Will the Medicare ‘Doc Fix’ Lead to Real Entitlement Reform?
Policy + Politics

Will the Medicare ‘Doc Fix’ Lead to Real Entitlement Reform?

The dramatic bipartisan Medicare breakthrough that led to House approval last week of a plan to establish a new formula for paying doctors raised an intriguing question:

Are other important entitlement reforms in the offing? If so, how realistic are they?

Related: What You’ll Pay for the Medicare ‘Doc Fix’

The short answer is that nobody is expecting miracles, but there will be opportunities for more progress if both parties see it in their mutual self-interest.

Last week, The House overwhelmingly approved a rare bipartisan deal negotiated by Speaker John Boehner (R-OH) and Minority Leader Nancy Pelosi (D-CA) that essentially overhauls the formula for how doctors are reimbursed for treating Medicare patients. The controversial formula dating back to 1997 was meant to slow the growth of heath care costs, but it  proved so draconian that many physicians refused to treat Medicare patients.

Since 2003, Congress has passed 17 short-term bills to block cuts in payments for doctors and other health care providers by as much as 20 percent – an annual ritual dubbed the “Doc Fix.” Under the compromise bill, which passed the House 392 to 37, Medicare would pay physicians based on their performance, rewarding them for higher-quality work rather than for how many patients they see.

In order to strike the deal, the two parties had to make important concessions. To help offset the costs, some higher-income Medicare beneficiaries would be forced to pay higher premiums for coverage of doctors’ services and prescription drugs -- a form of means testing that has long been favored by Republicans but resisted by many Democrats. 

Related: How the GOP Budget Could Help Hillary in 2016

At the same time, the deal runs counter to Republicans’ demands for fiscal restraint and a balanced budget within ten years. About  two-thirds of the cost of the legislation -- or $141 billion --   would be added to the deficit in the coming decade rather than offset by cuts in other parts of the budget, a big concession to the Democrats.

While some Republicans complained about the legislation’s impact on the deficit, others defended it because there is no requirement for raising taxes.  

The Senate is expected to take up and approve the House-passed measure when it returns from a two-week recess, and Obama has promised to sign the bill if it reaches his desk.  

While few believe the Medicare deal is a precursor to a “Grand Bargain” of major entitlement and tax reform, some experts see the possibility of Democrats and Republicans finding common ground on a handful of reforms in the coming months or year.

Related: Congress’ Medicare ‘Fix’ Could Leave Seniors Paying More

Robert Greenstein, president of the liberal-leaning Center on Budget and Policy Priorities and a leading expert on entitlement reform, said in an interview that the House action was “a small, positive step,” although “it would  be a mistake to read too much into this as being a big sea change.”

He said, “It really seems very unlikely that the kinds of big deals” that Obama and Boehner twice negotiated without reaching a conclusion in July 2011 and December of 2012 would materialize again.

“I really don’t see a resumption of that in 2015 or 2016,” Greenstein said, adding that things might change if Republican lawmakers who supported the Doc-Fix legislation don’t get angry responses from their constituents – or face primary challenges next year – for compromising with Democrats on major spending legislation. In short, if Republicans aren’t “punished” e for voting with Democrats on the Medicare reforms,   “We can start to establish in at least a very small way that such deals can be negotiated,” Greenstein said.

Related: McConnell Hints at Possible New ‘Grand Bargain’ With Obama

Robert L. Bixby, executive director of the Concord Coalition, a nonpartisan group promoting fiscal responsibility, said that while he was disappointed the revisions to Medicare reimbursement weren’t fully paid for, “there are a couple of things here that I think show a positive trend.”

One was the move towards means testing of Medicare premiums for wealthier seniors, a change long advocated by budget reformists. The other was a very modest reform to Medigap supplemental insurance requiring cost sharing. While Bixby applauded the direction taken by lawmakers, he noted that the Medicap proposal had been watered down and would save only $400 million over the coming decade.

