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Solving the Medicare Budget Puzzle

Posted on Oct 22, 2013 by Ailee Slater ()  | Tags: U.S. health care, Medicare, Medicaid, Medigap, Medicare Part D, government shutdown, U.S. fiscal negotiations, sequestration, Paul Ryan, President Obama, Medicare spending, Medicare budget

Now that the U.S. government has signed an agreement to raise the debt limit and end the Washington shutdown, lawmakers are looking ahead to the 13 of December. On that date, Republicans and Democrats must agree on a budget, or else risk mandatory spending cuts that will defund a number of essential government programs. In the run-up to this sequestration deadline, Medicare will no doubt be an important issue in negotiations between congress and the president. 

Medicare is the federally funded social program that gives health insurance to every American over the age of 65. At the moment, Medicare provides health services to around 50 million Americans. Most of these beneficiaries are enrolled with Medicare due to their age; however, Medicare also offers benefits to people younger than 65 who have a disability or are undergoing care for end stage kidney disease.

Because 16 percent of the federal budget goes toward Medicare, lawmakers this fall will be eager to discuss the possibility of altering Medicare in order to save money. Industry experts say that, likely, a number of Medicare proposals will be debated in the coming weeks. 

One such proposal is to raise the Medicare eligibility age from 65 to 67. It’s an idea that has long been touted by Republican, who say that gradually raising the eligibility age can save the government lots of money. The non-partisan Congressional Budget Office has estimated that if seniors were to wait until 67 to join Medicare, the annual Medicare budget could be reduced by around 5 percent – which could equal savings of more than 300 billion over the next 10 years. What’s more, if the Medicare age were 67, employees might be tempted to put off retirement for another two years, thus retaining health insurance from their workplace and aiding the economy in the meantime. 

However, Democrats are staunchly opposed to any plan that would increase the Medicare eligibility age. Senators such as Sherrod Brown of Ohio have argued that raising the Medicare age will unfairly affect lower-income Americans who shouldn’t be asked to delay health care needs just because the government can’t balance its budget. Other lawmakers have also said that raising the eligibility age doesn’t save money, it simply shifts costs – instead of the government paying for Medicare, employers and individuals will have to shoulder those health care expenses. And, of course, politicians have also pointed out that it makes little sense to remove the youngest, healthiest people from Medicare, where they would likely be paying into the program while using relatively few services. 

Another divisive Medicare proposal, likely to come up during budget debates this autumn, is the proposal to make prescription drug companies lower their prices. At the moment, drug costs are lower on the Medicaid program (that’s the joint federal-state health insurance plan for low-income Americans), but not on Medicare. When a Medicaid patient purchases a prescription, the drug company is required to return part of that cost as a rebate, which keeps prices down for patients and the government. With Medicare, rebates are not as generous. President Obama wants to lower drug costs by implementing bigger drug rebates; if not for every Medicare patient, then at least for beneficiaries known as “dual eligibles.” 

A dual eligible is a person who qualifies for both Medicare and Medicaid. Before 2006, dual-eligible beneficiaries received their prescription drug coverage through Medicaid. However, in 2006, Medicare Part D was created. Medicare Part D offered drug coverage to Medicare beneficiaries, and also moved dual-eligibles’ drug coverage from Medicaid to Medicare – where they stopped receiving the higher drug rebates. President Obama has proposed that dual eligibles receive the same rebates as patients who are on Medicaid alone. This plan would save the government $123 billion during the next 10 years, however, prescription drug companies are understandably opposed. The Pharmaceutical Research and Manufacturers of America has said that shifting costs to drug manufacturers would increase patient co-pays and place an unfair burden on pharmaceutical business, and Republican lawmakers in particular have vowed to support drug companies in this matter. 

But despite these divides on health care proposals, the government’s Medicare budget considerations will not necessarily be ridden with conflict, or even particularly partisan. Plenty of potential Medicare proposals have both Republican and Democrat support. Both sides have indicated their interest in discouraging seniors from purchasing supplemental insurance; the so called “Medigap” plans. Sold to Medicare beneficiaries by private companies, a Medigap plan offers additional coverage to seniors concerned about copays or other out-of-pocket costs. A Medigap policy might offer foreign travel insurance, or cover a patient’s hospitalization deductible. 

Many lawmakers, however, have argued that seniors who buy a Medigap policy should have to pay an additional surcharge on top of their monthly premiums. In an October 2013 opinion piece for the Wall Street Journal, Republican chairman of the House Budget Committee Paul Ryan wrote that altering Medigap premiums would improve the efficiency and cost of running Medicare, and the president agrees. President Obama’s 2014 budget proposal would implement Medigap surcharges beginning in 2017, due to evidence that seniors who hold both Medicare and Medigap tend to overuse Medicare services, thus leading to higher costs for everyone. With premium surcharges, however, seniors would be discouraged from purchasing additional coverage, and make better and more financial responsible health care choices by relying on Medicare alone. 

Another budget proposal with bipartisan support is to raise some deductibles beginning in 2017, and to ask beneficiaries to pay more money out-of-pocket for health services received at home. Both the president and and Republicans have demonstrated their support for these new financial measures, but advocates for low-income seniors say that beneficiaries on a fixed income will not be able to afford these higher costs.


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