Dec. 2, 2010 –
Senior citizens and baby boomers should have been restless last night –
the two most important government programs they will depend on in their
old age – Social Security and Medicare – were the major victims in a
cost-slashing proposal by a government deficit reduction panel for
improving the financial future of the U.S. government.
NPR’s Julie
Rovner, says, “Apparently the president's blue-ribbon panel on reducing
the federal debt didn't get the memo about Medicare being the third rail
of politics. You know, touch it and die.”
The National
Commission on Fiscal Responsibility and Reform released its long-awaited
report on recommendations to cope with the national debt, now and
into the future, "The Moment of Truth." Seven of the 66 pages concerned
health care spending, especially focusing on Medicare.
Most observers
see the suggested changes in Medicare, including higher fees for senior
citizens, as the most significant changes suggested in the latest draft
proposal which is to be up for final approval by the panel on Friday.
“Among the
sleeper provisions contained in the presidential fiscal commission’s
final proposal released Wednesday, none will generate more controversy
than the recommendations to contain Medicare costs in the coming
decade,” writes Merrill Goozner, reporting in
The Fiscal Times.
“Rather than
holding down spending, the proposal by the commission’s co-chairmen
would actually send Medicare costs soaring, before gradually reining
them in. That’s because the plan starts by repealing physician pay cuts
through 2014, and doing away with the new long-term care insurance
program in President Obama’s signature health care reform bill, which
will lose $76 billion in revenue. Combined, these two line items would
substantially increase Medicare’s shortfall between now and 2020.
“To make up for
that shortfall, the fiscal commission plans to charge much higher
out-of-pocket costs to Medicare beneficiaries.”
The Deficit
Commission is calling for the biggest change to Social Security
ever.
A
Complete Guide To Social Security Cuts From The Deficit
Commission
“On the other
hand, no one ever said fixing the deficit would be easy, particularly
when it comes to a politically sacred program like
Medicare” writes NPR’s Rovner.
Roverner added
to her story yesterday, “This afternoon, John Rother, executive vp for
the AARP, criticized the plan in a statement. The co-chair's proposal
would lead to ‘dramatic cost shifts in the Medicare program, with most
beneficiaries experiencing significant increases in cost-sharing,’ he
said. The plan also wouldn't go far enough in making sure doctors stay
in Medicare, he added.”
Medicare,
however, is not the only program targeted for big cuts. The proposal
“would reach virtually every corner of society, making cost curbs in the
new overhaul law look tame be comparison,” according the AP report by
Ricardo Alonzo Zaldivar in the
Los Angeles Times.
“Workers with
solid coverage on the job, seniors, drug companies, trial lawyers,
hospitals, doctors, state governments and federal employees would all
feel the effects. For
Medicare recipients, the biggest change would be an increase in
cost-sharing.”
The plan
has six major components
1) Discretionary Spending Cuts: Enact
tough discretionary spending caps to force budget discipline in
Congress. Include enforcement mechanisms to give the limits real
teeth. Make significant cuts in both security and non-security
spending by cutting low-priority programs and streamlining
government operations. Offer over $50 billion in immediate cuts
to lead by example, and provide $200 billion in illustrative
2015 savings.
2) Comprehensive Tax Reform: Sharply reduce
rates, broaden the base, simplify the tax code, and reduce the
deficit by reducing the many “tax expenditures”—another name for
spending through the tax code. Reform corporate taxes to make
America more competitive, and cap revenue to avoid excessive
taxation.
3) Health Care Cost Containment: Replace
the phantom savings from scheduled Medicare reimbursement cuts
that will never materialize and from a new long-term care
program that is unsustainable with real, common-sense reforms to
physician payments, cost-sharing, malpractice law, prescription
drug costs, government-subsidized medical education, and other
sources. Institute additional long-term measures to bring down
spending growth.
4) Mandatory Savings: Cut
agriculture subsidies and modernize military and civil service
retirement systems, while reforming student loan programs and
putting the Pension Benefit Guarantee Corporation on a
sustainable path.
