What Happened to Medicare in 2015?

What Happened to Medicare in 2015?
December 27 01:00 2015

Medicare is the financial cornerstone of how tens of millions of American retirees handle their healthcare costs, and 2015 brought some challenges to the Medicare system that initially threatened to have a huge financial impact on a large group of Medicare participants. Let’s take a closer look at some of the key things that happened to Medicare in 2015 as well as the effects they’ll have on your Medicare benefits in the future.

A last-minute deal lessens the blow of 2016 premium increases
Medicare participants pay a monthly premium for Part B medical coverage, and those premiums are tied to the costs that the Medicare program incurs in providing for its participants. During 2015, the Medicare Trustees Report announced that a substantial increase in Medicare costs would require a larger than normal increase in premiums to take effect at the beginning of 2016.

The problem, though, is that another law prevented the majority of Medicare participants from paying higher premium costs. Medicare law prohibits increases in premiums when there is no cost-of-living adjustment to Social Security benefits, and low inflation during the appropriate measuring period led to the elimination of the COLA for 2016. Because this law only covers about 70% of Medicare participants, the other 30% faced a premium increase that could have raised costs by more than half from 2015 levels.

The Medicare deal still includes a sizable premium increase, with those participants who aren’t protected under the cost-of-living adjustment rule seeing a 16% rise in their costs from $104.90 per month in 2015 to $121.80 per month in 2016. In the future, Medicare participants will slowly pay back the cost of the foregone premium revenue that the government gave up by raising premiums by a smaller amount than the law otherwise called for.

Repeal of the sustainable growth rate formula for Medicare ends annual budget woes
For years, lawmakers have struggled with the budget implications of Medicare. In April, the repeal of what was known as the sustainable growth rate formula finally put an end to an annual practice on Capitol Hill of implementing stopgap measures to prevent the formula from taking effect.

The sustainable growth rate formula was passed about 20 years ago and sought to limit the amount of money that Medicare could spend. How it worked was that if total payments to doctors went over a set amount, the law required Medicare to cut reimbursement rates to doctors across the board.

Over time, Congress chose to take temporary action to prevent the provision from taking effect. As a result, the gap between actual doctor payments and what the reimbursement rules technically called for widened dramatically. If lawmakers hadn’t come to a solution in 2015, then reimbursement rates would have had to fall by 21%.

Instead of doing a temporary measure, the reforms that lawmakers passed sets a new baseline. Moreover, although the potential for lower reimbursements still exists, most expect pay for doctors to rise under the new program. Incentive bonuses will also allow doctors to increase their compensation under certain circumstances.

Medicare turns 50
Finally, the Medicare program celebrated its 50th anniversary during 2015. Since the mid-1960s, the program has seen some major changes, including the inclusion of younger Americans with disabilities, the establishment of the Medicare Advantage health maintenance organization program, and the creation of a prescription drug benefit under Medicare Part D that dramatically expanded the coverage of the program.

Looking ahead, Medicare’s future remains uncertain. Medicare’s trust fund for hospital care is expected to run out of money in 2030, according to this year’s report from the Medicare trustees. Yet the Affordable Care Act has already had a huge impact on Medicare and could continue to do so in the future. In particular, as hospitals have fewer uninsured losses to deal with, their ability to weather potential future reductions in reimbursements should increase. Although the aging of the U.S. population will pose a short-term demographic problem, structural changes in healthcare have already gone a long way toward ensuring Medicare’s viability well into the future.

Medicare is a key element of financial survival for its participants, and changes this year will have a dramatic impact not just now but for years to come. By understanding the importance of these Medicare reforms, you can prepare for your own healthcare needs in your retirement years.

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