The Corner

What Should the Supercommittee’s Priority Be?

After a downgrade and after yet another request by the president for more stimulus money, the United States is still in a dire fiscal situation. It seems that most people are counting on the bipartisan budget “supercommittee” to come up with a plan. As you know, the committee’s mission is to come up with recommendations to “save” $1.5 trillion in deficit reduction over the next ten years.

The White House has requested that the solution be a balanced one (tax increases only for people that the president labels as rich, and selected spending cuts that exclude entitlements). And yet, it hard to see how a credible fiscal adjustment can leave the explosion in health-care spending off the table.

According to the Congressional Budget Office’s Budget and Economic Outlook, federal spending on Medicare, Medicaid, and other health entitlements will reach $870 billion (5.8 percent of GDP) in 2011. The spending will more than double in the next decade and reach $1.8 trillion (a growth rate of 7 percent a year). CBO explains:

Of that growth, higher spending for Medicare accounts for about 30 percent, higher spending for Medicaid accounts for roughly 40 percent, and the remainder stems primarily from the new subsidies to be provided through health insurance exchanges beginning in 2014.

These are probably underestimations of the actual numbers, since they assume a GDP growth that is unlikely to materialize.

During the supercommittee’s first hearing yesterday, Doug Elmendorf, the CBO director, reiterated that the major contributors to the debt are federal benefit programs. He noted that the number of Medicare and Social Security beneficiaries will increase by one-third in the next decade and that all other spending will get squeezed out as a result. He also suggested that the supercommittee needs to find more than $1.5 trillion in savings and instead should aim to find $3.8 trillion.

No matter how one looks at it, it’s hard to imagine how such savings can be achieved without touching health-care benefits — in particular without reining in the new health-care law.

#more#In a good piece, Chuck Blahous, over at e21, explains:

If subsidized benefits for this new law’s target population are important enough to be enacted, they are important enough to finance without resorting to twice-allocating savings also earmarked for financing Medicare benefits. A credible budget process must choose one purpose for the Medicare savings; failing that, we must not claim to have financed an expansion of health care coverage.

Clearly, many elected officials are heavily politically invested in last year’s health care law. But that in and of itself is not a compelling substantive reason to keep it off the negotiating table. Were it not for such political considerations, it would be obvious that spending on the new health exchanges is the first area that the deficit reduction super-committee should target – not only to preserve the financing integrity of Medicare, but indeed to ensure a truly balanced approach to deficit reductioHis whole piece is here.

Also, the Washington Post has an article today about the health-care industry’s case for raising the eligibility age for Medicare from 65 to 67. Their incentive is pretty straightforward:

There’s a pretty simple explanation for why hospitals and some insurers would favor raising the eligibility age: Hospitals receive higher payments from private insurance than they do from Medicare. The payments that hospitals receive from private insurers are 28 percent above the break-even point for providing treatment, according to a recent report from the Blue Cross Blue Shield Association. Medicare pays only 91 percent of what it costs a hospital to provide care.

The change, and the reduced costs, would also act as a buffer, the article explains, in case ACA provisions such as the cuts in health-care providers’ reimbursements:

Many of the large health care associations are especially worried about cuts to provider reimbursements — how much they’re paid for each service they provide.

“Our primary concern, looking at the supercommittee, is reimbursement,” says Greg Crist, vice president of public affairs at the American Health Care Association, which represents nonprofit nursing homes. Raising the Medicare eligibility age “hasn’t been one we’ve studied intensely, in terms of impact,” Crist says.

That could explain why the American Hospital Association is lobbying the supercommittee to raise the Medicare eligibility age from 65 to 67.

This poll from the University of Maryland shows that a majority of Americans would tolerate raising the retirement age to 68. Check the other options on page 47 of the report.

Also, there is a good paper by Mercatus Center’s Jason Fichtner and John Pulito about attempts to control Medicare spending via the inpatient-prospective system and the fee-for-service physician-reimbursement system. They conclude that these reforms — even if looked at in the best possible light — resemble the fate of Sisyphus, a king in Greek mythology who was punished by the gods to roll a giant boulder up a hill only to watch it roll back down and to repeat this task for all eternity.

While IPPS and the FFS were able to curb expenditures associated with hospital and physician payments, respectively, these programs alone cannot ensure that Medicare will remain solvent into the future. The recent passage of the ACA has pushed back the insolvency date of the Medicare Trust Funds. But the Chief Actuary of CMS has expressed grave concern that the changes in the ACA are not likely to materialize and that the Medicare Trust Funds are in even more severe financial distress than reported. Herculean efforts have been made to pass previous reforms, but Sisyphean outcomes have been the end results. Further serious changes to Medicare to control spending are necessary to ensure the program‘s survival.

Back in May, I wrote about the take aways about Medicare solvency from Trustees Report here.


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