why. These points summarize the Washington Post’s explanation of why, , despite the relatively low bids from private insurers, Medicare Advantage has cost the government more than traditional Medicare:

  • The Center for Medicare and Medicaid Services establishes the maximum amount the government will pay for a list of defined benefits matching those of traditional Medicare.
  • This “benchmark” is always higher than what the government pays for Medicare. For instance, it might be 112% of the traditional-Medicare price.
  • Private insurers submit bids for how much they’re willing to pay for the defined benefits, generally staying below the benchmark.
  • The average bid in 2011 was 2% less than the cost of traditional Medicare.
  • Seniors who participate in Medicare Advantage then select plans from among the bidders, and the government sends Medicare money to help cover the beneficiaries.
  • However, under the current system, the government doesn’t just pay the low bid amount, but also sends the insurance company a rebate equal to 75% of the difference between the bid and the high benchmark.
  • The provider must use the rebate to reduce out-of-pocket costs or to provide extra benefits such as gym memberships, dental care, hearing coverage and so on.
  • Under this formula, the average government payment for Medicare Advantage was 107% of the price for traditional fee-for-service Medicare in 2011.

Voices in both political parties agree that benchmark-driven rebates make Medicare Advantage unnecessarily expensive.  Robert Moffit, director of the conservative Heritage Foundation’s Center for Health Policy Studies and a former assistant secretary for the Department of Health and Human Services during the Reagan administration, believes that the government should do away with the payment system and plow back any savings from competitive bidding directly to seniors and the government. That is in fact what Obamacare intends to do in part by ending the insurer rebates.

The Nature of the Cuts

Since the private Medicare Advantage plans are judged to provide no clear benefits over Medicare despite costing the government more money through rebates, the Affordable Care Act trims spending on Medicare Advantage to eventually put the payments on par with traditional Medicare. The Washington Post points out that these cuts are part of the health-care law’s $716 billion in reduced Medicare spending that Republicans have complained about (the rest comes from reduced payments to hospitals and other providers.)

The Cuts Won’t Necessarily Raise Costs: The Republicans’ contention that cutting back on Medicare Advantage will eliminate choices for seniors is partly true because, without the rebates to insurers, the extra benefits, such as gym memberships and hearing coverage, would likely be discontinued. However, the fallacy of the Republican argument is that the rebates actually prevent what Republicans say they want: cost-reductions due to private-market competition.

The Cuts Won’t Necessarily Reduce Benefits: While the cost of extra benefits would no longer be supported by the government rebates, I believe that two factors will keep Medicare Advantage policies vital:

  • Insurers can continue to offer Medicare Advantage “Gold” plans at a higher price for seniors who are willing and able to pay extra for those added value benefits.
  • Medicare Advantage Plans provide more comprehensive coverage than traditional Medicare Part A and B. They cover the deductibles and coinsurance portions of those plans, and, additionally, can incorporate Medicare Part D.

Cuts Are Inevitable Anyway: While Paul Ryan’s tax plan actually preserves the “Obamacare” cuts to Medicare Advantage, Republicans want the savings to be applied toward deficit reduction, rather than plowed back into the health care system. The Obama administration uses them to expand Medicaid and provide subsidies for people who can’t afford coverage under the new insurance mandate. The problem with Republican deficit reduction argument is that it puts a band aid on the budget deficit problem because health care costs are the major deficit driver. By not avoiding the cost and quality of coverage issues, the Republican plan effectively kicks the can down the road.

Does Medicare Advantage Cause Adverse Selection?

Adverse selection means that when less healthy people enroll in a health care plan, the average costs go up. There is some concern that the healthier seniors would enroll in private plans, saddling government Medicare with increased costs. Harvard economics professor David Cutler, who served as senior health-care adviser to the 2008 Obama campaign, suspects that insurance companies may be finding ways to cherry-pick the healthiest seniors:

We really don’t know for sure whether it’s efficiency or selection [that keeps the private bids low]. If they’re just selecting healthier people, it’s not actually any cheaper.

