Medicare and Obamacare: The Numbers Square

August 19, 2012

By Melissa Bynes Brooks

Despite the massive media hype portraying President Obama as being fiscally irresponsible, he has improved the solvency of the Medicare Program for beneficiaries while saving tax payers billions of dollars. He has also invested in the American people by expanding health care coverage for millions who are uninsured. The Affordable Care Act (ACA) has been a contributing factor to the Medicare program’s sustainability and enhanced financial outlook, albeit for a period of 8 more years. The Medicare debate is currently front and center in the upcoming presidential election. A  PEW Research Center poll conducted among registered voters in April 2012 shows that 74 percent of Americans rank health care as the fourth most important issue to their vote.

Output has exceeded input in the Social Security and Medicare trust funds. In 2011, 36 percent of federal spending was for Medicare and Social Security. The trend for rising costs is expected to continue due to the aging population of the baby boom generation coupled with decreasing population numbers in subsequent generations. According to the U.S. Census Bureau, life expectancy  has increased and people 90 and older now comprise 4.7 percent of the older population of people that are age 65 and older. This has increased from 2.8 percent in 1980 and is projected to be 10 percent in 2050.

Medicare’s costs under the Trustees’ current-law assumptions rise from their current level of 3.7 percent of GDP to 6.0 percent in 2040 and 6.7 percent in 2085. If the Sustainable Growth Rate (SGR) restraint were overridden, Medicare costs would rise to 6.5 percent of GDP in 2040 and 7.8 percent in 2085. Under the full scenario, in which adherence to the ACA cost-saving measures also erodes, costs would rise to 7.0 percent of GDP in 2040 and 10.3 percent in 2085. The SGR system compares the accumulated amount of actual physician- related spending to a specified target level.

The Affordable Care Act decreases Medicare spending in the following ways:

  • It permanently reduces Medicare payment updates for most categories of providers by the increase in economy-wide multifactor productivity. “Multifactor productivity” is a measure of real output per combined unit of labor and capital, reflecting the contributions of all factors of production. There are reductions in the annual updates to Medicare’s payment rates for most services in the fee-for-service sector (other than physicians’ services) which will decrease Medicare spending by $415 billion. Physicians’ services are based on a fee schedule, which reflects the relative level of time and effort required for each service and its relative complexity. Relative factors per service are translated into dollar payment amounts through a conversion factor, which is updated each calendar year based on the SGR. Medicare payment rates for physician services are scheduled to be reduced by approximately 31 percent in 2013.
  • The ACA Reduces Medicare Advantage payment benchmarks and permanently extends the authority to adjust for coding intensity. A new mechanism for setting payment rates in the Medicare Advantage program will decrease Medicare spending by $156 billion. A Medicare Advantage Plan is a type of health plan offered by a private company that contracts with Medicare to provide all Part A and Part B benefits. Medicare Advantage Plans include Health Maintenance Organizations, Preferred Provider Organizations, Private Fee-for-Service Plans, Special Needs Plans, and Medicare Medical Savings Account Plans. Premium subsidy amounts will be calculated for low-income beneficiaries to help ensure that the premium subsidy in each Part D region, provides low-income beneficiaries with a sufficient choice of plans for which they would incur no premium liability.
  • The ACA Reduces Medicare Disproportionate Share Hospital (DSH) payments and refines imaging payments. DSH adjustment payments provide additional help to those hospitals that serve a significantly disproportionate number of low-income patients. States receive an annual DSH allotment to cover the costs of DSH hospitals that provide care which is not paid by other payers, such as Medicare, Medicaid, the Children’s Health Insurance Program (CHIP) or other health insurance. Federal Financial Participation (FFP) is limited and is not available for state DSH payments that are more than the hospital’s eligible uncompensated care cost. Unnecessary DSH spending will be decreased by $56 billion.

The estimated amount of deficit reduction from penalty payments and other effects on tax revenues under the ACA will be $5 billion.

Under Mitt Romney’s and Paul Ryan’s Medicare Plan, the CBO estimates that costs for senior citizens could increase by as much as $6,000.00 a year. Low-income beneficiaries who are not eligible for both Medicare and Medicaid would receive a medical savings account (MSA). This account will be used to pay premiums, co-pays, and other out-of-pocket costs. Low-income seniors would be offered the same range of plan options offered to other seniors. Whether they will be able to afford it is another issue since eligibility levels for low income beneficiaries are unspecified. Additionally, there are no price controls for out of pocket expenses for the coverage of essential benefits and unspecified prescription drug coverage. The specificities have not been clarified and senior citizens have expressed their concerns regarding the information provided or lack thereof.

“Our plan is very simple.  Which is, that for people 55 years of age and older there’s no change,” said Mitt Romney during an interview with ABC Green Bay affiliate, WBAY . “The only change I’d mention is we’d restore the $817 billion President Obama took out of the Medicare trust fund.  We’d restore it to Medicare.” 

I beg to differ. 

Mitt Romney’s plan to repeal Obamacare will be much more complicated. Several of the Medicare benefits and payments enacted by ACA will not be able to be retroactively adjusted. There are negotiated contracted payment rates and subsidized benefits in the Medicare Advantage program and the Part D prescription drug program. Likewise the Internal Revenue Service may not be able to collect revenues retroactively; relevant to provisions that have already been provided as new or increased tax benefits. If Mitt Romney repeals Obamacare, he will contribute to increasing federal budget deficits by $109 billion over the 2013–2022 periods. 

Clearly, Mitt Romney’s plan for healthcare is to transfer its ownership, finances, and accountability from the public sector to private enterprises. Read the fine print. The Romney- Ryan policies have the potential to fail to protect the poorest and most vulnerable citizens from social-economic injustices. Nothing happens by coincidence and efforts may be underway at this very moment, to promote their agenda by silencing the voices of those who will be impacted the most, with voter suppression laws. 

Melissa Bynes Brooks is the editor of BrooksSleepReview.

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