Heritage Offers Package of SGR Offsets

In two months, lawmakers will encounter their third Fiscal Speed Bump of 2015 when the "doc fix" expires, leading to a 21 percent cut in Medicare physician payments starting in April. Replacing the Sustainable Growth Rate (SGR) formula permanently would cost at least $131 billion through 2025, according to the Congressional Budget Office (CBO), or $177 billion if the bipartisan tricommittee bill agreed to in the last Congress is pursued.

At a House Energy and Commerce hearing recently, former Sen. Joe Lieberman (I-CT) stated that it was very unlikely any SGR replacement would pass in this Congress without offsets. To that end, the Heritage Foundation recently specified four reforms that could be used to offset the SGR.

    1. Reforming Medicare cost-sharing: Many Medicare reform plans have proposed to overhaul Medicare's cost-sharing. These policies would replace the many different deductibles, copays, and coinsurance in Parts A and B with a single deductible with unified coinsurance across services. These changes were usually accompanied by a restriction on cost-sharing coverage by supplemental coverage plans like Medigap and a limit on out-of-pocket costs to reduce exposure to exorbitant cost-sharing. CBO's latest estimate had one version of this policy saving $110 billion over ten years.
    2. Raising the Medicare eligibility age: Raising the Medicare age seemingly lost some steam when CBO significantly reduced its savings estimate. Plans have typically raised the age from 65 to 67 to match the scheduled Social Security age, but policies of course may vary. The most recent estimate had an increase to 67 saving $19 billion, with $64 billion of Medicare savings and $45 billion of increased spending and lower revenue elsewhere in the budget.
    3. Increasing means-tested premiums: Beneficiary premiums for Parts B and D are generally set at 25 percent of each part's per-person costs, with the over 75 percent being paid for by the government. But single beneficiaries making over $85,000 and couples over $170,000 must pay higher premiums between 35 and 80 percent depending on how much higher their income is. A number of proposals would increase those premiums. A past bipartisan bill from Sen. Claire McCaskill (D-MO) and former Sen. Tom Coburn (R-OK) both lowered the income threshold where the higher premiums applied and increase those premiums. President Obama would keep the thresholds and raise the premiums in a slightly different way. These proposals would raise about $60-$70 billion. Heritage proposes a much more aggressive policy to phase out the subsidy at a rate of about 1.8 percent per $1,000 for people making more than $55,000/$110,000, which they estimate would save $538 billion.
    4. Using market-based bidding for Medicare Advantage: Medicare Advantage, the program of private plans providing Medicare benefits, provides payments to private insurance plans based on the region's traditional Medicare spending per person. Despite payment reductions in the Affordable Care Act, MA payments are 5 percent higher than the cost of traditional Medicare. Heritage instead proposes to base MA payments on the average plan bid in a given region. There is no recent estimate of this policy, but the President's FY 2010 budget included competitive bidding with savings that were tens of billions greater than the reductions included in the ACA.

Certainly, there are enough savings between these policies to offset a permanent SGR fix, and there are many others out there as well. It is simply up to lawmakers to have the will to enact these kinds of changes -- or others, like the reforms in our PREP Plan -- to responsibly stabilize and reform physician payments.