Medicare, the government health insurance plan for Americans aged 65 and older and younger people with disabilities, covers nearly 47 million people. It is an expensive program, and with more Americans living longer and millions of baby boomers about to turn 65, the program is expected to grow, covering as many as 80 million people by the year 2030.
At the current rate of spending, officials estimate that Medicare’s Part A trust fund, which mostly pays for hospital care, will be unable to cover 100% of hospital insurance costs by 2024. So, something needs to be done. Here are some of the proposals on the table.
Cutting costs to save money
The health reform law, also known as the Affordable Care Act, includes a number of programs to reduce growth of Medicare spending by $716 billion:
- Reduce overpayments to private Medicare Advantage plans. Medicare Advantage plans were being paid 9%-13% more than the traditional Medicare program to provide the same coverage. This is expected to save the Medicare program about $130 billion over 10 years.
- Reduce future payments to health care providers. The law reduces future payment increases to health care providers, including hospitals, skilled nursing facilities, and home health agencies, by changing the way payment updates are calculated.
- Create new health care organizations for better care. Deliver more coordinated, higher-quality care at lower costs.
- Link quality to pay. Value-based purchasing is a new Medicare program that reimburses health care providers based on the cost and quality of care delivered, rather than the volume of care provided.
- Reduce fraud and abuse. The law gives the government greater authority to identify and prosecute for costly fraud and abuse, which the Institute of Medicine estimates costs about $75 billion each year.
- Require drug and insurance companies to contribute. Medicare beneficiaries have already seen lower costs as a result of this when they enter the gap in Medicare Part D known as the donut hole, which is scheduled to close by the year 2020.
Increase Medicare taxes for high-wage earners
Starting in 2013, workers earning more than $200,000, or joint filers making $250,000 or more per year, pay higher Medicare hospital insurance taxes. The new tax is 2.35%, an increase of less than 1%. Only earnings above the threshold ($200,000 and $250,000) will be taxed.
In 2013, the law also requires high-income taxpayers to pay a new Medicare tax of 3.8% on investment income, such as capital gains, dividends, and interest.
Together, these new taxes are expected to raise about $210 billion over a 10-year period.
Alternatives to the Affordable Care Act
- Raise the Eligibility Age. To save money, raise the age seniors are eligible for Medicare from 65 to 67 by the year 2034.
- Change How Medicare Operates. Offer seniors “premium support,” which is also referred to as vouchers. These would provide a set amount of money each year to help cover the cost of either a private plan or traditional Medicare. How much each person receives will depend upon their income. Private Medicare plans would be required to provide the same level of benefits as traditional Medicare, and the traditional Medicare program will be strengthened so that it can compete in the new marketplace. These changes would take effect starting in 2022, and would not impact anyone currently aged 55 or older.
- Cap annual growth. Starting in 2023, cap growth of Medicare costs at 1% over Gross Domestic Product, plus inflation.
- Aid According to Income. Seniors with lower incomes and greater health care risks would receive more financial support under this plan. Wealthier individuals would receive less support. The plan has not yet included details about various income levels and the amount of assistance associated with each.