The best sustainable growth rate fix is a Medicare fix

On April 1, Medicare physicians will get a 21 percent pay cut, unless Congress stops its own Medicare payment formula from going into effect — for the 18th time. If this seems absurd, well, it is.

The annual Medicare physician payment and funding crisis can’t be resolved simply by throwing money at it. It must be fixed in a fiscally responsible fashion. In fact, the proper topic of debate should be less about the “doc fix”; it really ought to focus on producing a Medicare fix. We’ve come to this deadline every year for two decades because Congress refuses to reform Medicare.

The Medicare payment formula, called the sustainable growth rate (SGR), mandates the cut. But it is widely recognized as unworkable. Its consequences for Medicare doctors and patients are unacceptable. Medicare already pays doctors 20 percent less on average than private market rates, and forces them to struggle through reams of red tape to get that. Slap physicians with an additional 21 percent pay cut, and more seniors will find it increasingly difficult to find doctors to take care of them.

{mosads}Congress has put together a compromise bill to “fix” the problem of inadequate Medicare physician payments permanently. But the Congressional Budget Office (CBO) says that it would cost taxpayers about $175 billion over the next 10 years.

That’s not the way Congress has approached the problem in the past. Since 2003, lawmakers have almost always funded their temporary doc fixes with healthcare savings. That’s good news for taxpayers. The bipartisan Committee for a Responsible Federal Budget says that these offsets have reduced the federal deficits by $165 billion since 2003.

Funding a fix is crucial. Last year, the Medicare actuaries estimated that the 75-year cost of an unfunded Medicare doc fix would add another to $2.3 trillion to the already enormous unfunded liabilities of the Medicare program.

Now, the alarming news. According to Politico Pro, staff level negotiations in the House of Representatives are focused on paying for a relatively small portion of the doc fix, saddling taxpayers with tens of billions of dollars — in extra obligations. Worse, the report advises, the negotiators plan to rationalize not finding offsets by arguing that the SGR was just a “budgetary gimmick” anyway. Such a combination of cynicism and fiscal irresponsibility, if it came to pass, would be breathtaking.

There is no excuse for this. House Energy and Commerce Committee hearings have identified a wide range of bipartisan savings options to fund a permanent doc fix. Offered in the testimony of former CBO Director Alice Rivlin, former Sen. Joseph Lieberman (I-Conn.) and representatives of the American Hospital Association, these recommendations would provide permanent savings that would be more than enough to fund a permanent fix.

For example, there is widespread agreement that traditional Medicare’s 1965 structure should be simplified and streamlined. Seniors should be able to one-stop-shop for their health coverage. With traditional Medicare, that means that they would have one plan, with one premium and one deductible, plus protection against catastrophic illness. Today, seniors have to go and pay extra for supplemental coverage to plug Medicare’s big coverage gaps, such as the absence of catastrophic insurance, which not only drives up their premium costs but also the costs to the taxpayers.

While Americans are living longer and longer, more and more baby boomers want to continue working past the age of 65. Congress should revisit the normal age of Medicare eligibility (based on the 1935 Social Security law) and gradually increase it over the next 10 years. The normal Medicare eligibility age should be gradually increased from 65 to 68, or at least to 67, the eligibility age for Social Security.

Congress should build on what works: a defined contribution system of financing. For example, most seniors get their drug coverage through competing private health plans, including plans sponsored by their employers. Seniors pick the coverage they want, and the government funds that choice. Intense plan competition has driven down costs to a level that is roughly 50 percent lower than government actuaries predicted when the program was created. Likewise, the Medicare Advantage program enables seniors to pick the health plans they like, and broadens their access to a wide range of solid benefits. Choice and competition work.

This is an opportunity for Congress to start a bigger conversation on Medicare. In the meantime, Congress should modernize traditional Medicare, make it more patient-centered by creating a sensible and simpler benefit design, and free doctors and medical professionals from a costly and overly bureaucratic system that serves neither them nor their patients well.

One more thing: Congress should do it without adding one red cent to the deficit.

Moffit is a senior fellow in the Heritage Foundation’s Center for Health Policy Studies.