Congressional Republicans are insisting that big cuts to Medicare and Medicaid be on the table in the negotiations over the so-called fiscal cliff and deficit reduction. That stance is largely a political move against two programs, which have been critical to the public welfare for the past half-century.
Post-election polls show that large majorities of voters for both President Barack Obama and Mitt Romney opposed making large Medicare cuts as a way to reduce the budget deficit. And, the fact is, the Obama administration has already pledged to extract more than $1 trillion in savings over the next decade from these programs. There is not much more that can be cut without hurting the most vulnerable Americans.
The Affordable Care Act contains provisions that will reduce projected Medicare spending by $716 billion over 10 years, primarily by reducing the annual increases in Medicare reimbursements for hospitals, nursing homes and other health care providers and by reducing unjustified subsidies paid to private Medicare Advantage plans. During the campaign, the Romney-Ryan ticket criticized the president for making such a big cut and even fatuously promised to restore all of it.
On top of those savings, Obama, in his budget for fiscal year 2013, proposed cutting an additional $340 billion from Medicare spending over 10 years through tactics like requiring drug makers to pay rebates to Medicare in some circumstances; reducing payments to some health care providers for treating patients just released from the hospital; reducing coverage of bad debts that hospitals and skilled nursing homes have failed to collect from patients; and charging higher premiums to high-income beneficiaries.
Those cuts seem acceptable as part of a larger budget deal to avert the fiscal cliff. There may be room to squeeze additional savings from health care providers provided their fiscal health is not jeopardized. But beyond that, there are very limited options for further reducing Medicare or Medicaid spending.
Upper-income beneficiaries already pay higher Medicare premiums, and there may be some room to charge them more. But middle-income beneficiaries need to be protected from higher costs. And the half of all Medicare beneficiaries who have incomes below $20,000 already pay sizable portions of their income for health care and certainly cannot afford to pay more.
Some ideas should be off the table entirely. The election made it clear that there is strong opposition to turning Medicare into a voucher system. And as for raising the Medicare eligibility age, respected analysts have concluded that this change would actually increase total health care costs and shift the burden to employers and individuals, without saving the government much money.
Finally, itís important to keep in mind that short-term cuts in Medicare are not urgently needed. Medicare spending per enrollee is projected to increase more slowly than per capita gross domestic product or private insurance spending per enrollee over the next decade, and it is only in the following years that strong cost controls may have to come into play as the population ages and medical costs continue to rise.
Medicaid, a joint state-federal program of health insurance for the poor, has even less ability to absorb cuts. Although Obama proposed last year to cut federal spending on Medicaid by about $100 billion over 10 years, he soon trimmed that amount to $55 billion in his 2013 budget. Since then the picture has changed drastically.
Although the Affordable Care Act required the states to expand their Medicaid programs to cover millions of the uninsured, the Supreme Court said the states could decide voluntarily whether to expand. Those that refuse to expand will save the federal government a lot of money in matching funds. The administration should not make any further cuts lest it discourage states from expanding coverage, unless the savings are achieved through better health care management.
The best way to rein in the Medicare and Medicaid costs is to speed up and extend provisions in the Affordable Care Act to encourage better and more efficient ways to deliver health care. That would help reduce federal deficits in the future and save substantial money for the private sector.
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