5) Social Security Reforms to Ensure Long-Term
Solvency and Reduce Poverty: Ensure
sustainable solvency for the next 75 years while reducing
poverty among seniors. Reform Social Security for its own sake,
and not for deficit reduction.
6) Process Changes: Reform the
budget process to ensure the debt remains on a stable path,
spending stays under control, inflation is measured accurately,
and taxpayer dollars go where they belong.
The panel
co-chairmen, former Wyoming GOP Sen. Alan Simpson and former Clinton
White House Chief of Staff Erskine Bowles, did say they appear to lack
enough votes to win the necessary super-majority backing for their
nearly $4 trillion deficit-reduction plan,
according to
The Fiscal Times. There are 18 members of the committee.
In a preamble to
the report the committee wrote, “We spent the past eight months studying
the same cold, hard facts. Together, we have reached these unavoidable
conclusions: The problem is real. The solution will be painful. There is
no easy way out. Everything must be on the table. And Washington must
lead.”
They added, “Over
the long run, as the baby boomers retire and health care costs continue
to grow, the situation will become far worse. By 2025 revenue will be
able to finance only interest payments, Medicare, Medicaid, and Social
Security.
“We need to
implement policies today to ensure that future generations have
retirement security, affordable health care, and financial freedom. To
do that, we must make Social Security solvent and sound, reduce the
long-term growth of health care spending, and tackle the nation’s
overwhelming debt burden.”
Following are
the comments in the commission report about the “Health Care Savings”
provisions (provision number 3) of the proposal.
Health Care Savings Proposals
Federal health
care spending represents our single largest fiscal challenge over the
long-run. As the baby boomers retire and overall health care costs
continue to grow faster than the economy, federal health spending
threatens to balloon. Under its extended-baseline scenario, CBO projects
that federal health care spending for Medicare, Medicaid, the
Children’s Health Insurance Program (CHIP), and the health insurance
exchange subsidies will grow from nearly 6 percent of GDP in 2010 to
about 10 percent in 2035, and continue to grow thereafter.
These
projections likely understate true amount, because they count on large
phantom savings – from a scheduled 23 percent cut in Medicare physician
payments that will never occur and from long-term care premiums in an
unsustainable program (the Community Living Assistance Services and
Supports Act, or “CLASS Act”).
The Commission
recommends first reforming both the formula for physician payments
(known as the Sustainable Growth Rate or SGR) and the CLASS Act, and
finding savings throughout the health care system to offset their costs.
In addition, we recommend a number of other reforms to reduce federal
health spending and slow the growth of health care costs more broadly.
Over the longer
term (2020 and beyond), the Commission recommends setting targets for
the total federal budgetary commitment to health care and requiring
further structural reforms if federal health spending exceeds the
program-specific and overall targets. We recognize that controlling
federal health spending will be very difficult without reducing the
growth of health care costs overall. To that end, the Commission’s
recommendations on tax reform regarding reducing and potentially
eliminating the exclusion for employer-provided health insurance will
help decrease growth in health care spending, according to virtually all
health economists.
RECOMMENDATION
3.1: REFORM THE MEDICARE SUSTAINABLE GROWTH RATE. Reform the
Medicare Sustainable Growth Rate for physician payment and require the
fix to be offset. (Saves $3 billion in 2015, $26 billion through 2020,
relative to a freeze)
The Sustainable
Growth Rate (SGR) – known as the “doc fix” – was created in 1997 to
control Medicare spending by setting payment targets for physician
services and reducing payment updates if spending exceeded the targets.
The SGR formula has required reductions in physician payments every year
since 2002, but beginning in 2003 Congress blocked the reductions each
year, requiring even larger reductions every subsequent year. Because of
the accumulated shortfall from deferred reductions, the SGR formula
would require a 23 percent reduction in 2012 payments, and will increase
every year the problem is not fixed.
