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Medicare in 2013 – Ryan-Wyden versus “Obamacare”

By on September 26th, 2012
Filed: Facts, Health Reform, Medicare, You

The 2012 Election and the Future of Medicare

By now many Americans are aware that cuts to Medicare of about $700 billion are a part of both the Affordable Care Act (“Obamacare”) and the proposal put forth by Republican Vice Presidential Candidate Paul Ryan and Democrat Senator Ron Wyden.  Mitt Romney, the Republican presidential nominee, has not come out and explicitly endorsed the Ryan-Wyden plan for Medicare, but he did say that his plan was “similar.” What most people do not know is how the two plans differ.

How do the two plans differ if each proposes to save the same amount of money?

While the two plans have similar outcomes on paper, their approaches differ.

Does either plan cut Medicare?

No. The government will still spend money on Medicare, and the amount of money it spends on Medicare will still increase each year. But, the rate at which that spending increases will not be as fast.

According to the Medicare Board of Trustees, Medicare Part B spending has increased an average of 5.9 percent over the last 5 years.

What does it do to Medicare spending?

The Ryan-Wyden Plan
The Affordable Care Act (ACA or Health Reform)

In the Ryan plan Medicare’s growth rate would be capped at one percent over Gross Domestic Product (GDP).1 Page two of the plan posted on budget.house.gov/bipartisanhealthoptions says, “beginning in 2023 there will be a cap on cost growth of 1 percent over Gross Domestic Product, plus inflation.”

In the ACA growth rate would be capped at one percent over Gross Domestic Product (GDP). 2 Page 8 of the Affordable Care Act Summary on the Kaiser Family Foundation web site (http://www.kff.org/healthreform/upload/8061.pdf) says, “the (IPAB) board submits recommendations if Medicare per capita spending exceeds GDP per capita plus one percent.”

What does the plan do?

The Ryan-Wyden Plan
The Affordable Care Act (ACA or Health Reform)

The Ryan-Wyden plan would reduce the growth in Medicare costs by…

  1. Raising Medicare taxes for the wealthy – The plan would raise payroll taxes on people with higher incomes. And, payments would be staggered so that lower-income people would pay the least for Medicare.
  2. Raise Medicare’s age eligibility – The plan gradually increases Medicare’s eligibility age from 65 to 67 by 2034.
  3. Create a minimum benefit standard – Create a minimum benefit standard that any company wishing to provide Medicare benefits must meet, including traditional Medicare.
  4. Competitive bidding for basic Medicare – All companies competing for Medicare patients, including traditional Medicare, would need to submit a bid for how much they would charge to cover a Medicare beneficiary in the coming year. The plan with the second lowest bid would be paid the full amount they requested from the government. Medicare Beneficiaries would have to pay the difference if they chose a plan that set rates higher. Traditional Medicare, which would still exist and be run by the government, would submit a bid like private companies do and compete for customers.
  5. Offer Medicare vouchers – Starting in 2022, the plan would allow people to use a “voucher” to buy private insurance plans, or allow them to use the voucher for “Original Medicare” (Parts A&B).
  6. Automatic cuts in 2023 – If competitive bidding and vouchers do not reduce costs in the Medicare program, growth in Medicare would be capped at 1% over Gross Domestic Product, plus inflation starting in 2023. Increases over that limit would reduce payments to areas most responsible for increasing costs, including health care providers, drug companies, and means-tested premiums.1

The ACA would reduce the growth in Medicare costs by…

  1. Raise Medicare taxes for the wealthy – The law raises certain taxes on individuals earning over $200,000 and couples earning over $250,000 and also raises taxes on unearned income for higher-income taxpayers starting in 2013.
  2. Changes in plan payments – Payments to Medicare Advantage plans were restructured so more is paid for managed care and less for fee-for-service (FFS). New payment structures are phased-in over a 3 to 6 year period. Plans that get higher quality scores receive bonuses. And, Medicare Advantage plans must send rebates to the government if they spend less than 85% of premiums on enrollee medical care, beginning in 2014.
  3. Accountable Care Organizations (ACOs) – Health care providers can organize into ACOs, which must be accountable for the overall care of their Medicare beneficiaries and have adequate participation of primary care physicians, define processes to promote evidence-based medicine, report on quality and costs, and coordinate care. ACOs that voluntarily meet quality thresholds share in the cost savings they achieve for the Medicare program. These go into effect in 2013.
  4. Reduce Payments for Insufficient Care – The ACA reduces Medicare payments to hospitals by specified percentages when patients are excessively readmitted for things that could or should have been prevented. (Effective October 1, 2012). Medicare payments are also reduced to hospitals when a patient acquires a condition while in the hospital. Fees are reduced by 1%. (Effective fiscal year 2015)
  5. An Independent Payment Advisory Board (IPAB) – This 15-member group will make recommendations on how to limit Medicare’s growth rate when costs exceed GDP per capita plus one percent. If reductions are necessary, the IPAB recommendations would be made on January 15, 2014.2

