Health Care Provisions in the Report of the National Commission on Fiscal Responsibility and Reform

On December 1, 2010, the National Commission on Fiscal Responsibility and Reform released a report containing a set of recommendations for addressing the nation’s fiscal crisis.  The proposed changes to Medicare raise concerns about the impact on beneficiaries who would face increased out-of-pocket costs and reduced access to providers.  In addition, the report recommends repealing the Community Living Assistance Services and Supports (CLASS) Act enacted as part of the Affordable Care Act (ACA), and reducing funding for Medicaid.  Following are some of the changes proposed in the Commission's report and their impact on beneficiaries.

Increase Medicare Cost-Sharing

The Commission's proposals would take $148 billion out of seniors’ pockets over ten years by increasing beneficiary cost-sharing.  Even for beneficiaries with Medigap coverage, this proposal would require millions of beneficiaries to pay $2,500 - $3,000 each year in additional out-of-pocket expenses.  These “savings” would be devoted to preventing cuts in Medicare physician fees -- a substantial financial obligation for the federal budget.  The Commission proposal holds that increased beneficiary deductibles and copayments should cover more than half of the costs of preventing cuts in doctors’ pay.  It places a substantially lighter burden on pharmaceutical companies and other parties that earn profits from Medicare.  For example, the proposal would achieve $110 billion in savings by changing the Medicare benefit structure to require higher out-of-pocket spending by seniors.  A further $38 billion would come from seniors by prohibiting Medigap plans from covering a significant portion of Medicare copayments.  In comparison, the report recommends that pharmaceutical companies pay only $49 billion by extending required drug rebates in the Medicaid program to apply to beneficiaries who are dually eligible for both Medicaid and Medicare and receive prescription drugs through the Medicare Part D.

Fix the Medicare Sustainable Growth Rate for Physician Payments

While the proposal would avert the severe reductions required by the current Sustainable Growth Rate policy, it recommends a freeze in fees through 2013 and a one percent reduction in fees for 2014.  The proposal further assumes no growth in fees through 2020. Overall, the Commission’s proposal would trim at least $22 billion from fees paid to doctors, and this doesn’t count the additional “cut” resulting from the failure of fees to keep pace with growth in doctor’s practice expenses, which often grow faster than the rate of general inflation.  Currently, Medicare only pays 78 percent of what doctors are paid by private insurers, and an increasing number of doctors are refusing to accept new Medicare patients.  The proposal provides no suggestions for how these reductions can be made without limiting access to care or diminishing quality.  Furthermore, it provides no suggested improvements to the payment system.  Rather, it is assumed that the Centers for Medicare and Medicaid Services (CMS) can devise a better system.  Put simply, the Commission's proposal ratchets down the spending figure without explanation – adding nothing to the debate.

Eliminate Provider Carve-Outs from IPAB

The Commission recommends strengthening the Independent Payment Advisory Board (IPAB), which was enacted as part of the Affordable Care Act (ACA) to limit the growth in per-beneficiary Medicare spending.  Unlike the current IPAB provisions, this proposal would allow further cuts to providers, such as hospitals, that are currently protected from cuts beyond those in health care reform for the first 10 years.

Establish a Long-Term Global Budget for Health Care Spending

An overriding issue of concern is the recommendation to cap growth in total federal health spending.  The Commission recommends setting up a process for reviewing total federal health care spending – including Medicare, Medicaid, the Children's Health Insurance Program, the Federal Employees Health Benefits Program, TRICARE, the exchange subsidies, and the cost of the tax exclusion for health care – starting in 2020 with the target of holding growth to GDP plus one percent and requiring action by the President and Congress if growth exceeds the targets.  If costs are rising faster than GDP plus one percent, suggested changes include moving to a voucher system for Medicare, expanding and strengthening the Independent Payment Advisory Board (IPAB), and raising the Medicare retirement age.  These changes, and others that would lead to a greater disparity than currently exists between provider payments in Medicare and the private sector, would adversely affect Medicare beneficiaries.

Reform or Repeal the CLASS Act

The Commission proposes that the Community Living Assistance Services and Supports (CLASS) program be repealed or substantially changed.  While acknowledging the need for greater support of non-institutional long-term care, the proposal makes no suggestions as to how this “important public policy concern” can be addressed.  Currently, Medicaid is the only significant, dedicated source of support for these services – and seniors must be impoverished to access the coverage provided by this program.

Government Relations and Policy Department, January 2011