Published March 18, 2011
The Obama administration argues that the Patient Protection and Affordable Care Act improves the Medicare health-insurance program for seniors. This could not be further from the truth. In fact, Medicare patients are at a high risk of service cuts under the new health law.
There are 1.5 million Ohioans enrolled in Medicare — 620,000 (or 40 percent) of whom have chosen to get their coverage through the private-insurance options known as Medicare Advantage plans. Under the act, Medicare Advantage beneficiaries face a dramatic loss of services. In addition, the health-reform law also cuts what Medicare will pay for services provided to seniors in the traditional program. Instead of strengthening Medicare, these provisions will harm seniors’ access to medical care.
The new health law cuts deeply into the projected payments for Medicare Advantage plans, ultimately eliminating $145 billion over 10 years. Seniors who use Medicare Advantage plans — and even those who might have enrolled if not for the cuts — will experience a substantial drop in the value of health-care services covered by their plan.
On a dollar basis, the average service cut for Medicare Advantage patients (or those who would have been enrolled in the private plans) will total $3,700 per beneficiary and $55 billion overall by 2017.
These deep cuts will force participating Medicare Advantage plans to raise their premiums, increase their deductibles and co-payments, and eliminate coverage for services such as vision and dental care, which are not traditionally covered by Medicare. Some Medicare Advantage plans will be forced to exit certain insurance markets entirely because of the cuts.
Poor and minority seniors will be hit especially hard by these deep cuts. Hispanic Americans are twice as likely and African-American seniors 10 percent more likely to be enrolled in Medicare Advantage plans than the average Medicare beneficiary. They will shoulder a disproportionate share of cuts. Almost 300,000 Hispanics and more than 800,000 African-Americans will lose access to Medicare Advantage plans because of the law.
Moreover, millions of lower-income seniors have chosen Medicare Advantage because they get added coverage without the cost of a Medigap premium. The health-care law will impose substantial new costs on them. Seniors with incomes of about $32,000 per year (in today’s terms) will lose a total of $38.5 billion in health-care services in 2017 from the cuts. Rather than restrict seniors’ Medicare options, Congress should reform the program to encourage even more vigorous competition and consumer choice.
The act also cuts Medicare by about $500 billion over the coming decade, mainly through deep payment-rate reductions for those providing services to Medicare patients.
Medicare’s administrative payment formulas are impressively complex, but they bear little relationship to economic reality. The law’s Medicare cuts are so arbitrary that they threaten access to care for seniors. According to Medicare’s chief actuary, the cuts would drive reimbursement rates for services — including reimbursement rates for hospitals — so low that they could very well “end their participation in the program (possibly jeopardizing access to care for beneficiaries).”
Moreover, the law’s $1 trillion price tag over the next decade still doesn’t fix the most glaring hole in Medicare, which is the annual service cuts doctors face under the flawed Sustainable Growth Rate formula. So the new health law cuts Medicare to pay for new health programs but fails to ensure that seniors will have access to a wide network of physicians.
The law’s Medicare cuts also will not make it easier for the government to pay Medicare benefits in the future because the law uses the supposed “savings” to pay for new entitlement spending. The same money can’t be spent twice. As the Centers for Medicare and Medicaid Services’ actuary put it, “In practice, the improved (Medicare) financing cannot be simultaneously used to finance other federal outlays (such as the coverage expansions) and to extend the trust fund, despite the appearance of this result from the respective accounting conventions.”
Budget and health-policy analysts know that failure to reform Medicare and other entitlement spending will be ruinous to the nation’s long-term economic prospects. But using Medicare “savings” to create another unsustainable entitlement is no way to bring entitlement spending under budgetary control. If Congress is serious about improving Medicare and ensuring it is viable for future generations, it should reform the program to bring costs under control with consumer choice and strong price competition — not arbitrary price controls from Washington.
The new health-care law’s Medicare cuts will hit the most vulnerable seniors the hardest. Congress needs to repeal the law and look at real reforms to strengthen the program. Otherwise, Ohio’s seniors will very soon face higher costs and serious challenges in accessing care.
James C. Capretta is a fellow at the Ethics and Public Policy Center and a visiting fellow at The Heritage Foundation.