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April 17 2015

Medicare Reforms Become Law

Hadley Heath

This week the Senate passed and the President signed a piece of legislation nicknamed H.R. 2 or “MACRA.” That stands for Medicare Access and CHIP Reauthorization Act. In the alphabet soup that is healthcare policy, “CHIP” stands for Children’s Health Insurance Program.

It’s important to understand that Medicare today faces a dire financial outlook. Many of the reforms in the new law are aimed at controlling costs and preserving Medicare for future generations. But this law, although passed with bipartisan support, has drawn significant criticism. Here are some notes on the major changes included in the latest Medicare reform: MACRA…

Permanently repeals the Sustainable Growth Rate (SGR) – Since 1997, there’s been a formula in place that determines how much doctors will be paid for Medicare reimbursement. This formula, although law, has been avoided most years through a Congressional action nicknamed the “doc fix.” Doc fixes have allowed Medicare spending to continue to grow above the Sustainable Growth Rate formula, rendering the formula useless for containing Medicare’s costs. Since the formula wasn’t really serving its purpose, and since it also comes with some other downsides, repealing it is a victory for budget transparency and will put an end to the “doc fix” charade.

Introduces means testing to Medicare – This new law will require the wealthiest seniors to pay more for their own health care. Over time, this provision will affect more and more people because of inflation. Asking Americans to share in their Medicare costs can be controversial. Many people feel that because they’ve paid into Medicare during the course of their working years, they deserve to get those resources back through health care in old age. But Medicare serves all seniors, regardless of how much they’ve paid in over the years, and on average Medicare is paying out $3 in benefits for every $1 that seniors paid in.

Prohibits first-dollar coverage in Medigap plans – Some seniors use what’s called a Medigap plan to help them cover expenses that Medicare doesn’t. The new law prohibits those plans from offering first-dollar coverage. Again, this is intended to get Medicare patients to use more of their own dollars through more cost sharing. While it doesn’t make sense from a conservative perspective to add to the regulation of health plans, this regulation limits how government funds can be used. So since it’s a limitation on government, many conservatives approve of it. Again, this is the result of government's over-involvement in the healthcare sector. 

Expands CHIP – The law includes two years of funding for the Children’s Health Insurance Program. This of course represents an expansion of government and a metastasizing of ObamaCare.

Changes the way doctors are paid – Anyone with a pocket copy of the Constitution might fairly ask what business the federal government has paying any doctor anything. It shouldn’t be the role of the government to employ doctors or provide for the health care of seniors or anyone else, but since 1965 and the creation of Medicare, Uncle Sam has been reimbursing docs through this single-payer program. This means the government must determine: How should doctors be reimbursed? So far, Medicare has worked on a “fee-for-service” basis, paying doctors in proportion to the volume of services they performed for Medicare patients. This means that when a doctor performs more tests, treatments, appointments, and so forth, he gets paid more. Obviously, this creates bad incentives, encouraging doctors to unnecessarily over-treat Medicare patients. Not only is this expensive, it can also be unhealthy. However, the new law puts into place an even worse idea: MIPS, or a “merit-based incentive payment system.” This “fee-for-value” payment system will attempt to pay doctors according to health outcomes (I think this is similar to paying teachers according to test scores). While of course we want doctors to work toward the best outcomes for their patients, we should also understand that doctors don’t have full control over outcomes. Patients have a responsibility too, to take their drugs and show up to their appointments, etc. And paying doctors for better health outcomes could discourage them from seeing patients who are especially sick or don’t face a good prognosis.

In summary: some good, some bad, some ugly. Keeping in mind that part of the goal was to improve Medicare’s long-term fiscal situation, the law may very well have achieved that. The permanent repeal of the SGR is a victory, too. Taken together, MACRA is a mixed bag… That’s often the result of a bipartisan compromise.

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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