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How the Healthcare Law Changes Medicare: Part 1

One of the goals of the Patient Protection and Affordable Care Act is to slow the growth rate of spending for Medicare by $450 billion over a 10-year period. Spending will still increase; it just won’t increase by as much. We’ll look at some of the changes to Medicare under the new healthcare law. And we’ll see how they may affect you in the coming years.

Independent Payment Advisory Board

The Independent Payment Advisory Board (IPAB) was essentially created to make spending cut recommendations. The 15-member board will consist of physicians and other nationally recognized experts in the health field. If the level of Medicare spending grows too quickly (exceeding the growth rate of the Consumer Price Index) in a 5-year period ending in 2014, the Independent Payment Advisory Board (IPAB) will recommend yearly spending cuts.

According to the law, IPAB is tasked to:

  • “Improve the health care delivery system and health outcomes including by promoting integrated care, care coordination, prevention and wellness, and quality and efficiency improvement.”
  • “Protect and improve Medicare beneficiaries’ access to necessary and evidence-based items and services, including in rural and frontier areas.”
  • “Target reductions in Medicare program spending”

The task of IPAB is obviously a difficult one. And in the last few years, IPAB’s creation has been labeled by some of the law’s opponents as a “death panel”. They believe it will result in rationing of care and cuts in payments to doctors and hospitals.

The law itself says proposals by IPAB will “not include any recommendation to ration health care, raise revenues or Medicare beneficiary premiums…increase Medicare beneficiary cost- sharing (including deductibles, coinsurance, and copayments), or otherwise restrict benefits or modify eligibility criteria.”

Starting in 2015, IPAB will send spending cut recommendations to Congress. If Congress doesn’t like the recommendations, it must pass similarly sized cuts. Also, a supermajority of the Senate—at least two-thirds—can amend IPAB recommendations. The 15 members of IPAB will be selected in the following way: Democrats in Congress nominate six members; Republicans nominate six; The President nominates three. After a Senate confirmation, each member will serve a 6-year term.

Fixing the Prescription Drug “Donut Hole”

If you’ve been under Medicare’s Part D—prescription drug coverage—you already know about the “donut hole.” If not, here’s a quick primer. Under some Medicare plans, your prescription drugs are covered by your insurer up to a certain amount. Once you exceed that amount, you drop into a gap, the donut hole, until you reach the catastrophic threshold. In this in-between period, you are responsible for paying the full price of prescription drugs.

Under the new healthcare law while in the donut hole, you receive a 50% discount on brand name drugs until you reach your threshold. And you get to count the price of the drug before your discount towards your threshold. For example, if your brand name drug cost $100; with your discount you pay $50. However, the full $100 is counted as out-of-pocket towards your threshold. You can find out more by reading “Medicare, Prescription Drugs and the Healthcare Law.”

Medicare Advantage Cuts

Part of the $450 billion projected savings under the new law will be realized from cuts to Medicare Advantage plans—plans that cover about 25% of retirees. These plans will be cut by over $145 billion over the next 10 years. Medicare Advantage (MA) plans use private insurers for Medicare beneficiaries and include extra coverage such as dental, vision, hearing and wellness. Under these plans, you pay a monthly premium to a private insurer. The government, in turn, kicks in another subsidy to the insurer for each insured.

With MAs, the government was paying more per person (about 14% more) than with traditional Medicare. The new law intends to bring the costs for MAs in line with regular Medicare. The effects of the cuts will vary greatly by the area you live in. Federal funding for medical services in each county is calculated using a complex formula.

The Congressional Budget Office (CBO) estimates that by 2019, 4.8 million fewer retirees will be enrolled in Medicare Advantage plans under the new law. Critics say these cuts could mean potentially higher premiums and elimination of some of MA’s extra benefits. Only time will tell.

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