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 12.7.17)

Topic Outline

1 Impact on Aggregate Medicare Expenditures
- 1.1 Medicare Trustees Reports
- 1.2 CMS, Office of the Actuary
2 Impact on Medicare Part D Expenditures

Impact on Aggregate Medicare Expenditures

Medicare Trustees Reports

Overview. The annual Trustees reports show that the Medicare Hospital Insurance trust fund gained additional years of solvency with enactment of the ACA (Figure 1). The 2017 report projects that the HI trust will be exhausted by the year 2029 (12 years). The 2009 had projected the trust fund would be exhausted by 2017 (8 years). There are two important caveats to this conclusion:

First, it should be noted that if all Medicare savings attributed to the ACA are credited to Medicare, it means that the ACA itself was underfunded by hundreds of billions of dollars, since those same savings were used to make the claim that the ACA did not increase the deficit. This double-counting problem is described here.
Second, CMS actuaries have cautioned whether the ACA’s Medicare cuts are too aggressive (resulting in red ink and possible bankruptcy for many hospitals and nursing homes). Under an alternative fiscal scenario, the actuaries have projected what would happen if selected provisions were not enforced as stringently. The 2017 AFS report calculates that trust fund insolvency still would occur in 2029, only earlier in the year. However, in the long run, the AFS shows that Medicare spending as a percent of GDP would be roughly 50% higher in 2090 compared to current law (Fig. I.1).

Background. 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. All reports going back to 1970 are located here. The most recent years include links to the report as well as expanded and supplementary tables.

CMS, Office of the Actuary

Illustrative Alternative Scenario. In the 2017 Annual Reports of the Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, the Board warns that there is “substantial uncertainty regarding the adequacy of future Medicare payment rates under current
law.” The Trustees Report is based on current law; as a result of questions regarding the operations of certain Medicare provisions, however, the projections shown in the report under
current law may well understate expenditures for most categories of health care providers. The purpose of this memorandum is to present a Medicare projection under a hypothetical alternative to these provisions to help illustrate and quantify the magnitude of the potential cost understatement under current law.
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)
- April 30, 2013 (based on President’s FY2014 Budget)
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)
- 2010-2011 Medicare Technical Review Panel. Review of the Long Range Assumptions of the Medicare Trustees’ Projections: Interim Report (February 2011).

Impact on Medicare Part D Expenditures

Holtz-Eakin, Douglas and Angela Boothe. CMS 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.”