 We talked last time about health insurance. What about Medicare and Medicaid? And how much will all of this cost? Medicare is the health program for senior citizens over 65, at least the ones who have been paying payroll taxes for the last 10 years. First, Medicare is now required to provide free preventative care. Second, there are cuts being made to a program called Medicare Advantage. This was where the government would pay private insurers to provide you with the same care that Medicare would give, but if the insurance company did it for cheaper, they could spend the extra on added benefits and get more customers. What ended up happening is that these plans usually cost more than regular Medicare, so the payments from the government were higher and are being lowered. Now, way back in 2006, the Medicare prescription drug benefit created in 2003 went into effect. It's a federal insurance program where you pay premiums and have a deductible, but you only pay 25% of any drug costs above the deductible. The coverage stopped once you got a little less than $3,000 in benefits, but once you had about $6,500 in costs, you were eligible for catastrophic coverage and only paid 5% of the cost after that. This gap between the top limit of the basic coverage and the bottom limit of the catastrophic coverage was called the Donut Hole. So the third change is that between now and 2020, the Donut Hole will be shrunk by government payments and drug discounts so that everyone only pays 25% of the cost of their drugs all the way up to the $6,500 level. Fourth, money will be spent on trying to encourage systems of healthcare that coordinate better and improve outcomes. A common criticism of our current healthcare system is that different providers don't coordinate between each other and that doctors are paid by how many procedures they order rather than how healthy the patient is. Medicare providers will be able to enroll in a special program if they offer a system of healthcare that coordinates care between providers and pays based on the outcome and not the number of things the doctor did. If they end up providing healthcare more efficiently, they get paid bonuses by the government. Incidentally, you probably remember the phrase death panels coming up during the long fight over the healthcare reform bill. This got into the news and really made a lot of people mad, partially because what was being said about it was not entirely true. The original bill proposed to allow Medicare to pay for end of life counseling about things like living wills, which tell people when you want and don't want life support and medical authorities, which allow someone else to make your medical decisions if you can't anymore. But that section was removed due to criticism. Medicaid is the healthcare program for low income people. How much income you need to make to qualify varies, but it's easier to qualify if you are a child, disabled, a pregnant woman or a senior citizen, or somehow all of the above. First, Medicaid is being expanded to cover a lot of non-disabled adults who didn't qualify before. Medicaid is actually managed by the states and funded by both the state and federal governments. So to cover the cost of expanding coverage, the federal government is supposed to pay for all of them for three years and then 90% after that. Some states have already turned down the extra funding, saying that they are worried about finding their side of the matching funds, especially if Congress doesn't fund the program later. There are those who say that these states are just against expanding Medicaid in general. Second, the payments that doctors, hospitals and other healthcare providers get for treating Medicaid patients will go down. The law also gives more funding for getting new primary care doctors and for community health centers. How much is all of this going to cost and how are they paying for it? Well, as my old grandmama used to say, this legislation will be funded from a variety of revenue streams. Grandmami was not very good at sayings. As of 2013, the payroll tax the government takes out of every paycheck will go from 1.5% to 2.35% for anyone making more than $200,000 a year and any couples making more than $250,000 a year. People in that same group will also pay an additional 3.8% in taxes on any interest income or stock dividends. Also, right now, you can deduct any medical expenses that weren't covered by insurance that are more than 7.5% of your income, but that will go up to 10%. Also, if you have one of those flexible health spending accounts as part of your insurance, now it can be no more than $2,500 and you won't be allowed to use it to buy over-the-counter medications. You might have heard about Cadillac Health Plans during the debate over the healthcare bill. As of 2018, any insurance plan you get through work that has coverage of over $10,200 for an individual or $27,500 for a family will be taxed at 40%. By the way, there is, no joke, a 10% tax on indoor tanning. Finally, there are also a series of smaller tax increases on things like biofuel, drug company profits, investment income, and medical devices, as well as a cap on the pay drug company executives can make. All together, they pull in between $100 and $200 billion. To cut costs, Medicare now has something called the Independent Payment Advisory Board. Its job is to come up with ways to cut Medicare spending if it rises above certain levels. If the board doesn't come up with a proposal, then the Department of Health and Human Services has to. Then they have to be implemented unless Congress passes a bill that accomplishes the same savings. The president could veto Congress's version of the cuts, but they can override his veto. And the recommendations, once put into place, are not allowed to be reviewed in court. So in theory, the cuts would happen one way or the other. The board isn't allowed to make proposals to increase taxes, change Medicare benefits or eligibility, increase the premiums or co-pays recipients have to pay, or to cut low-income subsidies for prescription drugs. It also isn't allowed to cut payments to healthcare providers before 2019. The law does specifically borrow rationing of care to cut costs, but doesn't define what is and isn't rationing. Basically, there are still a lot of unknowns at this point. First, it's not entirely clear how much this will end up affecting the deficit. According to the Congressional Budget Office, the healthcare reform law will cut the deficit by 143 billion over 10 years. According to Health and Human Services, it will expand it by 507 billion in the same period. The budget deficit is about 1.1 trillion a year right now. Second, the benefits in the law will take effect before most of the cost-cutting measures do, so it will take time to know how well the cost-cutting works or if it works at all. One potential problem with lowering the payments to providers is that some of them might stop taking patients on government programs or go out of business entirely. There will also be administrative costs to follow the new rules. Third, it's also not clear how much the healthcare reform law will affect overall healthcare costs, regardless of how much it costs the government. It's still unknown whether it will raise or lower insurance premiums because the government can't tell whether requiring everyone to get insurance will cover the additional costs the insurance companies will take on. Insurance companies will face more competition, which supporters argue will lower costs. But a couple of the pieces of the law have already not worked as well as intended, such as the high-risk insurance pools and a federal long-term care insurance program that was suspended before it even began because it was going to cost too much. So there is a vigorous debate over whether the new law will end up lowering overall costs for healthcare or raising them. Your view of the law will also depend on whether you think lowering costs is more or less important than using the government to provide healthcare to more people. So people are going to be arguing over this for a while. And there you have it.