Medicare Beneficiary Savings and the Affordable Care Act
|For the latest information on Medicare savings, see: ASPE Issue Brief: Medicare Beneficiary Savings and the Affordable Care Act - February 2012.|
The Affordable Care Act makes many changes to strengthen Medicare and provide stronger benefits to seniors, while slowing cost growth. As a result, average Medicare beneficiary savings in traditional Medicare will be approximately $3,500 over the next ten years. Beneficiaries who have high prescription drug spending will save much more – as much as $12,300 over the next 10 years. In comparison, Medicare beneficiaries with low drug costs will save an average of $2,400 over 10 years.
This report provides estimates of savings from the Affordable Care Act to seniors and people living with disabilities enrolled in traditional Medicare. The Affordable Care Act will favorably affect beneficiary expenditures in four ways. First, premiums for Part B physician and certain other services are expected to increase at a slower rate than would have occurred without the Affordable Care Act, resulting in lower Part B premiums over time. Second, beneficiary copayments and coinsurance under Part A and B will increase more slowly because the Affordable Care Act slows the rate of growth in payments to hospitals and other providers. Third, closing the Medicare prescription drug coverage gap, often called the “donut hole,” will lower costs for beneficiaries who otherwise would have been required to spend thousands of dollars out of their own pocket for their prescription drugs. Finally, the Affordable Care Act will provide many preventive services to seniors at no additional cost.
The Affordable Care Act will save approximately $500 billion over the next ten years through reduction in extra subsidies paid to Medicare Advantage plans, reductions in the rate of growth in provider payments, and efforts to make the Medicare program more efficient and to reduce waste, fraud and abuse. These reductions will lead to corresponding savings for beneficiaries through lower copayments and premiums. A slower rate of growth in Medicare is expected to result in a slower rate of growth in beneficiary out-of-pocket payments, and a slower rate of growth in Part B premiums. In addition, the closing of the donut hole will result in large savings for beneficiaries with high levels of prescription drug spending.
Total savings per traditional Medicare beneficiary are estimated to be $86 in 2011, rising to $649 in 2020 (see Table 1). For a beneficiary with spending in the donut hole, estimated savings increase from $553 in 2011 to $2,217 in 2020.
Table 1. Estimated Affordable Care Act Annual Savings per FFS Medicare Beneficiary
|Year||Beneficiaries Not Reaching the Donut Hole||Beneficiaries Reaching the Donut Hole||All FFS Beneficiaries|
1. Savings include parts A, B, and D effects.
2. Parts A and B estimates, and Part D premium estimates for 2010-19 are from OACT, October 5, 2010, John Shatto.
3. Savings for beneficiaries in the donut hole estimated by ASPE, using Medicare Part D data in 2009 generated by Acumen for ASPE (Non-LIS FFS Beneficiaries with at least 1 Month in D in 2009).
Changes in premiums and cost sharing will also occur in the Medicare Advantage program. The Affordable Care Act will gradually eliminate excessive payments to health plans, reward quality, and help protect beneficiaries against overly high cost sharing. The most recently available data on Medicare Advantage plans suggest that premiums will fall on average and benefits will be roughly the same in 2011 as they were in 2010.
This memo was prepared by analysts in the Office of the Assistant Secretary for Planning and Evaluation (ASPE). The savings for traditional Medicare beneficiaries from reduced Part B premiums, reduced Parts A and B coinsurance and copayments, and from increased Part D premiums were estimated by the Centers for Medicare & Medicaid Services (CMS), Office of the Actuary (OACT).1 Savings from reduced Part A and B coinsurance will vary across beneficiaries. Beneficiaries with multiple chronic conditions, those using a higher than average volume of services, as well as those who make greater use of preventive services, will enjoy a greater than average amount of savings. The estimated effects for beneficiaries not in the donut hole are shown in Table 2.
Table 2 - Components of Estimated Affordable Care Act Savings per FFS Beneficiary for Beneficiaries Not in the Donut Hole
|Year||Effects of reduced part B premium||Effects of reduced A & B coinsurance||Effects of increased part D premium||Total|
1. Estimates for 2010-19 are provided by OACT, October 5, 2010, John Shatto.
Analysis of 2009 data shows that 3.9 million Part D enrollees had prescription drug spending in the donut hole that year. Of those, out-of-pocket spending for brand name drugs in the donut hole reached $3.6 billion and out-of-pocket spending for generic drugs by people in the donut hole reached $800 million.
Based on the estimated growth in Part D enrollees, the number of beneficiaries with drug spending in the donut hole is projected to grow from 3.9 million in 2009 to 5.7 million in 2020. From 2009 to 2020, total out-of-pocket spending for brand name drugs in the donut hole is projected to grow from $3.6 billion to $9.5 billion; and out-of-pocket spending for generic drugs is projected to grow from $0.8 billion to $2.2 billion.
However, factoring in the changes made under the Affordable Care Act, beneficiaries will instead save $2.2 billion in 2011 and $8.8 billion in 2020. The ACA requires drug manufacturers to provide a discount for covered brand name Part D drugs sold to seniors in the donut hole (50% starting in 2011) and later provides subsidies for covered brand name Part D drugs to those beneficiaries rising from 2.5% in 2013 to 25% in 2020. Finally, the ACA provides subsidies for generic drugs purchased in the donut hole beginning at 7% in 2011 and rising to 75% in 2020.
The Affordable Care Act also lowers the rate of growth of the out-of-pocket threshold for drug spending by beneficiaries in the donut hole. We estimate savings to beneficiaries from this change using a combination of information from OACT and results from the analysis described above.2
Our estimates do not include an offset for increased spending on drugs because beneficiaries who reach the donut hole may fill more prescriptions. This would lead to slightly higher out-of-pocket spending which we have not included in our estimates.
The estimates are presented in Table 3 below. For beneficiaries with spending in the donut hole, total estimated Part D savings increase from $553 in 2011 to $2,217 in 2020.
Table 3. Components of Estimated Affordable Care Act Savings per FFS Beneficiary for Beneficiaries in the Donut Hole
|Year||Effects of reduced A & B coinsurance and B premium /1||Effect of increased D premium /1||Filling the donut hole for a beneficiary with spending in the donut hole /2||Reducing the growth in Part D OOP threshold /1||Total|
1. Estimates for 2010-19 are provided by OACT, October 5, 2010, John Shatto.
2. Medicare Part D data in 2009 generated by Acumen for ASPE (Non-LIS FFS Beneficiaries with at least 1 Month in D in 2009).
Part D estimates incorporate 3 effects: (1) savings due to filling the donut hole, (2) savings due to reducing the growth rate of the catastrophic threshold, and (3) an offset from increased part D premium.
1 Memo by John Shatto, Director of Medicare & Medicaid Cost Estimates Group, CMS Office of the Actuary, October 5, 2010.
2 In a memo from Richard Foster, April 22, 2010; Table 3, sec 1101, OACT estimated that the cost to Medicare from the slower growth in the out of pocket threshold was approximately 11% of the cost to Medicare from closing the donut hole. We apply this 11% estimate to our estimate of the cost to Medicare from closing the donut hole to estimate the savings to beneficiaries from the slower growth in the out of pocket threshold.