ACA and Medicare

VII. Key Issues: Regulation & Reform >> C. Health Reform >> Affordable Care Act (ACA) >> ACA and Government >> ACA and the Federal Government >> ACA and Medicare (last updated 2.4.17)


To make the ACA appear budget-neutral, Medicare was expected to provide roughly $390 billion in net savings over the first 10 years, along with $210 billion in new Medicare revenues. Other provisions in PPACA address more systemic issues, such as increasing the efficiency and quality of Medicare services and strengthening program integrity. Finally, the ACA also improved some benefits provided to Medicare beneficiaries such as phasing out the “doughnut hole” in Medicare Part D prescription drug coverage.

Medicare Cost Savings

The ACA was originally designed to achieve net reductions in Medicare direct spending that would reach approximately $390 billion from FY2010 to FY2019; these savings were to be channeled into helping to finance the expansion of coverage through Medicaid and federally subsidized health Exchanges. Major savings were expected from constraining Medicare’s annual payment increases for certain providers, tying maximum Medicare Advantage payments near or below spending in fee-for-service Medicare, reducing payments to hospitals that serve a large number of low-income patients, creating an Independent Payment Advisory Board to make changes in Medicare payment rates, and modifying the high-income threshold adjustment for Part B premiums.  From its inception, there were concerns about the feasibility of attaining such savings without creating barriers to access to Medicare beneficiaries and/or extreme financial pressures on hospitals or other Medicare providers.


This slide shows the impact of ACA cuts on physician care. Medicaid rules preclude hospital payments from exceeding Medicare rates; therefore, once Medicare payments drop to Medicaid levels, payment rates for both programs must fall in lock-step. For physician payments, however, there is nothing to stop Medicare payment rates from eventually falling below the rates paid by Medicaid:


  • Joseph Newhouse, Professor of Health Policy and Management at Harvard: “…it is equally hard to imagine cutting only Medicare spending while spending by the commercially insured under age sixty-five continues to grow at historic rates, which would lead to a marked divergence between what providers are paid for treating the commercially insured relative to what they are paid for Medicare beneficiaries. This gap could jeopardize Medicare beneficiaries’ access to mainstream medical care.” Newhouse, Joseph P. (July 22, 2010) “Assessing Health Reform’s Impact on Four Key Groups of Americans,” Health Affairs 29:9, pp. 1-11.
  • Peter Orszag, former CBO and OMB Director: “[One] approach is to simply reduce payments to providers—hospitals, doctors, and pharmaceutical companies. This blunt strategy can work, often quite well, in the short run. It is inherently limited over the medium and long term, however, unless accompanied by other measures to reduce the underlying quantity of services provided. If only Medicare and Medicaid payments were reduced, for example, providers would shift the costs to other patients and also accept fewer Medicare and Medicaid patients.” Orzag, Peter R. (July/August 2011) “How Health Care Can Save or Sink America,” Foreign Affairs 90:4, pp. 42-56.

Pay-for-Performance in Medicare

Medicare Revenues

A new Hospital Insurance tax for high-wage earners was projected to raise approximately $87 billion over 10 years, and a new Medicare tax on net investment income, was expected to raise an additional $123 billion over 10 years. Both are discussed further here.

Impact on Medicare Expenditures

Impact on Medicare Advantage (Part C)

