Five ways to squeeze Medicare

WASHINGTON -- Nearly 50 million people on Medicare, as well as those entering the program at a pace of one every eight seconds, are likely to get more than their money's worth before they die.

The same can't be said for anyone under 55 who will rely on the federal health care program for those 65 and older in the future. They face higher costs and, possibly, longer waits before they qualify for coverage.

Medicare — one of the most popular programs ever devised by the federal government — is on the chopping block. Again.

But just a year after President Obama's health care overhaul called for $500 billion in Medicare savings, a variety of factors may protect the program this time. An effort to exempt older workers from cuts, the advertising and lobbying clout of health care providers, and the approaching 2012 elections all point toward putting off major changes.

"There's not much left in the well," says Dan Mendelson, CEO of Avalere Health, a consulting firm. "There's nothing that is politically acceptable or pain-free."

Since its creation in 1965, Medicare has risen in public esteem. Today it enjoys the sort of favorable ratings President Obama and Congress can only dream of.

Since the late 1980s, Medicare has battled efforts to tame its explosive growth or make it more self-sustaining. Powerful lawmakers have been chased down city streets and lofty commissions rendered impotent by the forces that rely on Medicare for their health or wealth, from the AARP to the American Medical Association.

Today the program is again the top target of budget-cutters. They know the nation can't keep running the $1 trillion annual deficits that have sent the national debt to $14.7 trillion — nearly the size of the $15 trillion economy.

The aging of the Baby Boom generation will boost enrollment by 1.6 million annually over the next two decades, bringing it to 81 million by 2030. Actuaries must project out 75 years; when they do, they see 120 million people on Medicare.

Its annual cost — $555 billion, more than 15% of the federal budget — will rise to 18% of the budget within a decade. Over the next 75 years, it will owe $38 trillion to its beneficiaries.

So clear is the need to trim the program that Obama and Congress agreed on a deficit-reduction law in August virtually guaranteeing some reductions: If lawmakers fail to do it themselves, automatic cuts will begin to squeeze up to 2% savings from almost every part of the program.

Here's one problem for the budget-cutters: There's not much appetite among policymakers to give less to those age 55 and up, who will qualify for the program within 10 years.

Here's another: Doctors, drugmakers, hospitals, medical colleges, home health providers, medical equipment manufacturers and insurers have been targeted before — most recently in last year's health care law. They agreed to those cuts because the overhaul is projected to expand insurance coverage to 32 million people who likely would seek more services. This time, they have no such incentive.

And another: Although a 12-member congressional "supercommittee" has until late November to propose a deficit-reduction plan, the following November already beckons. That's when Obama and most members of Congress run for re-election. In 2008, 70% of seniors ages 65 to 74 turned out to vote, the highest rate of any age group.

The message from many Medicare beneficiaries, says Robert Blendon, professor of health policy and political analysis at Harvard University's School of Public Health, is simple: "Don't cut my benefits, and don't ask me to pay a lot more for what I have."

Most Americans, in fact, are protective of Medicare. A non-partisan Kaiser Family Foundation poll in September found that 51% of people didn't want Medicare cut at all to reduce the federal deficit. Only 13% favored "major reductions."

To make sure lawmakers get the picture, AARP, the nation's biggest seniors group with 37 million members, is running a multimillion-dollar ad campaign. "We're giving voice to what people actually tell us," says legislative policy director David Certner.

Here are five ways Medicare could be squeezed — and the reasons it will be difficult.

1 Target 'rich people'

Most proposals that focus on raising premiums or limiting benefits have only the wealthy in mind — and for good reason. Polls show that's the only way to win public support.

"Anything that has upper-income people pay more does well at the moment," Blendon says.

But in 1989, those people rebelled against a new federal law intended to provide basic catastrophic health care coverage under Medicare at their expense, going so far as to chase Rep. Dan Rostenkowski, D-Ill., a House committee chairman, down a Chicago street. The law was repealed later that year.

Under the health care overhaul passed last year, the 2.9% Medicare tax was raised for individuals with income above $200,000 and couples above $250,000. Now the focus is on upper-income Medicare beneficiaries with income above $85,000, who already pay more for outpatient care and prescription drugs.

"I guess you go after rich people," says Robert Laszewski, a non-partisan health care consultant. "That's where you've got the most ability to hurt someone who can take the hurt."

Obama has proposed raising premiums for upper-income beneficiaries and gradually bringing more people into that group, so that eventually one in four seniors would pay more.

The question will be: Who can afford it?

"I would be cautious about that," says John Rother, president of the non-partisan National Coalition on Health Care. "You're getting pretty deep into ordinary middle-income families."

2 Give beneficiaries skin in the game

Making all Medicare beneficiaries pay more is tougher politically. But analysts say giving patients more skin in the game will lead them to make better health care choices.

