How do we responsibly cut Medicare as part of the budget debate?Written by Guest Author | | GuestAuthor@toledofreepress.com
Guest Opinion by Douglas E. Schoen
Although President Obama continues to meet with top House and Senate Republicans in an effort to reach a budget agreement before the August 2nd deadline for raising the debt limit, it is unclear how far-reaching the final deal will be.
Obama wants to achieve the boldest possible package through an agreement that would save up to $4 trillion over the next decade, which would consist of large cuts in Medicare and other entitlement programs — while requiring new tax revenue. Meanwhile Republicans advocate for a more modest deal to avoid a default on the national debt that contains some spending cuts and has no tax increases.
Despite these differences the President and the Republicans have agreed that the nation’s budget problems must be addressed, and Medicare reform is a critical part of any agreement.
Throughout negotiations, it is critical that cuts to the Medicare program are responsible and productive. Medicare reform must still protect policies and programs that work while eliminating those that are no longer effective.
One productive Medicare program that must be kept intact is Part D, the prescription drug benefit program. Part D is the most cost-effective and successful entitlement program the federal government runs. Thanks to strong competition, the program costs the government and beneficiaries far less than initial projections. This year, the Congressional Budget Office (CBO) reduced its baseline 10-year spending projection for all of Medicare by $186 billion, two-thirds of which is accounted for by a reduction in Part D spending.
The Medicare Trustees report released this year says that this competition will continue to drive savings. Research shows that in the Part D program, the proportion of prescriptions filled with a generic drug has increased each year, as plans strive to keep premiums low.
While Medicare Part D is an example of an effective Medicare program, it is clear that not all Medicare policies and programs are as productive.
The Independent Payment Advisory Board (IPAB) that was created with the passage of last year’s health care law is one such provision that should be eliminated. Essentially, IPAB would allow an unelected board make binding “recommendations,” or rather, demands, to reduce Medicare spending.
IPAB is a threat to all Medicare beneficiaries. Proponents of the board argue that IPAB will lead to improved quality of care as a result of the cost-cutting measures it enacts in order to save. This is doubtful.
The board must make cuts that reach annual targets, and can only look at specific parts of the health care system when making these decisions. Standard line item cuts will result, only reinforcing systemic problems — not fixing them — meaning unsustainable savings.
Major changes in the Medicare program should be decided by elected officials who are held accountable for their decisions. IPAB’s arbitrary system lacks transparency and oversight.
Our political leaders should look at other ways to help reduce Medicare spending and increase savings as negotiations progress.
For example, increasing the savings mechanisms in the current health care law could be done by guaranteeing the law’s $500 billion worth of savings from reduced Medicare payments to health providers and insurers by accepting a “trigger” for further cost cutting if those savings don’t materialize.
Lawmakers could also cut subsidies for beneficiaries to buy supplemental “Medigap” insurance, and save $92 billion by 2021. While increasing premiums that beneficiaries pay for Medicare doctors’ coverage by just 10 percent would save $241 billion. Also, raising the eligibility age for Medicare to 67 from 65 would save $124 billion.
Employers and employees could be incentivized to select more cost-effective health plans by capping the tax exclusion of employer-provided health benefits in 2018, and then phasing it out over ten years. The exclusion of employer-provided health care benefits is the single largest tax expenditure. It is estimated to cost the government more than $1 trillion over the next five years.
Medicare’s copayment structure could be modernized with a deductible and out-of-pocket maximum that is indexed to increases in spending per beneficiary — saving about $14 billion through 2018.
Bundling Medicare’s payments for post-acute care to reduce costs and increase incentives for efficiency would result in cumulative budget savings from 2012 through 2018 of $5 billion.
There are many options lawmakers have to reform Medicare without resorting to drastic measures. Cuts must be made, but not at the expense of programs that work. Parts of the Medicare program that are effective must be left alone, while those that are not must be changed.
Douglas Schoen is a political strategist and author of Mad as Hell: How the Tea Party Movement is Fundamentally Remaking Our Two-Party System, published by Harper, an imprint of HarperCollins.