V I E W P O I N T

THE MEDICARE FUNDING CAP - BAD POLICY FOR THE FUTURE

Most Americans are familiar with the Medicare Modernization Act of 2003 (MMA) only because it is the legislation that created the Medicare Part D prescription drug program. In addition to this new privatized Medicare benefit, however, the MMA includes a number of other provisions which will undermine the traditional Medicare program. Among these provisions is a cap on general revenue contributions which is designed to limit the federal government commitment to the Medicare program to 45 percent of its cost. This funding limit was triggered in the 2007 Medicare Trustees Report, setting the stage for a biased and harmful debate on the future of the Medicare program.

What is the funding cap?

As part of the MMA, Congress requires the Medicare Trustees to include a finding in their annual report whenever they project that general revenues will make up more than 45 percent of total Medicare funding within the first seven years of the 75-year valuation period. If the Trustees make this determination for two consecutive years, a “Medicare funding warning” is triggered which sets in motion a series of specific steps designed to bring the government contribution down below the 45 percent threshold.

Both the 2006 and 2007 Medicare Trustees Reports projected that the 45 percent cap would be reached within a seven-year window, and, therefore, the “Medicare funding warning” was officially triggered. The issuance of this “warning” requires the President to submit legislation to Congress within 15 days of the budget transmittal, and the legislation is subject to expedited procedures designed to hasten its consideration. President Bush submitted a proposal, which, as required by law, was introduced by the Majority and Minority leaders of the House and the Senate. The “Medicare Funding Warning Response Act of 2008,” S. 2662/H.R. 5480, would implement a national system of electronic medical records, provide cost and quality information to Medicare beneficiaries, and implement a system of provider pay-for-performance in Medicare; amend the medical malpractice liability system to include a statute of limitations and limits to recovery of noneconomic and punitive damages; and establish an income-related premium for Part D, as proposed in the FY 2009 budget. Since Congress has not yet acted on the bill, another “Medicare funding warning” was triggered with release of the 2008 Medicare Trustees Report which projects that the 45 percent cap on general revenue financing will be exceeded in 2014.

Why is the cap a bad idea?

The 45 percent threshold itself is a completely arbitrary limit set in the MMA without hearing or public debate. While proponents have labeled it a “cost containment” provision, in fact the 45 percent threshold does nothing to reduce the overall cost of the Medicare program, only the federal government's obligation to shoulder a portion of that cost through general revenues. The fact that more than 45 percent of Medicare financing may come from general revenues poses no more of a problem in itself than the fact that 100 percent of the financing for defense, veterans' benefits, education or most other federal programs comes from general revenues. The problem facing Medicare is the cost of health care, not how the cost is allocated between revenue sources, yet the 45 percent threshold provides no insight into the program's sustainability and is completely unrelated to solvency.

Limiting the federal government's contribution to the Medicare program ignores Medicare's financing structure, which was designed to rely on general revenues to finance about 75 percent of Part B and Part D. This structure allows the revenue raised by income taxes to shoulder a higher portion of responsibility for Medicare's funding, placing the burden on a revenue source which is relatively progressive and taxes all income. If general revenue contributions are limited, the burden would shift to beneficiaries, who are typically retirees on fixed incomes or the disabled, or increased payroll taxes, which only tax wages and fall disproportionately upon those with lower incomes. Neither of these policy considerations is reflected in the funding limit.

Measuring Medicare's financial health solely by considering the percentage of general revenues contributed to the program produces a meaningless number, which will nonetheless be used as a catalyst for policy decisions that could have a devastating effect on the health care of seniors and people with disabilities. For example, the 45 percent limit has been triggered in part because more beneficiaries are being treated in outpatient settings than in hospitals. While this shift may disproportionately increase costs for Medicare Part B, where the federal government picks up about 75 percent of the cost, and therefore accelerate the date at which the cap will be reached, it is generally considered a positive development in health care.

A second major reason the cap was triggered is the Part D prescription drug program. Although Part D is providing needed drugs to millions of seniors, the cost of these drugs is still rising much faster than general inflation – a situation many policy experts believe is the result of the lack of a traditional Medicare drug option. In addition, in order to entice private insurance and drug companies into the Part D program, the MMA provided billions in subsidies to the private sector to participate. Both the rising cost of drugs and the private sector subsidies provide little or no benefit to Medicare enrollees, yet they contribute to the rise in costs for both beneficiaries and the federal government and accelerated the date at which the cap was reached.

