Once again, Congress is scrambling to stop a scheduled 27 percent payment cut to physicians who serve Medicare patients. This frequent exercise serves as a perfect example for the need to move Medicare away from its current price control model toward a market-based, premium support model. Congress should take immediate action to link any “fix” with structural Medicare policy reforms.
The “Sustainable Growth Rate” (SGR) is in no way a sustainable long-term solution for Medicare. This complex government formula sets payments to physicians for providing Medicare services. When enacted as part of the Balanced Budget Act of 1997, these cuts (on paper) were designed to help Congress meet its balanced budget targets—but the cuts turned out to be temporary.
If the deep scheduled cuts took effect, many physicians would find it unaffordable to participate in Medicare, leaving millions of seniors without doctors. Congress has not allowed these scheduled cuts to go into effect since 2003, and delays only compound the problem by making the next round of cuts more drastic to keep up with budget projections.
The Administration and Democrat leaders in Congress further complicated the SGR problem during the debate over Obamacare. Proponents of the law could only claim that their bill would be paid for and reduce the deficit by assuming the scheduled cuts would take place. Yet, just weeks after the health care bill became law, Congress passed another delay.
Obamacare Promises More of the Same
Worse yet, the Affordable Healthcare Act bases many of its Medicare “reforms” on the same flawed model. It assumes more than $500 billion in cuts to Medicare, many of which depend on imposing further cuts on physicians and other Medicare health care providers. The chief actuary has already noted that the current Medicare cuts in Obamacare are unsustainable.
The creation of the Independent Payment Advisory Board (IPAB) is centered on the price control model. This unelected board is charged with imposing further Medicare reimbursement cuts to meet fixed budget targets. Last year, the President reinforced his commitment to the price control model by proposing to expand the role of IPAB and has signaled the same in this year’s budget. The IPAB model is just more of the same and is incompatible with any permanent “fix” to the SGR.
Opportunity for Real Medicare Reform
The Heritage Foundation’s Saving the American Dream offers a way out of the failed price control model and transitions Medicare to a more sustainable and rational market-based, premium support system. Right now, Congress has the opportunity to enact the first phase by demanding any temporary SGR “fix” is accompanied by Medicare policy reforms that result in real and immediate savings for Medicare:
- Lift balance billing limitations. Physicians should be able to charge above Medicare price levels.
- Raise the retirement age. Today’s retirement age has not kept up with longevity. Congress should raise the retirement age gradually to 68.
- Raise the premiums for Parts B and D. Today, there is a 25 percent premium associated with Part B and D benefits. Congress should increase those premiums to 35 percent over the next five years.
- Add a premium to Part A. Today, Medicare Part A has no premium associated with its benefits. Congress should add a premium to Part A benefits to close the deficits in the Part A trust fund.
- Tighten the income thresholds. Medicare already reduces its government subsidy based on income. Those subsidies should be phased out for couples earning more than $165,000 and individuals earning more than $110,000.
Seize the Moment
Instead of patching a broken model, Congress should be advancing reforms that make Medicare sustainable for the long term. The only permanent solution for the SGR is to end it and adopt a Medicare premium support model that is free from government price controls on doctors and hospitals. Congress should not blow this opportunity again.