Inside Deficit Reduction: What It Means for Health Care

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As the Joint Select Committee on Deficit Reduction, or congressional "super committee," meets to find $1.2 trillion in savings in the federal budget, many are speculating about the implications of deficit reduction for Medicare. A recent briefing in Washington, D.C., examined the potential impact of changes on beneficiaries, providers, and insurers.

The briefing, held Oct. 11, was the second in a series of Alliance for Health Reform briefings, jointly sponsored by The Commonwealth Fund, The SCAN Foundation, the Robert Wood Johnson Foundation, and the Kaiser Family Foundation, to inform policymakers about options to reduce federal health care spending and the likely outcomes of various deficit reduction plans.

To frame the discussion, Commonwealth Fund president Karen Davis, Ph.D., emphasized that health care spending growth is a systemwide problem that cannot be addressed solely through across-the-board reductions in Medicare services or payments. Such changes will only shift the burden of health care cost growth elsewhere, without addressing the underlying factors that cause it. Davis recommended a more nuanced restructuring of Medicare through value-based insurance design, comparative effectiveness research, and targeted cuts to provider payments for specific services that are overpriced or overused. She also described ways of leveraging savings from innovative payment and delivery models across public and private payers, such as bundled payment for acute and postacute episodes.

Two former Centers for Medicare and Medicaid Services (CMS) administrators added historical context. Thomas Scully, J.D., of Welsh, Carson, Amerson & Stowe and Alston & Bird, who served from 2001 to 2004, argued that, with the exception of the addition of Part D prescription drug coverage in 2003, tough decisions regarding Medicare reform have historically been driven by budget and deficit concerns. Concerned that this process does not always result in effective long-term strategies, Scully hopes that lessons can be gleaned from the 1997 Balanced Budget Act reforms which instituted the sustainable growth rate. He noted that this policy was initially effective, but did not hold up under weaker economic conditions, and has required expensive patches to be passed by Congress annually for the past decade.

Mark McClellan, M.D., Ph.D., of the Brookings Institution, who served as CMS administrator from 2004 to 2006, pointed out that certain innovative approaches to reduce Medicare spending, such as care coordination initiatives and payment reform, can be more difficult for Congress to support because it's challenging for the Congressional Budget Office to score savings from these measures. However, McClellan said such reforms are still important, and beneficiary incentives in particular should be considered, citing Medicare Part D as an example of a program in which beneficiary behavior has helped hold down costs.

Patricia Neuman, Sc.D., of the Kaiser Family Foundation presented a list of current proposals to reduce Medicare spending, which include premium support, prohibiting first-dollar coverage (supplemental coverage that pays for deductibles and copayments), and increased premiums and cost-sharing for beneficiaries with higher incomes. She noted that the proposal to increase the age of eligibility to 67 is more feasible today because the Affordable Care Act will ensure that individuals ages 65 to 67 can remain insured through the exchanges and cannot be denied coverage because of preexisting conditions. However, Neuman also said this proposal would do less to reduce systemwide spending than many proponents expect.

Marilyn Moon, Ph.D., of the American Institutes for Research cautioned against shifting the burden of health care costs from the federal government to beneficiaries, especially to those in lower-income brackets. She stressed the twin needs of shared sacrifice among all stakeholders and careful avoidance of undue harm to vulnerable populations. She warned the audience not to focus on short-term policies that offer quick savings. Joseph Antos, Ph.D., of the American Enterprise Institute replied that the pursuit of quick savings is unavoidable given the looming budget deficit, the goal established by the Budget Control Act and Congressional Budget Office scoring standards.

Karen Davis closed the briefing by highlighting common ground, remaining hopeful that it is possible to reduce costs without harming beneficiaries, particularly those that rely on Medicare the most.

The first briefing in this series, on September 12, 2011, gave a general overview of the deficit reduction process and featured background information and deadlines established by the Budget Control Act of 2011. Panelists Katherine Hayes, J.D., of George Washington University; Robert Greenstein of the Center on Budget and Policy Priorities; G. William Hoagland of CIGNA; Dean Rosen, J.D., of Mehlman Vogel Castagnetti, Inc.; Gail Wilensky, Ph.D., of Project HOPE; and Chris Jennings of Jennings Policy Strategy addressed the likelihood of the super committee reaching agreement on a plan that would also pass Congress. The panelists also considered what sequestration would look like if the committee fails to develop such a plan.

For more information on this series of briefings, or to view the webcast for this event, please visit: http://www.allhealth.org/briefing_detail.asp?bi=222.

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