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Thursday, December 2, 2010

What does the Report of the Fiscal Commission Co-Chairs Mean for Health Policy?

Lee Goldberg
Director of Health Policy, National Academy of Social Insurance

The Co-chairs of the President’s Commission presented a number of policy proposals aimed primarily at reducing the growth spending on Medicare and Medicaid. Given the size of the two programs, some of these changes may impact health care spending patterns in the private economy, but many will simply shift costs to other payers. Few, if any, proposals would address the underlying growing demand for services triggered by an aging population and a long term care system that relies on private savings.

 
The Commission co-chairs propose the following series of policy changes intended to reduce the federal deficit:
 
  • Create a single combined annual Medicare deductible. The Commission co-chairs propose creating a single deductible of $550 for Part A (hospital) and Part B (medical care), along with 20 percent uniform coinsurance on health spending above the deductible; the proposal would reduce the coinsurance rate to 5 percent on costs above $5,500 and cap total cost-sharing at $7,500. This would reduce Medicare spending by $10 billion in 2015, $110 billion through 2020.
  • Extend Medicaid drug rebate to dual eligibles in Part D.  Currently, drug companies are required to provide substantial rebates for prescription drugs purchased by Medicaid beneficiaries. The Commission co-chairs propose extending these rebates to Medicaid beneficiaries who are also eligible for Medicare and receive prescription drug coverage through the Medicare Part D program. This would reduce Medicare spending by $7 billion in 2015, $49 billion through 2020.
  • Reduce payments to hospitals for medical education. The Commission co-chairs propose limiting hospitals’ direct graduate medical education (GME) payments to 120 percent of the national average salary paid to residents in 2010 and updated annually thereafter. Using the chained CPI, this would reduce the IME adjustment from 5.5 percent to 2.2 percent. This would reduce Medicare spending by $6 billion in 2015, $49 billion through 2020.
  • End the use of Medicaid provider taxes. Currently, the states are able to impose provider taxes of up to 6% and use revenue for higher provider payments and to supplement general fund revenue. The Commission co-chairs propose ending federal matching payments for provider taxes, which would cut Medicaid spending by $5 billion in 2015, $44 billion through 2020.
  • End first-dollar coverage for Medicare supplemental policies. Private supplemental insurance plans help beneficiaries cover Medicare cost sharing. The Commission co-chairs propose barring Medigap plans from covering the first $500 of an enrollee’s out of pocket expenditures and limit coverage to 50 percent of the next $2,500 in Medicare cost-sharing. This would reduce Medicare spending by $4 billion in 2025, $38 billion through 2020.
  • Eliminate Medicare payments for bad debts.The Commission co-chairs propose ending the practice of having Medicare reimburse hospitals and other providers for unpaid deductibles and copays owed by beneficiaries. This would cut Medicare spending by $3 billion in 2015, $23 billion through 2020.
  • Accelerate scheduled reductions in payments for Medicare home health services. The Commission co-chairs propose rebasing the Medicare home health prospective payment system by 2015 instead of 2017, as required by the Patient Protection and Affordable Care Act (ACA). This would cut Medicare spending by $2 billion in 2015, $9 billion through 2020.
  • Require dual eligibles to enroll in a Medicaid managed care plan. Approximately nine million low-income seniors and disabled individuals are covered by both Medicaid and Medicare. The dual coverage often results in poor coordination of care for this vulnerable population and higher costs to both federal and state governments. The Commission co-chairs propose requiring managed care enrollment for all dual beneficiaries. This would save $1 billion in 2015, $12 billion through 2020.
  • Change civil litigation rules for medical malpractice. The Commission co-chairs propose changes to tort system that provides compensation for people injured through negligence by medical providers. The changes, which are estimated to save $2 billion in 2015 and $17 billion through 2020, would reduce legal claims and permissible compensation by:

Modifying the “collateral source” rule to allow outside sources of income collected as a result of an injury in determining awards;

Imposing a shorter statute of limitations on medical malpractice lawsuits;

Replacing joint-and-several liability with a rule under which a defendant in a lawsuit would be liable only for the percentage of the final award that was equal to his or her share of responsibility for the injury;

Creating specialized “health courts” for medical malpractice lawsuits; and

Allowing “safe haven” rules for providers who follow best practices of care.

  •  Reduce waste, fraud, and abuse. The Commission co-chairs propose providing the Center for Medicare and Medicaid Services (CMS) additional statutory authority and increased resources to address waste, fraud and abuse. This would be accomplished through a cap adjustment in the discretionary budget and would reduce Medicare and Medicaid spending by $1 billion in 2015, $9 billion through 2020.
 
The Commission co-chairs propose two policy changes that technically would increase the federal deficit as scored by the Congressional Budget Office and would have significant policy and fiscal consequences:
 
  • Repeal the scheduled 23% cut in Medicare physician payments and replace it with a freeze through 2013 and then a one percent reduction in physician payments in 2014. The Commission co-chairs assumes the cuts in the Medicare Sustainable Growth Rate (SGR) that are set to take place January 1st, 2011 will not occur. The Commission co-chairs propose directing CMS to develop a new payment formula that meets policy goals of increasing coordination across providers and care settings. This will increase the deficit by $245 billion relative to current law; these recommendations cost $22 billion less than freezing the planned SGR fixes. The Commission co-chairs also propose modifying the current pay-as-you-go congressional budget rules that exempt adjustments to the SGR.
  • Reform or repeal the CLASS Act. As part of the ACA, Congress enacted the Community Living Assistance Services and Supports (CLASS) Act, a voluntary long-term care insurance program that once implemented will be the first attempt to take a social insurance approach to the issue of long term care. According to CBO, the implementation of CLASS Act would save $72 billion over the first 10 years of the program, with approximately $69 billion coming from accumulation of assets as enrollees pay premiums during the five-year vesting period. The Commission co-chairs propose repealing or reforming the CLASS program, which would add to the deficit.
 
The Commission co-chairs also propose a number of significant policy changes that were not scored but would have significant policy consequences. These include:
 
  • Create a pilot program to transform the Federal Employee Health Benefit (FEHB) program from a defined benefit to a defined contribution plan. The Commission co-chairs propose offering participating federal employees a fixed subsidy that would grow by no more than GDP plus 1 percent each year; for federal retirees, this subsidy would be used to pay a a portion of the Medicare premium.
  • Establish a global budget for total federal health care costs. The Commission co-chairs propose up a process for reviewing total federal health care with the target of holding growth to GDP plus 1 percent and requiring action by the President and Congress if growth exceeds the targets. The target would be measured on a per-beneficiary basis if it is applied only to certain federal health programs, rather than globally.
Posted on December 2, 2010  |  Add your comment
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With respect to the Commission's proposal to end first dollar coverage by private Medigap insurance, employer retiree health, and TriCare, it should be noted that for Medigap coverage cost-sharing coverage benefits are only paid if Medicare has determined that the services are "medically necessary". As a result, the Commission's proposal is asking seniors to either forgo "medically necessary"care or to pay more out of pocket for "medically necessary" care. The real "savings" would occur with a better standard for determining "medical necessity" for Medicare and addressing provider-driven costs. Physicians drive the costs of part B services, not supplemental insurers.

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