ObamaCare cuts a half-trillion dollars from Medicare over the next decade. These cuts are unsustainable and will lead to a reduction in the quality of care for seniors who rely on the program to secure access to needed medical services. The cuts in Medicare Advantage will impose steep costs on millions of Medicare beneficiaries, and will fall disproportionately on low income and minority seniors.

Across-The-Board Cuts

Congress has tried many times over the years to control costs in Medicare with across-the-board cuts in Medicare’s payment rates for services, and they’ve always failed. Price controls don’t control the volume of services used by patients, and every time Congress cuts fees, the rising use of services pushes total costs upward despite the per service payment cuts. ObamaCare uses this same flawed strategy of paying health care providers even less money for treatments, even though Medicare payments are already so low that many doctors don’t accept new Medicare patients. The official Medicare actuaries have determined that approximately 15 percent of hospitals will be driven out of business in less than ten years if these cuts go through and called the cuts “clearly unworkable and almost certain to be overridden by Congress.”

Medicare Advantage

The Medicare Advantage (MA) program allows Medicare beneficiaries to voluntarily elect to take their Medicare entitlement in the form of a fixed monthly payment to an authorized private insurance plan. Firms compete for customers by providing additional benefits that are not covered by the traditional Medicare program, such as vision and dental coverage. If their plans are less expensive than the area average for Medicare’s fee-for-service program, then the insurer must pass along most of the extra savings as an incentive for beneficiary enrollment. Currently, about one in four seniors are enrolled in an MA plan.

ObamaCare drastically reduces payments to MA plans; the cuts will total $150 billion over 10 years. This will force insurers to scale back the extra benefits they are able to provide seniors, or to withdraw their plans entirely from some markets. In some rural areas, these cuts may force all existing MA plans to pull out, leaving the beneficiaries with no options outside of the traditional program.

An analysis of the MA cuts by Robert Book of the Heritage Foundationand ObamaCare Watch’s Jim Capretta
has shown that, on average, MA enrollees will lose $3,714 worth of extra services by 2017 due to the MA reductions in ObamaCare. These reductions will also mean that 7.4 million beneficiaries who would have enrolled in MA in 2017 will be forced into less preferable options by the MA cuts. That’s a full 50% reduction in expected MA enrollment. The impact of the cuts will be even more dramatic in certain localities (as documented in the Book-Capretta analysis). This is one of the most concrete violations of the President’s pledge that “If you like your plan, you can keep your plan” in the entire law.

Medicare Commission

ObamaCare creates a new, unelected board — the Independent Payment Advisory Board, or IPAB — to cut Medicare even further. This board would be independent from Congress, and is empowered to make cuts that will automatically get implemented unless a veto-proof majority of Congress overturns them with subsequent legislation. The law prevents the IPAB from making any substantive reforms or improvements to Medicare; the only mechanism available to cut costs and hit budget targets is payment rate reductions for providers of services, cuts which only servie to drive even more hospitals and other providers of services to drop out of the program.

Accountable Care Organizations

One of many new ideas to cut costs is the creation of Accountable Care Organizations (ACO). These are effectively government-encouraged HMOs, except with hospitals and doctors, and not insurers, running them. The theory is that if hospitals and doctors get to share in the savings, they will find ways to manage care more efficiently for Medicare patients.

The problem with ACOs, however, is that Medicare beneficiaries are going to be assigned to them involuntarily by the government. Thus, many seniors who today enjoy complete freedom of choice of physicians could find themselves in an ACO in which their physician has a financial incentive to steer them away from the specialists they have normally used for care.

Pilot Programs

ObamaCare authorizes scores of pilot programs from 2013 to 2016 which give the government the authority to experiment in Medicare with different payment models. Furthermore, ObamaCare establishes a Center for Medicare and Medicaid Innovation to sponsor additional research into new ways of paying for services.

Proponents of ObamaCare have invested great hope in these pilots. But history indicates they are very unlikely to produce anything of tangible value. In the past, pilot programs have not worked to fundamentally change Medicare because program administrators have found it much easier to impose arbitrary cuts on all licensed providers than to pick and choose winners and losers based on disputable measures of quality and performance.

Preventive Services

New services will be required to be covered by Medicare without any out-of-pocket costs if the government decides they qualify as preventive care. This change will not lead to any real savings, as the costs will just be passed on in the form of higher Medicare premiums. Additionally, it will introduce more politicization of the health care system, as lobbyists seek to have certain treatments included in the preventive care list.

Closing the “Donut Hole”

The Medicare drug benefit, enacted in 2003, provides insurance coverage for annual above a deductible but below $2,700 and above $6,154 (these are 2009 levels). The gap between $2,700 and $6,154 is called the “donut hole.” ObamaCare phases out this gap by gradually increasing the $2,700 limit.

The Congressional Budget Office has determined that this plan will raise per prescription costs in Medicare because it will discourage generic substitution in the “donut hole.” With full government-subsidized insurance coverage, many seniors will end up using more expensive branded products with no measurable change in the quality of their care.