Cherry-picking by private insurers would leave traditional Medicare with the least healthy seniors, raising the costs, and leave the government would be subsidizing profits for the private sector rather than reducing costs in the program. However, this may not necessarily occur.

While the elimination of the rebates may cause insurers to reprice their Medicare Advantage plans, and result in reduced overall Medicare Advantage enrollment numbers, this may not necessarily translate to an adverse selection problem for Medicare. Here’s why:

Conclusions

Cuts Will Have a Benign Effect: I believe that ending the insurer rebates would probably have either a neutral or benign effect on both government spending and insurer profitability for 3 reasons:

  • Medicare Advantage plans would attract wealthier, but not necessarily healthier, seniors.
  • Different benefit tiers will allow seniors to select the Medicare Advantage plan that best fits their budgets as well as healthcare needs.
  • Enrollees in traditional Medicare would still represent a viable market for insurers’ Medigap and Medicare Part D policies, which cover, respectively, Medicare’s deductibles and coinsurance, and prescription medicines.

The Government’s Perspective: The Medicare Advantage and Medicare Part D programs don’t prove that private-sector competition brings down costs. Although the bids for Medicare Advantage have come in well below the costs of traditional Medicare, and the price tag for Medicare Part D has been lower than the government expected, Medicare Advantage has relied on more costly government rebates, and the rate of growth for drug prices started slowing before Medicare Part D took effect.

While candidate Romney evaded David Gregory’s question about whether he is willing to pass additional Medicare costs to seniors, Medicare costs will need to be contained under any administration, and cuts are inevitable. The question is whether these cuts can bring down health care costs without sacrificing benefits to seniors. The logical way to do this is to plow savings back into the healthcare system, rather than use them for budget deficit reduction.

There are still many yet untried solutions that can reduce the rise of healthcare costs. I have shown that there is a great deal of inefficiency in the private health care system, which accounts for most of the increasing costs, as opposed to private insurer fees and profits. But reducing government subsidies to insurers and health care providers, as the Obama administration does, may pressure provider groups and hospital systems to reduce waste without sacrificing the quality of care for patients.

The Insurers’ Perspective: Medicare Advantage has worked out well for insurance companies, as they have reported greater profits than they anticipated:

  • Private insurers brought in a net combined revenue of $3.4 billion by taking part in the program in 2006.
  • This is about 66% higher than they estimated, according to a 2008 report from the Government Accountability Office.

As the government does it’s budget magic to reduce payments to insurers, insurers will need to do their own actuarial magic to continue to offer good Medicare products for seniors who can afford to spend a little more for premier benefits under a private Medicare Advantage plan, or a little less for benefits that help to offset traditional Medicare’s deductibles, coinsurance and drug coverage.

The one certainty is that in an aging population, the need for health care will continue to rise, guaranteeing a market for private insurers.

A Voucher System Won’t Work: Incrementally privatizing Medicare to squeeze more money out of Medicare recipients, as the Romney Ryan voucher system aims to do, may have a short-term impact on the budget deficit (provided an equal amount is not used to fund new military expenditures), but it will not help either seniors or private insurers. It is in fact a hidden tax on Medicare recipients that holds them accountable for additional costs under a voucher system, while providing no incentive for private insurers and medical providers to contain costs.

The ACA Sets the Right Course: The better alternative is to lower overall healthcare costs by expanding medical coverage, as Obamacare does, which controls premium increases while providing preventative services that reduce health problems in the entire population. With this foundation in place, the government and private sector can then move forward to work on lowering costs on a macro level.

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Preparing for Age, Sickness and Death

As the story goes, a young, naive prince Siddhartha encountered “3 heavenly messengers” when he went out into the world: an elderly person, a sick person, and a corpse.  They alerted him to the inevitability of aging, sickness and transition.

Fortunately, he later he met a fourth heavenly messenger: a wise man meditating on how to face these inevitable forces.

The lesson: knowledge is power in life. Rather than succumb helplessly to aging, health problems and change, we can prepare ourselves to meet them. It is imperative that you know the choices ahead of you with regard to your health and longevity over the years ahead. Medicare is changing, and, even if you are already enrolled, each year during open enrollment, you have to make new choices about your plan choices. Now is the time to familiarize yourself with your choices.

