Medicare Reform in Our Changing Society - Research Paper Example

Medicare Reform in Our Changing Society The goal of health care reform is to provide quality, affordable health care for all Americans. As our nation attempts to achieve this goal, Medicare must not be left behind. A key element of reform is to slow the growth of costs across the entire health care system so they more closely parallel growth of costs in the rest of the economy. This universal approach to cost containment is critical to the future of Medicare. If health care reform fails, Medicare will surely be singled out for cuts in subsequent legislation, as has been the case in numerous budget proposals over the years. Such cuts would cause the program to suffer and seniors to face growing difficulties finding care. It will become increasingly more profitable for providers of all types to serve patients with private insurance rather than Medicare beneficiaries, effectively resulting in rationing of care to seniors. Successful health care reform would make the entire health care system more efficient, thus maintaining a level playing field which protects seniors and does not leave them at a disadvantage. At face value, Medicare appears healthy. Besides the trustees' prediction that the HI Fund has enough money to function until 2026, government spending and premium adjustments guarantee the SMI Fund will remain solvent. The federal government shows both Medicare trust funds running solid surpluses at a time when the overall federal budget is in record deficit. But there are problems on the horizon for both funds. Most of the money in the funds for Parts A and B of Medicare are credits from the government's general coffer. In other words, despite the premiums and payroll taxes that flow into the funds from employers and employees, the vast majority of Medicare's income comes from other parts of the government, known as intergovernmental transfers. For example, federal employees receive Medicare benefits, so the federal government pays taxes to Medicare just like a private employer would. Also, the SMI Fund is aided by spending from the general federal government budget. Both of these sources arrive in the trust funds via intergovernmental transfers (Robinson). In fact, without the government's promise to pay itself through these intergovernmental transfers, Medicare is actually running a deficit in 2003. The aging U.S. population presents another major challenge to Medicare's financial future. There are currently 37 million Americans aged 65 and over, but the baby-boomer generation will begin retiring in 2010. By 2050, the number is expected to reach 82 million. Since Medicare funds rely on employee payroll taxes to pay for recipient services, the ratio of those employed to those drawing on Medicare benefits is crucial to maintaining future solvency. Currently, there are 3.7 workers for every person receiving Medicare benefits. HI Fund trustees calculate that there will be 2.4 workers for every retiree in 2030 and only 2 workers per retiree in 2075; each individual employee will be responsible for a far greater share in supporting each recipient (Robinson). With fewer workers to support Medicare recipients, one of three things will have to happen -- either payroll taxes on the working population will need to be increased, or the government will need to pay a greater share, or the government will have to limit or change benefits. As it is structured now, the cost to keep Medicare running will increase by 5.9 percent in 2003 and then 6.8 percent annually over the next ten years. Considering Medicare in the broader picture of the federal budget, the CBO sees Medicare costs increasing from 2.5 percent of the 2002 GDP to 9.2 percent of the GDP in 2075. Medicare has other problems besides the shrinking worker to beneficiary ratio. Not only will there be more people who are 65 and older in the decades to come, but the number of those people aged 85 and older, is slated to increase as well. Today 4.3 million people fall into the "oldest-old" category, but the number is expected to increase to more than 8.5 million by 2030 (Robinson). These "oldest-old" will likely require more expensive, long-term health care services, and such coverage may increase Medicare's expenses. Also, as medical advances tend to drive up health care costs, Medicare expenditures can reasonably be expected to increase as more recipients receive such new treatments. The CBO's Medicare projections are based entirely on the assumption that the Medicare program will remain as it is in its current form. Adding new benefits, such as a prescription drug benefit, is likely to exacerbate the situation unless an overhaul to Medicare's funding is considered. The Treasury secretary, Timothy F. Geithner, says the only way to keep Medicare solvent is to “control runaway growth in both public and