Medicare’s Future: Letting the Affordable Care Act Work, While Learning From the Past

This article is part of a NAELA Journal symposium edition that focuses on "The Future of Elder Law and Special Needs Planning."

This article will provide an overview of the policy debate that led to the creation of the Medicare program.  It will identify key cost and quality problems facing the program and review solutions included in the recently passed Affordable Care Act that might provide solutions.  The Medicare program faces many challenges as it moves into its second half-century of service.  It is buffeted by the cost of treating an expanded population of older beneficiaries, particularly as the "baby boom" cohort moves into retirement and begins to put greater utilization demands on the system. In addition, the costs of providing care continue to rise at a rate that many find unsustainable.  Cost issues are compounded by concerns about variations in the quality of care that is provided.  These challenges collide with major philosophical differences within our legislative and policy making bodies, leading to conflicting notions about how to respond to an expanding demand for services, how to establish sensible cost-containment strategies, and how to provide Medicare services that are comprehensive and of good quality.  

NAELA Journal, Volume 9, No. 1 Spring 2013

Copyright 2013, National Academy of Elder Law Attorneys. Any use of the contents of this publication without the express written permission of the publisher is strictly prohibited.

Medicare’s Future: Letting the Affordable Care Act Work, While Learning From the Past 

By Alfred J. Chiplin Jr., Esq. and Bethany J. Lilly, Esq.

About the Authors

Medicare provides a foundation for the health and wellness of Americans who are 651 or older and for younger persons who qualify for Medicare on the basis of disability.2 The program currently covers a portion of health care costs for over 47 million individuals throughout the United States.3 While Medicare is a critical component of helping beneficiaries pay for necessary services, in many instances, beneficiaries are required to share in those costs through deductibles and copayments.4 In recent years, several factors, including an economic downturn and resulting legislative efforts at deficit reduction, have shifted a larger portion of health care costs to beneficiaries.5 Moreover, many deficit reduction proposals include changes to Medicare cost sharing for beneficiaries.6 Increases in cost sharing and out-of-pocket spending place a heavy burden on beneficiaries and can have a negative impact on their health and daily living, chiefly through physical and emotional stress7 and through foregoing necessary health care services.8

The Medicare program faces many challenges as it moves into its second half-century of service. It is buffeted by the cost of treating an expanded population of older beneficiaries, particularly as the “baby boom” cohort moves into retirement and begins to put greater demands on the system.9 In addition, the costs of providing care continue to rise at a rate that many find unsustainable.10 Cost issues are compounded by concerns about variations in quality of care.11 These challenges collide with major philosophical differences within our legislative and policy making bodies, leading to conflicting notions about how to respond to an expanding demand for services, how to establish sensible cost-containment strategies, and how to provide Medicare services that are comprehensive and of good quality.

This article will provide an overview of the policy debate that led to the creation of the Medicare program. It will also identify key cost and quality problems facing the program and review solutions included in the recently passed Affordable Care Act (ACA) that might provide solutions.12

I. The Historical Debate Over Public Health Insurance in the United States

Over the past century, paying for health care has been a major concern for American families.13 Prior to the enactment of America’s “Great Society” legislation of 1965, including the Medicare program, families had few options for paying for necessary health care for their old and sick family members.14 Then, and now, health care is prohibitively expensive, with even a hospitalization of a short duration costing thousands of dollars.15

Much of the current structure of the Medicare program stems from a long and public debate about the creation of a social insurance system to address the problems of cost and quality.16 The on-going debate continues to raise questions about the necessary elements of a comprehensive program, including health care financing and accessing the quality of necessary services.17

A. The Pre-Medicare Debate

In his definitive survey of the history of medicine in the United States, Paul Starr18 identified four major cost-related factors for the development of the health care system in American life: loss of personal income, high medical costs, indirect costs of illness to society, and the social costs of medical care.19 As discussed below, the costs of health care are many, including financial and social costs. These historic concerns reach into our current national dialog and influence the American debate over what should be done to provide necessary, high-quality services in ways that are cost-efficient. In the 1910s and 20s, medical science had developed to a point where the first two factors mentioned above were becoming determinative — medical procedures were becoming more advanced and expensive.20 Just as science had developed, the world economy had also shifted, and the new industrial society meant that medical procedures would need to be paid for with cash, rather than a barter for goods or services.21 Individuals and families were suddenly faced with a much higher risk of losing everything if they became sick. This increased risk lead many European countries to adopt various forms of government-run health insurance in the 1920s, but the United States did not follow suit.22

While the United States did not adopt a government-run health insurance system, there was vigorous debate whether to adopt some form of government-run health insurance. This debate began in 1906, with the founding of the American Association of Labor Legislation (AALL), a progressive group that began pushing for state-run public insurance in the late 1910s.23 The proposed government-run insurance covered hospital care and maternity benefits, with program costs shared by the employer (two-fifths), the employee (two-fifths), and the state (one-fifth).24 The intent behind the bill was to address an individual’s lost wages through sickness or injury.25 The bill was considered by New York and California.26 This early effort for public health insurance was defeated.27

Many have attributed this defeat to the medical profession,28 but to do so is a simplification of the broader debate about government-run health insurance. The American Medical Association (AMA) was initially a supporter of the bills proposed by the AALL and even sent a three-person committee of AMA members to work with the AALL on the health insurance program.29 The labor unions, in contrast, strongly opposed a national health insurance system, arguing that such a program would amount to government interference in negotiations between unions and employers.30 This opposition was joined in 1912 by serious opposition from the state AMA chapters, which argued strongly against a public program.31 Another factor in the defeat of the bills was the outbreak of World War I in 1917, which resulted in extreme anti-German sentiments.32 Those sentiments enabled opponents, including many physicians, to tie the proposed health insurance programs to similar kinds of health insurance in Germany, issuing brochures describing health insurance as “a dangerous device, invented in Germany.”33 This demonization of health insurance was, in many ways, an early example of the “socialized medicine” propaganda that is still used today.

This initial defeat did not stop the advocates of a national health insurance system. Following many complaints about the increased costs of medical care in the 1920s,34 the idea of government-run health insurance was revisited in the 1930s. The AALL, while no longer directly involved in the development of health insurance policy, pushed private philanthropy to sponsor the Committee on the Costs of Medical Care (CCMC), the first national survey of medical costs in the United States.35 The CCMC worked from 1927 to 1932 and produced a set of recommendations. It did not recommend a national health insurance program but did recommend that the government push for the creation of a private health insurance system.36 The internal discussions of the CCMC were extremely heated. The AMA and the physician members of the CCMC strong disagreed with the idea of any kind of insurance and several committee members who favored a national public health insurance program issued a dissent to the recommendations.37

Outside forces began to converge, however, with a strong policy argument for a national health insurance system. Health care costs continued to rise in the 1920s and early 1930s as the market control by licensing boards and new scientific developments (and associated physician education costs) drove up the cost of care.38 The Great Depression compounded these costs in the early 1930s, and health insurance seemed a logical area of focus when President Franklin Roosevelt took office in 1932, due to his support of government programs and significant public demand.39 Initially, the chances of a health insurance proposal seemed likely. The Roosevelt Administration created the Committee on Economic Security (CES) to study unemployment and pension issues, which included a subcommittee on medical care and health insurance.40 Unfortunately, the same opposition arose again. Even as the CES studied health insurance, members of the committee acknowledged that the AMA’s opposition to health insurance legislation was clear and made it unlikely that any health insurance legislation could be passed.41 The appointment of two of the most liberal voices from the CCMC to head the CES’s research on health insurance drew massive AMA protests.42 The CES report on health insurance (which recommended an optional program for states that, once chosen, was compulsory for all state residents) was submitted confidentially to the President and not made public.43 As a result, the Social Security Act of 1935, part of the Roosevelt New Deal, did not include government-run health insurance.44

