The short-lived reprieve for Medicare and Medicaid is over. The no-longer sacrosanct government health programs will most definitely face cuts of some sort by this coming November when the new 12-person congressional “Super Committee” is charged with trimming at least another $1.2 trillion from the national budget.
On Monday, President Obama made his priorities clear: He called for “tax reform that would ask those who can afford it to pay their fair share,” (i.e. get rid of Bush-era tax breaks for the wealthy) and “modest adjustments” (i.e. cuts) to entitlement programs like Medicare and Social Security.
Senate Majority Leader Harry Reid (D-Nev.) is set to appoint Sens. Patty Murray (D-Wash.), Max Baucus (D-Mont.) and John Kerry (D-Mass.) to the congressional debt-reduction "super committee" and more appointments will be announced by other Congressional leaders as the August 16 deadline gets closer. Whatever its make-up, the committee's battle over entitlement cuts will occur on familiar territory. In a comprehensive—but ultimately depressing—post for Politico, David Nather writes that the super committee will likely start with “a list of the standard ideas that are already ‘out there’” for cutting Medicare and Medicaid.
“There’s a pretty long menu of ideas to choose from, thanks to the work that’s already been done by the bipartisan negotiations led by Vice President Joe Biden,” writes Nather. “And the supers will also be able to draw from the suggestions of other bipartisan groups, like President Barack Obama’s fiscal commission and the Senate Gang of Six.”
Nather makes its way down this “menu of ideas” for trimming the costs of Medicare and Medicaid and offers what he imagines will be the typical response from a Republican super committee member as well as the likely response from his Democratic counterpart. As you read his piece, you can’t help but notice how polarizing these issues are and begin to realize how incredibly excruciating the process of trying to identify bi-partisan entitlement cuts will be. Besides fighting over cuts to major entitlement programs the “supers” will also be considering increasing tax revenue—a gargantuan mission with the odds stacked against any Republican member agreeing to a tax increase.
In my next post I plan on taking a closer look at the first cost-saving strategy on Nather’s menu of ideas—cracking down on Medicare and Medicaid fraud and abuse. At HealthBeat we have examined the merits (or lack thereof) of many of the other ideas Nather lists for trimming health care spending. Click on the links embedded below to see related posts written by Maggie or me that flesh out individual cost-saving recommendations.
Here is an abbreviated version of Politico’s “super committee entitlement menu” and potential savings for each strategy:
1) Cracking down on fraud and abuse in Medicare ($9 billion over 10 years, according to the fiscal commission)
2) Raising the Medicare eligibility age from 65 to 67 ($124.8 billion over a period of 10 years, according to the Congressional Budget Office)
3) Restructure Medicare benefits to simplify co-pays and deductibles; seniors would have a $550 annual deductible for doctors and hospital care and pay 20% co-pays. ($110 billion over 10 years, according to fiscal commission)
4) Restrict how much of Medicare’s deductibles and co-pays can be covered by Medigap plans—private plans purchased by seniors specifically to shield them from these expenses. The idea being that if seniors have to pay more out-of-pocket, they will be more “sensitive to the price of their health care.” ($38 billion over 10 years, according to the fiscal commission)
5) Rewrite the Sustainable Growth Rate formula that has added up over the years to a 29% cut in payments to providers. These cuts have been postponed through temporary “doc fixes” each year. (The CBO estimates that changing the SGR would cost $358 billion over 10 years)
6) Raise Medicare Part B premiums so that seniors would pay 35% of premium costs rather than 25% ($241 billion over 10 years, according to CBO.)
7) Have Medicare stop reimbursing hospitals for bad debt—the co-pays and deductibles they are unable to collect from patients. ($14 billion to $26 billion over 10 years, according to the Biden group)
8) Turn Medicaid into a block grant program where each state is given a set amount of funding and can then decide what services they will or will not cover. (Ryan’s version would save $750 billion over 10 years. If the block grant were restricted to just Medicaid’s long-term care coverage, CBO projects savings between $187 billion and $287 billion)
9) Change the Medicaid federal matching formula so that instead of states receiving different matching rates, each would receive a standard “blended rate.” ($100 billion over 10 years, according to the target set by the Biden group)
10) Require drug companies to provide rebates to recipients who are eligible for both Medicaid and Medicare (so-called dual eligibles). Right now only people who get their medications through Medicaid alone can receive these rebates. ($49 billion over 10 years, according to the fiscal commission)
11) Cut payments to nursing homes and home health care providers—and/or increase patient co-pays for these services. ($50 billion over 10 years, according to the Biden group)
If the super committee members don't agree on a plan (7 out of 12 must vote in favor), or if Congress doesn’t approve the package they do propose by Dec. 23, a series of automatic spending cuts to defense and entitlements would kick in by 2013. Included in these automatic cuts is an across-the-board, 2 percent cut to all Medicare providers (Medicaid would remain intact). The threat of these cuts was obviously included in the budget agreement to act as a deterrent to gridlock, but in light of the current partisan standoff among lawmakers, this deterrent may not be enough to force a consensus.
