Budget cutters aim their axes at Medicare

Kaiser Health NewsNovember 29, 2010 

WASHINGTON — Plans to curb Medicare spending are proliferating — spurred by concerns about the federal budget deficit — and setting the stage for potentially bruising battles between seniors' advocates and budget cutters.

The proposals, put forth by members of bipartisan deficit-reduction panels as well as Republican lawmakers, aim to help reduce the $1.3 trillion annual deficit as well as the mounting national debt. The plans would require beneficiaries to pay a larger share of Medicare, the federal health program for the elderly and people with disabilities. One idea would transform the 45-year-old program by giving seniors a set amount of money to buy their own Medicare coverage.

President Barack Obama's deficit commission, which attracted the most attention, faces a Wednesday deadline for its recommendations for stanching the nation's red ink. Whether the commission will be able to agree on anything is unclear.

Commission Co-Chairmen Erskine Bowles, who was White House chief of staff under President Bill Clinton, and former Sen. Alan Simpson, R-Wyo., have presented a variety of ideas. They include setting a target for Medicare spending and increasing premiums or beneficiary cost-sharing to limit growth.

Two members of the commission want to go further and turn Medicare into a voucher program in which the government would in effect cut beneficiaries checks for coverage rather than promising specific benefits. The voucher proposal, which wouldn't go into effect until 2021, faces tough odds with commission Democrats.

Three liberal groups — Demos, The Century Foundation and the Economic Policy Institute — said Monday that the new health law included cost-saving measures that would help reduce the growth of health care spending, including Medicare.

Even if the president's commission can't agree on how to tame health care spending — or the deficit in general — the Medicare debate isn't going away. The program, which covers 47 million people, is expected to spend $519 billion this year and grow to $929 billion in 2020.

"There's intensifying pressure to control Medicare costs, and that pressure is only going to intensify more over time when you look at the deficit and you see that really Social Security is a minor contributor going forward. It's mainly health care," said Jonathan Oberlander, professor of social medicine and health policy at the University of North Carolina-Chapel Hill.

AARP, the seniors' group, said proposals to require seniors to pay more would hurt lower-income beneficiaries.

"The burden of Medicare out-of-pocket costs is already very high, to the point where many people are literally having to choose between necessities of life and health care," said John Rother, an AARP executive vice president.

Proponents say that changes are necessary to narrow the deficit, which the Congressional Budget Office projects will be $1.066 trillion in fiscal 2011, which began Oct. 1.

"America faces a quiet killer that is eating away at the foundation of America: the growing deficit," said former Sen. Pete Domenici, R-N.M., a past chairman of the Senate Budget Committee. He and Alice Rivlin, one of Clinton's budget directors, head another bipartisan task force on the deficit.

One of the most controversial ideas in the task force report and the proposals of Obama's commission chairmen is called "premium support." Seniors would get a set amount of money to buy coverage from the traditional fee-for-service program or a menu of private plans.

Separately, two members of Obama's commission, Rivlin and Rep. Paul Ryan, a Wisconsin Republican who's expected to head the House Budget Committee in the next Congress, would go further and replace the fee-for-service program with one that would give seniors vouchers to purchase coverage in the private market.

Both ideas would mean sweeping changes for future enrollees. Some analysts fear the proposals would result in beneficiaries receiving fewer benefits while paying more, because increases in the amount the government contributes wouldn't cover projected increases in health care costs.

"The increases aren't going to keep up with the cost of the premium, and cost sharing is going to go up as a result," said Vicki Gottlich, senior policy attorney with the nonprofit, nonpartisan Center for Medicare Advocacy.

Many details are unclear, so it's difficult to know whether the "premium support" or voucher ideas would require insurers to cover specific benefits as traditional Medicare and current Medicare Advantage plans do.

The bipartisan task force and the Rivlin-Ryan plan would allow government payments to increase slightly faster than the gross domestic product. Among other changes, the task force would increase from 25 percent to 35 percent the portion of Medicare Part B costs that beneficiaries bear. Part B covers physician costs and other outpatient services.

Supporters of "premium support" and vouchers say limiting the government's contribution would encourage seniors to be more cost-conscious in choosing health plans, increase competition among insurers and drive down costs.

There are perils in changing Medicare. Democrats, who got hammered in congressional elections in part over voters' concerns about the health law's impact on Medicare, will be cautious. Republicans may be wary, too.

"The last time the Republicans won big in a midterm election they pushed cuts in Medicare spending, and that didn't turn out too well for them politically," Oberlander said. He was referring to 1995, when then-House Speaker Newt Gingrich, a Republican, pressed to reduce the growth of Medicare spending; the result was two government shutdowns — and a disastrous outcome for the GOP in the 1996 elections.

(Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization that's not affiliated with Kaiser Permanente.)

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