private health care expenditures.” He also said President Obama intended to do that as part of his plan to guarantee access to health insurance for all Americans. However, if cost controls do not produce the expected savings, Congress is likely to find it difficult to preserve benefits without increasing taxes. President Obama has said he does not want to finance expanded health coverage with more deficit spending. Rather, he says, Congress must find ways to offset the costs, so they do not add to the deficit over the next decade (Pear, 2009). The role of Medicare in the Patient Protection and Affordable Care Act of 2010 is very important. During the debate over health reform, there was a lot of discussion about expanding coverage to the uninsured and controlling costs. Although Medicare was not a primary focus of the health reform law, it ultimately played a key role. Before getting into specific provisions of the health reform law, let’s step back for a moment and take a broader look at Medicare – the federal program that provides health insurance coverage to 47 million people. Today, Medicare covers 39 million seniors ages 65 and older and another 8 million younger beneficiaries who qualify for Medicare because they are permanently disabled and receive Social Security Disability Insurance payments. Medicare accounts for 12 percent of the federal budget so plays a critical role in policy discussions that relate to the federal budget, as it did in the health reform debate. Medicare accounts for 23 percent of national personal health expenditures, so is an essential component of efforts to reform the nation’s health care system. Thus, Medicare ultimately played a key role in the 2010 health reform legislation. Medicare is organized into four main parts. Part A covers inpatient hospital care, up to 100 days of skilled nursing facility care, home health visits following hospitalizations and hospice care. Employees and employers pay 1.45 percent of earnings, so individuals and their spouses will be entitled to Medicare Part A benefits when they are eligible, typically at age 65. Funds collected from the payroll tax are deposited into the Medicare Hospital Insurance Trust Fund. Part B pays for physician services, outpatient hospital care, preventive services, such as mammography screening, mental health services and home health, x-rays and other diagnostic procedures, and durable medical equipment, such as wheelchairs. Part B is financed mainly by monthly premiums paid by people on Medicare and by general revenues from the federal government. Part C, now called Medicare Advantage, provides Medicare-covered benefits through private plans, such as HMOs and PPOs. The government pays private insurers a fixed amont of money to provide benefits covered under Parts A and B, and often Part D to enrollees. Part C is not separately financed. Part D is the newest part of the program which helps pay for prescription drugs. To receive these prescription drug benefits, beneficiaries must enroll in a private plan. They can choose either a stand-alone Medicare prescription drug plan or a Medicare Advantage prescription drug plan. Part D is funded by premiums paid by enrollees, general revenues paid by the federal government, and state payments (U.S. Department of Health and Human Services, 2010). Each part of the Medicare program was affected by provisions made in the 2010 health reform legislation. The health reform law includes numerous Medicare provisions. Certain provisions increase Medicare spending to improve benefits and coverage. Other provisions reduce the growth in Medicare spending to help the program operate more efficiently and help fund coverage expansions to the uninsured in the underlying health reform legislation. Other provisions are designed to improve the delivery of care and quality of care. The law includes more than $100 billion in new Medicare spending over the next ten years. The largest component of spending improves the Medicare prescription drug benefit over time. The law also improves coverage of prevention services. Beginning 2011, Medicare will cover a new annual wellness visit with a personalized prevention plan and will no longer require people on Medicare to pay deductibles or coinsurance for preventive services that receive an A or B grade from the U.S. Prevention Services Task Force. The law also increases spending somewhat for primary care services; an effort that begins to address a long standing concern that Medicare pays inadequately for primary care (The Henry J. Kaiser Family Foundation, 2010). The 2010 law improves prescription drug coverage under Medicare Part D by gradually closing the coverage gap, sometimes referred to as “the doughnut hole”. Under prior law, the standard Part D benefit had a somewhat unusual design. The initial benefit period has the enrollees pay 25 percent of their