President Trump and the 2019 FY Budget: Pros and Cons for Medicare

Medicare Cuts, the Physician Shortage, and Prescription Drug Costs

President Trump made many promises on the campaign trail. One of them was to preserve Medicare— that is, he said he would not cut Medicare. The other promise was to make the program more cost-effective for beneficiaries. With his 2019 budget proposal, he makes many changes to Medicare that do and do not fulfill that promise.

man cutting stack of money in pieces
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Funding Cuts to Medicare

The first change is in direct opposition to what the President promised his constituents. The fiscal year (FY) 2019 budget proposes $236 billion in Medicare cuts over 10 years.

The White House claims that beneficiaries will not see a decrease in their benefits. Instead, they claim that the decreased spending would come from other aspects of the Medicare program. The specifics have not been outlined but decreased payments to physicians and hospitals are expected.

Graduate Medical Spending

The Association of American Medical Colleges conducted a study in 2017 that reinforces what the healthcare system has long feared—a doctor shortage. By 2030, the country is expected to be short at least 40,800 physicians across all specialties.

In 2016, there were 953,695 physicians licensed to practice in the United States. Of that number, 27.1 percent of physicians were between 56 and 65 years of age. Another 13.1 percent were 66 years and older. Meanwhile, there were only 19,254 medical school graduates that year. With more than 40 percent of doctors approaching retirement age and so few entering the workforce, there will not be enough physicians to meet the rising demands of an aging baby boomer population, not to mention the increasing number of people insured under the Affordable Care Act.

Despite this unbalanced supply and demand, the FY 2019 budget proposes a $48 billion cut to graduate medical education (GME) over 10 years. GME funds pay for medical residency training. More medical schools can open and recruit students, but without access to residency training, those graduates face a bottleneck in the system. Decreased funding for residency is likely to decrease the number of residents trained in any given year, further worsening the projected physician shortage.

Health Savings Accounts

President Trump campaigned for Medicare to allow the use of health savings accounts (HSA), and it appears he is staying true to that promise.

An HSA is a tax-deductible savings account used for health expenses. People can save money on a pre-tax basis and withdraw that money tax-free as long as the money goes toward qualified medical expenses. Until the FY 2019 budget proposal, the IRS did not allow Medicare beneficiaries to contribute to HSAs.

In 2018, an individual can save as much as $3,450 in an HSA and a family as much as $6,900. People over 55 years old could save an additional $1,000 each year if they were not on Medicare. What amounts would be allowed for Medicare beneficiaries remains unclear.

Medicare Part B Medications

Not all prescription medications are deferred to Medicare Part D. Some medications are reimbursed under Medicare Part B. These medications include, but are not limited to, allergy shots, anti-cancer drugs, anti-nausea drugs, clotting factors, immunosuppressant drugs, IV infusions, nebulizer treatments, osteoporosis drugs, tube feeds, and certain vaccinations.

Under Medicare Part B, many of these drugs are reimbursed if they are supplied by and administered in a physician's office or hospital outpatient department. Due to the added costs in ordering, storing, and administering these medications for patient use, these sites have been allowed to charge Medicare beneficiaries as much as 6 percent more than the average sales price for each drug.

The FY 2019 budget proposal aims to put an end to Part B coverage of medications and to shift those medication costs to Part D. By moving Part B coverage into Part D, Medicare providers would no longer be responsible for managing medications in the office. Instead, the patient would fill a prescription and bring it to their doctor to administer. This would remove any economic incentive a provider may have in prescribing higher-priced medications. At the same time, it becomes more inconvenient for the patient to go through the extra steps.

Decreasing Prescription Drug Costs

Decreasing the cost of prescription medications has always been a high priority, and the FY 2019 budget places an emphasis on doing that. A white paper by the Council of Economic Advisers outlines several approaches, although it not yet clear which of these models the administration will pursue.

The white paper outright discourages government price setting. The GOP remains a strong believer in the free market. It also does not support importing less expensive drugs from abroad. The goal is to boost American businesses.

One approach is to make it easier for the FDA to expedite drug applications for generic medications or branded-medications that do not have an approved generic. In theory, this would increase competition in the marketplace and decrease costs.

Another approach is to improve the relationship between patients and the healthcare industry. Insurers could be required to share discounts they get from the pharmaceutical companies with patients. Restrictions could be lifted so that Medicare beneficiaries could take advantage of pharmaceutical vouchers.

The approach supported by President Trump would eliminate cost-sharing, i.e. copayments and deductibles, for people who have high prescription drug costs at $8,418 or more per year. Unfortunately, to balance out those costs, out-of-pocket expenses would increase for beneficiaries who do not meet that threshold.

A Word From Verywell

The FY 2019 budget proposal, if passed, would have both pros and cons for Medicare. While it could help to decrease prescription drug costs for some seniors (increasing it for others) and allow them to use health savings accounts, it would also cut funding for the Medicare program at large and worsen an already looming physician shortage.

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