Medicare and the President’s Deficit Reduction Plan: Shifting Costs to Seniors

How Cost-Sharing Leads to More Cost-Sharing: A Slippery Slope

President Obama’s newest proposal for reducing the federal deficit would slice Medicare reimbursements to drug-makers, nursing homes, rehabilitation facilities, home health services and teaching hospitals. As I explained in Part 1 of this post, using figures from the non-partisan and highly respected Medicare Payment Advisory Commission (MedPAC), these are groups that Medicare often overpays.  Some skilled nursing facilities turn an 18 percent profit on Medicare patients while reimbursements to home health agencies have consistently and substantially exceeded costs.

By and large, these recommendations make sense, and could help throw a spotlight on excesses in Medicare spending. But I very much doubt that either Congress or the Super Committee charged with addressing the deficit will embrace the President’s proposals in these areas. The lobbies that represent drug-makers, our most prestigious academic medical centers and three health care industries that have been taken over by for-profit companies (skilled nursing facilities, rehab centers and home health service agencies) can write the checks that help swing elections.

Proposals That Are Far More Likely to Find Support in Washington

President Obama’s plan also targets future retirees, asking them to shoulder a larger share of Medicare’s costs. Specifically, starting in 2017:

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Medicare and The President’s Plan to Reduce the Deficit—Cuts That Make Sense

Some of the largest cuts in President Obama’s proposed package of Medicare savings target areas where Medicare does, in fact, over-spend. Unfortunately, these are the reforms that Congress is least likely to adopt. In each case a powerful lobby representing those who profit from Medicare’s largesse will howl, and many legislators may well bow to their wishes. Nevertheless, it is useful for the President to call attention to areas where Medicare can save money—without cutting benefits.

  • Prescription Drugs: The President’s plan would save $135 billion over ten years, starting in 2013, by requiring that drug companies provide additional discounts, or rebates, to Medicare for prescription drugs bought by low-income beneficiaries enrolled in the Part D Low-Income Subsidy program. In the past, I have written about the drug industry’s double-digit profit margins. In theory, the industry needs these margins in order to innovate. In fact, the number of new and effective drugs coming out of the pharmaceutical industry has slowed in recent years. Too often, they focus on creating “me too” drugs that they know will find a large market.

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