Congress Plans to Tap Medicare to Pay for Healthcare Reform

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The Senate Finance Committee has reported out S. 1796, its version of a health care reform bill. This was preceded, and indeed made possible, by an estimate from the Congressional Budget Office (CBO) that the bill would increase federal government spending by only $829 billion in 2010-2019.

With new taxes and reductions in projected spending in Medicare and Medicaid, CBO said this would actually result in a net saving to the federal budget of $81 billion over this period. The bill’s advocates greeted this estimate with relief, tinged with self-congratulation for having produced a bill that, in the current environment, was considered by them to be fiscally responsible.


It is highly likely that these estimates significantly underestimate the cost of the bill. In addition, they do not reflect the increased costs the bill will impose on the private sector.

The process is still highly fluid. However, the Finance Committee bill is indicative of the kind of changes that the leadership will try to get through the Senate and eventually enacted into law.

A large chunk of the projected savings in the Finance Committee bill are reductions in the amounts that would otherwise be paid under current law for the care of Medicare beneficiaries.

The Committee’s prime target is Medicare Advantage, which provides an alternative to traditional fee-for-service Medicare. Beneficiaries who choose this option typically receive additional benefits and more coordinated care; 23 percent of Medicare beneficiaries have chosen to be covered under this program.

The bill reported by the Finance Committee would reduce payments to Medicare Advantage plans by $117 billion over the 10-year period. Medicare Advantage plans would be forced to reduce or eliminate the extra benefits they provide; in many places, the plans might no longer be offered.

The bill also makes direct cuts to providers who serve Medicare beneficiaries. Hospitals would receive approximately $130 billion less than under current Medicare law; skilled nursing facilities (nursing homes) payments would be reduced by more than $14 billion; home health agencies would receive $43 billion less; and hospice would take a hit of almost $8 billion.

The Committee bill also counts on an additional $22 billion in reductions in Medicare payments as necessary to keep Medicare spending from exceeding a formula tied to inflation. These reductions would be developed in the future by the “independent Medicare Commission” the bill would create. Its recommendations on how to meet the spending targets could go into effect without approval by Congress.

In addition, S. 1796 assumes, without discussing it, that payments to doctors for treating Medicare patients would be reduced by more than $200 billion. The bill does not make these reductions; it simply presupposes that these savings will be made by applying current law, even though Congress has in the past overridden its application every year. Indeed, the bill itself prevents a 21 percent reduction in physician reimbursement from going into effect next year.

Even now, doctors increasingly are refusing to take Medicare patients because reimbursement rates would be below market rates. A Mayo Clinic facility in Arizona recently announced that it will no longer accept Medicare patients, explaining that even under current law Medicare reimbursement covers only half its costs. The cuts in the Finance Committee bill would make it even more difficult for Medicare patients to find doctors. Hospitals, nursing homes, home health agencies and hospice would have to operate with significantly less money from Medicare.

It is inevitable that this will mean that fewer services will be available for Medicare beneficiaries, that new technology and new treatments will be more difficult to obtain, and that patients will have to wait longer for care. Since the cuts are made by broad-axe; there is no reason to believe that they would surgically root out only spending that is wasteful. It is telling that CBO estimates that only $1.3 billion would be saved by reducing fraud, waste, and abuse.

Under the Finance Committee bill, Medicare beneficiaries would contribute substantially to financing new insurance coverage for the uninsured. The bill would reduce Medicare payments and impose a slew of new taxes to provide insurance for 29 million Americans who do not have coverage. The $81 billion that is projected to be “left over” would be used to reduce the budget deficit incurred to fund other activities of the federal government, such as the bailout of Wall Street.

‘John Hoff is a health care lawyer and policy analyst, and deputy assistant secretary in the U.S. Department of Health and Human Services from 2001 to 2005. This is reprinted from the Citizens Against Government Waste web site’