The full implementation of the Patient Protection and Affordable Care Act (ACA), aka “Obamacare”, won’t happen until January 2014. Some changes—changes that will affect seniors—are already in effect. We’ll look at the good and bad and the present and future of the ACA and what it may mean to you.
The cuts to Medicare—about $700 billion between 2013 and 2022—are actually decreases in the spending rate for this program. According to the Congressional Budget Office, the cuts will be felt in hospital services, Medicare Advantage plans, skilled nursing services, home health services and others.
Retirees with traditional Medicare Parts A and B should feel little change in their coverage. For example, there was a small increase in the premiums from 2012 to 2013; these increases will remain constant until 2017.
PRESCIPTION DRUGS: CLOSING THE GAP
Under Medicare’s prescription drug program, Part D, there is a coverage gap where your drug costs reach a coverage limit. Once you reach the coverage limit ($2,970 in 2013), you are responsible for paying the entire costs of prescription drugs until (and if) you reach the catastrophic threshold.
The ACA fixes this donut hole over a period time by offering discounts on prescription drugs while in the gap.
2013: Pay 47% for brand-names and 79% for generics
2014: Pay 47.5% for brand-names and 72% for generics
2015: Pay 45% for brand-names and 65% for generics
2016: Pay 45% for brand-names and 58% for generics
2017: Pay 40% for brand-names and 51% for generics
2018: Pay 35% for brand-names and 44% for generics
2019: Pay 30% for brand-names and 37% for generics
2020: Pay 25% for brand-names and 25% for generics
Co-payments/deductibles will be eliminated for preventive services and screenings for cervical cancer, diabetes, colonoscopies, mammograms, bone mass density tests and others. In the first five months of 2012, over 14 million seniors took advantage of that benefit.
MEDICARE ADVANTAGE CUTS
Medicare Advantage (MA) plans (Part C)—plans that cover about 14 million retirees—have been spared for now. The Centers for Medicare and Medicaid Services said it will increase its payment rates (what Medicare pays to these private insurers) to 3.3% percent instead of decreasing them by 2.2% in 2014. This means the private insurers and their customers won’t feel the sting just yet.
The original 2.2% rate decrease would have saved the government money but would have cost seniors more in premiums and loss of benefits. This still only delays the inevitable.
Under the new law, MAs will be cut by over $145 billion over the next 10 years. And they will be subject to the same premium fee that affects all other insurers beginning in 2014.
Medicare Advantage plans are a type of Medicare plan that use private insurers to provide Part A and Part B benefits. Under these plans, beneficiaries typically see coverage for extras such as dental, vision, hearing and wellness.
MAs come in a handful of flavors: Health Maintenance Organization (HMO), PlansPreferred Provider Organization (PPO), PlansPrivate Fee-for-Service (PFFS) Plans, and Special Needs Plans (SNPs).
TAX ON “CADILLAC” HEALTH INSURANCE
“Say goodbye to that $500 deductible insurance plan and the $20 co-payment for a doctor’s office visit. They are likely to become luxuries of the past,” says the lede from a recent New York Times article on the scaling back of Cadillac health plans.
Effective in 2018, the ACA will impose a 40% tax on these expensive plans with the goal of getting the insured away from them entirely. The tax affects individual plans whose premiums exceed $11,500 and family plans that exceed $29,450.
According to Americans for Tax Reform, “this tax increase will most directly affect union families and early retirees, who are likely to be covered by such plans.”
DIVIDENDS TAX INCREASE
Starting in 2013, a 3.8% surtax will be applied to investment income such as interest, dividends, capital gains, annuity withdrawals, passive rental income, and royalty income.
Not considered income are wages, self-employment income, qualified pension and profit sharing plans, charities, IRAs, Roth IRAs, active business income, SS, and Veteran’s benefits. The following tax payers will be affected:
- Single, making more than $200,000
- Married, making more than $250,000
- Married (filing separately) making more than $125,000
- Trust and estates making more than $12,000
HIGH MEDICAL BILLS TAX
Before Obamacare, you were allowed an itemized tax deduction of 7.5% of adjusted gross income (AGI) for out-of-pocket medical expenses. Starting in 2013, that threshold is now 10% of AGI. (See this article for a basic explanation.) This means a higher tax bill.
About 10 million, mostly middle class families ($53,000 average annual income) took advantage of this program in 2009, deducting 80 billion in medical expenses.
INDIVIDUAL MANDATE EXCISE TAX
If you retire before age 65 you will likely be shopping for health insurance; Medicare doesn’t kick in until then. In 2014, you’d be required to buy qualifying health insurance under Obamacare or face a penalty—1% of AGI in 2014; 2% in 2015.
There will be some exceptions to this such as individuals with very low incomes, those between coverage (3 months max), hardship, and other exemptions.
This tax shouldn’t be an issue for most seniors. There seem to be enough exemptions to cover those with special circumstances. And if you do retire before Medicare is available, you’ll have likely given thoughtful consideration to your health insurance needs for the interim.
This portion of the law is, however, the biggest sticking point for those opposed to it because it requires everyone to buy insurance or face a penalty.
Many essential health products—from tongue depressors to pacemakers to MRI machines to wheelchairs—are becoming more expensive.
On January 1, 2013, the 2.3% tax on medical device sales went into effect. Medical device manufacturers and importers will pay this excise tax to help offset the cost of Obamacare. This list includes around 180,000 taxable devices.
