Just when you thought bipartisan legislation was a thing of the past, Congress pulled a surprise this spring by passing the most significant reform to Medicare in years. The so-called "doc fix" law makes several important improvements to Medicare, but it also comes with some costs to seniors.
The law fixes a federal formula for paying physicians called the Sustainable Growth Rate, or SGR. When the SGR became law in 1997, the intent was to keep the growth in payments to doctors in line with the economy's overall growth. But with a recession and a sluggish economy it's been a thorn in the side of doctors, who often have faced the prospect of draconian cuts. For example, absent the reform legislation, payment rates would have been slashed 21 percent. Congress often has passed temporary one-year repair reimbursements, which came to be known in Washington as the "doc fix."
The new reforms are set to be phased in over a period of years, so it's worth understanding them if you're already signed up for Medicare, or will be enrolling during the next decade.
The new legislation improves Medicare in several ways:
Replaces the SGR with a formula that rewards doctors who meet certain government standards for providing high quality, cost-effective care. The new formula aims to move Medicare away from rewarding doctors for the quantity of services they provide.
Addresses concerns about Medicare beneficiaries' access to physicians. The fear has been that doctors would simply become tired of the ongoing threat of reduced payments and stop accepting Medicare patients.
Makes permanent a 100 percent subsidy of Part B premiums for certain low-income Medicare beneficiaries (the "Qualifying Individual" program). This program covers the Part B premium for beneficiaries with incomes from 120 percent to 135 percent of the federal poverty guidelines.
But changes in the law also exposes Medicare beneficiaries to higher costs in three ways.
Some supplemental coverage will be cut. Most Medicare enrollees have added coverage that limits the program's cost-sharing requirements. According to the Kaiser Family Foundation, 23 percent of all Medicare enrollees buy private Medigap policies; 35 percent have employer or union-sponsored supplemental coverage; and Medicaid augments Medicare coverage for low-income seniors (19 percent).
Under the doc fix law, Medigap plans will no longer cover the annual Part B deductible for new enrollees ($147 this year). That will mean changes for Medigap "C" and "F" plans, the two most popular plan choices and the only ones that cover Part B deductibles. Starting in 2020, seniors would have to pay it themselves. Current Medigap policyholders and new enrollees up to 2020 would be protected. First-dollar coverage from employers and Medicaid are unaffected.
The goal is to give seniors more "skin in the game," which conservatives have long argued would lower costs by making patients think twice about using medical services if they know they must pay something for all services they use.
High-income premium surcharges rise. Affluent Medicare enrollees already pay more for the program; individuals with modified adjusted gross income (MAGI) starting at $85,000 ($170,000 for joint filers) pay a higher share of the government's full cost of coverage in Medicare Part B and Part D for prescription drug insurance. This year, for example, seniors with incomes at or below $85,0000 pay $104.90 per month in Part B premiums, but higher-income seniors pay from $146.90 to $335.70.
Starting in 2018, the new plan will shift a higher percentage of costs to Medicare beneficiaries with higher MAGI of $133,500 to $214,000 (twice that for couples). Those with incomes of $133,000 to $160,000 are to pay 65 percent of total premium costs, rather than 50 percent today, and those with incomes of $160,000 to $214,000 will pay 80 percent, rather than today's 65 percent.
Higher Part B premiums for all. Under current law, enrollee premiums must cover 25 percent of Medicare Part B costs. Since the doc fix will increase overall program costs, there will be an impact spread across the entire base of Part B enrollees. Notably, the Congressional Budget Office had already forecast that the Part B premium would soar from $104.09 this year to $171 in 2025 without the impact of the doc fix. The budget office says the legislation will add another $10 onto Part B premiums in 2025, for a total of $181.
Mark Miller edits and publishes RetirementRevised.com. His column is distributed by 50+ Digital, LLC.