How the Affordable Care Act Impacts Medicare

Many people are unclear about the differences between Medicare and Medicaid. The implementation of the Affordable Care Act (ACA) elicits even more questions. In this blog post, the first of two in a series on the Affordable Care Act, we will explain the origins and operations of Medicare, and how it is impacted by the ACA. Special guest appearance by a typically resolute and foul-mouthed LBJ.

A sample Medicare card.
A sample Medicare card.

Medicare is a health insurance program for adults over age 65 who have paid into Social Security, and other adults who are disabled, including those adjudicated disabled under Social Security Disability Income (SSDI) guidelines, and those who suffer from certain medical conditions such as end stage renal disease (kidney failure) and ALS (Lou Gehrig’s disease). At present, there are more than 40 million Medicare recipients over 65, and more than 8 million younger individuals who receive Medicare based upon a disability.

Medicare began in 1965, when President Lyndon Johnson signed it into law as Title XVIII of the Social Security Act. (As we’ll review later this month, Title XVIII also created Medicaid as the country’s first national health insurance program for the poor.)

As a former Senator who knew a few things about using political leverage to pass legislation, LBJ made passage of Medicare (and Medicaid) a top policy priority. In typical Johnsonian fashion- i.e., with much more colorful language than we’ll post here, he promised that he’d spend the federal government’s money to make Medicare a reality. (LBJ fans can hear his words and the larger story of his push to enact Medicare and Medicaid in this video.)

Before Medicare, more than a third of U.S. seniors age 65 or older were uninsured, in large part because health insurance premiums were often more than three times greater for seniors than for younger Americans. From the outset, Medicare payments to healthcare providers were conditional upon desegregation, making Medicare a driving force behind the desegregation of healthcare, especially in the South.

Medicare’s current offerings are as follows:

Medicare Part A provides coverage for hospital visits (up to 90 days per “benefit period”, plus 60 lifetime reserve days. Part A will also pay for up to 100 days of skilled nursing facility care if preceded by a hospital stay of at least three days not on observation status. Part A also pays for home health care, hospice, and inpatient psychiatric care. All Medicare beneficiaries receive Part A coverage.

Medicare Part B covers visits to physicians, durable medical equipment (like wheelchairs and oxygen tanks), outpatient hospital and mental health services and outpatient physical, speech, and occupational therapy, clinical lab work, preventive screenings including colonoscopies, mammograms, and cancer screenings, and home health care when not preceded by a three-day hospital stay or when over the 100 day Part A limit.

Medicare Part D enables beneficiaries to receive discounted prescription medication by enrolling in any of dozens of prescription drug plans (PDPs) sold by private insurers. After Medicare recipients and their drug plans have spent a certain amount of money on prescription drugs (in 2014, $2850), the recipient is in the coverage gap or “donut hole”.

Anyone who has ever worked with a senior who takes many prescription medications (or expensive ones, or both) knows that the months a senior is in the “donut hole” of the coverage gap can be very expensive, even budget-breaking, as the senior must pay a certain percentage (in 2014, 47.5%) of prescription drug costs until spending a certain amount (in 2014, $4550). At this high amount, “catastrophic coverage” begins and the beneficiary once again only pays a small coinsurance or copayment for drugs.

Approximately 1 in 5 Medicare beneficiaries are also enrolled in Medigap policies- private insurance policies that cover some or all of the out-of-pocket expenses that Medicare Parts A and B do not cover. Another 12-15 million seniors each year opt not for the “Original Medicare” of Medicare-funded Parts A and B at all, but rather for Medicare Advantage plans in which private insurers, not Medicare, pay for access to inpatient and outpatient healthcare.

The passage of the Affordable Care Act (ACA) on March 23, 2010 has ushered in many changes to Medicare’s offerings.

Medicare isn’t part of the Health Insurance Marketplace established by ACA, so Medicare beneficiaries don’t have to replace their Medicare coverage with Marketplace coverage. No matter how they get Medicare, whether through Original Medicare (Medicare Parts A and B) or a Medicare Advantage Plan (a private insurance plan that replaces Parts A and B), seniors will still have the same benefits and security they had before ACA. So what changes does the ACA make to Medicare?

1. Medicare recipients get more preventive services, for less. Medicare now covers certain preventive services, like mammograms or colonoscopies, without charging beneficiaries for the Part B coinsurance or deductible. Beneficiaries continue to receive their free yearly “wellness” visit.

2. Medicare recipients can save money on brand-name drugs. As of 2011, Medicare recipients in the donut hole have received a 50% discount when buying Part D-covered brand-name prescription drugs. The discount is applied automatically at the pharmacy. Under the ACA, the donut hole will be closed completely by 2020, and replaced with a flat 25% copay for both brand name and generic prescription drugs.

3. Doctors get more support. With ACA’s new initiatives to support care coordination, doctors can get additional resources to make sure that treatments are consistent. One way physicians can earn this money is to work with other doctors as a team of primary care and specialist physicians focused on preventive care. With improved communication, many more seniors may be able to stay healthier and out of the hospital.

4. The ACA ensures the protection of Medicare for years to come. The life of the Medicare Trust fund will be extended to at least 2029—a 12-year extension due to reductions in waste, fraud and abuse, and Medicare costs, which will provide Medicare beneficiaries with future savings on premiums and coinsurance.

In our next blog post, we’ll look at the ACA impact upon Medicaid, which is jointly administered by the federal government and states.