What benefits would be affected?

The Ryan-Wyden Plan
The Affordable Care Act (ACA or Health Reform)

The Congressional Budget Office (CBO) has not scored the Ryan-Wyden plan in the same way that the Affordable Care Act has been scored.An earlier plan written by Paul Ryan and submitted to the CBO was scored. While the plans differ in some ways, the CBO found that by 2030 the original Ryan plan would require the typical senior to pay for 68 percent of their medical costs. This number assumes medical costs will continue to increase at their current rate of inflation, but Medicare spending only increases at GDP +1 percent. That number would likely change somewhat in the revised proposal (source).

The Congressional Budget Office and the Joint Committee on Taxation found that over a ten year period (source):

  1. Hospital Reimbursements would be reduced by $260 billion
  2. Reimbursements to Medicare Advantage plans would be cut by $156 billion
  3. Skilled Nursing Services would be cut $39 billion
  4. Home health services would be cut by $66 billion
  5. Hospice care would be cut by $17 billion


Does it end the “Doc Fix?”

What is critical to understand is that both proposals would end what is commonly referred to as the “Doc Fix.” The term “Doc Fix” refers to the fact every year in the United States, health care costs outpace inflation. And, every year the government is only supposed to raise reimbursements to doctors who accept Medicare by an amount less than or equal to the rate of inflation. But, each year Congress passes “doc fix” legislation that ensures care providers will get reimbursed and Medicare patients won’t be denied access.

According to the Medicare Board of Trustees, “a physician fee reduction of almost 31 percent is called for in 2013 under current law. If lawmakers override this reduction, as they have for 2003 through 2012, the growth rate in Medicare Part B costs would average 7.6 percent, instead of the 4.9 percent currently projected (source).

How will these changes really impact Medicare?

This is the $700 billion question: What will the impact of these changes be?  Partisans on both sides of the issue claim that the other side’s plan would push more costs onto seniors and/or force doctors and hospitals to stop seeing patients on Medicare.

How should a person weigh these two approaches to Medicare reform?

What is ultimately being debated in this election and with these two plans is ideology. It’s unlikely either party would dramatically cut medical services for seniors. The Ryan-Wyden plan takes more of a free market approach to reform, and the Affordable Care Act has more Government oversight and management.

What should people do?

We know from eHealth’s 2012 Baby Boomer Survey of over 450 baby boomers that as many as 77 percent of baby boomers do not understand some very basic features of Medicare. The problems our country faces are real and we need to come up with serious plans to solve them. It’s good to see people focused on the issue of Medicare’s long-term sustainability. But, in order to create an informed opinion, it’s important that people understand the Medicare program we have today and how it works.

Every year, according to eHealth’s Choice & Impact Study, people on Medicare leave hundreds of dollars on the table because they haven’t taken the time to understand how Medicare works and make sure they’re getting the most out of the program. Many of the proposed changes to Medicare wouldn’t really begin to impact seniors for several years, regardless of who gets elected. In the intervening years millions of baby boomers will retire. And, if they’re not aware of how the program functions, they won’t be able to make informed decisions about which political party’s plan is better for the country.

Medicare has not reviewed or endorsed this information

About Ross Blair

Ross Blair has applied more than 26 years of technology experience to develop PlanPrescriber.com, a website that makes it easier for seniors and their caregivers to select and enroll in the best Medicare products for their specific needs. In his role as CEO, he has worked closely with pharmacists, insurers, physicians, caregivers and seniors to identify the most critical and complex aspects of Medicare and create a system that delivers this information to consumers in a format that is easy to use and understand.

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