Medicare and Medicaid will be spared from the first round of cuts in the debt-ceiling deal. But the Joint Congressional Committee tasked with finding $1.5 trillion or more in deficit reduction is going to be looking hard at both programs. Here are five options they’re likely to consider:
1) Raise the Medicare eligibility age, increase premiums for wealthy recipients, and increase deductibles and co-pays. President Obama backed all of these changes during the negotiations last month, echoing the details of the deficit-reduction plan from Sens. Tom Coburn (R-Okla.) and Joe Lieberman (I-Conn.), which would save $600 billion in Medicare spending. The Lieberman-Coburn plan is “the most likely model for Medicare cuts from a bipartisan fiscal committee,” says Tevi Troy, a former George W. Bush staffer and health policy expert. Those changes would elicit howls from liberals and make it tougher for Democrats to cast themselves as the program’s staunchest defenders, but the White House’s backing could override these concerns.
2) Give states more leeway in Medicaid to scale back eligibility and benefits, as well as payments to nursing homes: The GOP’s most controversial Medicaid proposal—Rep. Paul Ryan’s (R-Wisc.) plan to block grant the program—won’t pass muster. But House Republicans have been quietly floating other reforms, some of which have picked up support from some Democratic governors. One is the State Flexibility Act, which would allow states to modify their Medicaid eligibility and benefit requirements, reducing both federal and state spending. If the specter of direct “benefit cuts” scares off Democrats, the committee could turn its focus to providers instead. Nursing homes receive a huge chunk of Medicaid dollars, for instance, and they could be starved of some money. Such cuts would eventually affect beneficiaries, if nursing homes reduce services and access in response, but the effect is more indirect—and thus politically palatable.
3) Improve care coordination between Medicare and Medicaid: Health care wonks have long been clamoring for officials to pay more attention to “dual eligibles,” Medicaid enrollees who are also signed up for Medicare. Dual eligibles make up only 15 percent of Medicaid’s population, but they’re disproportionately old and sick and expensive, and their care tends to be fragmented, and so they are the beneficiaries of almost 40 percent of the program’s spending. Changing the way that these beneficiaries receive services and payment incentives could ultimately save a lot of money. (Here are some more specific ways that could happen.) Some of these changes would require more spending in the short run to incur long-term savings, which could make them a more difficult sell. But policy experts like Peter Harbage, a former Clinton official, urge lawmakers to consider such approaches rather than simply take up the hatchet. “The question is what can be done to increase efficiency, like care coordination for Duals, versus just eliminating services and versus just transferring federal costs to states and individuals,” says Harbage. “Cuts are easy, investments are harder to do.”
4) Slashing prescription drug payments: There’s a good chance the Congressional committee could take these up even if the deficit trigger isn’t set off. Back in April, President Obama vowed to cut $200 billion in spending on Medicare prescription drugs. The implication was that he’d push for the government to use its bulk purchasing power to negotiate Medicare drug prices directly with pharmaceutical companies—something explicitly prohibited in the GOP’s 2006 deal on Medicare Part D. During the health reform negotiations, the White House won Big Pharma’s support by leaving the prohibition in place. If the deficit-reduction committee puts it back on the table, industry lobbyists will be out in full force.
5) Cutting Medicare provider payments: Legislators could also take up provider payments that the White House already believes are too high. “There are areas (like [medical] imaging) where [the administration] believes they pay too much,” says Harbage. But depending on the specifics, certain Medicare provider cuts could also have a big impact on beneficiaries, albeit indirectly. In Medicaid, for instance, low payment rates have resulted in many providers dropping out of the program, exacerbating a shortage of primary care doctors that the country is already facing.
So would such cuts eliminate wasteful entitlement spending or eliminate vital services? It would depend on whether the committee decides to use a scalpel or a hatchet in paring back spending. Warns Troy, “the notion of ‘only’ provider cuts is misleading, as cuts typically get passed on throughout the system. It’s hard to say without seeing specifics, but beneficiaries would likely feel such cuts in terms of reduced services.”