Stan Collender, a partner at Qorvis Communications and former congressional budget staffer, told Kaiser Health News that “he gives less than 5 percent chance the committee will come to an agreement that Congress will approve. ‘In an era of hyper partisanship have you seen any other special committee of elected officials come up with some broad-based deficit reduction package looking at tax increases and spending cuts?’ he asks.”
Robert Bixby, executive director of the nonpartisan Concord Coalition, a budget watchdog group told KHN that he “gives the committee less than a 25 percent chance of coming to an agreement.”
It may be too early to pick odds on the success of any “super committee.” The frenzied, high-octane theatrics leading up to the last-minute budget agreement and raising of the debt limit have had a significant impact on the nation’s psyche. Right now, with the stock market reacting to both the absence of a political consensus and the absence of a strong vision on how to fix our faltering economy it’s hard to visualize how we will weather yet another round of contentious budget negotiations. Let the games begin…
“On Monday, President Obama made his priorities clear: He called for “tax reform that would ask those who can afford it to pay their fair share,” (i.e. get rid of Bush-era tax breaks for the wealthy) and “modest adjustments” (i.e. cuts) to entitlement programs like Medicare and Social Security.”
What a joke. If Obama and the Democrats are serious about fiscal reform, I think they need to be prepared to cut entitlements by at least as much as any increased revenue from higher taxes. According to the CBO, eliminating the Bush tax cuts for couples making over $250K and singles making over $200K would raise $700 billion over 10 years. Eliminating the cuts for everyone would raise $3.8 trillion.
People who earn high incomes from wages and taxable interest are already paying a higher top marginal rate (35%) than existed after the 1986 Tax Reform Act (28%). By contrast, income from capital gains and dividends are taxed at just over half the post 1986 rate – 15% now vs. 28% then. It would be a lot fairer to raise the capital gains rate back to 28% or at least include it in the base for the purpose of calculating the Alternative Minimum Tax (AMT).
So-called modest adjustments to the massive and unsustainable Medicare and Medicaid programs won’t cut it. Just as Republicans need to realize that revenues have to be part of the mix if we are going to meaningfully address our long term fiscal challenges, Democrats need to get serious about entitlement reform. There aren’t enough rich people to give everyone else a free ride. The middle class needs to contribute its share as well. The days of expecting more from government than they’re willing to pay for are over. Or, at least they should be.
Amen Barry.
Looking at Reid’s appointments (Murray, Baucus, and Kerry) I don’t see much hope for serious reform.
As a Medicare recipient, I am in favor of most of the proposals listed above EXCEPT cuts to providers. It is already difficult to find a GP who will take a new Medicare patient. Further cuts will only make this worse.
I would be happy with a Ryan style voucher system under which I could choose the type of coverage I wanted. For me, paying out of pocket for routine care makes sense along with a catastrophic event insurance policy.
A form of item 4 is already in existence at least on a limited and elective basis. My wife & I both became eligible for Medicare in 2010. We are both in good health and so we thought it made sense to buy the “high-deductible” Medigap coverage offered by CareFirst (MD & VA).
The annual per-person deductible under our policies is $2,000, but the total first year premium savings (as compared to the standard CareFirst Medigap policies) were a little over $1,600 ($800 each). We “won the bet” last year and made a similar “bet” in 2011.
For us, the higher deductible would not be a deterrent to seeking needed care, but I can see how it might be for someone with fewer resources and chronic medical issues.
To trim $1.2 trillion, cutting health budget is not a good idea. Govt. should find other ways to do it. I am sure Govt. is doing it.
LHF said, “I would be happy with a Ryan style voucher system under which I could choose the type of coverage I wanted.”
That’s great if you can find choices worth stomaching. My experience with “choices” is the choices are very limited and equally bad.
Vouchers are another way of turning over the piggy bank to private companies and eliminating social safety nets.
I can live with some changes to Medicare and Medicaid.
Vouchers? No thanks.
of course none are appealling. else they would have been done long ago. question is which are least painful and most acceptable — in short, least worst. that’s often what politics involves. personally I think allowing the Part B premium to rise with inflation would be a step in the right direction.