The Roosevelt Administration did not simply cede ground on the health insurance issue. A new committee, the Interdepartmental Committee to Coordinate Health and Welfare Activities (ICCHWA) was created in 1935 to help coordinate the collection of new federal social programs.45 The ICCHWA delegated the issue of medical care to the Technical Committee on Medicare Care (TCMC) in 1937.46 The TCMC conducted extensive research and ultimately presented a thorough report with legislative proposals to address the national health problems it identified.47 President Roosevelt published the report and ordered that a conference be held later in 1938 on the proposal to publicize the recommendations.48 The National Health Conference was held in July 1938 and discussed the TMTC’s five-part legislative plan: 1) additional funding for mother-and-child health programs; 2) federal grants for hospital construction; 3) federal grants to states for medical assistance for the poor and severely ill; 4) federal grants to states for the development of publicly funded, state-wide insurance programs; and 5) federal disability insurance.49 The AMA, realizing the level of support for the proposals was high, attempted to be conciliatory and met with the Interdepartmental Committee to discuss the terms of a deal they would accept.50 The AMA agreed with all of the recommendations except for the development of statewide insurance systems, and the debate seemed to have shifted to a debate about that recommendation alone.51 The debate continued into 1939, and Sen. Wagner of New York introduced Senate Bill 1620, which contained all of the TMTC recommendations.52 The bill and the TMTC recommendations were derailed shortly thereafter, first by the Presidential election of 1940, a year during which little was done, and then by World War II in 1942, an enterprise that consumed the attention of President Roosevelt and the Nation.53

After World War II and the election of 1944, there were many reasons to suspect that a National Health Care program would be a priority of the Roosevelt Administration. First, there were multiple reports from the Social Security Board discussing health issues and recommending national insurance.54 Second, President Roosevelt mentioned a social insurance system in his State of the Union Address in 1944.55 Lastly, in 1942, the release of the Beveridge Report, which set forth a detailed plan for reconstructing England following World War II, included a national health insurance system.56 Dr. Beveridge lectured extensively in the United States on the content of his report and on the need for social insurance.57

In addition, legislative support for a national health insurance system had begun to grow. In 1943, Sens. Wagner and Murray introduced Senate Bill 1161,58 in conjunction with their colleague Congressman Dingell introducing House Resolution 2861.59 The identical bills, known together as the Wagner-Murray-Dingell bill, proposed a national health insurance that would be operated as a part of Social Security, with revenue being collected from income to fund the program in the same method as Social Security.60 These bills died in committee in late 1943, due in large part to a lack of official support from the President.61 In 1944, however, President Roosevelt changed his mind and became an open supporter of a national health insurance program.62 It became an issue in his 1944 reelection campaign.63 Accordingly, his platform included an economic bill of rights, including a “right to adequate medical care.”64

President Roosevelt’s death in 1945 changed the administration’s plans, largely because President Truman, while a supporter of a national health insurance program, lacked the power to push through a revised version of the Wagner-Murray-Dingell bill, which called for a compulsory national system.65 President Truman’s initial proposal in November 1945, following President Roosevelt’s death in April, was similar to the TMTC proposals from 1938, but created a single, national system, instead of state-specific systems.66 At the same time, there was extensive congressional interest in addressing the nation’s health care issues resulting in many alternative proposals. In 1946, Sen. Taft, the chairman of the Committee on Labor and Public Welfare, proposed a federally financed medical welfare system, run by the states, and compulsory for the poor.67 Similarly, from outside the United States Congress, financier Bernard Baruch recommended a national insurance system that was voluntary for high-income Americans and compulsory for low-income Americans.68 President Truman’s health policy advisor, Michael M. Davis, favored the Baruch proposal because it had a broader base of support.69 In addition, Sen. Jacob Javits and Rep. Richard Nixon proposed a local, government-subsidized, privately run nonprofit insurance system with premiums scaled to subscribers’ incomes.70

The debate about which health insurance proposal to adopt was fierce,71 as was the counterattack, which relied heavily on calling such proposals “socialized medicine.” Sens. Ferguson and Taft accused the Administration of pushing socialized medicine in 1947.72 Further, a House committee found that the Administration had worked to advance “the Moscow party line.”73 In 1948, President Truman ran on a platform that included a national health insurance system, and following his surprise reelection, he continued to push for his proposal.74 As before, the AMA strongly opposed the proposal. The AMA hired the first political consulting firm, Campaigns, Inc., run by Whitaker and Baxter, to run their campaign against President Truman’s proposal.75 Whitaker and Baxter were given a budget of more than $1 million, a massive sum in 1948, and created a plan that built on the early cries of socialized medicine with two objectives: the immediate objective of “the defeat of the compulsory health insurance program pending in Congress,” and the long-term objective of “a permanent stop to the agitation for socialized medicine in this country.”76 They succeeded with regards to the first objective. When Truman took office, the public supported a national health insurance system four to one.77 After Whitaker and Baxter became involved, support slipped, dropping to four to one against.78 The entire campaign cost the AMA almost $5 million.79 Even so, the amendments to Social Security in 1950 did not create a national health insurance program; instead, the amendments provided additional financial support to existing health care programs, providing assistance to an additional 10 million elderly and disabled Americans.80

This grim picture misses several important outcomes from President Truman’s battle over a national health care system. The players were changing: The American Hospital Association (AHA), not a major player until this point, decided that it approved of government subsidies for private insurance, although it did not go as far as approving of a national health insurance system.81 Other organizations, such as the American Bar Association and the Chamber of Commerce, supported such a program.82 Among the many health care proposals presented was the idea of a government health care program for just Social Security beneficiaries. In 1950, I S. Falk, a health economist for the Social Security Board, drafted a memorandum for Federal Security Administrator Ewing.83 Falk outlined just such a plan.84 While the proposal was widely discussed in the Administration and in Congress, lawmakers did not act upon it.85

There was little progress on national health insurance under President Eisenhower, who opposed the idea.86 Even so, the Eisenhower Administration could not ignore the debate about the need for national health care insurance and, accordingly, took limited action to try to increase private insurance coverage of low-income groups.87 These efforts failed, largely because critics argued that they would not improve the situation of low-income groups, as the proposals did not provide sufficient incentives to private insurance companies to insure low-income people.88 Congress, however, did act to provide “military Medicare” or health coverage for the dependents of servicemen, and additional payments to medical vendors who provided health care to welfare recipients.89 Perhaps even more importantly, Congress approved a new study of the problems of the aged.90

In 1958, Rep. Forand of Rhode Island introduced a bill that was limited to covering the hospital costs of Social Security beneficiaries.91 This time, strong labor support and the involvement (if not direct support) of the AHA, which had been carrying the brunt of expenses for caring for the elderly, countered the lobbying efforts of the AMA.92 The AHA favored a social security beneficiaries-based system.93 While the Forand bill languished in committee, public demand for a legislative solution to address the medical needs of the elderly grew.94

In addition, Congress demanded a study from the Department of Health, Education, and Welfare (HEW), which identified clear problems: Older persons have larger than average medical care needs. As a group they use about two-and-a-half times as much general hospital care as the average for persons under age 65, and they have special need for long-term institutional care. Their incomes are generally considerably lower than those of the rest of the population, and in many cases are either fixed or declining in amount. They have less opportunity than employed persons to spread the cost burden through health insurance. A larger proportion of the aged than of other persons must turn to public assistance for payment of their medical bills or rely on ‘free’ care from hospitals and physicians. Because both the number and proportion of older persons in the population are increasing, a satisfactory solution to the problem of paying for adequate medical care for the aged will become more rather than less important.95

The study concluded that the federal government could either act by creating federal insurance for the elderly or could try to subsidize private insurance, as the Eisenhower administration attempted in the 1950s.96 In 1960, Congress attempted a third approach toward health care reform by extending federal funds to the state medical programs for welfare recipients, including the aged poor — generally similar to what Medicaid is today.97 That approach failed because most states did not take advantage of it.98

As a result, there remained demand for Medicare and then-Sen. John F. Kennedy made it an issue of his presidential campaign.99 Momentum built in 1961 and 1962, with favorable public support of 69 percent.100 The momentum resulted in various bills being introduced in the Senate and House.101