Finally, the process set in motion by the “warning” is biased in favor of proposals which would increase beneficiary costs or cut provider reimbursements, ultimately limiting access to health services. Once the legislation triggered by the “warning” has been submitted by the President, the MMA provides expedited procedures designed to speed the bill through Congress with minimal opportunity for debate or amendment. Only proposals which bring federal contributions below the cap are subject to the expedited process – legislation to change or eliminate the cap itself, or to raise revenues to bolster the Medicare program would be required to go through the normal legislative process.

Conclusion

The 45 percent cap represents an arbitrary limit on the Medicare program that has no policy basis. It will force Congress to consider proposals from the President to bring the federal share of Medicare spending below 45 percent under expedited procedures that are intended to limit debate and amendments. This legislation will inevitably include some combination of benefit cuts and premium increases, or potentially cap the amount the government will pay per beneficiary, regardless of his or her health care needs. In his budget proposals for 2007, 2008 and 2009, the President proposed expanding the means-testing of Medicare premiums, and this proposal is included in the legislation he sent to Congress in response to the Medicare funding warning. The President's budget proposals also include an across-the-board cut in Medicare reimbursements to providers as a way of addressing a future 45 percent warning. If implemented, proposals such as these would raise costs and reduce the availability of health care for seniors and the disabled.

Medicare faces fiscal challenges in the future, but they are not unique to the Medicare program – they reflect the same pressures driving health care costs for those under age 65. Addressing these challenges will not be advanced by a contentious debate on the share of program costs funded through general revenues. In fact, such a debate would distract from the true challenge of Medicare: determining how to provide high-quality health care for an aging population in an era of rising health care costs. Congress should repeal the 45 percent trigger and focus its attention instead on making healthcare affordable for all Americans.

Summary of House Procedure

The Majority Leader and Minority Leader of the House of Representatives are required to introduce the President's proposal in the House within three legislative days after receiving it. The House Committees with jurisdiction are then required to report Medicare funding legislation by June 30, 2008. The Chairman of the House Budget Committee is required to certify that the legislation and any proposed amendments eliminate the “excess general revenue Medicare funding” for each fiscal year in the seven-fiscal-year reporting period.

If the House has not voted on final passage by July 30, 2008, any Committee still considering certified funding legislation may be subject to a motion to discharge the Committee from further consideration after 30 calendar days. The motion to discharge must be supported by one-fifth of the total members hip of the House (a quorum being present). Debate on the motion to discharge is limited to one hour or less. The motion cannot be amended and it is not in order to move to reconsider the vote by which the motion is agreed to or disagreed to. If the motion to discharge is approved, the Speaker is required to bring the funding legislation to the floor within three legislative days.

On the Floor, all points of order against consideration of the funding legislation are waived. General debate is confined to the legislation and cannot exceed five hours. Amendments will be considered under the five minute rule, and only those that have been certified by the Chairman of the House Budget Committee are in order. Debate on any amendment cannot exceed one hour. The total time for debate on all amendments shall not exceed 10 hours. Points of order against amendments are waived. After all amendments are considered, one motion to recommit (with or without instructions) is in order, after which the House must vote on final passage.

Senate Procedure

The Majority Leader and Minority Leader of the Senate are required to introduce the President's proposal within three legislative days after receiving it. The legislation is referred to the Senate Finance Committee.

If the Finance Committee has not reported out the legislation by June 30, 2008, any Senator may move to discharge the Committee from further consideration. Debate on the motion to discharge and related appeals cannot exceed two hours. Points of order may be raised at any time. It is not in order to move to proceed to another measure while the motion to discharge is pending. It is also not in order to amend the motion to discharge. After the Senate Finance Committee has reported out the Medicare funding legislation or it has been discharged, any Senator may move to proceed to consideration of the legislation on the Senate Floor. From that point forward, the funding legislation is subject to the normal rules of the Senate.

Government Relations and Policy/Policy Research, April, 2008