After 17 “doc fix” patches in the past 11 years, Congress finally passed a bill to replace a broken payment system and reform the way Medicare pays its doctors. In the past, these “doc fixes” were required to prevent steep annual cuts resulting from the Sustainable Growth Rate (SGR) formula used for doctors’ payment rates. This SGR formula has never worked well and Congress scrambled each time to temporarily avert steep cuts with a “doc fix” bill. This year’s payment cut was slated to be 21%. By signing a deal (H.R.2) in the final hours on April 14, 2015, however, Congress averted the cut by changing the way doctors get paid. Moving forward, H.R.2 replaces the SGR formula with some modest payment increases for doctors during the next 5 years while Medicare transitions to a new payment system based on rewarding quality, value, and accountability.
This is good news for doctors as it ensures a stable payment system that doesn’t need to be “fixed” each year. It will likely encourage doctors to join and stay in the Medicare program, which will also be a plus for beneficiaries. Provisions in the new law include extending the exceptions process for the cap on Medicare therapy services for another 2 years, and prohibiting the use of Social Security numbers on Medicare cards to reduce fraud and abuse. The bad news, however, is that beneficiaries are expected to foot a large part of the bill for these changes through higher deductibles, premium payments, and other costs. Below are a few highlights of this new law with some resources for more information.
Qualified Individual (QI) program is now permanent
The new law makes the Qualified Individual (QI) program permanent. This is a victory for low-income beneficiaries, as this program has just been kept alive through periodic extensions. By making the program permanent, Congress removes the uncertainty on whether low-income beneficiaries will get help paying the Part B premium.
No more Social Security numbers on Medicare cards
H.R. 2 provides $320 million in funding to remove Social Security numbers from beneficiaries’ Medicare cards and come up with a new numbering system within the next 4 years. This change comes after several years of the Government Accountability Office recommending Social Security numbers be eliminated from Medicare cards to help protect beneficiaries from ID theft and fraud.
Exceptions process for Medicare therapy caps extended 2 years
The new law provides for extending the Medicare therapy cap exceptions process for another 2 years. Caps on therapy services became effective in January 2006, and, in March 2006, Medicare implemented an exceptions process. Congress has extended the exceptions process since but has not eliminated the caps or made the exceptions process permanent.
How the new law affects beneficiary costs
The new law is estimated to cost $210 billion over 10 years but Congress approved to offset or pay for only $70 billion; beneficiaries will pay approximately half this cost, or $35 billion. One way beneficiaries will pay this cost is through increased Part B premiums. Over the next 8 years, the standard Part B premium is projected to increase from $104.90 to $156.20, a difference of over $50. This is a sharp increase compared to the previous 8 years where the Part B premium only increased by $11.40.1
Higher Part B & D premiums for higher income beneficiaries
In addition to steep increases in the standard Part B premium, Medicare beneficiaries with higher incomes will pay even more for their Part B and D premiums than they do today. Starting in 2018, individuals with annual incomes of $133,501 to $160,000 (for couples, annual income from$267,001 to $320,000) will pay 65% of program costs for their Part B and D premiums instead of the 50% they currently pay. Individuals with annual incomes of $160,001 and above (couples $320,001 and above) will pay 80% of program costs for their Part B and D premiums.
Restrictions on Medigap policy benefits
Besides paying higher premiums, Medicare beneficiaries will be expected to pay the annual Part B deductible instead of buying a Medigap to cover it. Approximately 23% or almost 12 million Medicare beneficiaries have a Medigap policy, which supplements Original Medicare. There are 10 Medigap plans to choose from, ranging from coverage of basic benefits (Medigap Plan A) to more comprehensive benefits. Two Medigap plans, C and F, cover the annual Part B deductible. H.R.2 changes this by prohibiting Medigap policies from covering the Part B deductible for new beneficiaries beginning in 2020, and requiring those beneficiaries to pay it directly.
Effective January 1, 2020, any newly eligible Medicare beneficiary will not be able to buy Medigap plans C or F with Part B deductible coverage. They also won’t be able to purchase plans C or F as part of a guaranteed issue right. Instead they can choose plans D or G that don’t cover the Part B deductible. People who are eligible for or enrolled in Medicare before January 1, 2020, however, will still be able to purchase plans C and F with that first dollar benefit, and will be able to purchase C or F as part of their guaranteed issue right.
When Eligible for Medicare?
|Before January 1, 2020||After January 1, 2020|
The change is based on the belief that if beneficiaries have to pay upfront and out-of-pocket for the first services they receive in a year, they would be less likely to get medically unnecessary care and thus save Medicare money. Yet this is a mistaken belief. Ample research shows that when people delay or forgo needed early care because they have to pay out-of-pocket, it usually results in the use of higher cost acute care down the road (thus eliminating any savings to Medicare).
Medicare determines if services received are medically necessary, and pays its share only when they are and applies the Part B deductible if it has not been previously satisfied. If the services are not medically necessary then Medicare won’t pay, the cost will not be applied to the deductible, and the beneficiary will owe the entire amount. A Medigap policy pays only after Medicare has approved payment, and then only for services covered by that plan, such as the Part B deductible. Beginning in 2020 Medigap policies will not be able to pay the Part B deductible for anyone who is eligible for Medicare in 2020 or later, and those beneficiaries will pay the full cost of the Part B deductible.
California, which has generous consumer protection standards regarding Medigap policies, is required to adopt these federal changes into state law. California Health Advocates will continue to monitor this process and advocate for enhanced consumer protections on behalf of Medicare beneficiaries.
The era of the SGR that never worked (1997-2015) is now in the past, replaced by a new system for doctor payment. A large part of the costs, however, is shifted to beneficiaries and these costs outweigh the benefits they receive.
Below are some links to additional information on the new law and the upcoming changes to Medigaps.
- Here’s a link to the text of this bill: H.R.2 – Medicare Access and CHIP Reauthorization Act of 2015
- Kaiser Family Foundation’s summary of H.R.2: FAQ: Congress Passes A Bill To Fix Medicare’s Doctor Payments. What’s In It?
- Article by Bonnie Burns discussing Medigap facts and the flawed assumption that increasing Medicare beneficiaries out-of-pocket costs will save money and reduce “unnecessary” care.
- A Kaiser Family Foundation article on who uses first-dollar coverage in Medigaps: Medigap Enrollment Among New Medicare Beneficiaries: How many 65-year olds enroll in plans with first-dollar coverage?
- Background information on Medicare’s doc fixes and the SGR. May The Era Of Medicare’s Doc Fix (1997-2015) Rest In Peace. Now What?