 

It Pays to Shop Around

Medicare’s open-enrollment period (OEP) is October 15 through December 7, 2012. During this period, 49 million covered Americans have an opportunity to make changes to their 2013 coverage.

During the enrollment period, Medicare users select several parts of their coverage:

  • Medicare Part A and Part B for hospital stays and doctor visits.
  • Part D for prescription drugs.
  • Private plans to cover costs not paid under Medicare – either:
    • Supplemental insurance (Medigap) covering copayments and deductibles; or
    • Medicare Advantage – a comprehensive plan that incorporates all Medicare needs in a single policy (Parts A, B, D and Medigap).

Should seniors consider changing their current option? They absolutely must shop around. Some plans will have premium increases, and coverage changes could also lead to significantly higher out-of-pocket costs.

The Drug Coverage Can Give You a Real Headache

For Part D, shopping around may be particularly important this year because monthly premiums are increasing:

  • Premiums are expected to increase by 7% on average according to the Kaiser Family Foundation.
  • Some of the most popular prescription drug plans are increasing premiums by as much as 23%.
  • Others are lowering costs just 1%.
  • Some Medicare plans will no longer cover certain drugs, such as the diabetic blood sugar medicine Apidra. Paying for it out-of-pocket could cost  an additional  $200 a month.

Some Good News Too

Medicare users who fall into the coverage gap known as the “doughnut hole,” – the threshold when seniors generally have to begin paying the full cost of their medicines – have some good news. Because of the Affordable Care Act, the sweeping health care reform law passed in 2010:

  • Discounts of 52.5% on brand-name drugs (up from 50% last year)
  • Dicounts of 21% on generics (up from 14%).
  • Bigger discounts on drugs.
  • Coverage of more preventive services related to conditions such as depression, alcohol misuse and cardiovascular disease.

Some individual plans are introducing other discounts, such as cheaper prices for seniors who fill their prescriptions at specific pharmacies.

Look Out For Red Tape

Seniors may have to do more to get the best option. For example, some plans are requiring:

  • Prior authorization from a physician before certain drugs will be approved.
  • Limited quantities of covered medicines during a certain time period (each month, for example.)
  • Cheaper alternatives must be considered before more expensive drugs.

Know The OEP Options

Once the Medicare Open Enrollment Period closes on December 7, you can’t make any changes to your Medicare plan until the following year (There are some exceptions, such as if someone moves out of the area served by their plan.) During this period, covered seniors will have these options:

  • Switch from Original Medicare (Medicare Parts A and B) to a Medicare Advantage (Medicare Part C) plan.
  • Switch from a Medicare Advantage plan back to Original Medicare.
  • Switch from one Medicare Advantage plan to another. This might involve switching from a plan without Medicare Part D prescription drug coverage to one that has it, or vice-versa.
  • Make changes to the Medicare Part D prescription drug plan:
    • Join a Part D plan.
    • Switch from one Part D plan to another one.
    • Drop a Part D plan altogether.

Note: Medicare Supplement Insurance plans are an exception. They can be joined at any time during the year, not just during OEP.

How To Compare Plans

To compare the plans available in your area and estimate what your total costs would be, use free online tools like the Medicare Plan Finder. These tools will help you determine the out of pocket costs to you under various plans, such as premiums, copayments and deductibles.

People with complex health needs can hire a Medicare adviser to help them choose the right plan. Some advisory firms charge by the hour, so costs can add up for complicated cases. Flat fees can range from $75 to $400 depending on the types of plans you need to research.

Helpful Resources:

OEP preparation courses are offered by the Medicare Made Clear blog:

  • Open Enrollment Period 2013 Boot Camp is run in October and November 2012. It offers exercises to help you evaluate your current Medicare coverage that will prepare you to make decisions for OEP.

For more information, contact the Medicare helpline 24 hours a day, seven days a week at 1-800-MEDICARE (1-800-633-4227), TTY 1-877-486-2048. If you have questions about Medicare Made Clear, call 1-877-619-5582, TTY 711, 8 a.m. – 8 p.m. local time, seven days a week.

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