This week, Medicare's Board of Trustees released its annual report on Medicare's financial health. The report reveals that money in Medicare's hospital insurance trust fund will fall short of covering the program's costs in a little more than a decade.
The trustees' forecast was released the same day that Republicans unveiled their much-anticipated plan to repeal and replace Obamacare. Republicans' 37-page healthcare plan includes important cost-cutting changes to Medicare. Can these changes put the program on firm financial footing?
First, a refresher
Medicare provides insurance coverage to American seniors age 65 and up, and it consists of four distinct parts.
Part A provides health insurance coverage for hospital care, including semi-private rooms, meals, general nursing, drugs as part of inpatient treatment, and other hospital services and supplies. In 2016, the patient deductible for Part A coverage is $1,288 for each benefit period. There's no coinsurance associated with days 1-60, but coinsurance can climb to as high as $644 per day depending on the length of the hospitalization.
Part B covers healthcare services or supplies necessary to diagnose or treat patients, and preventative services, such as primary care doctor visits. In 2016, the premium for Part B is $104.90 for most Americans; however, some Americans pay more because of Medicare surcharges on high-income earners. Part B has a $166 deductible, after which patients pay 20% of the cost of covered services.
Part C, or Medicare Advantage, plans are offered by private insurers, and they provide coverage similar to Medicare Part A and Part B. They can include additional healthcare coverage options, such as drug coverage or dental coverage. Part C plans have specific doctor networks, and their monthly premiums vary depending on coverage and patient cost-sharing, such as co-pays.
Finally, Part D plans provide prescription drug coverage. Part D plans are offered by private insurers, and while their premiums can vary, the average Part D plan premium is about $41 per month in 2016.
Medicare's overdue makeover
The Congressional Budget Office's projection for spending indicates that the Part A hospital insurance trust fund will run short of money in 2028, two years earlier than trustees projected last year. At that point, the fund will be able to support only 87% of anticipated Medicare benefits.
Specifically, the plan seeks to limit benefits available to people who purchase Medigap insurance. It also seeks to combine parts A and B, and to change the age at which people are eligible to enroll in Medicare.
Medigap insurance is insurance that can be purchased to pay Medicare deductibles and other out-of-pocket costs that are associated with Medicare Part A and Part B. Medigap reimbursement begins at the first dollar of unreimbursed care, and according to the Medicare Payment Advisory Commission, Medicare's spending is 33% higher when patients have a Medigap plan. Those findings suggest that patients and doctors tend to be less selective with the cost of healthcare services when they have Medigap plans, so Republicans propose restricting Medigap so that it only pays up to half of the amount between a recipient's deductible and the maximum out-of-pocket spending cap.
Republicans also want to combine Medicare Part A and Part B. Currently, Part A is available to most Americans free of charge and Part B costs a small monthly premium. However, after combining the two together, patients would pay cost-sharing equal to 20% on all services after a deductible, not just Part B services. An out-of-pocket annual maximum would also be instituted, similar to what currently exists with Medicare Advantage plans.
Additionally, annual outlays for the program would be reduced by increasing the eligibility age for Medicare. Because people are living longer, Republicans argue, it makes sense to match Medicare eligibility with Social Security eligibility. Social Security's maximum full retirement age is currently 66, but it increases over time to 67 for Americans born after 1960.
Medicare's current spending trajectory is worrisome, and given the amount of care likely required by an ever-increasing number of aging baby boomers, it would seem that some changes may be necessary to protect the program for future American retirees. Only time will tell, however, if these changes get traction in Washington, or if seniors balk at these proposals.
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