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Obamacare Robs Medicare of $716 Billion to Fund Itself

A Picture of Abby Coleman Abby Coleman
10/05/2012

Last week, a new Congressional Budget Office (CBO) report updated the amount of money Obamacare robs out of Medicare from $500 billion to a whopping $716 billion between 2013 and 2022.

According to the CBO, the payment cuts in Medicare include:

  • A $260 billion payment cut for hospital services.
  • A $39 billion payment cut for skilled nursing services.
  • A $17 billion payment cut for hospice services.
  • A $66 billion payment cut for home health services.
  • A $33 billion payment cut for all other services.

A $156 billion cut in payment rates in Medicare Advantage (MA); $156 billion is before considering interactions with other provisions. The House Ways and Means Committee was able to include interactions with other provisions, estimating the cuts to MA to be even higher, coming in at $308 billion.

$56 billion in cuts for disproportionate share hospital (DSH) payments.* DSH payments go to hospitals that serve a large number of low-income patients.

$114 billion in other provisions pertaining to Medicare, Medicaid, and CHIP* (does not include coverage-related provisions).

http://blog.heritage.org/2012/08/01/obamacare-robs-medicare-of-716-billion-to-fund-itself/

WASHINGTON — Even as President Obama accuses Mitt Romney and Representative Paul D. Ryan of trying to privatize and “voucherize” Medicare, his administration crows about the success of private health plans in delivering prescription drug benefits and other services to Medicare beneficiaries.

More than a quarter of the 50 million beneficiaries receive coverage through private Medicare Advantage plans, mostly health maintenance organizations, and Medicare’s drug benefits are delivered exclusively by private insurers, subsidized by the government.

Obama administration officials, lawmakers from both parties and beneficiaries have generally been satisfied with the private plans.

“Medicare Advantage premiums down 7 percent on average, enrollment up 10 percent,” the administration announced in February, and it said the quality of care under Medicare Advantage was improving.

This month the administration reported the results of competitive bidding for 2013: “Medicare prescription drug premiums to remain steady for third straight year.”

Federal spending on Medicare drug benefits has been about 30 percent lower than the Congressional Budget Office predicted when the drug legislation was passed in 2003.

Mr. Ryan, a Wisconsin Republican who is the chairman of the House Budget Committee, said the drug program “came in below cost projections because it harnessed the power of choice and competition.”

The success of the program, he said, inspired his proposal for broader changes. Under his proposal, the government would contribute a fixed amount of money on behalf of each beneficiary, and future beneficiaries could use the money to buy private insurance or to help pay for coverage under the traditional Medicare program.

What is the difference? Why do Democrats say that Mr. Romney and Mr. Ryan would “end Medicare as we know it,” even as private plans have helped hold down costs and have satisfied most beneficiaries?

One answer, cited by many health policy experts, is that Medicare officials have aggressively regulated insurers to protect consumers and prevent abuses in the marketing and operation of private plans. Republicans who seek a larger role for private plans generally want a market with less regulation.

In the past, federal and state officials say, insurers used improper hard-sell tactics to persuade Medicare beneficiaries to sign up for private health plans. Also, some insurers offered benefits that were likely to attract healthy retirees and discouraged the enrollment of those with costly chronic conditions.

The Romney-Ryan proposal would preserve traditional Medicare as an option. Enrollment in private Medicare Advantage plans, which has risen by nearly 60 percent in the past five years, could grow even faster if they prove more efficient than the government-run program.

Private insurers, competing for business in the Medicare market, have pioneered some innovations in care intended to keep people out of the hospital. Whether such competition holds down costs is less clear.

“There is no strong evidence that competition among health plans is a powerful lever to generate a lot of savings,” said Marsha R. Gold, a senior fellow at Mathematica Policy Research who has been studying private plans in Medicare for more than two decades. “It’s not clear that traditional Medicare or Medicare Advantage knows how to control costs. They are both learning.”

However, Roger D. Feldman, a professor of health insurance at the University of Minnesota, said: “Competitive bidding could save a substantial amount of money, helping solve Medicare’s fiscal crisis. That type of competition has saved money for employers.”

Under the formula used in recent years, Medicare has paid private plans more than it would cost to care for the same patients in the traditional government-run Medicare program. The new health care law is expected to reduce those disparities.

