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Four Ways the Supercomittee Can Trim Medicare Down to Size: View

November 03, 2011

Oct. 26 (Bloomberg) -- Congress’s supercommittee, which is charged with cutting $1.5 trillion from the federal budget over the next decade, can’t prudently fulfill its mandate without tackling Medicare costs.

The federal health program for older Americans cost $469 billion in 2011, chewing up more than 12 percent of the federal budget. Its annual growth rate -- 4.7 percent per beneficiary during most of the past decade -- is unsustainable. The Urban Institute calculates that, without changes to the program, a couple turning 65 in 2030 is likely to collect $527,000 in benefits after having paid as little as $87,000 in Medicare taxes.

On the plus side, Medicare is inefficient enough that real savings are there to be had. Some involve trimming needless expenses at the margins. Others will require realignments in delivery of care and in payments to make the system smarter and to stretch the government’s dollars further.

The legislative record on reforming Medicare is riddled with false starts, as Congress approved future cuts in areas such as physician payments, only to postpone them as the day of reckoning drew near. If the supercommittee takes its job seriously, it will find dozens of ideas to choose from in making Medicare more efficient and less costly. Here are four.

First, buy prescription drugs more wisely. The Medicare drug-benefit program created in 2003 prevents the government from using its market clout to gain steep discounts on covered medicines. That’s foolish. The Department of Veterans Affairs buys drugs for 40 percent less than Medicare. Other nations, too, are price-savvy negotiators, yet their discounts haven’t destroyed the pharmaceutical industry. House Democrats calculate that bulk discounts could save the U.S. government $156 billion over 10 years. There is no excuse for leaving that money on the table.

Second, stop reimbursing hospitals for beneficiaries who fail to rustle up their copayments or deductibles. Private insurers don’t cover such shortfalls, so why should Medicare? According to last year’s National Commission on Fiscal Responsibility and Reform, the government could save $23 billion over 10 years by being stricter.

Third, rework cost-sharing rules. Right now, Medicare asks seniors to pay too much for some catastrophic care and too little for some discretionary treatments. The fiscal responsibility commission spelled out a series of cost-sharing adjustments that include an across-the-board $500 deductible and an annual $7,500 cap on out-of-pocket expenses. These could discourage overtreatment and provide better catastrophic coverage, while saving $110 billion.

Fourth, re-examine Medicare’s eligibility age. Social Security has improved its solvency by gradually increasing the eligibility age for full benefits to 67 from 65, while continuing to offer limited coverage options for younger beneficiaries. Medicare should follow suit. The Congressional Budget Office estimates that an eligibility rise from age 65 to 67 in 2014 would save about $125 billion by 2021. A more gradual change would still yield sizable savings.

These steps alone won’t solve Medicare’s fiscal problems, which result from an aging population as well as the U.S.’s unique emphasis on aggressive, costly care in the late stages of life. However, there are plenty of other cost-saving ideas for the supercommittee to pursue. For example, some academic researchers argue that Medicare could trim costs almost 8 percent through competitive bidding on services.

It will take time to build public support for changes to a program that is vital to tens of millions of American families. Yet without aggressive restructuring and real cuts, Medicare could exhaust its trust fund as soon as 2024. When doctors treat tough diseases, they must often blend surgery, drugs, devices and other therapies as needed. Nursing Medicare back to financial health will require a similarly multifaceted approach.

--Editors: George Anders, Francis Wilkinson

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To contact the Bloomberg View editorial board: view@bloomberg.net.


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