The President’s Proposed FY 2015 Budget: The Impact on Medicare

This week, President Obama unveiled his Fiscal Year 2015 Budget.[1] With respect to Medicare, it is very similar to last year’s proposed budget, both good and bad.

One significant improvement over last year's budget is that it no longer seeks to alter the way the federal government measures inflation for purposes of paying Social Security benefits by implementing chained-CPI.   Use of the chained-CPI would lower the amount of Social Security benefits retirees and people with disabilities receive over time, and exacerbate the impact of proposed Medicare cost-shifting  as discussed below.

The Good

• Prescription drug rebates and other drug savings – The President's drug rebate proposal would restore the law to what it was before Part D by allowing Medicare to benefit from the same rebates that Medicaid receives for brand name and generic drugs provided to beneficiaries who receive the Part D Low-Income Subsidy (LIS).   Drug manufacturers would pay the difference between rebate levels already provided to Medicare Part D programs.  Implementing drug rebates would save the Medicare program $117 billion over ten years.
   
• Closes the Part D donut hole more quickly – the President's budget would close the donut hole in 2016 – four years sooner than under current law – by accelerating manufacturer drug rebates and increasing brand-name drug discounts in the donut hole  from 50 to 75% in 2016.

The Bad

The FY 2015 Budget includes a number of Medicare legislative proposals that would, in total, save $407.2 billion over 10 years.  Unfortunately, of this amount, approximately $68 billion would be saved by implementing a number of provisions that would shift additional costs directly on to Medicare beneficiaries.[2]  The Center continues to oppose these proposals.[3]

• Implementing a Co-Payment for Home-Health Care.  Starting in 2018, 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.  
   
• 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 2018, 2020 and 2022 (for a total $75 increase).
   
• Expanding Means-Testing of Medicare Part B and D Premiums.  This proposal would increase the amount of premiums paid by higher income individuals and 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, Medicare beneficiaries with incomes at or above $45,600 for individuals and $91,300 for couples would be paying higher premiums this year.[4] 
   
• Increasing the Cost of Certain Medigap Policies.  This proposal would add a surcharge on Part B premiums for new beneficiaries who purchase Medigap policies with low cost-sharing staring in 2018.  This surcharge would be equivalent to about 15% of the average Medigap premium (or roughly 30% of the Part B premium).
   
• Encouraging the Use of Generic Drugs by Low-Income Beneficiaries.   This proposal would unfairly force the increased use of generic drugs by Part D Low-Income Subsidy (LIS) enrollees by doubling copayments for brand drugs from their current law level, while lowering specified copayments for generic drugs.  

We urge the President to push for reforms to Medicare that will improve the program's finances, such as prescription drug rebates, without shifting additional costs onto Medicare beneficiaries.

For a more detailed analysis of the President’s FY 2014 Budget and the potential impact of its Medicare provisions, which are largely the same for FY2015, see the Center’s Weekly Alert (4/11/13), available at: https://www.medicareadvocacy.org/the-impact-of-the-presidents-budget-on-people-who-depend-on-medicare-and-social-security/.