An important question in the debate over proposed repeal and replacement of the Affordable Care Act (ACA) is what might happen to the many provisions of the law affecting the Medicare program. The American Health Care Act (AHCA), which was passed by the House of Representatives on May 4, 2017, and the Better Care Reconciliation Act (BCRA), released by Senate Republicans on June 22, 2017, would leave most of the changes from ACA to Medicare. intact, including benefit improvements (free preventive services and closing the coverage gap in Part D), reductions in payments to health care providers and Medicare Advantage plans, the Independent Payments Advisory Board and the Center for Medicare and Medicaid Innovation.
However, both bills would repeal the Medicare salary surtax for high earners that was added by the ACA, effective January 2023. This provision, which came into effect in 2013, provides additional income for Part A trust fund, which pays for hospitalization, skilled nursing facilities, home health care and palliative care benefits. The Part A trust fund is funded primarily by a 2.9 percent tax on income paid by employers and employees (1.45 percent each). The ACA increased payroll taxes for a minority of relatively high-income taxpayers (those earning more than $ 200,000 / individual and $ 250,000 / couple) by 0.9 percentage points.
In addition to repealing the ACA’s Medicare salary surtax, the two bills would repeal virtually all of the ACA’s other tax and tax provisions, including the annual fees paid by prescription drug manufacturers. brand name, which would reduce Part B trust fund income. The bills would also restore the tax deduction for employers who receive Part D Retiree Drug Subsidy (RDS) payments, which would increase Medicare Part D spending.
According to the Congressional Budget Office, the AHCA and BCRA’s provision to repeal the Medicare salary surtax would reduce Part A benefit income by $ 58.6 billion between 2017 and 2026. Proposed changes to Medicare ACA market coverage provisions and Medicaid funding in both bills would also increase the number of uninsured people, putting additional pressure on hospitals nationwide to provide unpaid care. As a result, Medicare’s âdisproportionate hospital sharingâ (DSH) payments would increase, leading to an increase in Part A spending between 2018 and 2026 of more than $ 40 billion, according to the CBO.
Overall, changes to Part A spending and funding in the AHCA and BCRA would weaken Medicare’s financial position by depleting Part A trust funds two years earlier than under the law. current, moving the expected insolvency date from 2028 to 2026, according to Medicare actuaries. (Figure 1).
Reducing the flow of income to the Part A trust fund by repealing the salary surtax paid by high incomes and increasing Part A expenses due to the higher DSH payments has direct implications for Medicare’s ability to pay Part A benefits on behalf of Medicare beneficiaries. When Part A benefit expenses exceed income and Part A trust fund account assets are fully depleted, Medicare will not have sufficient funds to pay for all Part A benefits ( although the Medicare program will not stop working).
In addition to the short-term impact on Medicare’s solvency, repealing the surtax on high income earners and other proposed changes affecting Part A expenses and income would also worsen the financial situation. long-term program, increasing the 75-year deficit in the Part A Trust Fund from 0.73% of taxable payroll to 1.18%, according to Medicare actuaries.
The expected date of Medicare Part A trust fund depletion has varied over time due to changes in policy and economics affecting both income and expenditure. (Figure 2). In the past, impending insolvency has prompted policymakers to debate and pass legislation that reduced Medicare spending, thereby improving the financial position of the Part A trust fund.For example, in the mid-1990s, when the Medicare actuaries predicted trust fund insolvency by 2001, Congress enacted the Balanced Budget Act (BBA) of 1997, which reduced Medicare spending and extended the solvency of the Part A trust fund by an amount additional seven years. With the enactment of the ACA in 2010, the solvency of Part A trust funds was extended for several years due to the law’s provisions to increase Medicare payroll tax for high incomes and reduce supplier and plan payments. (Figure 3).
That the Part A trust fund remain solvent for an additional 11 years, as required by current law, or an additional 9 years, under proposed changes affecting Medicare Part A spending and funding in the AHCA and the BCRA, Medicare faces long-term financial pressure associated with higher healthcare costs and an aging population. Even if the surtax on the salaries of high incomes is maintained, the Part A trust fund will likely need additional income to finance the care of an aging population, unless policymakers choose to reduce costs instead. Part A spending by reducing benefits, restricting eligibility or reducing payments to providers and packages. By reducing taxes on high-income people and thereby reducing the income of the Medicare Part A trust fund, the AHCA and BCRA would increase the pressure on policy makers to take action as soon as possible.