Speakers Predict Huge Deficit Reduction Package With Health Cuts Coming in 2013

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By Steve Teske

While casting doubt that a congressional committee charged with reducing the federal budget deficit will complete its mission this fall, speakers at a conference Oct. 11 said health care providers and beneficiaries should be prepared for a massive deficit reduction package after the 2012 presidential election that likely will contain numerous Medicare spending cuts and policy changes.

Thomas Scully, former CMS administrator, predicts “a big, brutal, massive” deficit reduction package to emerge in 2013.

Speakers at the event on Medicare and deficit reduction sponsored by the Alliance for Health Reform said the Joint Select Committee on Deficit Reduction, known as the super committee, likely will not produce a legislative package that could be approved by Congress by its Nov. 23 deadline, triggering spending reductions that would include a 2 percent cut to Medicare.

But they said chances for passage of a large deficit reduction package are growing whether Democrats or Republicans control the White House and/or Congress in 2013.

Former Centers for Medicare & Medicaid Services Administrator Thomas Scully said the deficit reduction panel most likely will not produce legislation that will clear Congress. But Scully said he expects “a big, brutal, massive” deficit reduction package to emerge in 2013.

A large deficit package is likely even if President Obama wins a second term, but if Republicans capture the White House, the package “will be really big,” Scully said. Scully is now a general partner with Welsh Carson Anderson & Stowe, a private equity firm in New York City. He was CMS administrator from 2001 to 2004.

“You’re going to have to throw everything but the kitchen sink at it to solve it,” he said of the growing federal budget deficit.

Delayed Implementation of PPACA?

Scully said the package could contain language delaying implementation of the health care reform law for several years, since it may be too difficult to repeal it no matter which party controls the White House and Congress.

A delay would save money, which could be used to reduce the deficit, and would be easier to accomplish before the law’s benefits are implemented in 2014, Scully said.

Other speakers also said changes are on the horizon for Medicare, but they added there are no easy solutions to reducing federal health care spending.

For example, Marilyn Moon, senior vice president at the American Institutes for Research, said Medicare now only covers 70 percent of the cost of acute care services and cutting program spending only will transfer additional costs to beneficiaries and their families and to providers.

“These costs don’t necessarily just go away” when they are taken out of Medicare, Moon said.

Squeezing Medicare Beneficiaries.

Karen Davis, president of the Commonwealth Fund, said there is “not much room to increase what beneficiaries pay.” Davis said 47 percent of Medicare beneficiaries have annual incomes that are less than 200 percent of the federal poverty level ($21,780) and 45 percent have three or more chronic medical conditions. Medicare beneficiaries on average spent 16 percent of their income on health care in 2005, up from 12 percent in 1997, she added.

Davis said costs are rising throughout the health care system, adding that spending on private health care is now growing faster than on public programs such as Medicare.

“It does not really work to squeeze down on one part of the system,” she said, referring to cutting Medicare.

Speakers listed numerous proposals likely to be considered during the coming years to reduce Medicare spending, from raising the eligibility age for beneficiaries to better coordinating care to eliminating first-dollar coverage for Medigap policies.

Agreement on Some Reforms.

Although there was some debate among panelists about what reforms should be undertaken, there was a general agreement on some changes that could be incorporated into a Medicare reform package. Panelists favored provisions that would improve the quality of care and its coordination, and make some changes in the design of the program’s insurance benefit, such as linking higher beneficiary copayments and deductibles to certain medical services.

“Everybody is going to have to give something up,” Moon said. “There’s going to be some shared pain.”

Former CMS Administrator Mark McClellan told those attending the panel discussion that a hybrid of provider reimbursement reforms and increased out-of-pocket spending for beneficiaries is likely to emerge as the favorite choice of lawmakers looking to trim federal spending.

Some costs must be shifted to beneficiaries because on average they are paying $100,000 in taxes and in return receive $300,000 in medical care, said McClellan, a senior fellow at the Brookings Institution. McClellan was CMS administrator during the second term of President George W. Bush.

American Enterprise Institute scholar Joe Antos agreed that beneficiaries and providers alike are going to lose something as a result of program changes.

“Somebody is going to lose,” Antos said, adding that Medicare should not be viewed as untouchable in the budget debate.

“Medicare is not a sacrosanct island unto itself,” Antos said.

By Steve Teske

More information on the panel discussion is at http://www.allhealth.org/event_reg.asp?bi=222. Information on the super committee is at http://deficitreduction.senate.gov/public/.