Deficit Commission Would Cut More Out of Healthcare Than Reform Law Does

Last Updated Nov 29, 2010 11:04 AM EST

The co-chairs of President Obama's deficit-reduction commission have already drawn heavy fire for a draft proposal that includes a gradual rise in Social Security retirement age. The report of former Sen. Alan Simpson (R.-Wyo.) and Erskine Bowles, one of former President Clinton's chiefs of staff, also recommends ways to cut health spending, and the cries of pain are already being heard in the healthcare industry. But some of these ideas are worth considering, even if they're political nonstarters.

Some of these suggestions, as Drew Altman of the Kaiser Family Foundation points out, were discussed and discarded (or adopted in a different form) during the healthcare reform debate. Those include allowing Medicare to demand rebates from drug manufacturers, capping the amount of insurance that employers can deduct from their taxes for, and, amazingly, resuscitating the public option that liberals pinned their hopes on.

Of course, the pharmaceutical companies aren't going to stand for any bill that allows Medicare to negotiate drug prices. The healthcare reform law's excise tax on "Cadillac plans," which takes effect in 2018, is already too high for many employers. And there's a snowball's chance in hell of bringing back the public option. Even if it miraculously passed because of deficit-cutting fever, it wouldn't save money unless doctors were required to participate in the public plan, as I explained last year.

Simpson and Bowles would also strengthen the new Independent Payment Advisory Board (IPAB) by rescinding the decade-long exemption of hospitals from its mandate. But hospitals, doctors, and drugmakers are strongly opposed to the board, which would have the power to make Medicare payment cuts without Congressional approval (although Congress could override it). And Republican leaders have already said they want to eliminate the IPAB.

To deal with the perennially postponed cut in doctor payments, the draft proposal recommends that Medicare reduce physician fees modestly, but on a permanent basis. And to ensure that physician spending doesn't take off again as service volume rises, Simpson and Bowles suggest that Medicare change its reimbursement methods to improve quality and lower costs -- something the agency is already in the process of doing. The deficit cutters would also reform the malpractice liability system, although studies have repeatedly shown that that would have a relatively small impact on spending.

Obviously, the AMA opposes any cut in doctor payments -- although, as I pointed out in a recent post, there may not be any alternative in the long run.

Finally, the Simpson-Bowles report would limit the amount of Medigap insurance that seniors could carry, while passing on more of the cost of coverage to Medicare beneficiaries and limiting their catastrophic coverage. Of course, when something similar was proposed in the late '80s, Congress quickly retreated in a firestorm of senior protests. It's unlikely to try that again unless there's no other option.

Nevertheless, we will need stronger curbs on healthcare spending than what's in the current reform law if we're going to get the deficit under control. As Derek Thompson points out on the Atlantic blog, health spending in 2019 will be slightly higher under the current reform law than without it because most of the cuts in Medicare payments will finance expanded Medicaid coverage and subsidies to individuals to buy insurance. So, even though the reforms are expected to cut the nation's long-term fiscal imbalance by a quarter in the long term, they won't help us in the next decade, except by delaying the bankruptcy of Medicare.

In light of this reality, Simpson and Bowles are right to propose more healthcare cuts. But as the poet T.S. Eliot said long ago, "Human kind cannot bear very much reality."

Image supplied courtesy of Wikimedia Commons.
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  • Ken Terry

    Ken Terry, a former senior editor at Medical Economics Magazine, is the author of the book Rx For Health Care Reform.

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