“I don’t want to make it sound like I think this is some major breakthrough because the bottom line is I don’t really think it is,” Bixby said in an interview.  “But there are a couple of things in here, which I think show the direction we’re inevitably going to have to go.”

A veteran Republican economist described the Medicare legislation as relatively “low hanging fruit”-- something that the two parties had no choice but to address. “They were able to do something that had to be done,” he said. “It was largely a one-off.”

Republicans last week celebrated Senate and House passage of a proposed ten-year balanced budget plan calling for $5.5 trillion of long term savings through major changes in Medicare, Medicaid, food stamps and other entitlements but no tax increases. Many Democrats and even some Republicans dismissed the budget as political rhetoric and sloganeering that will never materialize into law -- or at least for as long as there’s a Democrat in the White House determined to block them.

Some Democrats say that if the Republicans were serious about achieving additional entitlement reforms, they would not have insisted on preserving tight domestic discretionary spending caps or refused to consider raising additional tax revenue to help achieve their balanced-budget goals.

“When there is no give by Republicans on the caps or on any of the tax issues, it’s hard to get people to do things within food stamps that they might be willing to put on the table if there was real flexibility on both sides,” said Scott Lilly, a former Democratic chief of staff on the House Budget Committee and a fellow at the liberal Center for American Progress.

Jason Furman, chair of the Council of Economic Advisers, said on Thursday that the slowdown in health care spending and reduction in the deficit “weakens the case for really dramatic and dangerous changes [in entitlements] like turning Medicare into a voucher system.”

Speaking at the Center on American Progress, the senior Obama economic adviser said, “I think the case was relatively weak for that before, but it’s even weaker now. It strengthens the case for when you look at Medicare, asking the question not how do we use Medicare to solve all of our fiscal problems, but how do we take a program that’s great and make it even better.” 

In his first major speech after taking charge as Senate Majority Leader in January, Sen. Mitch McConnell (R-KY) challenged Obama to work with him on an ambitious agenda that would go well beyond corporate tax reform, trade and increased infrastructure spending.

“The truth is we could work for bigger things too,” McConnell said. “We could work together to save and strengthen Medicare, to protect Social Security for future generations, to balance the budget and put our growing national debt on a path to elimination.”

Related: Social Security Disability Funding Fix Hits Brick Wall

Congress may have to face up to other sticky entitlement issues sooner rather than later. The Social Security trust funds are beginning to run low of cash – as more and more Americans retire or file claims – forcing lawmakers and the administration to devise ways to avert insolvency.

The latest Social Security trustees’ report projects that the Disability Insurance fund’s reserves will be depleted in late 2016. By law, Social Security can only pay benefits if there is a positive balance in the appropriate revenues in two funds, for old age and survivors’ benefits (OASI), and for disability benefits (SSDI).

President Obama has proposed shifting $330 billion in Social Security retirement funds around to avert a huge shortfall in the disability insurance program, but it has met stiff resistance from Senate Republicans.

 Joseph Antos, a health care expert with the American Enterprise Institute, warns that Congress may be staring down a massive entitlement program crisis as early as this summer if the Supreme Court rules against the government in a major challenge to the Affordable Care Act.

Related: Four Little Words That Could Kill Obamacare

If the High Court rules that only middle-income people in a small number of states and the District of Columbia are entitled to receive federal subsidies on the insurance they purchase in state-created exchanges, more than eight million Americans who purchased their insurance through federally created exchanges could lose their coverage.

According to an extrapolation of a Congressional Budget Office analysis, Congress might have to come up with $50 billion to help those Americans retain their health insurance coverage by extending the subsidies to them in some form.

“That is a unique and excruciating political problem that Republicans could have,” Antos said. “I don’t see the [Doc Fix compromise] as opening the door to finding a way to grease the wheels for something else that might be good but costs money in the first ten years. It’s got to be so big that they can’t do anything but act on it.”

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