  • Part C Coverage. See discussion here of the ACA’s impact on the number of people enrolled in Part C plans.
  • Medicare Advantage Plan Bonus Payments.  In 2012, Medicare Advantage plans began to receive bonus payments based on quality ratings. These payments were initially established in the 2010 health reform law that provides for bonus payments to plans that receive 4 or more stars and to unrated plans beginning in 2012.
    • Kaiser Family Foundation (November 2011). Medicare Advantage Plan Star Ratings and Bonus Payments in 2012
    • Layton, T. J. and Ryan, A. M. (2015), Higher Incentive Payments in Medicare Advantage’s Pay-for-Performance Program Did Not Improve Quality But Did Increase Plan OfferingsHealth Services Research. doi: 10.1111/1475-6773.12409. According to Jason Shifrin, this paper examines the Medicare Advantage Quality Bonus Payment Demonstration (MA QBP) which began in 2012.  In this program, “plans receive bonus payments based on an overall plan quality rating calculated from a set of clinical quality measures and patient satisfaction ratings. These bonuses are quite large, ranging from 3-10% of plan payments, much larger than the 1-2% of revenue typically at risk in hospital and provider group P4P contracts. Although their differences-in-differences  (DiD) approach found that quality improved in counties where plans were eligible fore the larger bonus compared to those that were not, bonus counties already had a positive trend towards quality improvement prior to the start of MA QBP, which may invalidate the parallel trends assumption required by the DiD framework. Instead, the authors use a regression discontinuity and propensity score design and find “…a precisely estimated zero effect of bonus size on quality, suggesting that larger bonuses have no effect on health plan quality.” The authors give two explanations for this lack of improvement.
      • One is that quality improvement has high fixed cost (e.g., training staff) or that effective investment is necessarily “lumpy,” such that it may not be worth it for plans to invest in high-cost quality improvement efforts.  
      • Second, plans may face short term constraints. For instance, plans may find it difficult to shift their existing physician network to a higher quality network, particularly if the current provider network has a multi-year contract.”
  • Medicare Advantage Cuts Felt in Every Congressional District. “Nearly 18 million seniors in America depend on private MA plans for their personal health care and have chosen to  purchase the coverage beyond Medicare. When the Affordable Care Act (ACA) became law in 2010, it cut $716 billion from Medicare to fund the new law, including billions of dollars of cuts to the MA program. Now, six years later, seniors across the country are seeing the results of the ACA’s cuts to MA. In February, the Obama Administration proposed further MA cuts for seniors in 2017 due to ACA. These cuts result in an annual benefits cut of $2,976 (or 21.8  percent), when compared with MA projections before ACA. These benefit cuts will be felt by seniors in every Congressional District come 2017.” (American Action Network, 2016)

Impact on Medicare Prescription Drug (Part D)

  • Part D Coverage. See discussion here of the ACA’s impact on the number of people enrolled in Part D plans.

Impact on Program Operations

  • Congressional Research Service (11.3.10). Medicare Provisions in the Patient Protection and Affordable Care Act (PPACA): Summary and Timeline. The ACA requires the establishment of a national, voluntary pilot program that will bundle payments for physician, hospital, and post-acute care services with the goal of improving patient care and reducing spending. Another provision adjusts payments to hospitals for readmissions related to certain potentially preventable conditions. In addition, ACA subjects providers and suppliers to enhanced screening before allowing them to participate in the Medicare program, and the ACA also increases funding for anti-fraud activities.
  • Capretta, J and Antos, J. (11.23.15) The Productivity Adjustment Factor. “The ‘productivity adjustment factor,’ inserted by the ACA into the Medicare program, is a massive spending cut, one of the largest in the program’s history. It was included to make room in the federal budget for the ACA’s expensive new health insurance subsidies.
    • Fixed and Permanent. “The new ACA productivity adjustment factor is different from previous adjustments because it isn’t ad hoc (the formula for making the cut is written into the law) and it isn’t temporary (it will occur automatically every year). Under this provision, the annual updates to hospital and other facility payments will be reduced by a measure of economy-wide productivity increases — thus it’s a productivity adjustment factor. The government actuaries who produce Medicare cost projections estimate that this factor will reduce the market basket index by, on average, 1.1 percentage points annually, dropping the average increase from 3.5 percent to 2.4 percent.”
    • Impact on Facilities. “The actuaries are skeptical that the full cuts from the productivity adjustment factor can be sustained. They estimate that by 2040, half of all hospitals, 70 percent of skilled nursing facilities, and 90 percent of home health agencies would be losing money each year because of the deep cuts in their Medicare reimbursement rates.  This would leave Medicare beneficiaries facing substantial barriers to accessing needed care. As the actuaries put it, ‘in practice, providers could not sustain continuing negative margins and, absent legislative changes, may have to withdraw from providing services to Medicare beneficiaries’ or take actions to shift the cost of Medicare patients to other payers.”
    • Impact on the Budget. “The ACA’s defenders say the law will reduce future federal budget deficits. But that will only be true if Congress sticks with the productivity adjustment factor even when beneficiaries complain of restricted access to care. Based on prior history, that’s an unlikely scenario, to say the least.”