In May 1962, President Kennedy gave a speech in New York to 20,000 elderly people, which was broadcast live to another 20 million people.102 The House committees were deadlocked, however, and there were insufficient members to overcome the opposition.103 The Senate pushed for a vote before the election and the Medicare amendment was defeated by two votes.104 While Democrats picked up some seats and two on the all-important Ways and Means Committee, the action was mostly delayed by foreign affairs (specifically the Cuban Missile Crisis) until late in 1963.105

President Johnson pushed repeatedly for Medicare in the months leading up to the 1964 election.106 It was not, however, until Democrats swept Congress in 1964 that there were finally sufficient votes to pass Medicare.107 The Mills bill, named after the Chairman of the Ways and Means Committee, combined several proposals that had been considered at various times, including the compulsory health insurance program run through Social Security that the Democrats and the President supported, the government-subsidized insurance program that Republicans supported, and a revised version of the federal assistance program for low-income persons.108 The proposals were revised and combined to form Part A and Part B of Medicare and Medicaid.109 The Mills bill passed the House on April 8, 1965, by a vote of 313-115 and went through three months of hearings and debate in the Senate before passing on July 9, 1965, by a vote of 68-21.110 The final bill, following a short reconciliation process, was approved on July 27 (in the House) and July 28 (in the Senate).111

B. The Current Medicare System

Given the intensity of the debates over creating a health insurance system, it is not a surprise that the Medicare Program, enacted in 1965, was a compromise approach to health care delivery. The original enactment of the Medicare program consisted of Parts A and B. Part A covers inpatient hospital care, inpatient care in a Skilled Nursing Facility (SNF), and home health care services after a period of hospitalization.112 Part A is funded by federal payroll taxes paid by employers and employees into Social Security’s Federal Hospital Insurance (HI) Trust Fund.113 At age 65, all US citizens and permanent legal residents (who have been permanent legal residents for five years) are eligible for Part A.114

Part B covers medical care and services provided by physicians and other medical practitioners, durable medical equipment, a variety of outpatient care services, and home health services not otherwise covered under Part A.115 It is funded by general federal revenues and premiums paid by beneficiaries to the Supplementary Medical Insurance (SMI) Trust Fund.116 The premiums account for 25 percent of the aggregate spending (or total spending for Part B), through a progressive rate structure, and general revenues cover the other 75 percent of spending.117 Over the past decade and a half, Congress has added new features and limitations to the Medicare program. A major change came in the Balanced Budget Act of 1997 (BBA ’97).118 BBA ’97 created Medicare Part C, comprising Medicare’s coordinated care delivery and financing options, then known as the Medicare+Choice program and now known as Medicare Advantage (MA).119 Medicare Part C allows for coordinated care plans, including Health Maintenance Organizations (HMOs), Provider Service Organizations (PSOs), Special Needs Plans (SNPs), and both local and regional Preferred Provider Organizations (PPOs), as options for receiving coverage.120 Other options include Medical Savings Accounts (MSAs)121 and Health Savings Accounts (HSAs) under the Internal Revenue Code.122 Private Fee-for-Service (PFFS) plans and Private Religious-Fraternal Order plans are also included.123

In December 2000, Congress passed another bill that made significant adjustments to the Medicare Program, the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA).124 More changes occurred at the end of 2003 with the enactment of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA).125 Among other things, the MMA provided Medicare beneficiaries with assistance in paying for prescription drugs through a new Medicare Part D, also creating a gap in drug coverage, known as the Part D doughnut hole.126 The law also changed the name of private plans offered under Medicare Part C, from “Medicare+Choice” to “Medicare Advantage.”127 It also created additional benefits for certain beneficiaries.128 In addition, it increased payments to Part C plans, with plans receiving an average of 115 percent of per capita costs under traditional fees for service.129 The legislation also increased beneficiary cost-sharing responsibilities.130

The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA)131 was primarily designed to address problems with the way Medicare pays physicians.132 It also made modest improvements for beneficiaries, including reducing the cost sharing for mental health services and increasing the asset limits for eligibility for programs that assist with Part B premiums and cost sharing.133

The Patient Protection and Affordable Care Act of 2010 (PPACA)134 and the Health Care and Education Reconciliation Act of 2010 (HCERA), collectively known as the Affordable Care Act (ACA), is the most significant health care reform legislation in recent years.135 In the main, the ACA changed the payment structure for private Medicare Advantage plans in order to reduce overpayments and to create greater payment equity between the MA program and traditional Medicare.136 In addition, the ACA provides for system delivery mechanisms, demonstration programs, and pilot projects to improve coordination of care and contains other initiatives to improve quality of care, including reducing unnecessary hospital readmissions.137 The ACA aims to reduce unnecessary hospital admissions primarily by limiting payment for hospital-acquired conditions and by expanding the standards and measures used for determining the quality of care of the services provided to Medicare beneficiaries.138 The ACA also added additional preventive measures starting in 2011, including coverage for a wellness visit. The ACA eliminates cost-sharing for most preventive services, adds consumer protections to Medicare Advantage plan benefit structures, and phases down the Part D coverage gap known as the “doughnut hole.”139

II. Current Medicare Solvency Concerns

Medicare solvency concerns highlight the need for congressional oversight and alignment of payment strategies and goals, but the current state of the Medicare Trust Funds is not as dire as both major political parties and news media outlets indicate.140 Medicare is not on the verge of bankruptcy.141 It has enough money to pay all of its bills through 2024 and to pay 87 percent of its costs for many years thereafter.142 Medicare is, nevertheless, facing two specific financial challenges: the insolvency of the HI Trust Fund in 2024143 and rising health care costs.144

Since 2008, HI expenses have exceeded income and are projected to continue to do so.145 Once the reserves are gone, only the revenue raised by HI Trust Fund payroll taxes will be available, and the program is projected to become insolvent in 2024.146 Payroll tax revenue will still cover approximately 74 percent of Medicare Part A costs after 2024, but there will be a deficit.147 Congress will have to step in and either raise the payroll tax to cover the difference or reduce costs so that the HI Trust Fund will remain sufficient to cover medical costs. This is not a new problem: since the creation of Medicare, experts have predicted solvency issues with the HI Trust Fund.148 As early as 1970, the Trustee’s report noted that the trust fund would become insolvent, but lawmakers have always stepped in to prevent bankruptcy.149

In contrast to the HI Trust Fund, the SMI Trust Fund is not in danger of becoming insolvent. It is funded by set percentages paid every year: 25 percent by beneficiary premiums and 75 percent by general federal revenues.150 In discussing the SMI Trust Fund, the Medicare Payment Advisory Commission (MedPAC) consistently notes that the growing costs of health care will create significant burdens for both beneficiaries and the United States economy.151 This concern relates to projections that Medicare spending will equal 3.7 percent of Gross Domestic Product (GDP) in 2012, 4.2 percent in 2022, and 6 percent in 2037.152 This continues the trend of the last decade, during which Medicare spending rose from 1.7 percent GDP to 3.7 percent GDP.153 This is an increase of 9.1 percent per year from 2000-2005 and of 6.9 percent per year in 2006-2010.154 This growth has been much slower “in expenditures on a per enrollee basis than private alternatives; a trend that is also projected to continue.”155 In fact, Medicare spending per beneficiary has grown more slowly for the past 10 years, growing only 7.2 percent from 2000-2005 (during which private insurance spending grew 9.1 percent) and only 4.2 percent from 2006-2010 (compared to 4.5 percent).156 Projections for the 2011-2020 years provided even more of a contrast: 2.7 percent growth in Medicare per beneficiary spending to 4.9 percent per enrollee spending by private insurance.157

The CBO attributes 60 percent of the growth in the major health care programs (Medicare, Medicaid, and the Children’s Health Insurance Program) through 2037 to the increase in the population served, not to rising health care costs.158 In addition, “[t]hrough 2022, the aging of the population will cause spending on the major health care programs and Social Security to rise significantly … during that period, almost all of the projected growth in such spending as a share of GDP is effectively the result of aging.”159 This projection is especially relevant to Medicare, since the number of people enrolled in Medicare is projected to increase from 47 million (2010) to 64 million (2020) to 81 million (2030).160 In contrast, over the past 20 years, Medicare enrollment grew from 34 million (1990) to 39 million (2000) to 47 million (2010).161

