The comprehensive health care reform legislation (the Patient Protection and Affordable Care Act [PPACA; P.L. 111-148],
amended by the Health Care and Education Reconciliation Act of 2010 [HCERA; P.L. 111-152]), includes several provisions
related to the Medicare program, summarized below and on the following pages.
• Phases in coverage in the Medicare Part D drug benefit coverage gap, or “doughnut hole.” In 2010, Part D enrollees
with any spending in the coverage gap will receive a $250 rebate. Beginning in 2011, enrollees with spending in the
coverage gap will receive a 50 percent discount on brand-name drugs, provided by the pharmaceutical industry. The
law phases in Medicare coverage in the gap for generic drugs beginning in 2011, and for brand-name drugs beginning
in 2013. By 2020, Part D enrollees will be responsible for 25 percent of the cost of both brands and generics in the gap,
down from 100 percent in 2010. The catastrophic coverage threshold is reduced between 2014 and 2019.
• Improves coverage of prevention benefits. Beginning in 2011, no coinsurance or deductibles will be charged in
traditional Medicare for preventive services that are rated A or B by the U.S. Preventive Services Task Force (USPSTF).
Medicare will cover a free annual comprehensive wellness visit and personalized prevention plan.
• Reduces federal payments to Medicare Advantage plans over time and provides bonus payments to plans receiving
high quality ratings. The law freezes benchmarks (the maximum amount Medicare pays plans per county) for 2011,
and beginning in 2012, phases in reductions in Medicare Advantage plan payments relative to fee-for-service costs in
each county. Beginning in 2012, plans with high quality ratings will receive bonus payments. Plans with bids below the
benchmark will generally receive 50 percent of the difference between the plan bid and the benchmark, rather than 75
percent; high-quality plans will receive higher rebates. Plans will be required to maintain a medical loss ratio of at least
85 percent by 2014.
• Establishes a new Independent Payment Advisory Board to recommend ways to reduce Medicare spending if Medicare
per capita growth rates exceed certain targets. Beginning in 2014, if the growth in Medicare per capita spending exceeds
a certain rate, the Board is required to submit recommendations to achieve specified spending reductions. The Secretary
of HHS is required to implement the Board’s recommendations unless Congress enacts alternative proposals that
achieve the same level of savings, with new deadlines and procedures for Congressional deliberations. The 15-member
Board, appointed by the President and confirmed by the Senate, is prohibited from recommending changes that would
ration care or modify benefits, eligibility, premiums, or taxes, or from recommending payment reductions for certain
providers that would take effect prior to 2020.
• Includes numerous provisions related to provider payments to reduce the growth in future Medicare payments;
increases payments for some primary care providers. The law reduces annual updates for various medical providers
(other than physicians), adjusts payments for productivity improvements, and reduces payments to certain hospitals for
care delivered to the uninsured. The law provides bonus payments for primary care physicians in underserved areas and
increases payments to rural health care providers, but does not address the sustainable growth rate (SGR) formula that
determines physician payments.
• Includes several payment and health delivery system reforms, including a pilot program to bundle payments for
post-acute care, value-based purchasing for providers, and the establishment of accountable care organizations. The
law creates a new Center for Medicare and Medicaid Innovation within CMS to test new payment and service delivery
models, and establishes a new Federal Coordinated Health Care Office within CMS to improve the integration of care for
beneficiaries eligible for both Medicare and Medicaid (the dual eligibles).
• Modifies and expands the use of income-related premiums under Medicare. The law freezes the income thresholds for
the Part B income-related premium at 2010 levels ($85,000/individual, $170,000/couple) through 2019, and adds a new
income-related premium for Part D (with income thresholds the same as for Part B and no indexing).
• Increases the Medicare Hospital Insurance (Part A) payroll tax on earnings for higher-income taxpayers (more than
$200,000/individual and $250,000/couple) by 0.9 percentage points from 1.45 percent to 2.35 percent, beginning in 2013,
to be deposited into the Part A Trust Fund.
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