total drug costs and 75 percent is covered by the plan. This equals $2,830 in total drug costs and $940 out-of-pocket. After this initial period, enrollees are required to pay the full cost or 100 percent of their total drug costs or until their expenses reached a level ($3,610) to qualify for catastrophic coverage. This coverage gap has proven to be a serious concern for Medicare beneficiaries’ in Part D plans. A study by the Kaiser Family Foundation shows that an estimated 3.4 million people on Medicare reached the coverage gap, and many of those who reach the gap, including those with serious chronic conditions like diabetes and depression, stop taking their medications or skip doses because they cannot afford the full cost of their prescriptions. The health reform law addresses this concern by phasing in coverage in the gap – beginning with a $250 rebate for enrollees with any spending in the coverage gap in 2010 (The Henry J. Kaiser Family Foundation, 2010). After full implementation, the health reform law substantially reduces enrollee’s cost-sharing requirements. Without health reform, individual’s enrolled in Part D plans are required to pay 100 percent of total drugs costs in the gap. As a result of the legislation, the gap is essentially eliminated by 2020. Between 2011 and 2020, Medicare will phase in coverage of generic drugs in the gap so that by 2020, Medicare will pay 75 percent of the total cost of generic coverage in the gap. Coverage of brand-name drugs improves in two ways. First, beginning in 2011, manufacturers will provide a permanent 50 percent reduction on the total cost of brand-name drugs in the gap, effectively reducing the enrollees’ liability by half for the most expensive drugs. Then, beginning in 2013, Medicare will phase in additional coverage for brand-name drugs. Thus by 2020, enrollees pay 25 percent on both brands and generics until they qualify for catastrophic coverage, based on the standard benefit design. The law also reduces the out-of-pocket threshold between 2014 and 2019 making it easier for enrollees to qualify for catastrophic coverage than under prior law. The health reform law of 2010 also reduces the growth in Medicare spending by more than $500 billion over ten years, according to Congressional Budget Office estimates. The largest component of these savings, about 40 percent or nearly $220 billion, is derived from reducing annual increases in payments that many health care providers would otherwise receive from Medicare, and other reductions in provider payments. This change affects hospitals, skilled nursing facilities and home health agencies among others. Another major component of the savings, 25 percent of $136 billion, comes from reduction in payments to Medicare Advantage. Other provisions that achieve savings include increases in premiums for higher-income Medicare beneficiaries, a new board tasked with reducing Medicare spending to keep expenditures below defined targets, and other delivery system reforms. One issue that received notable attention during the health reform debate relates to Medicare payments to private insurers that offer Medicare Advantage plans. Today, beneficiaries have a choice of the traditional FFS Medicare program or can enroll in a private plan that receives payments from Medicare for every enrollee. Over the past several years, Congress has increased payments to Medicare Advantage plans to encourage more plan participation and enrollment. These relatively high payments allowed plans to offer extra benefits to enrollees which in turn attracted a growing number of beneficiaries to Medicare Advantage plans in fact a doubling in enrollment between 2004 and 2010. Today, 25 percent of all Medicare beneficiaries are enrolled in a Medicare Advantage plan. However, as a result of this payment system, Medicare pays more for beneficiaries who enroll in MA plans than it pays for beneficiaries in traditional Medicare thus increasing costs to the Medicare program. The overpayments also contribute to Medicare’s fiscal problems, shortening the life of the Medicare Trust Fund and increasing premiums paid by all beneficiaries. Thus Medicare Advantage payment reform emerged as a critical issue during the health reform debate (The Henry J. Kaiser Family Foundation, 2010). The health reform law made a number of changes to Medicare payment policy for Medicare Advantage plans. Over a ten year period, these provisions reduce Medicare spending by an estimated $136 billion over ten years. Under the payment system in place prior to the health reform law, Medicare sets a maximum payment per county, known as the benchmark. If plans submit a “bid” to Medicare that is below the benchmark, they were permitted to keep 75 percent of the difference between their bid and the Medicare maximum. This is called the “rebate”. The health reform law freezes the maximum