They call it healthcare reform, but under the new law some Medicare beneficiaries and providers will cover more of the costs. So, it's not really cost reform; it's cost reallocation? Well maybe it's a little of both.
Medicare has been around since 1965, about 46 years, providing access to healthcare for seniors age 65 and older. If you thought the program had been around longer-it hasn't. It's a fairly modern answer to one of society's big challenges, how to provide quality healthcare for everyone. And the U.S. is a little late coming to the table when it comes to establishing broad health benefits for its citizens.
Today, Medicare covers about 47 million Americans, making it the nation's largest health insurance program. So, the way Medicare operates has a significant impact on the country's healthcare. And on our pocketbooks. In fact, according to the Center for Medicare and Medicaid Services, one in every five dollars spent on health services in 2008 were spent through Medicare.
Since its enactment, spending on Medicare has grown to be a larger and larger share of the U.S. federal budget and gross domestic product (GDP). And a larger share of consumer spending. The trend is expected to continue as prices for health services continue to rise, the number and complexity of services increases, and the number of enrollees goes way up as the population ages.
That's why there's a big push for continuing retirement healthcare reform. The Patient Protection and Affordable Care Act (ACA) implemented in 2010 is expected to reduce overall spending on Medicare. But where will those savings come from and who will pay?
Under the new law, Medicare savings are expected to come from reduced annual fee-for-service payments to providers, changes to payments for Medicare Advantage plans, reduced payments for preventable hospital readmissions and home health services.
Beginning in 2015, there will be a 15-member Independent Payment Advisory Board (IPAB) charged with recommending Medicare program changes if spending growth exceeds specific limits. To give that group some clout, a supermajority vote will be required by Congress to override the Board's recommendations. We know-there is a lot of concern about this panel setting policy without public input. But as it stands, this group could very well find ways to reduce Medicare spending by continuing to push more costs to enrollees and providers.
And under the new law there will be more enrollees who fit the high-earner income levels requiring them to pay higher premiums for Medicare Part B (physician service). That's because the law temporarily eliminates the annual inflation adjustment for income levels, freezing them at 2010 levels until 2019. So, the income thresholds for higher Part B and Part D premiums are now fixed at $85,000 for an individual and $170,000 for couples through 2019.
Then there are incentive plans intended to improve the quality and coordination of care, produce efficiencies and, ultimately, program savings. And if you've been to a hospital lately, you know firsthand the need for improvement. What we wouldn't do for better communication among providers, and between providers and patients. And whether you were the patient or a visitor, you can't help but long for better quality care. Let's face it, if you end up in the hospital today, you had better have an advocate to help oversee your stay, or it's very possible you will end up with an infection, won't make a full recovery or could even become a statistic.
When it comes to possible efficiencies, just think about the hospital billing process. After a hospital stay, you get separate bills for doctor and hospital services. You may even get bills from doctors you didn't even know treated you or what they treated you for. That bill may arrive months later. And there is really no way to verify that you received the service. Nor is there a way to challenge the amounts you're being charged. Come on! Is it really $10 for an aspirin? Really? Can you say "simple fraud prevention?" Clearly, reforms are needed. The reality of a hospital stay doesn't look anything like what you see on TV. And every business can find ways to implement best practices and become more efficient. It's just a question of what should be changed and how it will be paid for until the associated savings are realized. Implementing efficiencies is one of the few areas where true cost savings are possible. But watch out for the tendency to cut costs by simply shifting them to the patient, doctor or back to Medicare.
There are also provisions in the law that will increase Medicare spending, offsetting some of the planned program savings. For instance, the law phases in coverage that closes the Part D prescription drug gap ("doughnut hole") by 2020. And there is an annual wellness visit and other improvements in coverage for preventative services. Providing those additional services may be important and may provide cost relief for recipients, but the coverage will certainly add costs to the Medicare program. So, here again the costs haven't been eliminated; they've merely been shifted.
The law even includes provisions that produce revenue for Medicare, including an increase in the Medicare payroll tax for high earners, those with incomes of $200,000 for an individual and $250,000 for a couple. And, there are new fees directed at drug and equipment manufacturers. Here again, no real cost elimination. The revenue inflow to Medicare will come from some beneficiaries, or vendors. It is certainly possible that both targets of cost increases can well afford to pay. But, more than likely when it comes to vendors, they'll simply increase the prices they charge, and the costs will end up right back with Medicare. Lots of energy expended to end up right back in the same place.
In addition to monthly premiums, Medicare enrollees contribute to the cost of care through deductibles and coinsurance. And, some healthcare services like vision, dental, hearing and long-term care aren't covered by Medicare, so you must either purchase separate insurance, pay for the services yourself or forego having that test or procedure. Here again, beneficiaries continue to shoulder the costs.
So, while overall the new law should save the Medicare program money, the impact on beneficiaries and vendors will vary. Those who use fewer health services will carry less of the financial burden. And, those with higher incomes will pay a bigger share for their benefits and a bigger share of their own and others' expenses.
Because Medicare is such a large part of the federal budget, the program will undoubtedly be central to the deficit reduction conversation. And that may mean more change is coming.
Some proposals for additional reforms expand caps on Medicare spending growth, increase beneficiary contributions even further, delay the age of Medicare eligibility and expand the scope of the advisory Board. We can either, bite the bullet and pay more, find new sources of revenue to fund the program or overhaul these benefits completely. It's a challenge with wide-reaching implications for the government, providers and beneficiaries.
And no matter which course is chosen, or which political party gets to set the course, it is very clear that someone will pay more.
For people 65 and older, get reliable information about Medicare and Medigap insurance, including help to compare prices of Medigap plans in your area.
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