President Obama lays out his plan for Medicare reform in his “Budget for Fiscal Year 2013" and aspects of his 2010 health care law, the Affordable Care Act. The proposals would mostly maintain Medicare in its current form, while implementing structural payment reforms to encourage the utilization of high-value rather than high-cost services. Thus, Obama focuses his Medicare reform proposal on two main areas: (1) altering the current payment system, and (2) reducing fraud and waste in the system. The Office of Management and Budget estimates that the reforms in the president’s budget for Medicare, Medicaid, and other health programs will save $364 billion over the next 10 years. The provisions in the ACA would help push back the date of exhaustion for the Medicare Part A (Hospital Insurance) Trust Fund from 2016 to 2024, according to the Medicare Trustees' 2012 report.
President Obama unequivocally opposes any plan to turn Medicare into a voucher or “premium support” system. In the president’s introduction to his fiscal year 2013 budget proposal, he clearly articulated his opposition to replacing Medicare with a voucher system, stating, “What I will not support are efforts to turn Medicare into a voucher or Medicaid into a block grant. Doing so would weaken both programs and break the promise that we have made to American seniors, people with disabilities, and low-income families—a promise I am committed to keeping.”
Medicare Payment Reform
Obama’s proposal for Medicare reform seeks to maintain the financial stability of Medicare in the long run by initiating both general and specific payment reforms that would improve the sustainability of Medicare. The intention of payment reform is to encourage the appropriate use of health services by making new beneficiaries responsible for payment for certain services.
Obama’s FY 2013 budget proposes general payment reforms that would extend the solvency of the Hospital Insurance Trust fund for up to two years, including:
- Modifying payments to certain providers in order to address payments that exceed patient care costs.
- Reducing government payments to Medicare providers for beneficiaries’ nonpayment of their deductibles and copayments.
- Aligning Medicare drug payment policies with Medicaid policies for low-income beneficiaries.
- Reducing the federal subsidy of Medicare costs for beneficiaries with the highest incomes.
Obama’s payment reform proposals also include more specific actions to incentive efficiency, such as:
- Introducing a modified Medicare Medical Insurance (Part B) deductible for copayments for home health services that are not preceded by inpatient care services for new beneficiaries beginning in 2017.
- Implementing changes to Medicare Supplement Insurance (Medigap) coverage plans and charging a premium surcharge for those who choose Medigap plans beginning in 2017. Research indicates that beneficiaries with Medigap plans that provide first dollar coverage have less incentive to consider the costs; therefore, by charging more for Medigap coverage, the administration hopes to give beneficiaries an incentive to consider the costs of their health care services.
Obama also supports permanently changing Medicare’s physician payment system. Currently, physician payments are determined under a formula referred to as the Sustainable Growth Rate (SGR). Since 2002, this formula has called for reductions in physician payment rates, which Congress has had to override in order to prevent dramatic reductions to physician reimbursements. The administration aims to work with Congress to fix the SGR and to create a Medicare physician payment system that is more predictable and permanent, because the failure to do so only prolongs long-run structural budget issues.
Finally, the president’s budget emphasizes containing health care costs through the use of expanded preventative services under the Affordable Care Act (ACA), in order to address the growing problem of chronic illness. Chronic diseases—such as heart disease, cancer, strokes and diabetes—are a pervasive and costly health care issue in America, accounting for 75 percent of the nation’s health care spending. To better contain the cost of chronic illness, Obama believes that health care must emphasize wellness and encourage preventative screening to identify issues early on. Accordingly, the ACA created the Prevention and Public Health Fund (Fund), which is designed to create and expand the necessary infrastructure to prevent disease or detect it early, and to manage conditions before they become severe. As a result of certain provisions in the ACA, since 2011, 32.5 million Medicare beneficiaries have received at least one new free preventive service, including screenings for cancer, diabetes, depression and blood pressure.
Obama intends to continue to support wellness and chronic illness prevention in 2013 by allocating $1.25 billion from the Fund for activities that will improve health outcomes and reduce health care costs by increasing the availability of preventative services, such as screenings and immunizations for both children and adults. Furthermore, the budget creates a Comprehensive Chronic Disease Prevention Program that will combine select chronic disease programs into one main program. The hope is that this will “provide States with additional flexibility to address the leading causes of chronic disease and disability, while increasing accountability and improving health outcomes through performance incentives.”
The Affordable Care Act includes up to $716 billion in Medicare spending cuts from 2013 to 2022.
Of that $716 billion, 34.8 percent comes from reductions in hospital reimbursement rates. Decreased Medicare Advantage plan reimbursements account for 30.2 percent, and the remaining 35 percent comprises various small cuts such as 5 percent in savings from Medicare Disproportionate Share Payment reductions and an 8.8 percent decrease in reimbursements to home health providers.
The Medicare provisions in the ACA designed to preserve the program's solvency also include fighting Medicare fraud and waste in the program, and creating a cost-cutting Independent Payment Advisory Board (IPAB) to recommend changes in reimbursement rates. Obama’s budget proposal seeks to strengthen the authority of the IPAB to reduce long-term drivers of Medicare cost growth.
In addition, the law also generates revenue by imposing an annual fee on branded prescription pharmaceutical manufacturers and importers ($27 billion in revenue through 2019), and by eliminating the tax deduction for employers who receive Medicare Prescription Drug Plans (Part D) retiree drug subsidy payments, beginning in 2013 ($5 billion in revenue through 2019).
Obama’s Medicare reform proposals focus heavily on reducing waste, fraud and abuse. In 2011, the Health Care Fraud and Abuse Control Program (HCFAC) recovered nearly $4.1 billion in taxpayer dollars in 2011 and $10.7 billion over the last three years. Furthermore, the Health Care Fraud Prevention and Enforcement Action Team (HEAT) has helped stop 150 defendants charged with approximately $950 million in fraud, and increased the number of individuals charged with criminal fraud from 797 in fiscal year 2008 to 1,430 in fiscal year 2011.
Going forward, the Department of Health and Human Services will continue to focus on implementing ACA anti-fraud provisions, in order to achieve the administration’s goal of cutting the Medicare fee-for-service improper payment rate in half by the end of 2012. The president’s 2013 budget invests $610 million to implement activities that reduce Medicare payment error rates, prevent fraud and abuse, target high-risk services and supplies, and enhance civil and criminal enforcement. Specifically, Obama’s budget proposes the following measures:
- Authorizing civil monetary penalties or other intermediate sanctions for providers who do not update enrollment records.
- Permitting excluding individuals affiliated with entities sanctioned for fraudulent or other prohibited actions from federal health care programs.
- Affirming Medicaid’s position as a payer of last resort when another entity is legally liable to pay claims for beneficiaries.
- Rescreening 1.5 million home health agencies, medical equipment suppliers, doctors, hospitals and providers to ensure they are not defrauding taxpayers.
Medicare Beneficiary Age
Obama’s budget proposal contains no mention of altering the age at which American citizens begin to receive Medicare benefits, which is currently set at 65.
President Obama’s 2013 budget proposal also allocates $76.4 billion to the Department of Health and Human Services (HHS)—$300 million above HHS’ current 2012 funding level—so that the department can focus on the administration’s priority of implementing the Affordable Care Act. Specifically, HHS will use this money to help states establish Affordable Insurance Exchanges and create cost-sharing and assistance programs to make coverage affordable for all Americans.
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