Supercommittee Won’t Get Anywhere Near $600 Billion in Medicare Savings Without Harming Lower-Income Beneficiaries

November 8, 2011 at 10:17 AM

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The Committee for a Responsible Federal Budget issued a blog post November 4 contending that, contrary to a CBPP post last week, the Joint Select Committee on Deficit Reduction can get $600 billion in Medicare savings without harming low-income beneficiaries. CRFB listed seven proposals that it said would save $607 billion without adversely affecting those with low incomes.

But these proposals would not get the job done.

CRFB’s proposed large savings in drug rebates and provider payments are extraordinarily unrealistic from a political standpoint. Policymakers would have to substitute other cuts to reach the $600 billion target.

CRFB’s proposed increases in cost-sharing would have a serious impact on sicker low-income beneficiaries unless accompanied by provisions to shield those beneficiaries, which would reduce the savings well below the amounts that CRFB shows.

Contrary to CRFB’s claim, simply providing for cancellation of an increase in the Medicare eligibility age from 65 to 67 if Congress repeals the Affordable Care Act (ACA) is not adequate to protect lower-income 65- and 66-year-olds, who could be left uninsured if the Medicare age is raised but the new health insurance exchanges that the ACA establishes cannot function effectively as a result of a Supreme Court decision striking down the law’s “individual mandate,” state resistance, or other factors. (This is why policymakers should not consider this proposal until we know that the exchanges are indeed functioning adequately.)

As a result, if the Joint Committee seeks $600 billion in cuts from Medicare (or from Medicare and Medicaid), many low-income beneficiaries will almost certainly be harmed.

1. Extraordinarily unrealistic assumptions

CRFB shows $287 billion of its $600 billion in Medicare savings coming through rebates from pharmaceutical companies ($112 billion) and provider payment cuts ($175 billion). Savings of this magnitude, however, have no political viability in the Joint Committee. They are dead on arrival there; it’s well known by people following the Joint Committee closely that all of its Republicans and at least one Democratic member have rejected the pharmaceutical drug rebate proposal. Moreover, key Republican leaders have reportedly assured health care provider trade associations that they will shield them from significant hits in the Joint Committee.

This is reflected in the offers made in the Joint Committee the week before last. The offer from Senator Baucus included $200 billion from provider and pharmaceutical-related savings combined. The subsequent Republican offer included $100 billion in this area. Chances of the Joint Committee adopting CRFB’s $287 billion in savings here are essentially zero.

2. Increases in Medicare cost-sharing

CRFB lists $93 billion in increased cost-sharing by Medicare beneficiaries, including restricting first-dollar coverage under Medigap policies. CRFB cites various average figures to make it look like most low-income people would do just fine under these proposals. This oversimplifies things and obscures a significant problem.

CRFB acknowledges that 78 percent of Medicare beneficiaries would face higher cost-sharing in a given year under the cost-sharing changes that it suggests, but makes the increased cost for beneficiaries look trivial by citing an average figure for those increases. Citing only an average figure distorts the picture, however. Substantial numbers of low-income beneficiaries who are in poorer-than-average health and need more health care services would indeed face a significant hit.

For the millions of beneficiaries who are sicker than average (but whose costs are not so high that they would be helped by the proposal’s out-of-pocket $5,500 cap on beneficiary out-of-pocket costs), the increase in costs could be substantial. For beneficiaries with low incomes, this could cause hardship and reduce access to needed health care.
Current law provides relief from Medicare cost-sharing charges only for seniors and people with disabilities who have incomes below the poverty line, which is just $10,890 for an elderly widow or other single elderly or disabled individual. Since CRFB’s option wouldn’t alter that provision of the law, elderly and disabled people with incomes starting at $11,000 would be hit with the full brunt of the cost-sharing increases — which, as noted, could be substantial if these individuals were not in good health.
Research shows that higher cost-sharing results in decreased use of both unnecessary and necessary care, with the problem of people forgoing necessary care the greatest for those with low incomes. Higher cost-sharing can cause lower-income people to forgo needed care and, consequently, become significantly sicker.

The bottom line is that CRFB’s cost-sharing ideas would likely result in significant harm to substantial numbers of near-poor elderly and disabled people who are not in good health.

Now, don’t get us wrong. We do not oppose all increases in Medicare premiums and cost-sharing. We believe that policymakers can raise Medicare premiums for affluent beneficiaries. And we believe the idea of securing net savings through a combined package of consolidating and raising the Medicare deductibles, adding protection against out-of-pocket health costs, and making accompanying reforms in Medigap has merit — if it is done carefully to avoid adverse effects, especially on near-poor beneficiaries, and to avoid cost shifts to state Medicaid programs. But to do that will necessitate providing some protection against the higher cost-sharing charges for near-poor beneficiaries rather than imposing them on elderly widows who are sick and have incomes in the $11,000 to $20,000 range. And providing that protection will not be cheap, given that half of all Medicare beneficiaries had incomes below $21,200 in 2010. Providing that protection will substantially reduce the net savings from these proposals.

3. Raising the Medicare eligibility age to 67

CRFB acknowledges that we at CBPP have a good point in warning that low-income 65- and 66-year-olds could be harmed if Congress raises the Medicare eligibility age but the ACA’s new health insurance exchanges and Medicaid expansion are not there to catch them. CRFB says this is easy to solve — just enact the increase in the Medicare eligibility age now and include a provision that the increase does not take effect if Congress repeals the ACA (as a bill introduced by Senators Coburn and Lieberman would do).

Unfortunately, CRFB oversimplifies this issue. The issue is not simply whether the ACA is repealed or not; it is also whether the ACA’s new health insurance exchanges function effectively and can control “adverse selection” — the separation of higher-cost and lower-cost beneficiaries into different insurance plans. The ACA is now under attack on several fronts — in lawsuits against the individual mandate (which, if successful, could imperil the exchanges), in efforts by congressional Republicans to repeal or defund critical portions of the law, and in some state legislatures that are blocking creation of exchanges.

This is why, as we noted last week, policymakers should defer any consideration of raising the Medicare eligibility age until we know that the ACA has taken effect and that the exchanges are functioning successfully. Otherwise, raising the Medicare age would leave many 65- and 66-year-olds without health insurance coverage.

In short, CRFB gets to its $600 billion through some savings options that have no political viability — which means that for $600 billion to be secured, policymakers would have to substitute other cuts — while other CRFB options either can’t produce the level of savings CRFB lists without causing harm to significant numbers of low-income beneficiaries, or can’t be pursued without risk of harm to low-income people until we know that the ACA is in effect and working adequately.

The bottom line is that if the Joint Committee were to require $600 billion in savings in this area, the result would almost certainly be significant harm to some of the nation’s most vulnerable people.

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