What the Medicare fix means to baby boomers

Millions of us baby boomers already are getting our healthcare through Medicare … and the rest of us have it on the horizon. So we think this piece that we spotted on the website of our friends at NextAvenue.org is worth reading. It’s by journalist Mark Miller, the author of The Hard Times Guide to Retirement Security. The title is straightforward: What the Medicare Fix Means to You. Mark says, it will raise premiums, but could improve care.

You may have read that President Obama just signed into law a Congressional fix to a Medicare formula that threatens to slash payments to doctors every year. What you may not have seen is how this legislation will affect people 65 and older who are on Medicare. I’ll explain how below.

First, a brief explanation about the Medicare fix.

Lawmakers have repeatedly overridden scheduled payment cuts to physicians for treating patients on Medicare which are mandated under a formula called the Sustainable Growth Rate. When the SGR became law in 1997, the idea was to keep growth in physician payments in line with the economy’s overall growth. But it’s been a thorn in the side of doctors, who often have faced the prospect of draconian cuts. Absent this week’s legislation, payment rates would have been slashed 21-percent. The annual Band-Aid solutions came to be known in Washington as the “doc fix.”

Under the new legislation, Medicare will increase the amount it reimburses doctors by 0.5 percent for each of the next five years, according to The New York Times. It also achieves several positive Medicare reforms for Medicare beneficiaries, including:

• Providing incentives to doctors to provide high-quality, cost-effective care. The Sustainable Growth Rate will be replaced with a new formula that rewards physicians with a 5-percent bonus if they meet certain government standards for providing high quality, cost-effective care, moving the system away from rewarding doctors for the quantity of services they provide.
• Addressing growing concerns about Medicare beneficiaries’ access to physicians. The fear has been that doctors would simply get tired of the ongoing threat of reduced payments and stop accepting Medicare patients. Increasing the amount Medicare reimburses addresses the fear.
• Making permanent a 100-percent subsidy of Part B premiums for certain low-income Medicare beneficiaries. This is known as the Qualifying Individual program and covers the Part B premium for beneficiaries with incomes ranging from 120-percent to 135-percent of the federal poverty guidelines, and who have modest assets.

But, as a result of the legislation, Medicare beneficiaries will pay more in a few ways. Specifically:

Premium surcharges for high-income Medicare beneficiaries. Affluent Medicare enrollees already pay more for the program; individuals with modified adjusted gross income (MAGI) starting at $85,000 ($170,000 for joint filers) pay a higher share of the government’s full cost of coverage in Medicare Part B and Part D for prescription drug coverage. This year, for example, those with incomes at or below $85,000 pay $104.90 per month in Part B premiums, but higher-income earner pay between $146.90 and $335.70.

Starting in 2018, the new plan will shift a higher percentage of costs to Medicare beneficiaries with MAGI between $133,500 and $214,000 (twice that for couples). Those with incomes of $133,000 to $160,000 would pay 65-percent of total premium costs rather than 50-percent today, and those with incomes between $160,000 and $214,000 would pay 80-percent rather than today’s 65-percent.

• Slightly higher Part B premiums for all Medicare beneficiaries starting in 2018. Under current law, enrollee premiums must cover 25-percent of Medicare Part B costs. The Congressional Budget Office (CBO) had already forecast that the Part B premium would soar from $104.09 this year to $171 in 2025 without the impact of the doc fix. The CBO says the legislation will tack another $10 onto Part B premiums in 2025, for a total of $181.
• Medigap plans won’t cover the Part B deductible. Under the doc fix law, starting in 2020, Medigap plans will no longer cover the annual Part B deductible for new enrollees. That will mean changes for Medigap C and F plans, the two most popular choices and the only ones that cover Part B deductibles.

The goal is to give recipients more “skin in the game,” which advocates have long argued will lower costs by making patients think twice about using medical services if they know they must pay something for all services they use.

Research confirms that higher out-of-pocket expenses will result in people using fewer services, but that’s not always a good thing. A 2011 study by the National Association of Insurance Commissioners found that Medicare beneficiaries may avoid necessary services that worsen their health in the long run, increasing the need for more intensive care and driving up Medicare costs.

“The hope is people will be more sensitive to costs and go without unnecessary care,” says Tricia Neuman, senior vice president and director of the Kaiser Family Foundation’s Program on Medicare Policy. “But if instead, some forego medical care that they need, they may require expensive care down the road, potentially raising costs for Medicare over time.”