Will Medicare Premium Increases Be an Issue in November?

Buried in the Medicare trustees report released Wednesday are a few lines that could cause political controversy. “In 2017 there may be a substantial increase in the Part B premium rate for some beneficiaries,” the actuaries write—which means seniors will find out about increases shortly before Election Day.

Higher-than-expected Medicare spending in 2014 and 2015 set the stage for a large premium adjustment in 2016. But, notably, the absence of inflation thanks to the drop in energy prices last year meant that seniors receiving Social Security benefits did not receive an annual cost-of-living adjustment.

The Medicare statute has a “hold harmless” provision that prevents Part B premiums from rising by more than the amount of a Social Security cost-of-living adjustment. For most beneficiaries, the provision meant that in 2016, they received no such adjustment—but also did not pay a higher Part B premium. However, nearly one-third of beneficiaries—new Medicare enrollees, “dual eligibles” enrolled in both Medicare and Medicaid (in places where state Medicaid programs pay the Medicare Part B premium), and wealthy seniors subject to Medicare means-testing—do not qualify for the provision.

The New York Times noted last fall that the hold-harmless provision, by protecting most beneficiaries, exposed some to higher increases: “If premiums are frozen for 70 percent of beneficiaries, premiums for the other 30 percent must be raised more to cover the expected increase in overall Medicare costs. In other words … the higher Medicare costs must be spread across a smaller group of people.”

Congress, seeing a dynamic in which some seniors could face a nearly 50% increase in premiums, crafted a provision to forestall such a high and sudden spike. The Bipartisan Budget Act capped Part B premium increases for 2016, paid for by a loan from the Treasury that would be repaid by seniors in future years.

The legislative language used, however, allows premium spikes to come back with a vengeance. The Bipartisan Budget Act provided that the Medicare Part B “smoothing” provision would be renewed in 2017—but only if Social Security beneficiaries received no cost-of-living adjustment at all. The trustees report out Wednesday says that beneficiaries are projected to receive a very modest adjustment: 0.2%. Although that change is relatively small, it means that the “smoothing” provisions in last year’s budget deal do not apply—and, as the Wednesday Medicare report notes, premiums for some beneficiaries “need to be raised substantially,” up to nearly $150 per month.

Before the trustees’ report was released, some experts had predicted that a series of payment reductions by the Independent Payment Advisory Board (IPAB) under Obamacare would spark talk of “death panels” in political campaigns this fall. Spending levels did not require the board to convene, making that issue moot for now. But that doesn’t mean that Medicare won’t be an issue on the campaign trail. Democrats raised the Part B premium issue last year; expect to hear much more about it before November.

This post was originally published at the Wall Street Journal Think Tank blog.

House “Doc Fix” Bill Makes Things Worse, Medicare Analysis Finds

Proponents of the “doc fix” legislation the House passed before Congress’s Easter recess have argued that it would permanently solve the perennial issue of physician reimbursements in Medicare. But an analysis by Medicare’s nonpartisan actuary all but cautions: “Not so fast, my friends!

The estimate of the legislation’s long-term impacts by Medicare’s chief actuary is sober reading. The legislation provides for a bonus pool that physicians can qualify for over the next 10 years but applies only in 2019 to 2024. The budgetary “out-years” provide for minimal increases in reimbursement rates. Beginning in 2026, physicians would receive a 0.75 percent annual increase if they participate in some alternative payment models or a 0.25 percent annual increase if they do not. Both are significantly lower than the normal rate of inflation.

Such paltry increases could have daunting effects over time. “We anticipate that payment rates under [the House-passed bill] would be lower than scheduled under the current SGR [sustainable growth rate formula] by 2048 and would continue to worsen thereafter,” the report said. By the end of the 75-year projection, physician reimbursements under the House-passed bill would be 30% lower than under the SGR. Critics have called the current system unsustainable, but over time the House bill’s “fix” would result in something worse.

The actuary said that the inadequacies of the House-proposed payment increases “in years when levels of inflation are higher.” Under the House-passed bill, physicians would receive a 2.3% increase in reimbursements over a three-year period. According to the Bureau of Labor Statistics, the inflation rate was 11.3% in 1979, 13.5% in 1980, and 10.3% in 1981. If high inflation returned, doctors could effectively receive a pay cut after inflation.

While physician groups are clamoring to avoid the 21% cut that would take effect this month if some sort of “doc fix” is not enacted, the House’s “solution” could result in larger real-term cuts in future years. Medicare’s chief actuary explains the results of these reimbursement changes over time:

While [the House-passed bill] addresses the near-term concerns of the SGR system, the issues of inadequate physician payment rates are ultimately greater….[T]here would be reason to expect that access to physicians’ services for Medicare beneficiaries would be severely compromised, particularly considering that physicians are less dependent on Medicare revenue than are other providers, such as hospitals and skilled nursing facilities.

In sum, “we expect that access to, and quality of, physicians’ services would deteriorate over time for beneficiaries.”

The House “doc fix” legislation involved increasing the deficit by $141 billion, purportedly to solve the flaws in Medicare’s physician reimbursement system. But Medicare’s actuary thinks this legislation will make the long-term problem worse. When will Congress figure out that if you’re in a fiscal hole, it’s best to stop digging?

This post was originally published at the Wall Street Journal Think Tank blog.