Medicare reform drives debate on federal spending

June 1, 2011

The push to overhaul Medicare took on added urgency last month as Medicare trustees predicted earlier insolvency for the program than expected.

Other Medicare programs reported brighter results. Spending on Medicare Part B grew more slowly than expected, as did the Part D drug benefit.

How to curb spending for the healthcare overall, and for Medicare in particular, are central to the escalating debate over the federal budget on Capitol Hill. Administration officials maintain that the Part A fund shortfall will get worse if Medicare spending cuts included in the Patient Protection and Affordable Care Act (PPACA) are rescinded.

Conversely, Medicare will run out of money sooner if a planned 29% cut in provider rates fails to be implemented next year, a cut that Congress regularly postpones. The Medicare trustees report also assumes gains in healthcare productivity, which is highly uncertain.

To emphasize how Medicare will gain from reform, a CMS analysis predicts savings of $120 billion over the next five years because of changes in payments to hospitals and to insurers authorized by PPACA. About $50 billion of the savings come from cuts in payments to Medicare Advantage (MA) plans. Another $50 billion will be saved by revising payment methods for hospitals and doctors to reward quality care. Changes in payment methods for medical equipment, lowering hospital readmission rates and cracking down on fraud and abuse will yield additional spending cuts.

REPUBLICANS GROWING SKITTISH

The prospects for making moderate changes in Medicare this year may have brightened, as Republicans have grown more nervous about tackling extreme reforms. In April, the House approved the controversial proposal authored by House Budget Committee Chairman Paul Ryan (R-Wis.), which would turn Medicare into a defined-contribution, or voucher program, with set premium support for seniors to select coverage from private plans.

Many Republican lawmakers who backed the Ryan plan were attacked by voters when they went home for the April recess. They returned to Washington looking for less radical reform options and ways to resolve the national debt crisis. One candidate is a budget plan offered by Sen. Pat Toomey (R-Pa.), which would boost funding for Medicare by achieving significant savings from revisions in the system for reimbursing doctors.

The danger is that the heated rhetoric for and against Medicare reform camouflages a real need to modernize the program. Health analysts on both sides of the aisle acknowledge value in Ryan's proposal to shift Medicare from a fee-for-service program to one that pays a set amount for coverage, which seniors would obtain from competing health plans, similar to Part D. Too stingy government subsidies for seniors to purchase coverage could lead to inadequate benefits, but proper administration of such a program could lead to a healthier system.

Jill Wechsler, a veteran reporter, has been covering Capitol Hill since 1994.