Critical Condition

Baucus Bill Hits Seniors with Medicare Cuts

Looking back at the August congressional town-hall meetings, we witnessed a strange and wonderful phenomenon. Large groups of Americans from all walks of life and all different age groups started to make clear their distaste for the elitist arrogance, irresponsible spending, the mounting debt, and the cavalier disregard for common sense that has become a hallmark of official Washington.

No group has been arguably more strongly opposed to Washington’s health-care agenda than seniors, with good reason. The White House insists that the proposed hundreds of billions of dollars in Medicare payment cuts, including cuts to the Medicare Advantage system of private plans, will not mean cuts for seniors’ benefits. But they will mean benefit cuts. The additional payments that Medicare Advantage plans have enjoyed have been translated into additional benefits. Extra benefits include services like routine eye and hearing tests, additional nursing, and hospitalization and preventive care. You cut the payments, you will cut the benefits. CBO has confirmed this — repeatedly.

Consider Sen. Max Baucus’s (D-Mont.) big Senate bill. It will soon emerge from the Senate Finance Committee. CBO Director Douglas Elmendorf has said that the Medicare Advantage payment cuts will negatively affect seniors and access to private health plans. If seniors have less access to Medicare Advantage plans, it means that they will be forced to rely on more expensive Medigap coverage or Medicaid to make up for the huge gaps in coverage that characterize traditional Medicare. Meanwhile, any savings from the Medicare cuts will not be plowed back into Medicare, but instead used to finance the Obama health-care agenda. If congressional liberals have their way, that could include the creation of yet another Medicare-style entitlement in the form of a new “public option.”

This is a missed opportunity. President Obama and Baucus have said they would like to change the payment system from one based on administered payment to a new system based on competitive bidding, where actual costs would determine the level of government payment. That’s as good as far as it goes, but it doesn’t go nearly far enough. Traditional Medicare, as an option, should be part of any bidding process. All options should be on the same playing field, and all Medicare beneficiaries should be equally empowered to make the choices they wish to make.

If Congress would give traditional Medicare the managerial flexibility to compete with private health plans on a real level playing field, they would enhance consumer choice and competition. And, incidentally, such a direct demonstration would provide us with a practical test of the congressional theory that government can create a level playing field for competition between private health plans and a public health plan (traditional Medicare).

Additionally, Congress should make sure any Medicare savings is plowed right back into Medicare to reduce the debt burden for current and future taxpayers. A new “premium support” program would change Medicare from a defined-benefit to a defined-contribution system. It would have these features:

1.   The government payment for beneficiaries would be adjusted by age as well as income, recognizing health care needs vary by age.

2.   While the government contribution should be generous, it cannot be open-ended. There should be a cap on the annual dollar amount the government can contribute to an enrollee’s health plan.

If Congress does not want to resort to back-door rationing through reimbursement reductions to doctors and hospitals, it should try real competition and market discipline to control Medicare costs. 

Robert Moffitt is the director of the Center for Health Policy Studies at the Heritage Foundation.