Protecting Medicare’s Future

Sixteen Republican members of Congress who are doctors, dentists, or nurses have asked a range of health policy experts how to improve the “strength and solvency of Medicare.”  Brookings Senior Fellow Henry Aaron, my colleague Judy Solomon, and I have prepared a joint response.  Here’s a summary.

Health reform has substantially improved Medicare’s long-term financial outlook.  The Affordable Care Act (ACA) has reduced the 75-year shortfall in the Hospital Insurance (HI) trust fund by four-fifths — to 0.79 percent of total earnings subject to the Medicare payroll tax.  Congress could close the remaining gap by raising payroll tax rates by 0.4 percentage points apiece on employers and employees.

Even the Medicare actuary’s alternative scenario, which assumes that not all of health reform’s Medicare savings will materialize, finds that the ACA reduces the HI trust fund’s long-run shortfall by nearly half.  These projections underscore the importance of resolutely implementing the ACA.

In the near term, a major slowdown in Medicare spending beyond what health reform will achieve will be hard to come by.  But we can generate some additional savings over the next ten years while preserving Medicare’s guarantee of health coverage and without raising the eligibility age or otherwise shifting costs to vulnerable beneficiaries.

Possibilities include ending Medicare’s overpayments to pharmaceutical companies for drugs prescribed to “dual eligible” beneficiaries (people enrolled in both Medicare and Medicaid), improving the coordination of care for dual eligibles, increasing Medicare’s administrative budget to prevent and detect fraudulent and wasteful spending, raising cost-sharing charges for certain services (while protecting low- and moderate-income beneficiaries), and raising premiums for better-off beneficiaries.  The Medicare Payment Advisory Commission (MedPAC) has also sent Congress a long list of savings options that could help offset the cost of repealing Medicare’s flawed sustainable growth rate (SGR) formula for setting doctor payments.

Policymakers’ key fiscal policy goal should be to stabilize the federal debt relative to the size of the economy.  But it’s neither necessary nor desirable to accomplish this by fundamentally restructuring Medicare — such as through “premium support” proposals that would convert it to vouchers — or  by severely cutting Medicare and other programs that protect low- and middle-income Americans.  Instead, we should pursue a balanced deficit-reduction approach that includes revenue increases.