California Health Advocates Bulletin on the Doc Fix
House Speaker John Boehner and Minority Leader Nancy Pelosi are looking for ways to pay for the cost of fixing the way that Medicare pays doctors known as the “doc fix.” Without Congressional action, doctors who treat Medicare beneficiaries are facing a 21% cut in their Medicare payments beginning on April 1st.
Congressional leaders and staff are considering changes that would shift more costs to Medicare beneficiaries and produce projected savings to the Medicare program of $52 to $54 billion over the next 10 years. Those savings could then be used to offset the cost of eliminating the payment cuts to doctors.
One proposal with estimated savings of $52 billion over 10 years is as follows:
- Combine Parts A and B with a single deductible of $550;
- Add coinsurance of 20% to all hospital inpatient stays;
- Create an annual cap of $5,500 on total Medicare cost-sharing.
The effective date for these structural changes is unclear, and it’s also unclear under these proposed changes whether these new costs will be indexed for inflation in later years.
Another similar proposal is the most recent Congressional Budget Office (CBO) projection, with estimated “savings” of $54 billion over 10 years:1
- Create a single annual deductible of $650;
- Add coinsurance rate of 20% for all amounts above the deductible;
- Create an annual cap of $6,500 on total cost-sharing.
This proposed change would take effect January 1, 2017 and be indexed for inflation, causing both the single deductible and the annual cap to increase each year.
What this means for Medicare beneficiaries
Very few beneficiaries are likely to exceed the “cap.” A single deductible of hundreds of dollars will increase the costs of most Medicare beneficiaries who are treated as outpatients and are not hospitalized during a year. CBO has noted in their analysis that changes to Medicare cost-sharing “would increase cost-sharing liabilities for most Medicare enrollees.”2 CBO also notes that cost-sharing liabilities would rise “for more than 3/4 of enrollees.”
MedPAC’s analysis of an annual out-of-pocket limit of $5,000 showed that costs would increase for 91% of Medicare beneficiaries, from $250 to $1,000 or more annually.3
And the Kaiser Family Foundation has estimated that Medicare beneficiaries would automatically contribute $58 billion over the next 10 years in Part B premiums increases alone unless utilization of Medicare covered services dropped dramatically.
What this means for the Centers for Medicare and Medicaid Services (CMS)
CMS payment contractors for fee-for-service Medicare administer payments for Part A and for Part B separately, and Medicare Advantage (MA) plan payments are administered through a yet another system. CMS would have to develop a number of new administrative systems that can track both Part A and Part B services and charges to determine when a single deductible has been met such as:
- Revamp the CMS and MAC cross-over system to accommodate both Part A and Part B claims and cost-sharing as they occur
- Develop new CMS and MAC systems that track claims and cost-sharing up to and after the out-of-pocket maximum has been reached.
What this means for Medigap policies
There are currently no Medigap products that cover inpatient cost-sharing and a combined deductible. Existing Medigaps would become obsolete and unable to pay benefits under the new structure upon the effective date of any changes to Medicare.
- The NAIC would have to completely redesign Medigap packages to reflect the new structure of Medicare with a single deductible and new copayments.
- Pricing requirements would have to be changed, and a new refund formula constructed.
- Retiree plans based on the current Medicare structure would also have to be redesigned.
- States would have to change their laws and regulations to reflect any changes in Medigap policies, posing a formidable challenge to meeting an effective date.
Unless there is a large drop in utilization of Medicare covered services, the costs above the annual cap that are currently covered by Medigap policies will be shifted to the Medicare program and actually increase Medicare spending rather than decrease it. For Medicare beneficiaries who have neither a Medigap policy nor other supplemental coverage, it means increased out-of-pocket costs that may result in delayed care and increased costs for emergency and hospital care.
These are ill-conceived ideas that shift the cost of reforming Medicare’s payment system for doctors to older and disabled American’s who rely on Medicare for their health care. We do not believe this is an appropriate way to solve the payment problem for doctors that Congress has “patched” 17 times in 12 years without finding a permanent fix. Asking Medicare beneficiaries to bear the cost of something Congress created and has not fixed in the last 12 years is cruel and the wrong approach to this problem.
1 “Options for Reducing the Deficit: 2015 to 2024” (November 2014)
2 CBO, “Budget Options – Volume I” (December 2008)
3 MedPAC, “Reforming Medicare’s Benefit Design” (March 8, 2012