Medicare Reform

VII. Key Issues: Regulation & Reform >> C. Health Reform >> Components of Health Reform >> Public Sector Programs >> Medicare Reform (last updated 10.24.16)

Topic Outline

1 Comprehensive Medicare Reform Proposals
- 1.1 Legislative Proposals
- 1.2 Premium Support Proposals
2 Proposals to Change Medicare Eligibility
3 Proposals to Change Medicare Benefits
- 3.1 Medicare Health Savings Accounts
4 Proposals to Change Medicare Payments
- 4.1 Medicare Physician Payment Reform
  - 4.1.1 RUC
  - 4.1.2 Sustainable Growth Rate (SGR) Formula
- 4.2 Prescription Drug Price Negotiation
5 Other Medicare Reform Links

Comprehensive Medicare Reform Proposals

Legislative Proposals

S. 2196 . Congressional Health Care for Seniors Act. Introduced 3.15.12 by Senator Rand Paul, M.D. (R-KY). In addition to letting Medicare seniors join the same health care plan enjoyed by Members of Congress and federal employees, this plan would raise the Medicare retirement age from 65 to 70, very gradually, over a generation.

Premium Support Proposals

Comparison of Medicare Premium Support Proposals (Kaiser Family Foundation 2012)
Saving the American Dream: Comparing Medicare Reform Plans (Heritage Foundation 2012)

Proposals to Change Medicare Eligibility

Medicare Opt-Out

S. 1317, the Retirement Freedom Act. Introduced by Sen. DeMint (S.C.) on 6.30.11. The bill would allow individuals to choose to opt out of the Medicare part A benefit.

Expanding Medicare to Near-Elderly

President Clinton Proposal: Issue Summary (Policy.com, 1/12/98)
Includes summary of proposal, key statistics and reaction of major interest groups.

Analysis

Means-Testing Medicare Benefits

Bipartisan Policy Center. Reducing Subsidies for Higher Income Medicare Beneficiaries

Proposals to Change Medicare Benefits

Medicare Health Savings Accounts

Scandlen, Greg and Phillips L.Gausewitz. Bringing Health Savings Accounts to Medicare. Consumers for Health Care Choices, September 28, 2005. Medicare Modernization Act (MMA) extended Health Savings Accounts to all Americans except those on Medicare. This proposal shows how HSAs could be integrated into Medicare to improve both efficiency and equity. Under this proposal, CMS would pay all costs above a high deductible of $2500 or $3000 and the amounts now spent on Medicare supplement policies, Medicare premiums and cost-sharing would go into a Health Savings Account that could be used to cover part or all of the deductible.
H.R. 3819, the Health Freedom for Seniors Act. Introduced by Rep. Bill Huizenga (R-MI) on 1.24.12, the bill would allow seniors currently forced to take required Minimum Distributions from their retirement accounts (IRA, 401 (k)s, etc.) to instead roll that amount tax-free into an existing Health Savings Account. The Health Freedom for Seniors Act will expand the use of HSAs and increase an individual’s power over their own health care decisions. Seniors must have more freedom to control their own health care decisions. Under current law, those who reach age 70 and one-half are forced to begin making “required minimum distributions” (RMDs) from IRAs and 401(k) plans. Anyone eligible for Medicare is not permitted to establish an HSA. The Health Freedom for Seniors Act would change this to allow seniors to be able to roll tax-advantaged savings account balances between different types of accounts.

Proposals to Change Medicare Payments

Medicare Physician Payment Reform

RUC

Sustainable Growth Rate (SGR) Formula

SGR Primers
- American Action Forum. Primer: The Sustainable Growth Rate (12.4.13). This paper provides a brief overview of the SGR and discuss the ways in which it has been rendered ineffective by Congress. It includes a table of SGR Legislative Actions, 2002-2014 showing the 16 times Congress has intervened to prevent the statutorily mandated cuts in physician pay from being implemented during that period. The table shows the SGR target growth rate, the actual percent increase in physician pay that was adopted and the cost of the “doc fix” each time it was adopted.
- Advisory Board Company. Daily Briefing primer: The sustainable growth rate formula (7.1.13). This primer includes a narrative summary of all the fixes that had been made to date.
SGR Analysis.
- Congressional Research Service. Medicare Physician Payment Updates and the Sustainable Growth Rate (SGR) System, August 2, 2012. Documents repeated instances in which Congress has overridden statutorily mandated reductions in physician payments.
- Congressional Budget Office. Estimates the 10-year cost of SGR repeal at $149 billion.
SGR Reform Proposals
- Rother, John, Joel White, and David Kendall. To Pay For Medicare SGR Repeal, Build On Bipartisan Health Care Policy. Health Affairs Blog (2.20.14).
- Gleason, Patrick and Katherine Restrepo. Time for truth in Medicare accounting. News and Observer (Raleigh). 11.15.14.
SGR Repeal. The Medicare Access and CHIP Reauthorization Act (MACRA), which was signed into law on April 16, 2015, repealed the Sustainable Growth Rate (SGR) formula for Medicare physician and other EC (eligible clinician) payments. See Medicare Access and CHIP Reauthorization Act (MACRA).

Prescription Drug Price Negotiation

Current Policy. Medicare Part D currently uses a competitive bidding process for determining the amount that the federal government pays towards prescription drugs for those on Medicare. Insurers negotiate with drug makers, then offer bids for how much drug plans will cost, and then Medicare pays 75 percent of the average plan on behalf of the beneficiaries.
Direct Negotiation. Many have argued in favor of direct negotiations by the federal government, mirroring what is done in other countries such as Canada. There are widely varying estimates of the potential savings from such an approach (listed in increasing order of the size of such savings):
- CBO. The CBO has concluded (4.10.07): “By itself, giving the Secretary broad authority to negotiate drug prices would not provide the leverage necessary to generate lower prices than those obtained by PDPs and thus would have a negligible effect on Medicare drug spending.” CBO concedes it is possible to use the “bully pulpit” to obtain deep discounts on a few high-profile drugs, but this would have limited effect on drug spending overall (and extending this approach to a wider swath of drugs would limit the effectiveness of the strategy since not all drugs can be in the spotlight). As one critic noted “One problem is that unlike insurers, the Department of Health and Human Services would be under political pressure to include certain drugs – from AARP and other pressure groups — and that would reduce their leverage.”
- Thorpe, Kenneth. Emory professor Ken Thorpe (who did the cost estimates for the Clinton health reform plan) has estimated that under a single payer health plan, it is possible to reduce prescription drug costs by 20%.
- Public Citizen/Carleton University. A joint paper by this liberal advocacy group and Carleton University has concluded that “the federal government could save between $15.2 billion and $16 billion annually if it negotiated with drug makers for Medicare Part D medicines and obtained the same prices that are paid by Medicaid or the Veterans Health Administration.” Medicare Part D spent $69.3 billion on drugs in 2013, so the savings would represent 23% of spending.
- Friedman, Gerald. University of Massachusetts economist Gerald Friedman has estimated a single-payer health system could reduce prescription drug costs by 37.5%. He also did a similar analysis of the single-payer health plan proposed by Senator Bernie Sanders. The analysis itself did not explain the amount of prescription drug savings or any assumptions about such savings, but Vox reported that the analysis assumed average annual prescription drug savings from 2016-2025 of $324 billion. When the Sanders campaign was confronted by deep skepticism from Ken Thorpe over whether such savings were possible, it adjusted the projected savings down by one fourth (from $324 billion to $241 billion). Assuming the original Sanders plan savings was based on the earlier-estimated 37.5%, a one fourth reduction implies net savings of 27.9%.