If you were paying attention during the election season it was hard to miss the opposition’s battle cry: ObamaCare cuts the Medicare budget by $716 billion. What does this mean for the average Medicare beneficiary? What does this mean to you?
In 2013 most Medicare recipients will see few changes. The shrinking Part D doughnut hole is underway, there are a couple more wellness benefits, and your Part B premium went up a few dollars. That is, unless you’re wealthy, in which case your Part B premium skyrocketed. ObamaCare now considers seniors earning more than $80,000 per year as being privileged, so you get to pay more for your healthcare.
If it seems like seniors got though unscathed, prepare yourself. The real impact won’t be felt until 2014. That’s when the effects of the cuts to federally funded programs like Medicare Advantage will start to be felt.
In what seems like a cruel joke, in his first administration President Obama heavily funded private insurers to boost the quality and enrollment in the Medicare Advantage program. In 2014 the Affordable Care Act (ACA) swoops in and takes the subsidy away.
The original aid package did its job. As much as 30 percent of seniors with Medicare have a 2013 Advantage plan that offers better healthcare with less risk of high medical bills. The bad news for taxpayers is that it costs the government about 14 percent more to have seniors on Medicare Advantage than it does Original Medicare. Going forward, lower Advantage plan subsidies are pegged squarely on quality.
What do the looming cuts mean for you if you have a Medicare Advantage plan? From the insiders I’ve spoken with there are three big changes coming down the tracks: premium increases, benefit reductions and fewer plan choices.
In addition to subsidy cuts, the ACA mandates that insurers pay out 80 percent of the premiums received in direct health benefits. This seems like a smart regulation, but it will have a massive impact on regional insurers that are unable to mitigate their financial risk and show a reasonable return for shareholders. In other words, only the non-profits (e.g., Blue Cross and Blue Shield organizations) and the industry giants (e.g., UnitedHealthcare, Aetna, Cigna, Kaiser, etc.) will be able to maintain competitive rates in this arena.
You might be thinking that none of the budget cuts affect you because you don’t use Medicare Advantage. For you, there’s an even bigger surprise coming.
Starting in January, 2014, millions of Americans that do not have health insurance today will suddenly qualify for Medicaid. Millions more will qualify for subsidized HMO and PPO plans through the state and federal health insurance exchanges (HIX). This is expected to create a flood of new patients that will overwhelm healthcare providers.
To understand how this affects those with Original Medicare, you need to understand the capitation process of the managed care industry. Capitation is a payment arrangement for healthcare service providers such as physicians or nurse practitioners. It pays a physician or group of physicians a set amount for each enrolled person assigned to them, per period of time, whether or not that person seeks care. It’s a great way for providers to manage their budgets and their workload.
What this means for Original Medicare patients is that they will have less access to doctors. People with private insurance, including Medicare Advantage, will have better access because doctors are under contract to provide them care. As a result, it is anticipated that more and more doctors will simply stop accepting new patients with Original Medicare due to their workload.
The changes brought about by the ACA are exactly why the health insurance industry came out in full support of ObamaCare. For the health insurance providers, the subsidy cuts to the Medicare Advantage program will cause a short-term revenue dip followed by a huge, long-term gain. The net result is that seniors with Medicare Advantage will have access to the best healthcare available while all others will be stuck in long lines or never receive the care they need.
In a future blog post I will talk about how the government is looking to further limit your access to healthcare if you have a Medigap plan.