Section 201(h) of the Federal Food Drug and Cosmetic Act defines a medical device as an “instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component part, or accessory which is:
- recognized in the official National Formulary, or the United States Pharmacopoeia, or any supplement to them,
- intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or
- intended to affect the structure or any function of the body of man or other animals, and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes.”
According to the FDA:
“Medical devices range from simple tongue depressors and bedpans to complex programmable pacemakers with micro-chip technology and laser surgical devices. In addition, medical devices include in vitro diagnostic products, such as general purpose lab equipment, reagents, and test kits, which may include monoclonal antibody technology.”
What does this mean for you? As these manufacturers pass on the tax cost with increased product costs, doctors and hospitals will in turn, charge higher prices for these items to insurers. This will result in higher medical product costs and higher insurance premiums.
The tax does exclude eyeglasses, contact lenses, hearing aids, and any other medical device that is (as determined by the Treasury Secretary) to be “purchased by the general public at retail for individual use.”
Another important component of senior health is oral health. And it’s one that will be affected. According to the American Dental Association (ADA), “the medical device tax [see above] is one that would unfairly be passed on to providers. Also, it is likely that many patients will ultimately bear the burden imposed by the tax.”
The ADA also states that “the tax on ‘devices’ specific to dentistry will in many cases be applied to the materials from which dental devices are manufactured rather than to the customized items supplied by a dental laboratory, whether or not a device is ultimately adjusted and adapted by the dentist for a patient.”
Even the ADA is unclear on exactly what will be considered a taxable device and what will be exempt. They do feel, however, that “dental labs and dental supply companies will likely pass the cost of the tax along to their dentist customers.”
For a list of dental devices, go to the FDA’s dental device classification panel. Note that “OTC” products are exempt.
Other items exempted will be manual and power toothbrushes, dental floss and other items that can be purchased over-the-counter.
Dental care is an increasingly important issue for seniors. Regular Medicare does not cover dental care, nor does Obamacare (except for children beginning in 2014). So seniors, especially low income seniors, must pay out of pocket unless they have an insurance plan that covers dental.
Dental care also has a lot important health implications. According to the Alliance for Aging Research,
- Almost one-third of older adults have untreated tooth decay (cavities).
- Fifty percent of those over 75 years of age have cavities. These cavities “may lead to more serious infections, such as bacteremia and septicemia.”
- Almost 25% of those between 65 and 74-years old have severe gum disease, “which is associated with chronic disease and severe health events including diabetes mellitus, heart disease, stroke and respiratory disease.
- Thirty percent of those 65 and older experience dry mouth (usually caused by medications), which can lead to cavities and gum disease.
(LESS) FLEXIBLE SPENDING ACCOUNTS
Most seniors probably don’t have employer-administered Flexible Spending Accounts (FSAs)—a non-taxed account used to pay for qualified medical expenses. But if you do, you’re now limited to saving and spending $2,500 per year.
Who this may hurt most are caregivers: the children of seniors who care for their aged parents. Caregivers who use their dependent care flexible spending accounts to pay for elder care expenses are now limited to $2,500.
SHORTAGE OF DOCTORS
The new law will insure an additional 32 million Americans. But even before the new law was passed, the U.S. was experiencing a shortage of doctors. In 2008, there was a shortage of 7,400 physicians, according to the Association of American Medical Colleges (AAMC).
New analysis by the AAMC shows that the ACA combined with physician retirement and changes in specialty choice, the shortfall of physicians will become greater:
- In 2015, there will be a deficit of 62,900 doctors
- In 2020, the deficit will be 91,500
- In 2025, the projected deficit will be 130,000
The addition of 77 million baby boomers hitting retirement and needing increased care over the coming decades will also add to the burden. Also, one-third of current doctors will retire in the next decade.
The Deloitte 2013 Survey of U.S. Physicians is also very telling on the attitudes of our nation’s health professionals.
- Thirty-eight percent of physicians felt that the ACA was a step in the wrong direction
- Six in ten doctors said that the practice of medicine was in jeopardy
- Twenty-five percent said they would place new or additional limits on accepting Medicare patients if they were reimbursed with lower payments.
It’s not surprising doctors would place new or additional limits on accepting Medicare patients. From 2000 to 2010, they were reimbursed for Medicare at about 80% of private insurance rates—not great but sustainable for most practices.
A report by the Centers for Medicare and Medicaid Services projects that physician reimbursement rates will drop to “55% of private health insurance payment rates in 2013.” Beyond 2013, the reimbursement rates continue to plummet.
At these rates, doctors will not accept Medicare patients because it end up costing them money to do so.
As the rubber meets the road in 2013 with some of the ACA’s new provisions, seniors will have a better idea of whether the law will hurt or help them.
If you’re under Medicare’s Parts A and B, you’ll see some extra benefits such as free screenings along with just a slow growth in plan premiums in the coming years. Part D prescription drug recipients will see a closing of the donut hole to save money along the way.
Others, particularly those with Medicare Advantage plans, will likely see changes to their plans in the form of higher premiums and reduced benefits.
One of the bigger unintended consequences may be the coming shortage of doctors. Right now, the picture looks gloomy with the predicted shortfall of doctors. Combine this with a Medicare program that pays less and less and the prospect for adequate senior medical care could be in trouble.