The massive increase in enrollees, combined with Medicare’s lower than most private alternatives per-beneficiary spending rate, means that alternatives to Medicare, including the premium support plans proposed during the 2012 presidential election, are unlikely to be more cost effective.162 Since Medicare has the lowest per-beneficiary costs, the program as a whole results in less spending on health care.163 Under a premium-support system, such as the one suggested in the 2011 budget proposal of Rep. Paul Ryan, beneficiaries would receive a set amount of money with which to buy private insurance.164 Since private insurance pays more for the same benefits that Medicare provides, the costs of health care will go up much more than they would if Medicare remains a player in the market.165 Since Medicare provides benefits to beneficiaries more cost effectively than private options, the way to keep health care spending down is to allow the massive number of new people becoming eligible to go onto Medicare.166 Retaining the Medicare system as it is now will lower health care costs as millions of people move to it from less cost-effective private insurance.167

It is important to note that rising health care costs are important, particularly as 40 percent of Medicare’s growth is attributed to “excess cost growth.”168 The continued growth is concerning given the current state of the United States deficit and the debate over what aspects of the federal budget to cut. The entire Federal Budget was equal to 24 percent of GDP in 2011 and Medicare accounted for 13.5 percent of the entire budget.169 This budget figure allowed Medicare to provide health care to approximately 47 million elderly and disabled Americans.170 Even so, almost all recent budget plans suggest changing or limiting Medicare in some way.171

The rising costs of health care are also a major concern for beneficiaries, since Medicare growth will outpace growth of the average monthly Social Security benefit.172 This will force elderly beneficiaries to pay a higher percentage of their income for health care.173 Currently, Medicare beneficiaries spend roughly the same percentage on health care needs as they spend on household expenditures such as food and transportation.174 With the essential costs of food and transportation also rising, beneficiaries are facing mounting challenges to maintaining their health and daily necessities. Out-of-pocket spending by Medicare beneficiaries as a percentage of income has risen sharply in recent years, from 11.8 percent in 1998 to 16.2 percent in 2006.175 Out-of-pocket premium costs as a share of income rose from 5.3 percent in 1998 to 8 percent in 2006.176 As a proportion of total spending, Medicare beneficiaries pay two times more out-of-pocket for health care than other Americans.177 A separate analysis puts the median out-of-pocket spending figure at 17 percent and shows variations among demographics.178

The factors discussed above make stabilizing or reducing health care costs a major issue for the future of Medicare. Moreover, in September 2012, the Institute of Medicine (IOM) released the newest installment of their report on the quality of health care in the United States.179 The report focused on two major issues, one of which was the increasing costs of health care.180 The headline-grabbing conclusion was that the waste within the health care system totaled approximately $765 billion.181 It specifically critiqued Medicare for re-hospitalization rates.182 The report attributes these increased costs to a lack of coordination between physicians, which resulted in $15 billion in unneeded costs.183 The IOM report posits that inefficiencies and failure to pay for quality are the core elements of our current increased cost predicament.184 The IOM report also provides solutions and praises recent legislation, including the ACA, for addressing those problems by focusing on value-based initiatives, including the use of Accountable Care Organizations (ACOs)185 and bundled payment methods.186 As we will discuss below, these programs all work together to address the health care costs problem facing Medicare.

III. The Affordable Care Act and Medicare

As the discussion of solvency above suggests, Medicare does need to reduce costs. The current efforts to reduce costs include the variety of cost-containment methods in the ACA. These methods are all rooted in the theory that costs can be reduced by demanding a higher quality of care from providers. This section will begin by discussing the theory of quality of care, highlight several of the major initiatives that the ACA created, and analyze the strengths and weaknesses of those indicatives in the face of additional political challenges.

The ACA introduces a variety of cost saving and quality of care enhancement mechanisms. In large part, these measures build upon notions that allow providers of service to share in savings achieved through providing health care services more efficiently. Having a “medical home” — a place or setting in which one’s care needs are managed — is a key concept.187 The concept of a medical home is part of a newer notion of care coordination referred to as the “patient-centered medical home” (PCMH).188 The Centers for Medicare & Medicaid Services (CMS) has created a series of demonstrations to test and evaluate medical homes. The medical home demonstration is intended to “redesign the health care delivery system to provide targeted, accessible, continuous and coordinated, family-centered care to high-need populations.”189 Under the demonstration, the terms “high-needs populations” and “family-centered care” define access criteria. “High-needs population” refers to beneficiaries with a chronic problem or problems being addressed by a variety of health care providers.190 Similarly, MedPAC, a group created to advise the Congress on Medicare payment policy, has defined medical homes as a construct that “serves as a central resource for a patient’s ongoing care.”191

A Medicare beneficiary who receives services through a physician practice that has agreed to participate in a medical homes demonstration project will not lose eligibility upon entering a nursing home, provided the beneficiary receives primary care from the medical home.192 Similarly, a beneficiary retains eligibility if care is received through a home health agency or through hospice.193 In addition, the beneficiary may remain in the demonstration project if he or she recovers from the chronic condition(s) that enabled initial eligibility.194 A beneficiary who is dually eligible for Medicare and Medicaid and is in the traditional Medicare program may also participate in the demonstration project.195 To participate in the medical homes demonstration, a Medicare beneficiary: must participate in the traditional Medicare program; must be enrolled in Medicare Parts A and Part B; and must have at least one eligible chronic disease as defined by CMS.196

A. Medicare Shared Savings Program (MSSP) and Accountable Care Organizations (ACOs)

The ACA requires the Secretary of Health and Human Services (the Secretary) to establish a Medicare Shared Savings Program (MSSP).197 The design of the MSSP is to promote accountability for a defined patient population, coordinate items and services under traditional Medicare Parts A and B, and encourage investment in infrastructure and redesigned care processes for high quality and efficient service delivery.198

Under the MSSP, groups of providers of services and suppliers that meet criteria established by the Secretary may work together to manage and coordinate care for Medicare fee-for-service beneficiaries through ACOs.199 ACOs embrace notions and characteristics that are similar to those of the Medicare Advantage (MA), coordinated care plans. Because the MSSP programs operate only in the traditional Medicare program, beneficiaries enrolled in an MA plan, a competitive medical plan, or in a Program of All-inclusive Care for the Elderly (PACE) cannot receive services through an ACO.200 ACOs that meet quality performance standards established by the Secretary are eligible to receive payments for shared savings.201 The design of the MSSP is to promote accountability for a defined patient population, coordinate items and services under traditional Medicare Parts A and B, and encourage investment in infrastructure and redesigned care processes for high quality and efficient service delivery. ACOs that meet quality performance standards established by the Secretary are eligible to receive payments for shared savings. The ACA anticipates that ACOs will promote and foster cost-containment and quality of care initiatives.202

ACO contracts are for three years.203 An ACO must have, among other things, a formal structure for receiving and distributing savings.204 An ACO is only eligible to receive payment for shared savings if its estimated average per capita Medicare expenditures are below the applicable benchmark set by the Secretary for a given year.205 As determined by the Secretary, certain groups of suppliers and providers of services who have established a mechanism for shared governance are eligible to participate as ACOs.206 The groups include: a) ACO professionals (physicians and other professionals recognized under the Medicare program) in group practice arrangements; b) networks of individual practices of ACO professionals; c) partnerships or joint venture arrangements between hospitals and ACO professionals; d) hospitals employing ACO professionals; and e) such other groups of suppliers or providers of services as the Secretary determines appropriate.207

B. ACOs and Quality Measures Reporting under the ACA

The Secretary is to determine appropriate measures to assess the quality of care furnished by the ACO, including such measures as: a) clinical processes and outcomes; b) patient and (where practicable) caregiver experiences; and c) utilization, such as rates of hospital admissions for conditions for which good outpatient care could potentially prevent the need for hospitalization, or for which early intervention could prevent complications or more severe disease (“ambulatory care sensitive conditions”).208

The Secretary may, as determined appropriate, incorporate reporting requirements and incentive payments related to the physician quality reporting initiative, including electronic prescribing, electronic health records, and other similar initiatives, and may use alternative criteria for determining whether to make such payments.209 Incentive payments shall not be taken into consideration when calculating payments otherwise made under the ACO provision.210 In most instances, beneficiaries will not necessarily know that they are part of an ACO, as the process is designed to be passive or benign to the beneficiary. Of course, beneficiaries remain free to change doctors or physician practices for any reason.

