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A Coming Storm for Medicare: How Will It Fare in the 'Grand Bargain?'

By Jane Norman, CQ HealthBeat Associate Editor

November 8, 2012 -- The end of a presidential campaign that pitted two competing visions of Medicare against each other has cleared the way for a new struggle over how—and whether—changes to the massive health program might be rolled into a "grand bargain" for deficit reduction, according to health policy experts.

One of the first signs of that emerging debate came when the National Coalition on Health Care released a lengthy plan that offered a series of tough policy recommendations to cut spending, raise revenue and continue to shift Medicare away from its fee-for-service roots. Coalition members include a heavy-hitter list of provider groups, insurers, pharmacies,and advocates for seniors.

John Rother, a former top official with AARP who is now CEO of the coalition, said the document will be delivered into lawmakers' hands, and the hope is it will shift the focus away from blunt cuts to a system overhaul. "We are anticipating a major deficit reduction effort next year which will focus on Medicare," Rother said in an interview. "Here's the path that would be preferable."

The 2010 Simpson-Bowles commission and President Obama's own list in September 2011 of $248 billion over 10 years in cuts to health care entitlement programs, including premium increases for higher-income seniors and Medigap surcharges, could provide other starting points for discussion.

Another option is to gradually increase the Medicare eligibility age from 65 to 67, which doesn't produce major savings but might lower spending by about 5 percent over the long term, the Congressional Budget Office says. Obama has said he's willing to consider it.

Perhaps most telling are Obama's comments in an interview with the Des Moines Register—originally off the record—shortly before the election during which he said the central ideological argument in Washington is "how much government do we have and how do we pay for it?"

Obama added that "in the first six months we are going to solve that big piece of business" and it would include working "to reduce the costs of our health care programs."

Yet similar attempts have failed in the past, and some longtime health policy experts are skeptical that lawmakers will be able to substantially change the Medicare program and curb its rate of spending growth. That group includes Joe Antos of the conservative-leaning American Enterprise Institute.

Antos, a health care economist, said in an interview that he expects the economy to improve in 2013, brightening the fiscal picture and taking the pressure off Congress to slash spending and revamp Medicare—especially given the political sensitivity of touching a "third rail" social program.

"All I'm saying is politicians will continue to act like politicians and ignore the big problems we have," Antos said.

Gail Wilensky, a former Medicare administrator under President George Bush, also isn't convinced a Medicare overhaul will occur. "It'd be really good if they made Medicare more financially viable over the next few decades," but most of the money available to trim in the program already was captured through the health care law (PL 111-148, PL 111-152), Wilensky said.

On Obama's left, liberals and progressives will be resistant to changes that affect beneficiaries, and they sent signals as soon as the votes were counted. "Any grand bargain that includes beneficiary cuts to Medicaid, Medicare or Social Security is no bargain for the middle class," Ethan Rome, head of the group Health Care for America Now, said in a written statement the morning after the election.

In April, Medicare trustees reported that the hospital insurance trust fund will be insolvent in 2024, the same date as was projected a year earlier. Under current law, scheduled hospital insurance fund tax income would cover only 87 percent of estimated expenditures in 2024.

In the presidential campaign, Republican candidate Mitt Romney outlined a premium support plan for Medicare that would give beneficiaries a set amount of money to purchase either a private plan or traditional Medicare. Democrats labeled it "vouchercare," the public gave it a thumbs down in polls and Obama said his health care law already is making needed financial and system changes in Medicare, including $716 billion in slowing cost growth over 10 years by instituting spending reductions for providers.

Romney's defeat has swept away the viability of the premium support plan, experts said. Now, "the interesting issue is how serious the country is going to get about Medicare program reform," said Sara Rosenbaum, professor of health law and policy at George Washington University. Rosenbaum said she believes the preservation of the health care law makes it easier for lawmakers to consider raising the eligibility age, since people 65 to 67 could obtain health insurance through the state-based exchanges.

With the nation at the edge of a "fiscal cliff," lawmakers are expected to return to Washington for a lame-duck session later this month and consider some kind of deficit reduction agreement, although they're just now making their opening bids and the final impact on Medicare is unclear.

Sequester Would Affect Medicare

Included in the sequester due to kick in Jan. 1 are automatic cuts for Medicare reimbursements for doctors and hospitals. Congress also must address a scheduled 27 percent reduction in Medicare doctor payments under the sustainable growth rate formula, which costs $20 billion for a one-year patch.

But health care observers said they believe those are issues for the short term and that systemic change won't come in the lame duck. Health care consultant Brian Fortune, head of the Farragut Square Group and a former House GOP staffer, said it's key to watch during the next two weeks for clues on how talks on Medicare might shape up. He predicted that major moves on the program will emerge next year. "It has to be part of a big 2013 discussion," Fortune said.

Chip Kahn, president of the American Federation of Hospitals, said Republicans have been clear that an entitlement overhaul must be part of any "grand bargain" discussion on taxes and spending, and "I don't think it's likely that in 45 days they'll settle all the biggest issues."

An analysis released last week by the law firm of Alston and Bird underlined that politically difficult choices on Medicare "would almost certainly have to come as part of a larger, bipartisan deficit reduction package involving additional revenues, as neither party will want to step off the ledge of entitlement reform absent such bipartisan support."

The Simpson-Bowles commission's deficit reduction plan presumably would be a starting point, Kahn said. Two big elements of that report are the taxation of health benefits and permanent replacement of the SGR, also advocated in the coalition recommendations. The chairmen's mark produced by the panel offered two options on taxes: either end the current exclusion of employer health care outlays from taxation or scale back the exclusion.

The commission proposal, which didn't attract enough votes from its members to be formally recommended, also included a long-term global budget for federal health care spending that would tamp down yearly growth in spending to GDP plus 1 percentage point. If growth exceeded the target, action would be required by Congress and the president.

Meanwhile, Rother, of the coalition, said he knows behind-the-scenes discussions are under way and he wants ideas on transformational Medicare change to be part of the mix. "It's important to get them into the debate as early as possible," he said of his group's recommendations.

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