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Deficit Reduction Task Force Urges Overhaul of Medicare, Medicaid, Taxation of Health Benefits

By John Reichard, CQ HealthBeat Editor

November 17, 2010 -- Congress must overhaul Medicare and Medicaid and end tax-free health coverage to help bring the federal debt to manageable levels, a bipartisan task force said Wednesday.

Chaired by former Congressional Budget Office Director Alice Rivlin and former New Mexico Sen. Pete V. Domenici, the task force warned that without radical budget surgery, federal revenues by 2025 "will be completely consumed by the combination of interest payments, Medicare, Medicaid and Social Security."

"The treasury will have to borrow money to finance all of its other obligations—including defense, homeland security, law enforcement, food and drug inspection and other vital operations," said a report released by the task force.

The report was commissioned by the Bipartisan Policy Center, which was founded in January by former Senate Majority Leaders Howard Baker, R-Tenn.; Tom Daschle, D-S.D.; Bob Dole, R-Kan.; and George J. Mitchell, D-Maine.

Other task force members included budget and tax analysts on both the left and the right, such as William Hoagland, former GOP staff director of the Senate Budget Committee, and Leonard E. Burman, former director of the Tax Policy Center, a joint effort of the Urban Institute and the Brookings Institution. Also on the panel: former Dole staffer Sheila Burke and former AARP Executive Director William Novelli.

The task force outlined a plan it said would "reduce and stabilize the federal debt" by 2020 to 60 percent of GDP. It called that level "an internationally recognized standard for fiscal stability."
The plan would brake the growth in health spending through a series of near- and long-term fixes. Medicare enrollees would be on the hook for higher monthly premiums. Instead of covering 25 percent of yearly spending in Part B, which covers doctor care, premiums would rise over five years to cover 35 percent.

Medicare would use its buying power to squeeze drugmakers for bigger discounts. Medicare benefits would be "modernized," including by changing co-payments. Services involved in "post-acute" care after patients leave the hospital would increasingly be packaged for reimbursement purposes and paid under a single "bundled" payment.

Medicare would switch to a "premium support" system in 2018. Seniors would choose from a menu of health plans including traditional fee-for-service. Medicare would pay a portion of the premium costs, but the federal government would limit yearly increases in the amount of premiums it would pay to the increase in the gross domestic product plus one percent.

"Alternatively, beneficiaries can opt to purchase a private plan on a health insurance exchange," said a summary of the plan. "Competition among plans will improve the quality of care and increase efficiency."

Starting in 2018, lawmakers would cap the level of health benefits that are excluded from being counted as income in individual income tax returns. The Internal Revenue Service would switch to making employer-paid premiums fully taxable in the 10 years after that.

Lawmakers would slap an excise tax on the manufacture and importation of beverages sweetened with sugar or high-fructose corn syrup. The change would help trim rising expenditures for obesity-related illnesses. Caps also would be imposed on payouts for medical malpractice.

The plan also would increase sales taxes, change the tax code so fewer people would have to file returns, and ensure Social Security payments for 75 years through some tax increases.

"Many on the left and right will attack pieces of our plan, just as they attacked the recent proposal from the co-chairs of President Obama's fiscal commission," Rivlin and Domenici said Wednesday in a Washington Post op-ed piece.

"Indeed, some members of our group question elements of our proposal while supporting the comprehensive package as a whole," they wrote. "But the status quo is not an option, and everyone must sacrifice a little in the common interest."

The commission embraces tort reform—specifically, capping non-economic and punitive damages—which it says would "reduce the cost of defensive medicine."

In their recommendations, the co-chairmen of the president's deficit reduction commission—former Wyoming Republican Sen. Alan K. Simpson and former Clinton Chief of Staff Erskine Bowles—recommended limiting the growth of Medicare, Medicaid and CHIP to the gross domestic product plus 1 percent. And if not enough money is saved, premiums would be increased or a public health care option could be created, the two suggested.

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