On Dec. 1, the National Commission on Fiscal Responsibility and Reform revealed their game plan for cutting the national debt. The commission’s co-chairs announced their draft of the plan, “The Moment of Truth,” and prepared for the 18-member commission to hold a vote on Dec. 3. Although the package failed to receive the 14 votes required to force a Congressional vote on its recommendations, 11 commission members back the plan – including key Congressional leaders and members of the Budget Committee – making it likely that certain elements will show up in next year’s budget package.
Here, then, is a look at the portions of the 66-page plan that deal with Medicare. Other parts of the document cover tax reform, deficit cutting, and Social Security – but it’s worth taking a look at the Medicare portions, if only to see what you may be up against in 2011.
From the bill
Federal health care spending represents our single largest fiscal challenge over the long run. As the baby boomers retire and overall health care costs continue to grow faster than the economy, federal health spending threatens to balloon. Under its extended-baseline scenario, [the Congressional Budget Office] projects that federal health care spending for Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), and the health insurance exchange subsidies will grow from nearly 6 percent of GDP in 2010 to about 10 percent in 2035, and continue to grow thereafter.
These projections likely understate the true amount, because they count on large phantom savings – from a scheduled 23 percent cut in Medicare physician payments that will never occur and from long-term care premiums in an unsustainable program (the Community Living Assistance Services and Supports Act, or “CLASS Act”).
The Commission recommends first reforming both the formula for physician payments (known as the Sustainable Growth Rate or SGR) and the CLASS Act, and finding savings throughout the health care system to offset their costs. In addition, we recommend a number of other reforms to reduce federal health spending and slow the growth of health care costs more broadly.
Over the longer term (2020 and beyond), the Commission recommends setting targets for the total federal budgetary commitment to health care and requiring further structural reforms if federal health spending exceeds the program-specific and overall targets. We recognize that controlling federal health spending will be very difficult without reducing the growth of health care costs overall. To that end, the Commission’s recommendations on tax reform regarding reducing and potentially eliminating the exclusion for employer-provided health insurance will help decrease growth in health care spending, according to virtually all health economists.
Recommendation 3.1: Reform the Medicare sustainable growth rate
This recommendation would reform the SGR for physician payment and require the fix to be offset. The commission estimates that it would save $3 billion in 2015 and $26 billion through 2020, relative to a freeze.
Created in 1997, the SGR (or “doc fix“) was designed to control Medicare spending by setting payment ranges for physician services and reducing payment updates if spending exceeded the targets. It required reductions in physician payments every year since 2002, but in 2003, Congress began blocking the reductions on an annual basis – which required even larger reductions in subsequent years. Because of the accumulated shortfall, the commission estimates that the SGR formula would require a 23 percent reduction in 2012 payments, and would increase each year the problem continued without a fix.
“Freezing physician payments from 2012 through 2020, as we assume in our baseline, would cost $267 billion relative to current law,” the commission wrote in “The Moment of Truth.” “The Commission believes that this amount – or the cost of any ‘doc fix’ – must be fully offset, and recommends enforcing this principle by eliminating its exemption in statutory PAYGO. In the near term, we also recommend replacing the reductions scheduled under the current formula with a freeze through 2013 and a 1 percent cut in 2014.”
In the near term, the commission recommended a CMS-developed improved physician payment formula that would encourage care coordination across multiple providers and settings, and pay doctors based on quality, rather than quantity, of services. To put pressure on the CMS, the SGR formula would be reinstated in 2015, using 2014 spending as the base year, until such a revised physician payment system was created. The new payment system wouldn’t be able to cost more than what would have been allowed under the SGR formula, and a Medicare actuary would need to certify that this was the case.
Recommendation 3.2: Reform or repeal the CLASS Act
The commission estimated this would cost $11 billion in 2015 and $76 billion through 2020.
As part of PPACA, The Community Living Assistance Services and Supports (CLASS) Act established a voluntary long term care insurance program.
“The program attempts to address an important public policy concern – the need for non-institutional long-term care – but it is viewed by many experts as financially unsound,” the commission stated in its package. “The program’s earliest beneficiaries will pay modest premiums for only a few years and receive benefits many times larger, so that sustaining the system over time will require increasing premiums and reducing benefits to the point that the program is neither appealing to potential customers nor able to accomplish its stated function. Absent reform, the program is therefore likely to require large general revenue transfers or else collapse under its own weight.”
Given these findings, the commission recommended that the CLASS Act be reformed to make it sustainable over the long term. If this is not possible, the commission advised that it be repealed. Why? Because it found that the CLASS Act will increase the deficit over the next decade given that the program’s premiums are collected up front and benefits are not paid out for five years.