When it comes to governmental spending entitlement programs, specifically Medicare and Medicaid, are the big dogs on the block and there’s really no way to reduce governmental spending without some type of entitlement reform. In reality there’s only two ways to achieve any savings in Medicare and Medicaid, reduce benefits or reduce reimbursement.
What’s congress to do? Do they ask beneficiaries to pay more for Medicare services or reduce payments to providers? Hospitals and other providers are already expecting and adjusting for payment reductions resulting from the Affordable Care Act and more cuts, this soon, could be catastrophic. Many Medicare beneficiaries are on fixed in come and will not be able to pay more for services.
When it comes to reducing Medicare cost here are a few options that you may hear debated over the next 45 days.
1) Cap Medicare spending. A cap would limit Medicare spending year to year and it sounds good in theory but what happens if spending exceeds the cap. This may just be a way for Congress to kick the can and pass the problem to a future Congress to fix.
2) Reduce payments to providers. Like I said earlier, physicians and hospitals are already looking at payment reductions and physicians as much as 27% if the physician pay formula isn’t fixed by the end of the year. Prevention of unnecessary care falls into this category as well and there will be talk about requiring prior authorization for some medical services. You won’t hear the word “rationing” used but essentially that’s what all of the options include and prior authorization is a clear example. Health care has been one of the lone bright spots in the job sector through the recent economic downturn and further cuts in payments to providers could cause economic problems outside of health care.
3) Raising Medicare’s eligibility age. In 2027 full Social Security benefits won’t be available until a person reaches 67 so it makes sense to raise the Medicare eligibility age from 65 to 67. I like this option and it makes sense for a lot of reasons, it does save some money but it doesn’t control cost it just puts it off for two years so it can only be part of a solution, not the solution.
4) Shared responsibility. It is widely thought that spending would be slowed if patients, including Medicare beneficiaries, had to put up more of their own money for health care. This is the same theory used by companies providing insurance to employers. Raise deductibles and co-pays to reduce utilization. It’s another form of rationing. The problem with Medicare is that many beneficiaries are on fixed income and do not have the ability to pay any more. The other problem is many Medicare beneficiaries have planned retirement based on current Medicare cost sharing. Medicare Part B was originally designed as a 50/50 split between the federal government and the beneficiary. The problem is health care costs have risen to the point that 50/50 is unthinkable but more cost sharing would be in-line with the original intent.
5) Increasing Medicare’s deductible. As I stated above Medicare Part B (which covers doctors visits and other outpatient services) does currently require a 25% co-pay. Part A (which covers hospital care) has a separate deductible. If the Part A and Part B deductible were combined it could reduce beneficiaries costs for hospital care and increase Part B cost. Most beneficiaries are more likely to utilize Part B any given year than Part A so the savings would be achieved for the higher deductible and the deductible may discourage utilization of services – rationing.
Medicare is an entitlement program and there are no easy fixes for anything that involves the word entitlement. The problem we’ve created is that the entitlement applies both to the beneficiary and provider and both have become dependent upon the service and neither is going to let go easily.