President Biden’s State of the Union address had a very interesting back and forth concerning either party’s willingness to cut Social Security (SS) and Medicare. The President accused the Republicans of planning to cut these important programs and some in the audience said he was misinformed (OK, some called him a liar). In the end the President determined that neither Republicans nor Democrats would cut these programs. Unfortunately, it seems that neither side is convinced the subject is dead.
While the President is still talking about the Republicans cutting SS and Medicare, he hasn’t identified any direct planning documents or legislation that indicates the Republicans have some concrete plans. On the other hand, the Centers for Medicare & Medicaid Services (CMS) has introduced some proposed rules, that the Biden administration supports, that will cut Medicare beginning next year. Those cuts on will lower the benefits or raise the premiums on almost half of the Medicare recipients. My focus here isn’t on Democrats or Republicans – it’s on Medicare cuts that will affect older Americans in 2024.
We need to have some basic understanding going forward to really understand what this means. As we all know, Medicare is available to everyone over 65 but each of us has a choice on how we will receive those benefits. We can sign up to traditional Fee-for-Service Medicare and, if we choose and pay a premium to enroll in supplementary insurance that will reduce our out-of-pocket costs, or, we can sign up for Medicare Advantage, which is another way to receive our Medicare benefits. The point is, Medicare Advantage is Medicare. If you are cutting Medicare Advantage, you are cutting Medicare.
Bear with me while I explain how Medicare Advantage operates. CMS has authorized private insurance companies to assume the responsibility for covering all the Medicare benefits for seniors, and this is called Medicare Advantage (MA), or sometimes called Medicare Part C. The government pays the insurance company a set amount for providing these benefits. This set amount is determined by determining the average cost for each beneficiary under traditional Medicare and then the insurance companies make competitive bids on what they will charge to provide coverage. This year the average bid was 83% of the traditional Medicare cost. The MA insurance company then will get a rebate of the difference, 17% in this case, to use for added benefits or lower premiums. As you know, there is a lot of competition during the open enrollment season to sign you up to a MA program. This competition has led to some added benefits and low premiums to the extent that almost half of the Medicare eligible seniors have chosen Medicare Advantage.
It’s important to note some important points concerning Medicare Advantage:
- An estimated 52% of MA beneficiaries live on an annual income of less than $25,000, compared to 38% of fee-for-service Medicare beneficiaries.
- Almost 34% of MA beneficiaries are minorities, compared to 16% of traditional Medicare.
- A larger percentage of Latino and black beneficiaries choose MA than the white population.
- MA beneficiaries with prediabetes were diagnosed nearly 5 months earlier than traditional Medicare.
I’m not here to sell Medicare Advantage. MA isn’t for everyone, but, as you can see, MA serves an important segment of older Americans, and it is Medicare for almost half of America’s seniors and shouldn’t be subject to cuts.
These cuts will come in a few different ways. One of these is a series of complicated changes in the payment model which will, in the end, reduce the rebate the insurance companies get for charging less than traditional Medicare. Since these rebates are used for added benefits, like gym memberships and dental coverage and/or a reduction in premiums, there will be pressure on the insurance companies to reduce benefits and/or raise premiums. One study estimates the proposed rules will result on average in a 10 to 15% reduction in payments to providers. A different third-party study estimated that these proposed rebate cuts will reduce benefits by $45 a month per beneficiary. When you multiply this by the 30 million seniors that rely on Medicare Advantage you begin to see the impact these cuts will have.
Another way this proposed rule cuts MA is CMS’s proposed elimination of approximately 2,300 diagnostic codes which will have a significant impact on vulnerable populations suffering from diabetes mellitus and their associated complications, rheumatoid arthritis, and depressive disorders. One of the codes eliminated is Peripheral Vascular Disease, which impacts 12-20% of Americans over 60 (8.5M). If not detected and managed early, patients would suffer increased pharmaceutical expenses, specialist costs, hospitalizations, and undesirable patient experience, all of which could easily be prevented. This is just one of the codes to be eliminated. While some health plans may not use these cuts and they and their beneficiaries may not be impacted, the health plans that most beneficiaries have will be negatively impacted.
There is one other thing that bothers me a lot about these proposed cuts. Most of the talk about SS and Medicare cuts had to do with proposed legislation that would go through the normal subcommittee and committee hearings with the input of stakeholders and the checks and balances of passing legislation. The cuts proposed by CMS, with the Biden administration’s blessings, will not be governed by any of these checks and balances and, if not stopped, will happen in 10 months.
The proposed rule will cut rebates for beneficiaries and eliminate payment for 2,300 diagnostic codes, impacting the vulnerable population that the Administration claims to care most about, all with a stroke of a pen and without any legislation. It’s not right and it’s not fair
In the past I have fought when they proposed cuts to traditional Medicare, and I will continue to fight to stop the cuts to Medicare Advantage. These are lifesaving benefits for older Americans that should be strengthened, not cut.
In my last blog I talked about the best ways to contact your Members of Congress and provided some links to make it easy. Go to the blog and see how to best let your voice be heard. Take the time to tell those who represent you in Washington that you don’t want them to cut Medicare.