ACA Impact on Medicare Expenditures

VII. Key Issues: Regulation & Reform >> C. Health Reform >> Affordable Care Act (ACA) >> ACA Impact Analysis >> ACA Impact on Costs (last updated 12.24.15)


Impact on Aggregate Medicare Expenditures

Medicare Trustees Reports

The Boards of Trustees for Medicare (also Boards) report annually to the Congress on the financial operations and actuarial status of the program, including 75-year projections of expenditures. Beginning in 2002, there is one combined report discussing both the Hospital Insurance program (Medicare Part A) and the Supplementary Medical Insurance program (Medicare Part B and Prescription Drug Coverage). The Office of the Actuary in the Centers for Medicare & Medicaid Services (CMS) prepares the report under the direction of the Boards. 2013 Medicare Trustees Report [PDF, 2MB]

CMS, Office of the Actuary 

  • Illustrative Alternative Scenario. In the 2013 Annual Reports of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, the Board warns that “the actual future costs for Medicare are likely to exceed those shown by the current-law projections in this report.” The purpose of this memorandum is to help illustrate and quantify these potentially higher costs.
  • CMS, Office of the Actuary. IPAB Determination. Section 1899A of the Social Security Act requires the Chief Actuary of the Centers for Medicare & Medicaid Services (CMS) to determine by April 30, 2013, and annually thereafter, whether the projected 5-year average growth in per capita Medicare program spending exceeds a specified target. See downloads below for the annual determinations to the Independent Payment Advisory Board (IPAB).May 31, 2013 (based on 2013 Medicare Trustees report)
  • Technical Panel. The annual reports of the Medicare Boards of Trustees to Congress represent the Federal government’s official evaluation of the financial status of the Medicare Program. The actuarial projections contained in these reports are based on numerous assumptions regarding future trends in program enrollment, utilization and costs of health care services covered by Medicare, and other factors affecting program expenditures. In addition, the methods used to estimate future costs, based on these assumptions, are complex. These assumptions and methods are subject to periodic review by independent experts to ensure their validity and reasonableness.2010-2011 Medicare Technical Review Panel. 2010-2011 Technical panel report [PDF, 684KB] (December, 2012)

Impact on Medicare Part D Expenditures

  • Holtz-Eakin, Douglas and Angela BootheCMS Rulemaking and Medicare Part D: Stifling Innovation, Limiting Access, and Decreasing Quality. American Action Forum (February 6, 2014). New proposed regulations, entitled Medicare Program: Contract Year 2015 Policy and Technical Changes to Medicare Advantage and Medicare Part D, alter the current structure of the program and thus jeopardize its success and quality. The proposed rule could result in increased premium and copayment costs, decreased continuity of care for beneficiaries as well as fewer participating pharmacies. The report cites three principal reasons this rule will drive up cost by interfering with plans’ abilities to negotiate prices:
    • Interpreting the statutory non-interference clause. For the first time, CMS has interpreted statutory non-interference in the Part D program. Through this proposed regulation, CMS’ interpretation allows for federal interference in negotiations between Part D plans and provider pharmacies. Interfering in plan negotiations places the issuers at decreased risk, reducing their incentive to control plan costs and limits plan innovation in cost sharing and benefit packages.
    • Limiting the number of bids per PDP Issuer. The regulation adds requirements limiting the number of plans that can be offered in one of the given 34 regions. All issuers are limited to offering one plan that only contains the standard benefits and another plan that offers enhanced benefits. Limiting the number of plans per firm to two restricts beneficiary options which will inevitably increase the costs in all regions.
    • Creating uncertainty for 2015. Finally, the new Part D regulation impacts insurance plan markets by creating uncertainty and instability in the 2015 plan year. In order to protect their organizations, issuers will provide fewer options for beneficiaries at higher rates due to the plans’ inabilities to predict costs in the 2015 market.
  • The People’s Pharmacy. (12.24.15) Medicare Struggles to Pay Soaring Drug Bills. “The Center for Medicare and Medicaid Services (CMS) has tagged five drugs that have greatly raised costs on the Medicare Part D drug benefit. While some very expensive brand-name drugs are understandably problematic, there are also many generic drugs that are causing budgetary woes…Medicare spending on prescription drugs rose nearly 17% in 2014, far more than the rate of inflation. Other drugs with steep price increases include very old generic medicines captopril for high blood pressure and digoxin for heart conditions. The injectable form of vitamin B12, cyanocobalamin, went up 78%…The inexorable and exorbitant rise in prescription drug prices has been apparent for about the past five years. And the pace seems to be accelerating. While the pharmaceutical industry often justifies high drug prices by the need to invest in research and development, many of the medications with soaring prices are very old compounds with costs that were amortized long ago.”


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