The President’s Proposed 2013 Budget: Impact on Medicare

This week, President Obama unveiled his Fiscal Year 2013 Budget.[1]  Overall, the Center for Medicare Advocacy believes that the budget demonstrates a commitment to  keeping the Medicare program strong and keeping the program's promise to older Americans and individuals with disabilities who rely on the program to provide quality, affordable health care.  The Center is concerned, however, about certain proposals that would shift more costs to people with Medicare but achieve only relatively small savings for the program.

The Budget Preserves Medicare as a Community Program

The Administration "recognizes that Medicare is a sacred trust with America's seniors and supports policies that will strengthen the Medicare program and extend the life of the Medicare trust fund."[2]   Fortunately, unlike some debt reduction proposals discussed over the last several months, this budget does not seek to alter Medicare's fundamental structure.  Other proposals seek to turn Medicare into a confusing system of vouchers and coupons; an approach that would shift significant costs to families.  The outcome of those proposals would be the decline or elimination of the traditional, community Medicare program in favor of private, commercial plans at higher cost to taxpayers.[3]  The President's budget proposal also does not seek to raise the age of Medicare eligibility to 67, as has also been proposed by some policymakers.

The Center applauds efforts to increase revenue for the program, such as the proposal to align Medicare drug payment policies with Medicaid policies for low-income beneficiaries.  This alignment would return to requiring drug manufacturers to pay the difference between rebate levels already provided to Medicare Part D plans and the Medicaid rebate levels.[4]

Through devices similar to those included in the Affordable Care Act (ACA), the President's proposed budget seeks to save $302.8 billion from the Medicare program over 10 years.[5]  The Center has long supported advancing the goals of the ACA to achieve further savings from the Medicare program, including: "better aligning payments with the costs of care; cutting waste, fraud, and abuse; increasing the availability of generic drugs and biologics; and improving providers' payment incentives to provide high quality care."[6] As discussed below, however, there are concerns that some of the proposed savings to Medicare would result in further shifting of costs to certain people who rely on Medicare. 

Proposals of Concern

Of the $302.8 billion in Medicare savings, the President's budget seeks to achieve $30 billion in savings from proposed "structural changes."  The proposed structural changes include "reducing Federal subsidies for high-income beneficiaries and creating financial incentives for newly eligible beneficiaries to seek high-value health care services."[7]

As outlined below, the proposed structural changes are identical to some of the proposals that were contained in the President's September 2011 Plan for Economic Growth and Deficit Reduction, which was the Administration's recommendations to Congress's Joint Select Committee on Deficit Reduction (otherwise known as the "Super Committee").[8]  Although the Super Committee process failed to produce an agreement that may have implemented these or other proposals impacting Medicare, many of the troublesome ideas that would negatively impact Medicare that were raised at the time have nonetheless been raised again. 

The Center took issue with these proposals last year, and we do so now.  As the current proposals are largely the same as those proposed during the Super Committee process, our objections remain largely the same.[9]

• Implementing a Co-Payment for Home-Health Care.  Starting in 2017, this proposal would create a home health co-payment of $100 per 60-day home health episode, applicable for episodes with five or more visits not preceded by a hospital or other inpatient post-acute care stay.  Imposing such co-pays would have a staggering impact on individuals with long-term and chronic conditions, who would essentially incur $600 in new out-of-pocket costs annually.  Additionally, it could lead to higher hospitalizations (and thus higher costs) as a result of beneficiaries forgoing needed care when they cannot afford the co-payments. Moreover, eliminating the co-pay requirement from situations where there has been a hospital or nursing home stay creates a perverse incentive toward hospitalization or nursing home care.
• Increasing the Part B Deductible for New Beneficiaries. The President's plan would increase the Part B deductible only for new beneficiaries by $25 dollars in 2017, 2019 and 2021 (for a total $75 increase). This proposal would have a significant impact on Medicare beneficiaries, nearly half of whom have annual incomes below $22,000.[10]  Only about 14% of Medicare beneficiaries – those with incomes of about $11,000 or less –  get financial help to pay their Medicare cost-sharing. The proposal shifts costs to beneficiaries and could result in increased costs when needed care is postponed until an illness is more complicated and more costly to treat.  Further, this proposal draws an arbitrary line between current beneficiaries and near retirees who would be unaffected and those who will join Medicare in the future and will permanently pay more.
• Expanding Means-Testing of Medicare Part B and D Premiums.  Medicare is already a means-tested program, with higher-income beneficiaries paying more for Part B and Part D premiums. The current requirements affect only about 5% of beneficiaries – those with incomes at or above $85,000 a year.  The President's proposal would not only raise the income-related premium by 15%, it would also freeze the income level for higher payments at $85,000, not adjusting for inflation, cost of living, or any other such factors, until 25% of beneficiaries were paying the higher premiums.  According to the Kaiser Family Foundation, if this proposal was implemented today, "rather than reached gradually by holding income thresholds constant over time," Medicare beneficiaries with incomes at or above $47,000 for individuals and $94,000 for couples would be paying higher premiums this year.[11]  In the future, Medicare beneficiaries in the top 25% who are far from wealthy would find themselves paying disproportionately for their healthcare costs.[12]  Not only would this proposal shift more costs to people who have incomes well below the highest levels, it might lead to more people choosing not to participate in Medicare.  Fewer participants in parts B and D would result in increased costs for the remaining participants.  
• Increasing the Cost of Certain Medigap Policies. In another effort to discourage people from using health care, the Plan proposes a surcharge on Part B premiums for people who purchase Medigap policies with low cost-sharing.  This surcharge would be equivalent to about 15% of the average Medigap premium (or roughly 30% of the Part B premium). Eliminating or discouraging first-dollar coverage in Medigap only shifts those costs to beneficiaries, who may go without needed medical care prescribed by their doctors.  In fact, since Medigap policies only cover care that Medicare deems "medically necessary," such changes should not be needed to deter unnecessary utilization and would instead inhibit use of necessary care.[13]  This proposal would penalize future beneficiaries who rationally seek to fill in Medicare's gaps in coverage for care they need.  

Other Options Are Available to Save Money

As noted during the recent Super Committee process and the ongoing debt and deficit reduction debate, other steps could be taken to lower costs and save money.  Such steps would neither reduce care, nor increase cost-sharing, for current or future beneficiaries.  In addition to the drug rebate for low-income enrollees included in the President's budget, the Center has written about other ways to improve care while saving money for Medicare.  Other options include requiring the Secretary of Health and Human Services to negotiate drug prices with pharmaceutical companies and allowing traditional Medicare to offer a prescription drug option, rather than relying solely on private, commercial plans to do so.[14]  

Conclusion

The President has demonstrated a commitment to preserve and strengthen the Medicare program, including preventing this public benefit from being turned into a private voucher program.  The Administration's FY 2013 Budget contains proposals that further improve the program and keep it healthy for current and future enrollees.  However, the provisions outlined above would increase out-of-pocket costs for certain beneficiaries, and would not achieve the stated goal of creating incentives for beneficiaries to seek high-value services.