As the ACO program has been rolled out, concerns have been raised about the adequacy of the ACO networks.211 Even so, ACOs have been acquiring provider networks, physician practices, etc.212 Accordingly, the general scope of ACOs is likely to be sufficient in most instances. Additional concerns have also been raised about how ACOs will pass along savings to their constituent member providers.213 Despite these challenges, there is some optimism that the ACO experiment will yield positive cost and quality results as borne out by early, non-statistically significant surveys of the results of ACOs are positive.214 In the main, the most positive aspects of the ACOs are the incentives to create efficiencies, including care coordination.215

C. The Independent Payment Advisory Board (IPAB) and the ACA

As a cost-containment measure, the ACA created a new entity, the Independent Payment Advisory Board (IPAB).216 IPAB is charged with making recommendations to limit the growth of Medicare costs beginning in 2014.217 The Secretary will adopt these recommendations unless Congress takes action.218 The IPAB does not have authority to change Medicare’s eligibility and benefit structures.219 Even so, there is concern that IPAB recommendations might result in changes that create barriers to receiving needed health care. Moreover, there is the additional concern that the IPAB approach may usurp the traditional function of the Congress to set Medicare spending policy.220 IPAB and other changes made by the ACA are designed to reduce Medicare spending and emphasize paying for quality care.

There has been a great deal of controversy in the media about the role and function of IPAB as a policymaking and cost-containment body.221 The IPAB is a 15-member board of health care experts, including physicians and representatives of consumers and the elderly.222 Its mission is to “reduce the per capita rate of growth in Medicare spending.”223 The IPAB is to accomplish this by making “recommendations to reduce the Medicare per capita growth rate to the extent required.”224

IPAB members are appointed by the President with the advice and consent of the Senate.225 In choosing IPAB members, the President must consult with the majority and minority leaders of both Houses about the selection of members.226 Members may serve up to two full, consecutive terms.227 In addition, the President must appoint a Chairperson from among the board members.228 In addition to the representatives of consumers and the elderly on the IPAB board, there will be a consumer advisory council.229 The council will meet twice a year in Washington, D.C., and will advise the Board on the impact of payment policies on consumers, but will have not decisional power.230 It will have 10 members, one from each of the 10 Department of Health and Human Services (HHS) regions.231 Members will represent “the interests of consumers and particular communities.”232

1. IPAB’s Duties

The IPAB was put in place to keep the growth of Medicare spending low. It is required to make recommendations on how to reduce spending if Medicare spending is projected to exceed certain targets.233 In order to make a recommendation, the IPAB must achieve a quorum with a majority of appointed Board members present.234 In reaching decisions, all proposals must be approved by a majority of the appointed members present.235 Each year, beginning in 2013 (the first “determination” year), the Chief Actuary of CMS must project what Medicare spending will be in two years, starting in the ‘implementation year.”236 If the projected spending exceeds the set target for the implementation year, IPAB must make recommendations to Congress about how to reduce spending to the target level.237 IPAB, on the other hand, cannot recommend certain kinds of changes, such as raising Medicare beneficiary premiums or restricting benefits.238

The IPAB cannot include “any recommendation to ration health care, raise revenues, raise Medicare beneficiary premiums, increase Medicare beneficiary cost-sharing (including deductibles, coinsurance, and copayments), or otherwise restrict benefits or modify eligibility criteria.”239 Similarly, any recommendation that would result in an increase in Medicare spending over the first 10 years of the implantation year would not be included.240 Ultimately, IPAB can recommend changes to how the following programs are run: “Medicare Advantage, the Part D prescription drug program, skilled nursing facility, home health, dialysis, ambulance and ambulatory surgical center services, and durable medical equipment (DME).”241 IPAB is to consider how the recommendations will affect Medicare beneficiaries by making changes in payments to providers, the direct effect on providers, and the specific and special issue of dual-eligible beneficiaries.242

IPAB cannot recommend any spending cut that exceeds the savings targets set by law.243 The savings target is a set percentage of the total projected Medicare spending for the implementation year.244 These caps would mean that IPAB could only recommend cuts to the program.245 Even so, only certain programs can be affected: Medicare Advantage;246 the Part D prescription drug program;247 skilled nursing facilities;248 home health;249 and other programs such as durable medical equipment, and hospice.250

2. Congressional Control over IPAB

After drafting its recommendations, the IPAB must submit a draft copy of each recommendation to MedPAC.251 In September of a determination year, the IPAB must also submit its recommendations to the Secretary.252 Following that submission, on January 15 of the following year, the IPAB must submit the report to the President and to Congress.253 The report is to contain recommendations, explanations of and reasons for each recommendation, a legislative proposal version of the recommendations, and an actuarial opinion by the CMS Chief Actuary.254

When the report is submitted to the Congress, a forthcoming legislative proposal must be introduced on the same day in both the House and Senate by the majority leaders or his or her designees.255 If Congress does not act on the recommendations of IPAB, on August 15 of the year in which IPAB makes recommendations, the Secretary must implement the IPAB proposal that was submitted to Congress and the President.256 Even so, the effect of the rules may be delayed until the beginning of the next year.257 Congress’ only remaining alternative is to discontinue the use of IPAB, but this requires a three-fifths majority of members.258 Specific procedural rules must be followed in doing so.259

3. What Might IPAB Do?

One of the more popular potential money-saving suggestions is allowing Medicare as a whole to negotiate the pricing of Part D drugs with pharmaceutical companies.260 This is unpopular with pharmaceutical companies and has not been seriously considered in Congress due to extensive lobbying.261 One estimate suggests that the savings for such a change would be $24 billion a year.262 This is far beyond the $11.5 billion savings target of the IPAB.263

4. Concerns about IPAB Accountability

Other concerns have also been raised about IPAB, specifically the lack of political accountability for IPAB’s board members, lack of consumer protection during the recommendation-making process, and the speed with which IPAB recommendations must be made.264 Many physicians and providers are concerned about additional reductions in payment.265 No one has been nominated to the IPAB board and what concerns will be borne out by the actual reality of IPAB remain to be seen and should be closely watched.

D. The ACA and Quality Review Mechanisms

The ACA contains many congressionally mandated quality initiatives that emphasize establishing quality measurement mechanisms and paying only for those services and procedures that meet certain quality of care standards.266 Quality review mechanisms are an important aspect of paying only for services of proven value.267 Enforcement of quality measures through payment constraints are believed to increase provider participation and adherence.268 An ongoing concern for all quality measures is the need to monitor the impact of such measures on beneficiary access to services.269

1. Incentive Payments to Hospitals

Under the ACA, the Secretary is to establish a value-based purchasing program under which incentive payments are to be made to hospitals.270 Beneficiary advocates should follow value-based purchasing implementation carefully. In the main, advocates should be attuned to whether their clients are being admitted to various care settings appropriately, particularly hospitals. Health care providers are sensitive to variations in payment modalities.

