Repealing of ObamaCare will accelerate insolvency of Part A - Medicare

Repealing the Affordable Care Act:

Implications for Medicare Spending and Beneficiaries

The Patient Protection and Affordable Care Act of 2010 (ACA) contains many changes to the Medicare program, including both savings and benefit improvements. Some policymakers, including the Republican presidential nominee Governor Mitt Romney, have proposed repealing the ACA. This data note describes key Medicare provisions in the ACA and explores the implications of repealing the law for Medicare program spending and beneficiaries’ out-of-pocket costs.

How does the ACA affect the Medicare program? Medicare provisions in the ACA include the following:

• Savings provisions. Some provisions of the ACA reduce the growth in Medicare spending. This is achieved mainly by phasing down payments to Medicare Advantage plans, reducing updates in payment levels to hospitals and other providers, and increasing premiums to be paid by higher-income beneficiaries.1

Benefit improvements. 

• The ACA also contains provisions that improve benefits, providing free coveragefor some preventive benefits, and closing the coverage gap in the Part D prescription drug “doughnut hole” by 2020. The law also includes higher payments for primary care physicians.

Delivery system reform.

• Some provisions are designed to reduce costs and improve the quality of patient care for elderly and disabled beneficiaries; this includes incentives to reduce preventable hospital readmissions and establish accountable care organizations (ACOs).

New revenues. 

• The ACA establishes new sources of revenue dedicated to the Medicare program,including an additional payroll tax on earnings of higher-income workers and a fee on the manufacturers  and importers of branded drugs.

Originally, the Medicare provisions of the ACA were estimated to reduce net Medicare spending by $428 billion between 2010 and 2019.2 More recently, the Congressional Budget Office (CBO) estimated that the Medicare provisions would reduce Medicare spending by $716 billion from 2013 to 2022. The increase reflects a new ten-year budget window and changes in the CBO baseline.3


 How would repealing the ACA affect Medicare spending and the program’s fiscal outlook?

If the ACA were repealed, the law’s savings and revenue provisions would be reversed, as would its benefit improvements. Repeal would increase Part A and B spending by restoring payment rates to private insurers (Medicare Advantage plans) and health care providers to their pre-ACA levels, among other changes. Repeal would also produce offsetting savings by eliminating coverage in the Part D “doughnut hole” and reinstating cost-sharing for preventive services. Because the ACA is expected to reduce net spending over ten years, repealing the ACA would increase net Medicare spending by $716 billion over ten years relative to the current baseline.

Repealing the ACA would also accelerate the projected year of insolvency for the Part A Hospital Insurance (HI) Trust Fund by eight years, from 2024 (current projection) to 2016 (if the ACA is repealed). This is because spending for services under Part A would increase, and revenues dedicated to Part A would decrease. As a result, within four years, Medicare would not be able to fulfill its obligation to pay for all Part A covered services.

Solvency projections of the Part A trust fund:

Current Law             12 years from now                            2024     

ACA Repeal      4  years from now   2016  

Source: Part A solvency projection for current law from 2012 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal
Supplementary Medical Insurance Trust Funds; solvency projection with ACA repeal from Centers for Medicare and Medicaid Services (CMS) Press
Release, “Medicare Stable, but Requires Strengthening,” released April 23, 2012.