Medicare is the cornerstone on which all other government health programs rest. Unfortunately, the deteriorating financial conditions of this program are threatening beneficiary access to its benefits. In their most recent report, the Medicare Trustees projected that the account that funds Medicare’s hospital benefit will go bankrupt in 2024. Reports like this illustrate that we can no longer let politicians in Washington deny the danger to Medicare – it is all too real, and the health of our nation’s seniors is far too important. We have to save Medicare to avoid disruptions in benefits for current seniors and to strengthen the program for future generations.
The President’s Health Care Law
On March 25, 2010, a Democrat controlled Congress passed the President’s new health care law which fundamentally realigns our nation’s health care system. This massive health care overhaul will exacerbate the very problems this reform effort sought to address. It will dramatically alter our deteriorating economic and fiscal conditions for the worse and may irrevocably impair the American identity.
Sky-rocketing health care costs are drowning families, businesses and governments in red ink—leaving millions priced out of the market and without coverage. This law—with its maze of mandates, dictates, controls, tax hikes and subsidies—pushes costs further in the wrong direction. It initiates a government takeover of the health care sector (17% of the U.S. economy), intrudes in the doctor-patient relationship, and increases total spending by almost $2.6 trillion. The law relies on 10 years of tax increases and 10 years of Medicare cuts to pay for six years of new spending. Moreover, it raids over $700 billion from Medicare to finance a new open ended entitlement. All told, this law will dramatically add to an already unsustainable rate of government spending growth that will overwhelm the Federal budget and will dramatically change the way Americans get health care.
The health care law will have significant and serious consequences on the sustainability of Medicare and access to medical care. Before the bill’s enactment, the Medicare program was already on an unsustainable path. According to the most recent Medicare Trustee’s report, the Medicare program will be insolvent by 2024 —meaning Medicare will have exhausted the assets in its Hospital Insurance trust fund. Instead of reforming this important program so that current beneficiaries will not see a disruption in their services and future generations will be able to plan their retirement around Medicare’s assistance—as I have been advocating for several years—the health care law treats Medicare like a piggy bank.
Instead of promoting real competition – which would moderate costs naturally—the law nationalizes the regulation of health insurance premiums. This will lead to shortages and rationing. Waiting times will replace prices as a means of balancing limited supply and higher demand. Quality will decline as consumers begin facing restricted access to the full range of treatment options. Greater government regulation also will limit incentives for medical innovation.
Yet, despite all the new spending and all the increased taxes, supporters of this law argue that it will actually reduce our current deficit levels. However, the fiscal arguments just do not add up. The only way reduce the deficit, while at the same time having the government pick up the tab for more than 30 million uninsured Americans and subsidize millions more is through the use of smoke and mirrors.
Medicare Reimbursements for Physicians
Medicare reimburses health care providers for various procedures they perform. These reimbursements are made according to a fee schedule, which is updated annually by a formula called the Sustainable Growth Rate (SGR). If spending exceeds the established targets, payment rates to providers are cut; if spending is below the target, payment rates are increased. The intent of the formula is to place a restraint on overall increases in Medicare spending for physicians’ services.
Since 2003, Congress has chosen to override current law in order to prevent reimbursements from being cut as a result of the formula. On December 23, 2011, the House and Senate approved legislation that would provide, among several provisions, a two month delay in the scheduled cuts in physicians’ Medicare reimbursements that would have taken place on January 1st due to the flawed SGR formula. On February 16, 2012, Congress extended the delay through December 31, 2012. However, since the law only provides a temporary patch to the more than 30% cut, Congress must address the issue again before the end of the year.
Rather than passing temporary fixes, I would prefer to address the more important matter of wholesale reform to the Medicare reimbursement system. Physicians should not have to wait on Congress to act every year in order to prevent pay cuts that are arbitrarily determined by an outdated formula. Fundamental reforms to Medicare and our broken health care system are urgently needed, and I will continue to push my colleagues to take on this challenge.
Path to Prosperity
Medicare’s structural imbalance threatens beneficiaries’ access to quality, affordable care. Currently, Medicare reimburses health care providers for services, creating a perverse incentive to order more tests and perform more services than may be necessary as a way to maximize one’s share of the program. By basing payment on volume, not quality, costs rise and efficiency is reduced. Ultimately, this flaw in the structure of the program is driving up health care costs, which are, in turn, threatening to bankrupt the system – and ultimately the nation.