Value-based purchasing incentives are to be in the form of a percentage add-on to the base operating Diagnostic Related Group (DRG) payment per discharge in each fiscal year.271 The program begins in fiscal year 2013 and applies to payments for hospital discharges occurring on or after October 1, 2012.272

Measures selected to qualify for incentive payments for fiscal year 2013 will cover the following five specific conditions: a) acute myocardial infarction; b) heart failure; c) pneumonia; d) surgery (as measured by the Surgical Care Improvement Project); and e) health-care-acquired infections.273 The program excludes any hospital that a) has not submitted the required data to the Secretary or b) has been cited by the Secretary for deficiencies that pose immediate jeopardy to the health or safety of patients, deficiencies for which no minimum number of measures apply for the performance period, or deficiencies for which no minimum number of cases for the measures apply for the performance period under review.274

The Secretary is to conduct a study on the performance of the hospital value-based purchasing program, including a) ways to improve the program; b) ways to address unintended consequences; c) the appropriateness of the Medicare program’s sharing in any savings generated through the hospital value-based purchasing program; and d) any other area determined appropriate by the Secretary.275 The report to Congress of the study’s findings is due not later than January 1, 2016.276

2. Limiting Payment for Hospital-Acquired Conditions 

The ACA creates incentives for applicable hospitals that receive inpatient hospital service payments on the basis of prospective rates to reduce hospital-acquired conditions with respect to discharges occurring during fiscal year 2015 and subsequent fiscal years.277 The term “hospital-acquired condition” means a condition identified or determined by the Secretary that an individual acquires during a stay in an applicable hospital.278 An applicable hospital is one that is in the top quartile of hospitals relative to the national average of hospital-acquired conditions during the applicable period, as determined by the Secretary.279

3. A National Strategy to Improve Health Care Quality
As required by the ACA, the Secretary is tasked with establishing a national strategy to improve the delivery of health care services, patient health outcomes, and population health, through a transparent and collaborative process. The strategy is to be updated not less than annually. Any such update must include a review of short- and long-term goals prior to fiscal year 2015 and in each subsequent fiscal year, the Secretary must provide confidential reports to applicable hospitals with respect to their hospital-acquired conditions and make information available to the public regarding hospital-acquired conditions of each applicable hospital. Information for the public shall also be posted on the Hospital Compare Internet website. In addition, the Secretary must conduct a study on expanding the health-care-acquired conditions policy to other facilities under the Medicare program. The report, together with recommendations, is to be submitted to Congress not later than January 1, 2012.280

4. Interagency Work Group on Health Care Quality

As provided by the ACA, the President is charged with convening a working group to be known as the Interagency Working Group on Health Care Quality (referred to in this section as the “‘Working Group”).281 The goals of the Working Group are to achieve collaboration, cooperation, and consultation between federal departments and agencies with respect to developing and disseminating strategies, goals, models, and timetables that are consistent with the national priorities identified above.282

5. Quality Measure Development 

The ACA provides that at least every three years, the Secretary, the Director of the Agency for Healthcare Research and Quality (AHRQ), and the Administrator of CMS must identify gaps where no quality measures exist.283 In addition, AHRQ is to identify existing quality measures that need improvement, updating, or expansion (consistent with the national strategy for health care quality, to the extent available) for use in Federal health programs.284 The Secretary must make available to the public on an Internet website a report on any gaps identified and the process used to make such identification.285

The ACA establishes that the quality measurement duties of AHRQ include obtaining multi-stakeholder group input through the convening of multistakeholder groups.286 The process must be open and transparent. Not later than February 1 of each year (beginning in 2012), the entity must transmit to the Secretary the input of multistakeholder groups.287 Similarly, the ACA requires the Secretary to collect and aggregate consistent data on quality and resource use measures used to support health care delivery.288 These data are to be used to implement the public reporting of performance information.

6. Health Information Technology

Health Information Technology (HIT) is an additional tool for improving individual care and the health care system overall. From the early 2000s, electronic medical records were seen as tools that could help the health care industry coordinate care, measure quality, and reduce medical errors.289 The most recent and direct legislation was the Health Information Technology for Economic and Clinical Health Act (HITECH) in 2009.290 HITECH was part of the Stimulus Bill of 2009 and was designed to incentivize the adoption of and meaningful use of electronic medical records.291 HITECH focuses on several different issues: development of interoperability standards, a voluntary certification process for HIT software and other products, and financial help and incentives to encourage providers to adopt HIT.292 The ACA reiterated this commitment to HIT development, augmenting HITECH with additional grants.293

These investments are important because HIT provides one of the most widely agreed upon guarantees of improved quality of care and reduced health care costs.294 Potential benefits of HIT for individuals include increased care coordination, increased patient safety, and better management of chronic conditions.295 Studies have shown that HIT has the potential to slow the growth of health care expenditures by reducing hospital stays through increased patient safety, reducing administrative time spent collecting patient medical records, and more efficient use of diagnostic tools such as laboratory tests and medical imaging.296 A study of the Veterans Administration health programs suggested that $3.09 billion have been saved by investing heavily in HIT, which in turn created “reductions in unnecessary and redundant care, process efficiencies, and improvements in care quality.”297

Despite the clear benefits, a shockingly high percentage of physicians and hospitals have chosen not to adopt electronic health records (EHRs): in 2009, only an estimated 78 percent of physician offices and 91 percent of hospitals had adopted EHRs.298 HITECH’s incentives programs, which benefit providers who adopt EHRs, will provide approximately $30 billion over nine years to Medicare and Medicaid providers.299 This has already drawn 115,000 professionals and about 1,000 hospitals in 2011 to sign agreements with regional centers for technical assistance.300 The case for HIT has become more widely recognized as important to improving care coordination, enhancing the measurement of quality of care, and fostering the reduction of medical errors.301

7. Data Collection to Reduce Health Care Disparities 

Effective March 23, 2012, the ACA requires the collection and reporting of certain data on race, ethnicity, sex, primary language, and disability status.302 The data collection and disaggregation will help address and reduce disparities faced by communities including lesbian, gay, bisexual and transgender (LGBT) Americans.303 In addition, the Secretary, at the request of the President, has identified agency-wide goals to address disparities and concerns among the LGBT community.304 Focusing on these issues in a systematic fashion may reduce overall Medicare program costs.305

8. The Center for Medicare and Medicaid Innovation

A part of the strategy of the ACA is to create a host of synergistic mechanisms that would explore ways of program and service integration. A chief vehicle in this effort is the Center for Medicare and Medicare Innovation (CMMI). The purpose of the CMMI “is to test innovative payment and service delivery models to reduce program expenditures under the applicable titles while preserving or enhancing the quality of care furnished to individuals.”306 In selecting models, CMMI is to give preference to models that also improve the coordination, quality, and efficiency of health care services furnished to “applicable individuals.”307 Applicable individuals are those who are entitled to or enrolled in benefits under Parts A or B of the Medicare program, who are eligible for medical assistance under a State Medicaid plan or waiver, or who meet the criteria of both programs.308

Under Phase I of its work, the CMMI is to test payment and service delivery models to determine the effect of applying such models to program expenditures under Medicare and Medicaid and the quality of care received by individuals receiving benefits under those programs.309 Selected models address a defined population for which evidence shows that there are deficits in care leading to poor clinical outcomes or potentially avoidable expenditures.310 Models may also include those that promote broad payment and practice reform in primary care, including: patient-centered medical home models for high-need applicable individuals, medical homes that address women’s unique health care needs, and models that transition primary care practice away from fee-for-service based reimbursement and toward comprehensive payment or salary-based payment.311

Delivery models are to support care coordination for applicable individuals who are chronically ill and at high risk of hospitalization.312 The models should operate through a health information technology-enabled provider network that includes care coordinators, a chronic disease registry, and home telehealth technology.313 Models may vary payment to physicians who order advanced diagnostic imaging services according to the physician’s adherence to appropriateness criteria for the ordering of such services, and models should include the use of medication therapy management services.314

Models for the delivery of care should also promote the establishment of community-based health teams to support small-practice medical homes.315 They may do so by assisting the primary care practitioner in chronic care management activities, including patient self-management.316 Models should assist applicable individuals in making informed health care choices.317 This could be achieved by paying providers of services and suppliers for using patient decision-support tools, including tools that improve applicable individual and caregiver understanding of medical treatment options.318

9. Preventive Services

The Medicare program, including many provisions in the ACA, has historically focused on using preventive care to cut costs to the overall population. With the BBA in 1997, Congress began an expansion of preventive benefits and services available through Medicare.319 In 2003, the MMA added additional preventive services and, in 2008, the MIPPA refined Medicare’s preventive services.320 Most recently, as discussed below, the ACA further expanded Medicare-covered preventive services and removed the co-pay for most of them.321