Obama last month recommended increasing beneficiary costs beginning in 2017. New beneficiaries would face higher deductibles for outpatient care and co-payments for home health care. Those who buy expensive Medigap policies to avoid co-payments would face 30% higher premiums.

Those proposals pale compared with what House Republicans passed in April: Budget Committee Chairman Paul Ryan's plan to offer future Medicare beneficiaries a flat federal payment in order to buy private or government insurance.

The Congressional Budget Office estimated that plan would cost beneficiaries an average of $6,400 more annually. Even so, a Kaiser Family Foundation poll in June found 45% supported it, while 49% preferred the current system.

Eugene Steuerle, a health care specialist at the Urban Institute, argues that Medicare should be forced to live within a budget. He would give beneficiaries options, such as getting bundled services from one health care organization or taking a fixed federal payment, as a way to ratchet down prices. "At least for a long time to come, you have to offer traditional Medicare as the alternative," Steuerle says. "But if it's more expensive, you should have to pay more for it."

3 Raise the eligibility age

In the midst of the summer's talks over hiking the nation's debt limit, Obama raised the possibility of gradually increasing Medicare's eligibility age to 67. He has since backed off.

Little wonder: His health care law expanding insurance coverage remains a work in progress and could get overturned by the Supreme Court or a Republican-led Congress. That could leave people ages 65 and 66 in jeopardy.

The idea is patterned on the 1983 law that rescued Social Security: One provision gradually increased the retirement age for collecting full benefits from 65 to 67.

But in this case, analysts say it could increase health care spending by passing on the costs to employers that insure retirees and older Medicare beneficiaries who could face higher premiums.

"Medicare would save some money, but overall health system spending would go up, not down," says Robert Berenson, a Medicare official in the Clinton administration and now vice chairman of MedPAC, which advises Congress on Medicare.

4 Reduce providers' profit margins

Nearly every effort to reduce Medicare costs has focused on doctors, hospitals, drugmakers and insurers. It happened in 1990, 1993, 1997, 2006 and again last year.

Doctors already face a nearly 30% reduction in Medicare payments under an outdated formula. It's avoided annually, but only by Congress finding the money elsewhere. Repealing the formula would cost more than $300 billion over 10 years.

"Congress created the Medicare physician payment formula, and the congressional deficit committee must now find a way to repeal it to preserve seniors' access to health care," says Peter Carmel, president of the American Medical Association, which plans an ad campaign.

Other providers appear to be fair game again. Obama would get $135 billion over 10 years from drug companies by requiring them to offer discounts to low-income patients. The drugmakers' trade association says that would eliminate thousands of jobs and result in higher premiums.

Hospitals that swallowed $155 billion in reduced payments under last year's health law face an additional $50 billion cut under Obama's plan. They, too, have launched an ad campaign and are focusing on the potential job loss at hospitals — often a community's largest employer.

"Whatever it takes," says Rick Pollack, executive vice president for advocacy and public policy at the American Hospital Association.

Insurers continue to profit under the popular Medicare Advantage program, which bundles benefits together, but it was cut $200 billion under last year's overhaul. They are fighting changes in Medigap coverage and endorsing a plan to enroll people who qualify for both Medicare and Medicaid in private health plans.

Also on the chopping block are medical colleges and teaching hospitals that train doctors while providing much of the nation's Medicaid and charity care. The Association of American Medical Colleges is running ads to "make sure that we connect the dots for people," says chief advocacy officer Atul Grover.

Providers argue that the more reimbursements are reduced, the more likely it is that doctors and others will limit Medicare patients, as they have done with Medicaid. Most would rather accept the threatened 2% across-the-board cut than anything worse. "All the providers are in a tenuous situation," says Chip Kahn, president of the Federation of American Hospitals. "Across-the-board reductions are brutal justice. But on the other hand, it's better than the alternative."

5 Root out waste and inefficiency

If providers fight successfully to avoid further cuts and lawmakers are afraid to hit beneficiaries, the debate could turn to waste, fraud and abuse.

Medicare is considered a high-risk program by the Government Accountability Office because it's prone to high rates of fraud, waste, abuse and improper payments. The GAO estimates that $48 billion was lost through improper payments in 2010 — nearly 10% of Medicare's total cost.

Government recovery efforts have lagged far behind the problem. Inspector general reports show that just $4 billion was recovered last year from improper payments in government health care programs. Last year's health care law called for about $6 billion in savings by cracking down on waste and fraud.

The attraction of targeting fraudulent and inefficient health care providers is obvious: Unlike all the other cost-saving measures, it doesn't diminish the nation's health care system. "If you put less money into health care," Steuerle says, "to some extent, you're going to get less health care."