Health Reform Strengthens Medicare — Part 2

August 17, 2012 at 2:17 pm

The 2010 health reform law strengthens Medicare’s financing and improves its benefits, as I recently explained.  Nevertheless, continued talk of $716 billion in “cuts” is making many seniors worry needlessly about how health reform affects their Medicare.  Here’s a quick recap.

Health reform improves Medicare’s finances in two ways.  First, it increases the Medicare payroll tax for high earners — those earning more than $250,000 a year.  Second, it makes the program more efficient by reducing overpayments to the private insurance plans that participate in Medicare and restraining payments to hospitals and some other health care providers.  These efficiencies will save Medicare $716 billion over the next ten years, the Congressional Budget Office estimates.  None of these changes, it must be emphasized, cuts Medicare’s guaranteed benefits.

By increasing Medicare revenues and restraining cost growth, health reform extends the life of Medicare’s hospital insurance (HI) trust fund.  Medicare’s trustees project that the HI trust fund will remain solvent — that is, able to pay 100 percent of the costs of the hospital insurance coverage that Medicare provides — through 2024.  If health reform were fully repealed, however, the Centers for Medicare & Medicaid Services estimates that the Medicare hospital insurance program would become insolvent eight years earlier, in 2016 (see chart).

In addition to strengthening Medicare’s financing, health reform improves Medicare benefits.  It covers preventive health services, such as immunizations and screenings, without additional charges to beneficiaries, and it gradually closes the prescription drug “doughnut hole.”

Bottom line:  health reform has improved Medicare, and repealing health reform would cut benefits and place the program’s finances at risk.

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More About Paul N. Van de Water

Paul N. Van de Water

Paul N. Van de Water is a Senior Fellow at the Center on Budget and Policy Priorities, where he specializes in Medicare, Social Security, and health coverage issues.

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