Many of us are concerned about how will sequestration affect Medicare?  Since Congress has failed to pass an alternate deficit-reduction package we are now faced with the sequestration, which is the automatic cuts that were established by the Budget Control Act of 2011 which are aimed at reducing the deficit.  We know that many of our country’s federal programs will be affected by the sequestration — including original Medicare.  Medicare Pathways wants to address the concerns and provide answers to “how will sequestration affect Medicare?” 

How will sequestration affect Medicare and provider payments?

Under the sequestration order original Medicare provider payments will be cut by 2  percent beginning April 1, 2013, as part of the spending reductions required by the Budget Control Act of 2011.  The cuts will be applied to provider payments for services administered under original Medicare Part A (hospital insurance) and original Medicare Part B (medical insurance), as well as “contractual payments to Medicare Advantage Plans (Part C) and Medicare Prescription Drug Plans (Part D)”, according to the Congressional Budget Office (CBO).  Payment reductions must be made at a uniform rate across all programs and activities subject to a sequestration order.  Note that under the sequestration rules, when original Medicare Part B (health insurance) services are provided the reduced payment will be considered payment in full.   When a physician or health care provider accepts the original Medicare assignment, they are agreeing to accept the Medicare rate as payment in full.  The physician or health care provider cannot increase charges to the Medicare beneficiary to make up for the reduced Medicare payment.  In other words, the physician cannot charge you a Part B excess to make up the difference in the amount Medicare pays for the physician or health care provider’s services. 

How will the sequestration affect Medicare?

Sequestration generally applies to original Medicare Part A and Part B payments for services furnished beginning April 1, 2013 (the first day of the first month beginning after the date the sequestration order is issued). Thus, payments for original Medicare Part A and B services furnished before April 1st, but received after April 1st, generally are not impacted. There is an exception for inpatient services, however.  The inpatient services are considered to be furnished on the date of the patient’s discharge from the inpatient facility. As a result, the reduction could apply to payments for services furnished prior to April 1st if the patient is discharged after April 1. Likewise, for services paid on a reasonable cost basis, the reduction will be applied to payments for services incurred at any time during each cost reporting period during the sequestration period, pro-rated for the portion of the cost reporting period that occurs during the sequestration period.

The sequestration law does not provide a special start date for cuts in monthly payments to Medicare Advantage (also known as “Part C”) and Prescription Drug Plans (also known as “PDP” or “Part D”).  It is assumed that those cuts will be applied to the next monthly payment to plans, and reflected in the Center for Medicare and Medicaid Services (also known as “CMS”) annual reconciliation of plan payments. Fortunately, the Center for Medicare and Medicare Services had previously permitted plans to take into account the possibility of the sequestration in their calendar year 2013 bids as a temporary increase in the plan’s risk margin. The Center for Medicare and Medicaid Services also instructed plans to ensure that their projection of medical expenses reflected the expected impact of the sequestration on provider payments to both contracting and non-contracting providers.  Therefore, the impact on the Medicare Advantage and Prescription Drug Plans will not be significant since the plans had already prepared for the sequestration ahead of time.

How will sequestration affect Medicare low-income programs?

Low-income subsidies and additional subsidies for Medicare beneficiaries whose spending exceeds catastrophic levels in Prescription Drug Plans are exempt from sequestration. The sequestration percentage is capped at 2 percent for payments for individual services under original Medicare Part A and Part B and for monthly contractual payments to Medicare Advantage and Prescription Drug Plan providers. “Other mandatory program spending for benefits and administrative costs are subject to the same reduction rate as non-exempt mandatory spending,” according to the Congressional Budget Office. Also specifically exempt from sequestration are Part D low-income subsidies, Part D catastrophic subsidies, and payments to states for qualified individual premiums. 

It is important to note that certain mandatory programs are exempt from sequestration.  These programs include, but are not limited to, Social Security, Medicaid, and the Children’s Health Insurance Program (CHIP).

How will sequestration affect Medicare overall?

Overall, sequestration means that bout 90% of original Medicare spending is limited to 2 percent in cuts, and 8 percent is completely exempt from sequestration. The remaining 2 percent of original Medicare spending would be subject to a 7.6 percent cut in 2013 because it falls under non-exempt non defense mandatory programs, according to the Office of Management and Budget.  This is very important to note because Medicare cuts are capped at 2 percent; however, other federal programs that are affected by the sequestration is capped at 8%.  Therefore, in answer to the question how will sequestration affect Medicare, the answer is that it will not affect Medicare as much as it will affect other federal programs that are identified in the Budget Control Act of 2011.  The Congressional Budget Office estimates that the Medicare budgetary reductions will total $123 billion from 2013 to 2021. 

The Congressional Budget Office also predicts that the sequestration will generate about $31 billion in outlays between 2013 to 2021 as a result of reductions in Medicare Part B premiums and other changes in spending. Since Part B premiums are set to cover a fraction of the program’s cost, the Congressional Budget Office estimates “that receipts from premiums will decrease due to reductions in budgetary resources and subsequent lower program costs.”

Stay informed regarding the status of the sequestration and how it affects original Medicare, Medicare Advantage and Prescription Drug Plans.  Visit our Medicare News Blog regularly to stay up-to-date on the latest data regarding original Medicare and Medicare insurance.  As indicated above, Medicare Advantage and Prescription Drug Plans had already were already prepared for the possibility of cuts to Medicare funding.  Therefore, do not let the discussion of the cuts cause you to be stressed regarding your Medicare insurance.  Finding the most affordable and most appropriate Medicare insurance plan is very important.  Contact a Medicare Pathways Benefit Advisor by calling 1-866-466-9118 to discuss plans available in your area.  You can also Request a Quote, complete a short form, and a Benefit Advisor will contact you.

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Medicare Pathways:  1-866-466-9118