As 'Super Committee' Ponders Medicare Cuts, Actuaries Weigh In

Margaret Dick Tocknell, September 14, 2011

The Joint Select Committee on Deficit Reduction has begun holding hearings to identify $1.2 billion in budget cuts. Everything is supposedly on the table, including Medicare, which along with Medicaid accounts for about 23% of the U.S. budget.

Medicare has been on the express train to insolvency for years. According to the latest Medicare trustee's report, the Medicare's Hospital Insurance Trust Fund – better known as Medicare Part A ?  is projected to remain solvent until only 2024.

Congress has been kicking around this political hot potato for years without enacting meaningful changes that will put the program, which serves more than 47 million Americans, on firm financial footing.

Now the buck has been passed to this so-called “super committee” a bi-partisan panel of six senators and six House members.

The American Academy of Actuaries put together in May 2011 a policy brief that takes a look at the various proposals that have been developed by Congress and policy wonks to improve Medicare's finances. While there's no silver bullet in the seven-page report, the debit committee still might want to take a look at it.

The takeaway message is that “achieving long-term sustainability for Medicare will require slowing the growth in overall healthcare spending, not simply shifting costs from one payer to another,” explained Cori Uccello, the senior health fellow for the American Academy of Actuaries.

Here's a look at how some proposals could affect Medicare costs and access to quality care for beneficiaries:

1.Limit the Growth in Medicare Spending
The Obama administration's proposed budget and the budget plan developed by Rep. Paul Ryan (R-WI) set spending targets, either for Medicare in particular, or for overall federal health spending. Exceeding those targets could trigger specific actions, such as automatically reducing benefits or increasing revenues.

Medicare savings would depend on how aggressively the spending targets are set. Uccello cautions that “unless system wide spending is addressed, implementing options to control Medicare spending will have limited long-term effectiveness.”

The worry with this approach is that reducing benefits could limit access to care.

2.Transition to a Premium Support or Voucher Program
The government would limit the amount it contributes toward Medicare coverage with beneficiaries picking up the difference. Shifting Medicare from a defined benefit to a defined contribution plan would mean beneficiaries would have some skin in the game and that could be an incentive for them to be more cost conscious in making their healthcare decisions.

Premium support would be indexed by inflation or other factors. The voucher would be adjusted by beneficiary characteristics such as age, health status, geographic location, and/or income, would be indexed by inflation or some other factor. Depending on how the government contribution is set, federal Medicare spending could be lower than currently projected.

Margaret Dick Tocknell Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
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