Estimated Savings of $5,000 to Each Medicare Beneficiary from Enactment Through 2022 Under the Affordable Care Act. Methods

09/17/2012

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This memo was prepared by analysts in the Office of the Assistant Secretary for Planning and Evaluation (ASPE) in consultation with the Office of the Actuary (OACT) of the Centers for Medicare & Medicaid Services (CMS). The net savings for traditional Medicare beneficiaries from reduced Part B premiums, reduced Parts A and B coinsurance and copayments, and from increased Part D premiums were estimated by OACT in 2010 (note: they have not been updated for actual experience from 2010 through 2012).2 Actual savings from reduced Parts A and B coinsurance will vary across beneficiaries. Beneficiaries with multiple chronic conditions, those using a higher-than-average volume of services, as well as those who make greater use of preventive services, will enjoy a greater-than-average amount of savings. The estimated effects for beneficiaries not reaching the donut hole are shown in Table 2.

Table2. Components of Affordable Care Act Annual Savingsper Fee-For-Service Beneficiary Not Reaching the Donut Hole

  HoleEffects of reduced increasedTotalpart B premium (Annual $) Effects of reduced A & B coinsurance (Annual $) Effects of increased part D premium (Annual $) Total Effect (Annual $) 
2010 0 -6 0 -6
2011 19 14 -6 27
2012 53 41 -2 92
2013 72 62 0 134
2014 90 79 -1 168
2015 113 101 -2 212
2016 139 124 -2 261
2017 169 148 -7 310
2018 192 175 -13 354
2019 218 207 -20 405
2020 248 245 -31 462
2021 281 291 -33 539
2022 319 346 -35 629

Notes:

  1. Estimates for 2010-19 are provided by OACT, John Shatto's memo on October 5, 201
  2. Estimates for 2020-22 are computed by ASPE in consultation with OACT.

The Affordable Care Act requires drug manufacturers to provide a discount for covered brand name Part D drugs sold to beneficiaries in the donut hole (50 percent starting in 2011) and provides subsidies for covered brand name Part D drugs to those beneficiaries rising from 2.5 percent in 2013 to 25 percent in 2020. Finally, the Affordable Care Act provides subsidies for generic drugs purchased in the donut hole beginning at 7 percent in 2011 and rising to 75 percent in 2020. Together, these changes mean that a beneficiary will pay the standard 25 percent coinsurance in a standard plan in 2020 for generic and brand drugs, and the donut hole will be closed.

Since the Affordable Care Act was enacted, 5.4 million people with Medicare have saved over $4.1 billion on prescription drugs in the donut hole, and an estimated 37 million people with Medicare have received a preventive benefit free of charge.3

The Affordable Care Act also lowers the rate of growth of the out-of-pocket threshold for drug spending by beneficiaries in the donut hole from 2014 to 2019. We estimate savings to beneficiaries from this change using a combination of information from OACT and results from the analysis described above.4

The estimates are presented in Table 3 below. For beneficiaries with spending in the donut hole, total estimated Parts A, B, and D savings increase from $735 in 2012 to $2,599 in 2022.

Table3. Components of Affordable Care Act Annual Savingsper Fee-For-Service Beneficiary Reaching the Donut Hole ($)

  Effects of reduced A & B coinsurance and B premium /1 Effect of increased D premium /1 Filling the donut hole /2 for a beneficiary whose spending reaches the hole Reducing the growth in part D OOP threshold for a bene in the gap /1 Total Effect (Annual $)
2010 -6 0 250 0 244
2011 33 -6 604 0 631
2012 94 -2 643 0 735
2013 134 0 723 0 857
2014 169 -1 780 48 996
2015 214 -2 879 62 1.152
2016 263 -2 954 112 1.327
2017 317 -7 1.114 131 1.555
2018 367 -13 1.293 153 1.799
2019 425 -20 1.492 178 2.075
2020 493 -31 1.734 0 2.196
2021 572 -33 1.847 0 2.386
2022 665 -35 1.969 0 2.599

Notes:

  1. Estimates for 2010-19 are provided by OACT, John Shatto's memo on October 5, 2010; and estimates for 2020-22 are computed by ASPE in consultation with OACT.
  2. Estimates by ASPE based on Medicare Part D data in 2010 generated by Acumen for ASPE (Non-LIS Beneficiaries with at least 1 Month in D in 2010) and the discounts to beneficiaries in 2011 are benchmarked to CMS analysis of 2011 PDE data.

Part D estimates incorporate 3 effects: (1) savings due to filling the doughnut hole, (2) savings due to reducingthe growth rate of the catastrophic threshold during 2014-19, and (3) an offset from increased part D premium.

2 Memo by John Shatto, Director of Medicare & Medicaid Cost Estimates Group, CMS Office of the Actuary, October 5, 2010.

3 “Medicare Advantage remains strong,” Press Release, U.S. Department of Health and Human Services, September 19, 2012, available at http://www.hhs.gov/news/press/2012pres/09/20120919a.html; or “Medicare Prescription Drug Premiums to Remain Steady for Third Straight Year,” Press Release, Centers for Medicare & Medicaid Services, August 6, 2012, available at http://www.cms.gov/apps/media/press_releases.asp.
4 “Estimated Financial Effects of the ‘Patient Protection and Affordable Care Act,’ as Amended,” Memo from Richard Foster, Office of the Actuary, Centers for Medicare & Medicaid Services, April 22, 2010, Table 3, Section 1101. In this memo, OACT estimated that the cost to Medicare from the slower growth in the out of pocket threshold was approximately 11% of the cost to Medicare from closing the donut hole. We apply this 11% estimate to our estimate of the cost to Medicare from closing the donut hole to estimate the savings to beneficiaries from the slower growth in the out-of-pocket threshold from 2014 to 2019.

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ExpendituresHealth ExpendituresHealthcare ReformInsuranceMedicareMedicareMedicare
Form Approved OMB# 0990-0379 Exp. Date 8/31/2017