payments, or benchmarks, that Medicare will pay Medicare Advantage plans in 2011 (The Congressional Budget Office, 2010). Beginning in 2012, the law phases in reductions in payments that will vary based on average Medicare costs in the county. In addition, Medicare will keep a larger share of the difference between the plan’s bid and the county level benchmark, reducing the amount that plans were previously able to keep, called the “rebate”. Notably, the law also includes a new system of bonus payments to plans, based on a 5-star quality rating system. This represents the first time Medicare has used a quality rating system for bonus payments. How these payment changes will affect beneficiaries remains to be seen, and is expected to vary across the country. The Congressional Budget Office projects the law will result in fewer enrollees in Medicare Advantage plans and fewer extra benefits for Medicare Advantage enrollees on average (The Congressional Budget Office, 2010). It is also possible that the number of plans available to beneficiaries will decline, which may or may not be a concern. Currently, Medicare beneficiaries have approximately 30 plans available to them. When health reform legislation was being debated, policy makers expressed considerable interest in reforms that would improve the delivery of care under Medicare. They addressed long-standing concerns about the fragmentation of care, excess costs due to preventable hospital readmissions and a strong interest in improving the coordination of care for high cost, chronically ill beneficiaries, and for low-income beneficiaries who are covered under both Medicare and Medicaid, known as dual eligibles. To achieve these goals, the health reform law includes a new Federal Coordinated Health Care Office in CMS for dual eligibles and a new Center for Medicare and Medicaid Innovations to move forward with delivery system and payment reforms (U.S. Department of Health and Human Services, 2010). The law also launched several new initiatives to improve the quality of care for patients discharged from the hospital, which included provisions to reduce payments for preventable hospitalizations, create a national pilot program to bundle post acute care, and reduce payments for hospital-acquired conditions. Also included were provisions to create Shared Savings/Accountable Health Organizations, an Independent’s at Home demonstration project with shared savings, a Value-based purchasing for hospitals all by 2012. It also aims to establish mandatory physician quality reporting program by 2015. The Congressional Budget Office estimates these initiatives will reduce Medicare spending by $12 billion over ten years (The Congressional Budget Office, 2010). Concerns about the potential effect of the overall health reform law on national health care spending and the federal budget was a hot-button issue leading up to enactment. To help address this concern, the law includes a new Independent Payment Advisory Board with unprecedented authority to recommend changes in Medicare spending to achieve specified spending targets that are defined in the law, with 15 full-time members, appointed by President, confirmed by U.S. Senate, with unprecedented authority to recommend reductions in Medicare spending. The board is required to recommend specific Medicare savings proposals if Medicare spending exceeds target growth rates, which is based on inflation initially and then on the growth in the economy. The Secretary of the Department of Health and Human Services is required to implement the board’s recommendations, unless Congress enacts an alternative with equivalent savings (U.S. Department of Health and Human Services, 2010). The board is prohibited from recommending proposals that would ration care, reduce benefits, increase cost-sharing, or modify benefits, eligibility, premiums, or raise taxes, or reduce payments for certain providers before 2018. The CBO projects the Board will achieve Medicare savings of $15.5 billion between 2015 and 2019. Medicare savings in the health reform law are also achieved through increases in premiums paid by higher income Medicare beneficiaries under Parts B and Part D. Under prior law, Medicare beneficiaries in Part B with incomes above $85,000 for individuals and $170,000 for couples are subject to an income related premium, which means they pay a larger share of the Part B premium than other beneficiaries. Previously, the income thresholds were indexed annually so that a constant share of beneficiaries, about 5 percent, would be subject to the higher premium over time. The health reform law freezes the income thresholds at 2010 levels, which means a growing share of Medicare beneficiaries will pay the higher Part B premium over time. A new income-related premium is also imposed on higher income enrollees’ in Part D plans. And, in addition, the law