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Medicare Reform Proposals Analyzed

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Medicare Reform Proposals Analyzed

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The fervor over Medicare in the 2012 proposed budget, and beyond for that matter, has dominated health care news for the past several weeks. And for good reason, Medicare accounts for 13.3 % of the federal budget.

But do most Americans understand that 25% of those annual costs are spent on end of life care. That’s roughly $130 billion of the program’s annual $528 billion spent on healthcare for those over age 65 and people with disabilities eligible for Medicare. With the talk in 2009 related to death panels in the health care reform debate, I see little chance of curtailing end of life care Medicare reimbursement.

In 2011, the first of 40 million baby boomers turns sixty-five and enrolls in Medicare. This unprecedented demographic wave will practically double Medicare's enrollment over the next two decades, jeopardizing its ability to meet the needs of this oncoming wave of seniors. Then consider that the recent economic downturn has shortened the life of Medicare's trust fund by nine years, according to the Congressional Budget Office. Yes, Medicare is in trouble.

So how should Medicare be reformed to shore up its fiscal longevity for the long-term?

The Proposals:

Congressman Paul Ryan (R-WI) suggests ending Medicare as we know it in 2022 for those currently under the age of 55. Ryan, in the GOP 2012 federal budget proposal, proposed a new voucher system that will provide those over age 65 with an $8,000 voucher beginning in 2022 (and indexed for inflation thereafter) to help them in purchasing health insurance coverage on their own.

While some Republicans started backing away from the Ryan proposal, the House did pass the plan on a partisan vote. Now, a week later on May 6th, Republican House leadership including House Speaker John A. Boehner (R-Ohio), House Majority Leader Eric Cantor (R-Va.) and four other leading Republicans said they remained committed to transforming Medicare. The plan includes having seniors use federal funds to purchase insurance on the private market. And they said the proposal remains a part of the ongoing talks on raising the federal debt limit.

President Obama in his 2012 budget proposal offered a much different method to curtail Medicare expenditures. The President seeks to authorize the Medicare Independent Payment Advisory Board (IPAB) to recommend program cost reductions if Medicare spending grows faster than gross domestic product plus 0.5 percentage point. If Medicare grows at that rate it would trigger cost reduction recommendations from Medicare's Independent Payment Advisory Board. The board has received some criticism because of their decisive role in Medicare decision-making, yet they are unelected health care experts that have the ability to propose sweeping changes to Congress.

If Congress declined to approve those proposed changes or make equivalent cuts of its own, the secretary of Health and Human Services would be required to enforce them. President Obama has said that his proposed reforms should save the government $500 billion in Medicare and Medicaid expenses by 2023 and an additional one trillion dollars in the decade after that.

The Medicare program's administrator, Don Berwick said such oversight by the IPAB won't be necessary because new efforts to reduce waste should slow down spending and even improve the quality of care. "We don't have to get to that point," Medicare chief Donald Berwick told Kaiser Health News.

"There are two ways to save money,-- One is to cut and the other is to improve," Berwick argued. He cited hospitals that have dramatically reduced patients' bed sores and another that adopted lean efficiency steps from Toyota to save millions of dollars while also delivering better care. "The aim is to make the best the norm," he said.

Analysis

Currently Medicare spends over $11,000 on average per Medicare enrollee. Financing $8,000 of coverage by the federal government, beginning in 2022 under Ryan’s voucher system was a bit unpopular when it was proposed in early April.

Rep. Ryan’s move was bold in contrast to Pres. Obama’s more conservative policy approach to reforming Medicare. In the end, will either work?

Well, Ryan’s plan offers much better fiscal certainty than the Obama plan to find savings and efficiencies. But neither seem to me to be viable in the current political and economic reality.

In an economic sense, deeper cuts are needed than what the President’s plan counts on. And Ryan’s plan will not be politically feasible as it will achieve zero support from congressional Democrats. Passage in the U.S. Senate requires support from Democrats.

End Game

On a partisan issue like cutting or reforming Medicare, polls will make a difference and in that regard, Pres. Obama has an ace up his sleeve. In a Zogby Poll conducted in early April and released April 12th 32% of Americans polled agreed with the Ryan plan while 55% disagreed.

That’s quite a margin- advantage President Obama. So where will compromise be found? Because politicians generally are reluctant to cut programs for seniors I believe the end result will be closer to the Obama proposal but without as much discretion by the IPAB and perhaps with more prescriptive cuts determined by Congress if Berwick doesn’t achieve the savings he projects.. There may also be more cuts to hospital and physician reimbursement and greater reliance on Medicare Advantage and private sector Medicare contracting.

One thing that is assured, compromise will not be easy and the rhetoric will be as partisan as it gets.

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