The Joint Select Committee on Deficit Reduction—the “supercommittee”—is struggling to develop a plan to cut at least $1.2 trillion from federal spending over the next 10 years. And this is just the early round of budget battles that are likely to continue for years, largely driven by massive spending on entitlement programs, especially Medicare.
The supercommittee must meet its target in the short term, but it also can take the long view in proposing changes that will grow over time to strengthen Medicare and protect taxpayers.
Here are suggestions for positive reform; they are ideas that have broad support, and several of them already have been proven to be models for larger reform:
Gradually increase Medicare’s eligibility age. When Medicare was enacted in 1965, the eligibility age was set at 65, and life expectancy was 70. Life expectancy now is 78. Gradually increasing Medicare’s eligibility age to 67 is a reasonable reform and would reflect changes already on track for Social Security.
This could be accomplished much more easily if early retirees were to have more options for individually held health insurance that is not so closely tied to the workplace. Under a system of portable health insurance, the transition from private insurance to Medicare would be more seamless. Gradually increasing Medicare’s eligibility age would provide new incentives for making this longer-term change.
Mind the Medigap. As much as seniors value their Medicare coverage, Medicare is an inferior program compared to private insurance; it doesn’t, for example, limit seniors’ out-of-pocket costs. As a result, most seniors carry supplemental coverage, either through retiree plans, Medicaid or private Medigap policies.
The Congressional Budget Office reports that seniors with first-dollar Medigap coverage spend about 25% more than those with Medicare alone. Other studies have shown that more spending in Medicare doesn’t equate to better health outcomes.
The Simpson-Bowles debt reduction commission proposed that Medigap plans be prohibited from covering the first $550 of cost-sharing and limit coverage to 50% of the next $5,000, with protections for lower-income seniors. President Barack Obama has proposed imposing a surcharge of 30% for seniors who buy first-dollar Medigap plans, effective in 2017. Alternatively, Congress could require seniors who purchase Medigap to pay a higher premium for their Part B coverage.
These proposals are worth considering. The longer-range solution is to encourage more seniors to enroll in Medicare Advantage plans that provide more comprehensive care, eliminating the need for Medigap policies altogether. But this means protecting MA plans from unreasonable payment cuts imposed by the Patient Protection and Affordable Care Act.
Improve care for dual-eligibles. Those who are eligible for both Medicare and Medicaid are generally seniors with low incomes, often with multiple chronic conditions. They are Medicaid’s most costly patients and often most in need of better-coordinated care. State and local governments are best able to develop programs to better manage care for seniors because they are closer to patients and know better the resources available. The CMS is considering sharing Medicare savings with states that are designing demonstration programs for dual-eligible beneficiaries. The CMS has made such arrangements in the past on a case-by-case basis, but this is the first time the agency has indicated it would consider sharing Medicare savings. The supercommittee could reinforce this important first step with its own recommendation.
Shore up the Medicare Advantage program. Nearly 11 million seniors have voluntarily enrolled in Medicare Advantage plans. Instead of undermining it with deep reimbursement cuts, as PPACA does, Congress should put Medicare Advantage on a level playing field with traditional Medicare.
It is essential to modernize the antiquated, rule-driven Medicare program that is now run through a centralized, command-and-control bureaucracy which misallocates resources through price controls and mountains of regulations. Medicare Advantage provides a platform for the more-efficient, better-coordinated, personalized care a 21st century healthcare sector will be able to deliver.
Protect Medicare Part D. The Medicare prescription drug program is the success story among federal entitlement programs. Part D harnesses the power of competition and the purchasing power of savvy seniors to keep drug costs in check. Private companies compete to offer prescription drug benefits to seniors, and the lower prices are turned into lower premium costs and savings for seniors and taxpayers.
Medicare’s Part D benefit payments are 46% lower than initial estimates. This provides savings for both seniors and taxpayers. Supercommittee members can look at its success and build on this architecture for larger Medicare reforms.
The supercommittee also can look at proposals the administration already supports, such as reducing hospital regulations, modifying the Part B deductible, and introducing copayments for home health for new beneficiaries.
It is equally important not to make changes that will exacerbate problems:
Don’t extend prescription drug rebates to dual-eligibles. Several legislators have proposed requiring pharmaceutical firms to pay a rebate on prescription drugs purchased for beneficiaries who receive benefits through both Medicare and Medicaid.
Studies show that expanding Medicaid-style rebates to Medicare would shift higher costs to seniors in the form of higher out-of-pocket drug and drug premium costs. Douglas Holtz-Eakin, former director of the Congressional Budget Office and now president of the American Action Forum, estimates that seniors would pay between $1.5 and $3.7 billion more in out-of-pocket prescription drug costs if this rebate were imposed. And they estimates that prescription drug premium costs would rise 20% to 40%. This is a “solution” that would harm seniors and healthcare consumers.
Don’t give even more powers to the IPAB. The Independent Payment Advisory Board, created under PPACA, will exert an iron-fist rule over Medicare payment policies. It will be under strict instructions to cut payments to providers and suppliers, regardless of the consequences, with limited ability for Congress to overrule its edicts. The IPAB is a hatchet approach to spending restraint and should be repealed, not strengthened.
The solution to containing spending on Medicare and other entitlement programs is to energize competitive markets and give consumers more power to make economical choices. The supercommittee has an opportunity to chart a positive new course for Medicare through modernization proposals that bring the power of market competition to reducing health costs.
Posted on Modern Healthcare, November 9, 2011.