New York Times Lays Out Medicare Options

In response to the release of the Ryan-Wyden premium support plan last week, The New York Times spelled out options for reducing Medicare spending within the program's existing framework in an editorial yesterday. These options are some of the most commonly discussed out there in the budget debate, so it's useful to take a quick look at them.

  • Drug prices: One option for reducing Medicare spending is to make drug manufacturers pay rebates on prescription drugs provided under Part D to low-income beneficiaries. Medicaid currently requires these rebates, and extending them to the low-income subsidy (LIS) program of Part D--which provides cost-sharing assistance for low-income beneficiaries--would save $112 billion over ten years, according to CBO. The NYT also mentions the possibility of allowing Medicare to negotiate drug prices for all prescription drugs provided in Medicare, an option with potentially more savings.
  • Providers and dual-eligibles: Although the Affordable Care Act contained a number of reductions to provider payments, there are still some other areas available for adjustment. The NYT suggests looking to the Medicare Payment Advisory Commission (MedPAC) for options to reduce payments. They also bring up the prospect of using managed care more aggressively for so-called "dual-eligibles," or people that qualify for both Medicare and Medicaid. Depending on how these options are implemented, they could save somewhere in the high tens of billions of dollars.
  • Retirement age: Raising the Medicare retirement age from 65 to 67 would bring it in line with Social Security's scheduled retirement age increase and save about $125 billion over ten years. The NYT qualifies this policy--as some others have--by saying that it should only be put in place if the Affordable Care Act's health insurance expansion stays in place.
  • Cost sharing: Reforms to Medicare cost-sharing have the potential to save money both directly and indirectly if done correctly. The NYT mentions two recommendations that are very similar to the Fiscal Commission's cost-sharing reforms: restricting Medigap and simplifying Part A and B cost-sharing. These policies would not allow Medigap to cover, for example, the first $550 of cost-sharing and only a certain amount after that. For Medicare cost-sharing, the Part A and B deductible would be combined and a near-uniform 20 percent coinsurance would be applied on top of that, up to a new catastrophic limit on out-of-pocket spending. Although cost-sharing would increase for many beneficiaries, the Times notes that this policy would protect vulnerable people who incur huge health expenses in a given year. These policies would save about $90 billion, according to CBO.
  • Means testing: Currently, premiums for Parts B and D are higher for high-income people. A proposal that has been discussed recently is to increase premiums for these people and make more beneficiaries subject to these higher premiums. The NYT says that this option could raise $50 billion, which is consistent with reasonable estimates of aggressive means-testing. Raising premiums for everyone could save almost $250 billion, but the NYT is skeptical of this option.
  • Bend the overall curve: The NYT cites a number of pilot programs and demonstrations that the Affordable Care Act created that have the ability to reduce economy-wide health care spending growth. Obviously, reductions in overall health care spending will accrue savings to Medicare, although it is not as easy as it sounds. They suggest using Medicare as a main vehicle to expand on pilot programs, payment structures, and care delivery systems that show promise. 
Medicare Savings Options
Option Ten-Year Savings
Drug Rebates $112 billion^
Providers and Managed Care $42 billion*
Retirement Age $125 billion^
Cost Sharing Reform $93 billion^
Means Testing $50 billion
Reducing Overall Health Spending N/A

^Estimate from CBO

*Estimate from President's Obama plan (excluding managed care)

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