House Approves Medicare SGR Replacement; Senate to Vote in Two Weeks

Last week, the US House of Representatives overwhelmingly approved HR2, the legislation to repeal the Medicare Sustainable Growth Rate (SGR) and eliminate the need for an annual “doc fix”.  The bill also extends the Children’s Health Insurance Program for another two years, and provides $7 billion in funding to support community health centers (this simply keeps community health center funding at the level it’s at today, and was a necessary component of the legislation because the current funding is scheduled to expire in October).  In addition, the legislation would limit first-dollar coverage under Medigap plans for Medicare Part B deductibles for people who enroll after 2019 – this is not a particularly significant change, since only two Medigap plans (C and F) currently cover the Medicare Part B deductible.  And the Part B deductible is only $147 in 2015.

What is the Medicare SGR?

The Medicare SGR was enacted as part of the Balanced Budget Act of 1997, and its purpose is to make sure that Medicare’s spending growth doesn’t exceed GDP growth.  But the result was that every year for more than a decade, congress has had to enact a temporary “doc fix” to prevent significant cuts to Medicare physician reimbursements.  Without legislation to address the problem this year, doctors who treat Medicare patients would have seen a 21% reduction in their reimbursement rates.  The vast majority of US physicians (who provide Medicare-covered services) are participating providers with Medicare, and stories to the contrary are generally circulated as fear-mongering tactics.  But it’s true that there was concern that reimbursement cuts would lead to doctors exiting the Medicare program, and thus the doc fix legislation continued to be patched in, year after year.

What is HR2?

The purpose of HR2 was to repeal the SGR and replacing it with a new system that would make it easier for doctors to predict future revenue, and would do away with the need for emergency doc fix legislation every year.  If HR2 is approved by the Senate, and signed into law by the President (he has said he’ll sign it), physician reimbursements will increase by half a percent each year through 2019.  Then, from 2020 through 2025, payments will be frozen at the 2019 level.  After that, there will again be small annual increases to the reimbursement rate.

The legislation also includes reimbursement increases for doctors who meet quality of care standards, essentially rewarding doctors for quality rather than volume (this would take effect in 2026, and doctors who meet the quality standards would qualify for a one percent annual reimbursement increase).  This is the general trend in healthcare reimbursement, and paying for quality rather than relying on the old fee-for-service model is a key component of healthcare reform at all levels.  But it’s easier said than done, and some have noted that the metrics called for in HR2 are complicated and could incentivize doctors to only accept Medicare patients who are healthier than average.

Although the majority of US seniors have relatively modest incomes, HR2 also includes a measure to increase Medicare premiums for high-income seniors.  For most seniors, the government pays about 75% of the cost of their Medicare B and D coverage, although those with incomes above $85,000 receive a lower government subsidy and thus pay more for their coverage (there’s no Medicare SGR approvedcharge for Medicare Part A as long as you qualify for premium-free coverage – which most seniors do – and that doesn’t change under HR2).  HR2 would further increase Medicare B and D premium amounts for beneficiaries with incomes above $133,500 ($267,000 for a married couple).  Under HR2, those beneficiaries would pay at least 50% of the cost of their premiums, and as much as 80% if their income exceeds $160,000 ($320,000 for a married couple).

In a relatively rare display of bipartisan cooperation, Nancy Pelosi and John Boehner worked out the details of HR2 together, and both appear happy with the results.  The bill had overwhelming support in the House, and passed 392 – 37.  Democrats would have preferred a four-year extension to CHIP, but House Republicans would only agree to either a four-year extension with no funding increase, or a two-year extension with a funding increase; Democrats settled for the latter, and presumably they’ll readdress the issue in 2017.

HR2 is now with the Senate, but they’ve said they will not act on the legislation until at least April 13, when they return from their spring recess.  The concern is that the SGR formula calls for a 21 percent reimbursement cut this year, as of April 1, if a patch or repeal isn’t authorized by then.  But Senate Majority Leader Mitch McConnell has said that the vote delay in the Senate won’t actually impact any physicians’ reimbursements due to the lag time in how payments are processed.  Senate Minority Leader Harry Reid would have preferred that the Senate vote on the bill before adjourning for recess on Friday evening, but ultimately the vote has been delayed for two weeks.  It’s generally expected that the measure will pass in the Senate, although perhaps not with as much support as it had in the House (Senate Republicans are concerned that there’s not enough funding included in the bill, since it is expected to cost about $213 billion, and only includes about $70 billion in funding to offset those costs; in addition, Senate Democrats – like their counterparts in the House – would prefer that CHIP be extended for four years rather than two).  But assuming it does pass the Senate, President Obama has said he’s “got [his] pen ready to sign a good, bipartisan bill.”

After 13 years of “doc fix” patches, it looks like we’re well on the road to long-term reform to the Medicare reimbursement calculations, and several other useful reforms are coming along with it, including the extension of CHIP and community health center funding, requiring high-income seniors to pay more of their own Medicare costs, and transitioning Medicare reimbursements towards payment for value rather than payment for volume.

EDIT: April 15, 2015 – HR2 passed the Senate yesterday, 92 – 8.  It’s now headed for President Obama’s desk.

About Louise Norris

Louise Norris has been writing about health insurance and healthcare reform since 2006. In addition to the Colorado Health Insurance Insider, she also writes for,, Verywell, Spark by ADP, and Boost by ADP, and Gusto. Follow on twitter and facebook.


  1. Here’s hoping that after so long, Congress finally does actually do something to reform this rather than having quick fixes! At least, that’s what I’m HOPING happens. Thanks for sharing.

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