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How Will the Affordable Care Act

Affect the Elderly and Disabled on


Medicare?

Thomas R. Saving
Director Private Enterprise Research Center
Director,
Texas A&M University
Senior Fellow – National Center for Policy Analysis
Public Trustee – Social Security and Medicare Trust Funds
2000‐2007

Private Enterprise Research Center National Center for


Texas A&M University Policy Analysis
N AT I O N A L C E N T E R F O R P O L I C Y A N A LY S I S

New Health Law Puts Seniors at Risk

The National Center for Policy Analysis says the new health care law enacted last spring will be
devastating for the elderly and the disabled because of draconian cuts in payments to doctors and hospitals.

Unless the law is changed by a future Congress, says the NCPA, Medicare beneficiaries will be pushed
into a separate health care system and will not have the same access to care as the rest of the population.
According to Professor Thomas R. Saving, a former Trustee of Medicare:

• Medicare payment rates will fall below the rates paid by Medicaid (for low-income families) by the
end of this decade and will fall even further behind all other payers in succeeding decades.

• Whereas Medicaid pays about 80 percent of what private insurance pays today, the payment rates
will fall to two-thirds of private payment by the end of this decade and one-half of private payment
by midcentury.

• Just as Medicaid patients must often seek care at community health centers and safety net hospitals
today, seniors could face similar access problems in the near future.

In terms of dollars spent:

• The annual reduction in spending will reach $2,300 per beneficiary by 2020 and $3,844 by 2030.

• By the time today’s teenagers reach the retirement age, one-third of Medicare will effectively
be gone.

Under current law, seniors are generally not allowed to top up what Medicare pays in order to match what
other payers are paying for care. This inability will make them the least preferred patients for providers.
However,

• If seniors are allowed to make up for the cuts in Medicare spending with out-of-pocket payments,
they will need to spend 10 percent of the average Social Security check by 2017.

• Fifty years from now, seniors will need to spend half of their Social Security income to offset the
decline in Medicare spending.

The report says the Affordable Care Act (ObamaCare) led to a huge improvement in Medicare’s finances,
as reflected in the most recent Trustee’s report. But the improvement is made possible by huge cuts in
Medicare benefits for the elderly and the disabled and will materialize only if future Congresses do not
undo those cuts.

www.ncpa.org
Dallas Headquarters: 12770 Coit Road, Suite 800, Dallas, TX 75251
Washington Office: 601 Pennsylvania Avenue NW, Suite 900, South Building, Washington, D.C. 20004
1
Comparing Unfunded Obligations

Private Enterprise Research Center National Center for


Texas A&M University Policy Analysis
2009 and 2010 Trustees Reports Estimates of
Medicare’s 75‐year Unfunded Obligations

2009 2010
Trustees Report Trustees Report Percent
Trillions Trillions Change
Part A $13.77 $2.68 ‐81%
Part B 17.20 12.90 ‐25%
Part D 7.20 7.20 0%

Total $38.17
$ $22.78
$ ‐40%

Sources: Tables III.B9, III.C15 and III.C23, 2009 and 2010 Medicare Trustees Reports.

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2009 and 2010 Trustees Reports Estimates of
Medicare’s Infinite Horizon Unfunded
g
Obligations
2009 2010
Trustees Report Trustees Report Percent
Trillions Trillions Change
Part A $36.72 ‐$0.30 ‐101%
Part B 37.00 21.10 ‐43%
Part D 15.50 15.80 2%

Total $89.22
$ $36.60
$ ‐59%

Sources: Tables III.B10, III.C15 and III.C23, 2009 and 2010 Medicare Trustees Reports.

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Comparing the Annual Flows

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Medicare Spending from the 2010 Trustees
Report as a Percent of Spending from the 2009
Trustees Report 97%
94% 95%
100 91%

90 80%
80
67%
70 59% 56%
60 Part A
43%
50 Part B
40 Part D
30
20
10
0
2020 2050 2080
Sources: Table
bl III.A2. 2009 and
d 2010 Medicare
d Trustees Reports. Percents reflect
fl theh 2010 Report’s
’ shares
h off GDP as
percents of the 2009 estimates.

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Does the Patient Protection and
Affordable Care Act “Bend the
Curve?
Curve?”

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National Health Expenditures (NHE) as a Percent
off GDP
22

Part D NHE % of GDP


(New Law PPACA)
21

Part B NHE % of GDP


ercent of GDP

(Prior Law)
20

19
Pe

18
Part A

17
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Office of the Actuary memorandum
memorandum, “Estimated
Estimated Financial Effects of the ‘Patient
Patient Protection and
Affordable Care Act,’ as Amended,” Richard S. Foster, Chief Actuary, April 22, 2010, Table 5.

