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Three Better Bipartisan Health Policies To Pay For Repealing Medicare’s SGR



March 21st, 2014

After months of House and Senate negotiations on legislation to replace the Medicare Sustainable Growth Rate (SGR) formula for updating Medicare physician payment, members of Congress are relieved to finally have an agreement. It is perfectly understandable that they, as well as professional medical organizations, want to act quickly. The danger is that even normally staid and stern budget hawks are prepared to move quickly to get this unworkable payment system permanently off the national agenda.

Of course, the Sustainable Growth Rate (SGR) should be repealed and replaced. Congressional leaders point out that since 2003, the routine cycle of emergency “doc fixes” have cost taxpayers $150 billion. The compromise legislation, which is barely better than the deplorable status quo, falls far short of what should be done.  In fact, the House bill (H.R. 4015), which passed the House of Representatives on March 14, and the Senate bill (S. 2000), which was reported out of the Finance Committee, would worsen the nation’s deficits.

It is not only critical for lawmakers to responsibly finance the $138 billion in new spending over the next 10 years that eliminating and replacing SGR will incur, but also do so without creating future budget deficits.

As John Rother, Joel White, and David Kendall recently argued in their February 20 Health Affairs Blog post, “To Pay For Medicare SGR Repeal, Build On Bipartisan Health Care Policy,” there are bipartisan reforms like “bundled payments” for services, reduced hospital readmissions, and competitive bidding for medical equipment and supplies that can yield some savings. Indeed, the exotic menagerie of short-term funding “fixes” range from tightening up Medicare’s price controls and manipulating its complex administrative payment systems to gimmicky transfers from the Overseas Contingency Operations (OCO) fund. It is worth noting that the Congressional Budget Office (CBO) recently dismissed caps on discretionary spending to offset the costs of mandatory spending.

Lawmakers should instead create lasting changes in Medicare that would provide major funding for SGR repeal, while modernizing the program and guaranteeing permanent savings to enhance the program’s solvency. Here are just three:

Combine Medicare Part A and Part B, add catastrophic protection and rationalize the cost sharing.  Modernizing the Medicare benefit structure into a single plan with a single deductible and uniform coinsurance would end the confusing, crazy quilt of cost sharing for Medicare beneficiaries. Providing a catastrophic benefit would give seniors peace of mind, and protect them from the financial devastation of a major health issue. Realigning the Medicare-Medigap relationship to eliminate first-dollar coverage would reduce excessive utilization and the attendant costs to taxpayers while also seriously restraining seniors’ Part B premium increases. CBO estimates that this set of changes alone would save $114 billion from 2015 through 2023 (if enacted by January 1, 2015).

Gradually increase Medicare’s eligibility age. While Social Security’s normal retirement age has been gradually increased to 67, Medicare’s eligibility age remains fixed at 65. There are a variety of demographic reasons to increase the Medicare eligibility age, reflecting the increased longevity of the population, a rapidly aging population with a slower birth rate, and the eroding ratio of workers to retirees, projected to be about 2.3 workers for each Medicare beneficiary by 2030. My colleagues at the Heritage Foundation propose increasing the age of Medicare eligibility to 68. The Business Roundtable suggests a target age of 70, though anyone 55 years or older would not be affected by the change. Even if the age of eligibility were gradually raised to 67, tracking current law for Social Security, CBO estimates the initial savings through 2023 at $63.5 billion.

Increase means-testing for wealthier recipients. Since 2003, Congress decided to require Medicare’s wealthiest recipients to pay more for their benefits, reducing the taxpayers’ burdens. Heritage has proposed requiring almost 10 percent of upper-income seniors to pay more for their benefits, by lowering the current annual income thresholds for an individual from $85,000 to $55,000, and for a couple from $170,000 to $110,000. In his Fiscal Year 2014 budget proposal, President Obama proposed expanding means-testing to include eventually 25 percent of all seniors. Different thresholds will yield different levels of permanent savings, but savings in all cases would be substantial over time.

All three of these policy changes have a history of bipartisan support. They would not only improve Medicare’s efficiency, but they would also benefit federal taxpayers who provide almost $9 out of every $10 spent on the program. The SGR debate offers yet another opportunity to achieve lasting and positive impact on the Medicare program. Congress should not miss it—again.

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3 Responses to “Three Better Bipartisan Health Policies To Pay For Repealing Medicare’s SGR”

  1. John Booke Says:

    What about larger cuts to reimbursements to doctors and hospitals? The number of doctors accepting Medicare has increased at rate almost two times faster than the rate of increase in the number of new Medicare beneficiaries in the past three years. We have an over-supply of doctors which is only getting worse. As long as we have a fee-for-service system we’re just going to have more doctors doing “more” even when “more” is unnecessary.

  2. Glenn Mizrach, MD Says:

    While I agree with much of what is written, it does not take into account that although raising the Medicare eligibility age for that segment of the population is fine, it is much more difficult with the more demanding phsysical occupations and the toll that they take on the body. It is much harder to work past 65 there and needs to be taken into account.

  3. M. Carson Says:

    Anyone age 65 will pay more for private insurance than medicare costs. To lower medicare costs, allow people to buy in at 50. The influx of younger, healthier people will lower the average cost of care. This will save people, businesses and the government millions of dollars per year.

    Life expectancy once you hit 65 is different than life expectancy at birth. For people making under $40,000 a year life expectancy once they hit 65 has gone up very little. People making $70,000 a year are living longer, but not the rest of us. Why should janitors and waitresses keep working until age 70 so that the desk set can pay lower taxes? If you worry about the wealthy collecting social security and medicare, increase the income tax rate. You can recover money through income taxes, filed yearly, much easier than coming up with some convoluted chart to figure out how much you made divided by how old you are times your lifetime income adjusted for inflation. Let everyone get social security and medicare, and tax the hell out of the wealthiest ones. You are talking about reducing benefits for people who get under $1,200 a month, on average. They usually own a home, but have less than $50,000 in savings, and god forbid they count on a pension from a city or a coal company or any other soon to be bankrupt entity. The twinkie guys agreed to $3 an hour out of their paychecks, not from their company, to be invested in their pensions, and they still lost it in bankruptcy.

    Americans go to doctors less often than Germans, French or Brittish. What makes medical care cost more is not visits to the G.P. – it’s high prescription prices and expensive tests like cat scans. The V.A. can bargain prices for these things, but medicare is forbidden by congress from bargaining for price, they are forbidden to even consider cost in approving a treatment. Change that law, save millions each year.

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