Freezing
physician payments from 2012 through 2020, as we assume in our baseline,
would cost $267 billion relative to current law. The Commission believes
that this amount – or the cost of any “doc fix” – must be fully offset,
and recommends enforcing this principle by eliminating its exemption in
statutory PAYGO. In the near term, we also recommend replacing the
reductions scheduled under the current formula with a freeze through
2013 and a one percent cut in 2014.
For the medium
term, the Commission recommends directing the Centers for Medicare and
Medicaid Services (CMS) to develop an improved physician payment formula
that encourages care coordination across multiple providers and settings
and pays doctors based on quality instead of quantity of services. In
order to maintain pressure to establish a new system and limit the costs
of physician payments, the proposal would reinstate the SGR formula in
2015 (using 2014 spending as the base year) until CMS develops a revised
physician payment system. The Medicare actuary would be required to
certify the new payment system would not cost more than would have been
allowed under the SGR formula.
This proposal
would cost about $22 billion less than simply continuing to freeze
physician payments, and therefore would reduce the deficit by that
amount relative to our baseline.
RECOMMENDATION
3.2: REFORM OR REPEAL THE CLASS ACT.
(Costs $11 billion in 2015, $76 billion through 2020)
The Community
Living Assistance Services and Supports (CLASS) Act established a
voluntary long-term care insurance program enacted as part of the
Affordable Care Act (ACA). The program attempts to address an important
public policy concern – the need for non-institutional long-term care –
but it is viewed by many experts as financially unsound. The program’s
earliest beneficiaries will pay modest premiums for only a few years and
receive benefits many times larger, so that sustaining the system over
time will require increasing premiums and reducing benefits to the point
that the program is neither appealing to potential customers nor able to
accomplish its stated function.
Absent reform,
the program is therefore likely to require large general revenue
transfers or else collapse under its own weight, Commission advises the
CLASS Act be reformed in a way that makes it credibly sustainable over
the long term. To the extent this is not possible, we advise it be
repealed. Technically, repealing the CLASS Act will increase the deficit
over the next decade, because the program’s premiums are collected up
front and its benefits are not paid out for five years. To address this,
we would replace the deficit reduction on paper from the CLASS Act with
real options that truly save the federal government money and put it on
a more sustainable path.
RECOMMENDATION
3.3: PAY FOR THE MEDICARE “DOC FIX” AND CLASS ACT REFORM. Enact
specific health savings to offset the costs of the Sustainable Growth
Rate (SGR) fix and the lost receipts from repealing or reforming the
CLASS Act.
To offset the
cost of the SGR fix and recover lost receipts in the first decade from
repealing or reforming the CLASS Act, the Commission proposes a set of
specific options for health savings that, combined, total nearly $400
billion from 2012 to 2020.
Medicare
Savings
3.3.1
Increase government authority and funding to reduce Medicare fraud.
(Saves $1 billion in 2015, $9 billion through 2020)
The Commission
recommends increasing the ability of CMS to combat waste, fraud, and
abuse by providing the agency with additional statutory authority and
increased resources (through a cap adjustment in the discretionary
budget.)
3.3.2 Reform
Medicare cost-sharing rules.
(Saves $10 billion in 2015, $110 billion through 2020)
Currently,
Medicare beneficiaries must navigate a hodge-podge of premiums,
deductibles, and copays that offer neither spending predictability nor
protection from catastrophic financial risk. Because cost-sharing for
most medical services is low, the benefit structure encourages
over-utilization of health care. In place of the current structure, the
Commission recommends establishing a single combined annual deductible
of $550 for Part A (hospital) and Part B (medical care), along with 20
percent uniform coinsurance on health spending above the deductible. We
would also provide catastrophic protection for seniors by reducing the
coinsurance rate to 5 percent after costs exceed $5,500 and capping
total cost sharing at $7,500.
3.3.3
Restrict first-dollar coverage in Medicare supplemental insurance.
(Medigap savings included in previous option. Additional savings total
$4 billion in 2015, $38 billion through 2020.)
