Changes in Medicare Expected in Negotiations to
Avoid the ‘Fiscal Cliff’
‘Lawmakers are wrestling with finding a balance
between asking beneficiaries to pay more for Medicare services and
reducing payments to Medicare providers’
By Mary Agnes Carey, KHN Staff Writer
Nov. 14, 2012 - Expectations are high. President
Barack Obama and House Speaker John Boehner, R-Ohio, say they want to
avert the fiscal cliff, that toxic mix of expiring tax breaks and
automatic spending reductions set to begin in January. If Republicans
make concessions on taxes, Democrats and the president say, they’ll move
on entitlements, such as Medicare and Medicaid, as part of a larger deal
to reduce the federal deficit.
But we've been here before. Bipartisan coalitions
have produced numerous ideas on how to change entitlements and taxes,
but the recommendations go nowhere.
"Definitely the term 'entitlement reform,' as I
always say, rolls off the tongue so easily," said G. William Hoagland,
senior vice president of the Bipartisan Policy Center and a former staff
director of the Senate Budget Committee and a top budget aide to former
Senate Majority Leader Bill Frist, R-Tenn.
"It's hard to get any savings in [Medicare and
Medicaid] unless we’re talking about a reduction in benefits or a
reduction in reimbursement rates."
"When you get beyond the rhetoric, it’s going to be
very difficult," he said.
Lawmakers are wrestling with finding a balance
between asking beneficiaries to pay more for Medicare services and
reducing payments to Medicare providers, such as hospitals and nursing
homes. Those providers, who are already expecting their Medicare
payments to grow at a slower rate over the next decade as part of the
2010 health law, likely would fight additional cuts. And beneficiaries,
many who are on fixed incomes, will not want to pay more for Medicare
Either decision could have sweeping effects on the
program. "You don’t just get to turn a dial and have it not resonate, We
need to think about our risk pool, we need to think about how the
program works," said a Democratic staffer on the Senate Finance
Experts maintain that changes in entitlements are
bound to be part of any "grand bargain" to reduce the deficit. "It is
hard to imagine a deal without Medicare savings," said Tricia Neuman,
director of the Kaiser Family Foundation's Program on Medicare Policy (KHN
is an editorially independent program of the foundation.)
Medicaid is also expected to be a part of the mix,
but to a lesser extent, analysts say. The Supreme Court’s ruling made
the health law’s Medicaid expansion optional for states, so there’s
concern that any additional reductions in federal Medicaid spending
might make governors even
more reluctant to expand the
federal-state program. And as the nation continues to recover from the
recession, some Democrats are reluctant to cut the program, which serves
more than 60 million low-income Americans.
Here's a look at some of the Medicare changes that
could be in the mix.
HEALTH CARE SPENDING
This proposal was advanced by Obama’s bipartisan
commission chaired by former Clinton chief of staff Erskine Bowles and
former GOP Sen. Alan Simpson. The panel proposed a cap on federal health
care spending that, starting in 2020, would require the growth in per
capita spending on Medicare, Medicaid, and other federal health care
programs not exceed the increase in gross domestic product plus one
If spending grew beyond that target, the president
would have to submit and Congress would have to consider ways to lower
spending, such as creating a "premium support" system for Medicare.
Gov. Mitt Romney, the GOP’s presidential nominee,
and his running mate Rep. Paul Ryan, R-Wis.,
backed a version of “premium support”
that would have provided a fixed amount of money for each beneficiary to
purchase a private health insurance plan or to buy traditional Medicare.
Obama promised to “never turn
Medicare into a voucher”
The 2010 health law already includes a mechanism to
keep Medicare’s overall spending in line. It establishes a 15-member
Independent Payment Advisory Board that is charged with making
recommendations if the amount the government spends on Medicare grows
beyond a target rate. Congress must pass alternative cuts of the same
size or the panel’s recommendations become law. A global cap coming out
of the ongoing deficit negotiations, however, might not have the same
built-in beneficiary protections as IPAB, which cannot recommend changes
in benefits, eligibility or Medicare beneficiary cost-sharing.
While setting a global cap may appear to be a
get-tough measure, it could ultimately end up being a strategy to kick
the difficult decisions on spending to future years. Much depends on how
a cap is designed. For example, would the cap require that savings be
achieved each year or over a period of years? Would it force lawmakers
to take action if spending went beyond a certain point, or simply
encourage further action?
In addition, spending limits do not guarantee
savings, as evidenced by Congress’ experience with Medicare doctor
payments. Medicare’s "sustainable growth rate" formula, established in
the 1997 deficit reduction law, sets physician payment rates through a
formula based on economic growth. But every year since 2002, Congress
has staved off scheduled cuts.
