On Medicare Spending, a Role Reversal
Republicans, Not Interest Groups, Fight Plans to Cut $400 Billion Over 10 Years

By Lori Montgomery
Washington Post Staff Writer
Monday, September 28, 2009

After years of trying to cut Medicare spending, Republican lawmakers have emerged as champions of the program, accusing Democrats of trying to steal from the elderly to cover the cost of health reform.

It's a lonely battle. The hospital associations, AARP and other powerful interest groups that usually howl over Medicare cuts have also switched sides. Last week, they stood silent as the Senate Finance Committee debated a plan to slice more than $400 billion over the next decade from Medicare, the revered federal insurance program for people over 65, and Medicaid, which also serves many seniors.

With the Finance Committee set to resume deliberations Tuesday, cuts to government health programs are expected to account for at least half the funding for its health-care reform package. A competing bill drafted by House leaders would cut spending even more sharply.

AARP and other groups say the cuts are small enough to be absorbed without affecting services, and many health policy analysts tend to agree. But the size of the cuts is less relevant than the widespread calculation that health-care providers and their most frequent patients have much to gain from President Obama's overhaul of the nation's health system.

Cutting Medicare does not necessarily mean reducing spending but rather slowing its rate of growth. Such efforts are usually aimed at reducing the federal budget deficit. Spending is cut, and, from the perspective of doctors, hospitals and other providers, the cash disappears. This time the cuts would finance a vast expansion of coverage for the uninsured, creating a new pool of nearly 30 million customers. Earlier this year, industry groups agreed in talks with the White House to forgo billions in Medicare and Medicaid payments to help cover the cost of reform.

'It's the Right Thing to Do'

"From our projections, if they get to 94 percent coverage, then we ought to be in net by 20 or 30 billion dollars," said Charles "Chip" Kahn, president of the Federation of American Hospitals and the man behind the famous "Harry and Louise" ads that helped sink President Bill Clinton's reforms in 1994. "In terms of this deal, we are better off. And, also, it's the right thing to do."

AARP, the nation's largest association for people over 50, also has much to gain from the package drafted by Senate Finance Committee Chairman Max Baucus (D-Mont.). Its older members would benefit from a deal with drug companies that would cut prices for people stuck in the Medicare prescription drug coverage gap commonly known as the doughnut hole. Meanwhile, insurance reforms and subsidies for low- and middle-income families would help younger AARP members who aren't eligible for Medicare find affordable coverage despite preexisting conditions -- one of AARP's top priorities.

Cutting Medicare Advantage

The cuts are designed to be relatively painless. Except for an increase in premiums for wealthier subscribers to the Medicare drug plan, the Baucus bill would not increase premiums or co-payments, or explicitly cut benefits, for most Medicare beneficiaries. The big exception is Medicare Advantage, a program that pays private insurance companies to cover more than 10 million people, nearly a quarter of the 45 million Medicare recipients.

Created to compete with the traditional program, Medicare Advantage has proved to be far more costly per person than government-run coverage and is helping to drive Medicare toward bankruptcy. The Baucus bill would slash the bulk of those overpayments -- $113 billion over the next decade. Humana, a top provider, warned subscribers recently that they could "lose many important benefits and services."

Many health policy analysts, along with the nonpartisan Congressional Budget Office, agree that the Medicare Advantage cuts are likely to hurt, causing insurance companies to scale back popular extras such as dental coverage and gym memberships. They could also pull out of suddenly unprofitable markets, leaving seniors without a popular program and violating Obama's pledge that people who like their insurance can keep it.

But David Sloane, AARP's senior vice president for government relations, played down the impact even of that reduction.

"It's up to the insurance companies to decide how they want to manage" the budget cuts, Sloane said. "We believe it's entirely within their realm to continue to deliver Medicare benefits at the same level they do now."

Seniors' Concerns

The mild response to the cuts demonstrates the strategic value of Obama's decision to ally with groups that have blocked efforts to change the program in the past. Seniors, however, are far less sanguine.

Americans 65 and over have long been among those most critical of Obama's reform plans, and a key factor is their concern about Medicare, according to an ABC News-Washington Post poll conducted this month. Fifty-six percent of seniors said they thought reform would weaken the Medicare program. With seniors likely to make up nearly 20 percent of the electorate in 2010, Republicans see Medicare as a potent campaign issue. In the Finance Committee, GOP senators moved repeatedly to strip the spending cuts from the bill.

Obama and other Democrats have assured seniors that the cuts will skim off a small margin of waste and inefficiency without affecting services. They say the cuts will actually strengthen a program that is rapidly outgrowing its primary source of funding -- the payroll tax -- and threatens to exhaust the surplus taxes accumulated in the Medicare trust fund by 2017. Cutting payments to providers, they argue, can help stabilize Medicare finances.

That's what happened after the last major assault on Medicare spending, when Clinton and a Republican Congress approved a package of cuts remarkably similar to the one now on the table. The Balanced Budget Act of 1997 was expected to save $112 billion over five years -- a 9 percent reduction in projected spending on par with the 10 percent in the Baucus bill. The cuts wound up saving so much more than expected that Congress reversed some of them in 1999 and 2000, said Jon Gabel, a senior fellow at the National Opinion Research Center.

Service to seniors was largely unaffected, said Robert Berenson, a Medicare expert at the left-leaning Urban Institute who also serves on the congressional Medicare Payment Advisory Commission. "There was anguish from the hospital industry, but I don't think anybody documented quality problems. And it dramatically added to the solvency of Medicare," he said, extending the life of the trust fund by 15 years.

Some budget analysts worry that industry groups, though confident now, may find it difficult to live up to their part of the bargain. The Baucus bill would create an independent commission charged with ratcheting payment rates even lower in the years to come. Others say the cuts, even if they stand, are insufficient to fix a program facing the twin burdens of a rapidly growing population of retirees and rampant health-care inflation. Unless health reform delivers on Obama's promise to restrain the overall cost of health spending, Medicare will undoubtedly stay on the chopping block.

"There's an imperative to bend the curve faster than it's probably possible to do in a democratic society," said Urban Institute President Robert Reischauer, a former CBO director. "We're starting down the correct paths . . . but at any point Congress could act to halt our travel down those paths. For the next few years, there's a great degree of uncertainty about all of this."

Polling director Jon Cohen contributed to this report.

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