Medicare Changes Loom As ‘Fiscal Cliff’ Negotiations Pick Up

KHN’s Mary Agnes Carey talks with Jackie Judd about Republican and Democratic proposals and possible cuts in federal health care spending.

>> Listen to the interview.

JACKIE JUDD:  Good day. This is Health on the Hill. I’m Jackie Judd.  As the “fiscal cliff” looms, there has been a lot of political posturing, but not so much actual negotiation. Still it has become clear that if there is a deal before year’s end, Medicare will almost certainly be in the mix. Senior correspondent for Kaiser Health News Mary Agnes Carey is here as always to analyze what may be on the table for discussion. Welcome back, Mary Agnes.

MARY AGNES CAREY: Thank you.

JACKIE JUDD: The first item is raising the age limit. It’s something that President Obama signaled last year he might be willing to consider.  What are the contours of this? What might be saved?

MARY AGNES CAREY: The thought is that seniors are living longer and they’re healthier so raising the Medicare eligibility age over time from 65 to 67 is a viable alternative, and one that lawmakers should look at. But others suggest that it’s a little more complicated than it looks.

JACKIE JUDD: It always is.

MARY AGNES CAREY: It always is. It’s health care. The idea that basically while the federal government would save money, those costs would simply be shifted on to employers. People would stay on their employer-based health insurance longer. And also on to seniors. If you don’t have health insurance and you have to wait two years longer – even if you get a subsidy  to purchase health insurance on the exchanges created in the health law — this is going to shift costs from the government on to seniors.

JACKIE JUDD: But what would the government save? What are the estimates?

MARY AGNES CAREY: The Congressional Budget Office has estimated about $148 billion in savings over a decade, so that’s why this is so attractive. And as we know the eligibility age for Social Security is being raised gradually from 65 to 67, so there are a lot of folks who think we can do it with Medicare as well.

JACKIE JUDD: I know that there are not a lot of details attached to either the Republican or Democratic proposals, but if they do discuss raising the eligibility age, I’m presuming  it would not affect people at or near retirement age. Is that the thinking?

MARY AGNES CAREY:  I think that you’re correct. They would not want to, for example in Paul Ryan’s plan to raise the Medicare eligibility age, it would not affect anybody 55 or higher. The thought is people at or near retirement should not be impacted. You would go for younger beneficiaries who would stretch it out over a period of time to make it more politically palatable.

JACKIE JUDD: Another option potentially on the table is linking premiums to income. To a degree, that’s already being done. How might that be ramped up?

MARY AGNES CAREY: Well, as you noted, and under current law, if you are a senior and your income is $85,000 as an individual or $170,000 as a couple, you’d pay more for your Medicare Part B coverage. Medicare Part B, as we know, covers physicians and outpatient services, that sort of thing. So, what proponents of this idea are looking at [are] those thresholds which won’t be indexed for inflation through 2019 as part of the health care law. And so, more seniors will go into that over time. Do you continue to hold those thresholds without an income adjustment so more seniors fall into that category? Do you look to this category and say, “Perhaps those beneficiaries could pay more for their copays and deductibles?” But on the other side of this there’s a concern that if you make wealthier beneficiaries pay more for the Medicare Part B — they also tend to be healthier — they might look outside the Medicare system for other coverage and not stay in Medicare. That could dramatically change the risk pools.

JACKIE JUDD: Then you end up with a sicker population.

MARY AGNES CAREY: That is the concern.

JACKIE JUDD: A less healthy population. Let’s move on now to some other options that affect other sectors: the pharmaceutical companies having to do with drug rebates. That’s a complicated one, explain it to us.

MARY AGNES CAREY: I’ll do my best. Under the Medicaid program, pharmaceutical manufacturers have paid rebates for drugs dispensed to Medicaid beneficiaries. As part of the creation of the Medicare prescription drug benefit, beneficiaries who are dually eligible – they qualify for Medicare and Medicaid – shifted to Medicare for their prescription drug coverage. So the Medicaid drug rebates for the dual eligibles, which now are about 9 million people, went away. So some members of Congress — Henry Waxman,  a Democrat of California, for example – and the president has advanced this – say that that shift, if you will, of duals into Medicare for drug coverage created a windfall, in their words, for the drug companies. And those rebates should be recaptured, and that would help lower Medicare costs.

JACKIE JUDD: What kind of savings are we talking about there?

MARY AGNES CAREY: It’s fairly significant. It is about $122 to $135 billion, according to the Congressional Budget Office.

JACKIE JUDD: Over a decade?

MARY AGNES CAREY: Over a decade.

JACKIE JUDD: Also a possible change is payments to providers. This is separate and apart from the so-called “doc fix.” What providers are we talking about, and why do some lawmakers on the Hill view this as less politically risky than some of the other options that we’ve been talking about?

MARY AGNES CAREY: Many Democrats, for example, talk about [how] they don’t want beneficiaries to pay beneficiaries any more for their Medicare coverage. So the thought is that you go to the providers. You go to the hospitals. You go to the nursing homes. You go to the home health agencies. And you cite various research and reports, including those from the Medicare Payment Advisory Commission that suggest that some of these sectors may be overpaid.

Now, as we know, in the health care law, many of these sectors agreed to some provider cuts. And unless these automatic spending cuts in January are stopped, Medicare providers face another 2 percent in cuts. So expect pushback from these sectors to say: “Wait a minute. We agreed to cuts in the health care law. We’re facing sequestration. Any more Medicare cuts you make you make to us make it more difficult for us to serve Medicare beneficiaries.”

JACKIE JUDD: Would these be actual cuts or a slowdown in the expected growth rate?

MARY AGNES CAREY: They probably would be a slowdown in the expected growth rate, but it would all depend on what kind of savings Congress needed and how they crafted those reductions.

JACKIE JUDD: OK. Complicated stuff. Thank you very much, Mary Agnes Carey of Kaiser Health News.

MARY AGNES CAREY: Thank you.