How to Fix Medicare, Redux

The Republican Presidential primary’s shift down south to Florida has brought discussions of healthcare, particularly Medicare, back to the forefront of the national discourse.  With its struggling economy and sizeable elderly population, social welfare programs like Medicare, Medicaid and Social Security are top of mind to Florida voters.

In the most recent debate, Romney accused Gingrich of lobbying Congress on behalf of paying health care clients when working to pass a Medicare bill in 2003.  Gingrich, certainly aware of his audience, as Medicare is home to 3.3 million seniors in Florida, maintained that he has always publicly favored a stronger Medicare program.

Romney also defended the Massachusetts health care reform that he enacted as Governor while restating his opposition to Obamacare.  And Rick Santorum tried to distinguish himself from both Romney and Gingrich by claiming that their past support for the individual mandate undermines both of their conservative credentials.

It is certainly important that health care, and particularly Medicare, be debated thoroughly during the Presidential campaign, as entitlement reform is one of the most pressing issues that the next Congress and White House administration will face.  Indeed, last year’s annual Medicare and Social Security Trustees report projected that the Medicare trust fund will run out in 2024 – five years earlier than previously expected – and the Social Security trust fund will run out by 2036.

The good news is that there is national consensus among Americans across the ideological spectrum that we must address the nation’s budget problems, and that reform of Medicare is a critical part of any agreement.  However, it is essential that cuts to the Medicare program be made in a responsible and productive way.

Medicare reform must protect and uphold programs and policies that work, while eliminating or changing programs and policies that do not or will not work effectively.

One productive Medicare program that must be kept intact is Part D, the prescription drug benefit program.  Part D is the most cost-effective and successful entitlement program the federal government runs.  Even conservative Newt Gingrich has spoken several times on the campaign trail about his support for the program, which is run on a free enterprise model.  He has touted the program’s success and effectiveness in saving lives, saving money and offering people more choices.

Thanks to strong competition, the prescription drug program is costing the government and beneficiaries far less than initial projections.  Last year, the Congressional Budget Office (CBO) reduced its baseline 10-year spending projection for all of Medicare by $186 billion, two-thirds of which is accounted for by a reduction in Part D spending.

The Medicare Trustees report says that this competition will continue to drive savings.  Research shows that in the Part D program, the proportion of prescriptions filled with a generic drug has increased each year, as plans strive to keep premiums low.

While Medicare Part D is an example of a Medicare program that works, it is clear that not all Medicare policies and programs are as useful and valuable.

The Independent Payment Advisory Board (IPAB) that was created with the passage of Obama’s health care law is one such provision that should be eliminated.  IPAB would allow an unelected board to singly enact spending cuts in the Medicare program.  Essentially, IPAB would substitute an unelected body for government, enabling it to make binding recommendations to reduce Medicare spending.

IPAB is a threat to critical medical treatments and services for all Medicare beneficiaries.  Proponents of the board have argued that IPAB will improve the quality of care as a result of the cost-cutting measures it enacts in order to save.  However, it is doubtful this will happen because the board will have to make cuts that reach annual targets, and can only look at specific parts of the health care system when making these decisions.  Thus, standard line item cuts will result, which will only reinforce systemic problems, not fix them, and create unsustainable savings.

Major changes in the Medicare program should be decided by elected officials who will be held be accountable for their decisions.  Such an arbitrary system lacks transparency and oversight.

There are other ways to help reduce Medicare spending and increase savings.  Our political leaders should consider these as negotiations progress.

  • Gradually increase the retirement age.  By raising the eligibility age for Medicare to 67 from 65, $124 billion would be saved.


  • Gradually limit the Medicare benefits the wealthy can receive.  This idea was been backed by the bipartisan Simpson-Bowles commission.  Last fall, President Obama proposed higher Medicare premiums for high-income seniors as part of his deficit plan that he submitted to the Congressional Super Committee.  Obama’s plan would save about $20 billion over 10 years in Medicare.


  • Increase the savings mechanisms in the current health care law.  This could be done by guaranteeing the law’s $500 billion worth of savings from reduced Medicare payments to health providers and insurers by accepting a “trigger” for further cost cutting if those savings don’t materialize.


  • Cut back subsidies for beneficiaries to buy supplemental “Medigap” insurance.  This could save $92 billion by 2021.


  • Increase premiums that beneficiaries pay for Medicare doctors’ coverage so they cover 35 percent of the program’s costs instead of 25 percent under current law.  This would save $241 billion.


  • Incentivize employers and employees to select more cost-effective health plans by capping the tax exclusion of employer-provided health benefits in 2018, and then phase it out over ten years. The exclusion of employer-provided health care benefits is the single largest tax expenditure. It is estimated to cost the government more than $1 trillion over the next five years.


  • Modernize Medicare’s benefits package, including the copayment structure.  A modernized benefit structure with a deductible and out-of-pocket maximum that is indexed to increases in spending per beneficiary would save about $14 billion through 2018.


  • Bundle Medicare’s payments for post-acute care to reduce costs and increase incentives for efficiency. The new bundled payment rates would result in cumulative budget savings from 2012 through 2018 of $5 billion.

It is time for Congress to make the difficult decisions necessary to reach a plan to balance the budget.  The American people are prepared to buy into a comprehensive deficit reduction program that incorporates entitlement reform as part of the shared sacrifice necessary to achieve a balanced budget program.