Finally, policy-makers seem to be getting serious about the size of government and America’s ever-growing debt. A main focus is the rising cost of healthcare, a sector that is quickly spiraling out of control toward one-fifth of the Gross Domestic Product (GDP). The recent attention to this matter has been a long-time coming. While one can argue the alarm bells should have sounded years ago, we’re glad that both sides are finally focused on curbing the growth of healthcare spending, even if they have different approaches.
On April 13, President Obama unveiled his plan to reduce the federal deficit and spending by $4 trillion over the next 12 years. A good portion of the spending reforms include changes to Medicaid and Medicare. Part of the savings will reduce anticipated deficits, while part will go toward permanently solving the Medicare physician Sustainable Growth Rate problem.
At the same time, the House majority GOP has come up with its own budget plan, which relies on sweeping changes and cuts to Medicaid and Medicare.
The President would trim $480 billion from both entitlement programs, while the House GOP is far more aggressive because of major programmatic overhauls proposed.
For Medicare, Obama achieves savings in two big ways. First, he would make pharmaceutical manufacturers cough up billions for dual eligibles in Medicare Part D. Second, he focuses on limiting Medicare growth by reducing annual cost increases to 0.5 percent above GDP, as opposed to 1 percent included in healthcare reform. The President’s proposal establishes the new 0.5 percent threshold for triggering spending limits and also provides the Independent Payment Advisory Board (IPAB) with more latitude for the promotion of value-based insurance designs.
Obama proposes increased flexibility for state Medicaid programs that would be accomplished without using block grants and a new federal matching formula (FMAP) that rewards states for efficiency and also adjusts to account for recessions.
On the other hand, House Republicans, specifically Budget Chairman Paul Ryan (R-Wis.), have proposed a voucher-like system for Medicare and block grants for Medicaid. Ryan’s Medicare proposal would phase out the traditional FFS system over time (exempting those already in Medicare and those close to it) and instead giving everyone a voucher to use in the private marketplace.
Comparatively speaking, the President’s proposal is much more tempered.
However, we don’t yet know what his Medicaid flexibility will amount to. Except for a handful of comprehensive 1115 waivers, flexibility did not amount to much in the past because most of the basic mandates in Medicaid were not truly waived, or a great deal of money had to be spent on alternatives to satisfy CMS.
The shortfall in the President’s approach is that old systems stay in place. In effect, the nation continues to support an inefficient and costly Medicaid and Medicare system. As for the GOP, its proposals are being attacked as radical. However, private marketplace strategies are working in public programs. In fact, managed Medicaid has been deemed an overall success in states.
However heated the debate over how much seniors should pay in the current or future Medicare program may be, consensus is that current government contributions toward Medicare Parts A, B and D are fundamentally unsustainable. Change, in some form, is required.