A premise of the new law is that consumers will benefit from more competition. The law will set up markets, known as exchanges, where people under 65 can shop for private insurance and get subsidies to help pay for it. Massachusetts set up such an exchange under a 2006 law that Mr. Romney championed when he was governor. Mr. Ryan’s proposal would establish a similar exchange for Medicare.

“Romneycare, Obamacare and the Ryan plan have some stunning similarities,” said John K. Gorman, a Medicare official in the Clinton administration who now advises insurers.

The political imperative for deficit reduction ensures that Congress will consider changes in the structure of Medicare next year, regardless of who wins the presidential election. In the traditional fee-for-service Medicare program, the government bears the financial burden when Medicare costs increase. In Medicare Advantage and the prescription drug program, that burden is shared with private insurers.

Critics of the Romney-Ryan plan cite two major concerns. They fear that per capita Medicare payments will lag behind medical costs, forcing beneficiaries to pay more. And they worry that older, sicker and more costly beneficiaries will be left in the traditional Medicare program.

“Private Medicare Advantage plans may siphon off lower-risk patients,” said Dr. Donald M. Berwick, a former administrator of the federal Centers for Medicare and Medicaid Services.

The Republican proposal would sharpen competition between traditional Medicare and private plans. The cost of traditional Medicare has long been a major factor in setting payments to private plans, but the private plans have hardly any influence on spending or premiums in the government-run program.

“It’s not a two-way street,” said Robert D. Reischauer, a former director of the Congressional Budget Office.

Under current law, federal officials say, the Medicare trust fund will be exhausted by 2024. Whether a market-oriented plan like Mr. Ryan’s could rein in costs depends on the answers to a handful of technical but important questions:

¶ How would the standard payment for each beneficiary be set? Mr. Ryan would peg it to the cost of the second-least-expensive private plan or traditional Medicare, whichever was lower.

¶ Would the federal government try to control costs by limiting the growth of its defined contribution? At various times, Mr. Ryan has suggested that the federal payment could not grow faster than consumer prices or the economy as a whole, plus half of one percentage point.

¶ Would private plans have to provide the same benefits as traditional Medicare? Could they charge higher co-payments for some services? Could they offer benefits substantially different from those in traditional Medicare if the overall value of the package was the same?

¶ How much extra help would the government provide to low-income people to reduce their premiums, co-payments and other out-of-pocket costs? How would Medicare adjust payments to insurers to reflect the higher costs of sicker patients?

The prescription drug benefit was added to Medicare in 2003 by a Republican-led Congress, working with a Republican president, George W. Bush. Democrats made dire predictions.

“Most seniors will be worse off,” Representative Nancy Pelosi, the House Democratic leader, said on the House floor. “This is the beginning of the end of Medicare as we know it.”

Senator Tom Harkin, Democrat of Iowa, said: “We hear the claim that private-sector competition will drive down costs and save Medicare. Nonsense!”

Lawmakers of both parties worried that few insurance companies would offer free-standing coverage for prescription drugs. In fact, insurers, seeing a lucrative business opportunity, rushed into the Medicare market.

Beneficiaries can now choose from 25 to 35 free-standing drug plans. Or they can choose one of the many H.M.O.’s offering drug coverage.

Medicare officials cite competition as a factor holding down costs. In addition, said John F. Hoadley, a research professor at Georgetown University, Medicare has benefited from “larger trends in the pharmaceutical marketplace,” including greater use of generic drugs that cost less than brand-name products.

The Heritage Foundation

August 1, 2012

Obamacare Robs Medicare of $716 Billion to Fund Itself

Alyene Senger

1 Comments

  1. TOM GRANDBOUCHE September 7, 2012

    I’ve been a democrate all my life and I believe in taking care of the poor and less fortunate. I’ve never seen a republican take care of anyone but themselves and the rich.
    I know of some illegal immigrants that have lived here twenty years, and never became a US citizen, they want to live here free and collect all the benefits. They don’t have to pay taxes or Social Security, but when they go into the hospital, we pay.
    I believe if you want to live in the United States of America, you wll read and write English. English is our language,their will be no interpreter. I believe they come here for a bedder life, but pay for that bedder life like everyone else.
    Their is a lot of money spent by our government for medicaid, Social Security, to illegal immigrants, we need to fix our system.

    Have a great day
    Tom Grandbouche