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District Court Decision Striking Down ACA Would Undermine Medicare

December 19, 2018: We have corrected the list of preventive services for which the ACA eliminated cost-sharing.

If allowed to stand, a U.S. District Court judge’s decision striking down the Affordable Care Act (ACA) would significantly affect Medicare. To be sure, since the legal reasoning behind the decision is weak, even some of the ACA’s most committed opponents predict it will be overturned. But if it isn’t, the harm to Medicare beneficiaries, providers, and plans could be severe.

The ACA affected many aspects of Medicare, all of which would be called into question if the entire law were invalidated. In particular, the ACA altered Medicare’s annual payment updates to hospitals, skilled nursing facilities, and certain other health care providers, as well as payments to Medicare Advantage health plans. If the judge’s decision were to stand, it’s unclear whether the Centers for Medicare & Medicaid Services could continue making payments to providers and plans or whether it would first have to establish new regulations resetting all of these payment rates.

Beyond the immediate uncertainty and confusion that would follow if the decision took effect, it could jeopardize the ACA’s Medicare improvements, including:

  • Closing the Medicare prescription drug “donut hole.” The ACA gradually eliminated the Medicare Part D coverage gap — a range of spending in which beneficiaries were required to pay 100 percent of their drug costs — and the 2018 Bipartisan Budget Act accelerated the timetable.

  • Providing preventive services without cost-sharing. The ACA eliminated beneficiary coinsurance requirements for most preventive services, such as cancer screenings, and added coverage of an annual wellness visit.

  • Promoting delivery system reform. The ACA introduced a wide range of payment reforms to promote quality and efficiency in health care delivery, including establishing accountable care organizations, the Center for Medicare & Medicaid Innovation, and incentives to reduce unnecessary hospital readmissions. Subsequent laws and regulations have built on these promising innovations.

  • Reducing Medicare Advantage overpayments. Before the ACA, Medicare paid private Medicare Advantage plans about 13 percent more per beneficiary, on average, than it would cost to cover those beneficiaries in traditional Medicare. The ACA scaled back those overpayments.

  • Reforming payments in traditional Medicare. As noted, the ACA reduced Medicare’s annual payment updates to hospitals, skilled nursing facilities, and certain other health care providers, in part to account for improvements in economy-wide productivity. It also reduced excessive payments to home health agencies and inpatient rehabilitation facilities.

  • Increasing the Medicare tax on high-income people. The ACA raised the Medicare payroll tax rate for individuals with incomes over $200,000 and couples with incomes over $250,000. It also imposed a Medicare tax on those households’ dividends, capital gains, and other unearned income.

  • Strengthening Medicare’s financing. These changes in spending and revenues strengthened the financial status of Medicare’s Hospital Insurance (HI) trust fund. Before the ACA, the program’s trustees projected that the trust fund would become insolvent in 2017. It is now projected to remain solvent through 2026. The ACA also eliminated four-fifths of the long-run HI shortfall.

If the ACA were ultimately struck down, courts might give Congress time to enact new legislation to take its place. But in the current political environment, achieving agreement between the House, Senate, and President could prove difficult. At the very least, Medicare beneficiaries, providers, and plans would face heightened uncertainty, and it’s likely that at least some of the Medicare improvements that the ACA put in place could be lost.