What Will Obamacare Do to Medicare?

Medicaid has stayed at the forefront of the Patient Protection and Affordable Care Act, or "Obamacare," debate thanks to the number of states still battling against the proposed expansion. But how will the health care changes affect Medicare?

The short answer is that it depends on the type of Medicare. Traditional, government-backed Medicare includes parts A and B to cover both hospital stays and doctor visits. Private insurers offer prescription drug Part D plans and Medicare Advantage. Advantage plans typically combine the three lettered parts with some additional coverage areas, and they face the greatest risk of changes.

And it was the reversal of a seemingly adverse change behind a health plans rally last week. After an unfavorable government reimbursement decision for Medicare Advantage plans was reversed, shares of Humana (NYSE: HUM  ) and UnitedHealth Group (NYSE: UNH  ) surged to finish up 13% and 9% for the week, respectively.

Reactions like that suggest a deeper look into the specific changes posed by Obamacare. Here's a quick guide to what the legislation will mean to government-administered Medicare plans, as well as their private insurance counterparts.

Parts A and B
Coverage for parts A and B will largely stay the same under Obamacare. But a few revisions kicked in last year that included free wellness checkups for the newly eligible. There's also no longer a charge for part B patients needing flu shots or screenings for a range of conditions such as diabetes, cervical cancer, or high cholesterol.

The cost of these programs for beneficiaries will grow slower under Obamacare, thanks to overpayment restrictions for hospitals and physicians.

Part D
These prescription drug plans included a coverage gap, or donut hole, where patients had to pay out of pocket for a period. Obamacare will close those gaps by 2020 with increasing drug discounts that began last year.

Beneficiaries with active plans in 2011 received drug discounts during the donut hole that amounted to savings of 50% on branded drugs and 7% on generics. Here's how those discounts will build up until the 2020 mark:

 

2012

2013

2014

2015

2016

2017

2018

2019

2020

Branded

50%

52.5%

52.5%

55%

55%

60%

65%

70%

75%

Generic

14%

21%

28%

35%

42%

49%

56%

63%

75%

Part D plans can be standalone or come bundled in a Medicare Advantage package. Let's move into an MA explanation before we look at how the private insurers are involved in these two plan types.

Medicare Advantage
Predicting the future for MA is harder because the changes will vary according to the plan specifics and the insurer. It's best for MA beneficiaries to contact the insurer for details.

What about MA from the standpoints of policy and business?

As I mentioned, Obamacare will limit overpayments to health care providers. But MA insurers also have to prove they're using from 80% to 85% of revenues toward covering medical treatments. Those percentage numbers are called a medical loss ratio; companies failing to meet that requirement have to issue rebates to beneficiaries. But companies can also receive bonuses for outperforming others in their geographic area both in medical loss ratio and quality of care.

Here's a look at how three of the top health insurers stand in terms of Medicare Part D or Advantage enrollment. I've also included their medical loss ratio rates for last year.

Company

Covered Lives* (thousands)

Part D standalone (thousands)

Medicare Advantage (thousands)

Medical Loss Ratio (%)

UnitedHealth

40,925

4,225

2,565

80.4

Humana

9,103

1,928

2,986

83.7

Aetna

18, 242

479

651

82.2

Source: Company 10-Ks. *Medical coverage only; excludes dental, Part D standalone, etc.

As you can see, the two Medicare plans don't account for a huge portion of either Aetna (NYSE: AET  ) or UnitedHealth's overall businesses. UnitedHealth may have to keep paying out rebates if it doesn't boost that MLR rate. But Humana's the most vulnerable of the companies when it comes to Obamacare changes in these areas.

When the Centers for Medicare and Medicaid Services considered slashing the rates paid to insurers for MA plans, Humana's shares dropped 10%. And Humana led the rally when the CMS changed its mind and instead proposed a rate increase. Aetna and UnitedHealth have both moved at the same times as Humana but not to the same extent.

Foolish final thoughts
The most significant changes will happen in Medicare plans associated with private insurers. Part D savings will help many Americans who've struggled in the past with donut hole payments. If you're in a Medicare Advantage plan, it's best to investigate what changes your insurer of choice has in store.

What's in store for this big health insurer?
When President Obama was reelected, shares of UnitedHealth and other health insurers fell immediately. Is Obamacare a death knell for health insurers, or is the market missing out on some of the opportunities the law presents? In this brand new premium report on UnitedHealth, The Motley Fool takes a long term view, honing in on prospects for UnitedHealth in a post-Obamacare world. So don't miss out -- simply click here now to claim your copy today.


