Center for American Progress

2008 Medicare Debate: Savings and Performance on the Line

President Bush is expected to propose significant Medicare cuts in his 2009 budget proposal due to be unveiled early next week—perhaps as deep as $91 billion over five years. Congress should reject the lame duck Bush administration’s efforts to balance the budget on the back of the Medicare program while protecting their insurance industry allies. Instead, Congress should focus on solid policy proposals that would deliver key fiscal savings to Medicare and boost the long-term performance of the program.

What’s at Stake

In their most recent projections, the Medicare trustees predicted that the Medicare Part A trust fund—the fund that covers hospital care—will be exhausted in 2019. Unfortunately, the president’s proposals will hit hospitals, nursing homes and home health agencies, but will not include widely supported policies for improving Medicare’s performance. Nor will this budget address the underlying reason for program increases—the system-wide health care cost crisis. In fact, these proposals, which would ensure that Medicare payments would not keep up with providers’ costs for goods and services, would merely force providers to foist these costs on other payers, accelerating the cost crisis in other parts of the health coverage system.

Medicare provides health insurance for 42 million individuals. Many people with Medicare coverage could not, because of age, disability, or both, purchase coverage in the private market. Eighty-seven percent of Medicare beneficiaries have at least one chronic health condition, while half of Medicare beneficiaries have incomes below $20,000.

Medicare provides an irreplaceable safety net for these beneficiaries. We have a collective responsibility to ensure that the program remains vibrant and financially secure. What’s more, the Medicare trust fund is depleting more quickly than it needs to, thanks to the current payment formula for Medicare-contracting health plans and rising health care costs. These problems can and should be fixed.

How We Got Here

Last summer, the House made an initial effort to improve Medicare program benefits, control Medicare Advantage spending, and make systemic investments in building a value-based health care system. All these steps were components of the Children’s Health and Medical Protection Act, legislation designed to reauthorize the State Children’s Health Insurance Program.

None of these improvements survived the child-health debate. Subsequently, as Congress worked to fix Medicare physician payment rates, the White House threatened to veto any legislation that reduced payments to Medicare Advantage plans, the private insurance plans that contract with Medicare. We now enter 2008 with new opportunities to make long-term improvements in Medicare’s financial health, but we face old obstacles—particularly the president’s veto pen—to enacting major pieces of the CHAMP bill and other Medicare program improvements.

A Medicare Agenda for 2008

Instead of accepting the president’s deep payment cuts, Congress should take coordinated action to improve the Medicare program. This agenda should include immediate steps to improve the program’s fiscal health, as well as long-term investments to improve the health and financial security of people with Medicare coverage.

First, Congress needs to put Medicare Advantage payments on an equal footing with spending within traditional, fee-for-service Medicare. This single step would push the insolvency of the Medicare trust funds back to 2021, an additional two years.

Under current law, Medicare Advantage plans receive, on average, 12 percent more per enrollee than the traditional program would pay to meet their health care needs. These overpayments create significant incentives for plans to expand their coverage areas and enroll more beneficiaries—further fueling excess spending. With Medicare Advantage overpayments exceeding $1,000 per enrollee, or $54 billion over the next five years, this step can make a real difference in the long-term fiscal health of the Medicare program.

Other Medicare Advantage reforms should include curbing the marketing abuses and other bad practices of selected Medicare Advantage plans. Congress should strengthen Medicare’s oversight authority and enhance consumer protections, including safeguards against unscrupulous sales tactics and fraudulent enrollment.

Second, Congress should also make the long-term investments in comparative effectiveness research and Medicare program improvements that will realize long-run savings within and beyond the Medicare program. To improve value and reduce costs in our health care system, for example, we must use the resources we have more effectively. A modest new investment in comparative effectiveness research—analyses that examine which drugs, devices and treatment plans work best—will yield long-term savings.

We must also redouble our efforts at preventing chronic disease and disability. In addition to improving coverage for preventive services within Medicare, Congress can eliminate financial disincentives for preventive care. Many employer-provided plans waive cost-sharing for preventive services, and Medicare can do so, too.

Next, Congress should ensure that lower-income people with Medicare receive the help they need to pay their Medicare premiums, deductibles and copayments. While the Medicare Savings Programs provide important financial help to lower-income Medicare beneficiaries, these programs fall short of their promise. Updating the eligibility standards—particularly asset tests that require individuals to be virtually impoverished in order to quality for benefits—and eliminating barriers to enrollment can ensure that lower-income Medicare beneficiaries do not face undue financial barriers to health care.

In addition, Medicare’s mental health coverage has for decades lagged behind the program’s investment in physical health coverage. Medicare beneficiaries with mental health needs continue to cover half of their treatment costs themselves—a coinsurance level that is more than double the coinsurance rate for other services. And program rules shouldn’t create additional barriers to care. Medicare, for example, does not cover telehealth for mental health needs even though the program covers telehealth services for other ailments. Congress should finally fix these inequities.

Finally, Medicare program improvements should include additional steps to move Medicare into the information age. Medicare can encourage (or could even require) physicians to use electronic prescribing, thus reducing medication errors and overall Medicare spending. A more ambitious agenda could also embrace further adoption of health information technology tools, including a personal health record for all Medicare beneficiaries.

Beyond Medicare

By reining in Medicare Advantage spending and making long-term investments in prevention and value-based health care, Congress can improve the program’s fiscal health while offering greater security to people with Medicare coverage. Some of these improvements—namely investments in comparative effectiveness and health technology—can leverage savings in the larger health care system.

But as a public health insurance program, Medicare will continue to be at the mercy of larger health care cost trends. While health care costs continue to outpace economic growth and wage growth in the United States, policymakers have yet to grapple with strategies for controlling costs. Until we embark on systemic health reform by providing affordable coverage for all Americans in tandem with proven cost-containment strategies and investments in value-based health care, Medicare’s long-term financial health will be at the mercy of rising health care costs.


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