The ability of
Medicare cost-sharing to control costs – either under current law or as
proposed above – is limited by the purchase of supplemental private
insurance plans (Medigap plans) that piggyback on Medicare. Medigap
plans cover much of the cost-sharing that could otherwise constrain
over-utilization of care and reduce overall spending. This option would
prohibit Medigap plans from covering the first $500 of an enrollee’s
cost-sharing liabilities and limit coverage to 50 percent of the next
$5,000 in Medicare cost-sharing. We also recommend similar treatment of
TRICARE for Life, the Medigap policy for military retirees, which would
save money both for that program and for Medicare, as well as similar
treatment for federal retirees and for private employer-covered
retirees.
3.3.4 Extend
Medicaid drug rebate to dual eligibles in Part D.
(Saves $7 billion in 2015, $49 billion through 2020)
Drug companies
are required to provide substantial rebates for prescription drugs
purchased by Medicaid beneficiaries. We recommend extending these
rebates to Medicaid beneficiaries who are also eligible for Medicare
(individuals known as “dual eligibles”) and who receive prescription
drug coverage through the Medicare Part D program.
3.3.5 Reduce
excess payments to hospitals for medical education.
(Saves $6 billion in 2015, $60 billion through 2020)
Medicare
provides supplemental funding to hospitals with teaching programs for
costs related to residents receiving graduate medical education (GME)
and indirect costs (IME). The Commission recommends bringing these
payments in line with the costs of medical education by limiting
hospitals’ direct GME payments to 120 percent of the national average
salary paid to residents in 2010 and updated annually thereafter by
chained CPI and by reducing the IME adjustment from 5.5 percent to 2.2
percent, which the Medicare Payment Advisory Commission has estimated
would more accurately reflect indirect costs.
3.3.6 Cut
Medicare payments for bad debts.
(Saves $3 billion in 2015, $23 billion through 2020)
Currently,
Medicare reimburses hospitals and other providers for unpaid deductibles
and copays owed by beneficiaries. We recommend gradually putting an end
to this practice, which is not mirrored in the private sector.
3.3.7
Accelerate home health savings in ACA.
(Saves $2 billion in 2015, $9 billion through 2020)
The Affordable
Care Act included several policies changing reimbursements for home
health providers. The Commission recommends accelerating these changes
to incorporate productivity adjustment beginning in 2013 and directing
the Secretary of Health and Human Services (HHS) to phase in rebasing
the home health prospective payment system by 2015 instead of 2017.
Medicaid
Savings
3.3.8
Eliminate state gaming of Medicaid tax gimmick.
(Saves $5 billion in 2015, $44 billion through 2020)
Many states
finance a portion of their Medicaid spending by imposing taxes on the
very same health care providers who are paid by the Medicaid program,
increasing payments to those providers by the same amount and then using
that additional “spending” to increase their federal match. We recommend
restricting and eventually eliminating this practice.
3.3.9 Place
dual eligibles in Medicaid managed care.
(Saves $1 billion in 2015, $12 billion through 2020)
Approximately
nine million low-income seniors and disabled individuals are covered by
both Medicaid and Medicare. The divided coverage for dual eligibles
results in poor coordination of care for this vulnerable population and
higher costs to both federal and state governments. We recommend giving
Medicaid full responsibility for providing health coverage to dual
eligibles and requiring that they be enrolled in Medicaid managed care
programs. Medicare would continue to pay its share of the costs,
reimbursing Medicaid. Medicaid has a larger system of managed care than
does Medicare, and this would result in better care coordination and
administrative simplicity.
3.3.10 Reduce
funding for Medicaid administrative costs.
(Saves $260 million in 2015, $2 billion through 2020)
We recommend
asking states to take responsibility for more of Medicaid’s
administrative costs by eliminating Medicaid payments for administrative
costs that are duplicative of funds originally included in the Temporary
Assistance for Needy Families (TANF) block grants.
Other
Savings
3.3.11 Allow
expedited application for Medicaid waivers in well-qualified states.
In order to give
states new flexibility to control costs and improve quality, we
recommend increasing the availability of state Medicaid waivers.