Opted-out Providers

CMS allows certain health care providers to opt out of the Medicare program if they submit affidavits promising not to collect any Medicare revenue. According to Noridian, a CMS contractor, “Opt out is a contract between a provider, beneficiary and Medicare in which the provider or beneficiary does not file a claim to Medicare. The physician or practitioner bills the beneficiary directly and is not required to follow the fee-for-service charges determined by Medicare. Providers must submit an Opt Out Affidavit with Medicare and must keep a Private Contract with all beneficiaries on file.” 

  • According to the Wall Street Journal (7.29.13), “CMS said 9,539 physicians who had accepted Medicare opted out of the program in 2012, up from 3,700 in 2009. That compares with 685,000 doctors who were enrolled as participating physicians in Medicare last year, according to CMS, which has never released annual opt-out figures before.”
  • According to CMS17,191 providers had opted out of the program as of April 1, 2016. However the accuracy of this table is in question, as it conflicts with a CMS report in Health Care Financing Review (Winter 2004-2005) indicating that “from 1998 to 2002, 2,839 physicians, clinical psychologists, and other providers chose to opt-out.” The newer CMS table lists only 69 opted-out providers over the same time period.
  • The Association of American Physicians and Surgeons offers these two diagrams in its 2.3.17 presentation on opting out of Medicare:

Renewal of Opt Out Status

Valid opt out affidavits signed on or after June 16, 2015, automatically renew every two years. Providers may reverse the opt-out by notifying all Medicare contractors with which they filed an affidavit at least 30 days prior to the next two year opt out period. If an affidavit has not been signed and received by the Medicare contract on or before June 16, 2015, a new affidavit must be submitted to renew the opt-out period.

Providers Eligible to Opt Out

  • Doctors of medicine
  • Doctors of osteopathy
  • Doctors of dental surgery or dental medicine
  • Doctors of podiatric medicine
  • Doctors of optometry
  • Physician assistants
  • Nurse practitioners
  • Clinical nurse specialists
  • Certified registered nurse anesthetists (CRNAs)
  • Certified nurse midwives
  • Clinical psychologists
  • Clinical social workers
  • Registered dieticians and nutrition professionals

Providers Ineligible to Opt Out

  • Chiropractor
  • Anesthesiologist assistant
  • Speech language pathologist
  • Physical therapists
  • Occupational therapists


Opting Out of Medicare 2017: A Guide for Physicians. [Video]. American Association of Physicians and Surgeons (2.3.17).

Anti-Fraud Initiatives

Open Payments Website

  • Open Payments. “Sometimes, doctors and hospitals have financial relationships with health care manufacturing companies. These relationships can include money for research activities, gifts, speaking fees, meals, or travel. The Affordable Care Act requires CMS to collect information from applicable manufacturers and group purchasing organizations (GPOs) in order to report information about their financial relationships with physicians and hospitals. Open Payments is the federally run program that collects the information about these financial relationships and makes it available to you. View the summary data dashboard for an overview of the published data.”
    • ACA’s Open Payments Website Suffers Delays, Glitches Ahead of Launch Date. “At issue is a database known as the Open Payments website. It was created under the Affordable Care Act to shed light on the financial ties between doctors and pharmaceutical companies as well as device manufacturers… The government is hoping to take the site public on Sept. 30. But it’s already a year behind schedule, and if some industry heavy hitters have it their way, the schedule will slip by another six months. The American Medical Association as well as 112 other health organizations are pressing the government to delay the launch until March 31, 2015. They cite an overly complex registration process – made up of more than 20 individual steps that require a doctor to register over a period of several days in order to see their data – as one reason why the government should hold off.” (FOX News, 8.31.14)

Medicare Benefits

General Resources

One Response to ACA and Medicare

  1. Pingback: Obamacare: Right Diagnosis, Wrong Prescription | Peace and Freedom

Leave a Reply

Your email address will not be published. Required fields are marked *