Congress’ Medicare ‘Fix’ Could Leave Seniors Paying More

Congress’ Medicare ‘Fix’ Could Leave Seniors Paying More


Washington perpetually laments the loss of bipartisanship in this polarized political environment. But ordinary Americans might want to fear one example of bipartisanship’s return, and what it could mean for their pocketbooks.

John Boehner and Nancy Pelosi have been locked in negotiations to clear two of the biggest hurdles facing Congress this year: the so-called “doc fix” for Medicare reimbursement rates, and an extension of the Children’s Health Insurance Program (CHIP). We don’t have all the details, because the negotiations have taken place far from the public eye, with the release of the House and Senate budgets this week affording them cover. But what we know so far could have major implications for seniors. 

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The “doc fix” refers to the rate the government pays doctors who see Medicare patients. A 1997 law created something called the “sustainable growth rate” or SGR that governs the level of payments. Since Medicare spending consistently outstrips economic growth, this translates into large reimbursement cuts under the SGR formula. If nothing is done by April 1, the reimbursement rate will fall by 21 percent. More important, doctors claim they would react to pay cuts by prioritizing other patients, making it harder for Medicare beneficiaries to get treatment.

This 21 percent cut should always be accompanied by the phrase “in theory,” because every potentially large rate cut since 2002 has been patched; hence the phrase “doc fix.” On 17 different occasions, Congress has made sure Medicare doctors get their expected paycheck, sometimes even adding a small raise, and often finding money somewhere else in the budget to offset it.

That’s OK news for budget hawks, but terrible news for restraining health care spending (most of which goes to labor costs), and for that matter inequality. U.S. doctors of all types earn about $250,000 a year on average, twice the pay of doctors in Europe. Economists like Dean Baker have endorsed increasing immigration of foreign doctors to bring pay in line with international trends and save consumers hundreds of billions of dollars. But like most wealthy people, doctors have the ear of members of Congress, and therefore can successfully lobby to keep their Medicare payments as robust as possible.

Congress appears to want to stop having conversations with angry doctors every year, and have cast about for a permanent “doc fix” that would repeal and replace the old Medicare payment system. Doing this would cost $177 billion over the next decade, but the Boehner-Pelosi negotiations are looking at covering less than half this, around $70 billion in back-ended cuts, and letting the rest add to the budget deficits. To sweeten the pot for liberals, the emerging package would include a two-year, $30 billion extension of CHIP for 8 million children, at the boosted benefit levels under the Affordable Care Act. The tentative plan is for the House to vote next week, and throw it into the Senate’s lap just before the April 1 doc fix deadline.

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What would the $70 billion in offsets look like? Half would come from health care provider cuts (in particular a slower rate of growth for hospice and acute-care facility payments), but of course that would be more than offset by a permanent fix to overall payment rates. The changes would give more money to doctors and hospitals that improve the quality and coordination of care, which theoretically sounds excellent. 

It’s the other half of the cuts that get problematic. There would reportedly be more means-testing for Medicare beneficiaries, increasing premiums for seniors showing income over $133,000 and couples over $266,000. These seniors would have to pay 65 percent of their total costs under the new plan. This would go up at higher incomes. Means-testing historically dips lower and lower as budgeters try to get more out of beneficiaries, so this continues that ratcheting process for Medicare. It’s not necessarily where this line is set now but where it might go in the future that should cause concern.

Under the deal, new Medigap policies — privately sold but publicly managed plans which fill in spaces in Medicare coverage — would need a $250 deductible starting in 2020. Virtually every senior I’ve ever spoken with says that they need supplementary coverage because Medicare doesn’t stretch far enough. But this would raise out-of-pocket expenses on all 9 million seniors with a Medigap plan, including the 86 percent of these beneficiaries who have incomes under $40,000, and almost half with incomes below $20,000. So this cut hits those who can’t really afford it. (This idea, along with the means-testing, was in President Obama’s budget, incidentally.) 

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The proper term for this is cost-shifting, pushing funding for a public program onto those who get the benefits. Medigap was created to deal with cost-shifting in Medicare, and now Congress may look to shift costs within it as well. And like means-testing, cost-shifting is prime terrain for double-dipping over time. 

As we’ve seen, just because John Boehner might want to pass something doesn’t mean his caucus will go along. But both parties might feel they get something out of this. For Democrats, they get an extension of CHIP and remove the uncertainty of the perennial doc fix. For Republicans, they get long-sought structural changes to Medicare that will bite more over time, because they phase in early but get to full levels afterward. Grover Norquist of Americans for Tax Reform endorsed the concept to Politico. Republican Congressman Pat Tiberi of Ohio called the deal “a major win for taxpayers,” as if patients who see higher costs don’t pay taxes.

All of this is being done to protect doctor salaries, which are among the highest in the industrialized world. Maybe Medicare doctors shouldn’t endure a 20 percent pay cut, but the idea that they wouldn’t see patients if the cut were 5 or 7 percent doesn’t pencil out. Plus, doctor payment rates are tied to Medicare premiums, as the Congressional Budget Office has explained: “Beneficiaries enrolled in Part B of Medicare pay premiums that offset about 25 percent of the costs of those benefits.” This means that any permanent change to a new doctor payment formula will likely result in a hike to Part B premiums. 

Clearly everyone in Congress hates the messy process of annual “doc fix” patches, and the uproar from the hospital lobby that accompanies it. But nobody in Washington has raised the point that higher costs for ordinary patients might not be a great solution to the supposed problem of lower cash flow for doctors. 

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