Medicare Cuts under ObamaCare Will Affect Low-Income Seniors Most

March 12, 2013

Though Republicans are usually responsible for calls to modify or end Medicare, the Obama administration has made the first move in cutting benefits. The administration's cuts will impact the poor the most, says Joseph Antos, the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute.

  • Low-income seniors will see an estimated 7 percent to 8 percent reduction in their Medicare Advantage benefits in 2014.
  • As opposed to traditional Medicare, Medicare Advantage (MA) is provided by private providers and is attractive to lower-income individuals because it is less expensive.
  • The reduction will occur because of the Affordable Care Act ("ObamaCare"), which is reducing Medicare benefits and raising taxes to pay for the expansion of Medicaid and subsidies in the health insurance exchanges.
  • The cuts are larger than originally expected because the administration believes that Medicare spending will abruptly drop for no reason.

Private plans, averse to such a large spending cut, will likely leave markets or reduce their benefits as plans become less profitable.

  • More than 14 million Medicare beneficiaries will be affected by the cuts, which will disproportionately affect low-income individuals.
  • Forty-one percent of MA enrollees in 2011 had incomes of $20,000 or less and nearly 33 percent of all Medicare beneficiaries enroll in MA plans.
  • Because traditional Medicare is expensive and places limits of benefits, many beneficiaries have supplemental coverage like Medigap to coverage what Medicare does not.

For many of the 6 million MA plan holders, Medicare will fundamentally change or disappear as companies respond to the 7 percent to 8 percent cuts. In 1997, the Balanced Budget Act of 1997, pushed through by a Republican Congress, included serious payment cuts to private plans in Medicare, which in just six years caused the number of participating plans to drop in half.

In 2003, Republicans passed legislation guaranteeing private providers higher payment than traditional Medicare. Lowering these payments may be necessary. The 7 percent to 8 percent cuts the Obama administration plans to implement amount to the Medicare version of sequestration. Unfortunately, lower income beneficiaries will be most affected.

Source: Joseph Antos, "Healthcare for the Poor, or Poor Healthcare?" Real Clear Markets, March 6, 2013.

 

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