raises revenues by increasing the Medicare Hospital Insurance Payroll tax on earnings above $200k for individuals and $250k for couples. These revenues are deposited into the Part A Hospital Insurance Trust Fund, which helps keep the trust fund solvent for longer (The Henry J. Kaiser Family Foundation, 2010). One unanticipated and positive outcome of the health reform legislation is the improved fiscal status of the Medicare Hospital Insurance Trust Fund. Prior to enactment of the health reform law, the Medicare Trust Fund was projected to be exhausted by 2017. This means the trust fund would have insufficient funds to pay for all hospital and other Part A claims submitted on behalf of beneficiaries that year. As a result of the Medicare savings provisions and new Medicare payroll tax provision, the trust fund will be solvent until 2029; which is a significant improvement. With ongoing concern about the growth in Medicare spending, it is good to know that the health reform law is projected to significantly reduce the growth in Medicare spending over the next decade. By 2015, Medicare spending is expected to be $50 billion less than it would have been in the absence of the health reform law. By 2019, Medicare spending is projected to be $100 billion less than it would have been without health reform. On a per capita basis, the annual growth in Medicare spending over a ten year period is projected to decline from 6.8 percent pre health reform to 5.5 percent after health reform. Although the health reform legislation was not primarily about Medicare, in the end, the legislation included a number of provisions that affect virtually every part of the program including benefits, provider payments, plans payments, premiums, delivery system and quality improvements, and financing. Over time, it will be important to monitor the effects of these Medicare savings provisions to assess the extent to which reductions in spending impact patients’ access to care, or the quality of services they receive. Other challenges include maintaining and improving access to care, and quality of care for beneficiaries, in the face of pressure to constrain the growth in Medicare spending; and assuring the affordability of health care, particularly for those with modest incomes and serious health care needs. Conclusion The issue of health care reform in the United States has been the topic of heated policy debates for several decades. The national dialogue that transpired during the 2008 Presidential election and the partisan debates in both houses of Congress that lead to the passage of the Patient Protection and Affordable Care Act of 2010 were no exception. This paper provided an overview of recent efforts to reform health care in America. Specifically, the paper examined the role that Medicare will play as the future of health care delivery unfolds. Elected officials in Washington should be commended for their efforts at achieving a legislative foundation for reform through the passage of the 2010 health care bill. One of the major issues, however, is that the current law will result in incremental change at best. Challenges such as burgeoning health care costs, quality of care, the ramifications for the health care system of America’s rapidly aging population and funding preventive health care strategies have largely been ignored. The issues described above are not, of course, unique to the United States. Other developed nations in Europe, Canada and Asia also face similar demographic and cost containment issues. Yet, in 2009 the United States spent 16.3% of GDP on health care while Canada spent 10.4% of GDP, Sweden 9.5% of GDP, the United Kingdom 8.6% of GDP and Singapore 8.7% of GDP. Moreover, the U.S. has the highest percentage of individuals who currently lack any access to health care (OECD, 2010). Obviously, there is a serious disconnect between how health care is managed in the U.S. compared to other developed nations. The argument presented in this paper is that Medicare should remain an important component of the government’s overall health care strategy, yet the 2010 health care act calls for reductions of $500 billion in Medicare over the next decade. Former Health and Human Services Secretary, Michael O. Leavitt, in an August 27, 2010 op-ed article for The Washington Post, argues that there will be zero savings realized from Medicare reform. He contends that all of the dollars captured from the Medicare program will be used to partially offset the costs of expanded coverage for millions of Americans and to shore up the Medicaid system. Leavitt’s point about Medicaid is an important one for state and local governments. History has shown that when the federal government attempts to cut health care expenditures, the costs are passed on to state and local governments in the form of unfunded mandates. John Carroll (2010) believes