“I think allowing the Part B premium to rise with inflation would be a step in the right direction.”
Jim –
For years, the Part B premium was set to recover 25% of Part B costs. However, in years when there is no increase in Social Security benefits because the inflation index didn’t rise enough to trigger one, the law does not allow for an increase in Part B premiums for people already receiving Social Security. For those who start to collect social security in the current year, however, their Part B premium will be set to the amount calculated to recover 25% of program costs.
Personally, raising the premium formula to cover 35% of program costs would be fine with me along with special provisions for the dual-eligibles. If you add up all the savings from the options on Naomi’s list but ignore the Ryan plan and use the midpoint of the range for options that have savings ranges, CBO scores the aggregate savings at $620 billion over 10 years if we adopted them all. If Democrats seek to achieve between $700 billion and $1 trillion of 10 year deficit reduction from higher taxes and fees, I think we need to target at least a similar sum for savings from Medicare, Medicaid and Social Security combined. That would be a balanced approach, in my view. Another $2 trillion or so should come from discretionary spending including $1 trillion from defense assuming the two wars wind down over the intermediate term.
Barry–
You write:
“What a joke. If Obama and the Democrats are serious about fiscal reform, I think they need to be prepared to cut entitlements by at least as much as any increased revenue from higher taxes”
You add: .
“According to the CBO, eliminating the Bush tax cuts for couples making over $250K and singles making over $200K would raise $700 billion over 10 years. Eliminating the cuts for everyone would raise $3.8 trillion.:
Barry– On this blog, I have argued that we shouldn’t just let the tax cuts expire for individuals earning over $200,000.
I have said that we should let the tax cuts expire for the upper middle-class UPM).
(Psople at the upper level of the UPM include indivudals earning over $125,000. …
I don’t have the numbers on how much this woudl ave to create job, but I have farily good feel for the number of individuals earnign more than $150,00.
They are probably in the top 5% to 7% on the income ladder.
(This is a guess, but probably not wildly off. Barry, if you can find the numbers easilly, I would appreciate it if you could fact-check where individuals earning over $150,000 are on the income ladder. )
I would add that many in this oohort are married to spouses earning over $100,00 or so.. .) This means that they enjoy joint income over $275,000, putting them in the top 2% to 3% of families.
Meanwhile, you would cut entitlements for Medicare patients with a median income of $21,000.(Half earn less than that amount.)
Or would you rather cut benefits for Medicaid patients who are, by definition, very poor.
We are talking about people–and their children-living below the poverty level.
Barry, I can’t believe that you really mean this.
As for asking for more affluent seniors on Medicare to pay more in the form of higher premiums, co-pays & deductibles..
We know that
Medicare has such broad and solid support in this country because affluent Americans don’t see it as a
“welfare program for the poor.” Everyone gets relatively equal benefits,based on their income and contributions.
If you begin means-testing Mecicare, you undermine the
very solid support that the program has enjoyed.
Are you sure you want to do that?
“Meanwhile, you would cut entitlements for Medicare patients with a median income of $21,000.(Half earn less than that amount.)”
Maggie –
No I wouldn’t. I was addressing primarily the 11 options listed in Naomi’s post. None cut benefits to either Medicare or Medicaid beneficiaries. One would require that most pay somewhat more in Part B premiums so 35% of costs are covered from premiums vs. 25% now. Another would restructure deductibles and co-pays and, presumably, add more protection against catastrophic expenses than exists today. The dual eligibles could be protected from even that incremental cost.
There is plenty of room to attack costs through changes in how care is delivered such as moving the very expensive dual-eligible group into managed care and changing the law to allow CMS to explicitly take cost into account in determining what it will and won’t pay for. It’s appropriate to attack fraud and to reduce payments to overpaid nursing homes and home health agencies. Conversely, the SGR formula needs to be repealed.
Every time I or others suggest program changes that save money you automatically conclude that we’re suggesting cutting benefits to low income people. To use one of your expressions, it just isn’t true. Neither Medicare nor Medicaid is a model of efficiency to put it mildly. There are plenty of ways to attack costs in these programs without cutting benefits. Most of them deserve support even from liberals.
Ok Barry:
There is room to attack the inefficiency within Medicare and Medicaid the same as viewing the top part of an iceberg not knowing the major portion of it is below the surface of the ocean. Medicare and Medicaid are both a reflection of the healthcare industry (which includes hospitals. pharma, doctors, commercial insurance, fees for services, etc). By concentrating solely on entitlement programs which this committee has the mandate to do, it is still an attack on the lower incomes instead of the much larger root cause of the entitlement programs . . . a healthcare industry out stripping inflation. Much of the emphasis for these improvements are already built into the ACA. In effect we have a band of senators tilting with a much smaller portion of the issue which will have no impact upon the larger and very much out-of-control healthcare industry.
