Health Reform and Medicare: Overview of Key Provisions

1. Tricia Neuman Vice President and Director, Medicare Policy Project Kaiser Family Foundation For The Alliance for Health Reform Washington DC May 7, 2010 Health Reform and Medicare:Overview of Key Provisions

2. Medicare’s Role • Medicare covers 47 million Medicare beneficiaries • 39 million seniors; 8 million under-65 disabled • 47 percent live on an income below 200% poverty • 29 percent in fair/poor health • Medicare is a critical part of policy discussions related to the federal budget • 12 percent of federal spending • Medicare is a major player in the US health care system • 23 percent of national personal health care spending • Though not initially a primary focus, Medicare played a key role in 2010 health reform law

3. Key Medicare Provisions in 2010 Health Reform Law • Improvements • Gradually closes Medicare prescription drug coverage gap (“doughnut hole”) • Provides new annual wellness visit with personalized prevention plan • Eliminates cost-sharing for prevention services • Boosts payments for primary care • Medicare Savings • Reduces payments to Medicare Advantage plans • Reduces payments for hospitals and other medical providers • Creates new Independent Payment Advisory Board • Delivery system reforms • New Center for Medicare and Medicaid Innovations • New Coordinated Health Care Office within CMS for dual eligibles • Numerous programs, pilots, demonstrations to improve quality and efficiency • New revenues • Income-related premiums • Increase in payroll tax

4. Gradually Closes the Medicare Part D Coverage Gap or “Doughnut Hole” Key Facts • More than half of all Medicare beneficiaries are in Part D plans • 3.4 million had spending in the gap in 2007 • The gap in 2010 is $3,610 out-of-pocket; enrollees pay 100% in gap Health Reform • $250 rebate for Part D enrollees with any spending in the gap in 2010 • Beginning 2011, 50% discount on brand-name drugs • In addition, Medicare coverage for generic drugs in the gap phases in • Beginning 2013, Medicare coverage for brand-name drugs in the gap phases in • By 2020, Part D enrollees pay 25% until they qualify for catastrophic coverage • Catastrophic threshold reduced, 2014 - 2019

5. 5% paid by enrollee 15% paid by plan; 80% paid by Medicare 15% paid by plan; 80% paid by Medicare 100% paid by enrollee 75% paid by plan 75% paid by plan 25% paid by enrollee 25% paid by enrollee 100% paid by enrollee 100% paid by enrollee Standard Medicare Prescription Drug Benefit, 2020Before and After Health Reform Before: After: Catastrophic coverage Brands: 50% discount25% paid by plan Generics: 75% paid by plan 25% paid by enrollee Coverage gap Initial coverage limit Deductible SOURCE: Kaiser Family Foundation illustration of standard Medicare drug benefit in 2020 under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010.

6. Reduces Medicare spending, with savings from Medicare Advantage plans, health care providers and other sources Gross Medicare Savings = $533 billion, 2010-2019 NOTE: * Includes interactions with Medicare Advantage and TRICARE. SOURCE: Congressional Budget Office (CBO), March 20, 2010.

7. Medicare Advantage Provisions Key Facts • 24% of Medicare beneficiaries now in Medicare Advantage (MA) plans • Medicare pays more for beneficiaries in MA plans than in the traditional program • Higher payments to MA plans allow for some extra benefits, but increases Medicare spending, contribute to solvency problems, and increase Part B premiums for all beneficiaries Health reform • Reduces payments to plans • Freezes benchmarks (maximum Medicare payment per county) for 2011; phases in reductions in payments to align more with fee-for-service costs in county • Reduces share of rebate retained by plan from 75% to 50% for most plans (2012) • Adjusts risk scores for coding • Begins to reward plans based on quality ratings (2012) • Consumer Protections • Limits cost-sharing for certain Medicare-covered services (2011) • Establishes new loss ratios requirements for plans (2014)

8. Establishes New Independent Payment Advisory Board • New board with 15 full-time members, appointed by President, confirmed by Senate, with first set of recommendations due 2014 • Board submits proposals if growth rates exceed targets of the 5-year average of CPI-U and CPI-M (before 2018) and per capita nominal GDP+1 percent (beginning 2018) • Creates formula for required Medicare savings if spending exceeds target, the lesser of • the amount by which projected Medicare per capita costs exceeds the spending target, or • 0.5 % of total projected Medicare spending in 2015, rising to 1.5 % in 2018 and future years • Secretary implements Board’s proposal unless Congress enacts alternative with equivalent savings • New procedures and timeline for Congressional consideration of proposals • Secretary submits proposal to implement savings if Board fails to do so • Board proposals cannot ration care, reduce benefits, increase cost-sharing, modify benefits, eligibility, or premiums, raise taxes, or before 2020 reduce payments for certain providers

9. Related Revenue Sources • Freezes income threshold for Part B premium at $85,000/individuals and $170,000/couples, rather than index for inflation, effective 2011 • Establishes a new income-related Part D premium, with same income thresholds set for Part B, effective 2011 • Increases the Medicare Part A tax rate by 0.9% from 1.45% to 2.35% on earnings over $200,000/individuals and $250,000/couples, effective 2013 • Eliminates tax deduction for employers receiving the Part D retiree drug subsidy, effective January 1, 2013

10. 2010 health reform law is projected to reduce the future growth in Medicare spending, 2010-2019 Medicare Baseline Spending(in $ billions) • Average annual growth rate, 2010-2019: • Baseline Medicare Spending: 6.8 percent • Spending after health reform: 5.5 percent Baseline Medicare Spending Medicare Spending AFTER Health Reform NOTE: Estimates do not take into account future changes to the Sustainable Growth Rate formula to prevent reduction in fees.SOURCE: Medicare Baseline Spending before reform from CBO, March 2009 Baseline: MEDICARE; after reform from Kaiser Family Foundation analysis of CBO cost estimates of health reform legislation, March 20, 2010.

11. Future Challenges • Maintaining and improving access to care, and quality of care, in the face of pressure to constrain the growth in Medicare spending • Assuring health care is affordable for people on Medicare, particularly those with modest incomes and serious health needs • Assessing implications of health reform for people on Medicare relative to those who will be getting health insurance and subsidies through the exchange and/or Medicaid ******* For additional information about health reform and Medicare visit www.kff.org