STUDY: How To Cut $385 Billion In Health Spending Without Hurting Elderly And Low-Income Americans

The Center for American Progress (CAP) on Wednesday released a proposal that would cut $385 billion from U.S. health care expenditures without shifting the burden of costs onto America’s seniors and the middle class.

Dubbed “The Senior Protection Plan,” the proposal was unveiled in the face of impending budget negotiations between President Obama and Congressional leaders that will have enormous consequences for the federal safety net, particularly Medicare and Medicaid. While Obamacare has already made significant cuts to health spending, patient advocacy and provider groups have expressed concerns that a forthcoming “grand bargain” aimed at further reducing the federal budget deficit might be brokered on the backs of poor, elderly, and sick Americans.

Instead of instituting cuts that would only nominally reduce health care spending by cutting Americans’ health benefits and raising their premiums and out-of-pocket costs — as Republican proposals to slash Medicaid funding and turn Medicare into a voucher program would do — CAP’s plan hones in on the systemic factors that drive long-term medical inflation. Here are five proposals from the Senior Protection Plan aimed at cutting national health costs in a fair manner while improving the efficiency and quality of health care delivery to elderly and low-income Americans:

1) Reduce low-income Americans’ prescription drug costs. Drug manufacturers pay significantly lower rebates for drugs provided to Medicare beneficiaries than they do for drugs provided to Medicaid beneficiaries. This has led to drug companies shifting prescription drug coverage for so-called “dual eligibles” — particularly sick and poor Americans who qualify for both Medicare and Medicaid — from the Medicaid program into the Medicare prescription drug plan, allowing the companies to reap massive profits without providing these vulnerable Americans any tangible benefit. The Senior Protection Plan would extend the higher Medicaid prescription drug rebates to brand-name medications purchased by dual eligible, low-income Medicare beneficiaries, leading to more affordable drug coverage for the poorest Americans as well as significant cost savings in the lucrative drug industry. Altogether, these proposals would reduce spending by $160 billion.

2) Curb waste and excessive payments to Medicare providers. The plan calls for an additional $88.6 billion in savings by bringing Medicare reimbursement rates in line with the actual costs of care while rooting out fraud and administrative waste in the program. Skilled nursing facilities, rural hospitals, and home health providers currently receive as much as $33 billion in excess payments, while Medicare overpays hospitals for inpatient services that are no more complex or time-consuming than less costly outpatient procedures. While the Obama Administration has been aggressive in cracking down on fraud in Medicare, the Senior Protection Plan finds even more savings by asking providers and caregivers to share eligibility, claims, and benefits information electronically, while aggressively pursuing perpetrators of Medicare billing fraud.

3) Make Medicare cost-sharing more fair. As it stands, Medicare Part B outpatient services and Part D prescription drug coverage charge wealthier Americans a higher monthly premium — but only five percent of Part B beneficiaries and three percent of Part D beneficiaries actually meet this income threshold. While Obamacare increases this higher-paying pool to 10 percent of all Medicare beneficiaries by 2019, it reduces the share back to six percent in 2021. The CAP plan would keep this share of beneficiaries at 10 percent while raising their premiums by an additional 15 percent beginning in 2014, saving $25 billion in Medicare spending while affecting less than one percent of these wealthy beneficiaries’ incomes. The plan would also cap annual out-of-pocket costs, providing security to Americans who might have a catastrophic or chronic health need.

4) Shift towards competitive bidding to ensure the best deals for Americans. The U.S. government sets prices administratively with medical device manufacturers and ties private plans under Medicare Advantage and Medicaid managed care programs to prospective actuarial benchmarks. This leads to a significant amount of waste, as the government’s payment rates may well be in excess of fair market prices, bloating expenditures without any benefit to consumers. To correct for this, the Senior Protection Plan would impose competitive bidding requirements on durable medical equipment, lab tests, private Medicare Advantage plans, and Medicaid managed care plans, saving the government an estimated $20 billion and giving Americans better deals on their care.

5) Reform the delivery of health care by encouraging coordination and bundled payments. Accountable care organizations (ACOs) were groups proposed under Obamacare that are responsible for all of a patient’s medical needs and therefore must coordinate all aspects that patient’s care. If the ACO successfully provides this care while keeping its Medicare spending below a year-to-year global target, it gets to keep most of the difference as a bonus payment, while if it doesn’t, it doesn’t. The CAP plan would expand this idea to the state level to encourage good performance. It would also shift away from expensive fee-for-service models towards more efficient, consumer-friendly systems like bundled payments. While CAP only estimates $16.7 billion in savings from this shift, the savings would probably prove to be a lot more since the proposal de-fragments Americans’ care while giving them more information about pricing and medical services.

The strategies above represent a very different approach to reforming the system than the quick fixes that would hurt seniors and low-income Americans by slashing benefits and raising premium costs, such as proposals to raise the Medicare eligibility age — and even steeper cuts could be devastating to providers and Americans in need of medical care alike. “These proposals are a ceiling and not a floor,” CAP president Neera Tanden said this morning. “These are not easy proposals on the progressive side. This is the most we can do, not the least… We believe that this is serious entitlement reform.”