Unless Congress fixes what’s broken in Medicare, without breaking what’s working, the program will end up causing exactly what it was created to avoid – millions of American seniors without adequate health security and a younger working generation saddled with enormous debts to pay for spending levels that cannot be sustained.
It is morally unconscionable for elected leaders to cling to an unsustainable status quo with respect to America’s health and retirement security programs. Current seniors and future generations deserve better than empty promises and a diminished country. Current retirees deserve the benefits around which they organized their lives. Future generations deserve health and retirement security they can count on. By making gradual structural improvements, Congress can preserve America’s social contract with retired workers.
Recognizing the problems facing Medicare, the House-passed Budget:
Strengthens health and retirement security by taking power away from government bureaucrats and empowering patients with control over their care.
Repeals the new health care law’s unaccountable board of bureaucrats empowered to cut Medicare in ways that would jeopardize seniors’ access to care.
Saves Medicare for current and future generations, with no disruptions for those in and near retirement.
For younger workers, when they become eligible, Medicare will provide a premium-support payment and a list of guaranteed coverage options – including a traditional fee-for-service option – from which recipients can choose a plan that best suits their needs.
Program growth would be determined by a competitive-bidding process – with choice and competition forcing providers to reduce costs and improve quality for seniors.
Premium support, competitive bidding, and more assistance for those with lower incomes or greater health care needs will ensure guaranteed affordability for all seniors.
Letting government break its promises to current seniors and to future generations is unacceptable. The reforms outlined in the budget passed by the House protect and preserve Medicare for those in and near retirement, while saving and strengthening this critical program so that future generations can count on it to be there when they retire.
Beginning in 2023, when workers currently under the age of 55 become eligible for Medicare, seniors would be given a choice of private plans competing alongside traditional fee-for-service option on a newly created Medicare Exchange. Medicare would provide a premium-support payment either to pay for or offset the premium of the plan chosen by the senior.
The Medicare Exchange would provide all seniors with a competitive marketplace where they could chose a plan the same way members of Congress do. All plans, including the traditional fee-for-service option, would participate in an annual competitive bidding process to determine the dollar amount of the federal contribution seniors would use to purchase the coverage that best serves their medical needs. Health care plans would compete for the right to serve Medicare beneficiaries.
The second-least expensive approved plan or fee-for-service Medicare, whichever is least expensive, would establish the benchmark that determines the premium-support amount for the plan chosen by the senior. If a senior chose a costlier plan than the benchmark plan, he or she would be responsible for paying the difference between the premium subsidy and the monthly premium. Conversely, if that senior chose a plan that cost less than the benchmark, he or she would be given a rebate for the difference. Private health plans would be required to cover at least the actuarial equivalent of the benefit package provided by fee-for-service Medicare.
Program growth would be determined by the competitive bidding process – with choice and competition forcing providers to reduce costs and improve quality for seniors. The competitive market for Medicare choices would foster innovation and quality while ensuring that the program is financially stable. As opposed to pegging the growth rate to a predetermined formula, competitive bidding offers the ideal means of harnessing the power of choice and competition to control costs, while also securing guaranteed affordability for patients. As a backup, the per capita cost of this reformed program for seniors reaching eligibility after 2023 could not exceed not exceed nominal GDP growth plus 0.5 percent. The President has repeatedly proposed empowering IPAB to hold Medicare growth to the same rate; the difference is that this budget proposes to use competition to control costs.
All health plans that participate in the Medicare Exchange, including the traditional Medicare option, would be required to offer insurance to all seniors – regardless of age and health status – thereby preventing insurers from cherry picking only the healthiest seniors for coverage under their plan. Additionally, the federal contribution to seniors’ health plans would be increased to account for a senior’s health status and age.
These reforms also ensure affordability by fixing the currently broken subsidy system and letting market competition work as a real check on widespread waste and skyrocketing health-care costs. Putting patients in charge of how their health care dollars are spent will force providers to compete against each other on price and quality. That’s how markets work: The customer is the ultimate guarantor of value.
Reform aimed to empower individuals — with a strengthened safety net for the poor and the sick — will not only ensure the fiscal sustainability of this program, the federal budget, and the U.S. economy. It will also guarantee that Medicare can fulfill the promise of health security for America’s seniors.