Specifically, we recommend establishing presumptive eligibility criteria
for up to 10 states over the next decade. These eligible states would be
required to proactively seek out the waiver and to meet certain
objective threshold criteria, including: improved quality, efficiency,
and cost of care; and not increasing the uninsured population.
Applications would be evaluated and overseen by the Medicaid Center for
Innovation.
3.3.12
Medical malpractice reform.
(Saves $2 billion in 2015, $17 billion through 2020)
Most experts
agree that the current tort system in the United States leads to an
increase in health care costs. This is true both because of direct costs
– higher malpractice insurance premiums – and indirect costs in the form
of over-utilization of diagnostic and related services (sometimes
referred to as “defensive medicine”). The Commission recommends an
aggressive set of reforms to the tort system.
Among the
policies pursued, the following should be included: 1) Modifying the
“collateral source” rule to allow outside sources of income collected as
a result of an injury (for example workers’ compensation benefits or
insurance benefits) to be considered in deciding awards; 2) Imposing a
statute of limitations – perhaps one to three years – on medical
malpractice lawsuits; 3) Replacing joint-and-several liability with a
fair-share rule, under which a defendant in a lawsuit would be liable
only for the percentage of the final award that was equal to his or her
share of responsibility for the injury; 4) Creating specialized “health
courts” for medical malpractice lawsuits; and 5) Allowing “safe haven”
rules for providers who follow best practices of care.
Many members of
the Commission also believe that we should impose statutory caps on
punitive and non-economic damages, and we recommend that Congress
consider this approach and evaluate its impact.
3.3.13 Pilot
premium support through FEHB Program.
(Saves $2 billion in 2015, $18 billion through 2020)
The Commission
recommends transforming the Federal Employees Health Benefits (FEHB)
program into a defined contribution premium support plan that offers
federal employees a fixed subsidy that grows by no more than GDP plus 1
percent each year. For federal retirees, this subsidy could be used to
pay a portion of the Medicare premium. In addition to saving money, this
has the added benefit of providing real-world experience with premium
support.
Several
Commissioners support transforming Medicare into a "premium support"
system – such as one proposed by Representative Paul Ryan and Alice
Rivlin – that offers seniors a fixed subsidy (adjusted by geographic
area and by individual health risk) to purchase health coverage from
competing insurers.
A voucher or
subsidy system holds significant promise of controlling costs, but also
carries serious potential risks. To assess the balance of benefits and
risks, we recommend a rigorous external review process to study the
outcomes of the FEHB premium support program to determine its effects on
costs, health care utilization, and health outcomes. Although the
population covered by FEHB is different from the Medicare population, if
this type of premium support model successfully holds down costs without
hindering quality of care in FEHB program, that experience would be
useful in considering a premium support program for Medicare.
RECOMMENDATION
3.4: AGGRESSIVELY IMPLEMENT AND EXPAND PAYMENT REFORM PILOTS.
Direct CMS to
design and begin implementation of Medicare payment reform pilots,
demonstrations, and programs as rapidly as possible and allow successful
programs to be expanded without further congressional action.
The Affordable
Care Act requires CMS to conduct a variety of pilot and demonstration
projects in Medicare to test delivery system reforms which have the
potential to reduce costs without harming quality of care. These pilots
include Accountable Care Organizations (ACOs), bundling for post-acute
care services, and other programs to pay for performance. We recommend
CMS be directed to aggressively pursue these and other reforms,
including introduction of downside risk to ACOs and bundled payment
pilots.
CMS should also
ensure that the private sector is an active partner in the research and
design of payment reforms, building on concepts that have been proven to
work at the state, regional, or federal level. In addition to Medicare
pilots, we recommend that CMS be required to fast-track state Medicaid
waivers that offer demonstrable promise in improving care and returning
savings, such as Rhode Island’s Global Consumer Choice Demonstration,
which provides a capped federal allotment for Medicaid over five years;
Vermont’s all-payer advanced primary care practice reform, called
Blueprint for Health; and Community Care of North Carolina, a
provider-led medical home reform that has increased access to primary
care, decreased emergency department usage, and saved money.
