Hiram Johnson, governor and senator from California, wrote, "The first casualty when war comes is truth." The political war that is the campaign of 2012 has wounded the truth about Medicare. • The charge that $716 billion was ripped from Medicare to pay for the Affordable Care Act (ACA) is not accurate. Get a cup of coffee and find a comfortable chair while I explain the details. This is not going to be short or simple. But it is important that you understand the truth.
First, my credentials: As a Democratic senator from Florida I served on the Senate Finance Committee — the committee responsible for Medicare. Representing Florida and its many Medicare beneficiaries, I have been immersed in its history and participated in more than a decade of changes.
Although I retired from the Senate before the ACA was enacted, I am well versed in the sections of Medicare that are now alleged to have been raided of $716 billion to fund ACA. Since retiring from the Senate, I have served on the board of directors of a health insurance firm. For 10 years I have been a Medicare beneficiary.
Fact One: Of the $716 billion "taken" from Medicare, there are no cuts to the services that patients themselves receive. Let's go through the four major areas of savings, which account for 83 percent of the total. (The other 17 percent comes from myriad smaller items. Unless otherwise indicated, all statistics are for the 10-year period 2013-2022).
1 $284.3 billion comes from reduced payments to Medicare Advantage, a 2003 addition to Medicare. This provision has an interesting and illuminating history. Up until 1982, Medicare was virtually a fee-for-service program. You went to your health care provider, received services, and Medicare paid the bill up to 80 percent.
In that year insurance companies convinced Congress they could provide better services at 95 percent of the fee-for-service cost. This option was named Medicare+Choice. Medicare beneficiaries were given the option of staying with the fee-for-service coverage or joining an insurance plan. In 1997 about 5 million, or 14 percent, of Medicare beneficiaries opted for the latter.
By 2003 that had declined to 10.9 percent of beneficiaries. The insurers then returned to Congress with the request that their reimbursements be increased from 95 percent to a percentage that varied by county across the United States, but averaged out to 114 percent (104 percent in Florida). Thus Medicare Advantage was born.
By 2009 about 25 percent of Medicare beneficiaries elected the Medicare Advantage option. The average cost to Medicare for Medicare Advantage was an additional $12 billion per year. In the ACA, Congress elected to phase out Medicare Advantage over six years with additional fees and bonuses for enhanced quality of care, which resulted in the projected savings.
2 $220.5 billion is a reduction in payments to providers such as hospitals, ambulatory surgery centers, skilled nursing facilities and home health agencies through an annual productivity adjustment. A financially significant but little-known aspect of Medicare is that it has been used to fund activities that were outside the ambit of medical services to older Americans and the disabled. One of those was to compensate medical providers for changes in overall productivity and not that productivity which relates only to Medicare beneficiaries.
This compensation has been in the form of annual increases in the reimbursement rates for selected services rendered by providers. It is anticipated that other changes in Medicare, such as expanded access to preventive care and the cost-control incentives in the ACA, will increase the efficiency of providers and reduce the historic level of annual reimbursement increases.
3 $55.8 billion is saved through fraud suppression. For years politicians have said that budgets could be balanced if only we would reduce waste, fraud and abuse. Here we have a chance to do it. The ACA shifts emphasis from pay and chase (seek out the thieves after they have stolen taxpayers' money) to prevention (stop the thieves from getting close to your money in the first place).
The ACA requires a higher level of screening for applicants to secure a permit to provide goods or services to Medicare beneficiaries; enhances the use of surety bonds; outlines tougher penalties on those caught stealing from Medicare; and provides additional funding for medical fraud strike forces. Sadly, Florida has been at the epicenter of Medicare fraud. Currently one of the largest Medicare fraud cases in the history of the program is under prosecution with alleged cheats in Florida as its primary targets. The Medicare program and its Florida beneficiaries will be especially rewarded by these antifraud initiatives.
4 $30.8 billion will be taken from payments to hospitals which serve a disproportionate share of low-income Medicare and Medicaid beneficiaries. These payments will be less needed because through the ACA there will be fewer people without insurance and thus fewer unable to pay for their health care.
Fact Two: The Medicare program is a direct beneficiary of a substantial portion of these policy changes.
About $30 billion will be reallocated to eliminate the doughnut hole in prescription drug benefits. Think of a glazed doughnut and focus on the hole. The beneficiary munches through one side of the doughnut receiving prescription drug benefits of as much as $1,897.50 and out-of-pocket co-payments of $632.50 for a total of $2,530.
Then he or she falls into the hole where there is no Medicare payment for prescription drugs until the beneficiary has spent out of his or her own pocket an additional $1,137.50. Then the beneficiary climbs out of the hole and continues to chew through the other side of the doughnut with Medicare paying 95 percent until the end of the year when the beneficiary gets a fresh doughnut and starts again. In 2011, the ACA reduced the hole in the doughnut 50 percent for brand drugs and 7 percent for generics. The doughnut becomes a jelly roll in 2020. It is estimated the elimination of the doughnut hole will save the average beneficiary $4,200.
Fact Three: Accessibility and affordability of Medicare preventive care will be dramatically increased.
Before the ACA, beneficiaries paid deductibles and/or co-payments for preventive services such as bone mass measurement, hepatitis B vaccines, pap tests, pelvic exams, mammography, and most colorectal cancer screenings. Beginning this year, these life-saving measures as well as an annual wellness exam are free to Medicare beneficiaries.
Fact Four: Future additional preventive services covered by Medicare will be determined by science, not politics.
Many Americans can tell a story of a family member or friend who passed away unnecessarily because a treatable condition went undiagnosed. Mine is about a friend, not yet eligible for Medicare, who died of colon cancer. He neglected to have a colonoscopy every 10 years as recommended. When he was finally diagnosed the cancer had become terminal. My grief caused me to ask if Medicare would have paid for a beneficiary's early medical attention. The answer, to my dismay, was no.
The only means to expand Medicare services was for Congress to amend the law and add the service. I introduced legislation to do so, and all hell broke out. Instead of this being a scientifically based discussion of the benefits and cost of this addition to Medicare, it became a food fight among various providers about different colon diagnostic procedures. I can tell you the U.S. Senate was totally disarmed in its ability to make an informed judgment, particularly when the combatants began weighing in with substantial campaign contributions.
This experience convinced me there needed to be a better way to decide the efficacy of current and proposed preventive services. For several years I introduced legislation to set up a panel of medical experts to make these decisions. All these efforts failed in the face of resistance from congressional prerogatives and industry competitive advantage.
Medicare will now do exactly that, although it has been characterized negatively as putting a bureaucrat between grandmother and her doctor. This is a decades-old process, used in the military, where experts make judgments as to the need for closure or realignment of military bases with Congress making a non-amendable up or down vote. Likewise, the ACA establishes a panel to review Medicare services and report recommended changes. If Congress fails to act within seven months, the change becomes law. Whom would you rather have deciding what services will be available to you: the chairman of a congressional subcommittee or the dean of a prestigious medical school?
Fact Five: Changes to Medicare and the adoption of the ACA will extend Medicare's solvency. The year in which the receipts coming into the Medicare trust fund will be less than expenditures going out will be extended by eight years, from 2016 to 2024.
Thank you for staying to the end. These facts, based on my experience and knowledge of Medicare, have convinced me that the ACA has enhanced Medicare, not ravaged it. Now, it is up to you to decide.
Bob Graham was governor of Florida from 1979-87 and a U.S. senator from 1987-2005, where he served on the Finance Committee with oversight of the Medicare program. Graham, author of "Keys to the Kingdom," wrote this essay exclusively for the Tampa Bay Times.