Hi Maggie:
Tax Policy Center has a nice chart here: http://www.taxpolicycenter.org/numbers/displayatab.cfm?DocID=3068 which gives a breakdown of taxpayers by income. If you drop down to $100,000, you would be discussing 17.2% of the taxpayers. 80% of all fed indome taxes comes from this group. In effect, it would be a cancellation of the 2001/2003 tax breaks.
Remember, we have two unfunded wars going on as well as a second dip of a recesion also and high unemployment plus a low Participation Rate. Just getting more people back to work and ending two wars would do much to alleviate the revenue short fall which is what we are truly discussing when we are talking entitlement programs. This current discussion is addressing the results of the 2001 recessin, the 2008 blowup, two wars, and the 2001/2003 tax breaks.
Maggie:
You may like this Tax Policy paper. http://www.taxpolicycenter.org/uploadedpdf/1001438-tax-cuts-debate.pdf
Barry–
You write: “One would require that most pay somewhat more in Part B premiums so 35% of costs are covered from premiums vs. 25% now. Another would restructure deductibles and co-pays and ..
Do you realize that some Medicare patients now forego needed care because co-pays are already too high for their budgets?
They also cannot afford higher premiums.
And forcing people to wait until they are 67 (another item on the list) means denying all benefits to people 65 to 67.
The poorest people in this group are also the sickest–and most in need of benefits at 65.
Finally, this is not how one cuts “waste” in the system.
“Waste” is not defined by Medicare patients paying too little.
“Waste” means that they are receiving treatments and tests that are unncessary, or that the treatments are being provided in a way that leads to costly errors and redundancies.
Rather than demanding that patients pay more, we should be figuring out how to reduce payments to drug-makers, some hospitals and some doctors who are either over-charging or providing unnecessary care.
The problem with the debt ceilng compromise is that
it protects the wealthiest (Oh, no we can’t raise taxes on people earning over $250,000) while trying to balance the budget on the backs of
the elderly, the poor, and
graduate students (who as of next July will be forced to pay interest on debt even while in school.)
Why on earth are we trying to shake down graduate students?
I happen to know a young woman who is working very hard to get a Ph.D. in neruology. She is studying precisely the topics that we as a society need to understand better: alchoholism; and obesity.
Both are complex diseases and our inability to trat them successfully is tied up with the fact that we don’t understand the mind/body connections involved.
Now, she is going to have to find a way to pay interest for the remaining 4 years of her 6-year program.
Why did we include grad students in the compromise? Becuase graduate students, like the poor, do not have a lobby.
The elderly do– which is one reason why I expect that the committee will be deadlocked. (The other reason is that the Republicans will not be willing to inccrease taxs.)
At that point we go to 2% automatic cuts in everything –though Medicaid and SS will be exempted, and the agreement says that automatic Medicare cuts must be limited to cuts in payments to providers.
Here, one hopes, they will
cut payments for exorbitantly priced drugs, understaffed, for-profit hospices that are reporting high profit margins while neglecting patients, and nursing homes, hospices, and home health care agencies who are engaging in fraud.
That’s where the waste is.
“Do you realize that some Medicare patients now forego needed care because co-pays are already too high for their budgets? They also cannot afford higher premiums.”
Maggie –
By this logic, since some children come from families that can’t afford to buy a school lunch, everyone should get lunch for free. Dual-eligibles are already excused from paying Part B premiums. It’s possible to design a program to help the elderly with low incomes but too high to also qualify for Medicaid through a circuit breaker approach that would cap their premium at some reasonable percentage of their income. At the same time, the broad middle class that can afford Medigap insurance can pay somewhat more for their Part B insurance. Upper income elderly are already paying much higher premiums and have been since 2007.
“The poorest people in this group are also the sickest–and most in need of benefits at 65.”
The poorest are eligible for Medicaid as well regardless of age.
Even if we raise taxes on the so-called wealthy, it won’t solve the fiscal mess by itself. Entitlements still need to be cut and probably by at least as much as any tax increases that can ultimately pass through Congress. One way or another, the middle class will have to pay more in taxes and/or accept less in Medicare and/or Social Security benefits. Everyone, including the poor, will probably have to accept less access to ultra expensive specialty drugs that cost a lot more than they’re worth. Of course we should go after what you define as waste but it won’t come close to solving the problem. Don’t take my word for it. Ask the CBO.