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Obama's Budget Hurts Seniors, Helps Hospitals

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President Barack Obama's proposed budget for the next fiscal year was a mixed bag for the health-care sector.

Bad news for Medicare recipients 
At least it's bad news for those seniors rich enough to afford paying a little more for Medicare.

President Obama's budget establishes five new income brackets that would have to pay increasingly higher premiums. Right now, there are four brackets starting with singles making more than $85,000 per year or couples earning more than $170,000. In addition to the new brackets, the proposal would increase the premiums.

The end result is $50 billion in the government's coffers over 10 years, nearly double the estimate of last year's income from premium increases for higher-income seniors. Right now, 1 in 20 Medicare recipients pay a higher premium, which will increase to 1 in 4 as the income tiers kick in. At that point, the tiers will increase, adjusting for inflation.

It's hard to see how this could hurt drugmakers. Even with the increased premiums, Medicare is still a pretty good deal. Most seniors will grin and bear it, keeping coverage.

Health insurers such as Universal American (NYSE: UAM  ) and Humana (NYSE: HUM  ) that offer supplementary Medicare insurance could be hurt if seniors decided to drop the added coverage, but I doubt the increased premiums will put a major dent in seniors' budgets. Retirees making more than $85,000 per year will have to pay about $250 more per year than they do right now. Any losses will be more than be made up for by the Centers for Medicare and Medicaid Services' decision this month to reverse its  previously announced cuts to reimbursement rates.

Good news for hospitals 
Obama's budget proposes to help hospitals such as Health Management Associates (UNKNOWN: HMA.DL  ) , HCA Holdings (NYSE: HCA  ) , and Community Health Systems (NYSE: CYH  ) . Hospitals have routinely been given Disproportionate Share payments from Medicaid to help pay for uninsured patients that the hospitals treat but aren't reimbursed for.

The Patient Protection and Affordable Care Act was expected to make those payments unnecessary through the expansion of Medicaid. The uninsured patients that the federal government was picking up the tab for would now be covered under Medicaid.

But, you'll recall that the Supreme Court said the expansion was optional for states since the federal government doesn't pick up the full payments. Quite a few states have used their new-found power to turn down the expanded Medicaid, leaving hospitals in the same situation they're currently in.

Obama's budget proposes to delay the cuts to the Disproportionate Share program, sending $500 million to hospitals that was scheduled to be cut in 2014. Indirectly, the extra payments are good for insured patients and the companies they have their insurance with since hospitals would surely try to pass some or all of the added burden onto paying customers.

At this point, it's only a temporary fix, though; hospitals are still scheduled to see cuts to Disproportionate Share payments starting in 2015, which culminate in a $4 billion reduction in 2022.

Just a suggestion
Keep in mind that the President's budget is just a proposal to Congress, which ultimately sets the budget. Investors need to keep one eye on Wall Street and the other on Washington D.C., since the latter can have substantial influence on health-care spending.

Not to mention, it has an effect on your ability to retire. Making the right financial decisions today makes a world of difference in your golden years, but with most people chronically under-saving for retirement, it's clear not enough is being done. Don't make the same mistakes as the masses. Learn about The Shocking Can't-Miss Truth About Your Retirement. It won't cost you a thing, but don't wait, because your free report won't be available forever.

Read/Post Comments (5) | Recommend This Article (0)

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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 15, 2013, at 4:43 PM, OnTheContrary wrote:

    " I doubt the increased premiums will put a major dent in seniors' budgets. Retirees making more than $85,000 per year will have to pay about $250 more per year than they do right now."

    The problem is the vast majority of retired seniors, most of whom are living on Social Security payments and making between *$8000 and $15000 a year, or double that for couples, with maybe half of them falling below the poverty line. Then, since real inflation has been running at between 6-10% a year for decades, while the CPI adjustments compensate at less than 2% for an average year (soon to go to 1% thanks to the further doctoring of the CPI that Obama has proposed), thus the majority of seniors will be below the poverty line within a few years. Meanwhile, they have the choice of waiting for a significant illness to bankrupt them (because Medicare only covers a portion of their escalating medical bills), or paying Medicare Advantage premiums to get decent insurance coverage, but now with Obamacare, Medicare Advantage payments are set to skyrocket too.

    Almost no seniors fall into the class that Obama's legislation addresses, and it is evident that both he and the Republicans have no qualms about keeping the government fat out of the hides of this poorest and most exploited class in America.

  • Report this Comment On April 15, 2013, at 5:11 PM, alexx52 wrote:

    The end result is $50 billion in the government's coffers over 10 years

    That is $5 billion a year. Hardly enought to pay for Obama's golf.

  • Report this Comment On April 15, 2013, at 5:21 PM, tristinstone wrote:

    god help us all!

  • Report this Comment On April 15, 2013, at 5:24 PM, tristinstone wrote:

    When you have to force a bill down the Americans throat, then 95% of the inept people who voted for it never even read it? And you have a president whos Ego is bigger than his IQ? And you need a Masters degree to understand it? You know damm well we are all in alot of trouble if we implement this!

  • Report this Comment On April 15, 2013, at 5:46 PM, saboo1420 wrote:

    Black make up 13% of the total population and only about 3% of retired people. It is no surprise that Obama is targeting seniors - they are mostly white. Obama already took 18 billion from Medicare which has the same demographics. Under Obama wealth in this country has declined over 45%. Obama is trying his best to destroy wealth in this country so we all have to live like black people. NO racism here - just plain facts. Check out our Air Craft Carriers - docked like the battle ships at Peal Harbor, Entire Fighter wings mothballed, gun regulations... you have to be a moron not to see what he is doing.

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