Pilots that
succeed in controlling costs should be expanded as rapidly as is
feasible. The Commission recommends shifting the presumption toward
expanding reforms by requiring the Secretary to implement any pilot
projects that have shown success in controlling costs without harming
the quality of care by 2015. The Commission recommends utilizing the new
Center for Medicare and Medicaid Innovation as the vehicle for
accelerating these pilots. The Commission’s plan does not assume any
savings from expansion of these pilot projects in its deficit estimates,
but believes that there could be substantial savings in Medicare,
Medicaid, CHIP, and other health from aggressive implementation of
successful pilots.
RECOMMENDATION
3.5: ELIMINATE PROVIDER CARVE-OUTS FROM IPAB.
Give the
Independent Payment Advisory Board (IPAB) authority to make
recommendations regarding hospitals and other exempted providers.
The Affordable
Care Act established the Independent Payment Advisory Board to recommend
changes in Medicare payment policies if per-beneficiary Medicare
spending grows too quickly. However, the law exempted certain provider
groups, most notably hospitals, from any short-term changes from IPAB’s
authority. The Commission recommends eliminating these carve-outs.
RECOMMENDATION
3.6: ESTABLISH A LONG-TERM GLOBAL BUDGET FOR TOTAL HEALTH CARE
SPENDING.
Establish a
global budget for total federal health care costs and limit the growth
to GDP plus 1 percent.
Commission
members, and virtually all budget experts, agree that the rapid growth
of federal health care spending is the primary driver of long-term
deficits. Some Commission members believe that the reforms enacted as
part of ACA will “bend the curve” of health spending and control
long-term cost growth. Other Commission members believe that the
coverage expansions in the bill will fuel more rapid spending growth and
that the Medicare savings are not sustainable. The Commission as a whole
does not take a position on which view is correct, but we agree that
Congress and the President must be vigilant in keeping health care
spending under control and should take further actions if the growth in
spending continues at current rates.
The
Commission recommends setting up a process for reviewing total federal
health care spending – including Medicare, Medicaid, the Children’s
Health Insurance Program, FEHB, TRICARE, the exchange subsidies, and the
cost of the tax exclusion for health care – starting in 2020, with the
target of holding growth to GDP plus 1 percent and requiring action by
the President and Congress if growth exceeds the targets.
This target
should be adjusted to account for any changes in the health care
exclusion enacted under tax reform. The target should be measured on a
per-beneficiary basis if it is applied only to certain federal health
programs, rather than globally. If health care costs continue to grow as
fast as CBO and the Medicare actuaries project, or even faster as some
Commission members believe will be the case, this process will require
Congress and the President to consider further actions that make more
substantial structural reforms. If the reforms in ACA are more
successful in controlling costs than the estimates by CBO and the
Medicare actuary suggest, as some Commission members believe, spending
growth should be within the targets and this process would not be
triggered.
We recommend
requiring both the President and Congress to make recommendations
whenever average cost growth has exceeded GDP plus 1 percent over the
prior five years. To the extent health costs are projected to grow
significantly faster than that pace, we recommend the consideration of
structural reforms to the health care system. Commissioners have
suggested various policy options, including: moving to a premium support
system for Medicare; giving CMS authority to be a more active purchaser
of health care services using coverage and reimbursement policy to
encourage higher value services; expanding and strengthening the
Independent Payment Advisory Board (IPAB) to allow it to make
recommendations for cost-sharing and benefit design and to look beyond
Medicare; adjusting the federal-state responsibility for Medicaid, such
as block grants for acute or long-term care; establishing a robust
public option in the health care exchanges; raising the Medicare
retirement age; and moving toward some type of all-payer system.
Dec. 2, 2010 –
Senior citizens and baby boomers should have been restless last night –
the two most important government programs they will depend on in their
old age – Social Security and Medicare – were the major victims in a
cost-slashing proposal by a government deficit reduction panel for
improving the financial future of the U.S. government.
