Chickening Out on Medicare

Both parties agree that the program is unsustainable without deep cuts. But once again, neither is willing to show the way.

Sen. Patty Murray, D-Wash., chair of the Senate Budget Committee, prepares for a day of work on the Democrats' spending strategy during a markup session of the budget, on Capitol Hill in Washington, Thursday, March 14, 2013. (AP Photo/J. Scott Applewhite)
Margot Sanger Katz
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Margot Sanger-Katz
March 14, 2013, 4:10 p.m.

There wer­en’t many sur­prises in the budgets each party re­leased this week, but here was one: Sen. Patty Mur­ray’s Demo­crat­ic pro­pos­al had more than double the cuts to the biggest health en­ti­tle­ment, Medi­care, as Rep. Paul Ry­an’s Re­pub­lic­an pro­pos­al did. Des­pite the House Budget chair­man’s fre­quent cri­tique of Medi­care sus­tain­ab­il­ity, he would trim only $129 bil­lion over 10 years, mostly by cap­ping mal­prac­tice awards and by ask­ing seni­ors to pay high­er premi­ums and high­er prices for pre­scrip­tion drugs. (After that, his fam­ous “premi­um sup­port” plan — which gives seni­ors a fixed pay­ment to shop for their own in­sur­ance — would be­gin.) Mur­ray’s plan goes fur­ther on sav­ings but falls short on spe­cif­ics: She says only that spend­ing should be trimmed by $265 bil­lion and leaves the de­tails to her Sen­ate Budget Com­mit­tee col­leagues. That prob­ably means pro­vider pay cuts and re­duced drug sub­sidies for low-in­come seni­ors. Con­sid­er­ing that Medi­care is the biggest long-term driver of the coun­try’s de­fi­cit, Ry­an’s and Mur­ray’s fixes are pretty un­der­whelm­ing. “The num­bers are really a little bit sur­pris­ingly low to me,” says John Ho­la­han, a fel­low at the non­par­tis­an Urb­an In­sti­tute.

Both sides could go a lot fur­ther if they really wanted to wring spare dol­lars from the health care pro­gram, and they could do it even while achiev­ing their stated goals — achiev­ing some “struc­tur­al” changes that raise rev­en­ue but pro­tect seni­ors from cost shifts or be­ne­fit cuts that would en­danger their cov­er­age. That’s the con­clu­sion of a new Urb­an In­sti­tute re­port, which skips premi­um sup­port but still finds more than $500 bil­lion in Medi­care sav­ings. (It also pro­poses rais­ing the Medi­care payroll tax to bring in an ad­di­tion­al $200 bil­lion.)

The biggest prob­lem with Medi­care isn’t in­ef­fi­ciency, waste, or fraud. It’s the com­ing wave of baby-boomer re­tire­ments. Those seni­ors will nearly double the pro­gram’s size by 2030. Even though Medi­care has just en­joyed three years of re­cord-low spend­ing growth and is on track to stay lean, it will still be­come much more ex­pens­ive as boomers sign up. Pro­pos­als such as Ry­an’s premi­um-sup­port mod­el, which try to hold down per-per­son spend­ing, don’t ad­dress that real­ity, Ho­la­han says. And, as Demo­crats are fond of point­ing out, the GOP plan could force seni­ors to pay more if com­pet­ing private plans turn out to be more ex­pens­ive than the big gov­ern­ment pro­gram would have been.

So the Urb­an In­sti­tute’s biggest re­form would cap the amount seni­ors could be asked to spend — mak­ing Medi­care a bet­ter in­surer of cata­stroph­ic care. Then, it would merge the pro­gram’s hos­pit­al and doc­tor por­tions, char­ging one set of premi­ums and de­duct­ibles for the full pack­age of be­ne­fits. The com­bined num­ber would be high­er than it is now — that’s where the sav­ings come from — but wealthy seni­ors would pay more and poor ones would pay less. This re­struc­tur­ing might even elim­in­ate the need for the sup­ple­ment­al private in­sur­ance many seni­ors now buy to pro­tect them from big bills. This pro­pos­al re­sembles a plan that Vice Pres­id­ent Joe Biden and House Ma­jor­ity Lead­er Eric Can­tor once con­sidered in de­fi­cit-re­duc­tion talks.

Con­tro­ver­sially, con­gres­sion­al Re­pub­lic­ans want to raise Medi­care’s eli­gib­il­ity age to 67; the Urb­an au­thors pro­pose a way to do that while leav­ing few­er be­ne­fi­ciar­ies in the lurch. They would al­low young­er seni­ors who are no longer guar­an­teed Medi­care be­ne­fits to buy their way in­to the pro­gram — with tax cred­its to help those with lower in­comes. The re­port echoes Sen­ate Demo­crats’ likely ap­proach in cut­ting drug-com­pany pay­ments for poor seni­ors. It also sug­gests rais­ing the drug-be­ne­fit and treat­ment premi­ums for rich­er seni­ors. The plan in­cludes a num­ber of oth­er small and more-fa­mil­i­ar tweaks and cuts. And then there’s the big item that no one on Cap­it­ol Hill is talk­ing about: a payroll-tax hike to shore up Medi­care’s solvency. That change would bring in a lot of money but is un­likely to in­terest even con­gres­sion­al Demo­crats, who say of­ten that a de­fi­cit deal must in­clude new rev­en­ue.

The Urb­an plan’s au­thors re­com­mend scrap­ping an old cost-sav­ing for­mula for doc­tor’s pay that has proved to be a dis­aster. Im­pos­ing a per­man­ent “doc fix” (that is, nix­ing a con­stantly de­ferred pay cut for phys­i­cians) would cost some $133 bil­lion — more than all of Ry­an’s Medi­care sav­ings. Mur­ray’s plan would roll back the loom­ing cuts, eras­ing half of her pro­posed sav­ings. Ry­an’s budget en­dorses the doc fix only in the­ory; he neither in­cludes it nor pays for it on his bal­ance sheet. The Urb­an re­port, by con­trast, found so much to trim that it can im­pose the doc fix and still show ma­jor sav­ings.

If Con­gress and the pres­id­ent ever achieve a grand bar­gain, the Medi­care cuts are likely to be much deep­er than the fig­ures in either Ry­an’s or Mur­ray’s budget That would be a hard pill for law­makers on both sides to swal­low. Demo­crats see them­selves as the pro­tect­ors of “Medi­care’s guar­an­tee” to seni­ors, and Re­pub­lic­ans have come to rely on the votes of older Amer­ic­ans to win elec­tions. But both parties could cut more than they’ve offered without gut­ting Medi­care. In fact, Pres­id­ent Obama’s pro­pos­al has already done so. His open­ing of­fer in se­quester ne­go­ti­ations: nearly $400 bil­lion.

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