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Collateral Damage of a Repeal of the ACA

Feb 02, 2017

ObamaCare, ACA, repeal

Few things in this world are perfect, or even nearly perfect.  The term “mixed blessing” can be nearly universally applied in most situations.  Factor in emotions heightened by personal experience or prejudice, and political leanings and PACs, add in big money at risk, and the situation becomes nearly volatile. 

Such is the situation with the Affordable care Act, or “Obamacare”.

 

Our incoming POTUS made the repeal of this legislation an important part of his campaign, and it created tons of “discussion”, to say the least.  Now political reality is descending upon the situation.  The Senate vote on Medicare hints at ACA change resistance, with the lines between the two political parties drawn deeply in the sand, so that even limited stepping over that line by members of either party to have real impact.  Add on the fact that special interest or advocacy groups such as the American Diabetes Association oppose any repeal before a replacement program can be put into play.  Plus, the repeal might face other legislative constraints, such as the Byrd rule.

Factor in the fact that most legislation is layered with different pieces of sometimes diametrically opposed amendments not subject to line-item vetoes, and the situation becomes even more complicated.  One of those pieces that brings thoughts of implied cronyism is that the repeal will also eliminate two ACA Medicare taxes that favor high earners and the wealthy. Others point to the two-headed beast that is a tax on medical devices as a reason to seek repeal.

Complicate the situation even further with legislative efforts such as Senate Amendment 20 to Senate Concurrent Resolution 3, which could have blocked the congressional committees involved in ACA de-funding from using a budget resolution to privatize Medicare, increase the Medicare eligibility age, cut Medicaid funding, or put per-enrollee spending caps on Medicaid funding.  The entire vehicle might not be dismantled, just taken partially apart, by de-funding major ACA programs, such as the ACA premium tax credit program.

All that said, what are implications of ACA repeal for Medicare spending and its beneficiaries?

Some provisions include reductions in the growth in Medicare payments to hospitals and other health care providers and to Medicare Advantage plans, benefit improvements, payment and delivery system reforms, higher premiums for higher-income beneficiaries, and new revenues.  The Congressional Budget Office (CBO) has estimated that full repeal of the ACA would increase Medicare spending by $802 billion from 2016 to 2025.1 Full repeal would increase spending primarily by restoring higher payments to health care providers and Medicare Advantage plans. The increase in Medicare spending would likely lead to higher Medicare premiums, deductibles, and cost sharing for beneficiaries, and accelerate the insolvency of the Medicare Part A trust fund.

Some of the key Medicare provisions and repeal would affect Medicare spending and beneficiaries:

Repealing the ACA’s sustained reductions in provider payments would be expected to:

  • Increase Part A and Part B spending. CBO has estimated that roughly $350 billion3 of the total $802 billion in higher Medicare spending over 10 years could result from repealing ACA provisions that changed provider payment rates in traditional Medicare. Repealing these provisions would increase payments to providers in traditional Medicare. Additionally, some hospitals would receive higher DSH payments, if these payments were restored to their pre-ACA levels.
  • Increase the Part A deductible and copayments and the Part B premium and deductible paid by beneficiaries. The Part A deductible and copayments would be expected to increase due to an increase in Part A spending that would likely occur if payment reductions are repealed. This is because the Part A deductible for inpatient hospital stays is indexed to updates in hospital payments, and the copayment amounts for inpatient hospital and skilled nursing facility stays are calculated as a percentage of the Part A deductible. Similarly, the Part B premium and deductible would be expected to increase if payments to Part B service providers are restored. This is because Part B premiums are set to cover 25 percent of Part B spending, and the Part B deductible is indexed to rise at the same rate as the Part B premium.

Repealing the ACA’s Medicare Advantage payment changes would be expected to:

  • Increase total Medicare spending as a result of increasing payments to Medicare Advantage plans relative to spending under traditional Medicare. CBO has estimated that repealing the Medicare Advantage-related provisions in the ACA would increase Medicare spending by roughly $350 billion6 (out of the $802 billion total increase) over 10 years.
  • Increase the Part B premium and deductible paid by beneficiaries. The Part B premium and deductible would likely increase if the payment reductions for Medicare Advantage plans are repealed because the Part B premium is set to cover 25 percent of Part B spending, and the Part B deductible is indexed to rise at the same rate as the Part B premium.
  • Improve benefits and lower out-of-pocket costs for beneficiaries enrolled in Medicare Advantage plans. Payments that Medicare Advantage plans receive in excess of their costs to provide Part A and Part B benefits are required to be used to provide benefits not covered by traditional Medicare, to reduce cost sharing, premiums, or limits on out-of-pocket spending, or both. Thus, if the ACA’s reductions in Medicare Advantage plan payments were repealed, plans could provide extra benefits to Medicare Advantage enrollees and/or reduce enrollees’ costs.

Repealing the ACA’s Medicare benefit improvements would be expected to:

  • Reduce Medicare Part B spending for preventive services and reduce Part D spending on costs in the coverage gap.
  • Increase beneficiary cost sharing for Part B preventive benefits.
  • Increase beneficiary cost sharing by Part D enrollees who have drug spending high enough to reach the coverage gap. According to MedPAC, in 2013, roughly 25 percent of the 37.8 million Part D enrollees (or around 9 million beneficiaries) had drug spending high enough to reach the coverage gap.7,8
  • Reduce Part D premiums, on average, since Part D premiums are set to cover 25.5 percent of program costs, and reinstating the Part D coverage gap would lower Part D spending.

Repealing the ACA’s Medicare revenue provisions would be expected to:

  • Reduce revenues to Medicare’s Part A and Part B trust funds.
  • Reduce Part A payroll taxes for Medicare beneficiaries (and other taxpayers) with earnings greater than $200,000/individual or $250,000/couple.

Repealing the ACA’s income-related premium provisions would be expected to:

  • Reduce the number of higher-income Part B enrollees paying income-related premiums.
  • Reduce Part D premiums for beneficiaries with incomes above $85,000/individual and $170,000/couple.

Repealing these ACA’s payment and delivery system reform provisions would be expected to:

  • Increase Medicare spending due to elimination of CMMI and other quality incentive programs. On net, CBO has estimated that CMMI’s operations will generate savings of $34 billion over the 2017-2026 period, with gross savings of $45 billion over this period. These savings are attributed to the expansion of successful payment and delivery system reform models into Medicare. In addition to eliminating the savings generated from CMMI, Medicare spending could also increase if the incentives to reduce preventable readmissions and hospital-acquired conditions are included in proposals to repeal and replace the ACA.

Repealing IPAB would be expected to:

  • Increase Medicare spending over time, in the absence of the Board’s cost-reducing actions. CBO projects Medicare savings of $8 billion as a result of the IPAB process between 2019 and 2026.12

A majority of Americans have expressed support for some of the ACA provisions that affect Medicare, including the elimination of out-of-pocket costs for many preventive services, closing the Part D coverage gap, and the higher Medicare payroll tax for higher-income workers.14 Some industry stakeholders have expressed concern about the implications of retaining the ACA’s savings provisions, yet repealing the ACA’s coverage expansions.

Add to all this the fact that this election was as divisive in nature as it was, and many have strong feelings, one way or another, that will affect perception of whatever happens.  And that division will go far beyond just this one piece of major piece of legislation.

This is a hot topic, to say the least.  What is your temperature? 

John Dubas & Emily Mathis

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