that the impact of the 2010 health reform legislation, coupled with cost reductions in Medicare, will overwhelm the already tenuous fiscal situations facing many states. Political posturing aside, when one examines the fundamentals of the U.S. health care system, there are serious problems that remain. Many of the provisions of the 2010 health care bill do not come into effect until 2014, and many of the bill’s revenue mechanisms do not kick in until 2018 and 2020. After all, the major goal of the legislation was to expand coverage for the millions of uninsured Americans. That said, much work still remains to be done in reforming the existing federal health programs. As for Medicare, there is no doubt that the program needs serious revision. Many of the rigid policies and procedures that govern Medicare were introduced when the program was founded in 1965. They are outdated and inefficient and there are definite cost savings to be realized by implementing new health technology systems and more effective procedures for reimbursing hospitals and extended care facilities. The reality is, however, that savings gained through efficiencies are insignificant when compared to the projected cost escalation expected as the baby boomers become eligible for Medicare. Two policy options will ultimately have to become part of the national dialogue. The first involves a means tested application to the payroll tax. Currently, the Medicare tax is 1.45 percent. A progressive scale could be developed ranging from 1.65 percent to 2.0 percent for upper income individuals. Second, Medicare premiums should increase for the very wealthy so that at some level of income ($500,000 for example) the individual pays 100% of the insurance premium. These two measures would generate billions of dollars in much needed revenue to support quality health care for America’s elderly and disabled citizens. In the current political climate these two measures would have little chance of making it through Congress. However, at some point elected officials will have to reconcile partisan politics with the reality of the growing fiscal imbalance in the nation’s health care system. It is hard to resolve a problem a great as this. One of options to reform the system is that there should be a reallocation of money in the health care system as President Obama suggests. Some say a reallocation to charge more for the insurance of the elderly is necessary, by as much as 25 percent. Those who would be unable to pay the added expenses could have their children supplement this increase. Another way that money could be reallocated is by service reductions. The way to accomplish this is though the insurance system. Essentially, the less the insurer will fund, in turn a reduced amount of services the patient will utilize. I think a combination of tax increases, and other factors need to be utilized in order to prevent a collapse in Medicare. For example, if we put taxes on sales by 1.5 percent nationally to go into the Medicare fund we could have tremendous gains. Since our population is living longer, we could raise the age by a year or so, say to 67. I also think it is necessary to get our nation back to work so that we can start contributing to the fund via personal taxes. Although there will always be some group, politician, lobbyist, or citizen who opposes these ideas, I feel it is for necessary to do in order to give our generation and future generations Medicare. Without Medicare, millions of us will have no way to pay for our health care and increasing health care costs as we age. As life expectancy rises, and the population grows, we must take action now to help ourselves. Works Cited Carroll, John (2010, June). Many More Medicaid Members—If the States Choose to Cooperate. Managed Care, pp. 28-33. Leavitt, Michael O. (2010, August 27). The Medicare reform Illusion. The Washington Post. Organisation for Economic Co-Operation and Development (2010). OECD Health Data 2010. Retrieved August 27, 2010, from http://www.oecd.org. Pear, R. (2009, May 12). Reccession Drains Social Security and Medicare. The New York Times , pp. 1-2. Robinson, E. (n.d.). Financing Medicare. Retrieved 07 23, 2010, from PBS.org: http://www.pbs.org/newshour/health/medicare/financing.html The Congressional Budget Office. (2010, March 19). The Congressional Budget Office. Retrieved August 8, 2010, from Medicare Advantage Enrollment and Additional Benefits: http://www.cbo.gov/ftpdocs/113xx/doc11379/MAComparisons.pdf The Henry J. Kaiser Family Foundation. (2010). Medicare-Health Policy, Public Opinion, and Research. Retrieved August 2010, 8, from The Kaiser Family Foundation: http://www.kff.org/medicare/index.cfm U.S. Department of Health and Human Services. (2010). Medicare. Retrieved August 13, 2010, from Centers for Medicare and Medicaid Services: http://www.cms.gov/home/medicare.asp Read More