Read/Post Comments (8) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 10, 2013, at 4:37 PM, narcolepticgi wrote:

    I just got off the phone with a radio ad, selling healthcare to "everyone". He told me that if my wife, age 63, didn't have insurance by Jan 1, she would be fined $2000. She recently had surgery for state 2 melanoma cancer and we can't get insurance for her for 2-5 years and only then if she remains cancer free. So I say, I'll buy health insurance when 11,000,000 illegals do the same!!

  • Report this Comment On April 10, 2013, at 4:48 PM, doco177 wrote:

    1. Millions are and will lose the insurance Obama promised they could keep. Because ObamaCare forces employers to offer expensive Cadillac plans but also offers the option of paying a fine for not providing health insurance that can be cheaper than providing it, between seven and twenty million Americans are likely to lose their health insurance coverage according to the Congressional Budget Office. The original estimate was closer to four million.

    2. The cost of healthcare premiums is about to further skyrocket. Premium costs have already exploded, but that is a slow-motion explosion. In the near future, we could see costs double or worse. Naturally, these costs will hit an already burdened middle class hardest.

    3. Lost jobs. Lost jobs.

    The Federal Reserve's March beige book on economic activity noted that businesses "cited the unknown effects of the Affordable Care Act as reasons for planned layoffs and reluctance to hire more staff."

    Meanwhile, human resources consulting firm Adecco found that half of the small businesses it surveyed in January either plan to cut their workforce, not hire new workers, or shift to part-time or temporary help because of ObamaCare.

    4. Potential doctor shortages that will mean rationing: The healthcare industry is already a bureaucratic quagmire. ObamaCare is about to add steroids. As the profession becomes tyrannized by government, the talented people currently practicing medicine plan to get out sooner than expected. Who knows how many will choose not to get in.

    Doctor shortages are what lead to the nightmare known as rationed care. Here's an unsettling example already being practiced.

    5. Somewhere around $800 billion in tax increases will hit America's middle class. This added burden will not only further oppress a middle class already reeling from a drop in wages over the last few years, but could damage the overall economy.

    6. Inflation, the cruelest tax on the poor. When businesses get socked with added costs brought about by higher taxes and burdensome government mandates, they pass those cost along to the consumer in the form of higher prices.

    7. Added bureaucracy. Even those Obama lapdogs over at the Washington Post's Wonk Blog are admitting that applying for health care is about to get more burdensome than the byzantine paperwork involved in buying a home.

    8. To cut costs or to avoid having to provide insurance, workers on the economic margins are already losing hours, which means a lower paycheck. There are a million sad stories in ObamaVille; here are just a few of them.

    9. ObamaCare is projected to add $6.2 TRILLION to a deficit the GAO has already declared "unsustainable." That's "trillion" with a "t".

    10. More taxes than currently estimated are likely to hit because of situations like this one.

    Three years ago, Obama, Democrats, and his media lied to us about cutting the cost of health care, being able to keep our insurance, and not taxing the middle class.

    Today, those lies and what ObamaCare is and will do to the working and middle class are the biggest untold story in America.

  • Report this Comment On April 10, 2013, at 10:19 PM, ConcanavalinA wrote:

    Insurers are to blame too. We should stimulate competition and start pointing at them too.

  • Report this Comment On April 11, 2013, at 1:47 AM, japohl wrote:

    ObamaCare will hurt medicare more than anything. However my fear is that the Obamacare law is sooooo bad that when it fails we will be left with either government health care or a single payer system. In either case it will be an unintended consequence of failed policy.

    For those that have about 15 seconds to spare, I would like to see your opinion of Obamacare and its future fiscal health. You can see how others opinion at http://obamacareaca.com/yop-poll-archive/

  • Report this Comment On April 11, 2013, at 11:12 AM, japohl wrote:

    I recently found an article talking about how the 20 something citizens were going to be the one most effected.

    http://obamacareaca.com/obamacare/obamacare-math-for-the-20-...

    It talked that they may pay the biggest price but they may also be the ones that can effect the most change.

  • Report this Comment On April 11, 2013, at 2:53 PM, japohl wrote:

    A lot of this article deals with the positive effects of the ACA. However there are some bad things that will happen to the elderly when the full effects of Obamacare comes to fruition. There is a great article about how elderly care will be severly compromised after the first of the year.

    http://obamacareaca.com/obamacare/proof-that-democrats-hate-...

    The article talks about several factors of how the elderly will be un desirable patients. If you are retired or nearing that age, I suggest you have a look.

  • Report this Comment On September 04, 2013, at 8:07 AM, globalpayers wrote:

    Global offers ACA focused solutions aimed at making payers competitive in a tough post- ACA environment

    <a href="http://www.globalpayerresource.com">Healthcare payer services</a>

  • Report this Comment On September 24, 2013, at 2:07 PM, Fillinthegaps wrote:

    ObamaCare should fill in the Gaps where Medicare falls short. It should Augment Medicare not take away from it.

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