Thursday, August 5, 2010

Good news for Grandma! Health reform to keep Medicare afloat.

One of the more effective criticisms of the health reform law (Affordable Care Act, or ACA) is that it hurts Medicare. It also is wrong.

Effective, in that it has been widely reported that seniors are more likely to express negative views of the ACA than other age groups. (Although the Kaiser Family Foundation's Drew Altman, citing the group's most recent tracking polls, writes that seniors' opposition to health reform "is at least somewhat over played.")

Effective, but wrong: the ACA actually helps Medicare in three important ways.

First, Medicare's trustees today confirmed that because of the ACA, the Hospital Insurance (HI) Trust Fund is now expected to remain solvent until 2029, 12 years longer than under earlier projections, and spending on Medicare Part B as a share of GDP over the next 75 years is down 23 percent relative to the costs projected in the 2009 report. The improvement is due largely to the reductions made by the ACA in the annual "market basket" updates to hospitals and other non-physician providers (productivity "adjustments" that by and large were agreed to by the affected industries), lower payments to Medicare Advantage plans, and increased tax revenue. The Wall Street Journal's health blog notes the report comes with a caveat: the trustees had to assume that Medicare will continue to pay hospitals and other providers under the reduced rates, which may be politically difficult to sustain over time. And the improvement in the Part B (physician spending) side doesn't take into account the costs that would be associated with repealing Medicare's sustainable growth rate (SGR) formula.

Second, the ACA helps Medicare because it adds more benefits, at little or no cost to seniors. Effective on January 1, Medicare will eliminate deductibles and co-payments for most preventive and screening services, and pay for an annual "well" physician examination. Starting this year the ACA begins to phase out the Medicare Part D "doughnut hole" until it disappears in 2012.

Third, the ACA will promote development and pilot-testing of new models of payment and delivery to improve payments for primary care, promote patient-centered care through medical homes, reduce preventable hospital admissions, and create incentives for physicians, hospitals, and other providers to deliver better care, more efficiently. For the most part, the Medicare trustees' did not include the potential savings from these changes in its report.

Of course, the ACA does not solve all of Medicare's problems. The program will still need to be reformed to fix the growing gap between the number of workers paying taxes into the program and the number of persons receiving benefits. This, plus rising health care costs, will continue to endanger its long-term solvency. Access will continue to be at risk until the Medicare SGR is repealed and doctors are assured a fair fee for their services.

Still, the bottom-line is that Grandma will get better benefits, starting now, and won't have to worry about the program running out of money for another two decades. The delivery system reforms from the ACA have the potential of improving outcomes and saving even more money, which could help the program staying solvent well beyond 2029. I'd say that's pretty good news for America's seniors.

Today's question: What is your reaction to the Medicare trustees' report that "The outlook for Medicare has improved substantially because of program changes made" by the Affordable Care Act?


W. Bond said...

More benefits.
Fewer out-of-pocket costs for patients.
No reduction in payments to doctors (except of course the SGR, which isn't addressed in either the old system or the new bill).

And it will cost less! (Impossible, of course).

But, says the skeptic:

"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."

Unknown said...

I would say - go and read the Trustees Report and see what else it says. The projections in the TR are made on a current law basis. That means that if ACA says that Medicare will now pay lower prices to Medicare providers forever, the TR has to assume that will happen - and it has to assume that additional price cuts can feasibly be made every year for 75-years - and it has to assume that hospitals and physicians will continue to provide services when Medicare is paying half the price that private payers (or even Medicaid) pays. So the numbers may sound optimistic - but the outlook is not necessarily much brighter. The "productivity" adjustment (e.g. price reduction) accounts for the vast majority of the lower spending that improves the financial outlook for Medicare. But it will reduce Medicare price increases to below the increase in prices that providers must pay their employees, and the cost of their capital equipment and overhead. If this can happen without harming access or quality of care, then wonderful - but it is hard to make a case for it without assuming that the success of a few exceptional institutions (e.g. Geisinger, Virginia Mason) can be repeated across the country - not just once, but again and again for 75-years. The 2010 Medicare Trustees Report actually finds that this assumption is highly questionable.

jfddoc said...

This report is just a formality. It assumes SGR mandated Physician payment cuts that almost everyone agrees will not occur and that the ACP (quite rightly) will oppose. Healthcare reform will fall apart without a long tern solution to the SGR problem. So not really worth much more than the cost of the paper it was printed on.

jfddoc said...

And here is the Chief Medicare Actuary quoted in USA TODAY:

Richard Foster, chief actuary for the Centers for Medicare and Medicaid Services, said Congress still must find a way to avoid a proposed 30% cut in payments to doctors over the next three years. He added that most health care providers aren't likely to improve their productivity as much as forecast by the law.

"The financial projections shown in this report for Medicare do not represent a reasonable expectation for actual program operations," Foster wrote. "The recession adds a significant further element of uncertainty to the trust fund projections."

ryanjo said...

The assumptions in this blog post are WAY overstated. For a little balance, read ACP's QD: News of the Day: CMS - One Step Forward, One Step Back also on the ACP website today.

W. Bond said...

A second comment.

Medicare’s chief actuary, Rick Foster disputes the trustees report.

In a recent news report he stated: "There is a strong likelihood that the cost projections in the new trustees report under current law understate the actual future cost that Medicare will face. A strong likelihood," he says. "I've gone so far as to say that I don't think it's a reasonable projection of what will really happen."

The report continues:
…the administration simply assumes care will be more efficient -- because it wants to spend less and use the money elsewhere. Over time, that means Medicare would pay less and less -- and its payments would drop to one-third of what private insurance would pay. "That by itself says these would not be viable," says Foster. "You can't pay somebody a third of the going rate and expect to get them to be willing to treat your patients."

So the chief lobbyist for a physician organization deadpans on his blog that fears about the future of Medicare under the new plan are not just overstated, but simply “wrong,” when, in fact, the report he cites to justify his defense assumes drastic reductions in physician reimbursement on top of current reimbursement levels that are barely profitable (if at all).

A commenter’s question for the blogger: What do you think of Mr. Foster’s criticism of the trustees report?

And an obvious couple of corollaries: Why does a lobbyist for a physician organization vigorously defend a plan that assumes enormous and unrealistic reductions in physician compensation? And why should physicians voluntarily pay money to belong to such an organization and fund such “lobbying” on their behalf?

Steve Lucas said...

You may want to check today’s WSJ editorial page for a recap of this issue.

Steve Lucas