Effective January 1, 2011, Medicare beneficiaries became entitled to an annual Wellness Visit that includes the development of a personalized prevention plan.322 The plan is based on an individualized health risk assessment prior to, or as part of, the visit with a health care professional (physician, health educator, registered dietician, or nutrition professional or a team of professionals).323 The Wellness Visit is not an annual physical, but should include the following: a) an assessment to establish or update medical and family history; list current providers and suppliers that are regularly involved in providing medical care to the individual; record height, weight, body mass index, blood pressure, and other routine measurements; and indicate any cognitive impairment;324 and b) establish a screening schedule for the next five to 10 years.325

In addition, beneficiaries are entitled to a one-time-only “Welcome to Medicare” Physical Exam.326 The “Welcome to Medicare” check-up or “initial physical examination” is available to beneficiaries once, within 12 months of their becoming covered under Medicare Part B.327 The exam consists of a physical examination, including measurement of height, weight, and blood pressure, and an electrocardiograph, with the goal of health promotion and disease detection.328 It also includes education, counseling, and referral with respect to screening and other preventive services, although it does not include clinical laboratory tests.329 Each beneficiary is entitled to only one “Welcome to Medicare” check-up.330

The ACA eliminated cost sharing (such as deductibles and copayments) for most of the preventive services covered under Medicare, effective January 1, 2011.331 Some Medicare-covered preventive services, however, will continue to be subject to cost sharing.332 With the exception of hospice care, Medicare Advantage plans are required to provide all items and services that are covered under Medicare Parts A and B.333 Thus, Medicare Advantage plans are required to offer the new Annual Wellness Visit to their enrollees. Medicare Advantage plans are allowed to impose different cost sharing than Parts A and B, as long as the cost sharing is actuarially equivalent to cost sharing under traditional Medicare.334 While many Medicare Advantage plans have traditionally eliminated cost sharing for preventive benefits under their authority to offer an actuarially equivalent benefit package, some have not. CMS has issued regulations that prohibit plans from charging deductibles, copayments, or coinsurance for in-network Medicare-covered preventive services, as specified by CMS on an annual basis, effective January 2012.335

IV. The Next Several Years

As discussed above, we are in the early stages of determining how to balance paying for quality of care and assuring beneficiary access to services with respect to Medicare. Now that the Obama Administration will be in place for another four years, it can be expected that implementation of the ACA will move forward with more deliberate speed and authority. Three aspects of ACA implementation, not specifically the focus of our main discussion, are particularly noteworthy in the near term.

A. The “Fiscal Cliff”

The nation is at a fiscal danger point with respect to sequestration and budget matters.336 While direct cuts to Medicare beneficiaries are exempted, structural changes in Medicare are anticipated and are viewed as elements for consideration in actions to bring our national budget into alignment.337 Raising the age of Medicare eligibility has been proposed, as has capping Medicare expenditures annually, and moving toward the use of vouchers and away from a defined benefit package.338 The consequence of such initiatives on beneficiaries is likely to be severe, particularly as many elderly people are experiencing declining incomes and resources.339

B. The Exchanges

Given the outcome of the 2012 presidential election, CMS is now set to move more deliberately toward getting health exchanges up and running by 2014.340 In the main, exchanges represent an insurance market place (either initiated by a state or group of states, the federal government, or the federal government in partnership with a state or states), in which citizens purchase health care insurance from preapproved vendors.341 These insurance vendors have agreed to the terms and conditions established by the Secretary, in consultation with relevant state and federal agencies, in particular the Departments of Treasury and Labor.342 Core conditions include a defined scope of benefits that are available without pre-existing condition limitations, prohibitions on capping the amount of benefits and services available, and assuring that a certain percentage of the insurance premium actually goes to providing coverage.343

The agency’s ongoing task is to create and refine rules of operation, medical loss ratios,344 its notions about rates and costs,345 the ease of access and enrollment for users,346 complaint and appeals processes,347 beneficiary information,348 and the quality of the services provided.349 Similarly, states are in the throes of deciding whether to go forward with state exchanges.350 Moreover, private insurers and other business interests continue to ramp up in order to compete in the emerging market of exchanges.351

C. Coordinating Services for Duals

Integrating services for persons eligible for Medicare and Medicaid (dual eligibles) is an ongoing part of CMS’s broader goal of providing a more focused effort at assuring that persons dually eligible for Medicare and Medicaid are not marginalized in terms of access to services and modes of service delivery.352

The nearly nine million Medicare beneficiaries who are also eligible for some form of Medicaid are the subjects of federal, state, and local policy discussions because many of them are among the highest users of health care services in the country and thus are very costly to both Medicare and Medicaid. Persons dually eligible for Medicare and Medicaid are the most vulnerable people in the health care system.353 Research suggests that for many, care is fragmented, with multiple physicians prescribing medications and procedures without knowledge of or coordination with each other.354 This lack of coordination can lead to poor outcomes and higher costs when the care provided is unnecessary or duplicative.355 While not unique to duals, lack of care coordination is a significant problem in our entire health care system and one that is the subject of many initiatives authorized in the ACA.356 It takes on heightened importance in the context of dual eligible persons because, as a group, they are significantly more likely than other Medicare beneficiaries to have multiple chronic conditions, limitations with activities of daily living, and cognitive impairments.357

The ACA, with its significant funding for innovations in serving persons dually eligible for Medicare and Medicaid, through the Medicare-Medicaid Coordination Office and Innovation Center, has spurred a number of states to propose innovative delivery approaches for testing.358 Thirty-seven states are planning to participate in dual eligible initiatives, including but not limited to private managed care.359 Fifteen states are already developing new models of care for persons dually eligible for Medicare and Medicaid under contract with the CMS Innovation Center.360 It is important that any further legislation to extend options for duals is written broadly to allow for a variety of models and approaches.361

V. Tying up Loose Ends

As we have shown above, Medicare has never been without controversy and the enactment of the ACA and the continuing arguments over the implementation of the ACA show that controversy will likely continue. However, what the ACA has provided to Medicare is a modified mandate ­— not only the mandate for access to health care that was passed by the Johnson Administration after decades of advocacy, but also a mandate for a higher quality of care as a method to reduce costs without harming beneficiaries.

We think that the next phase is to let the tools of the ACA work. Our suggestion is tinged with the recognition that our various health policies must address a broad and diverse population with myriad health concerns.362 We argue, however, that Medicare remains a core element of how to reduce overall health care costs. As the largest payer of health care costs, Medicare’s structure, payment rules, and scope of benefits and services have a significant impact on the policies and practices of other health care providers and insurers.363 The use of ACOs, IPAB, and the other cost-containment ideas from the ACA will influence (and in some cases already has) the entire health care market to improve quality.364

Over the next several years, getting the health exchanges right, integrating services for persons dually eligible for Medicare and Medicaid, holding down Medicare costs while providing necessary services are all part of the complex and on-going effort to bring affordable health care to as many people as possible. It is a tough challenge, but doable, especially since much of the infrastructure of Medicare and its improvements from the ACA is already oriented to meet such challenges.

As to Mrs. P, her concerns are legitimate. As described throughout this article, the debate over how health care should be provided and paid for (including notions of social insurance), as well as emerging debates about what constitutes quality health care, has been going on for over a century. We expect that these debates will continue. Hopefully, our Mrs. P now has a background in the conflicting perspectives and issues. Furthermore, we hope that she will be able to live with a certain amount of uncertainty as our nation continues to grapple with developing and implementing policies and practices that promote health care access, affordability, and quality.

The ACA is a vast experiment in paying for high-quality health care while preserving the Medicare program and expanding access to health care for other population segments. In the main, the ACA, including the Medicare program, represents an important step toward further health and financial stability for many Americans. Cutting Medicare costs, assuring quality of care, getting the health exchanges up and running, and integrating services for persons dually eligible for Medicare and Medicaid represent ongoing challenges. As to spending and cost-containment challenges, Congress has put in place, through the ACA and other vehicles, a variety of important steps that overtime should at least slow the spending curve. Our “watch words” remain: “Let the ACA and other programs work.”