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National Health Expenditures
p ((NHE)) p
per capita
p
11500 NHE per capita
(New Law PPACA)
11000
ng 2010$

10500 NHE per capita


(Prior Law)
10000
Per capita spendin

9500

9000

8500

8000

7500

7000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Sources: Office of the Actuary memorandum, “Estimated Financial Effects of the ‘Patient Protection and
Affordable Care Act,’ as Amended,” Richard S. Foster, Chief Actuary, April 22, 2010, Table 5. Population from
NHE Projections 2009‐1019.

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Bending the Medicare “Curve”

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Medicare p
per Beneficiaryy
14000
Medicare per
beneficiary
13000 (Prior Law)
ng 2010$

12000 Medicare per


beneficiary
Per capita spendin

(New Law PPACA)


11000

10000

9000

8000

7000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Sources: Office of the Actuary memorandum
memorandum, “Estimated
Estimated Financial Effects of the ‘Patient
Patient Protection and Affordable Care Act
Act,’
as Amended,” Richard S. Foster, Chief Actuary, April 22, 2010, Table 5 and 2009 Medicare and Social Security Trustees Reports.

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Long‐Run Comparison

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Reduction in Medicare Benefits
Per Beneficiary
2020 2030 2040 2050
0
‐1000
efits Net of

‐2000
‐3000
3000 ‐$2,300
Medicare Bene
miums 2010$

‐4000
‐$3,844
‐5000
Prem

6000
‐6000
Reduction in M

‐7000 ‐$6,396

‐8000
‐9000
‐10000 ‐$9,413

Sources: Medicare benefits are net of premiums and premiums of 25 percent of Part B and D spending are assumed. 2009
Medicare benefits are from and May 1212, 2009
2009, Office of the Actuary memorandum and 2010 benefits are from 2010
Medicare Trustees Report.

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Percent of Social Security Income Required to
Cover the Reduction in Medicare Benefits
70.0
e in Net Medicarre Benefits % off Social Security

60.0

50.0

40.0
Benefits

30.0

20.0

10.0
Change

0.0
2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080
Sources: Table III.A2.
III A2 and A3.
A3 2009 and 2010 Medicare Trustees Reports,
Reports Tables VI.
VI F6 and F10 from 2009 and 2010 Social Security Trustees
Reports, and May 12, 2009, Office of the Actuary memorandum. Social Security income is the income for average new retirees in each year.

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Implications of Spending Reductions

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Medicare Prices as a Percent of Other
Payers
118%
120
100%
100 91%
80%
74%
80
68%
62% Medicare's prices as a % of
60 50% Medicaid
Medicare's Prices as a % of
40 Private Health Insurance

20

0
2010 2019 2030 2050
Source: Derived from Office of the Actuary Memorandum, August 5, 2010, Figure 1.

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Percent of Facilities with Negative Total
M i Aft
Margins After th
the P
Passage off th
the
Affordable Care Act 40%
40

35
25%
30

25
15%
20

15

10

0
2019 2030 2050
Source: Office of the Actuary Memorandum, August 5, 2010.
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I encourage readers to review the
“illustrative
illustrative alternative
alternative” projections
that are based on more sustainable
assumptions for physician and other
Medicare price updates.
Richard S. Foster
Chief Actuary
Actuary, Centers for Medicare and Medicaid
Services, 2010 Medicare Trustees Report

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Comparing Medicare’s Total General Revenue Funding
R i t as P
Requirements Percentst off FFederal
d l IIncome TTaxes
90 2009 Alternative
2009 Trustees Report
80
of Federal Income Taxes

2010 Alternative
70 2010 Trustees Report
60

50

40

30
Percent o

20

10

0
2010 2020 2040 2060 2080
Sources: Table III.A2. 2009 and 2010 Medicare Trustees Reports. Table VI.F4. 2009 and 2010 Social Security Trustees Reports. 2009 Alternative
from May 12, 2009 Office of the Actuary Memorandum, Table 4. 2010 Alternative from August 5, 2010 Office of the Actuary Memorandum, Tables
4 & 5. Part B and
d D Premiums
i assumed
d to be
b 25
2 percent off spending.
di Federal
d l individual
i di id l and
d corporate iincome taxes assumedd to b
be 10.6%
0 % off GDP,
the 50 year average for 1960 to 2009.

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On the One Hand . . .
• Th
The Aff
Affordable
d bl CCare A
Act reduces
d M
Medicare’s
di ’
75 – year unfunded obligations by over 40
percent between the 2009 and 2010 Trustees
Reports.
• For this improvement to occur, net Medicare
benefits per capita are lower in the 2010
Report than in last year’s report.
– In ten years they are 15 percent lower.
– In twenty years they are 21 percent lower.

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On the Other Hand . . .
• Medicare’s Trustees and the Chief Actuary
caution that the estimates in the 2010
Trustees Report are too optimistic and
Medicare’s costs will be higher than
reported.
• Consequently, the current Federal Budget
estimates of deficits, the debt, and annual
interest payments are too optimistic.
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