Healthcare / U.S. Domestic Policy

Obama’s Bad Medicine

Wednesday night’s presidential debate between President Obama and Governor Romney provided the American people with the most substantive policy discussion of the campaign. Of course, much of what both candidates said was so vague as to be meaningless, but nevertheless, it was refreshing to leave the pettiness that has pervaded the election behind for an hour and half.

President Obama and Governor Romney sparred on a range of issues, including health care. One of their lengthier exchanges was on the subject of Medicare, the entitlement program with a fiscal reckoning just around the corner. As I sat there and listened to the candidates dueling accounts of President Obama’s $716 billion in Medicare cuts, a tremendous realization hit me- I know what they’re talking about!

As part of the Affordable Care Act, payments to Medicare providers are reduced by $716 billion as part of an effort to control the cost of expanding healthcare coverage. Medicare Advantage (MA), the part of Medicare that is privately administered, will be particularly hard hit due to changes in the way the plan is to be reimbursed.

At present and under the ACA, the Centers for Medicare and Medicaid Services (CMS) takes bids from insurers for MA plans and compares them to a “benchmark” rate that is based on the cost of traditional Medicare in the county in which the plan is administered. The bid represents the monthly amount for a standard beneficiary. If the bid is above the benchmark cost, the insurer bills the enrollee for the additional cost, but if the bid is below the benchmark then CMS issues the company a 75 percent rebate. The rebates cannot be taken in as a profit, but must be invested in either lower cost sharing for enrollees or added benefits.

Due in part to these rebates, MA is very advantageous to seniors, offering them lower out-of-pocket costs and more expansive benefits than traditional Medicare. But under the ACA, the way in which rebates are calculated is set to change. According to research done by Robert Book and Michael Ramlet, under the new formula every county in the country will see its benchmark lowered.

During the debate President Obama claimed that this move means that Medicare will no longer be “overpaying” insurance companies, but in reality it is an across the board cut that will have real consequences.

In the first place, MA is expected to have around four million fewer enrollees by 2018. With fewer enrollees and lower payments, many MA plans will not be able to survive. As a result, the number of plans available for seniors to choose from will drop.

Secondly, if seniors in MA plans are forced into traditional Medicare, they may no longer be able to see their desired doctor, as some doctors under MA plans do not take Medicare.

Furthermore, in order to meet the constraints of a lower benchmark, MA plans will have to cut benefits and increase costs for seniors. This is particularly problematic because 43 percent of seniors in MA plans have incomes of less than $20,000. So ultimately these cuts hit the nation’s poorest seniors the hardest.

While President Obama may claim that $716 billion dollars in cuts strengthens Medicare, those cuts come at the expense of Medicare Advantage and the seniors that it serves. This is something that many of the so-called “fact checkers” failed to mention, but it is a stark reality and yet another example of the President Obama’s bad medicine.