Citations

1 Social Security Act § 1837(f), 42 U.S.C. 1395p(f).

2 Social Security Act § 1837(g), 42 U.S.C. 1395p(g). Pub. Law 105-33, 111 Stat. 251.

3 Kaiser Fam. Found., Medicare Spending and Financing: A Primer 1 (Feb. 2011), http://www.kff.org/medicare/upload/7731-03.pdf.

4 Id. at 5–6. We are fortunate, nonetheless, that the Medicare program continues to add to its array of preventive services, many of which are offered without copayments. See e.g. Balanced Budget Act of 1997 (hereinafter BBA), Pub. L. No. 105-33, §§ 4101(a)–(b), 4103(a), 4104(a), 4105(a), 4106(a), 111 Stat. 251 (1997); Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000 (BIPA), Pub. L. No. 106-554, § 4107, 114 Stat. 2764 (2000), amending §§ 1834, 1861, of the Social Security Act; Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Pub. L. No. 108-173, § 612, 117 Stat. 2066 (2003), amending §§ 1861(s)(2), 1862(a)(1), and adding § 1861(xx)(1) to the Social Security Act, 42 U.S.C. §§ 1395x(s)(2), 1395l(a)(1), 1395w-4(j); Medicare Improvements for Patients and Providers Act of 2008 (MIPPA), Pub. L. No. 110-275, § 101, 122 Stat. 2494 (2008). The Secretary has the authority to add preventive services that he or she determines are reasonable and necessary for the prevention or early detection of an illness or a disability, where such preventive services are recommended with a grade of A or B by the U.S. Preventive Services Task Force and appropriate for individuals entitled to benefits under Medicare Part A or enrolled under Part B. In the case of additional preventive services, the Medicare agency will pay 80 percent of the lesser of the actual charge for the service or the amount determined under a fee schedule established by the Secretary; see Patient Protection and Affordable Care Act (hereinafter ACA), Pub. L. No. 111-148, § 4103, 124 Stat. 119 (2010), amending 42 U.S.C. § 1395x(s)(2) of the Social Security Act. The constitutionality of the ACA was upheld by the United States Supreme Court in the case, National Federation of Independent Businesses, et al. v. Sebelius, No. 11-393, 567 U.S. __ (2012), 132 S. Ct. 2566, (decided June 28, 2012).

5 Uwe E. Reinhardt, The Fork in the Road for Health Care, N.Y. Times Economix blog (May 25, 2012), http://economix.blogs.nytimes.com/2012/05/25/the-fork-in-the-road-for-health-care.

6 See Kaiser Fam. Found., Comparison of Medicare Provisions in Deficit and Debt Reduction Proposals (2011).

7 See Ctr. for Medicare Advoc., The Burden of Out-of-Pocket Costs on Medicare Beneficiaries, https://www.medicareadvocacy.org/2011/02/24/the-burden-of-out-of-pocket-costs-on-medicare-beneficiaries (accessed Dec. 30, 2012); Kaiser Fam. Found., How Much “Skin in the Game” Is Enough? (June 2011), http://www.kff.org/medicare/upload/8170.pdf; Gen. Acctg. Off., Medicare Cost-Sharing Policies Problematic for Beneficiaries and Program, State. of William J. Scanlon, Dir., Health Care Issues (2001), http://www.gao.gov/new.items/d01713t.pdf.

8 See Kaiser Fam. Found., Living Close to the Edge: Financial Challenges and Tradeoffs for People on Medicare (June 2011), http://www.kff.org/medicare/upload/8200.pdf.

9 MedPAC, A Data Book: Health Care Spending and the Medicare Program 8 (June 2012), http://www.medpac.gov/documents/Jun12DataBookEntireReport.pdf (“Beginning in 2010, the aging of the baby-boom generation, an expected increase in life expectancy, and the Medicare drug benefit are likely to increase the proportion of economic resources devoted to Medicare”). The baby-boom cohort is generally thought to be those people born between 1946 and 1964, and the last of the baby-boom cohort will become eligible for Medicare in 2029, bringing the total number of Medicare beneficiaries to approximately 80.6 million. MedPAC projects this as an increase of 30 million over 20 years. Medicare enrollment will continue to grow after 2029, but at a lesser degree, increasing by only 10 million over 20 years (from 2030 to 2050). See also Cong. Budget Off. (CBO), The 2012 Long-Term Budget Outlook 1 (June 2012) (“The aging of the baby boom generation portends a significant and sustained increase in the share of the population receiving benefits from Social Security and Medicare”); John Donvan and Maggy Patrick, Baby Boomers Expected to Drain Medicare, ABC News (Dec. 31, 2010), http://abcnews.go.com/US/baby-boomers-projected-drain-medicare/story?id=12507968#.UIWujMXR4rU.

10 Soc. Sec. Advisory Bd., The Unsustainable Cost of Health Care (Sept. 2009), http://www.ssab.gov/documents/TheUnsustainableCostofHealthCare_graphics.pdf; Inst. of Med. (IOM), Best Care at Lower Cost: The Path to Continuously Learning Health Care in America (Nat’l Academies Press 2012), http://www.IoM.edu/Reports/2012/Best-Care-at-Lower-Cost-The-Path-to-Continuously-Learning-Health-Care-in-America.aspx.

11 Variations in quality are a function of many things — limitations in access that are a function of where one lives and the services available in various communities, norms and standards of treatment, health disparities that are tinged by race and ethnicity, and the biases of various health care professionals toward particular persons, groups, races, and ethnicities. For a broad discussion of variations and their impact on rising health care costs, see IOM, supra n. 10.

12 See ACA; Health Care and Education Reconciliation Act of 2010 (HCERA), Pub. L. No. 111-152, 124 Stat. 1029 (2010).

13 See Diane Archer, Private Insurance Is Bankrupting Americans: Is Congress Paying Attention? Health Affairs Blog (June 26, 2012), http://healthaffairs.org/blog/2012/06/26/private-insurance-is-bankrupting-americans-is-congress-paying-attention.

14 See Paul Starr, The Social Transformation of American Medicine 236, 245, 258–260, 270–271 (Basic Books 1982). America’s “Great Society Legislation of 1965” included the Older Americans Act of 1965, Pub. L. No. 89-73, 79 Stat. 218 (1965); see Social Security Amendments of 1965, Pub. L. No. 89-97, 79 Stat. 286 (1965), establishing the Medicare and Medicaid programs. The Great Society legislation is a catch-all phrase for the extensive legislation advocated for during the Kennedy Administration and pushed for and passed during the Johnson Administration in the 1960s. The legislation included Medicare and Medicaid in addition to the Civil Rights Act, education programs, national arts programs, and environmental protection laws. See John A. Andrew III, Lyndon Johnson and the Great Society (Ivan R. Dee 1998). See § 1801 et seq. of the Social Security Act, 42 U.S.C. 1395 et seq. Regulations implementing the Medicare program are located in 42 C.F.R. pts. 400 et seq. (1983, last updated May 16, 2012).

15 Id. (discussing health care costs and their impact on American households at various points in history). For data on the current situation, see Melissa B. Jacoby et al., Rethinking the Debate over Health Care Financing: Evidence from the Bankruptcy Courts, 76 N.Y. L. Rev. 375–418 (2001).

16 Infra pt. I.A. See generally Starr, supra n. 14. See also Meredith B. Rosenthal et al., Paying for Quality: Providers’ Incentives for Quality Improvement, 23 Health Affairs 127 (2004), http://content.healthaffairs.org/content/23/2/127.full.pdf+html.

17 Infra pt. I.A.

18 Professor Starr is a health care historian and Professor of Sociology and Public Affairs and Stuart Professor of Communications and Public Affairs at Princeton University, https://www.princeton.edu/~starr.
19 Starr, supra n. 14, at 236.

20 Id. at 258.