Lawmakers are trying to round up more ideas for ways to cut federal spending on health care programs.

The federal government had a budget deficit of $486 billion in fiscal year 2014 on $3 trillion in revenue.

The government spent about $1 trillion on health programs. About $600 billion went to Medicare. The rest went to the federal portion of Medicaid spending; the Children’s Health Insurance Program; health programs for military personnel, veterans and federal employees; and programs related to the Patient Protection and Affordable Care Act (PPACA), including the PPACA exchange plan premium subsidy tax credits.

Increases in health care costs have slowed, but the costs remain huge, and funding for entitlement programs — Medicare and Medicaid — will crowd out resources for other programs, such as medical research, if Congress fails to act, Rep. Joseph Pitts, R-Pa., chairman of the House Energy and Commerce health subcommittee, said today at a hearing on health spending priorities organized by the subcommittee.

“We need policies that drive reform and savings that make sense,” Pitts said.

To see some of the hearing witnesses’ ideas, read on.

Older woman

1. Squeeze the Medicare providers, not elderly and disabled enrollees

Judy Feder, a professor at Georgetown University, said one principle members of Congress and other policymakers should follow is to focus mainly on cutting reimbursement rates for the health care providers, not the amount of necessary care, or the quality of care, that frail and elderly Americans get.

“Medicare and Medicaid are essential to the health and financial well-being of the elderly, disabled, and poor,” Feder said, according to a written version of her testimony posted on the committee website. “Their costs per enrollee have consistently grown more slowly than private insurance premiums, despite their focus on populations with the greatest health care needs.”

Medicaid, for example, costs 27 percent less per child and 20 percent less per non-elderly adult than private coverage, Feder said.

Medicare spending per enrollee grew just 0.7 percent per year from 2010 through 2014, which was below the rate of growth in gross domestic product (GDP) per capita, Feder said.

States already have the flexibility to come up with creative solutions in the Medicaid program, and Medicaid provider pay is already low, Feder said.

Policymakers can probably get more savings, without hurting patients, through steps such as reducing spending on Medicare Advantage and refining payment mechanisms for post-acute care, Feder said.

Critics have complained about the effects of previous Medicare policy changes, such as changes in the way Medicare pays hospitals, but evidence shows the changes have promoted efficiency in health care delivery, Feder said.

Pills

2. Make drug providers offer Medicaid enrollees rebates

Marc Goldwein, senior policy director at Committee for a Responsible Federal Budget, had several ideas for saving money by reducing federal spending on drugs.

One was to encourage doctors to use low-cost drugs, rather than high-cost drugs, when they must administer the drugs themselves.

The Medicare Part B physician services program now pays doctors the average sales price of a physician-administered drug plus 6 percent, Goldwein said.

“By paying the doctor a percentage of the drug cost – even though more expensive drugs do not necessarily entail any more work to administer – this policy encourages physicians to use the most expensive, rather than the most effective, drug available,” Goldwein said.

Simply changing that incentive could reduce spending by $5 billion to $10 billion over 10 years, Goldwein said.

Medicare card

3. Update traditional Medicare

Mark Miller, executive director of the Medicare Payment Advisory Commission (MedPAC), said Congress should do something about the structure of the basic Medicare program, which was created in 1965.

The basic Part A hospitalization and Part B physician services plans put no cap on out-of-pocket costs and have a complicated, irrational list of deductibles and coinsurance amounts, Miller said.

Providing the kind of annual out-of-pocket spending maximum that an ordinary commercial plan has and a rational deductible level, and replacing most use of coinsurance amounts with co-payment requirements, would probably reduce spending on medical services, reduce the need for enrollees to pay extra for Medicare supplement insurance, and give enrollees better protection against catastrophic costs, Miller said. 

Doctor who's about to do something uncomfortable to you.

4. Apply the same risk-adjustment system to all Medicare enrollees

The private insurers that sell coverage through the Medicare Advantage program use the risk-adjustment program that served as the model for the PPACA exchange plan risk-adjustment program to smooth out plan-to-plan differences in enrollee claim risk.

Medicare Advantage plans with especially low-risk enrollees are supposed to pay cash into a program that subsidizes plans with especially high-risk enrollees.

Medicare accountable care organizations and the Medicare fee-for-service plans use different risk-adjustment mechanisms.

Coordinating the risk-adjustment methods could help policymakers do a better job of seeing which plans are providing the most cost-effective care, Miller said. 

HealthCare.gov

5. Reduce PPACA exchange plan subsidies

Christopher Holt, a health care policy specialist at the American Action Forum, noted that the federal government now expects to spend about $1 trillion over the next decade on PPACA premium subsidy tax credits.

Exchange plan enrollees who earn up to 400 percent of the federal poverty level can now qualify for tax credits.

If Congress capped access to the subsidies at 300 percent of the federal poverty level, or $71,550 for a family of three, that could reduce subsidy spending by $181 billion from 2015 through 2013, Holt said.

See also: Millions Will Still Go Without Insurance If PPACA survives