Each deferral increased the size – and price tag –
of the fix needed the next time. The current “doc fix” expires Dec. 31
and unless Congress takes steps to stop it again, physicians who accept
Medicare patients will see
their payments reduced 27 percent.
Hospitals, physicians and other health care
providers – many who are now facing payment cuts either in the 2010
health care law or from the upcoming "sequestration" reductions (or
both) – may take another hit in a deficit deal. Among the options
sometimes mentioned are limiting the amount of "bad debt" that hospitals
and other providers can write off their taxes, reducing federal funding
for medical education and requiring more prior authorization for some
medical services, such as imaging, to help reduce unnecessary care.
Lawmakers looking for political cover from angry providers could cite
the many deficit-reduction proposals that have advanced provider cuts:
Obama’s 2011 deficit reduction proposal, the Simpson-Bowles plan and the
Medicare Payment Advisory Commission, or MedPAC, which advises Congress
on Medicare payment policy.
MEDICARE’S ELIGIBILITY AGE
The age for full Social Security benefits will
reach 67 in 2027 and some analysts argue that it makes sense to slowly
raise the Medicare eligibility age from 65 to 67. Obama backed
increasing the Medicare eligibility age as part of his negotiations last
year with Boehner, according to
documents obtained by Washington
Post reporter Bob Woodward. According to a March 2011
analysis by the Congressional
Budget Office, gradually increasing the Medicare eligibility age would
save the federal government $125 billion over the next decade.
Proponents say that with implementation of the
health law moving forward, people under 67 without job-related insurance
could buy coverage -- even if they are sick -- on the new exchanges
being set up under the health law and may qualify for subsidies to help.
Or, if they are lower income, they might be eligible for Medicaid.
Still, this could be a tough sell to Democrats. In
speech last month, Sen. Charles E.
Schumer, D-N.Y., the Senate’s third-ranking Democrat, said, "There’s a
lot of opposition to it."
"MORE SKIN IN THE
Members of both political parties and some health
care analysts have long thought that spending could be slowed if
patients, including Medicare beneficiaries, put up more of their own
money for health services. Some have suggested raising seniors' share of
the Medicare Part B premium (which covers doctor visits and other
outpatient services) from 25 percent to 35 percent and imposing
co-payments for home health services or the first 20 days of a skilled
nursing facility stay.
The home health co-payment would save $40 billion
over the next decade for the federal government; the skilled nursing
co-pay would save $21.3 billion,
according to the CBO’s 2011
estimates. Increasing the beneficiary's share of Part B would save $241
billion over 10 years.
Raising beneficiaries' share of Part B premiums
would bring the program closer to its original 50-50 split between the
federal government and beneficiaries, proponents say. And they add that
greater cost-sharing for services would discourage overuse of care. But
opponents say that beneficiaries already spend a big chunk of their
incomes on medical care and shouldn’t be asked to contribute more.
Higher income Medicare beneficiaries -- $85,000 and
above for individuals, $170,000 for couples -- now
pay a greater share of their Part B
premiums and could be asked to do more as part of a larger budget deal.
MEDICARE'S DEDUCTIBLE AND MEDIGAP COVERAGE
In addition to paying premiums for Part B, Medicare
beneficiaries also have separate deductibles for their hospital care
(Part A) and for Part B. Nearly one in five beneficiaries in Medicare's
fee-for-service program have supplemental insurance known as Medigap
coverage to help with those costs and others get such coverage from
their Medicare Advantage plans, retiree health plans or other sources.
Some proposals, including one advanced by the
Bowles-Simpson panel, have suggested combining the Part A and B
deductibles into one $550 yearly deductible. That could reduce
beneficiaries' costs for hospital care but be more expensive for seniors
who mostly use Part B.
In addition, some proposals suggest a 10 to 20
percent co-payment for all services until beneficiaries reach a
catastrophic limit of $7,500. Others argue for making that $550
deductible ineligible for Medigap coverage so that beneficiaries are
responsible for covering the cost of those initial services.
Instituting the change in deductibles, co-pays and
Medigap rules would save about $93 billion over the next decade, CBO
estimates. Medicare would save
money, but not just because beneficiaries were putting up more of their
own. If Medigap plans were less generous, analysts believe
beneficiaries would be more careful
about spending and that could help lower Medicare costs. Expect insurers
that sell Medigap policies – especially those that offer first-dollar
coverage – to balk.
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