Death Panel Redux

A well-recognized deficiency of the Patient Protection and Affordable Care Act (ACA) is adequate cost control. And even though the ACA has more cost control tools in its Medicare provisions than in employer-related provisions, the annual release of the Medicare Trust Fund report emphasizes how important additional cost reductions are to to preserve the program.

The Medicare’s Hospital Insurance (HI) Trust Fund (Part A) is now projected to go broke in 2024, five years earlier than projected in last year's report, according to the Medicare Trustees Report released on May 13.

Without the reforms in the Patient Protection and Affordable Care Act (ACA), the Medicare HI Trust Fund would expire in just five years – in 2016. “This report shows that without the Affordable Care Act, the outlook for the Hospital Insurance Trust Fund today would be much worse,” said Donald Berwick, M.D., Administrator of the Centers for Medicare & Medicaid Services (CMS). “CMS is implementing critical reforms to improve care and reduce costs and improve the overall health of Medicare’s beneficiaries and the Trust Fund.” 

There are, of course, only two ways to relieve the pressures of cost increases –reduce expenditures and/or increase revenues.

And there are two very different proposals floating around Washington to deal with the pressures—neither mentions rationing or the death panels envisioned last year—but both proposals eventually would address reducing the amount of Medicare reimbursement available (that’s rationing, or, if you want to make sure there is lots of opposition to the proposal, a death panel).

On the one hand, you have the budget provisions proposed by Budget Committee Chairman Rep. Paul Ryan (Wis.) in a document titled Path to Prosperity, which would do the following:

Convert the current Medicare program to a voucher system under which beneficiaries would be entitled to premium support payments to help them purchase private health insurance. Those payments would grow over time with overall consumer prices. The change would apply to people turning age 65 beginning in 2022; beneficiaries who turn age 65 before then would remain in the traditional Medicare program, with the option of converting to the new system.

The Ryan plan would shrink Medicare expenditures by holding down the amount of the voucher and relying on the private sector to contain costs.  Medicare expenditures would be reduced, but unless overall costs declined, the increases would be borne by Medicare beneficiaries. Although at first praised by many Republicans, recent and vocal opposition to these types of changes to Medicare have made the Ryan proposal a long shot in the political process.

On the other hand, President Barack Obama and the Democrats would rely on existing provisions in the ACA and would expand some of these provisions in the following ways:

• Strengthen the Independent Payment Advisory Board (IPAB) created by the ACA. When Medicare growth per beneficiary exceeds growth in nominal gross domestic product (GDP) per capita plus 1%, IPAB recommends to Congress policies to reduce the rate of growth to meet that target, while not harming beneficiaries' access to needed services. Mr. Obama's proposal would set a new target of Medicare growth per beneficiary rising with GDP per capita plus 0.5%.


• Give IPAB additional tools to improve the quality of care while reducing costs, including allowing it to promote value-based benefit designs that promote proven services like prevention without shifting costs to seniors.


• Reform the federal-state partnerships to strengthen Medicaid and promote simplicity, efficiency, and accountability. Under current law, states face a patchwork of different federal payment contributions for Medicaid and the Children's Health Insurance Program (CHIP). The President's framework would replace the current complicated federal matching formulas with a single matching rate for all program spending that rewards states for efficiency and automatically increases if a recession forces enrollment and state costs to rise.


• Improve patient safety through the newly formed Partnership for Patients, which is intended to reduce costs by up to $50 billion in Medicare and billions more in Medicaid over the next ten years.


• Cut unnecessary prescription drug spending by limiting excessive payments for prescription drugs by leveraging Medicare's purchasing power—similar to what was called for by the bipartisan Fiscal Commission. It would speed up the availability of generic biologics and prohibit brand-name companies from entering into "pay for delay" agreements with generic companies. In addition, it would implement Medicaid management of high prescribers and users of prescription drugs.


• Reduce abuse and increase accountability in Medicaid and Medicare. The proposal would limit states' use of provider taxes to lower their own spending while not providing additional health services through Medicaid; recover erroneous payments from Medicare Advantage; establish upper limits on Medicaid payments for durable medical equipment; and take other actions to improve program integrity.

One of the key strategic and philosophical differences between the Republicans and the Democrats is who would decide on reductions and who would bear the consequences.  For the Republicans, the market would be responsible for reductions and Medicare beneficiaries would bear the consequences.  For Democrats, the government would trigger reductions, and providers (and/or taxpayers) would bear the consequences.

So any successes in holding down Medicare ( and overall health care costs) will, inevitably, involve a different type of rationing than the cost-based rationing that exists today. Whether elected officials or their constituents will be willing to accept these rationing efforts to save the overall Medicare program is doubtful—they have not been willing to do it yet.

For a comprehensive analysis of the Patient Protection and Affordable Care Act, including the full text of the law and additional information on health reform implementation and other recent developments in employee benefits, just click here.