Medicare doc fix: something for everyone to dislike, but a needed reform

Congress is headed toward a bipartisan solution to the long-standing threat of sharp reductions in Medicare’s payments to doctors. But the so-called “doc fix” will be expensive, and Medicare beneficiaries will pay part of the bill. The big questions: How much? And, could a doc fix be achieved without hitting up seniors to pay part of the bill?

The phrase “doc fix” refers to the annual threat to cut Medicare payments to physicians under a payment formula called the Sustainable Growth Rate (SGR). Enacted as part of the Balanced Budget Act of 1997, the SGR seeks to keep physician payment rates in line with the economy’s overall growth; because the cuts can be so large, Congress has overridden the SGR on a temporary basis 17 times. This year, for example, unless Congress acts by April 1st, rates will be slashed 21 percent.

In a rare instance of bipartisan collaboration, House Speaker John Boehner (R-Ohio) and Minority Leader Nancy Pelosi (D-California) are pushing a plan to replace the SGR with a new formula that rewards physicians who meet certain government standards for providing high quality, cost-effective care. If they can get the plan through Congress, President Obama says he will sign it into law.

A permanent solution is needed. Eliminating the SGR greatly reduces the risk that physicians will get fed up with the ongoing threat of reduced payments and stop accepting Medicare patients. The plan will cost $200 billion over 10 years, and seniors will get the tab for $70 billion. They will pay in three ways: 1) a new deductible for Medigap supplemental plans, 2) much larger high-income premiums and 3) very incremental increases in  Part B premiums spread across the entire base of seniors.

If you have difficulty remembering what bipartisan compromise looks like, this reform serves as a reminder – there is something in it for everyone to dislike. Conservatives recoil at adding $170 billion in unfunded Medicare costs (it gets added to the deficit). Progressives like me don’t like charging seniors more when we could fund this by allowing Medicare to negotiate drug prices with pharmaceutical companies.

Another hallmark of bipartisanship: the deal hammered out by Boehner and Pelosi blunts the sharp edges on the new costs to seniors.

Consider:

Medigap reform. These policies typically cover the deductible in Part B (outpatient services), which is $147 this year, and put a cap on out-of-pocket hospitalization costs. Under the bipartisan plan, Medigap plans would no longer cover the annual Part B deductible for new enrollees, starting in 2020, so seniors would have to pay it themselves. Current Medigap policyholders and new enrollees up to 2020 would be protected. Earlier Medigap reforms prohibited coverage of the first $500 of out-of-pocket costs.

Medicare Part B premiums Kaiser Family FoundationHigh income surcharges. Affluent enrollees already pay more for Medicare. Individuals with modified adjusted gross income (MAGI) starting at $85,000 ($170,000 for joint filers) pay a higher share of the government’s full cost of coverage in Medicare Part B and Part D for prescription drug coverage. (See the chart at right for a summary from the Kaiser Family Foundation; more on the current surcharges here.)

The new plan will shift a higher percentage of costs to higher income seniors starting in 2018 for those with MAGI between $133,500 and $214,000 (twice that for couples). Seniors with income of $133,000 to $160,000 would pay 65 percent of total premium costs, rather than 50 percent today. Seniors with incomes between $160,000 and $214,000 would pay 80 percent rather than 65 percent, as they do today.

Notably, earlier plans to boost high income surcharges would have effectively lowered the income thresholds, tapping less affluent households.

Part B: Under current law, enrollee premiums are set to cover 25 percent of Medicare Part B spending, so some of the doc fix’s increased costs will be allocated to them automatically. A freeze in physician fees is already baked into the monthly Part B premium for this year, so expects the doc fix to result in a relatively modest increase in premiums for next year, although it’s difficult to say how much because so many other factors drive the numbers.

There’s plenty here that I dislike. Although seniors with $133,000 in MAGI can afford to pay more, this reform adds fuel to the means testing trend we’re seeing in the debate about social insurance in Washington. In particular, I worry that this will spill into Social Security reform, where the benefit structure already has all the progressivity it needs via the bend points that deterime income replacement rates.

And the underpinning of the Medigap deductible reform doesn’t make sense. Conservatives have long argued that eliminating this “first dollar” coverage would discourage Medicare utilization by putting more “skin in the game” for enrollees. The idea is that patients will think twice about using medical services if they know they must pay something for all services they use. Neuman plenty of research confirms that higher out-of-pocket expense will reduce utilization, but that doesn’t mean the reform will actually save money for Medicare.

“The hope is they will defer care that they don’t need, but sometimes they will defer care they do need – and that will add costs to Medicare down the road,” says Neuman.

It’s time to resolve the SGR once and for all. The annual threat of cuts helps feed the false narrative that doctors are bailing out of Medicare in droves, which they are not doing – yet. “Access to physicians hasn’t been a big problem, but if doctors received a 21 percent cut in fees, that might change the picture,” says Tricia Neuman, senior vice president and director of the Program on Medicare Policy at the Kaiser Family Foundation.

If you believe it’s time to resolve the SGR once and for all – and I do – it’s time to get a deal done.

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