Support Builds for a Plan to Rein In Medicare Costs

By ROBERT PEAR

Published: November 24, 2011

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Jim Lo Scalzo/European Pressphoto Agency

Alice M. Rivlin, former White
House budget director, with Representative Jeb Hensarling, Republican of Texas,
co-chairman of the deficit panel. She supports an insurance exchange for
Medicare beneficiaries.

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WASHINGTON —
Though it reached no agreement, the special Congressional committee on deficit
reduction built a case for major structural changes in Medicare that would limit the government’s
open-ended financial commitment to the program, lawmakers and health policy
experts say.

Members of
both parties told the panel that Medicare should offer a fixed amount of money
to each beneficiary to buy coverage from competing private plans, whose costs
and benefits would be tightly regulated by the government.

Republicans
have long been enamored of that idea. In the last few weeks, two of the
Republican candidates for president, Mitt Romney and Newt Gingrich, have
endorsed variations of it.

The idea
faces opposition from many Democrats, who say it would shift costs to
beneficiaries and eliminate the guarantee of affordable health insurance for older Americans. But
some Democrats say that — if carefully designed, with enough protections for
beneficiaries — it might work.

The idea is
sometimes known as premium support, because Medicare would subsidize premiums
charged by private insurers that care for beneficiaries under contract with the
government.

“This is an
idea that could easily resurface in the future as Congress seeks additional
Medicare savings for deficit reduction,” said Patricia H. Neuman, senior vice
president of the Kaiser Family Foundation.

Even though
the deficit committee failed,
its work may frame the debate over Medicare, taxes and other issues in the 2012
election year and beyond.

John C.
Rother, president of the National Coalition on Health Care, which represents
consumers, employers and providers, said, “The supercommittee may have laid the
groundwork for future reductions in the growth of Medicare.”

Representative
Jeb Hensarling of Texas, the ranking Republican on the committee, frequently
quoted a statement by President Obama: “The major driver of our long-term
liabilities, everybody here knows, is Medicare and Medicaid and our health care spending.
Nothing comes close.”

Medicare is
likely to remain at the center of the nation’s long-term debt crisis through
2030, when more than 80 million people will be on Medicare, according to
federal estimates.

Alice
M. Rivlin, who was budget director for President Bill Clinton,
had urged the deficit panel to establish an insurance exchange for Medicare
beneficiaries. Private plans would compete with the traditional Medicare
program and would have to provide at least the same benefits. The federal
contribution in each region would be based on the cost of the second-cheapest
option, whether that was a private plan or traditional Medicare.

Mr. Obama’s health care law provides “premium support”
for people below age 65. The government will offer subsidies, in the form of
tax credits, to help people buy coverage marketed by private carriers on an
insurance exchange.

If this
approach works for commercial insurance under the new law, it could allay
concerns about similar changes to Medicare.

Competition
among private insurers has already driven down costs for prescription drug
coverage under Medicare. Medicare’s drug benefit is delivered entirely by
private insurers. In addition, one-fourth of the 48 million Medicare
beneficiaries are in private Medicare Advantage plans, offered by companies
like UnitedHealth and Humana, which cover a wide range of doctors’ services and
hospital care.

The new
health care law is cutting payments to Medicare Advantage plans. Republican
lawmakers predicted that the cuts would lead insurers to increase premiums,
reduce benefits or pull out of the program. But so far the dire predictions
have not been borne out.

On average,
the Obama administration said recently, Medicare Advantage premiums will be 4
percent lower in 2012 than in 2011, and insurers expect their Medicare
enrollment to increase by 10 percent.

Throughout
the deficit reduction talks, Democrats insisted that any package be balanced.
They entertained the idea of restructuring Medicare as part of a large deficit
reduction package that also included tax increases. They repeatedly described
the budget as a moral document and said they would not balance the budget on
the backs of older Americans, children and poor people.

Democrats
gave no indication that they would accept major Medicare changes in the absence
of tax increases.

But other
ways of reining in Medicare costs carry their own political risks. Mr. Obama
discussed one such proposal — gradually increasing the age of eligibility for
Medicare — as part of a budget deal that he tried to negotiate over the summer
with Speaker John A. Boehner, Republican of Ohio.

Mr. Obama is
counting on a new agency, the Independent Payment
Advisory Board, to ensure a sharp reduction in the growth of
Medicare spending per beneficiary. But he has not nominated anyone to run the
agency, which Republicans denounce as a tool for rationing care.

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Democrats
sharply criticized the budget blueprint approved in April by the House, under
which new beneficiaries would receive a fixed amount of money from Medicare to
help pay premiums for private insurance policies.

A report on
that proposal by the Congressional Budget Office provided ammunition to its
critics. “Under the proposal,” the report says, “most elderly people would pay
more for their health care than they would pay under the current Medicare
system,” and some would choose not to buy coverage, so “the number of older
Americans without health insurance would be higher.”

Health
policy experts said these problems resulted from specific features of the House
Republican plan and were not necessarily inherent in the idea of “premium
support.” Medicare, they said, could move toward “premium support” without
destroying the individual entitlement at the heart of the program.

The House
Republicans’ budget plan would eventually eliminate traditional Medicare as an
option for new beneficiaries. Ms. Rivlin would keep it as an option, competing
directly with private insurers.

Under the
House Republican plan, the federal contribution would be increased each year to
reflect the age of a beneficiary and general inflation, measured by the Consumer Price Index. But health costs and
insurance premiums have been rising faster than consumer prices in general, so
the federal contribution was almost guaranteed to fall behind the cost of
insurance.

As an
alternative, the federal contribution could be set at a percentage of the
premium charged by a private plan, or the lowest-cost plans, or it could
reflect the average premium for all plans in an area. Beneficiaries could keep
some or all of the difference if they chose a plan costing less than the
federal payment, and they would have to pay more if they chose a more expensive
plan.

Because the
deficit reduction panel failed to reach agreement, the government is supposed
to make across-the-board cuts in spending, starting in 2013. The new budget law
says that Medicare payments to doctors, hospitals and health plans cannot be
reduced more than 2 percent in any year.

The
Congressional Budget Office estimates that the automatic cuts will trim $123
billion from Medicare over 10 years. But since the cost of the program is still
expected to total more than $7 trillion in those years, lawmakers are likely to
continue the frantic search for savings.